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8.1. SR 06-04-2012City REQUEST FOR ACTION River To Item Number Mayor and City Council 8.1 Agenda Section Meeting Date Prepared by General Business June 4, 2012 Tim Simon, Finance Director Item Description Reviewed by Presentation of the Comprehensive Annual Financial Report Cal Portner, City Administrator Reviewed by and Audit Results for the Year Ended December 31, 2011 Action Requested The City Council is asked to review and accept the Comprehensive Annual Financial Report for the City of Elk River for the year ended December 31, 2011. Background /Discussion Andrew Berg, Governmental Services Partner with Abdo, Eick, & Meyers, will present a powerpoint presentation of the city's 2011 Comprehensive Annual Financial Report (CAFR) and audit results. The presentation on the CAFR will review the General Fund activity, some of the Special Revenue Funds, and all the Enterprise Funds. Much of this information is summarized in the City of Elk River Management Letter. The Fire Relief report will be briefly discussed as a formal presentation was made at the quarterly board meeting on May 30. The CAFR will be available on the city's website shortly after this Council meeting. I would like to thank the finance staff for all the hard work on preparing for the audit and preparation of the financial statements. The following are some highlighted areas of the CAFR and corresponding page numbers. Transmittal letter — page 1 -4 Independent Auditor's report — page 8 -9 Management's Discussion and Analysis — page 10 -19 Budget and Actual (General Fund) — page 27 Enterprise Funds — page 28 -35 Statistical Section — page 90 -119 Attachments • Comprehensive Annual Financial Report for the year ended December 31, 2011 • City of Elk River Management Letter • Other Required Reports (Legal compliance) • Elk River Fire Department Relief Association Financial Statements and Supplementary Information • Elk River Fire Relief Management Letter Action Motion by Second by Vote p 0 W I R E 0 B i AURd 0 !_;75M k IIL- i Air �f,• • 7Ny , r • M 3•r: J I� .y �J _ A I If Finance 171-ember of Government Officers Association of ' d States and Canada CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2011 Page No. I. INTRODUCTORY SECTION Letter of Transmittal Certificate of Achievement Organizational Chart Elected and Appointed Officials II. FINANCIAL SECTION Independent Auditor's Report 8 Management's Discussion and Analysis 10 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets 20 Statement of Activities 21 Fund Financial Statements: Balance Sheet - Governmental Funds 23 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 24 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 25 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 26 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund 27 Statement of Net Assets - Proprietary Funds 28 Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Funds 30 Statement of Cash Flows - Proprietary Funds 32 Statement of Fiduciary Net Assets - Developer Escrow Agency Fund 36 Notes to Financial Statements 37 Required Supplementary Information Schedule of Funding Progress - Elk River Fire Relief Pension Plan 65 Schedule of Funding Progress - Other Postemployment Benefits 65 Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet - Nonmajor Governmental Funds 66 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds 67 Nonmajor Special Revenue Funds: Subcombining Balance Sheet - Nonmajor Special Revenue Funds 68 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Funds 70 Special Revenue Funds: Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Library 72 CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2011 Page No. Ice Arena 73 Pinewood Golf Course 74 Landfill 75 Economic Development Authority 76 Nonmajor Debt Service Funds: Subcombining Balance Sheet - Nonmajor Debt Service Funds 77 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Funds 79 Nonmajor Capital Projects Funds: Subcombining Balance Sheet — Nonmajor Capital Projects Funds 81 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances — Nonmajor Capital Projects Funds 83 Statement of Changes in Assets and Liabilities - Developer Escrow Agency Fund 85 Component Unit Financial Statements: Housing and Redevelopment Authority: Fund Financial Statements: Balance Sheet 86 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Assets 87 Statement of Revenues, Expenditures, and Change in Fund Balance 88 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balance of Governmental Fund to the Statement of Activities 89 III. STATISTICAL SECTION (UNAUDITED) Net Assets by Component 90 Changes in Net Assets 92 Fund Balances of Governmental Funds 96 Changes is Fund Balances of Governmental Funds 98 Electric Sales 100 Principal Electric Customers 101 Tax Capacity, Market Value and Estimated Actual Value of Taxable Property 102 Property Tax Rates 104 Principal Taxpayers 105 Property Tax Levies and Collections 106 Ratios of Outstanding Debt by Type 107 Ratios of General Bonded Debt Outstanding 109 Direct and Overlapping Governmental Activities Debt 110 Legal Debt Margin Information 111 PIedged- Revenue Coverage 113 Demographic and Economic Statistics 115 Principal Employers 116 Full -Time Equivalent Employees by Function 117 Operating Indicators by Function 118 Capital Asset Statistics by Function 119 I fill", M 51 City This page has been left blank intentionally lilt VCe. r June 4, 2012 Honorable Mayor, Members of the City Council. and Citizens of Elk River: The Comprehensive Annual Financial Report (CAI~R) for the City of Elk River for the fiscal year ended December 31, 2011, is hereby submitted. Minnesota State Statutes and the City's ordinance require an annual audit of the City's accounts by the State Auditor's Office or by independent certified public accountants. The firm of Abdo, Eick, and Meyers was selected to perform the City's audit and their unqualified opinion has been included in this report. The independent auditor's report is included in trite financial section of this report. This report was prepared by the City's Finance Department and responsibility for both the completeness and accuracy of this data, as well as the fairness of this presentation including all enclosures, rests with the City. To the best of my knowledge and belief, the enclosed data are accurate in all material respects and are recorded in a manner designed to present fairly the financial position and the results of operations of the various funds of the City. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed to both protect the City's assets from loss, theft, or misuse, and to compile sufficient reliable information for the preparation of these financial statements in accordance with generally accepted accounting. principles (GAAP), Internal accounting controls are designed to provide reasonable but not absolute assurance regarding the safeguarding of the City's assets against loss, theft, or misuse, and ensuring that adequate financial records are maintained for preparing financial statements, and maintaining accountability for assets. The development of an appropriate internal control system requires estimates and judgments by management to ensure that the costs do not exceed the benefits of the system. The City of Elk River's internal control structure is designed so that the estimated costs of control do not exceed the benefits. Generally accepted accounting principles require that management provide a narrative introduction overview and analysis to accompany the basic financial statements in the form of a Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to compliment the MD &A and should be read in conjunction with it. The City of Elk River's MD,A immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. Profile of the Government The City of Elk River was originally incorporated in 18$0 and consolidated with Elk River Township in 1975 to form a city of 44 square miles. The City of Elk River is located in Sherburne County and serves as the county seat. Elk River is located approximately halfway between the metropolitan areas of Minneapolis /St. Paul and Saint Cloud along the Mississippi River. The City of Elk River has been N"AYUREI growing and will not reach full development in the near future. The current population is approximately 22,982. Population at full build out is estimated to be 35,000. Urban services are available to about one - third of the land area in the City. The City of Elk River operates under a statutory form of government consisting of a four member City Council and a Mayor who is also a voting member. Council members are elected by ward to a four -year term with two Council seats up for election each even year. The Mayor is also elected to a four -year term. The City Council is responsible for adopting the City's budget and tax levy, passing resolutions and ordinances, all hiring and firing decisions, policy making, development and growth planning, and overall direction of the City. In addition to providing general government services, the City of Elk River provides a full range of other services including police and fire protection, building and other safety inspections, planning and zoning, economic development, environmental services, parks and recreation, library, street, snow removal, infrastructure maintenance and repair, and others. The City also provides municipal water, sewer, garbage, and electric services and operates two off -sale liquor stores. The annual budget serves as the foundation for the City of Elk River's financial planning and control. Budget requests are submitted by all departments to the Finance Department each May. The Finance Department compiles these requests into a proposed budget. The Finance Department and City Administrator review the information and present a draft budget to the Council in July for consideration. Following Council discussion and public input, the final tax levy and budget are approved in December. The City's Financial Management Plan allows department heads to make administrative budget amendments (excluding personal service and capital outlay) throughout the year as long as the total department budget does not change and the amendment is approved by the City Administrator and Finance Director. The Council approves additional budget amendments in December of each year. Budget to actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund this comparison is presented on page 27 as part of the basic financial statements for the governmental funds. For other governmental funds with appropriated annual budgets this comparison is presented in the governmental fund subsection of this report. Local economy The local economy has showed some evidence of growth by the increase in building permits with a construction value of $8,222,386 being issued in 2011. This is a 45 percent decrease from 2010. New additions and remodels accounted for $5,958,375 of new value, and an additional $2,264,011 in residential construction make up the balance. The number of new housing units declined from 15 in 2010 to 11 in 2011. The average value of new homes decreased to $205,819. Single family homes accounted for all 11 of the new housing units in 2011. Many of Elk River's largest employers reported stable or growing employment levels between 2011 and 2012. This is largely due to the diversified economic base. Elk River experienced very few incidental layoffs among its larger employers and has been working with a few manufacturers to assist in managing their growth which may lead to a couple of expansions. The companies experiencing the most employment growth were in the industrial sector. Despite the downturn in the national economy, the City saw a number of private investments including a significant reinvestment in Elk Park Center with the Ashley Furniture, Furniture Mart and JoAnn Fabrics locating in the space previously occupied by Target. Pizza Ranch opened its doors after revitalizing the building previously occupied by a video rental business. Long -term financial planning As part of a yearly budget process the City Council reviews the updated Financial Management Plan. The Financial Management Plan provides a long -range forecast that brings together future expenditures, revenues, and development of the City. The Council has been diligent in maintaining a level tax rate. This plan provides the information needed to develop in a manner that will sustain or expand City services while keeping the property taxes stable. Department heads take part in this process to estimate staff additions, service levels, and capital needs for the next ten years. In addition, the City Council continually reviews cash flow analysis and long -term planning as part of the comprehensive Capital Improvement Plan (CIP) process. The CIP is a 5 -year planning tool that forecasts the City's capital needs based on the City's long -range plans, goals, and policies. Relevant Financial Policies The City Council has adopted several financial management policies and continually monitors and updates the policies. The financial management policies include: revenues, property taxes, investments, purchasing, financial reporting, reserves, fund balance, capital investment, and debt policies. The City's policy on fund balance states that the City will maintain an unassigned fund balance of not less than 40% of budgeted general fund operating expenditures. The percentage of unassigned fund balance at December 31, 2011 is 41.5 %. Since property tax payments are received by the City in two installments in July and December, the City needs adequate cash reserves for cash flow in order to avoid short-term borrowing to finance operations. Changes in state law over the past several years have resulted in funding changes for both schools and local governments. Replacement of Market Value Homestead Credits (MVHC) with the Market Value Exclusion (MVE) program and Local Government Aids (LGA) programs have resulted in revenue losses to the City. Due to the uncertainty in receiving the aid from the state, the LGA and MVHC revenues are not included in the 2012 budget. The City does not expect in the short-term to see LGA and MVHC amounts restored to previously years levels. Major Initiatives In 2011, the City completed an Alternative Urban Area Review (AUAR) over the 171" Avenue Area. This AUAR, coupled with the preliminary engineering report of Phase 1 development, have set the groundwork for the final design and construction of the Natures Edge Business Center. The project, which is scheduled for construction in 2012, will involve extending municipal streets and utilities to serve a new 28 -acre business park. In addition, Elk River's Northstar Station continues to have the largest ridership numbers along the rail line that runs from Minneapolis to Big Lake. Awards and Acknowledgements The Government Finance Officers Association of the United Stated and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Elk River for its comprehensive annual financial report for the fiscal year ended December 31, 2010. This was the 22nd consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The City received the GFOA Award for the Distinguished Budget Presentation for the City budget for the fiscal year beginning January 1, 2011. It was the 3`d consecutive year the City received the award for the document. The preparation of this report is made possible by the efficient and dedicated services of the entire staff of the City Administrator's office and Finance Department. The Mayor and City Council are to be commended for their diligence and resolve in keeping the City in sound and stable financial condition. The City Council's commitment to continually plan for the City's future and dedication to maintain high financial standards has helped the City maintain its strong financial condition during a long period of growth and subsequent slowdown. Respectfully submitted, Timothy Simon Finance Director A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. Executive Director G [ This page has been left blank intentionally � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2 \\ � § CUD 0 § :t «� =ummz / Ski °( \ /723b a40 -Ln \ƒ 43� $C\ <5@ e § \ §/ § '§ § ( S7#E. ƒ/_ FL CL _2 f 2 © _ =o q e .2 )) \ @a= Eel \�\ ; S \ Q =Q CITY OF ELK RIVER, MINNESOTA ELECTED AND APPOINTED OFFICIALS YEAR ENDED DECEMBER 31, 2011 CITY COUNCIL John Dietz Nicholas Zerwas Jerry Gumphrey Paul Motin Matthew Westgaard APPOINTED PERSONNEL Calvin Portner Timothy Simon Bradley Rolfe T. John Cunningham Michael Hecker Justin Femrite Term Expires December 31, Mayor 2014 Council member 2014 Council member 2012 Council member 2014 Council member 2012 City Administrator Finance Director Police Chief Fire Chief Parks & Recreation Director City Engineer This page has been left blank intentionally 5210 e',4vA%i�cstw Suter 250 !111m, %1% 55 -1;6 INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Council City of Elk River, Minnesota We have audited the accompanying financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River, Minnesota (the City), as of and for the year ended December 31, 2011, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year comparative information has been derived from the City's 2010 financial statements and, in our report dated May 12, 2011, we expressed unqualified opinions on the respective proprietary fund financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of December 31, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparison for the General fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedule of Funding Progress be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 952.835.9090 • Fax 952.835.3261 www.aerocpas.caln Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City's financial statements as a whole. The introductory section, combining and individual fund financial statements and schedules, and statistical section are presented for the purpose of additional analysis and are not a required part of the financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. May 16, 2012 Minneapolis, Minnesota 952.335.9090 • Fax 952,1335.3261 www.aemepas.com 1 04, " ' mlw, I-LP ABDO, EICK & MEYERS, LLP Certified Public Accountants Management's Discussion and Analysis As management of the City of Elk River, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2011. We encourage readers to consider the information presented here in conjunction with the additional information that we have furnished in our letter of transmittal, which can be found on pages 1 - 4 of this report. Financial Highlights The assets of the City of Elk River exceeded its liabilities at the close of the most recent fiscal year by $201,229,732 (net assets). Of this amount, $48,954,711 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net assets increased by $669,054. As of the close of the current fiscal year, the City of Elk River's governmental funds reported combined ending fund balances of $33,687,643. $ 6,297,612 $ 7,736,648 $ 1,835,699 $17,817,684 $ 33,687,643 The City of Elk River's total long -term liabilities decreased $3,944,240 during the current fiscal year, from $44,903,260 to $40,959,020. Governmental activities: Bonds payable Capital leases Contracts for deeds Compensated absences Net OPEB obligation Total governmental activities Business -type activities: Bonds payable Notes payable Compensated absences Net OPEB obligation Total business -type activities Total City Iong -term liabilities Beginning Balance Additions Ending Reductions Balance $ 26,266,651 $ - Special Debt Capital 8,496 - General Revenue Service Peojects Total Nonspendable $ - $ 57,870 $ - $ - $ 57,870 Restricted 20,390 4,106,669 1,835,699 - 5,962,758 Committed 156,323 2,712,645 - - 2,868,968 Assigned 859,508 859,464 - 18,877,331 20,596,303 Unassigned 5,261,391 - - (1,059,647) 4,201,744 $ 6,297,612 $ 7,736,648 $ 1,835,699 $17,817,684 $ 33,687,643 The City of Elk River's total long -term liabilities decreased $3,944,240 during the current fiscal year, from $44,903,260 to $40,959,020. Governmental activities: Bonds payable Capital leases Contracts for deeds Compensated absences Net OPEB obligation Total governmental activities Business -type activities: Bonds payable Notes payable Compensated absences Net OPEB obligation Total business -type activities Total City Iong -term liabilities Beginning Balance Additions Ending Reductions Balance $ 26,266,651 $ - $ (2,512,088) $ 23,754,563 8,496 - (8,496) - 1,491,250 - (81,250) 1,410,000 1,198,485 555,664 (475,278) 1,278,871 91,502 89,068 (24,247) 156,323 29,056,384 644,732 (3,101,359) 26,599,757 13,069,496 - (1,330,844) 11,738,652 2,345,318 - (182,436) 2,162,882 392,889 215,543 (204,775) 403,657 39,173 15,653 (754) 54,072 15,846,876 231,196 (1,718,809) 14,359,263 $ 44,903,260 $ 875,928 $ (4,820,168) $ 40,959,020 10 Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Elk River's basic financial statements. The City's basic financial statements comprise three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City of Elk River's finances, in a manner similar to a private - sector business. The statement of net assets presents information on all of the City of Elk River's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Elk River is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the City of Elk River that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City of Elk River include general government, public safety, public works, culture and recreation, economic development and interest on long -term debt. The business -type activities of the City of Elk River include municipal liquor, garbage, sewer, water, and electric. The government-wide financial statements include not only the City of Elk River itself (known as the primary government), but also a legally separate Housing & Redevelopment Authority (HRA) for which the City of Elk River is financially accountable. Financial information for the HRA is reported separately from the financial information presented for the primary government itself. The Elk River Municipal Utilities, although also legally separate, functions for all practical purposes as a department of the City of Elk River, and therefore has been included as an integral part of the primary government. The government -wide financial statements can be found on pages 20 - 22 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Elk River, like other state and local government, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. All of the funds of the City of Elk River can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long -term impact by the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 11 The City of Elk River maintains two individual major governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General fund and Improvement Projects. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Elk River adopts an annual appropriated budget for its General fund and some special revenue funds. A budgetary comparison statement has been provided for those funds to demonstrate compliance with this budget. ® The basic governmental fund financial statements can be found on pages 23 - 27 of this report Proprietary funds. When the City of Elk River charges customers for the services it provides - whether to outside customers or to other departments of the City - 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 assets and the statement of revenues, expenses, and changes in net assets. The enterprise funds are the same as the business -type activities reported in the government -wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. The City of Elk River uses enterprise funds to account for its municipal liquor, garbage, sewer, water, and electric operations. The basic proprietary fund financial statements can be found on pages 28 - 35 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government -wide financial statements because the resources of those funds are not available to support the City of Elk River's own program. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 36 of this report. Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. The notes to the financial statements can be found on pages 37 - 64 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Elk River's progress in funding its obligation to provide pension and other postemployment benefits to its employees. Required supplementary information can be found on page 65 of this report. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages 66 - 89 of this report. Government -wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Elk River, assets exceeded liabilities by $201,229,732 at the close of the most recent fiscal year. By far, the largest portion of the City of Elk River's net assets (72 percent) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment), less any related debt used to acquire those assets that is still outstanding. The City of Elk River uses these capital assets to provide services to citizens; consequently, these assets are not available for fixture spending. Although the City of Elk River's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. IV) City of Elk River Net Assets Invested in capital assets 2010 $62,328,876 250,737,016 44,903,260 5,273,078 50,176,338 net of related debt 84,741,957 Governmental Business -type 60,972,838 145,267,175 Activities Activities T 724,500 2011 2010 2011 2010 2011 Current and other assets $39,789,011 $37,928,982 $24,316,511 $24,399,894 $64,105,522 Capital assets 109,601,520 112,020,488 74,426,752 76,387,652 184,028,272 Total assets 149,390,531 149,949,470 98,743,263 100,787,546 248,133,794 Long -term liabilities outstanding 26,599,757 29,056,384 14,359,263 15,846,876 40,959,020 Other liabilities 2,434,349 2,166,924 3,510,693 3,106,154 5,945,042 Total liabilities 29,034,106 31,223,308 17,869,956 18,953,030 46,904,062 Invested in capital assets 2010 $62,328,876 250,737,016 44,903,260 5,273,078 50,176,338 net of related debt 84,741,957 84,629,091 60,525,218 60,972,838 145,267,175 145,601,929 Restricted 6,283,346 7,341,554 724,500 724,500 7,007,846 8,066,054 Unrestricted 29,331,122 26,755,517 19,623,589 20,137,178 48,954,711 46,892,695 Total net assets $120,356,425 $118,726,162 $80,873,307 $81,834,516 $201,229,732 $200,560,678 An additional portion of the City of Elk River's net assets (3 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($48,954,711) may be used to meet the City of Elk River's ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City of Elk River is able to report positive balances in all three categories of net assets, both for the City as a whole, as well as for its separate governmental and business -type activities. Governmental activities. Governmental activities account for 60% of the City of Elk River's net assets. Governmental activities increased the City's net assets by $1,630,263. 13 Key elements of the relevant changes are as follows: City of Elk River Changes in Net Assets Governmental Activities Business -type A ,f Mf;- Total Expenses: General government 2011 2010 2011 2010 2011 2010 Revenues: 6,238,611 6,01 1,477 - 303,051 6,238,611 6,011,477 Program revenues: 5,720,759 5,447,282 (3,610,854) (958,389) 5,720,759 5,447,282 Charges for services $ 2,466,517 $ 2,300,004 $39,522,248 $37,521,502 $ 41,988,765 $ 39,821,506 Operating grants and contributions 954,831 763,551 38,550 103,324 993,381 866,875 Capital grants and contributions 1,750,824 1,318,660 482,319 397,989 2,233,143 1,716,649 General revenues: - - 5,366,971 5,267,455 5,366,971 5,267,455 Property taxes 12,346,305 12,325,851 - - 12,346,305 12,325,851 Other taxes 83,748 193,466 2,132,911 1,965,055 83,748 193,466 Grants and contributions not 2,120,810 2,100,552 2,120,810 2,100,552 restricted to specific programs 1,702,334 2,000,923 - - 1,702,334 2,000,923 Unrestricted investment earnings 499,034 359,733 269,716 220,602 768,750 580,335 Gain on disposal of capital assets 23,233 61,308 - - 23,233 61,308 Total revenues 19,826,826 19,323,496 40,312,833 38,243,417 60,1395659 57,566,913 Expenses: General government 3,495,458 3,028,102 2,649,645 2,123,325 3,495,458 3,028,102 Public safety 6,238,611 6,01 1,477 - 303,051 6,238,611 6,011,477 Public works 5,720,759 5,447,282 (3,610,854) (958,389) 5,720,759 5,447,282 Culture and recreation 3,851,181 3,702,671 (961,209) 1,467,987 3,851,181 3,702,671 Economic development 1,451,109 1,438,742 81,834,516 80,366,529 1,451,109 1,438,742 Interest on long -term debt 1,050,299 1,085,149 $80,873,307 $81,834,516 1,050,299 1,085,149 Municipal liquor - - 5,366,971 5,267,455 5,366,971 5,267,455 Garbage 1,304,238 1,331,514 1,304,238 1,331,514 Sewer 2,132,911 1,965,055 2,132,911 1,965,055 Water 2,120,810 2,100,552 2,120,810 2,100,552 Electric 26,738,258 25,455,516 26,738,258 25,455,516 Total expenses 21,807,417 20,713,423 37,663,188 36,120,092 59,470,605 56,833,515 Increase (decrease) in net assets before transfers (1,980,591) (1,389,927) 2,649,645 2,123,325 669,054 733,398 Transfer of capital assets - (303,051) - 303,051 - - Transfers 3,610,854 958,389 (3,610,854) (958,389) - Change in net assets 1,630,263 (734,589) (961,209) 1,467,987 669,054 733,398 Net assets - beginning 118,726,162 119,460,751 81,834,516 80,366,529 200,560,678 199,827,280 Net assets - ending $ 120,356,425 $ 118,726,162 $80,873,307 $81,834,516 $201,2295732 $200,560,678 • State aid street payments were received for two street improvement projects ($482,000) and sealcoating maintenance ($233,000). • Landfill expansion fee revenues decreased $393,000 due to the decrease in municipal waste tonnage being hauled to the landfill. • Increases in expenses were attributed to legal fees of $329,000 incurred for the settlement of a land use claim and $195,000 for an expanded sealcoat maintenance program. • The remaining increase in expenses is due to normal inflationary increases and growth in the demand for services. • Transfer in of $2,750,000 from the municipal liquor fund to provide funding for the public works facility project. 14 Expenses and Program Revenues -Governmental Activities $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 - $2,000,000 $1,000,000 $. General Public safety Public works Culture and Economic Interest on long - government recreation development terror debt L LRe enue ■ Expense Revenues by Source - Governmental Activities Unrestricted Other investment earnings 0.1% o 2.1% \\ Other taxes. 0.3% AA Property to 52.7% Transfers Charges for services Operating grants and 15.4% 10.5% contributions 4.1% Capita I grants and contributions 7.5% Grants and contributions unrestricted 7.3% 15 Business -type activities. Business -type activities decreased the City of ERIC River's net assets by $961,209. Key elements of this decrease are as follows: • Charges for services for business -type activities increased $2,000,000 when compared to 2010, due mainly to an increase in electric usage in the commercial /industrial sector. The electric utility accounts for 73 % of the total charges for services. • The increase in operating expenses is a result from the increase in purchased power for the electric utility of $1,200,000 or 6.7% over 2010. • Transfers out of $2,750,000 from the municipal liquor fund to provide funding for the public works facility project. Expenses and Program Revenues- Business -type Activities $35,000,000 $30,000,000 $25,000,000 $20,000,000 - $15,000,000 - $10,000,000 $5,000,000 Municipal liquor Garbage Sewer Water Electric Revenuesby Source- Business -type Activities Capitalgrants and contributions Unrestricted nnprn tin a ornntQ nnrl l tat 98.0% 16 Financial Analysis of the Government's Funds Governmental funds. The focus of the City's governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $33,687,643. Approximately 12% of this total amount ($4,201,744) constitutes unassigned fund balance. The remainder of fund balance ($29,485,899) is not available for new spending because it is either 1) nonspendable ($57,870) , 2) restricted ($5,962,758), 3) committed ($2,868,968) or 4) assigned ($20,596,303) for other purposes. The General fund is the chief operating fund of the City of Elk River. The total fund balance of the General fund increased $291,147 during the current year, resulting primarily from less than anticipated expenditures. The Improvement Projects fund decreased $3,661 due mainly to the transfer out to the water fund. Proprietary funds. The City of Elk River's proprietary funds provide the same type of information found in the government -wide statements, but in more detail. Unrestricted net assets in the respective proprietary funds are Municipal Liquor - $2,311,263, Garbage - $567,590, Sewer - $5,240,046, Water - $2,763,345, and Electric - $8,741,345. The Municipal Liquor fund net assets decreased $2,291,427 due to the transfer out for the public works facility project and the Sewer fund net assets decreased $367,362 due mainly to system repairs and maintenance. All other proprietary funds had increases in net assets. General Fund Budgetary Highlights Differences between the original budget and the final budget for the General fund amounted to $65,000. The revenue budgets were amended to reflect the increase in building permit collections. The expenditure budgets were amended to reflect the increase in expenditures related to personnel adjustments. Key factors are as follows: • Total revenue collections were 100% of budget. Property tax collections were almost $40,000 over budget due to delinquent collections and licenses and permits was approximately $25,000 over budget due to a large building expansion project. • Charges for services were down due to a lack of chargeable engineering projects and interest income was down due to market rate conditions. • Expenditures were under budget by approximately $505,000 due mainly to several vacant positions and sound fiscal control by city departments. • Transfers out to the ice arena were under budget due to increased ice rental revenues. Capital Asset and Debt Administration Capital Assets. The City of Elk River's investment in capital assets for its governmental and business type activities as of December 31, 2011, amounts to $184,028,272 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, equipment and infrastructure. The total decrease in the City of Elk River's investment in capital assets for the current year was 2 percent (a 2 percent decrease for governmental activities and a 2 percent decrease for business -type activities). Major capital asset events during the current fiscal year included the following: • $308,000 in park improvements and equipment, $210,000 in public safety vehicles and $200,000 in public works equipment. • Reconstruction of residential and collector streets totaled over $1,200,000. • Construction began on the public works facility expansion which totaled over $900,000. • Property was purchased for $225,000 to expand the downtown municipal parking. • System improvements for Water and Electric totaled almost $2,000,000. 17 City of Elk River Capital Assets (Net of Depreciation) Governmental Activities Business -type Activities Total Additional information on the City's capital assets can be found in Note 3D on pages 48 - 49 of this report. Long -term debt. At the end of the current fiscal year, the City had total long -term debt outstanding of $40,959,020, a decrease of $3,944,240 from 2010. General obligation improvement bonds ($20,676,000) were issued to finance the construction of a library, a recreation facility, a public safety /city hall facility, and a street corridor project. General obligation revenue bonds ($5,475,000) were used to finance sewer and water systems. Revenue bonds ($6,310,000) were used to finance the construction of a liquor store and electric system improvements. Special assessment bonds ($2,955,000) financed improvement projects within the City and are assessed to the benefiting properties. Tax increment bonds ($305,000) financed the City's economic development program. City of TJk River Outstanding Debt Governmental Business -type Activities Activities Total 2011 2010 2011 2010 2011 2010 Land $ 37,694,632 $ 37,469,632 $ 1,516,631 $ 1,516,631 $ 39,211,263 $ 38,986,263 Construction in progress 2,180,426 - 205,726 418,985 2,386,152 418,985 Buildings 25,151,074 26,491,458 11,642,403 12,290,251 36,793,477 38,781,709 Other improvements 2,307,354 2,530,725 - - 2,307,354 2,530,725 Equipment 3,537,075 3,799,930 1,309,392 1,182,440 4,846,467 4,982,370 Infrastructure 38,730,959 41,728,743 59,752,600 60,979,345 98,483,559 102,708,088 Total $109,601,520 $ 112,020,488 $ 74,426,752 $ 76,387,652 $184,028,272 $ 188,408,140 Additional information on the City's capital assets can be found in Note 3D on pages 48 - 49 of this report. Long -term debt. At the end of the current fiscal year, the City had total long -term debt outstanding of $40,959,020, a decrease of $3,944,240 from 2010. General obligation improvement bonds ($20,676,000) were issued to finance the construction of a library, a recreation facility, a public safety /city hall facility, and a street corridor project. General obligation revenue bonds ($5,475,000) were used to finance sewer and water systems. Revenue bonds ($6,310,000) were used to finance the construction of a liquor store and electric system improvements. Special assessment bonds ($2,955,000) financed improvement projects within the City and are assessed to the benefiting properties. Tax increment bonds ($305,000) financed the City's economic development program. City of TJk River Outstanding Debt Governmental Business -type Activities Activities Total Additional long -term debt in the amount of $1,410,000 is for a contract for deed, $2,162,882 is for notes payable, $1,682,528 is for compensated absences, and $210,395 is for other postemployment benefits obligations. The City maintains a bond rating of AA+ from Standard & Poor's for general obligation debt. 18 2011 2010 2011 2010 2011 2010 Bonds payable: G.O. bonds $ 20,676,000 $ 22,002,000 $ - $ - $ 20,676,000 $ 22,002,000 G.O. revenue bonds - 540,000 5,475,000 6,180,000 5,475,000 6,720,000 Revenue bonds - - 6,310,000 6,940,000 6,310,000 6,940,000 Special assessment bonds 2,955,000 3,460,000 - - 2,955,000 3,460,000 Tax increment bonds 305,000 375,000 305,000 375,000 Certificates of indebtedness - 87,400 - 87,400 Unamortized premium and deferred amount on refunding (181,437) (197,749) (46,348) (50,504) (227,785) (248,253) Total bonds payable, net 23,754,563 26,266,651 11,738,652 13,069,496 35,493,215 39,336,147 Capital leases - 8,496 - - - 8,496 Contracts for deeds 1,410,000 1,491,250 - - 1,410,000 1,491,250 Notes payable - - 2,162,882 2,345,318 2,162,882 2,345,318 Compensated absences 1,278,871 1,198,485 403,657 392,889 1,682,528 1,591,374 Net OPEB obligation 156,323 91,502 54,072 39,173 210,395 130,675 Total $ 26,599,757 $ 29,056,384 $ 14,359,263 $ 15,846,876 $ 40,959,020 $ 44,903,260 Additional long -term debt in the amount of $1,410,000 is for a contract for deed, $2,162,882 is for notes payable, $1,682,528 is for compensated absences, and $210,395 is for other postemployment benefits obligations. The City maintains a bond rating of AA+ from Standard & Poor's for general obligation debt. 18 State statutes limit the amount of general obligation debt a Minnesota city may issue to 3% of total Estimated Taxable Market Value. The current debt limitation for the City of Elk River is $61,599,050. Only $16,089,582 of the City's net outstanding debt is counted within the statutory limitation. Additional information on the City of Elk River's long -term debt can be found in Note 3F on pages 52 - 55 of this report. Economic Factors and Next Year's Budget The City of Elk River estimates that the demand for city services will grow at a slower level as in prior years due to the economic slowdown in building activity. This was taken into consideration in preparation of the City's 2012 budget. The property tax levy is set annually and is adjusted as necessary to fund the cost of providing services to our citizens and customers. Charges for services are evaluated each year and adjusted if warranted. The City expects to keep the tax levy consistent in upcoming years. Requests for Information This financial report is designed to provide a general overview of the City of Elk River's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to City of Elk River, Attn: Finance Director, 13065 Orono Pkwy, Elk River, Minnesota 55330 or by calling (763) 635 -1000. 19 � � 1r � � � � �'z �, P i This page has been left blank intentionally ASSETS Cash and investments Restricted cash and investments Receivables (net): Interest Taxes Accounts Special assessments Notes Due from other governments Due from primary government Internal balances Inventories Prepaid items Deferred charges Capital assets: Nondepreciable Depreciable (net) Total assets LIABILITIES Accounts payable Salaries payable Due to other governments Due to component unit Accrued interest payable Unearned revenue Non - current liabilities: Due within one year Due in more than one year Total liabilities NET ASSETS Invested in capital assets, CITY OF ELK RIVER, MINNES ®TA STATEMENT OF NET ASSETS DECEMBER 31, 2011 net of related debt Primary Government 60,525,218 145,267,175 Restricted for: Governmental Business -type Debt service Component Activities Activities Total Unit - HRA $ 34,336,236 $ 18,345,617 $ 52,681,853 $ 919,821 - 724,500 724,500 - 193,177 47,802 240,979 - 598,449 - 598,449 15,827 478,742 2,654,494 3,133,236 - 3,365,849 - 3,365,849 - 731,615 - 731,615 400,000 152,648 1,627 154,275 - - - - 281,775 (174,446) 174,446 - - - 2,024,770 2,024,770 - 57,870 140,751 198,621 - 48,871 202,504 251,375 - 39,875,058 1,722,357 41,597,415 257,100 69,726,462 72,704,395 142,430,857 - 149,390,531 98,743,263 248,133,794 1,874,523 963,959 2,924,849 3,888,808 76,786 266,384 116,853 383,237 1,884 - 257,193 257,193 - 281,775 - 281,775 - 431,030 180,062 611,092 - 491,201 31,736 522,937 - 2,411,740 1,747,569 4,159,309 - 24,188,017 12,611,694 36,799,711 - 29,034,106 17,869,956 46,904,062 78,670 net of related debt 84,741,957 60,525,218 145,267,175 Restricted for: Debt service 3,234,939 724,500 3,959,439 Landfill mitigation 886,105 - 886,105 Economic development 2,105,241 - 2,105,241 Insurance benefits 43,240 - 43,240 Law enforcement 13,821 - 13,821 Unrestricted 29,331,122 19,623,589 48,954,711 Total net assets $ 120,356,425 $ 80,873,307 $ 201,229,732 The notes to the financial statements are an integral part of this statement. 20 257,100 CITY OF ELK RIVER, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2011 Functions /Programs Primary Government: Governmental Activities: General government Public safety Public works Culture and recreation Economic development Interest on long -term debt Total governmental activities Business -type Activities: Municipal liquor Garbage Sewer Water Electric Total business -type activities Total primary government Component Unit: Housing and Redevelopment Authority Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 3,495,458 $ 425,954 $ 3,061 $ - 6,238,611 787,884 256,254 - 5,720,759 79,073 347,317 1,691,895 3,851,181 1,102,630 296,535 58,929 1,451,109 70,976 51,664 - 1,050,299 - - - 21,807,417 2,466,517 954,831 1,750,824 5,366,971 6,145,692 - - 1,304,238 1,310,014 34,660 - 2,132,911 1,491,460 3,890 286,466 2,120,810 1,917,384 - 195,853 26,738,258 28,657,698 - - 37,663,188 39,522,248 38,550 482,319 $ 59,470,605 $ 41,988,765 $ 993,381 $ 2,233,143 $ 637,034 $ - $ - $ - General revenues: Property taxes: Levies for general purposes Levies for debt service Tax increments Other taxes Grants and contributions not restricted Unrestricted investment earnings Gain on disposal of capital assets Transfers Total general revenues and transfers Change in net assets Net assets - beginning Net assets - ending The notes to the financial statements are an integral part of this statement. 21 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -Type Component Activities Activities Total Unit - HRA $ (3,066,443) $ - $ (3,066,443) $ - (5,194,473) - (5,194,473) - (3,602,474) - (3,602,474) - (2,393,087) - (2,393,087) - (1,328,469) - (1,328,469) - (1,050,299) - (1,050,299) - (16,635,245) - (16,635,245) - 269,716 - 778,721 778,721 - - 40,436 40,436 - - (351,095) (351,095) - - (7,573) (7,573) - - 1,919,440 1,919,440 - - 2,379,929 2,379,929 - (16,635,245) 2,379,929 (14,255,316) - 200,560,678 - - - (637,034) 10,387,729 - 10,387,729 295,410 1,011,090 - 1,011,090 - 947,486 - 947,486 - 83,748 - 83,748 - 1,702,334 - 1,702,334 11,500 499,034 269,716 768,750 5,311 23,233 - 23,233 - 3,610,854 (3,610,854) - - 18,265,508 (3,341,138) 14,924,370 312,221 1,630,263 (961,209) 669,054 (324,813) 118,726,162 81,834,516 200,560,678 2,120,666 $ 120,356,425 $ 80,873,307 $ 201,229,732 $ 1,795,853 22 GOVERNMENTALFUNDS BALANCESHEET DECEMBER The notes to the financial statements are an integral part of this statement, 23 Other Total General Improvement Governmental Governmental Fund Projects Funds Funds ASSETS Cash and investments $ 6,523,856 $ 4,417,686 $ 23,394,694 $ 34,336,236 Receivables: Interest 44,194 25,258 123,725 193,177 Taxes 495,341 3,499 99,609 598,449 Accounts 17,347 - 461,395 478,742 Special assessments - 1,308,631 2,057,218 3,365,849 Notes - - 731,615 731,615 Due from other governments 35,704 1,202 115,742 152,648 Due from other funds 82,904 - 877,298 960,202 Due from component unit 9,730 - 9,730 Prepaid items - 57,870 57,870 Total assets $ 7,209,076 $ 5,756,276 $ 27,919,166 $ 40,884,518 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 306,437 $ 851 $ 656,671 $ 963,959 Salaries payable 249,473 265 16,646 266,384 Due to other funds 3,075 28,255 1,103,318 1,134,648 Due to component unit - - 291,505 291,505 Deferred revenue 352,479 1,299,516 2,888,384 4,540,379 Total liabilities 911,464 1,328,887 4,956,524 7,196,875 Fund balances: Nonspendable - - 57,870 57,870 Restricted 20,390 - 5,942,368 5,962,758 Committed 156,323 - 2,712,645 2,868,968 Assigned 859,508 4,427,389 15,309,406 20,596,303 Unassigned 5,261,391 - (1,059,647) 4,201,744 Total fund balances 6,297,612 4,427,389 22,962,642 33,687,643 Total liabilities and fund balances $ 7,209,076 $ 5,756,276 $ 27,919,166 $ 40,884,518 The notes to the financial statements are an integral part of this statement, 23 CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS DECEMBER 31, 2011 FUND BALANCE - TOTAL GOVERNMENTAL FUNDS $ 33,687,643 Amounts reported for governmental activities in the statement of net assets are different because: 1. Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds: Governmental capital assets $166,303,410 Less accumulated depreciation (56,701,890) 109,601,520 2. Deferred revenue in governmental funds is susceptible to full accrual on the government -wide statements. 4,049,178 3. Long -term liabilities are not payable with current financial resources and are therefore not reported in the governmental funds: Bonds payable (23,936,000 Unamortized premium, issuance costs and deferred charge from refunding 230,308 Contracts for deeds (1,410,000) Accrued interest payable (431,030) Compensated absences (1,278,871 Net OPEB obligation (156,323) (26,981,916) NET ASSETS OF GOVERNMENTAL ACTIVITIES $120,356,425 The notes to the financial statements are an integral part of this statement. 24 CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2011 The notes to the financial statements are an integral part of this statement. 25 Other Total General Improvement Governmental Governmental Fund Projects Funds Funds REVENUES Taxes: Property taxes $ 9,577,099 $ 50,437 $ 2,833,867 $ 12,461,403 Other taxes 83,748 - - 83,748 Licenses and permits 432,875 - - 432,875 Intergovernmental revenue 535,084 - 1,143,471 1,678,555 Charges for services 594,877 2,643 975,847 1,573,367 Fines and forfeits 126,832 - 22,270 149,102 Special assessments - 208,048 781,053 989,101 Interest income 91,696 69,027 338,311 499,034 Miscellaneous: Landfill host fee - - 896,904 896,904 Refunds and reimbursements 79,219 211,467 290,686 Other 27,217 - 1,353,352 1,380,569 Total revenues 11,548,647 330,155 8,556,542 20,435,344 EXPENDITURES Current: General government 2,536,399 - 620,908 3,157,307 Public safety 5,255,608 - 36,009 5,291,617 Public works 2,062,508 60,993 628,968 2,752,469 Culture and recreation 1,655,757 - 1,008,049 2,663,806 Economic development - - 1,479,140 1,479,140 Debt service: Principal - - 2,618,146 2,618,146 Interest and service charges - - 1,059,804 1,059,804 Capital outlay: General government 18,771 - - 18,771 Public safety 100,791 - 208,546 309,337 Public works - - 1,148,808 1,148,808 Culture and recreation - - 312,118 312,118 Infrastructure /development projects - - 1,085,178 1,085,178 Total expenditures 11,629,834 60,993 10,205,674 21,896,501 Excess (deficiency) of revenues over (under) expenditures (81,187) 269,162 (1,649,132) (1,461,157) OTHER FINANCING SOURCES (USES) Transfers in 769,500 40,000 5,169,405 5,978,905 Transfers out (397,166) (312,823) (1,658,062) (2,368,051) Sale of capital assets - - 23,233 23,233 Total other financing sources (uses) 372,334 (272,823) 3,534,576 3,634,087 Net change in fund balances 291,147 (3,661) 1,885,444 2,172,930 Fund balances - January 1 6,006,465 4,431,050 21,077,198 31,514,713 Fund balances - December 31 $ 6,297,612 $ 4,427,389 $ 22,962,642 $ 33,687,643 The notes to the financial statements are an integral part of this statement. 25 CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2011 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of activities are different because: 1. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. $ 2,172,930 Capital outlay $ 3,159,927 Depreciation expense (5,532,700) (2,372,773) 2. The net effect of various miscellaneous transactions involving capital assets including transfers and disposals, which decrease net assets. Disposals (276,426) Depreciation on disposals 230,231 (46,195) 3. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Property taxes (115,098) Special assessments (285,669) Notes receivable (200,981) (601,748) 4. The issuance of long -term debt provides current financial resources to governmental funds, while the repayment of the principal of long -term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long -term debt and related items. Repayment of principal of long -term debt 2,618,146 2,618,146 5. Some expenses reported in the statement of activities do not require use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Accrued interest payable 25,816 Amortization of issuance premium 19,953 Amortization of issuance costs (4,394) Amortization of deferred charge from refunding (36,265) Compensated absences (80,386) Net OPEB obligation (64,821) (140,097) CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 1,630,263 The notes to the financial statements are an integral part of this statement. 26 City E �s►�z�� This page has been left blank intentionally CITY OF ELK RIVER, MINNESOTA GENERALFUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2011 The notes to the financial statements are an integral part of this statement. 27 Budget Variance with Original Final Actual Final Budget REVENUES Taxes: Property taxes $ 9,537,400 $ 9,537,400 $ 9,577,099 $ 39,699 Othertaxes 75,000 75,000 83,748 8,748 Licenses and permits 252,700 407,700 432,875 25,175 Intergovernmental revenue 528,050 528,050 535,084 7,034 Charges for services 658,100 658,I00 594,877 (63,223) Fines and forfeits I30,000 130,000 126,832 (3,168) Interest income 120,000 120,000 91,696 (28,304) Miscellaneous revenue: Refunds and reimbursements 65,000 65,000 79,219 14,219 Other 27,700 27,700 27,217 (483) Total revenues 11,393,950 11,548,950 11,548,647 (303) EXPENDITURES Current: General government 2,606,650 2,696,650 2,536,399 160,251 Public safety 5,493,550 5,493,550 5,255,608 237,942 Public works 2,117,100 2,117,100 2,062,508 54,592 Culture and recreation 1,693,800 1,693,800 1,655,757 38,043 Capital outlay: General government 30,900 30,900 18,771 12,129 Public safety 102,850 102,850 100,791 2,059 Total expenditures 12,044,850 12,134,850 11,629,834 505,016 Excess (deficiency) of revenues over(under)expenditures (650,900) (585,900) (81,187) 504,713 OTHER FINANCING SOURCES (USES) Transfers in 769,500 769,500 769,500 - Transfers out (455,200) (455,200) (397,166) 58,034 Total other financing sources (uses) 314,300 314,300 372,334 58,034 Net change in fund balance (336,600) (271,600) 291,147 562,747 Fund balance - January 1 6,006,465 6,006,465 6,006,465 - Fund balance - December 31 $ 5,669,865 $ 5,734,865 $ 6,297,612 $ 562,747 The notes to the financial statements are an integral part of this statement. 27 CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2011 LIABILITIES Current liabilities: Accounts payable Municipal Liquor Garbage 95,660 105,995 Current Year Prior Year Current Year Prior Year ASSETS Due to other governments 62,867 - - Current assets: Due to other funds - _ Cash and investments $ 1,797,477 $ 4,122,226 $ 540,516 $ 467,670 Restricted cash and investments _ _ - - Receivables (net): Compensated absences payable - current 38,328 29,464 Interest 10,274 21,608 2,959 2,290 Accounts - - 13,001 12,028 Due from other governments Total current liabilities 601,817 - 19,312 Due from other funds - - 107,723 106,340 Inventories 1,001,736 899,467 - - Prepaid items - 4,678 4,126 - Total current assets 2,809,487 5,047,979 664,199 607,640 Noncurrent assets: Bonds payable 570,000 730,000 Deferred charges 1,274 1,688 780,711 - Capital assets: Total liabilities 1,229,498 1,300,107 96,609 Nondepreciable 823,761 823,761 Depreciable 3,051,787 3,051,787 1,771,000 - Accumulated depreciation (1,347,678) (1,224,548) _ - Total capital assets 2,527,870 2,651,000 4,629,560 567,590 Total noncurrent assets 2,529,144 2,652,688 - - Total assets 5,338,631 7,700,667 664,199 607,640 LIABILITIES Current liabilities: Accounts payable 305,609 303,366 95,660 105,995 Salaries payable 19,489 18,099 949 826 Due to other governments 62,867 - - _ Due to other funds - _ Unearned revenue 1,836 1,967 Accrued interest 13,688 16,500 Compensated absences payable - current 38,328 29,464 Notes payable - current - - Bonds payable - current 160,000 150,000 - - Total current liabilities 601,817 519,396 96,609 106,821 Noncurrent liabilities: Compensated absences payable 48,851 46,585 - - Net other postemployment benefits obligation 8,830 4,126 Notes payable - _ Bonds payable 570,000 730,000 Total noncurrent liabilities 627,681 780,711 - Total liabilities 1,229,498 1,300,107 96,609 106,821 NET ASSETS Invested in capital assets, net of related debt 1,797,870 1,771,000 - - Restricted for debt service _ _ - - Unrestricted 2,311,263 4,629,560 567,590 500,819 Total net assets $ 4,109,133 $ 6,400,560 $ 567,590 $ 500,819 The notes to the financial statements are an integral part of this statement. 28 Sewer Water Current Year Prior Year Current Year Prior Year Electric Current Year Prior Year Total $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 8,380,396 $ 6,587,017 $ 18,345,617 - - 724,500 724,500 724,500 28,633 23,853 1,187 279 4,749 1,116 47,802 10,783 15,516 127,101 113,693 2,503,609 2,455,731 2,654,494 - - - - 1,627 1,627 1,627 296,806 289,674 142,471 128,850 27,551 7,264 574,551 - - 25,909 38,748 997,125 1,018,092 2,024,770 - - 18,685 18,422 122,066 140,116 140,751 5,343,876 4,879,187 2,934,927 3,093,134 12,761,623 10,935,463 24,514,112 10,716 13,340 87,648 99,959 102,866 114,775 202,504 411,095 411,095 86,427 93,049 401,074 607,711 1,722,357 36,880,768 36,880,768 33,214,128 32,183,277 52,384,131 51,051,029 125,530,814 (14,644,218) (13,651,175) (10,949,382) (9,969,185) (25,885,141) (23,869,917) (52,826,419) 22,647,645 23,640,688 22,351,173 22,307,141 26,900,064 27,788,823 74,426,752 22,658,361 23,654,028 22,438,821 22,407,100 27,002,930 27,903,598 74,629,256 28,002,237 28,533,215 25,373,748 25,500,234 39,764,553 38,839,061 99,143,368 55,509 62,320 91,373 45,672 2,376,698 2,138,206 2,924,849 15,453 13,359 6,463 4,295 74,499 71,655 116,853 - - 918 2 193,408 122,278 257,193 - 13,350 400,105 379,921 400,105 - - 29,900 19,167 - 31,736 14,172 16,422 49,071 54,765 103,131 111,260 180,062 10,991 14,661 41,881 46,805 92,925 113,845 184,125 - - - - 183,444 182,436 183,444 170,000 160,000 491,000 477,000 559,000 548,000 1,380,000 266,125 266,762 710,606 661,056 3,983,210 3,667,601 5,658,367 8,938 6,449 39,624 34,292 122,119 100,788 219,532 9,483 4,951 - - 35,759 30,096 54,072 - - - - 1,979,438 2,162,882 1,979,438 735,000 905,000 3,125,730 3,615,899 5,927,922 6,483,597 10,358,652 753,421 916,400 3,165,354 3,650,191 8,065,238 8,777,363 12,611,694 1,019,546 1,183,162 3,875,960 4,311,247 12,048,448 12,444,964 18,270,061 21,742,645 22,575,688 18,734,443 18,214,242 18,250,260 18,411,908 60,525,218 - - - - 724,500 724,500 724,500 5,240,046 4,774,365 2,763,345 2,974,745 8,741,345 7,257,689 19,623,589 $ 26,982,691 $ 27,350,053 $ 21,497,788 $ 21,188,987 $ 27,716,105 $ 26,394,097 $ 80,873,307 29 CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2011 Operating expenses: Personal services Supplies Purchased power Other service charges Depreciation Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Interest income Miscellaneous revenue Interest expense Amortization expense Gain (loss) on disposal of capital assets Total nonoperating revenues (expenses) Income before contributions and transfers Contributions - connection fees Capital contributions Transfers in Transfers out Change in net assets Total net assets - January I Total net assets - December 31 589,576 Municipal Liquor Garbage 29,705 24,291 Current Year Prior Year Current Year Prior Year Sales and cost of sales: 1,238,136 1,278,541 123,130 123,130 Sales $ 6,139,096 $ 5,948,986 $ - $ - Cost of sales (4,385,452) (4,273,029) - 53,823 Gross profit 1,753,644 1,675,957 45,444 Operating revenues: 8,005 5,041 (33,413) (39,975) User charges - - 1,287,667 1,271,275 Delinquency collections - - 10,839 10,738 Other 6,596 4,640 46,168 103,324 Total operating revenues 6,596 4,640 1,344,674 1,385,337 Operating expenses: Personal services Supplies Purchased power Other service charges Depreciation Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Interest income Miscellaneous revenue Interest expense Amortization expense Gain (loss) on disposal of capital assets Total nonoperating revenues (expenses) Income before contributions and transfers Contributions - connection fees Capital contributions Transfers in Transfers out Change in net assets Total net assets - January I Total net assets - December 31 589,576 579,959 33,791 29,705 24,291 32,639 32,311 23,268 210,695 218,309 1,238,136 1,278,541 123,130 123,130 - - 947,692 954,037 1,304,238 1,331,514 812,548 726,560 40,436 53,823 45,444 43,920 8,005 5,041 (33,413) (39,975) - (414) (414) - 11,617 3,531 8,005 5,041 824,165 730,091 48,441 58,864 18,330 58,457 (3,115,592) (341,415) - - (2,291,427) 388,676 66,771 117,321 6,400,560 6,011,884 500,819 383,498 $ 4,109,133 $ 6,400,560 $ 567,590 $ 500,819 The notes to the financial statements are an integral part of this statement. 30 Sewer Current Year Prior Year Current Year Water Electric Prior Year Current Year Prior Year Total Current Year $ 6,139,096 (4,385,452) 1,753,644 1,487,669 1,465,988 1,796,086 1,876,363 28,150,773 26,316,948 32,722,195 2,066 15,407 18,845 19,723 257,040 237,319 288,790 5,615 1,725 17,886 17,575 176,173 238,295 252,438 1,495,350 1,483,120 1,832,817 1,913,661 28,583,986 26,792,562 33,263,423 457,612 441,058 371,663 370,523 1,692,020 1,773,380 3,144,662 121,117 89,443 243,125 248,259 132,149 116,299 552,993 - - - - 19,758,584 18,527,610 19,758,584 523,650 398,640 393,774 370,954 2,808,580 2,681,960 5,174,835 993,043 993,042 980,197 955,323 2,041,717 2,062,942 4,138,087 2,095,422 1,922,183 1,988,759 1,945,059 26,433,050 25,162,191 32,769,161 (600,072) (439,063) (155,942) (31,398) 2,150,936 1,630,371 2,247,906 73,733 49,895 28,551 31,798 113,983 89,948 269,716 - - 84,567 48,099 73,712 48,421 158,279 (34,865) (40,248) (120,559) (143,361) (259,416) (272,897) (448,253) (2,624) (2,624) (11,492) (12,132) (8,634) (8,819) (23,164) - - (37,158) (11,609) (37,158) 36,244 7,023 (18,933) (75,596) (117,513) (154,956) (80,580) (563,828) (432,040) (174,875) (106,994) 2,033,423 1,475,415 2,167,326 286,466 242,230 195,853 155,759 - - 482,319 - (1,724) - 304,775 - - - - 312,823 17,914 - 53,741 331,153 (90,000) (65,000) (25,000) (25,000) (711,415) (657,086) (3,942,007) (367,362) (256,534) 308,801 346,454 1,322,008 872,070 (961,209) 27,350,053 27,606,587 21,188,987 20,842,533 26,394,097 25,522,027 81,834,516 $ 26,982,691 $ 27,350,053 $ 21,497,788 $ 21,188,987 $ 27,716,105 $ 26,394,097 $ 80,873,307 31 CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users Other operating cash receipts Payments to suppliers Payments to employees Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds Transfers to other funds Decrease (increase) in due from other funds Increase (decrease) in due to other funds Net cash provided (used) by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets Proceeds from sale of capital assets Contributions from developers and residents Principal paid on capital debt Proceeds of refunding bonds issued Withdrawal from escrow fund Payment to escrow agent for refunded bond Interest paid on capital debt Principal paid on promissory note Net cash used by capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, January 1 Cash and cash equivalents, December 31 Reconciliation of cash and cash equivalents to the statement of net assets: Cash and investments Restricted cash and investments Total cash and cash equivalents Municipal Liquor Garbage Current Year Prior Year Current Year Prior Year $ 6,138,965 $ 5,950,609 $ 1,315,462 $ 1,300,560 6,596 4,640 46,168 103,324 (4,652,919) (4,632,456) (1,280,782) (1,333,080) (572,352) (587,208) (33,668) (29,599) 920,290 735,585 47,180 41,205 - - 18,330 58,457 (3,115,592) (341,415) - - (3,115,592) (341,415) 18,330 58,457 (150,000) (100,000) - - (36,225) (41,850) - (186,225) (141,850) - - 56,778 43,497 7,336 4,686 (2,324,749) 295,817 72,846 104,348 4,122,226 3,826,409 467,670 363,322 $ 1,797,477 $ 4,122,226 $ 540,516 $ 467,670 $ 1,797,477 $ 4,122,226 $ 540,516 $ 467,670 $ 1,797,477 $ 4,122,226 $ 540,516 $ 467,670 The notes to the financial statements are an integral part of this statement. 32 Sewer Water Continued Electric Total Current Year Prior Year Current Year Prior Year Current Year Prior Year Current Year $ 1,487,336 $ 1,470,240 $ 1,826,255 $ 1,897,904 $ 28,519,094 $ 26,414,254 $ 39,287,112 5,615 1,725 88,153 68,000 121,385 55,110 267,917 (651,578) (460,569) (611,490) (650,962) (22,728,996) (21,426,298) (29,925,765) (452,167) (438,871) (335,002) (325,328) (1,515,439) (1,446,237) (2,908,628) 389,206 572,525 967,916 989,614 4,396,044 3,596,829 6,720,636 - - 312,823 17,914 - 53,741 331,153 (90,000) (65,000) (25,000) (25,000) (711,415) (657,086) (3,942,007) - - (13,621) (20,287) (5,683) (33,908) (13,350) (1,460) 20,184 74,689 6,834 (90,000) (65,000) 260,852 (8,546) (711,518) (534,339) (3,637,928) $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 8,380,396 $ 6,587,017 $ 18,345,617 - - 724,500 724,500 724,500 $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 9,104,896 $ 7,311,517 $ 19,070,117 33 (1,024,229) (201,447) (1,010,116) (998,645) (2,034,345) - - - - 5,952 - 286,466 242,230 195,853 155,759 - 482,319 (160,000) (160,000) (477,000) (3,012,500) (548,000) (512,500) (1,335,000) 201,506 1,105,905 2,575,000 - (279,396) (1,099,671) (37,115) (42,415) (124,603) (200,912) (260,945) (278,928) (458,888) - - (182,436) (179,328) (182,436) 89,351 39,815 (1,429,979) (761,990) (2,001,497) (1,957,215) (3,528,350) 68,953 47,935 27,643 73,104 110,350 114,922 271,060 457,510 595,275 (173,568) 292,182 1,793,379 1,220,197 (174,582) 4,550,144 3,954,869 2,793,142 2,500,960 7,311,517 6,091,320 19,244,699 $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 9,104,896 $ 7,311,517 $ 19,070,117 $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 8,380,396 $ 6,587,017 $ 18,345,617 - - 724,500 724,500 724,500 $ 5,007,654 $ 4,550,144 $ 2,619,574 $ 2,793,142 $ 9,104,896 $ 7,311,517 $ 19,070,117 33 CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2011 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Other revenue related to operations Depreciation expense (Increase) decrease in assets: Accounts receivable Due from other funds Due from other goverments Inventories Prepaid items Increase (decrease) in: Accounts payable Salaries payable Due to other governments Unearned revenue OPEB liability Compensated absences payable Net cash provided by operating activities Noncash capital and related financing activities: Municipal Liquor Garbage Current Year Prior Year Current Year Prior Year $ 812,548 $ 726,560 $ 40,436 $ 53,823 123,130 123,130 - - 1,181 (973) (4,731) - (1,383) (10,509) 19,312 33,787 (102,269) (47,016) - - 4,678 3,010 - 2,243 (64,473) (10,335) (31,271) 1,390 77 123 106 62,867 - - - (131) 442 - 4,704 - - 11,130 (7,326) - - $ 920,290 $ 735,585 $ 47,180 $ 41,205 Amortization of deferred charges $ 414 $ 414 $ $ Amortization of deferred charges on refunding - - _ Contribution of capital assets from (to) municipality _ Assets purchased on account _ Disposal of capital assets 218,563 - Interest payment on revenue bonds from escrow cash - The notes to the financial statements are an integral part of this statement. 34 Sewer Water Electric Total Current Year Prior Year Current Year Prior Year Current Year Prior Year Current Year $ (600,072) $ (439,063) $ (155,942) $ (31,398) $ 2,150,936 $ 1,630,371 $ 2,247,906 - - 84,567 48,099 73,712 48,421 158,279 993,043 993,042 980,197 955,323 2,041,717 2,062,942 4,138,087 4,733 (12,703) (13,408) (12,155) (47,878) (394,108) (57,526) (7,132) 1,548 - (8,515) - - - 35,497 19,312 12,839 (10,026) 20,967 16,737 (68,463) - (263) (6,238) 18,050 (64,828) 22,465 (6,811) 27,514 45,701 15,854 58,492 179,218 89,290 2,094 1,814 2,168 (1,220) 2,844 10,846 8,619 - - 916 2 71,130 14,281 134,913 - 10,733 19,167 - - 10,602 4,532 - - - 5,663 9,853 14,899 (1,181) 373 408 12,206 411 47,599 10,768 $ 389,206 $ 572,525 $ 967,916 $ 989,614 $ 4,396,044 $ 3,596,829 $ 6,720,636 $ 2,624 $ 2,624 $ 11,492 $ 14,319 $ 8,634 $ 8,819 $ 23,164 - - 1,650 - 6,600 6,993 8,250 (1,724) - - - - 180,000 - 180,000 - 84,778 74,947 84,778 84,834 - - - 35 CITY OF ELK RIVER, MINNES ®TA STATEMENT OF FIDUCIARY NET ASSETS DEVELOPER ESCROW AGENCY FUND DECEMBER 31, 2011 ASSETS Cash Accounts receivable Total assets LIABILITIES Refundable deposits payable Agency Fund $ 62,856 2,171 $ 65,027 $ 65,027 The notes to the financial statements are an integral part of this statement. 36 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL. STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Elk River operates under the "Optional Plan A" form of government as defined in the State of Minnesota Statutes. Under this plan, the government of the City is directed by a Council composed of an elected Mayor and four elected Council Members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Elk River (the primary government) and its component units. The Elk River Municipal Utilities is considered to be part of the primary government. The Elk River Municipal Utilities was established and statutory authority is provided in accordance with Chapter 412.321 of the Minnesota Statutes and is considered to be part of the City. The Utilities Commission has three council approved members who serve overlapping three year terms. The statutes provide the City Council all the discretionary authority necessary to operate the utilities, except as its powers have been delegated to the Commission. The Utility funds are included with the enterprise funds of this report. Separate financial statements for the Utilities may be obtained at the Elk River Municipal Utilities, 13069 Orono Pkwy, Elk River. The City has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. The City has the following component units: Blended Component Unit The Economic Development Authority (EDA) was created to carry out economic and industrial development and redevelopment within the City in accordance with policies established by the City Council. The seven member board consists of three Council Members, the Mayor and three other council approved members. The EDA may not exercise any of its authorized powers without prior approval of the City Council. The activities of the EDA are blended and reported as a special revenue fund. Discretely Presented Component Unit The Housing and Redevelopment Authority (HRA) is a separate legal entity created for the purpose of providing redevelopment within the government's jurisdiction. The board consists of five council appointed members, one of which is a Council Member. The City Council has the ability to approve the HRA's budget. The HRA is presented as a governmental fund type. The financial statements for the HRA are included in the financial section of this report. B. Government -Wide and Fund Financial Statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to 37 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government -wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The City's only fiduciary funds are agency funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, other postemployment benefits, and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Non - exchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, grants, entitlements and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non - exchange transactions must also be available before it can be recognized. Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as deferred revenue. On the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue in the fund financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 38 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The government reports the following major governmental funds: The General fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Improvement Projects capital projects fund is used to account for the construction of various improvements within the City. The government reports the following major proprietary funds: The Municipal Liquor fund accounts for the operations of the City's off -sale liquor stores. The Garbage fund accounts for the activities of the City's garbage collection and recycling programs. The Sewer fund accounts for the activities of the City's sanitary sewer treatment system. The Water fund accounts for the activities of the City's water distribution system. The Electric fund accounts for the activities of the City's electric distribution system Additionally, the government reports the following fund types: Fiduciary funds account for assets held by the City in a trustee capacity or as an agent on behalf of others. The Developer Escrow agency fund is used to account for resources received from developers for the payment of expenses incurred by the City for private development projects. The Developer Escrow agency fund is omitted from the government -wide financial statements, and is included separately within the statement of fiduciary net assets. Private - sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government -wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private- sector guidance for their business -type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private- sector guidance. As a general rule, the effect of interfund activity has been eliminated frorn government -wide financial statements. Exceptions to this general rule are charges between the City's sewer, water and electric functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. 39 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED D. Assets, Liabilities, and Net Assets or Equity 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash balances from all funds are combined and invested to the extent available in authorized investments. Earnings fi•om such investments are allocated to the respective funds on the basis of applicable cash balance participation of each fund. Investments are reported at fair value, based upon quoted market prices. The Minnesota Municipal Money Market fund operates in accordance with appropriate State of Minnesota laws and regulations. The reported value of the pool is the same as the fair value of the pool shares 2. Receivables and Payables Due To /From Other Funds During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds" on the balance sheets of the fund financial statements. Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." Property Taxes The City Council annually adopts a tax levy and certifies it to the County in December each year for collection the following year. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property as of January 1 and are payable by the property owner in May and October each year. The taxes are collected by the County Treasurer and tax settlements are made to the City three times a year, in January, July and December. Taxes payable on homestead property, as defined by Minnesota statutes, are partially reduced by a market value credit aid. The credit is paid to the City by the State in lieu of taxes levied against the homestead property. The State remits this credit in two equal installments in October and December each year. In the fund financial statements, taxes that remain unpaid at December 31 are classified as delinquent taxes receivable and are fully offset by deferred revenue, because they are not known to be available to finance current expenditures. Deferred revenue in governmental activities is susceptible to full accrual on the govermnent -wide statements. Accounts Receivable Accounts receivable include amounts billed for services provided before year end. It is the City's policy to charge uncollectibles directly to operations as accounts become worthless. The Utilities has established a reserve for uncollectible accounts which is adjusted annually based on the receivable activity. No substantial losses from present receivable balances are anticipated. A summary of the Utilities' uncollectible account balances at December 31, 2011 and December 31, 2010 is as follows: Increase 2011 2010 (Decrease) Electric $ 78,750 $ 78,750 $ - Water 26,250 26,250 Total $ 0 $ 105.000 $ - 40 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Special Assessments Special assessments receivable include the following components: • Delinquent - includes amounts billed to property owners but not paid. • Deferred - includes assessment installments that will be billed to property owners in future years. Special assessments in the fund financial statements are recognized as receivable and deferred revenue when the levy against the benefited property is adopted by the City Council and certified to the County for collection. Deferred revenue for governmental activities is susceptible to full accrual on the government -wide statements. Notes Receivable The City received grant proceeds fi•om the State of Minnesota to fund economic development projects. These funds have been loaned to several businesses and the terms of repayment vary with each loan. Notes receivable in the Revolving Loan fund is offset by deferred revenue. Deferred revenue in governmental activities is susceptible to full accrual on the government -wide statements. 3. Inventories and Prepaid Items For the proprietary funds, inventories are valued at cost, which approximates market, using the first -in, first -out (FIFO) method. Inventories are recorded as an expense when sold or consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. 4. Restricted Assets The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond issues. They will be used for future debt service. 5. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business -type activities columns in the government - wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Donated capital assets are recorded at estimated fair market value at the date of donation. With the initial capitalization of general infrastructure assets (i.e., those reported by governmental activities), the City chose to include all such items regardless of their acquisition date. The City was able to obtain historical costs for the initial reporting of these assets through public works project records. Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business -type activities is included as part of the capitalized value of the assets constructed, net of interest earned on the invested proceeds over the same period. 41 CITY OF ELI{ RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Property, plant, and equipment of the City, as well as the component units, are depreciated using the straight line method over the following estimated useful lives: Assets Years Buildings and improvements 10-40 Other park improvements 10-20 Machinery and equipment 3-20 Public domain infrastructure 15 -50 System infrastructure 4-50 6. Compensated Absences It is the government's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Unused vacation can be accrued by the employees up to a maximum of 192 hours, the limit of which is determined by years of service. All vacation pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. In the event a liability is recorded in the governmental funds, the General fund would be used to liquidate the compensated absences payable. Employees can also accrue an unlimited amount of unused sick leave. Employees with two or more years of service are entitled to receive severance pay equal to 50 percent of unused sick leave, up to a maximum of 480 hours. The liability for severance pay is accounted for the same as accrued vacation pay. 7. Long -term Obligations In the government -wide financial statements, and proprietary fund types in the fund financial statements, long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities, business -type activities, or proprietary fund type statement of net assets. Material bond premiums and discounts, as well as issuance costs and refunding gains /losses, are deferred and amortized over the life of the bonds using the straight -line method, which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount and refunding gains /losses. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 8. Fund Balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of resources reported in governmental funds. These classifications are as follows: Nonspendable - consists of amounts that cannot be spent because it is not in spendable form, such as prepaid items. Restricted - consists of amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed - consists of amounts that are constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council. Those committed amounts cannot be used for any other purpose unless 42 CITY OF ELI{ RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED City Council removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Assigned - consists of amounts intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the general fund, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to City Council Resolution, the City's Finance Director and /or City Administrator is authorized to establish assignments of fund balance. Unassigned - is the residual classification for the general fund and also reflects negative residual amounts in other funds. The City uses restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City Council has formally adopted a fund balance policy for the General Fund. The City's policy is to maintain a minimum unassigned fund balance of 40% of budgeted operating expenditures for cash -flow timing needs. 9. Net Assets In the government -wide financial statements, net assets represent the difference between assets and liabilities. Net assets are displayed in three components: a. Invested in capital assets, net of related debt - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. b. Restricted net assets - Consist of net assets restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws or regulations of other governments. c. Unrestricted net assets - All other net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt ". 10. Comparative Data /Reclassifications Comparative total data for the prior year have been presented only for individual enterprise funds in the fund financial statements in order to provide an understanding of the changes in the financial position and operations of these funds. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. Note 2: STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are legally adopted for the General fund and the Library, Ice Arena, Pinewood Golf Course, Landfill and Economic Development Authority special revenue funds. Project - length financial plans are adopted for all capital projects funds. All annual appropriations lapse at fiscal yearend. 43 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 2: STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY — CONTINUED On or before July 1 of each year, all departments and agencies of the City submit requests for appropriation to the City's administrator so that a budget may be prepared. Before September 15, the proposed budget is presented to the City Council for review and approval. The City Council holds public hearings and may add to, subtract from, or change appropriations. Any changes in the budget must be within the revenue and reserves estimated as available or the revenue estimates must be changed by an affirmative vote by a majority of the City Council. The budget is prepared by fund, function, and activity and includes information on the past year, current year estimates, and requested appropriations for the next fiscal year. Expenditures may not legally exceed budgeted appropriations at the fund level without Council approval. Spending control is established by the amount of expenditures budgeted for the fund, but management control is exercised at the department level. Reported budget amounts are as originally adopted or as amended by Council approved supplemental appropriations and budget transfers. Supplemental budgetary appropriations decreased $65,000 due mainly to an increase in building permit revenues offset with an increase in expenditures related to personnel adjustments. B. Excess of Expenditures Over Appropriations For the year ended December 31, 2011, expenditures exceeded appropriations in the Landfill fund by $22,438, which was funded by available fund balance. C. Deficit Fund Equity The following funds had deficit fund balances at December 31, 2011: Primary Government Capital Projects Funds Park Dedication $ 833,820 TIF Districts 225,827 The City plans to eliminate these deficits through future park dedication and tax increment fund revenues. Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the City's deposits may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes, the City maintains deposits at the depository banks authorized by the City Council, all of which are members of the Federal Reserve System. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds. Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City Treasurer or in a financial institution other than that furnishing the collateral. At year end, the City's carrying amount of deposits was $10,096,771 and the bank balance was $10,241,653. The bank balance was covered by federal depository insurance totaling $750,000 and the remaining balance was covered by securities held by the pledging financial institution's agent in the City's name. 44 CITY OF ELK RIMER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED The carrying amount of deposits for the HRA, a discretely presented component unit, was $919,821 and the bank balance was $919,821. The bank balance was covered by federal depository insurance and securities held by the pledging financial institution's agent in the HRA's name. Investments Minnesota Statutes and the City's investment policy authorize the City to invest in the following: a. Direct obligations or obligations guaranteed by the United States or its agencies. b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. c. General obligations of the State of Minnesota or any of its municipalities. d. Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and maturing in 270 days or less. The City's investment policy follows Minnesota State Statutes which reduces the City's exposure to credit, custodial credit and interest rate risks. Specific risk information for the City is as follows: ® Custodial credit risk - For investments, custodial credit risk is the risk that in the event of a failure of the counterparty, the government would not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. As of December 31, 2011 all investments were insured or registered, or securities were held by the City or its agent in the City's name. ® Credit risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper that is rated in the highest quality category by at least two nationally recognized rating agencies. The City's investment policy does not further limit the ratings of their investments. ® Concentration risk - Concentration risk is the risk of loss that may be caused by the city's investment in a single issuer. The City does not have a formal policy that limits the amount of investments in a single issuer. As of December 31, 2011, more than 5% of the City's investments were held in the following U.S. Agencies: Federal National Mortgage Association (32 %), Federal Home Loan Bank (24 %), and Federal Home Loan Mortgage Corporation (7 %). ® Interest rate risk - In accordance with its investment policy, the City diversifies its investment portfolio to eliminate the risk of loss resulting from the over - concentration of assets in a specific maturity. The maturities selected shall provide for stability of income and reasonable liquidity. The Minnesota Municipal Money Market Fund (4M Fund) is an external investment pool allowable under Minnesota Statutes and regulated by the Board of Directors of the League of Minnesota Cities. The 4M Fund is a customized cash management and investment program for Minnesota public funds designed to address the daily and long term investment needs of Minnesota cities and other municipal entities. The 4M Fund is an unrated 2a7 -like pool and the fair value of the position in the pool is the same as the value of pool shares. Financial statements of the 4M Fund can be obtained by contacting RBC Global Asset Management at 100 South Fifth Street Suite 2300, Minneapolis, MN 55402 -1240. 45 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED As of December 31, 2011, the City had the following investments that are insured or registered, or securities held by the City or its agent in the City's name. Types of Investments Pooled investments: Minnesota Municipal Money Market Fund Broker Money Markets Total pooled investments Non - pooled investments: Municipal Securities U.S. Government Securities Total U.S. Government Securities Negotiable CD's Total negotiable CD's Total non - pooled investments Total investments Deposits Cash on hand Total cash and investments Credit Segmented Quality/ Time Ratings (1) Distribution (2) N/A Less than 6 months N/A Less than 6 months AAA More than 5 years AAA 1 to 5 years AAA More than 5 years N/A Less than 6 months 6 to 12 months 1 to 5 years Fair Value and Carrying Amount $ 5,169,539 113,318 5,282,857 838,147 38,081,165 43,364,022 10,096,771 8,416 $ 53,469,209 (1) Ratings are provided by various credit rating agencies where applicable to indicate associated credit risk. (2) Interest rate risk is disclosed using the segmented time distribution method. N/A Indicates not applicable. Cash and investments are presented in the financial statements as follows: Statement of Net Assets Cash and investments Restricted cash and investments Statement of Fiduciary Net Assets Cash and investments Total 46 Primary Component Government Unit - HRA $ 52,681,853 $ 919,821 724,500 - 62,856 - $ 53,469,209 $ 919,821 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED B. Notes Receivable The City has made several business subsidy loans to local businesses, some of which were funded with grant proceeds received from the state and federal governments. The terns of repayment vary with each loan and will be repaid over a period of five years. Under the terms of the grant agreement, the City retains the grant repayments. Notes receivable of $276,223 in the Revolving Loan fund, $365,392 in the DTED Grant /Loan fund, and $90,000 in the TIF Districts fund are outstanding at December 31, 2011. In 2006, the HRA issued a loan to a developer to assist in the financing of a housing development for the benefit of low and moderate income residents which was funded with state grant proceeds. Repayment of the loan is deferred for 30 years, payable in one lump sum at an interest rate of one percent. C. Deferred Revenue Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: Delinquent property taxes receivable: General fund Improvement projects fund Nonmajor funds Delinquent special assessments: Improvement projects fund Nonmajor funds Special assessments not yet due: Improvement projects fund Nonmajor funds Notes receivable not yet due: Nommajor funds Unearned park dedication credits: Nonmajor funds Unearned miscellaneous fees: Nonmajor funds Total 47 Unavailable Unearned $ 352,479 2,726 72,400 116,298 35,923 1,180,492 2,012,637 276,223 487,887 3,314 $ 4,049,178 $ 491,201 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED D. Capital Assets In accordance with GAS13 Statement No. 34, the City has reported all capital assets including infrastructure in the government -wide statement of net assets. Capital asset activity for the year ended December 31, 2011 was as follows: 48 Beginning Ending Primary Government Balance Additions Deletions Balance Governmental activities: Capital assets not being depreciated: Land $ 37,469,632 $ 225,000 $ - $ 37,694,632 Construction in progress - 2,180,426 2,180,426 Total capital assets not being depreciated 37,469,632 2,405,426 39,875,058 Capital assets being depreciated: Buildings 36,233,521 35,463 - 36,268,984 Other improvements 4,642,152 78,505 - 4,720,657 Equipment 9,946,062 640,533 (276,426) 10,310,169 Infrastructure 75,128,542 75,128,542 Total capital assets being depreciated 125,950,277 754,501 (276,426) 126,428,352 Less accumulated depreciation for: Buildings 9,742,063 1,375,847 11,117,910 Other improvements 2,111,427 301,876 2,413,303 Equipment 6,146,132 857,193 (230,231) 6,773,094 Infrastructure 33,399,799 2,997,784 36,397,583 Total accumulated depreciation 51,399,421 5,532,700 (230,231) 56,701,890 Total capital assets being depreciated, net 74,550,856 (4,778,199) (46,195) 69,726,462 Governmental activities capital assets, net $ 112,020,488 $ (2,372,773) $ (46,195) $ 109,601,520 Business -type activities: Capital assets not being depreciated: Land $ 1,516,631 $ - $ - $ 1,516,631 Construction in progress 418,985 965,332 (1,178,591) 205,726 Total capital assets not being depreciated 1,935,616 965,332 (1,178,591) 1,722,357 Capital assets being depreciated: Buildings 19,342,790 - - 19,342,790 Equipment 4,752,351 462,816 (84,778) 5,130,389 Collection and distribution 99,071,720 1,985,915 - 101,057,635 Total capital assets being depreciated 123,166,861 2,448,731 (84,778) 125,530,814 Less accumulated depreciation for: Buildings 7,052,539 647,848 7,700,387 Equipment 3,569,911 277,579 (26,493) 3,820,997 Collection and distribution 38,092,375 3,212,660 41,305,035 Total accumulated depreciation 48,714,825 4,138,087 (26,493) 52,826,419 Total capital assets being depreciated, net 74,452,036 (1,689,356) (58,285) 72,704;395 Business -type activities capital assets, net $ 76,387,652 $ (724,024) $ (1,236,876) $ 74,426,752 48 CITE' OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Capital asset activity for the HRA component unit for the year ended December 31, 2011 was as follows: Beginning Ending Component Unit Balance Additions Deletions Balance Capital assets not being depreciated: Land $ - $ 257,100 $ - $ 257,100 The HRA owned a downtown building that was originally acquired for redevelopment purposes, but due to structural impairments the building was demolished and the vacant land will now become part of the downtown parking lot. Depreciation expense was charged to functions /programs of the primary government as follows: Governmental activities: General government $ 307,341 Public safety 730,132 Public works 3,334,935 Culture and recreation 1,160,292 Total depreciation expense - governmental activities $ 5,532,700 Business -type activities: Municipal liquor $ 123,130 Sewer 993,043 Water 980,197 Electric 2,041,717 Total depreciation expense - business -type activities $ 4,138,087 Construction commitments At December 31, 2011, the City had a construction project contract in progress. The commitment related to the remaining contract balance is summarized as follows: Project Public Works Facility Expansion 49 Spent Remaining to date Commitment $ 698,564 $ 627,561 CITY OF ELI{ RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED E. Interfund Receivables, Payables, and Transfers The composition of interfund balances as of December 31, 2011 is as follows: Due to /from other funds: Receivable Fund General General Garbage Sewer Sewer Water Water Electric Electric Nonmajor governmental funds Nonmajor governmental funds Total Payable Fund Amount Electric $ 65,666 Nonmajor governmental funds 17,238 Electric 107,723 Electric 125,006 Nonmajor governmental funds 171,800 Improvement Projects 28,255 Nonmajor governmental funds 114,216 General 3,075 Nonmajor governmental funds 24,476 Electric 101,710 Nonmajor governmental funds 775,588 $ 1,534,753 The interfund receivable /payable balances result from the distribution of utility collections and the lending /borrowing arrangements between funds for operating or capital purposes. Due to /from component unit: Receivable Entity Payable Entity Primary government - General Fund Component unit - HRA Component unit - HRA Primary government - TIF Districts Ammint $ 9,730 291,505 The outstanding balance between the primary government and the component unit represents the transfer for administrative services and the lending /borrowing arrangement to finance construction costs. The $291,505 payable to the HRA will be paid with the collection of tax increment revenue and will not be repaid within one year. 50 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Interfund transfers: Governmental funds: Transfer In Transfer Out Major funds - General $ 769,500 $ 397,166 Improvement projects 40,000 312,823 Nonmajor funds 5,169,405 1,658,062 Total governmental funds 5,978,905 2,368,051 Proprietary funds: Municipal liquor - 3,115,592 Garbage 18,330 - Sewer - 90,000 Water 312,823 25,000 Electric - 711,415 Total proprietary funds 331,153 3,942,007 Total $ 6,310,058 $ 6,310,058 Interfund transfers are used to allocate financial resources to the funds that receive benefit from services provided by another fund, to provide additional capital funding, or to move revenues from the fund with collection authorization to debt service funds as principal and interest payments come due. In addition, interfund transfers are occasionally authorized to allow redistribution of resources between funds for the most efficient use of funds. In 2011, the Municipal Liquor fund transferred $2,750,000 to the Government Buildings fund to provide financing for the public works facility expansion project. The Government Buildings fund transferred $329,196 to the Emergency /Insurance Reserve fund to pay for the settlement of a land use claim. 51 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED F. Long -term Debt Long -term debt obligations outstanding at year end are summarized as follows: Issue Maturity Interest Authorized Payable PRIMARY GOVERNMENT Date Date Rate and Issued 12/31/11 GOVERNMENTAL ACTIVITIES General Obligation Bonds: 2006C G.O. Capital Improvement Bonds 12/14/2006 2/1/2027 3.80 -4.05% $ 3,220,000 $ 2,790,000 2007D EDA G.O. Bonds 11/8/2007 2/1/2033 3.80 -4.30% 10,000,000 10,000,000 2008A EDA G.O. Bonds 2/20/2008 2/1/2015 3.38% 2,000,000 1,235,000 State -Aid Road Bonds 7/7/2008 8/20/2013 1.31% 2,431,500 991,000 2010A G.O. Capital Improvement Bonds 4/21/2010 2/1/2023 2,00 -4.00% 6,105,000 5,660,000 Total general obligation bonds 23,756,500 20,676,000 Special Assessment Bonds: 2003A G.O. Improvement Bonds 12/9/2003 2/1/2014 2.00 -4.00% 1,255,000 240,000 2005A G.O. Improvement Bonds 6/14/2005 2/1/2016 2.75 -3.70% 1,070,000 555,000 2007C G.O. Improvement Bonds 6/26/2007 2/1/2018 4.00% 3,090,000 2,160,000 Total special assessment bonds 5,415,000 2,955,000 Tax Increment Bonds 2000A G.O. Tax Increment Bonds 11/1/2000 2/1/2015 4,45 -5.30% 800,000 305,000 Total bonded indebtedness 29,971,500 23,936,000 Contracts for deeds 4/12/2008 4/6/2013 5.00 -6.00% 1,800,000 1,410,000 Compensated absences payable - 1,278,871 Net OPEB obligation - 156,323 Total governmental activities indebtedness $ 31,771,500 $ 26,781,194 BUSINESS -TYPE ACTIVITIES: General Obligation Revenue Bonds: 2003B G.O. Water Revenue Bonds 12/9/2003 2/1/2014 2.00 -3.70% 1,995,000 $ 685,000 2005B G.O. Sewer Revenue Refunding Bonds 6/14/2005 2/1/2016 3.00 -4.00% 1,660,000 905,000 2008A G.O.Water Revenue Refunding Bonds 2/20/2008 2/1/2022 2.50 -3.65% 3,085,000 2,705,000 2010A G.O. Capital Improvement Bonds 4/21/2010 8/1/2023 2.00 -4.00% 1,265,000 1,180,000 Total general obligation revenue bonds 8,005,000 5,475,000 Revenue Bonds: 2004A Electric Revenue Bonds 8/l/2004 2/1/2015 3.00 -4.25% 940,000 430,000 2005C Liquor Revenue Bonds 6/1/2005 2/1/2015 4.50% 1,200,000 730,000 2006A Electric Revenue Bonds 3/2/2006 8/1/2021 3.15 -4.00% 3,595,000 2,620,000 2007A Electric Revenue Bonds 3/28/2007 2/1/2022 4,00% 2,875,000 2,530,000 Total revenue bonds 8,610,000 6,310,000 Total bonded indebtedness 16,615,000 11,785,000 Promissory note 3/19/2002 12/31/2022 -% 3,521,000 2,162,882 Compensated absences payable - 403,657 Net OPEB obligation - 54,072 Total business-type activities indebtedness $ 20,136,000 $ 14,405,611 Total City indebtedness $ 51,907,500 $ 41,186,805 52 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Annual debt service requirements to maturity for long -term obligations are as follows: 2012 2013 2014 2015 2016 2017-2021 2022-2023 Total Total $ Primary Government - Governmental Activities 32,727 $ 1,410,000 $ G.O. Bonds Special Assessment Bonds Principal Interest Principal Interest 2012 $ 1,317,000 $ 744,673 $ 505,000 $ 105,223 2013 1,344,000 715,172 510,000 85,980 2014 870,000 684,867 475,000 67,020 2015 900,000 660,258 420,000 49,625 2016 975,000 632,096 425,000 33,128 2017-2021 5,415,000 2,590,681 620,000 24,800 2022-2026 4,785,000 1,507,854 - - 2027- 2031 3,525,000 700,310 - 285,000 2032-2033 1,545,000 67,188 - - Total $ 20,676,000 $ 8,303,099 $ 2,955,000 $ 365,776 Total $ 305,000 $ 32,727 $ 1,410,000 $ 169,200 Primary Government - Business -Type Activities G.O. Revenue Bonds Revenue Bonds Notes Payable Principal Interest Principal Interest Principal Interest $ 725,000 $ 171,369 $ 655,000 240,685 $ 183,444 - 760,000 148,658 695,000 214,070 186,581 775,000 124,349 740,000 185,608 189,353 485,000 104,224 770,000 155,424 191,511 500,000 88,233 470,000 131,160 194,297 - 1,720,000 256,556 2,695,000 362,132 1,004,950 - 510,000 14,728 285,000 5,700 212,746 - $ 5,475,000 $ 908,117 $ 6,310,000 $ 1,294,779 $ 2,162,882 $ 53 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Long -term liability activity for the year ended December 31, 2011 was as follows: PRIMARY GOVERNMENT GOVERNMENTAL ACTIVITIES: Bonds payable: General obligation bonds G.O. revenue bonds Special assessment bonds Tax increment bonds Certificates of indebtedness Deferred amounts: Issuance premium On refunding Total bonds payable, net Capital lease Contracts for deeds Compensated absences Net OPEB obligation Governmental activity long -term liabilites BUSINESS -TYPE ACTIVITIES: Bonds payable G.O. revenue bonds Revenue bonds Deferred amounts: issuance premium On refunding Total bonds payable, net Notes payable Compensated absences Net OPEB obligation Business -type activity long -term liabilities Total primary government long -term liabilities Beginning Ending Due Within Balance Additions Reductions Balance One Year $ 22,002,000 $ - $ (1,326,000) $ 20,676,000 $ 1,317,000 540,000 - (540,000) - - 3,460,000 - (505,000) 2,955,000 505,000 375,000 - (70,000) 305,000 70,000 87,400 - (87,400) - - 241,892 - (19,953) 221,939 - (439,641) - 36,265 (403,376) - 26,266,651 - (2,512,088) 23,754,563 1,892,000 8,496 - 1,491,250 - 1,198,485 555,664 91,502 89,068 (8,496) - (81,250) 1,410,000 (475,278) 1,278,871 (24,247) 156,323 519,740 $ 29,056,384 $ 644,732 $ (3,101,359) $ 26,599,757 1 $ 2,411,740 $ 6,180,000 $ - $ (705,000) $ 5,475,000 $ 725,000 6,940,000 - (630,000) 6,310,000 655,000 49,750 - (4,094) 45,656 - (100,254) - 8,250 (92,004) - $ 13,069,496 $ - $ (1,330,844) $ 11,738,652 $ 1,380,000 2,345,318 - (182,436) 2,162,882 183,444 392,889 215,543 (204,775) 403,657 184,125 39,173 15,653 (754) 54,072 - $ 15,846,876 $ 231,196 $ (1,718,809) $ 14,359,263 1 $ 1,747,569 $ 44,903,260 $ 875,928 $ (4,820,1681 $ 40,959,020 $ 4,159,309 For the governmental activities, bonds payable can be summarized in the following categories: The general obligation bonds were used to construct a library, a recreation facility, a public safety facility and finance a street improvement project. The recreation facility is leased to the YMCA, which has pledged to pay one - third of the $11,510,000 bonds outstanding. The bonds are general obligations of the City and are backed by its full faith and credit. The general obligation revenue bonds were used for the expansion of an indoor ice arena, The bonds were payable from revenues of the ice arena but were backed by the full faith and credit of the City. The special assessment bonds are used to finance assessable improvements within the City. The bonds are payable primarily from special assessments levied against properties benefited by the improvements. In addition, the bonds are general obligations of the City and are backed by its full faith and credit. 54 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS — CONTINUED The tax increment bonds are used to finance land acquisition and other public costs to facilitate development within the tax increment district. The bonds are payable from tax increment revenues generated by existing and new development within the district. In addition, the bonds are general obligations of the City and are backed by its full faith and credit. The certificates of indebtedness were used to finance the purchase of capital equipment. The certificates were general obligations backed by the full faith and credit of the City. For the governmental activities, the City also entered into a contract for deed to finance the acquisition of park property. Compensated absences and other postemployment benefits are generally liquidated through the General fund. For the business -type activities, the general obligation revenue bonds were issued to finance capital improvements. The bonds are payable from future revenues pledged fi•orn the Sewer and Water funds and are backed by the full faith and credit of the City. Annual principal and interest payments on the bonds are expected to require about 13 and 33 percent of revenues from the Sewer and Water funds, respectively. For 2011, principal and interest paid and total customer revenues for the Sewer fund were $197,115 and $1,495,350, respectively. For 2011, principal and interest paid and total customer revenues for the Water fund were $601,603 and $1,832,817, respectively. The revenue bonds were issued to finance the acquisition and construction of major capital facilities. They will be repaid from future revenues pledged from the Municipal Liquor and Electric funds, Annual principal and interest payment on the bonds are expected to require about 11 and 3 percent of revenues from the Municipal Liquor and Electric funds, respectively. For 2011, principal and interest paid and total customer revenues for the Municipal Liquor fund were $186,225 and $1,760,240, respectively. For 2011, principal and interest paid and total customer revenues for the Electric fund were $808,945 and $28,583,986, respectively. The City also issued a promissory note to provide for the construction of a landfill gas generator. The note is to be paid from revenue of the system and is secured by the facility, G. Fund Balance Classification At December 31, 2011, a summary of the governmental fund balance classifications are as follows: Other General Improvement Governmental Fund Projects Funds Total . Nonspendable: Prepaid items $ - $ - $ 57,870 $ 57,870 Restricted for: Debt service $ - $ - $ 2,928,263 $ 2,928,263 Landfill mitigation - - 886,105 886,105 Economic development - - 2,091,329 2,091,329 Insurance benefits 20,390 - 22,850 43,240 Law enforcement - - 13,821 13,821 Total restricted $ 20,390 $ - $ 5,942,368 $ 5,962,758 55 CITY OF ELiC RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 3: DETAILED NOTES ON ALL FUNDS — CONTINUED Committed to: Library operations Ice arena Senior citizen programs Economic development Insurance reserve OPEB obligation Total committed Assigned to: 2012 budget Subsequent years budgets Landfill mitigation Law enforcement Debt service Economic development Capital equipment Building construction /improvements Street improvements Other improvement projects Park improvements Total assigned Note 4: OTHER INFORMATION A. Risk Management General Improvement Fund Projects Other Governmental Funds Total $ $ $ 442,183 $ 442,183 - 13,755 13,755 - 10,508 10,508 - - 1,985,961 1,985,961 - - 260,238 260,238 156,323 - 156,323 $ 156,323 $ $ 2,712,645 $ 2,868,968 $ 366,150 $ $ - $ 366,150 493,358 - - 493,358 - - 682,208 682,208 - 222 222 - 18,265 18,265 - 158,769 158,769 - - 2,500,571 2,500,571 - 5,507,987 5,507,987 - 4,977,180 4,977,180 - 4,427,389 1,276,255 5,703,644 - - 187,949 187,949 $ 859,508 $ 4,427,389 $ 15,309,406 $ 20,596,303 The City is exposed to various risks of loss related to torts; theft of damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance. The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT) which is a risk sharing pool with approximately 800 other governmental units, The City pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self - sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. B. Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial. The City's tax increment districts are subject to review by the State of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. The City's management is not aware of any instances of noncompliance which would have a material effect on the financial statements. 56 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION — CONTINUED C. Territorial Acquisition Agreement The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to customers in certain areas currently receiving electric service from Connexus Energy. The cost of property purchased from Connexus Energy will be net book value. The Utilities will also pay for loss of revenue for each area acquired based on a formula outlined in the agreement. In addition, the Utilities will compensate Connexus Energy for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from Connexus Energy for a period of ten years from the date of sale of each individual area. During 2010, the Utilities paid $102,555 for the final purchase under this agreement. The Utilities also paid $8,114 in 2011 and $8,107 in 2010 for loss of revenues. All amounts paid are included in property and equipment. D. Pension Plans 1. Public Employees Retirement Association a. Plan Description All full -time and certain part-time employees of the City of Elk River are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF) which are cost - sharing, multiple- employer retirement plans. These plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by the PEPFF. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by state statute, and vest after three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year, Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For PEPFF members, the annuity accrual rate is 3.0 percent for each year of service. For all PEPFF and GERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 55 for PEPFF members and 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated members hired on or after July 1, 1989, A reduced retirement annuity is also available to eligible members seeking early retirement. 57 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION — CONTINUED There are different types of annuities available to members upon retirement. A single -life annuity is a lifetime annuity that ceases upon the death of the retiree —no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for GERF and PEPFF. That report may be obtained on the internet at www.mnpera.org, by writing to PERA, at 60 Empire Drive #200, St. Paul, Minnesota, 55103 -2088 or by calling (651) 296 -7460 or 1 -800- 652 -9026. b. Funding Policy Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions, These statutes are established and amended by the state legislature. The City makes annual contributions to the pension plans equal to the amount required by state statutes. GERF Basic Plan members and Coordinated Plan members are required to contribute 9.1 % and 6.25 %, respectively, of their annual covered salary in 201 1. PEPFF members were required to contribute 9.6% of their annual covered salary in 2011. In 2011, the City of Elk River was required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan members, 7.25% for Coordinated Plan members, and 14.4% for PEPFF members. The City's contributions to the General Employees Retirement Fund for the years ending December 31, 2011, 2010, and 2009 were $528,696, $501,726, and $496,994, respectively. The City's contributions to the Public Employees Police & Fire Fund for the years ending December 31, 2011, 2010, and 2009 were $355,670, $357,977, and $340,677, respectively, The City's contributions were equal to the contractually required contributions for each year as set by state statute. c. Defined Contribution Plan Three council members of the City of Elk River are covered by the Public Employees Defined Contribution Plan ( PEDCP), a multiple - employer deferred compensation plan administered by the Public Employees Retirement Association of Minnesota (PERA). The PEDCP is a tax qualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan provisions, including the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5 percent of salary which is matched by the elected official's employer. For salaried employees, employer contributions are determined by the employer and must be a fixed percentage of salary, Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. Employer and employee contributions are combined and used to purchase shares in one or more of the seven accounts of the Minnesota Supplemental Investment Fund. For administering the plan, PERA receives 2 percent of employer contributions and twenty -five hundredths of one percent of the assets in each member's account annually, 58 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL, STATEMENTS DECEMBER 3l, 2011 Note 4: OTHER INFORMATION — CONTINUED Total contributions made by the City of Elk River during fiscal year 2011 were: Contribution Amount Employee Employer $1,380 $1,380 Percentage of Covered Payroll Required Employee Employer Rates 5.0% 5.0% 5.0% 2. Volunteer Fire Department Relief Association a. Plan Description The Elk River Fire Relief Association is the administrator of a single employer public employee defined benefit retirement system (PERS) established to provide benefits for members of the Elk River Fire Department. The Fire Relief Association maintains a separate Special fund to accumulate assets to fund the retirement benefits earned by the Fire Department's membership. Funding for the relief association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). The Fire Relief Association issues a publicly available financial report that includes financial statements and required supplementary information. The report may be obtained by writing to the Elk River Fire Department Relief Association, 13073 Orono Parkway, Elk River, MN 55330. b. Funding Policy The financial requirements of the Special fund are determined in accordance with Section 69.772 of the Minnesota Statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The Association is comprised of volunteers and therefore members have no contribution requirements. During the year, the City recognized as revenue and as expenditure on- behalf payments of $118,522 made by the State of Minnesota for the Fire Relief Association. The following summarizes the City's annual pension cost and other related information for the current year: Annual Pension Cost $157,022 Contributions Made: City $38,500 State Aid $118,522 Actuarial Valuation Date 12/31/11 Actuarial Cost Method Entry age normal Amortization Method Level dollar closed Remaining Amortization Period: Normal cost 20 years Prior service cost 5 years Asset valuation method Market Actuarial Assumptions Investment rate of return 5% Projected salary increases N/A Inflation rate N/A Cost of living adjustments None 59 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION — CONTINUED The City's annual pension cost, the percentage of annual pension cost contributed, and the net pension obligation for the Relief Association for the year ended December 31, 2011 and the preceding fiscal years was as follows: Three Year Trend information c. Funded Status and Funding Progress As of December 31, 2011, the actuarial accrued liability was $2,540,365, of which $279,535 was unfunded. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Annual Percentage Year Pension of APC Net Pension Ending Cost (A PC) Contributed Obligation 12/31/09 $ 127,024 100% - 12/31/10 131,255 100% 12/31/11 157,022 100 % - c. Funded Status and Funding Progress As of December 31, 2011, the actuarial accrued liability was $2,540,365, of which $279,535 was unfunded. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Other Postemployment Benefits (OPEB) 1. City of Elk River a. Plan Description The City provides other postemployment health insurance benefits for retired employees through two defined benefit plans: Municipal Retirees Health Plan (MRHP), a single- employer plan, and Utilities Retirees Health Plan (URHP), a multi- employer plan. Each plan provides benefits for eligible retirees and their dependents through the City's group health insurance plans, which cover both active and retired members. Since the premium is a blended rate determined on the active and retiree population, the retirees are receiving an implicit rate subsidy. The MRHP and URHP do not issue publicly available financial reports, b. Funding Policy Contribution requirements are reviewed at the time changes are made to the plans. Benefit provisions for MRHP are established and amended by the City. The Utilities has been delegated authority to establish and amend benefit provisions for URHP. Eligible retirees receiving benefits are required to pay 100% of the total premium, 60 Assets in Excess of Actuarial Actuarial Actuarial (Unfunded) Valuation Value of Accrued Accrued Percentage Date Assets Liability Liability Funded 12/31/11 $ 2,260,830 $ 2,540,365 $ (279,535) 89.0% E. Other Postemployment Benefits (OPEB) 1. City of Elk River a. Plan Description The City provides other postemployment health insurance benefits for retired employees through two defined benefit plans: Municipal Retirees Health Plan (MRHP), a single- employer plan, and Utilities Retirees Health Plan (URHP), a multi- employer plan. Each plan provides benefits for eligible retirees and their dependents through the City's group health insurance plans, which cover both active and retired members. Since the premium is a blended rate determined on the active and retiree population, the retirees are receiving an implicit rate subsidy. The MRHP and URHP do not issue publicly available financial reports, b. Funding Policy Contribution requirements are reviewed at the time changes are made to the plans. Benefit provisions for MRHP are established and amended by the City. The Utilities has been delegated authority to establish and amend benefit provisions for URHP. Eligible retirees receiving benefits are required to pay 100% of the total premium, 60 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION - CONTINUED c. Annual OPEB Cost and Net OPEB Obligation The City's annual OPEB cost for each plan is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45, The ARC represents the level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The URHP has elected to calculate the ARC and related information using the alternative measurement method permitted for employers in plans with fewer than one hundred total plan members. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation: Annual required contribution (ARC) Interest on net OPEB obligation Adjustment to ARC Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year Municipal Utility Retiree Retiree Health Plan Health Plan $ 100,739 $ 6,199 4,023 1,204 i1Z '71)n� ti 7nm yy,wo (25,001) - 74,057 5,663 I nn C'10 1211 1) 010 Jp 114+,0.30 JP .»,IDy The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the last three years are as follows: lE Percentage of Annual Employer Annual OPEB Net Pension Fiscal Year Ended OPEB Cost Contribution Cost Contributed Obligation MRHP: 12/31/2009 $ 5,925 $ 2,601 44 % $ 100,696 12/31/2010 2,734 2,851 104% 100,579 12/31/2011 99,058 25,001 25% 174,636 URHP: 12/31/2009 $ 10,030 $ - - % $ 20,243 12/31/2010 9,853 - - % 30,096 12/31/2011 5,663 - % 35,759 lE CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL. STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION - CONTINUED d. Funded Status and Funding Progress As of January 1, 2011, the most recent actuarial valuation date, the funded status of the plan was as follows: Municipal Utility Retiree Retiree Health Plan Health Plan Actuarial accrued liability (a) $ 908,610 $ 42,681 Actuarial value of plan assets (b) - - Unfunded actuarial accrued liability (a -b) $ 908,610 $ 42,681 Funded ratio (b /a) 0.00% 0,00% Covered payroll (c) $ 6,901,671 $ 2,286,547 Unfunded actuarial accrued liability as a percentage of covered payroll ((a - b) / c) 13,17% 1,87% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information, following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. e. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short -term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long -term perspective of the calculations. For the MRHP, in the January 1, 2011 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 4% investment rate of return and an annual healthcare cost trend rate of 8% initially, reduced incrementally to an ultimate rate of 5% after six years. The actuarial value of assets was not determined as the City has not advance- funded its obligation. The plan's unfunded actuarial accrued liability was amortized as a level dollar amount over a closed basis. The remaining amortization period at December 31, 2011 was thirty years. For the URHP, the following simplifying assumptions were made: Retirement age for active employees — Based on the historical average retirement age for the covered group, active plan members were assumed to retire at age 62, or at the first subsequent year in which the member would qualify for benefits. Participation Rate — It is assumed that 10% of active participants continue coverage until age 65. Participants are assumed to continue in their current coverage type (single or family). It is assumed that 100% of retirees will continue their current coverage until age 65. 62 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION — CONTINUED Life Expectancy — Life expectancies were based on mortality tables from the National Center for Health Statistics. The 2000 United States Life Tables for Males and for Females were used. Turnover — Non - group - specific age -based turnover data from GASB Statement 45 were used as the basis for assigning active member a probability of remaining employed until the assumed retirement age and for developing an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid. Healthcare cost trend rate — The expected rate of increase in healthcare insurance premiums was based on projections of the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 8.5% initially, reduced to an ultimate rate of 5% after seven years, was used. Health insurance premiums — 2011 health insurance premiums for retirees were used as the basis for calculation of the present value of total benefits to be paid. Withdrawal — The probability that an employee will remain employed until the assumed retirement age was determined using non -group specific age -based turnover data provided in Table I in Paragraph 35b of GASB 45, Actuarial Method— Projected Unit Credit with 30 -year amortization of the unfunded liability. For the URHP, a discount rate of 4% was used based on the historical and expected returns of the Utilities' short -term investment portfolio. In addition, the project unit credit actuarial cost method was used. The unfunded actuarial accrued liability is being amortized as a level dollar amount over an open basis. The remaining amortization period at December 31, 2011 was thirty years. F. Change in Accounting Principle In 2008, with the implementation of GASB Statement 45 "Accounting and Financial Reporting by Employers.for Postemployment Benefits Other Than Pensions ", the City amortized the MRHP unfunded actuarial accrued liability over a period of one year. With the most recent actuarial valuation conducted in 2011 the City is now amortizing the unfunded actuarial accrued liability over a period of thirty years due to the recalculated actuarial valuation. G. Segment Information The City maintains five enterprise funds that account for the municipal liquor operations, garbage collections, and sewer, water and electric utilities. The City considers each of its enterprise funds to be a segment. Since the required segment information is already included in the City's proprietary funds' balance sheet and statement of revenues, expenses, and changes in net assets balance, this information has not been repeated in the notes to the basic financial statements. H. Conduit Debt Obligations From time to time, the City has issued revenue bonds to provide financial assistance to private- sector entities for the acquisition and construction of industrial and commercial, multi- family and educational facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payment received from the benefited entity. Neither the City, the State, nor any political subdivision thereof is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of December 31, 2011, there were seven series of revenue bonds outstanding, with an aggregate principal payable amount of $25,020,120. 63 CITE' OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL S'T'A'T'EMENTS DECEMBER 31, 2011 Note 4: OTHER INFORMATION — CONTINUED I. Commitments The City has received notice from their power supplier regarding the existing all requirements power contract exercising their right to give ten years notice to cancel the contract. The cancellation date would be effective September 30, 2018. The process has begun to renegotiate the existing contract, or contract with another supplier, In 2007 the City entered into an agreement with Central Minnesota Municipal Power Agency ( CMMPA) to acquire an interest in the CAPX Initiative Brookings Project, a 250 mile new power transmission line between Brookings, South Dakota, and the Twin Cities, In 2011 there was increased opportunity for investment, and subsequent agreements provide an ownership share of $5.6 million or 18.9 %. The return on this investment through CMMPA is designed to provide approximately $124,000 annually over the 40 year project life. The interim financing of the CAPX - Brookings project was closed February 2012 and the principal amount of this note will be paid off with the permanent financing scheduled for spring 2012. J. Subsequent Events On March 15, 2012, the City issued $6,975,000 General Obligation Capital Improvement Plan Bonds and $1,525,000 General Obligation Improvement Refunding Bonds. The $6,975,000 General Obligation Capital Improvement Plan Bonds will be used for the purpose of financing the public works facility expansion and renovation. The $1,525,000 General Obligation Improvement Refunding Bonds were issued to redeem the 2014 through 2018 maturities of the $3,090,000 General Obligation Improvement Bonds, Series 2007C. The bonds were issued in advance of the call date and placed in an escrow account which will be used to pay interest on the Series 2012B Bonds through February 1, 2013; and to pay the callable principal on the Series 2007C Bonds on February 1, 2013, The City will continue to pay principal and interest on the Series 2007C Bonds until the call date. The new refunding bonds have an average coupon rate of 2 percent and will mature on February 1, 2018. The net cash flow savings is calculated at $113,565. 64 CITY OF ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2011 Elk River Fire Relief Pension Plan Schedule of Funding Progress Other Postemployment Benefits Schedules of Funding Progress Municipal Retiree Health Plan Unfunded Assets in UAAL as a Actuarial Actuarial Actuarial Actuarial Excess of Annual Pension Actuarial Actuarial Actuarial (Unfunded) Covered Benefit Valuation Value of Accrued Accrued Percentage Per Year Date Assets Liability Liability Funded of Service 12/31/09 $ 2,224,430 $ 2,550,808 $ (326,378) 87.2% $ 5,091 12/31/10 2,190,827 2,398,067 (207,240) 91.4% 5,091 12/31/11 2,260,830 2,540,365 (279,535) 89.0% 5,091 Other Postemployment Benefits Schedules of Funding Progress Municipal Retiree Health Plan Utilities Retiree Health Plan Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Annual Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets (a) Liability (b) Liability (b -a) Rate Payroll (c) Payroll ((b -a) /c) 01/01/08 $ - $ 88,718 $ 88,718 0.00% $ 4,095,000 2.17% O1 /01 /11 - 908,610 908,610 0.00% 6,901,671 13.17% Utilities Retiree Health Plan M1 Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Annual Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets (a) Liability (b) Liability (b -a) Rate Payroll (c) Payroll ((b -a)/c) 01/01/08 $ - $ 56,892 $ 56,892 0.00% $ 2,300,000 2.47% 01/01/11 - 42,681 42,681 0.00% 2,286,547 1.87% M1 0, This page has been left blank intentionally Special Revenue Special revenue funds are used to account for the proceeds of proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. They are usually required by statute or local ordinance to finance particular functions or activities of government. Debt Service Debt service funds account for the accumulation of resources for, and the payment of, general long -term debt principal, interest and other related costs. Capital Projects Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds. ASSETS Cash and investments Receivables: Interest Taxes Accounts Special assessments Notes Due from other governments Due from other funds Prepaid items Total assets CITY OF ELI{ RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2011 Special Debt Capital Revenue Service Projects Funds Funds Funds Total Nonmajor Governmental Funds $ 7,093,820 $ 1,811,889 $ 14,488,985 $ 23,394,694 31,342 8,115 84,268 42,211 53,161 4,237 343,915 - 117,480 - 944,891 1,112,327 641,615 - 90,000 181 - 115,561 208,109 - 669,189 57,870 - - $ 8,419,063 $ 2,818,056 $ 16,682,047 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 169,402 $ 2,000 $ 485,269 Salaries payable 16,646 - - Due to other funds 186,903 - 916,415 Due to component unit - - 291,505 Deferred revenue 309,464 980,357 1,598,563 682,415 982,357 3,291,752 Total liabilities Fund balances: Nonspendable Restricted Committed Assigned Unassigned Total fund balances Total liabilities and fund balances 57,870 - - 4,106,669 1,835,699 - 2,712,645 - - 859,464 - 14,449,942 - - (1,059,647) 7,736,648 1,835,699 13,390,295 $ 8,419,063 $ 2,818,056 $ 16,682,047 123,725 99,609 461,395 2,057,218 731,615 115,742 877,298 57,870 $ 27,919,166 $ 656,671 16,646 1,103,318 291,505 2,888,384 4,956,524 57,870 5,942,368 2,712,645 15,309,406 (1,059,647) 22,962,642 $ 27,919,166 CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2011 67 Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds REVENUES Property taxes $ 833,992 $ 1,029,029 $ 970,846 $ 2,833,867 Intergovernmental revenue 18,916 511,167 613,388 1,143,471 Charges for services 966,073 - 9,774 975,847 Fines and forfeits 22,270 - - 22,270 Special assessments - 327,975 453,078 781,053 Interest income 98,672 13,567 226,072 338,311 Miscellaneous revenue: Landfill host fee - - 896,904 896,904 Refunds and reimbursements 198,467 - 13,000 211,467 Other 291,216 243,907 818,229 1,353,352 Total revenues 2,429,606 2,125,645 4,001,291 8,556,542 EXPENDITURES Current: General government 579,852 - 41,056 620,908 Public safety 9,109 - 26,900 36,009 Public works 85,288 - 543,680 628,968 Culture and recreation 891,885 - 116,164 1,008,049 Economic development 705,358 - 773,782 1,479,140 Debt service: Principal 8,496 2,528,400 81,250 2,618,146 Interest and service charges - 956,723 103,081 1,059,804 Capital outlay: Public safety - - 208,546 208,546 Public works - - 1,148,808 1,148,808 Culture and recreation 42,143 - 269,975 312,118 Infrastructure /development projects - - 1,085,178 1,085,178 Total expenditures 2,322,131 3,485,123 4,398,420 10,205,674 Excess (deficiency) of revenues over (under) expenditures 107,475 (1,359,478) (397,129) (1,649,132) OTHER FINANCING SOURCES (USES) Transfers in 476,362 1,140,619 3,552,424 5,169,405 Transfers out (554,110) (3,117) (1,100,835) (1,658,062) Sale of capital assets - - 23,233 23,233 Total other financing sources (uses) (77,748) 1,137,502 2,474,822 3,534,576 Net change in fund balances 29,727 (221,976) 2,077,693 1,885,444 Fund balances - January 1 7,706,921 2,057,675 11,312,602 21,077,198 Fund balances - December 31 $ 7,736,648 $ 1,835,699 $ 13,390,295 $ 22,962,642 67 This page has been left blank intentionally N®NMAJOR SPECIAL REVENUE FUNDS Library - This fund accounts for any library maintenance costs which are not paid by the Great River Regional Library System. Ice Arena - This fund accounts for the operation and maintenance of the ice arena which is funded by user fees. Pinewood Golf Course - This fund was established to account for the operation and maintenance of the municipal -owned nine -hole golf course which is funded by user fees. Senior Citizen Account - This fund is used to account for Senior Citizen program costs funded by revenues generated from Senior Citizen activities. Landfill - This fund was established to segregate solid waste surcharge revenues to be used for landfill abatement and other environmental issues. Revolving Loan - This fund was established to account for the City's portion of state economic development grant repayments which are used to fund other economic development projects. DTED Grant/Loan - This fund was established to account for the Department of Trade and Economic Development grant repayments which are used to fund economic development projects. Development Fund - This fund was established to attract businesses to develop within the City's business park. Emergency /Insurance Reserve - This fund was opened to account for insurance deductibles and litigation costs not covered by insurance. The major source of revenue is from insurance premium refands. Drug Forfeiture Reserve - This fund was established to account for revenues received as a result of drug related crimes. These funds must be used for drug education and prevention. YMCA Grant - This fiord was established to account for grant revenues received from the County for the YMCA building. Economic Development Authority - This fund was established to account for a special tax levy authorized to help encourage development in the City. CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS DECEMBER 31, 2011 68 Senior Pinewood Citizen Library Ice Arena Golf Course Account Landfill ASSETS Cash and investments $ 440,124 $ $ 12,745 $ 10,448 $ 1,561,611 Receivables: Interest 2,516 - 60 9,060 Taxes 3,290 - - Accounts - 215,617 1,591 Notes - - Due from other governments Due from other funds Prepaid items - - Total assets $ 445,930 $ 215,617 $ 12,745 $ 10,508 $ 1,572,262 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 1,271 $ 47,075 $ 7,878 $ $ 2,470 Salaries payable 9,984 2,357 1,479 Due to other fiords 96 143,999 - - Deferred revenue 2,380 804 2,510 - Total liabilities 3,747 201,862 12,745 3,949 Fund balances: Nonspendable - - - - Restricted - - - 886,105 Committed 442,183 13,755 10,508 - Assigned - - - 682,208 Total fund balances 442,183 13,755 10,508 1,568,313 Total liabilities and find balances $ 445,930 $ 215,617 $ 12,745 $ 10,508 $ 1,572,262 68 69 Emergency/ Drug Economic Total Nonmajor Revolving DTED Development Insurance Forfeiture YMCA Development Special Revenue Loan Grant /Loan Fund Reserve Reserve Grant Authority Funds $ 1,269,793 $ 329,021 $ 448,994 $ 327,117 $ 13,911 $ 1,104,514 $ 1,575,542 $ 7,093,820 7,260 1,881 2,300 1,870 80 6,315 - 31,342 19,654 - - - 19,267 42,211 50,000 - 67,514 9,193 - 343,915 276,223 365,392 - - - 641,615 - - - - 181 181 - 142,386 65,723 - - 208,109 - - 57,870 - 57,870 $ 1,603,276 $ 696,294 $ 680,848 $ 461,773 $ 14,172 $ 1,110,829 $ 1,594,809 $ 8,419,063 $ $ $ 8,305 $ 95,245 $ 129 $ $ 7,029 $ 169,402 - - - 2,826 16,646 - 25,570 17,238 186,903 276,223 13,635 - - 13,912 309,464 276,223 21,940 120,815 129 41,005 682,415 - 57,870 - - 57,870 - 696,294 - 22,850 13,821 1,092,564 1,395,035 4,106,669 1,327,053 - 658,908 260,238 - - - 2,712,645 - - - - 222 18,265 158,769 859,464 1,327,053 696,294 658,908 340,958 14,043 1,110,829 1,553,804 7,736,648 $ 1,603,276 $ 696,294 $ 680,848 $ 461,773 $ 14,172 $ 1,110,829 $ 1,594,809 $ 8,419,063 69 CITE' OF ELK RIVER, MINNESOTA SUBCOMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS YEAR ENDED DECEMBER 31, 2011 70 Senior Pinewood Citizen Library Ice Arena Golf Course Account Landfill REVENUES �- Property taxes $ 61,447 $ $ - $ $ Intergoverrmiental revenue - - Charges for services 730,869 169,753 8,885 Fines and forfeits - - - - Interest income 6,546 - - 156 24,826 Miscellaneous revenue: Refunds and reimbursements - - - - Other 23,647 21,658 - 521 - Total revenues 91,640 752,527 169,753 9,562 24,826 EXPENDITURES Current: General government - - - - - Public safety - Public works - - - - 85,288 Culture and recreation 72,813 592,961 218,054 8,057 - Economic development - - - - Debt service: Principal - - 8,496 - Capital outlay: Culture and recreation - 42,143 - - Total expenditures 72,813 635,104 226,550 8,057 85,288 Excess (deficiency) of revenues over (under) expenditures 18,827 117,423 (56,797) 1,505 (60,462) OTHER FINANCING SOURCES (USES) Transfers in - 90,369 56,797 - Transfers out - (200,780) - - (78,330) Total other financing sources (uses) - 110,411 56,797 - (78,330) Net change in fund balances 18,827 7,012 - 1,505 (138,792) Fund balances - January 1 423,356 6,743 - 9,003 1,707,105 Fund balances - December 31 $ 442,183 $ 13,755 $ $ 10,508 $ 1,568,313 70 - 579,852 - - 9,109 31,462 - 484,836 31,462 - 484,836 579,852 9,109 579,852 9,109 85,288 - 891,885 189,060 705,358 - 8,496 - 42,143 189,060 2,322,131 216,360 17,157 42,979 Emergency/ Drug 18,265 Economic Total Nonmajor Revolving DTED Development Insurance Forfeiture YMCA Development Special Revenue Loan Grant /Loan Fund Reserve Reserve Grant Authority Funds $ $ - $ 410,624 $ $ $ $ 361,921 $ 833,992 - _ _ - (250,000) - 18,916 18,916 - 11,716 41,300 - (231,735) - 3,550 966,073 - - - - 22,270 - - 22,270 17,432 5,441 14,227 5,641 222 18,265 5,916 98,672 - - 46,664 151,803 - - - 198,467 230,390 - 15,000 - - - - 291,216 247,822 17,157 527,815 157,444 22,492 18,265 390,303 2,429,606 - 579,852 - - 9,109 31,462 - 484,836 31,462 - 484,836 579,852 9,109 579,852 9,109 85,288 - 891,885 189,060 705,358 - 8,496 - 42,143 189,060 2,322,131 216,360 17,157 42,979 (422,408) 13,383 18,265 201,243 107,475 _ _ - 329,196 - - - 476,362 _ - (250,000) (25,000) (554,110) _ - - 329,196 - (250,000) (25,000) (77,748) 216,360 17,157 42,979 (93,212) 13,383 (231,735) 176,243 29,727 1,110,693 679,137 615,929 434,170 660 1,342,564 1,377,561 7,706,921 $ 1,327,053 $ 696,294 $ 658,908 $ 340,958 $ 14,043 $ 1,110,829 $ 1,553,804 $ 7,736,648 71 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LIBRARY MAINTENANCE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2011 EXPENDITURES Culture and recreation: Current 95,350 95,350 72,813 22,537 Net change in fund balance $ 1,650 $ 1,650 18,827 $ 17,177 Fund balance - January 1 423,356 Fund balance - December 31 $ 442,183 72 Budget Variance with Original Final Actual Final Budget REVENUES General property taxes $ 63,100 $ 63,100 $ 61,447 $ (1,653) Interest income 6,900 6,900 6,546 (354) Miscellaneous revenue: Other 27,000 27,000 23,647 (3,353) Total revenues 97,000 97,000 91,640 (5,360) EXPENDITURES Culture and recreation: Current 95,350 95,350 72,813 22,537 Net change in fund balance $ 1,650 $ 1,650 18,827 $ 17,177 Fund balance - January 1 423,356 Fund balance - December 31 $ 442,183 72 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ICE ARENA FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2011 EXPENDITURES Culture and recreation: Current Budget 619,650 592,961 Variance with Capital Outlay Original Final Actual Final Budget REVENUES 664,050 664,050 635,104 28,946 Charges for services $ 688,600 $ 688,600 $ 730,869 $ 42,269 Miscellaneous revenue: O'T'HER FINANCING SOURCES (USES) Vending machines 16,650 16,650 11,797 (4,853) Other 3,350 3,350 9,861 6,511 Total revenues 708,600 708,600 752,527 43,927 EXPENDITURES Culture and recreation: Current 619,650 619,650 592,961 26,689 Capital Outlay 44,400 44,400 42,143 2,257 Total expenditures 664,050 664,050 635,104 28,946 Excess of revenues over expenditures 44,550 44,550 117,423 72,873 O'T'HER FINANCING SOURCES (USES) Transfers in 156,250 156,250 90,369 (65,881) Transfers out (200,800) (200,800) (200,780) 20 Total other financing sources (uses) (44,550) (44,550) (110,411) (65,861) Net change in fund balance $ - $ - 7,012 $ 7,012 Fund balance - January 1 Fund balance - December 31 73 6,743 $ 13,755 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - PINEWOOD GOLF COURSE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2011 REVENUES Charges for services EXPENDITURES Culture and recreation: Current Debt service: Principal Total expenditures Deficiency of revenues under expenditures OTHER FINANCING SOURCES Transfers in Net change in fund balance Fund balance - January 1 Fund balance - December 31 Budget Original Final $ 200,600 $ 200,600 Variance with Actual Final Budget $ 169,753 $ (30,847) 241,050 241,050 218,054 22,996 8,500 8,500 8,496 4 249,550 249,550 226,550 23,000 (48,950) (48,950) (56,797) (7,847) 48,950 48,950 74 56,797 7,847 CITY OF ELK RIVER, MINNESOTA SPECIAL, REVENUE FUND - LANDFILL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL, YEAR ENDED DECEMBER 31, 2011 Budget Variance with Original Final Actual Final Budget REVENUES Interest income $ 20,000 $ 20,000 $ 24,826 $ 4,826 EXPENDITURES Public works Current 62,850 62,850 85,288 (22,438) Deficiency of revenues under expenditures (42,850) (42,850) (60,462) (17,612) OTHER FINANCING USES Transfers out (88,950) (88,950) (78,330) 10,620 Net change in fund balance $ (131,800) _L J111,800) (138,792) $ (6,992) Fund balance - January 1 1,707,105 Fund balance - December 31 $ 1,568,313 75 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ECONOMIC DEVELOPMENT AUTHORITY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2011 REVENUES Property taxes Intergovernmental revenue Charges for services Interest income Total revenues EXPENDITURES Current: Economic development Excess of revenues over expenditures OTHER FINANCING USES Transfers out Net change in fund balance Fund balance - January 1 Fund balance - December 31 Budget Original Final $ 361,921 $ 375,900 $ 375,900 3,500 3,500 15,000 15,000 394,400 394,400 240,050 240,050 154,350 154,350 Variance with Actual Final Budget $ 361,921 $ (13,979) 18,916 18,916 3,550 50 5,916 (9,084) 390,303 (4,097) 201,243 (25,000) (25,000) (25,000) $ 129,350 $ 129,350 176,243 76 1,377,561 $ 1,553,804 50,990 46,893 $ 46,893 N®NMAd ®R DEIST SERVICE FUNDS Improvement Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest on long -term general obligation special assessment debt used to finance various street, water, sewer and storm sewer improvements. Government Building Bonds onds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of city facilities. Equipment Certificates - This fund is used to account for the accumulation of resources and payment of principal and interest to finance the purchase of public safety, streets, and parks equipment as authorized by Minnesota Statutes. MPFA Loan - This fund is used to account for the accumulation of resources and payment of principal and interest to finance Municipal State Aid eligible road improvements. Tax Increment Financing Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance administrative and development costs within the various TIF districts. YMCA Bonds — This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of a recreation facility which is leased to the YMCA. CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR DEBT SERVICE FUNDS DECEMBER 31, 2011 ASSETS Cash and investments Receivables: Interest Taxes Special assessments Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Deferred revenue Total liabilities Fund balances: Restricted Total liabilities and fund balances Government Improvement Building Equipment MPFA Bonds Bonds Certificates Loan $ 774,975 $ 644,356 $ - $ 6,496 4,431 3,684 - 10,351 30,374 - - 944,891 - - - $ 1,734,648 $ 678,414 $ - $ 6,496 $ - $ 2,000 949,113 21,889 - 949,113 23,889 - 785,535 654,525 - 6,496 $ 1,734,648 $ 678,414 $ - $ 6,496 77 TIF Bonds Total Nonmajor Debt Service YMCA Bonds Funds $ 386,062 12,436 $ 398,498 $ 1,811,889 8,115 53,161 944,891 $ 2,818,056 $ _ $ _ $ 2,000 9,355 980,357 _ 9,355 982,357 389,143 1,835,699 $ - $ 398,498 $ 2,818,056 78 CITY OF ELK RIVER, MINNESOTA SUBCOMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR DEBT SERVICE FUNDS YEAR ENDED DECEMBER 31, 2011 79 Government Improvement Building Equipment MPFA Bonds Bonds Certificates Loan REVENUES Property taxes $ 198,605 $ 574,259 $ - $ - Intergovernmental revenue - - - 511,167 Special assessments 327,975 - - - Interest income 7,573 5,952 - - Miscellaneous revenue: Contributions - - - - Total revenues 534,153 580,211 - 511,167 EXPENDITURES Debt service: Principal 505,000 1,105,000 87,400 486,000 Interest and service charges 125,450 331,336 5,379 19,092 Total expenditures 630,450 1,436,336 92,779 505,092 Excess (deficiency) of revenues over (under) expenditures (96,297) (856,125) (92,779) 6,075 OTHER FINANCING SOURCES (USES) Transfers in - 802,736 - - Transfers out - - (3,117) - Total other finance sources (uses) - 802,736 (3,117) - Net change in fiend balances (96,297) (53,389) (95,896) 6,075 Fund balances - January 1 881,832 707,914 95,896 421 Fund balances - December 31 $ 785,535 $ 654,525 $ - $ 6,496 79 Total Nonmaj or Debt Service TIF Bonds YMCA Bonds Funds $ - $ 256,165 $ 1,029,029 - 511,167 - 327,975 42 13,567 243,907 243,907 500,114 2,125,645 70,000 275,000 2,528,400 17,883 457,583 956,723 87,883 732,583 3,485,123 (87,883) (232,469) (1,359,478) 87,883 250,000 1,140,619 - - (3,117) 87,883 250,000 1,137,502 - 17,531 (221,976) - 371,612 2,057,675 $ - $ 389,143 $ 1,835,699 80 This page has been left blank intentionally NONMAJOR CAPITAL, PROJECTS FUNDS Cgital Reserve - This fund was established to help build reserves for the purchase of capital equipment. Equipment Replacement - This fund is used to account for the purchase of capital equipment. Park Dedication — This fund accounts for park dedication fees from developers and expenditures for park land acquisitions and park capital improvements. Park Improvements - This fund was established to account for the replacement and maintenance of park equipment and for the beautification of city parks. . Government Buildings - This fund is used to account for resources and expenditures related to government buildings projects. The major source of revenue is from landfill host fees. GRE Reserve - This fund was established to account for revenues received from the license agreement between the City and Great River Energy. Street Improvements - This fund is used to account for the construction of street improvement projects throughout the City. Tax Increment Financing Districts - This fund is used to account for administrative and development costs associated with the various tax increment financing projects. CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS DECEMBER 31, 2011 ASSETS Cash and investments Receivables: Interest Taxes Accounts Special assessments Notes Due from other governments Due from other funds Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Due to other funds Due to component unit Deferred revenue Total liabilities Fund balances: Assigned Unassigned Total fund balances Total liabilities and fund balances Capital Equipment Park Park Reserve Replacement Dedication Improvements $ 1,338,119 $ 1,059,884 $ - $ 103,352 7,656 6,060 - 585 - 3,321 - - 32,796 - - - 56,632 - - - - 53,810 - 103,969 $ 1,435,203 $ 1,123,075 $ - $ 207,906 $ 10,910 $ 11,014 $ - $ 19,957 - - 345,933 - 32,630 3,153 487,887 - 43,540 14,167 833,820 19,957 1,391,663 1,108,908 - 187,949 - - (833,820) - 1,391,663 1,108,908 (833,820) 187,949 $ 1,435,203 $ 1,123,075 $ - $ 207,906 81 Goverment Buildings $ 5,688,574 32,525 84,970 $ 883,749 6,543 Street $ 4,873,652 27,805 916 32,510 1,079,531 58,929 TIF Districts $ 541,655 3,094 90,000 $ 5,806,069 $ 1,276,255 $ 6,198,790 $ 634,749 $ 298,082 $ - $ 144,718 $ 588 1,999 568,483 - 291,505 - - 1,074,893 - 298,082 - 1,221,610 860,576 Total Nonmajor Capital Projects Funds $ 14,488,985 84,268 4,237 117,480 1,112,327 90,000 115,561 669,189 $ 16,682,047 $ 485,269 916,415 291,505 1,598,563 3,291,752 5,507,987 1,276,255 4,977,180 - 14,449,942 - - - (225,827) (1,059,647) 5,507,987 1,276,255 4,977,180 (225,827) 13,390,295 $ 5,806,069 $ 1,276,255 $ 6,198,790 $ 634,749 $ 16,682,047 82 CITY OF ELK RIVER, MINNESOTA SUBCOMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS YEAR ENDED DECEMBER 31, 2011 Capital Equipment Park Park Reserve Replacement Dedication Improvements REVENUES Property taxes $ - $ 6,091 $ - $ - Intergovernmental revenue 56,632 - - - Charges for services - - - 9,774 Special assessments 4,710 - - - Interest income 20,218 14,701 - 1,787 Miscellaneous revenue: Landfill expansion fee - - - - Refunds and reimbursements 13,000 - - - Other 124,571 - - 6,400 Total revenues 219,131 20,792 - 17,961 EXPENDITURES Current: General government 25,834 - - - Public safety 7,832 - - - Public works 64,116 - - - Culture and recreation 7,960 - 630 107,574 Economic development - - - - Debt service: Principal - - 81,250 - Interest and service charges - - 103,081 - Capital: Public safety - 208,546 - - Public works - 215,441 - - Culture and recreation 12,401 179,069 - - Infrastructure - - - - Total expenditures 118,143 603,056 184,961 107,574 Excess (deficiency) of revenues over (under) expenditures 100,988 (582,264) (184,961) (89,613) OTHER FINANCING SOURCES (USES) Transfers in - 664,532 42,300 95,592 Transfers out - - - - Sale of capital assets - 23,233 - - Total other financing sources (uses) - 687,765 42,300 95,592 Net change in fund balances 100,988 105,501 (142,661) 5,979 Fund balances - January 1 1,290,675 1,003,407 (691,159) 181,970 Fund balances - December 31 $ 1,391,663 $ 1,108,908 $ (833,820) $ 187,949 83 Total Nomnaj or Gover unent Street Capital Projects $ - $ - $ 17,269 $ 947,486 $ 970,846 - - 556,137 619 613,388 - - - - 9,774 448,368 - 453,078 75,673 19,982 85,317 8,394 226,072 762,368 - 134,536 - 896,904 - - - - 13,000 686,000 1,258 - 818,229 15,222 - - - 41,056 19,068 - - - 26,900 264,945 - 214,619 - 543,680 - - - - 116,164 - - - 773,782 773,782 - - - - 81,250 - - - - 103,081 - - - - 208,546 698,564 234,803 - - 1,148,808 - - 78,505 - 269,975 - - 1,085,178 - 1,085,178 997,799 234,803 1,378,302 773,782 4,398,420 (159,758) 471,179 (135,417) 182,717 (397,129) 2,750,000 - - - 33552,424 (561,152) (451,800) - (87,883) (1,100,835) - - - - 23,233 2,188,848 (451,800) - (87,883) 2,474,822 2,029,090 19,379 (135,417) 94,834 2,077,693 3,478,897 1,256,876 5,112,597 (320,661) 11,312,602 $ 5,507,987 $ 1,276,255 $ 4,977,180 $ (225,827) $ 13,390,295 84 This page has been left blank intentionally AGENCY FUNDS Agency Funds are used to account for assets held by the City as an agent for individuals, private organizations and /or other governmental units. The City of Elk River had the following Agency Fund during the year: Developer Fee Escrow - This fund is used to account for the collection and distribution of fiords relating to private development projects. CITY OF ELK RIVER, MINNESOTA STATEMENT OF CHANGES IN ASSETS AND LIABILITIES DEVELOPER ESCROW AGENCY FUND YEAR ENDED DECEMBER 31, 2011 ASSETS Cash Accounts receivable Total assets LIABILITIES Refundable deposits payable Beginning Ending Balance Additions Deductions Balance $ 84,348 $ 57,063 $ 78,555 $ 62,856 4,304 9,755 11,888 2,171 $ 88,652 $ 66,818 $ 90,443 $ 65,027 $ 88,652 $ 74,314 $ 97,939 $ 65,027 85 COMPONENT UNIT FINANCIAL STATEMENTS The Housing and Redevelopment Authority of Elk River is a component unit of the City. Its operations are presented as a separate column on the combined financial statements. Governmental Fund Housing and Redevelopment Authority Fund - This fund is used to account for housing and redevelopment activities. Revenues are derived from the HRA property tax levy. HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER, MINNESOTA BALANCE SHEET GOVERNMENTAL FUND DECEMBER 31, 2011 ASSETS Cash and investments Receivables: Taxes Notes Due from primary government Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Salaries payable Deferred revenue Total liabilities Fund balances: Nonspendable Restricted Total fund balances Total liabilities and fund balances :: $ 919,821 15,827 400,000 281,775 $ 1,617,423 $ 76,786 1,884 11,409 90,079 400,000 1,127,344 1,527,344 $ 1,617,423 HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET ASSETS DECEMBER 31, 2011 FUND BALANCE - TOTAL GOVERNMENTAL FUNDS $ 1,527,344 Amounts reported for governmental activities in the statement of net assets are different because: 1. Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds: Governmental capital assets 257,100 2. Deferred revenue in governmental funds is susceptible to full accrual on the government -wide statements. 11,409 NET ASSETS OF GOVERNMENTAL ACTIVITIES 87 $ 1,795,853 HOUSING AND REDEVELOPMENT AUTHORITY OF ELIC RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE REVENUES Property taxes Intergovernmental revenue Interest income Total revenues EXPENDITURES Economic development: Current Capital outlay Total expenditures Net change in fund balance Fund balance - January 1 Fund balance - December 31 GOVERNMENTAL FUND YEAR ENDED DECEMBER 31, 2011 88 $ 298,895 11,500 5,311 315,706 696,634 197,500 894,134 (578,428) 2,105,772 $ 1,527,344 HOUSING AND REDEVELOPMENT AUTHORITY OF ELI{ RIVER, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE OF GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2011 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ (578,428) Amounts reported for governmental activities in the statement of activities are different because: 1. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 257,100 2. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Property taxes CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES 89 (3,485) $ (324,813) This page has been left blank intentionally This part of the City of Elk River's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health, Contents Page Financial Trends 90 These schedules contain trend information to help the reader understand how the city's financial performance and well -being have changed over time. Revenue Capacity 100 These schedules contain information to help the reader assess the city's most significant local revenue sources; electric sales and property taxes. Debt Capacity 107 These schedules present information to help the reader assess the affordability of the city's current levels of outstanding debt and the city's ability to issue additional debt in the future. Demographic and Economic Information 115 These schedules offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place. Operating Information 117 These schedules contain service and infrastructure data to help the reader understand how the information in the city's financial report relates to the services the city provides and the activities it performs, Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. CITY OF ELK RIVER, MINNESOTA NET ASSETS BY COMPONENT LAST NINE FISCAL YEARS (accrual basis of accounting) Business -type activities Invested in capital assets, net of related debt $ 46,341,983 Fiscal Year $ 54,577,074 Restricted 2003 2004 2005 Governmental activities 11,224,115 10,480,815 11,956,851 Invested in capital assets, net of related debt $ 56,003,997 $ 67,061,167 $ 73,150,041 Restricted 8,383,884 10,963,518 12,410,832 Unrestricted 22,441,594 19,452,247 21,267,772 Total governmental activities net assets $ 86,829,475 $ 97,476,932 $ 106,828,645 Business -type activities Invested in capital assets, net of related debt $ 46,341,983 $ 52,377,687 $ 54,577,074 Restricted 1,947,067 2,197,066 2,256,419 Unrestricted 11,224,115 10,480,815 11,956,851 Total business -type activities net assets $ 59,513,165 $ 65,055,568 $ 68,790,344 Primary government Invested in capital assets, net of related debt $ 102,345,980 $ 119,438,854 $ 127,727,115 Restricted 10,330,951 13,160,584 14,667,251 Unrestricted 33,665,709 29,933,062 33,224,623 Total primary government net assets $ 146,342,640 $ 162,532,500 $ 175,618,989 Note: Net assets are not available for years prior to 2003. 90 Fiscal Year 2006 2007 2008 2009 2010 2011 $ 82,663,610 $ 85,293,459 $ 85,390,968 $ 86,149,417 $ 84,629,091 $ 84,741,957 4,802,808 6,189,063 5,569,773 4,723,030 7,341,554 6,283,346 27,998,543 25,641,836 27,628,733 28,588,304 26,755,517 29,331,122 $ 115,464,961 $ 117,124,358 $ 118,589,474 $ 119,460,751 $ 118,726,162 $ 120,356,425 $ 59,410,729 $ 59,942,345 $ 60,750,900 $ 59,601,861 $ 60,972,838 $ 60,525,218 445,900 733,400 724,500 724,500 724,500 724,500 14,059,048 17,272,262 17,971,074 20,040,168 20,137,178 19,623,589 $ 73,915,677 $ 77,948,007 $ 79,446,474 $ 80,366,529 $ 81,834,516 $ 80,873,307 $ 142,074,339 $ 145,235,804 $ 146,141,868 $ 145,751,278 $ 145,601,929 $ 145,267,175 5,248,708 6,922,463 6,294,273 5,447,530 8,066,054 7,007,846 42,057,591 42,914,098 45,599,807 48,628,472 46,892,695 48,954,711 $ 189,380,638 $ 195,072,365 $ 198,035,948 $ 199,827,280 $ 200,560,678 $ 201,229,732 U CITY OF ELK RIVER, MINNESOTA CHANGES IN NET ASSETS LAST NINE FISCAL YEARS (accrual basis of accounting) 92 Fiscal Year 2003 2004 2005 Expenses Governmental activities: General government $ 3,290,711 $ 2,440,200 $ 2,503,826 Public safety 4,229,109 4,988,424 5,255,974 Public works 3,737,678 4,277,071 4,281,725 Culture and recreation 1,747,322 2,058,882 2,535,955 Economic development 549,149 912,698 938,164 Interest on long -term debt 1,050,823 936,515 881,001 Total governmental activities expenses 14,604,792 15,613,790 16,396,645 Business -type activities: Municipal Liquor 3,621,087 3,760,156 4,344,915 Garbage 884,532 953,432 1,047,479 Sewer 1,406,713 1,464,409 1,629,353 Water 1,713,217 1,809,128 2,099,428 Electric 11,929,596 13,338,580 14,880,337 Total business -type activities expenses 19,555,145 21,325,705 24,001,512 Total primary government expenses $ 34,159,937 $ 36,939,495 $ 40,398,157 Program Revenues Governmental activities: Charges for services: General government $ 194,246 $ 308,781 $ 288,032 Public safety 1,897,883 1,956,967 2,050,437 Public works 148,904 226,907 280,583 Culture and recreation 729,932 812,401 877,789 Economic development 71,379 96,396 379,002 Operating grants and contributions 487,560 427,513 480,649 Capital grants and contributions 6,064,491 11,879,536 7,573,752 Total governmental activities program revenues 9,594,395 15,708,501 11,930,244 Business -type activities: Charges for services: Municipal Liquor 4,156,276 4,345,702 4,806,061 Garbage 820,278 973,176 1,055,753 Sewer 1,808,817 2,365,262 1,261,853 Water 1,807,334 2,095,018 1,365,136 Electric 13,774,777 14,765,479 15,955,440 Operating grants and contributions 10,530 8,615 9,255 Capital grants and contributions 1,053,994 3,028,454 3,654,383 Total business -type activities program revenues 23,432,006 27,581,706 28,107,881 Total primary government program revenues $ 33,026,401 $ 43,290,207 $ 40,038,125 Net (expense)h•evenue Governmental activities $ (5,010,397) $ 94,711 $ (4,466,401) Business -type activities 3,876,861 6,256,001 4,106,369 Total primary government net expense $ (1,133,536) $ 6,350,712 $ (360,032) 92 Fiscal Year 2006 2007 2008 2009 2010 2011 $ 2,560,213 $ 2,732,697 $ 3,286,350 $ 2,777,568 $ 3,028,102 $ 3,495,458 5,606,438 5,924,093 6,715,607 6,106,181 6,011,477 6,238,611 6,169,030 6,527,565 5,875,992 5,397,058 5,447,282 5,720,759 2,859,058 3,598,695 3,549,637 3,767,312 3,702,671 3,851,181 631,437 1,001,829 1,893,707 1,569,432 1,43 8,742 1,451,109 764,725 952,082 1,315,275 1,252,493 1,085,149 1,050,299 18,590,901 20,736,961 22,636,568 20,870,044 20,713,423 21,807,417 5,202,500 5,302,012 5,465,233 5,374,867 5,267,455 5,366,971 1,094,788 1,114,133 1,166,709 1,256,177 1,331,514 1,304,238 1,724,147 1,788,890 1,851,655 1,784,428 1,965,055 2,132,911 2,112,477 2,344,158 2,452,717 2,348,707 2,100,552 2,120,810 16,081,812 18,574,266 21,939,223 23,269,553 25,455,516 26,738,258 26,215,724 29,123,459 32,875,537 34,033,732 36,120,092 37,663,188 $ 44,806,625 $ 49,860,420 $ 55,512,105 $ 54,903,776 $ 56,833,515 $ 59,470,605 $ 246,541 $ 283,003 $ 371,911 $ 334,100 $ 301,509 $ 425,954 2,403,601 1,533,699 962,275 634,242 722,073 787,884 617,099 76,117 159,664 47,860 61,605 79,073 1,065,218 1,083,081 1,084,067 1,074,266 1,089,058 1,102,630 178,217 92,486 65,999 60,335 125,759 70,976 387,584 362,313 977,411 758,958 763,551 954,831 8,117,032 4,174,427 4,302,760 2,599,593 1,318,660 1,750,824 13,015,292 7,605,126 7,924,087 5,509,354 4,382,215 5,172,172 5,906,768 6,043,088 6,213,657 6,094,058 5,953,626 6,145,692 1,106,268 1,139,763 1,160,774 1,194,937 1,282,013 1,310,014 1,352,647 1,454,219 1,511,165 1,504,785 1,483,120 1,491,460 1,770,819 2,144,622 2,139,046 2,218,816 1,961,760 1,917,384 17,143,485 19,895,323 22,941,903 24,258,120 26,840,983 28,657,698 504,168 295,081 149,327 92,957 103,324 38,550 4,297,666 1,996,636 888,925 267,233 397,989 482,319 32,081,821 32,968,732 35,004,797 35,630,906 38,022,815 40,043,117 $ 45,097,113 $ 40,573,858 $ 42,928,884 $ 41,140,260 $ 42,405,030 $ 45,215,289 $ (5,575,609) $(13,131,835) $(14,712,481) $(15,360,690) $(16,331,208) $ (16,635,245) 5,866,097 3,845,273 2,129,260 1,597,174 1,902,723 2,379,929 $ 290,488 $ (9,286,562) $(12,583,221) $(13,763,516) $(14,428,485) $ (14,255,316) 93 Business -type activities: Investment earnings 155,802 Fiscal Year 305,923 Miscellaneous 2003 2004 2005 General Revenues and Other Changes in Net Assets - - - Governmental activities: (639,924) (866,816) (677,516) Property taxes $ 5,830,468 $ 6,425,933 $ 7,569,131 Tax increment 682,855 734,115 768,397 Other taxes - - - Unrestricted grants and contributions 2,237,750 2,141,152 2,427,605 Investment earnings 304,237 375,550 758,612 Miscellaneous - 9,180 326,853 Transfers of capital assets - - - Transfers 639,924 866,816 677,516 Total governmental activities 9,695,234 10,552,746 12,528,114 Business -type activities: Investment earnings 155,802 153,218 305,923 Miscellaneous - - - Transfers of capital assets - - - Transfers (639,924) (866,816) (677,516) Total business -type activities (484,122) (713,598) (371,593) Total primary government $ 9,211,112 $ 9,839,148 $ 12,156,521 Change in Net Assets Governmental activities $ 4,684,837 $ 10,647,457 $ 8,061,713 Business -type activities 3,392,739 5,542,403 3,734,776 Total primary government $ 8,077,576 $ 16,189,860 $ 11,796,489 Note: Changes in net assets are not available for years prior to 2003. 94 Fiscal Year 2006 2007 2008 2009 2010 2011 $ 8,754,923 $ 9,744,930 $ 11,095,407 $ 11,440,991 $ 11,254,752 $ 11,398,819 790,882 894,595 1,041,300 1,080,142 1,071,099 947,486 - - - 156,894 193,466 83,748 2,577,700 2,395,665 1,775,536 1,940,274 2,000,923 1,702,334 1,151,144 1,465,401 1,215,053 548,651 359,733 499,034 28,450 23,213 - 20,013 61,308 23,233 - (511,412) - - (303,051) - 908,826 778,840 1,050,301 1,045,002 958,389 3,610,854 14,211,925 14,791,232 16,177,597 16,231,967 15,596,619 18,265,508 589,210 640,876 534,485 367,883 220,602 269,716 2,108 - 2,000 - - - - 511,412 - - 303,051 - (908,826) (778,840) (1,050,301) (1,045,002) (958,389) (3,610,854) (317,508) 373,448 (513,816) (677,119) (434,736) (3,341,138) $ 13,894,417 $ 15,164,680 $ 15,663,781 $ 15,554,848 $ 15,161,883 $ 14,924,370 $ 8,636,316 $ 1,659,397 $ 1,465,116 $ 871,277 $ (734,589) $ 1,630,263 5,548,589 4,218,721 1,615,444 920,055 1,467,987 (961,209) $ 14,184,905 $ 5,878,118 $ 3,080,560 $ 1,791,332 $ 733,398 $ 669,054 95 CITY OF ELK RIVER, MINNESOTA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) General fund Reserved Unreserved Restricted Committed Assigned Unassigned Total General find All other governmental funds Reserved Unreserved, reported in: Special revenue funds Capital projects funds Nonspendable Restricted Committed Assigned Unassigned Total all other governmental funds Fiscal Year 2002 2003 2004 2005 $ 1,268 $ 348,026 $ 115,746 $ 210,298 3,189,321 3,384,023 3,851,634 4,391,083 $ 3,190,589 $ 4,601,381 $ 3,732,049 $ 3,967,380 $ 14,272,266 $ 12,598,358 $ 11,570,003 $ 11,475,837 2,219,157 3,742,244 4,597,195 5,453,061 8,133,831 4,585,550 5,401,112 8,382,625 $ 24,625,254 $ 20,926,152 $ 21,568,310 $ 25,3 1 1,523 Note: The City implemented GASB 54 in fiscal year 2010, resulting in significant reclassification of the components of fund balance. Years prior to 2010 have not been restated. 96 Fiscal Year 2006 2007 2008 2009 2010 2011 $ - $ 5,938 $ - $ - $ - $ - 4,816,386 5,346,066 5,190,662 5,699,575 - - - - - - - 20,390 - - - 156,323 - - 727,443 859,508 - - - - 5,187,520 5,261,391 $ 4,816,386 $ 5,352,004 $ 5,190,662 $ 5,6994575 $ 5,914,963 $ 6,297,612 $ 9,979,026 $ 14,453,663 $ 6,953,630 $ 6,535,205 $ - $ - 5,070,764 3,849,815 7,751,286 7,844,537 - - 8,091,573 9,179,236 9,574,268 10,101,066 - - - - - - 93,080 57,870 - - - - 6,936,1 13 5,942,368 - - - - 2,506,814 2,712,645 - - - - 16,984,061 19,736,795 - - - - (1,011,820) (1,059,647) $ 23,141,363 $ 27,482,714 $ 24,279,184 $ 24,480,808 $ 25,508,248 $ 27,390,031 97 CITY OF ELK RIVER, MINNESOTA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) Expenditures General government 2,200,458 Fiscal Year 2,161,356 2,204,626 2002 2003 2004 2005 Revenues Public works 1,429,018 1,814,818 1,850,281 Property taxes $ 5,462,585 $ 6,507,578 $ 7,118,568 $ 8,283,983 Other taxes - - - - Licenses and permits 715,852 1,143,612 1,249,844 1,240,336 Intergovernmental revenue 3,978,999 2,141,277 1,544,485 1,979,405 Charges for services 1,743,948 2,042,391 2,381,670 2,571,767 Fines and forfeits 134,840 190,911 164,800 190,062 Special assessments 2,049,519 2,433,939 2,375,902 3,414,090 Interest 612,224 304,237 375,548 758,612 Miscellaneous 2,409,430 2,159,373 1,799,736 2,004,286 Total revenues 17,107,397 16,923,318 17,010,553 20,442,541 Expenditures General government 2,200,458 2,265,779 2,161,356 2,204,626 Public safety 3,583,232 4,145,996 4,163,345 4,649,010 Public works 1,429,018 1,814,818 1,850,281 2,192,336 Culture and recreation 1,325,118 1,635,806 1,655,298 2,088,505 Economic development 312,387 649,463 703,591 785,584 Capital outlay 6,704,948 8,389,740 2,997,696 4,191,817 Debt service - - - - Principal 1,948,275 2,355,800 2,494,483 2,174,266 Interest and service charges 794,511 1,102,548 965,984 881,305 Total expenditures 18,297,947 22,359,950 16,992,034 19,167,449 Excess (deficiency) of revenues over (under) expenditures (1,190,550) (5,436,632) 18,519 1,275,092 Other financing sources (uses) Transfers in 2,578,131 4,654,396 4,666,581 2,888,975 Transfers out (2,I19,863) (4,003,800) (3,799,765) (2,211,459) Proceeds of long -term debt 9,696,488 1,612,100 331,000 1,715,000 Payment to refunded bond escrow agent - - - - Premium on long -term debt issued - - - - Discount on long -term debt issued - (5,566) - (8,560) Capital leases issued - - - - Sale of capital assets - 34,562 9,180 718,166 Total other financing sources (uses) 10,154,756 2,291,692 1,206,996 3,102,122 Net change in fund balances $ 8,964,206 $ (3,144,940) $ 1,225,515 $ 4,377,214 Debt service as a percentage of noncapital expenditures' 25.3% 24.1% 21.0% Debt service percentages are not available prior to 2003. 98 Fiscal Year 2006 2007 2008 2009 2010 2011 $ 9,529,773 $ 10,571,695 $ 12,037,076 $ 12,329,194 $ 12,355,953 $ 12,461,403 - - - 156,894 193,466 83,748 1,207,368 987,708 460,108 322,338 402,076 432,875 4,142,937 2,973,505 4,134,779 3,117,997 1,135,060 1,678,555 2,485,464 1,786,094 1,849,307 1,465,898 1,727,276 1,573,367 175,155 156,407 150,086 141,629 161,074 149,102 1,566,880 1,909,595 1,712,551 1,464,348 999,633 989,101 1,151,144 1,465,401 1,215,053 548,651 359,731 499,034 2,555,842 1,545,181 1,628,567 1,853,966 2,587,771 2,568,159 22,814,563 21,395,586 23,187,527 21,400,915 19,922,040 20,435,344 2,251,111 2,450,722 2,480,208 2,458,879 2,629,731 3,157,307 4,941,706 5,109,371 5,565,474 5,377,208 5,266,803 5,291,617 2,538,658 4,170,119 3,246,436 2,656,097 2,291,196 2,752,469 2,605,861 3,386,681 2,890,683 2,666,146 2,569,464 2,663,806 627,467 573,446 2,216,617 1,589,464 1,512,138 1,479,140 10,729,882 12,803,023 10,381,359 4,627,322 1,879,604 2,874,212 7,051,836 1,767,617 2,022,616 3,162,1 17 2,411,062 2,618,146 909,904 902,415 1,198,174 1,289,087 1,182,993 1,059,804 31,656,425 31,163,394 30,001,567 23,826,320 19,742,991 21,896,501 (8,841,862) (9,767,808) (6,814,040) (2,425,405) 179,049 (1,461,157) 5,923,474 4,785,257 3,868,359 2,887,624 2,682,562 5,978,905 (5,014,648) (4,006,417) (2,818,058) (1,842,622) (1,724,173) (2,368,051) 3,657,000 13,390,500 2,277,946 2,074,311 6,184,243 - - - - - (6,303,897) - - - 36,542 - 255,238 - (29,252) (50,477) - - - - 2,332,694 325,000 - - - - 17,439 200,914 84,379 16,629 61,308 23,233 6,886,707 14,644,777 3,449,168 3,135,942 1,155,281 3,634,087 $ (1,955,155) $ 4,876,969 $ (3,364,872) $ 710,537 $ 1,334,330 $ 2,172,930 37.1% 15.1% 16.9% 23.7% 20.1% 19.6% 99 CITY OF ELK RIVER, MINNESOTA ELECTRIC SALES LAST TEN FISCAL YEARS Fiscal Number of Total Year Customers KWh's Sold Billings 2002 6,750 149,787,670 $ 10,629,091 2003 7,376 161,852,054 11,679,055 2004 7,907 1 65,595,414 12,736,439 2005 8,306 182,515,644 14,219,289 2006 8,562 194,975,530 15,494,068 2007 8,945 211,298,886 17,704,210 2008 9,203 224,226,048 19,999,652 2009 9, 170 232,772,722 21 ,776,837 2010 9,207 250,711,834 24,368,348 2011 9,227 261,235,297 26,064,248 Source: Elk River Municipal Utilities 100 CITY OF ELK RIVER, MINNESOTA PRINCIPAL ELECTRIC CUSTOMERS DECEMBER 31, 2011 Source; Elk River Municipal Utilities 101 2011 2002 Percentage Percentage Total KWh Total of Total Total KWh Total of Total Customer Sold Billings Billings Sold Billings Billings Data Center 2 46,219,200 $ 3,631,183 13.93% $ Data Center 1 16,156,800 1,391,145 5.34% - - Walmart 5,856,750 470,539 1.81% 2,663,280 97,890 0.92% E & O Tool 5,030,800 407,167 1.56% 3,952,720 145,937 1.37% Faribault Foods 4,855,600 412,112 1.58% 2,338,000 86,338 0.81% Jerry's Enterprises 4,767,720 373,826 1.43% 8,288,041 173,309 1.63% Menards 3,600,600 310,403 1.19% 2,760,900 108,787 1.02% Target 3,546,500 301,871 1.16% - - - Sherburne Co. Govt, Center 3,184,000 286,294 1.10% 2,417,280 88,971 0.84% Coborns 2,970,400 239,195 0.92% 3,531,200 129,676 1.22% All Tool - - - 2,410,480 88,856 0.84% I-Iotne Depot - - 2,382,960 87,681 0.82% Tescom - - 1,784,820 64,460 0.61% TOTAL 96,188,370 $ 7,823,735 30.02% 32,529,681 $ 1,071,905 10.08% Source; Elk River Municipal Utilities 101 CITY OF ELK RIVER, MINNESOTA TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Tax capacity Real property Personal property Total tax capacity Tax increment Taxable tax capacity Total tax capacity rate Taxable market value Real property Personal property Taxable market value Estimated actual value of taxable property Taxable market value as a percentage of estimated actual value 2002 2003 2004 2005 $ 11,961,965 $ 13,734,734 $ 15,387,792 $ 17,838,528 203,919 258,501 215,581 237,262 12,165,884 13,993,235 15,603,373 18,075,790 (426,854) (588,732) (608,609) (654,325) $ 11,739,030 $ 13,404,503 $ 14,994,764 $ 17,421,465 43.600% 44.614% 43.782% 43.763% $ 986,560,400 $1,141,917,000 $1,299,691,938 $1,528,254,150 10,347,400 13,112,800 10,934,000 12,020,800 $ 996,907,800 $ 1,155,029,800 $ 1,310,625,938 $ 1,540,274,950 $ 1,145,691,994 $ 1,382,785,926 $ 1,567,581,017 $ 1,805,774,228 87.01% 83.53% 83.61% 85.30% Source: Sherburne County Assessor Note: Property in the county is reassessed annually. The county assesses property at approximately 85 percent of actual value for all types of real and personal property. 102 2006 2007 2008 2009 2010 2011 $ 20,514,092 $ 23,166,911 $ 25,790,055 $ 26,550,210 $ 25,611,065 $ 24,736,999 246,741 281,606 279,154 302,166 310,180 350,946 20,760,833 23,448,517 26,069,209 26,852,376 25,921,245 25,087,945 (675,049) (786,795) (744,597) (899,835) (888,285) (784,101) $ 20,085,784 $ 22,661,722 $ 25,324,612 $ 25,952,541 $ 25,032,960 $ 24,303,844 43.929% 43.056% 42.494% 43.280% 44.560% 45.723% $1,773,917,600 $1,998,598,900 $2,186,595,580 $ 2,235,538,000 $ 2,121,774,900 $ 2,035,543,052 12,494,300 14,318,500 14,221,560 15,363,900 15,764,700 17,758,600 $ 1,786,411,900 $ 2,012,917,400 $ 2,200,817,140 $ 2,250,901,900 $ 2,137,539,600 $ 2,053,301,652 $ 2,109,366,764 $ 2,262,479,345 $ 2,457,361,368 $ 2,429,563,505 $ 2,191,955,185 $ 2,403,906,238 84.69% 88.97% 89.56% 92.65% 97.52% 85.42% 103 CITY OF ELK RIVER, MINNESOTA PROPERTY TAX RATES DIRECT AND OVERLAPPING' GOVERNMENTS LAST TEN FISCAL YEARS Source: Sherburne County Auditor /Treasurer Overlapping rates are those of local and county governments that apply to property owners within the City or Elk River. Not all overlapping rates apply to all City of Elk River property owners (e.g., the rates for special districts apply only to the proportion of the city's property owners whose property is located within the geographic boundaries of the special district. 104 City of Elk River Overlapping Rates Total School District Direct & Fiscal Debt Referendum Special Overlapping Year Operating Service Total County Operating Mkt. Value Districts Rates 2002 39.214 4.386 43.600 47.577 45.969 0.082 2.653 139.881 2003 37.223 7.391 44.614 46.277 41.352 0.076 2.696 135.015 2004 35.861 7.921 43.782 44.405 30.853 0,154 3.574 122.768 2005 36.713 7.050 43.763 42.028 32.848 0.148 5.349 124.136 2006 37.179 6.750 43.929 41.555 35.950 0.155 4.056 125.645 2007 37.743 5.313 43.056 40.720 33.208 0.144 3.905 121.033 2008 37.249 5.245 42.494 40.675 32.344 0.161 3.988 119.662 2009 38.319 4.961 43.280 41.999 36.215 0.164 4.040 125.698 2010 40.940 3.620 44.560 44.519 40.050 0.183 4.703 134.015 2011 42.449 3.274 45.723 46.342 43.489 0.188 4.956 140.698 Source: Sherburne County Auditor /Treasurer Overlapping rates are those of local and county governments that apply to property owners within the City or Elk River. Not all overlapping rates apply to all City of Elk River property owners (e.g., the rates for special districts apply only to the proportion of the city's property owners whose property is located within the geographic boundaries of the special district. 104 CITY OF ELK RIVER, MINNES ®TA PRINCIPAL TAXPAYERS DECEMBER 31, 2011 Source: Sherburne County Assessor 105 2011 2002 Percentage Percentage Net Tax of Total Net Net Tax of Total Net Taxpayer Capacity Rank Tax Capacity Capacity Rank Tax Capacity Great River Energy $ 1,276,068 1 5.25% $ 486,894 1 3.93% JPM Capital Corporation 519,882 2 2.14 - - - Target Corp. 397,120 3 1.63 99,784 7 0.81 Walmart Stores 289,708 4 1.19 130,492 4 1.05 Bradley Operating L.P. 190,024 5 0.78 223,040 3 1.80 Menards, Inc 187,556 6 0.77 117,984 5 0.95 Minn West Bank 162,096 7 0.67 - - - Phoenix Enterprises 157,095 8 0.65 - - - Home Depot 142,364 9 0.59 116,166 6 0.94 7040 Lakeland Partners LLC 141,018 10 0.58 - - - Resource Recovery Technology - - - 266,626 2 2,15 B & G Realty, Inc. - - - 91,408 8 0.74 Hickman Land Investments - - 64,430 9 0.52 Individual - - - 64,156 10 0.52 TOTAL $ 3,462,931 14.25% $ 1,660,980 13.41% Source: Sherburne County Assessor 105 This page has been left blank intentionally CITY OF ELK RIVER, MINNESOTA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Total tax levy for years 2002 -2010 does not include Market Value Homestead Credit received from the State. 106 Collected within the Fiscal Year of the Levy Collections in Total Collections to Date Fiscal Total Year's Percentage Subsequent Percentage Year Tax Levy Amount of Levy Years Amount of Levy 2002 $ 4,754,431 $ 4,690,876 98.66% $ 54,156 $ 4,745,032 99.80% 2003 5,594,944 5,513,105 98.54 65,396 5,578,501 99.71 2004 6,160,102 6,051,358 98.23 100,561 6,151,919 99.87 2005 7,224,669 7,078,832 97.98 138,414 7,217,246 99.90 2006 8,429,836 8,249,039 97.86 172,116 8,421,155 99.90 2007 9,354,375 9,133,690 97.64 205,771 9,339,461 99.84 2008 10,360,068 10,075,018 97.25 249,188 10,324,206 99.65 2009 10,802,209 10,424,835 96.51 293,808 10,718,643 99.23 2010 10,755,202 10,403,335 96.73 194,148 10,597,483 98.53 2011 11,112,391 10,450,388 94.04 - 10,450,388 94.04 Total tax levy for years 2002 -2010 does not include Market Value Homestead Credit received from the State. 106 CITY OF ELK RIVER, MINNESOTA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 See the Schedule of Demographic and Economic Statistics on page 115 for personal income and population data. 107 Governmental Activities General Permanent Fiscal General Obligation Lease Special Improvement Tax Year Obligation Revenue Revenue Assessment Revolving Increment 2002 $ $ 2,230,000 $ 9,950,000 $ 7,450,000 $ 1,575,000 $ 1,477,500 2003 2,045,000 9,765,000 7,520,000 1,305,000 1,352,500 2004 1,850,000 9,285,000 6,460,000 1,020,000 1,116,000 2005 1,645,000 8,785,000 6,605,000 935,000 972,500 2006 3,220,000 1,430,000 8,265,000 2,130,000 - 827,500 2007 13,220,000 1,200,000 7,730,000 4,825,000 675,000 2008 15,412,946 955,000 7,170,000 4,480,000 - 505,000 2009 16,677,757 700,000 6,175,000 3,970,000 - 440,000 2010 22,002,000 540,000 - 3,460,000 - 375,000 2011 20,676,000 - - 2,955,000 - 305,000 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 See the Schedule of Demographic and Economic Statistics on page 115 for personal income and population data. 107 Governmental Activities Certificates of Indebtedness Other $ 661,650 612,950 705,967 1,035,201 1,134,334 1,090,350 756,033 421,716 87,400 $ 148,808 47,976 1,908,725 2,123,092 1,839,792 1,646,492 1,499,746 1,410,000 108 Total Business -Type Activities General Primary of Personal Per Obligation Revenue Certificates of Notes Revenue Bonds Indebtedness Payable $ 8,575,000 $ 2,475,000 $ 500,000 $ 2,854,536 10,100,000 2,330,000 500,000 2,775,424 7,990,000 3,060,000 375,000 2,663,145 9,160,000 3,725,000 250,000 2,538,226 7,015,000 7,185,000 125,000 3,066,820 6,465,000 9,690,000 - 2,879,054 8,630,000 9,280,000 2,701,994 8,070,000 8,840,000 2,524,646 6,180,000 6,940,000 - 2,345,318 5,475,000 6,310,000 2,162,882 108 Total Percentage Primary of Personal Per Government Income' Capita' $ 37,897,494 8,06% $ 2,096 38,353,850 7.84% 2,045 34,525,112 6.27% 1,706 35,650,927 6.00% 1,654 36,307,379 5.74% 1,610 49,897,496 7.29% 2,152 51,730,765 6.97% 2,166 49,465,611 7.14% 2,093 43,429,464 6.32% 1,890 39,293,882 na 1,710 CITY OF ELK RIVER, MINNESOTA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Only includes debt supported by tax levy. ' See the Schedule of Tax Capacity, Market Value and Estimated Actual Value of Taxable Property on page 102 -103 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics on page 115. 109 Less Amount Percentage Net General in Debt Net of Net Bonded Bonded Fiscal Bonded Service Bonded Debt to Tax Debt per Year Debt' Funds Debt Capacity' Capita' 2002 $ 8,661,650 $ 584,853 $ 8,076,797 66.39% $ 447 2003 8,612,950 704,885 7,908,065 56.51% 421.58 2004 8,420,967 791,375 7,629,592 48.90% 376.96 2005 8,455,201 813,832 7,641,369 43.86% 354.62 2006 11,474,334 860,393 10,613,941 52.84% 470.68 2007 17,792,017 861,726 16,930,291 74.71% 730.16 2008 18,391,033 1,318,186 17,072,847 67.42% 714.70 2009 17,471,716 1,418,700 16,053,016 61.86% 679.26 2010 18,040,733 1,164,060 16,876,673 65.03% 734.60 2011 17,120,000 1,030,418 16,089,582 66.20% 700.09 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Only includes debt supported by tax levy. ' See the Schedule of Tax Capacity, Market Value and Estimated Actual Value of Taxable Property on page 102 -103 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics on page 115. 109 CITY OF ELK RIVER, MINNESOTA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEIST DECEMBER 31, 2011 Debt Ratios: Ratio of debt per capita (22,982 population) Ratios of debt to estimated taxable market value of $2,403,906,238 Source: Sherburne County and School District #728 The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's and school district's taxable market value that is within the city's boundaries and dividing it by the county's and school district's total taxable market value. 2 Excludes debt payable from tax increment revenue and enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city, This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and business of the City of Elk River. This process recognizes that, when considering the city's ability to issue and repay long -term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. W $4,278 4.09% Percent of Debt City's Outstanding Applicable Share Debt to City, of Debt Direct Debt: City of Elk River $ 25,041,000 100.00% $ 25,041,000 Overlapping Debt: Sherburne County 22,375,000 26.92 6,023,350 School District #728 179,690,000 37.43 67,261,561 Total overlapping debt 202,065,000 73,284,911 Total direct and overlapping debt $ 227,106,000 $ 98,325,911 Debt Ratios: Ratio of debt per capita (22,982 population) Ratios of debt to estimated taxable market value of $2,403,906,238 Source: Sherburne County and School District #728 The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's and school district's taxable market value that is within the city's boundaries and dividing it by the county's and school district's total taxable market value. 2 Excludes debt payable from tax increment revenue and enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city, This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and business of the City of Elk River. This process recognizes that, when considering the city's ability to issue and repay long -term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. W $4,278 4.09% CITY OF ELK RIVER, MINNESOTA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS Total net debt applicable to the limit as a percentage of debt limit 48.35% 41.00% 34.85% 29.51% Note: Under state law, the City of Elk River's outstanding general obligation debt should not exceed 3 percent of the market value of taxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. Only 2/3 of the $10,000,000 GO EDA Bonds, Series 2007 and the $1,235,000 GO EDA Bonds, Series 2008A are subject to the debt limit, The Remaining 1/3 will be paid by the YMCA. 2002 2003 2004 2005 Debt limit $ 19,938,156 $ 23,100,596 $ 26,212,519 $ 30,805,499 Bonds 10,356,650 10,307,950 10,060,967 10,040,201 Reserves 717,180 837,754 925,148 950,793 Total net debt applicable to limit 9,639,470 9,470,196 9,135,819 9,089,408 Legal debt margin $ 10,298,686 $ 13,630,400 $ 17,076,700 $ 21,716,091 Total net debt applicable to the limit as a percentage of debt limit 48.35% 41.00% 34.85% 29.51% Note: Under state law, the City of Elk River's outstanding general obligation debt should not exceed 3 percent of the market value of taxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. Only 2/3 of the $10,000,000 GO EDA Bonds, Series 2007 and the $1,235,000 GO EDA Bonds, Series 2008A are subject to the debt limit, The Remaining 1/3 will be paid by the YMCA. 2006 2007 2008 2009 2010 2011 $ 35,728,238 $ 40,258,348 $ 66,024,514 $ 67,527,057 $ 64,126,188 $ 61,599,050 13,124,334 17,792,017 18,391,033 17,471,716 18,040,733 17,120,000 1,003,315 861,726 1,318,186 1,418,700 1,164,060 1,030,418 12,121,019 16,930,291 17,072,847 16,053,016 16,876,673 16,089,582 $ 23,607,219 $ 23,328,057 $ 48,951,667 $ 51,474,041 $ 47,249,515 $ 45,509,468 33.93% 42.05% 25.86% 23.77% 26.32% 26.12% Legal Debt Margin Calculation for Fiscal Year 2011 Estimated taxable market value Debt limit (3% of market value) Debt applicable to limit: G.O. capital improvement bonds G.O. EDA bonds Less: Cash and investments in related debt service finds Total net debt applicable to limit Legal debt margin 112 $ 2,053,301,652 $ 61,599,050 9,630,000 7,490,000 (1,030,418) 16,089,582 $ 45,509,468 CITY OF ELK RIVER, MINNESOTA PLEDGED - REVENUE COVERAGE LAST TEN FISCAL YEARS Note; Details regarding the government's outstanding debt can be found in the notes to the financial statements. Includes Liquor, Sewer, Water and Electric revenue bonds l Gross revenue excludes interest income, connection fees and miscellaneous revenues ' Expenses exclude depreciation, interest on bonds and miscellaneous expenses 113 Revenue Bonds Net Fiscal Gross Operating Revenue Debt Service Year Revenue z Expenses' Available Principal Interest Coverage 2002 $ 15,434,083 $ 10,904,432 $ 4,529,651 $ 590,000 $ 463,726 4.30 2003 16,432,764 12,708,022 3,724,742 615,000 486,296 3.38 2004 17,656,784 13,760,051 3,896,733 2,445,000 513,878 1.32 2005 19,791,626 15,615,453 4,176,173 1,150,000 485,777 2.55 2006 21,940,299 16,970,625 4,969,674 2,405,000 573,345 1.67 2007 25,212,616 19,212,200 6,000,416 1,045,000 595,642 3.66 2008 28,380,372 22,562,437 5,817,935 1,330,000 669,406 2.91 2009 29,665,332 23,654,659 6,010,673 1,000,000 681,124 3.58 2010 31,869,940 25,849,033 6,020,907 3,785,000 564,105 1.38 2011 33,672,393 27,326,836 6,345,557 1,335,000 458,888 3.54 Note; Details regarding the government's outstanding debt can be found in the notes to the financial statements. Includes Liquor, Sewer, Water and Electric revenue bonds l Gross revenue excludes interest income, connection fees and miscellaneous revenues ' Expenses exclude depreciation, interest on bonds and miscellaneous expenses 113 Special Assessment Bonds Special Assessment Debt Service Collections Principal Imeiest $ 1,607,767 $ 1,085,000 $ 370,770 1,705,463 1,185,000 321,911 1,901,427 1,060,000 297,840 1,123,407 925,000 264,999 999,232 4,475,000 198,650 231,839 395,000 64,339 611,290 345,000 192,553 421,724 510,000 168,335 368,936 510,000 148,276 327,975 505,000 124,185 Coves age 1.10 1.13 1.40 0.94 0.21 0.50 1.14 0.62 114 0.56 0.52 CITY OF ELK RIVER, MINNESOTA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Data Sources: State Demographer, * City of Elk River estimate 2 Bureau of Economic Analysis 3 US Census Bureau 4 School District 5 Minnesota Department of Employment and Economic Development na - not available 115 Personal Fiscal income Per Capita Median School Unemployment Year Population (in thousands) Income Age3 Enrollment Rates 2002 18,082 $ 470,096 $ 25,998 32 11,100 5.1% 2003 18,758 489,284 26,084 32 11,257 5.8% 2004 20,240 550,852 27,216 32 11,749 5.0% 2005 21,548 593,906 27,562 32 12,259 4.7% 2006 22,550 632,911 28,067 32 12,735 4.4% 2007 23,187 684,689 29,529 32 13,058 5.6% 2008 23,888 742,439 31,080 33 13,031 8.2% 2009 23,633 692,376 29,297 33 13,073 9.0% 2010 22,974 3 687,129 29,909 33 13,036 8.1% 2011 22,982 * na na 34 13,255 7.3% Data Sources: State Demographer, * City of Elk River estimate 2 Bureau of Economic Analysis 3 US Census Bureau 4 School District 5 Minnesota Department of Employment and Economic Development na - not available 115 CITY OF ELK RIVER, MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 1 Minnesota Department of Employment and Economic Development 116 2011 2002 Percentage Percentage of Total City of Total City Employer Employees Rank Employment Employees Rank Employment Independent School District 728 892 1 8.14% 1,080 I 10.77% Sherburne County 598 2 5.46% 465 2 4.64% Walmart 463 3 4.23% 325 4 3.24% Guardian Angels of Elk River 317 4 2.89% 372 3 3.71% Great River Energy 236 5 2.15% 316 5 3.15% City of Elk River 203 6 1.85% 209 7 2.08% Tescom Corporation 187 7 1.71% - - - Menards 153 8 1.40% 195 10 1.95% Cornerstone Auto Resource 147 9 1.34% - - - Coborn's Foods 122 10 1.11% - - - Furniture & Things - - - 300 6 2.99% Cub Foods - - 200 8 2.00% Target - - 190 9 1.90% Total 3,318 30.28% 3,652 36.43% Total Employment 10,952 10,025 1 Minnesota Department of Employment and Economic Development 116 z U z a w ®aa v? 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C vN� G bD 7 yh aN+ c 3 [. �d (d N O bD 7 N bq 7 O N bq 7 F N O 7 ti0 W N u ti 'b Y N 0 7 N U N Y N E N y F �, y .•�. tU. {yl' ww Vin°¢ w wj" �� w Ur.oc7 W z ¢v �¢v 3z¢v °z° 118 ~ N ra H H u O O 6a, ti � � W \�o 000 N W H Qw W W H N ® ra r ra H U a Q ~ N O O ti Vl \�o 000 N O N 00 N ~ N C7, O O O N O N 00 N O D1 N O N o0 N ~ N t O O 0 0 .N-� N O D\ N _ O N 00 N ~ N Ln O N O ® D\ N _ O N o0 N O O_ � N O N o0 N �--� N O O o0 0 0 0 O � r- N N O N O N � O .--� O N Vl O M l- O\ O \O oo ON Vl O 00 N N oo D1 N M ON O Vl bA [— \�O O ON p o0 O O O N p N C N bA N D1 O Vl E O 0000 40. N � � C � O U �� U n U J, 4. U N p n U N N O O Id •� c �,.�' � � 3 ebb bb `�" .O C O C U C O R U cd + C n C z i U. a` vaa V) wC7 r as 3 V)4 CITY OF ELK RIVER ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2011 4 r 1 L I �151 • ry }�I 1 6 D 1,1 -p �.aF.rtififyl f -t -hb CITY OF ELK RIVER ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2011 • • u ABDO I2J7 # SICK & � ®I 0� _ MEYE S LLP Certified Public Accountants & Consultants 5201 Eden Avenue Suite 250 Edina, MN 55436 Management, Honorable Mayor and Council City of Elk River, Minnesota Ever 2012 tge 2 May 16, 2012 We have audited the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund infonnation of the City of Elk River, Minnesota (the City) for the year ended December 31, 2011. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards as well as certain infonnation related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated December 5, 2011. Professional standards also require that we provide to you the following information related to our audit. Our Responsibility Under Auditing Standards Generally Accepted in the United States of America As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control over financial reporting of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control over financial reporting. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented; or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of Minnesota statutes. However, the objective of our tests was not to provide an opinion on compliance with such provisions. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City's compliance with those requirements. We noted no instances of noncompliance with Minnesota statues. City of Elk River May 16, 2012 Page 3 Planned Scope and Timing of the Audit We perfonned the audit according to the planned scope and timing previously communicated to you Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements include depreciation on capital assets as well as the liability for the City's Other Post Employment Benefits (OPEB). Management's estimate of depreciation is based on estimated useful lives of the assets. Management's estimate of its OPEB liability is based on several factors including, but not limited to, anticipated retirement age for active employees, life expectancy, turnover, and healthcare cost trend rate. We evaluated the key factors and assumptions used to develop depreciation and the OPEB liability in determining that it is reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representations letter dated May 16, 2012. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. City of Elk River May 16, 2012 Page 4 Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Financial Position and Results of Operations Our principal observations and recommendations are summarized on the following pages. These recommendations resulted from our observations made in connection with our audit of the City's financial statements for the year ended December 31, 2011. General Fund The General fund is used to account for resources traditionally associated with government, which are not required legally or by sound principal management to be accounted for in another fund. The General fund balance increased $291,147 from 2010. The fund balance of $6,297,612 is 50 percent of the 2012 budgeted expenditures. The total fund balance is split between restricted $20,390, committed $156,323, assigned $859,508 and unassigned $5,261,391. In addition, the City has formally adopted a fund balance policy for the General fund to maintain a minimum unassigned fund balance of 40 percent of the following year's budgeted expenditures and transfers out. The City has maintained this target level. More information can be found starting on page 55 of the comprehensive annual financial report. The purposes and benefits of a General fund balance are as follows: • Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the General fund expenditures until these revenue sources are received. • The City is vulnerable to legislative actions at the State and Federal level. The State continually adjusts the local government aid and property tax credit formulas. An adequate fund balance will provide a temporary buffer against aid adjustments and levy limits. • Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These would include capital outlay replacement, lawsuits, tax court refunds and other items. An adequate fund balance will provide the financing needed for such expenditures. • A strong fund balance will assist the City in obtaining, maintaining or improving its bond rating. The result will be better interest rates in future bond issues or refunding opportunities. A table summarizing the General fund balance in relation to the following years' budget follows: Total Fund Unassigned $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4.000.000 $2,000,000 City of Elk River May 16, 2012 Page 5 Balance Fund Balance Budget Year December 31 December 31 Year 2006 $ 4,816,386 $ - 2007 2007 5,352,004 - 2008 2008 5,190,662 - 2009 2009 5,840,599 - 2010 2010 6,006,465 5,187,520 2011 2011 6,297,612 5,261,391 2012 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4.000.000 $2,000,000 City of Elk River May 16, 2012 Page 5 Fund Balance as a Percent of Next Year's Budget $12,572,000 $11,975,550 $12,096,150 $12,590,050 $12,678,050 $11,648,000 0 42.6% 43.3% 48.3% 47.7% 49.7% 41.3% 41:2% 41.5% 2006 2007 2008 2009 2010 2011 2012 --$-- Total Fund Balances (Budget (Unassigned Fund Balance The 2011 and prior budgets are the final amended budgets. The 2012 budget is the adopted original budget. Percent of Percent of General Total Unassigned Fund Fund Balance Fund Balance Budget to Budget to Budget $ 11,648,000 41.3 % - % 12,572,000 42.6 - 11,975,550 43.3 - 12,096,150 48.3 - 12,590,050 47.7 41.2 12,678,050 49.7 41.5 Fund Balance as a Percent of Next Year's Budget $12,572,000 $11,975,550 $12,096,150 $12,590,050 $12,678,050 $11,648,000 0 42.6% 43.3% 48.3% 47.7% 49.7% 41.3% 41:2% 41.5% 2006 2007 2008 2009 2010 2011 2012 --$-- Total Fund Balances (Budget (Unassigned Fund Balance The 2011 and prior budgets are the final amended budgets. The 2012 budget is the adopted original budget. The 2011 operations are summarized as follows. Revenues Expenditures Deficiency of revenues wider expenditures Other financing sources (uses) Transfers in Transfers out Total other financing sources (uses) Net change in find balances Fund balances, January 1 Fund balances, December 31 Final Budgeted Actual Amounts Amounts City of Elk River May 16, 2012 Page 6 Variance with Final Budget $ 11,548,950 $ 11,548,647 $ (303) 12,134,850 11,629,834 505,016 (585,900) (81,187) 504,713 769,500 769,500 - (455,200) (3971,166) 58,034 314,300 372,334 58,034 (271,600) 291,147 562,747 6,006,465 6,006,465 - $ 5,734,865 $ 6,297,612 $ 562,747 The City amended the General fund budget during the year. The amendment resulted in an increase of revenues ($155,000) and an increase of expenditures ($90,000). The final budget called for a decrease of $271,600 of fund balance reserves. Actual change in fund balance was an increase of $291,147. Some of the line items with significant variances from the final budget are highlighted below: • The City received $39,699 and $8,748 more than anticipated from property taxes and other taxes, respectively. This is consistent with prior years and the City still maintained a strong collection rate. • The City received $25,175 more than anticipated in licenses and permits • The City recorded $28,304 less than anticipated from interest income due to continual lows in investment options and adjustment for fair market value. • The City recorded $63,223 less than anticipated from charges for services. • Overall, general government and public safety expenditures were $160,251 and $237,942 under budget, respectively, due to strong budget management by the departments. City of Elk River May 16, 2012 Page 7 A comparison between 2009, 2010 and 2011 revenues and transfers is presented below: A graphical presentation of 2009, 2010, and 2011 revenues and transfers follows $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2009 2010 2011 ■ Taxes ■ Intergovernmental ■ Charges for services ■ Other Percent of Source 2009 2010 2011 Total Per Capita Taxes $ 9,229,859 $ 9,570,875 $ 9,660,847 78.6 % $ 420 Licenses and permits 322,338 402,076 432,875 3.5 19 Intergovermnental 922,988 348,073 535,084 4.3 23 Charges for services 537,674 533,476 594,877 4.8 26 Fines and forfeitures 127,642 132,968 126,832 1.0 6 Interest 90,730 62,779 91,696 0.7 4 Miscellaneous 90,178 97,208 106,436 0.9 5 Transfers in 590,100 596,100 769,500 6.2 33 Total revenues and transfers $ 11,911,509 $ 11,743,555 $ 12,318,147 100.0 % $ 536 A graphical presentation of 2009, 2010, and 2011 revenues and transfers follows $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2009 2010 2011 ■ Taxes ■ Intergovernmental ■ Charges for services ■ Other A comparison between 2009, 2010 and 2011 expenditures and transfers is presented below: Program General government Public safety Public works Culture and recreation Capital outlay Transfers out Percent of 2009 2010 2011 Total $ 2,379,939 $ 2,480,825 $ 2,536,399 21.0 % 5,174,528 5,258,550 5,255,608 43.8 1,743,227 1,777,912 2,062,508 17.1 1,616,712 1,596,267 1,655,757 13.8 105,086 83,798 119,562 1.0 383,104 380,337 397,166 3.3 City of Elk River May 16, 2012 Page 8 Per Capita $ 110 229 90 72 5 Total expenditures and transfers $ 11,402,596 $ 11,577,689 $ 12,027,000 100.0 % $ 523 A graphical presentation of 2009, 2010 and 2011 expenditures and transfers follows: $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2009 2010 2011 ■ Public safety ■ General government ■ Public works ■ Other Special Revenue Funds A summary of the special revenue fund balances is shown below: Fund Nonmaj or Library Ice Arena Pinewood Golf Course Senior Citizen Account Landfill Revolving Loan DTED Grant/Loan Development Fund Emergency /Insurance Reserve Drug Forfeiture Reserve YMCA Grant Economic Development Authority Total The above fund balance classification in total is as follows: Fund balances - nonmajor special revenue funds Nonspendable Resticted Committed Assigned City of Elk River May 16, 2012 Page 9 Fund Balances December 31, Increase 2011 2010 (Decrease) $ 442,183 $ 423,356 $ 18,827 13,755 6,743 7,012 10,508 9,003 1,505 1,568,313 1,707,105 (138,792) 1,327,053 1,110,693 216,360 696,294 679,137 17,157 658,908 615,929 42,979 340,958 434,170 (93,212) 14,043 660 13,383 1,110,829 1,342,564 (231,735) 1,553,804 1,377,561 176,243 $ 7,736,648 $ 7,706,921 $ 29,727 $ 57,870 4,106,669 2,712,645 859,464 Total $ 7,736,648 City of Elk River May 16, 2012 Page 10 Debt Service Funds 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 above pledged assets, other funding sources may be received by Debt Service funds as follows: • Residual project proceeds from the related capital projects fund • Investment earnings • State or Federal grants • Transfers from other funds All Debt Service funds with the total assets and debt remaining to be paid are shown below: Cash and Temporary Total Bonds Debt Service Fund Investments Assets Outstanding Improvement Bonds $ 774,975 $ 1,734,648 2003A G.O. Improvement Bonds - - $ 240,000 2005A G.O. Improvement Bonds - - 55,000 2007C G.O. Improvement Bonds - - 2,160,000 2010A G.O. Capital Improvement Bonds - - 5,660,000 Government Building Bonds 644,356 678,414 20060 G.O. Capital Improvement Bonds - - 2,790,000 MPFA Loan 6,496 6,496 State -Aid Road Bonds - - 991,000 TIF Bonds - - 2000A G.O. Tax Increment Bonds - - 305,000 YMCA Bonds 386,062 398,498 2007D EDA G.O. Bonds - - 10,000,000 2008A EDA G.O. Bonds - - 1,235,000 Total Debt Service Funds $ 1.811.889 $ 2.818,056 $ 23,936,000 The annual debt service requirements for the next 5 years for the debt detailed above are as follows $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 2012 2013 2014 ■ Principal ■ Interest City of Elk River May 16, 2012 Page 11 Final Maturity 02/01/14 02/01/16 02/01/18 02/01/23 02/01/27 08/20/13 02/01/15 02/01/33 02/01/15 2015 2016 Capital Projects Funds The fund balances (deficits) of all capital projects funds are summarized below: Capital Projects Fund Major Improvement Projects Nonmaj or Capital Reserve Equipment Replacement Park Dedication Park Improvements Government Buildings GRE Reserve Street Improvement Tax Increment Financing Districts Total nonmajor Total Fund Balances (Deficits) December 31, City of Elk River May 16, 2012 Page 12 Increase (Decrease) $ 4,427,389 $ 4,431,050 $ (3,661) 1,391,663 1,290,675 100,988 1,108,908 1,003,407 105,501 (833,820) (691,159) (142,661) 187,949 181,970 5,979 5,507,987 3,478,897 2,029,090 1,276,255 1,256,876 19,379 4,977,180 5,112,597 (135,417) (225,827) (320,661) 94,834 13,390,295 $ 17,817,684 11,312,602 $ 15,743,652 2,077,693 $ 2,074,032 The City has multiple individual projects that make up the funds presented above. The City should continue to monitor each individual project. The Tax Increment Financing Districts fund and Park Dedication fund have a deficit fund balance at the end of the year. The deficits are primarily due to the recording of the liabilities that will be eliminated by future revenues or park development. Council should continue to review planned project sources for these funds and consider whether they will be available within a sufficient timeframe to cover current activity. City of Elk River May 16, 2012 Page 13 Enterprise Funds The activities of the Enterprise funds include the municipal liquor, garbage, sewer, water and electric. The electric and water operations, under the direction of the Utilities Commission, are included in the financial statements since Council has the ultimate oversight responsibility for their operations. Municipal Liquor Fund The following is a summary of operations in the Municipal Liquor fund for the past three years: Sales Cost of sales Gross profit Operating revenues Operating expenses Operating income Nonoperating revenues Transfers out Change in net assets Cash and investments Bonds payable $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 2009 2010 2011 Total Percent Total Percent Total Percent $ 6,076,245 100.0 % (4,354,597) (71.7) 1,721,648 28.3 4,727 0.1 (975,400) (16.1 750,975 12.3 37,148 0.6 (400,500) (6.6) $ 387,623 6.3 % $ 3,826,409 $ 980,000 $ 5,948,986 100.0 % (4,273,029) (71.8 1,675,957 28.2 4,640 0.1 (954,037) (16.0) 726,560 12.3 3,531 0.1 (341,415) (5.7) $ 388,676 6.7_% $ 4,122,226 $ 880,000 Municipal Liquor Fund Operations Summary $ 6,139,096 100.0 % (4,385,452) (71.4) 1,753,644 28.6 6,596 0.1 (947,692) (15.4) 812,548 13.3 11,617 0.2 (3,115,592) (50.8) $ (2,291,427) (37.3) % $ 1,797,477 $ 730,000 28.3% 28.2°/© 28.6% 2009 2010 2011 Sales f Gross profit f Operating income —Wf Cash and investment City of Elk River May 16, 2012 Page 14 Sales, gross profit and operating income increased for the first time in the past three years. Change in net assets decreased significantly due to a transfer out to provide funding for the public works facility project. The gross profit percent of the City remains above the state -wide average. Also, the City's operating income percent is above the statewide averages. The Office of the State Auditor annually publishes a report analyzing the operation of municipal liquor stores in the State. The most recent year of published information is for the year ended December 31, 2010. The statewide averages for all operations are summarized below. Income before transfers 7.9 % 8.1 % 8.0% Source: Analysis of Municipal Liquor Store Operations, for the year ended December 31, 2010. Published by the Minnesota Office of the State Auditor Off Sale 2008 2009 2010 Percent Percent Percent of Sales of Sales of Sales Sales 100.0 % 100.0 % 100.0 % Cost of sales 75.2 74.9 74.8 Gross profit 24.8 25.1 25.2 Operating expenses 17.2 17.0 17.1 Operating income 7.6 8.1 8.1 Nonoperating revenue (expense) 0.3 0.0 (0.1) Income before transfers 7.9 % 8.1 % 8.0% Source: Analysis of Municipal Liquor Store Operations, for the year ended December 31, 2010. Published by the Minnesota Office of the State Auditor City of Elk River May 16, 2012 Page 15 Garbage Fund The following is a summary of operations in the Garbage fund for the past three years: 2009 2010 2011 Total Percent Total Percent Total Percent Operating revenues $ 1,287,894 100.0 % $ 1,385,337 100.0 % $ 1,344,674 100.0 % Operating expenses 1,256,177 97.5 1,331,514 96.1 1,304,238 97.0 Operating income 31,717 2.5 53,823 3.9 40,436 3.0 Nonoperating revenues Transfers in Change in net assets Cash and investments $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 6,783 0.5 5,041 0.4 8,005 0.6 25,639 2.0 58,457 4.2 18,330 1.4 $ 64,139 5.0 % $ 117,321 8.5 % $ 66,771 5.0 % $ 363,322 $ 467,670 $ 540,516 Garbage Fund Operations Summary 2009 2010 2011 ■ Operating revenues ■ Operating expenses ■ Operating income ■ Change in net assets ■ Cash and investments The expenses of this fund are mainly contracted services that are generally fixed in amount and relate to the number of users. As a result, it is not necessary to carry a large cash reserve. The current level appears adequate. Cash has increased each of the last three years. Changes in net assets decreased from the prior year as a result of decreased operating income and less transfers in. City of Elk River May 16, 2012 Page 16 Sewer Fund The following is a summary of operations in the Sewer fund for the past three years: 2009 2010 2011 Total Percent Total Percent Total Percent Operating revenues Operating expenses Operating loss Nonoperating revenues Contributions - connection fees Capital contributions Transfers out Change in net assets Cash and investments Bonds payable $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $(1 000 000) $ 1,504,785 100.0 % $ 1,483,120 100.0 % $ 1,495,350 100.0 % 1,736,383 115.4 1,922,183 129.6 2,095,422 140.1 (231,598) (15.4) (439,063) (29.6) (600,072) (40.1) 129,461 8.6 7,023 0.5 36,244 2.4 - - 242,230 16.3 286,466 19.2 - - (1,724) (0.1) - - (65,000) (4.3) (65,000) (4.4 ) (90,000) (6.0 $ (167,137) (11.1) % $ (256,534) (173 ) % $ (367,362) (24.5) $ 3,954,869 $ 4,550,144 $ 5,007,654 $ 1,225,000 $ 1,065,000 $ 905,000 Sewer Fund Operations Summary 2009 2010 2011 ■ Operating revenues ■ Operating expenses ■ Operating loss ■ Change in net assets ■ Cash and investments The cash balance remains strong relative to operations. Connection fees increased from prior year and ultimately provide for current debt service and future expansion of the system. There have been operating losses for the past eight years. Depreciation expense was $993,043 in 2011, which is included in the operating expenses. We recommend the City annually evaluate rates to ensure revenues will cover operating costs and future projects. Water Fund Percent $ 1,832,817 100.0 % 1,988,759 The following is a summary of operations in the Water fund for the past three years: (8.5) - - 304,775 2009 - 2010 - - 17,914 0.9 Total Percent Total Percent Operating revenues $ 2,206,429 100.0 % $ 1,913,661 100.0 Operating expenses 2,059,430 93.3 1,945,059 101.6 Operating income (loss) 146,999 6.7 (31,398) (1.6) Nonoperating revenues (expenses) Contributions - connection fees Capital contributions Transfers in Transfers out Change in net assets Cash and investments Bonds payable $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 City of Elk River May 16, 2012 Page 17 2011 Total Percent $ 1,832,817 100.0 % 1,988,759 108.5 (155,942) (8.5) (61,060) (2.8) (75,596) (4.0) (18,933) (1.0) - - 155,759 8.1 195,853 10.7 - - 304,775 15.9 - - - - 17,914 0.9 312,823 17.1 (20,000) (0.9) (25,000) (1.3) (25,000) (1.4) $ 65,939 3.0 % $ 346,454 18.0 % $ 308,801 169 % $ 2,500,960 $ 2,793,142 $ 2,619,574 $ 4,605,000 $ 4,092.899 $ 3,616,730 Water Fund Operations Summary 2009 2010 2011 ■ Operating revenues ■ Operating expenses ■ Cash and investments For more information, see separately issued Elk River Municipal Utilities report. City of Elk River May 16, 2012 Page 18 Electric Fund A comparison of the past three year's Electric fund operations is as follows $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 Electric Fund Operations Summary 2009 2010 2011 • Operating revenues N Operating expenses N Cash and investments For more information, see separately issued Elk River Municipal Utilities report. 2009 2010 2011 Total Percent Total Percent Total Percent Operating revenues $ 24,227,743 100.0 % $ 26,792,562 100.0 % $ 28,583,986 100.0 % Operating expenses 22,926,759 94.6 25,162,191 93.9 26,433,050 92.5 Operating income 1,300,984 5.4 1,630,371 6.1 2,150,936 7.5 Nonoperating expenses (146,352) (0.6) (154,956) (0.6) (117,513) (0.4) Transfers in - - 53,741 0.2 - - Transfers out (585,141) (2.4) (657,086) (2.5) (711,415) (2.5) Change in net assets $ 569,491 2.4 % $ 872,070 3.2 % $ 1,322,008 4.6 % Cash and investments $ 6,091,320 $ 7,311,517 $ 9,104,896 Bonds and notes payable $ 10,049,646 $ 9,376,915 $ 8,649,804 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 Electric Fund Operations Summary 2009 2010 2011 • Operating revenues N Operating expenses N Cash and investments For more information, see separately issued Elk River Municipal Utilities report. City of Elk River May 16, 2012 Page 19 Ratio Analysis The following captures a few ratios from the City's financial statements that give some additional information for trend and peer group analysis. The peer group average is derived from information available on the website of the Office of the State Auditor. Different peer group averages are used for Cities of the 2nd class (population 20,000 — 100,000). The majority of these ratios facilitate the use of economic resources focus and accrual basis of accounting at the government -wide level. A combination of liquidity (ability to pay its most immediate obligations), solvency (ability to pay its long -term obligations), funding (comparison of financial amounts and economic indicators to measure changes in financial capacity over time) and common -size (comparison of financial data with other cities regardless of size) ratios are shown below. Comparative data for the peer group is unavailable for 2011. Ratio Calculation Source 2008 2009 2010 2011 Debt to assets Total habilities /total assets Government -wide 22.9% 22.0% 20.0% 18.9% 23% 22% 23% l'_4 Debt service coverage Net cash provided by operations/ Enterprise funds 338.6% 372.4% 349.9% 337.7% enterprise fund debt payments 218% 320% 136% _V_4 Debt per capita Bonded debt/population Government -wide $ 2,190 $ 2,066 $ 1,890 $ 1,710 S 1,464 S 1,426 S 1,378 V-_4 * S 2,114 S 2,076 S 2,503 X-4 Taxes per capita Tax revenues /population Govemrnent-wide $ 514 $ 523 $ 537 $ 537 5 430 5 428 S 501 l"_4 Current expenditures per capita Governmental fund current Governmental funds $ 686 $ 616 $ 621 $ 668 expenditures /population S 593 5 573 S 583 Xl4 Capital expenditures per capita Governmental fund capital Governmental funds $ 435 $ 193 $ 82 $ 125 outlay /population S 304 S 235 S 335 N�4 Capital assets % left to Net capital assets/ Government -wide 73.5% 71.1% 68.5% 65.9% depreciate - Governmental gross capital assets 68% 67% 67% N_4 Capital assets % left to Net capital assets/ Government -wide 66.4% 63.8% 61.1% 58.5% depreciate - Business -type gross capital assets 63% 63% 68% N.4 Represents the Cit-,• of Elk River Represents Peer Groilp _ 4verage * This represents peer group with popidations from 10, 000 -20, 000 City of Elk River May 16, 2012 Page 20 Debt -to- Assets Leverage Ratio (Solvency Ratio) The debt -to- assets leverage ratio is a comparison of a City's total liabilities to its total assets or the percentage of total assets that are provided by creditors. It indicates the degree to which the City's assets are financed through borrowings and other long -term obligations (i.e. a ratio of 50 percent would indicate half of the assets are financed with outstanding debt). Debt Service Coverage Ratio (Solvency Ratio) The debt coverage ratio is a comparison of cash generated by operations to total debt service payments (principal and interest) of enterprise funds. This ratio indicates if there are sufficient cash flows from operations to meet debt service obligations. Except in cases where other nonoperating revenues (i.e. taxes, assessments, transfers from other funds, etc.) are used to fund debt service payments, an acceptable ratio would be above 100 percent. Bonded Debt per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total bonded debt by the population of the City and represents the amount of bonded debt obligation for each citizen of the City at the end of the year. The higher the amount, the more resources are needed in the future to retire these obligations through taxes, assessments or user fees. Taxes per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total tax revenues by the population of the City and represents the amount of taxes for each citizen of the City for the year. The higher this amount is, the more reliant the City is on taxes to fund its operations.. Current Expenditures per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total current governmental expenditures by the population of the City and represents the amount of governmental expenditures for each citizen of the City during the year. Since this is generally based on ongoing expenditures, we would expect consistent annual per capita results. Capital Expenditures per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total governmental capital outlay expenditures by the population of the City and represents the amount of capital expenditures for each citizen of the City during the year. Since projects are not always recurring, the per capita amount will fluctuate from year to year. Capital Assets Percentage (Common -size Ratio) This percentage represents the percent of governmental or business -type capital assets that are left to be depreciated. The lower this percentage, the older the City's capital assets are and may need major repairs or replacements in the near future. A higher percentage may indicate newer assets being constructed or purchased and may coincide with higher debt ratios or bonded debt per capita. City of Elk River May 16, 2012 Page 21 Future Accounting Standard Changes GASB Statement No. 60 - Accounting and Financial Reporting for Service Concession Arrangements Summary The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements between a transferor (a government) and an operator (governmental or nongovernmental entity) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a "facility ") in exchange for significant consideration and (2) the operator collects and is compensated by fees from third parties. This Statement also provides guidance for governments that are operators in a service concession arrangement. This Statement requires disclosures about a service concession arrangement including a general description of the arrangement and information about the associated assets, liabilities, and deferred inflows, the rights granted and retained, and guarantees and commitments. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2011. The provisions of this Statement generally are required to be applied retroactively for all periods presented. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement improve financial reporting by establishing recognition, measurement, and disclosure requirements for SCAB for both transferors and governmental operators, requiring governments to account for and report SCAB in the same manner, which improves the comparability of financial statements. GASB Statement No. 61 - The Financial Reporting Entity: Omnibus an Amendment of GASB Statements No. 14 and No. 34 Summary The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14 and the related financial reporting requirements of Statement No. 34, were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements. This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. This Statement clarifies the reporting of equity interests in legally separate organizations as well. It requires a primary government to report its equity interest in a component unit as an asset. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2012. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement result in financial reporting entity financial statements being more relevant by improving guidance for including, presenting, and disclosing information about component units and equity interest transactions of a financial reporting entity. City of Elk River May 16, 2012 Page 22 Future Accounting Standard Changes - Continued GASB Statement No. 62 - Codification of Accounting and Financial Reporting Guidance Contained in Pre- Novelnher 30, 1989 FASB and AICPA Pronouncements Summary The objective of this Statement is to incorporate into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: 1. Financial Accounting Standards Board (FASB) Statements and Interpretations. 2. Accounting Principles Board Opinions. 3. Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure. This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2011. Earlier application is encouraged. The provisions of this Statement generally are required to be applied retroactively for all periods presented. How the Changes in This Statement Will Improve Financial Reporting The requirements in this Statement will improve financial reporting by contributing to the GASB's efforts to codify all sources of generally accepted accounting principles for state and local governments so that they derive from a single source. GASB Statement No. 63 - Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Summary This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources and their effects on a government's net position. City of Elk River May 16, 2012 Page 23 Future Accounting Standard Changes - Continued GASB Statement No. 64 - Derivative Instruments: Application of Hedge Accounting Termination Provisions - an Amendment of GASB Statement No. 53 Summary The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of swap counterparty or a swap counterparty's credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. The provisions of this Statement are effective for financial statements for periods beginning after Tune 15, 2011. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement enhance comparability and improve financial reporting by clarifying the circumstances in which hedge accounting should continue when a swap counterparty, or swap counterparty's credit support provider, is replaced. This report is intended solely for the information and use of Council, management, and the Minnesota Office of the State Auditor and is not intended and should not be used by anyone other than those specified parties. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation extended to us by your staff. May 16, 2012 Minneapolis, Minnesota rr �.Gk LLP ABDO, EICK & MEYERS, LLP Certified Public Accountants CITY OF ELK RIVER ELK RIVER, MINNESOTA OTHER REQUIRED REPORTS FOR THE YEAR ENDED DECEMBER 31, 2011 L MWFWWPill IMMA a% 1190 ow -W&mmm I CITY OF ELK RIVER ELK RIVER, MINNESOTA OTHER REQUIRED REPORTS FOR THE YEAR ENDED DECEMBER 31, 2011 CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2011 OTHER REQUIRED REPORTS Report on Minnesota Legal Compliance Page No. r' 'ABDO Vii, _ ; EICK a I •� 1 E LLP Certified Public Accountants & Consultants 5241 Eden Avenue Suite 250 Edina, MN 55436 REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and Council City of Elk River, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River, Minnesota (the City), as of and for the year ended December 31, 2011 which collectively comprise the City's basic financial statements as listed in the table of contents and have issued our report thereon dated May 16, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the State Auditor pursuant to Minnesota statute 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, tax increment financing, and miscellaneous provisions. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the Council, management and the Minnesota Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. May 16, 2012 Minneapolis, Minnesota 952.835.9090 • Fax 952.835.3261 w w w.aemcpas.com lam, �Gk to ABDO, EICK & MEYERS, LLP Certified Public Accountants 6, T6weA-� l'r) f City of Elk River 2011 Audit Abdo, Eick & Meyers, LLP Presented by Andrew Berg /i City of Elk ABW "�-�� EICK & River VYERsu, 1,4W 2011 Audit Results • Audit Opinion — unqualified or "clean" • No audit findings — Internal control — Minnesota legal compliance ABDO EICK & WYERSL - mYNr 6/7/2012 1 Report on Minnesota Legal compliance 2011 Minnesota Legal Compliance Guide for Political Subdivisions From the Minnesota Office of the State Auditor 1. Contracting and bidding 2. Deposits and investments 3. Conflicts of interest 4. Public indebtedness 5. Claims and disbursements 6. Tax increment financing ABDO 7. Miscellaneous provisions EICK EICK & MEYERSue 6/7/2012 2 Congratulation! Certificate of Achievement for Excellence 22nd ear! y in Financial Reporting Pm m.b City of Elk River Minnesota Pm ire ComprcLe�vc Annul FinmaJ Report fiu Ne Racal Y— EM Dccembu I I, 2010 A 5 f AChimxne zN Wby recu once OSicen mre�ryone (CAI Net Ticve NC higEU�nc I w�wMg �6 yeM lvee,al �ti�. {{ P—d. Sdt. Executive Di— A llUlll/ EICK & MEYERSuv c.w f nv4..a,w,�u•,�,n s (�Y,,,.. 6/7/2012 2 General Fund Ending Fund Balance as a percent of Budget $14.000.000 5l L648.000 $12,5'..000 SIt.975S50 $12096.150 S1'- .590.050 $12,678.050 . S12.000.000 _ $10.000.000 S8.000.000 47.7% 49.-° 16,000.000 42.6 0,5 43.3 °k 48.395 - _ 41.3% Ar 54.000.000 412% 41.5% S2.000.000 - -- --- --_.____... S. ...... . _ -. __--. __-1 2006 2007 2M 2009 2010 2011 2012 —Total Find Balances — 11Btdget Unassigned Fund Balance Restricted - insurance benefits $ 20,390 Actual Conarritted - OPEB obligation 156,323 AADDT7�V�1 ABDO Assigned - future budgets 859,508 Final Budget Unassigned 5,261,391 E* &Dt� $ 11,548,647 $ (303) IYI,�ICK L' YERS. Total fund balance $6,297,612 11,629,834 2011 General Fund Operations Final Budgeted Actual Variance with Amounts Amounts Final Budget Revenues $ 11,548,950 $ 11,548,647 $ (303) Expenditures 12,134,850 11,629,834 505,016 Deficiency ofrevenues under expenditures (585,900) (81,187) 504,713 Other£mancing sources (uses) Transfers in 769,500 769,500 - Transfers out (455,200) (397,166) 58,034 Total other financing sources (uses) 314,300 372,334 58,034 Net change in fund balances (271,600) 291,147 562,747 Fund balances, January 1 6,006,465 6,006,465 Fund balances, December 31 $ 5,734,865 $ 6,297,612 $ 562,747 ABW General government expenditures under budget by $160,251 & Public Safety expenditures under budget by $237,942 EICK ME' iEISti, 6/7/2012 3 General Fund Revenue by Source $14.000.000 _... $12.000.000 - — $10.000.000 SUWON $6.000.000 -- — $4M0.000 . - - - -- S1000. 000 2009 2010 2011 ■ Taxes ■ Intergovernmental Char¢es for services ■Other ABIO EICK & NIEYERS]I General Fund Expenditures by Program 514.000.000 - - - -- $12.000.000 510.000.000 58.000.000 ....... ._ $6.000.000 54.000.000 _......... _. 52.000.000 S- - -- -- 2009 2010 2011 ■ Public safety a General govennment a Public works ■Other ABDO EICK & MEYERSu, 6/7/2012 4 Special Revenue Funds Cash and Fund Balances Temporary Total Bonds December 3l, Increase Outstanding Total Debt Service Funds $ 1 811,889 Fund 2011 2010 (Decrease) Nonmajor $2,500.000 SZ0001000 Library $ 442,183 $ 423,356 $ 18,827 Ice Arena 13,755 6,743 7,012 Pinewood Golf Course S. 2D12 2013 2014 Senior Citizen Account 10,508 9,003 1,505 Landfill 1,568,313 1,707,105 (138,792) Revolving Loan 1,327,053 1,110,693 216,360 DTED Grant/Loan 696,294 679,137 17,157 Development Fund 658,908 615,929 42,979 Emergency/Insurance Reserve 340,958 434,170 (93,212) Drug Forfeiture Reserve 14,043 660 13,383 YMCA Grant 1,110,829 1,342,564 (231,735) Economic Development Authority 1,553,804 1,377,561 176,243 Total $ 7,736,648 $ 7706921 29,727 Fund balance classifications Nonspendable 57,870 Resticted 4,106,669 Committed 2,712,645 Assigned 859,464 ABDO EICK & Total $ 773,6.648 M[EYERS,, IJ& I—. - .. Debt Service Fund Cash and Temporary Total Bonds Debt Service Fund Investments Assets Outstanding Total Debt Service Funds $ 1 811,889 2,818,056 $ 23,936,000 53,000,000 $2,500.000 SZ0001000 $1,500,000 $1.000,000 --------- $500.000 S. 2D12 2013 2014 2015 2016 pea do 0 low W IN D ABDO EICK & RaW,' lv", MEYERS. r..*W 6/7/2012 5 Capital Projects Fund Fund Balances (Deficits) December 3l, Increase Capital Projects Fund 2011 2010 (Decrease) Major Improvement Projects $ 4,427,389 $ 4,431,050 $ (3,661) Nonmajor Capital Reserve Equipment Replacement Park Dedication Park Improvements Government Buildings GRE Reserve Street Improvement Taxlncrement Financing Districts Total nonmajor Total 1,391,663 1,290,675 100,988 1,108,908 1,003,407 105,501 (833,820) (691,159) (142,661) 187,949 181,970 5,979 5,507,987 3,478,897 2,029,090 1,276,255 1,256,876 19,379 4,977,180 5,112,597 (135,417) (225,827) (320,661) 94,834 13,390,295 11,312,602 2,077,693 $ 17,817,684 $ 15,743,652 $ 2,074,032 ARDO FICK & MEYERS ,, Liquor Fund Operations S7,000,000 56.000,000 S5.000.000 $4.000.000 53,000.000 - S2.000.000 S1,000.000 S- 28.3% 28.2% 2S.6oa 2009 2010 T 2011 Sales —i —Grass profit —&--Operating income —Cash and investment ABDO EICK & MEYFRS t.1.1 6/7/2012 0 Garbage Fund $1,600,000 $1,400,000 $1,200,000 - - -- S1,000,000 — --- --- ----------- --- ...---- - -.... — ------ ------ ._.._._ s800,000 — — S600,000 1 - -- – s400,000 5200,000 — s- 2009 2010 2011 j ■Operating revenues •Operating expenses s Operating income ■Change in net assets ■Cash and investments ABDO F.ICK & MEYERS.� (:,w:.� FJlr Amwaw ! fmdovu. Sewer Fund S6.000.000_- S5.000.000 $4.000.000 53900.000 52.000.000 -. - -- $1.000.000 S- 5(1,000,000) - -- - - -- 2009 2010 2011 ■ Operating revenues ■ Operating expenses Operating loss ■ Change in net assets ■ Cash and investments ABDO EICK & MF:YERS t.t�, 6/7/2012 7 City of Elk River z2.5•,4 — Investment Rate of Return Ratio Calculation Source 2008 r 2009 r 2010 2011 Debt to assets Total Iiabdi ties /total assets Cnvemment -wide 119 °1.1 110% 2oi a ig 7.7% 8.0% 13% 22% 13% NA Debt service coverage Net cash provided by operations/ Fnterprise funds 338.6 °0 3714S. 349,01 337.7'•- enterprise fund debt payments (30.00%) 218% 320% 13636 N A Debt per capita Bonded debt/population Government -wide S 2.190 $ 2.066 $ 1.890 �$ 1.710 2007 2m 2009 2010 :011 ,S 1.464 S 1.426 S 1.378 N A S 1.114 S 2.076 S 2.503 N A Taxis percapita Tax revenues /population Government -wide $ 514 $ 523 $ 537 '$ 537 S 430 S 418 S 501 NA Current expenditures percapita Govemmental fund current Govemmental Ponds $ 686 $ 616 S 621 '$ 66X expenditures /population $ 593 S 573 $ 583 NA Capital expenditures per capita Govemmental Pond capital Govemmental funds $ 435 $ 193 $ 82 '$ 12� outlay /population $ 304 5 235 S 125 NA Capital assets %left to Net capital assets/ Govemment -wide 73.3% 711% 68.5, 65.9".. depreciate - Govemmental gross capital assets 68% 67% 67% NA Capitalassets% leftto Net capital assets/ Govemment-wide 66.1, 63.81% 61.1% 58.5 ^, depreciate - Business -type gross capital assets 63% 63% 68% NA ABDO ItcprescMts the City of Elk River Krpreaents Peer Crorep Averoge 1-� SICK&DC ' I hia represents peer group wuh pnpulatinn�_Jivm 10.000 - 20.000 �11S,, Elk River Fire Relief Association z2.5•,4 — Investment Rate of Return 40.00% 3a00S6 2a00% Sao %) 10.00% 7.7% 8.0% (10.00%) (20.0.0.%) WV� (30.00%) (40.00%) (50L --.) — -- 2007 2m 2009 2010 :011 300% 2011 results consistent with peer group ( ABDO EICK & 2007 2008 2009 2010 _2011 �RSW —Fire relief rate t Peer a roue ar'<rape -1.1 m, a,. —4 r woem zo.o% z2.5•,4 — 7.7% 8.0% Sao %) 6/7/2012 Fire Relief - Fund Percentage 170.00/x-------- — 150.0% - - 130.0% - - - - - -- 114.7% 110.0°4 - -- 16£,-6°:0 90.i:n ') -1 °n 90.0% 87.1% 91.3% 89.0% 70.0% 70.9% 50.0% 2007 2008 2009 2010 2011 —*---Fire relief percent --M--Peer group average ABDO EICK & N4'YERS r „ Thank you Questions? ABDO EICK & MF:YERS r „ 6/7/2012 9 ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2011 I� ABD�O EICK & A4mDQ 110 I.LP CCertifwd Public Accour laws & Comullwas '6111re ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2011 nano EICK & ►1 91 A ME 1 ERRS LLP Certified PaNic Accountants & Consultants 5201 Eden Avenue Suite 250 Edina, MN 55436 Board of Trustees and Plan Participants Elk River Fire Department Relief Association Elk River, Minnesota May 1, 2012 We have audited the financial statements of the governmental and fiduciary activities of the Elk River Fire Department Relief Association (the Association) for the years ended December 31, 2011 and 2010, and have issued our report thereon dated May 1, 2012. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under Auditing Standards Generally Accepted in the United States of America As stated in our engagement letter, our responsibility, as described by professional standards, is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control of the Association. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. Significant Audit Findings In plate ing and performing our audit of the financial statements of the Association for the year ended December 31, 2011, in accordance with auditing standards generally accepted in the United States of America, we consider the Association's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control. Accordingly, we do not express an opinion on the effectiveness of the Association's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all such deficiencies have been identified. However, as discussed below, we identified a deficiency in internal control that we consider to be a significant deficiency. A deficiency in internal control exists when the design or operation of a control does not allow management, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that material misstatement of the Association's financial statements will not be prevented, or detected and corrected on a timely basis. We did not identify any deficiencies in internal control that we consider to be material weaknesses. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn Elk River Fire Department Relief Association May 1, 2012 Page 2 Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance with Minnesota statutes. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing. Qualitative Aspects of Accounting Practices Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the fire relief are described in Note 2 to the financial statements. The requirements of GASB statement No. 54 were adopted and the application of existing policies were not changed during the year ended December 31, 2011. We noted no transactions entered into by the fire relief during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was the actuarial accrued liability. This is based on the funding formula prescribed by the State of Minnesota. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and coimmunicate them to the appropriate level of management. There were no misstatements noted during the audit Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated May 1, 2012. 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn Elk River Fire Department Relief Association May 1, 2012 Page 3 Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Association's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Association's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Financial Position and Results of Operations Our principal observations and recommendations are summarized below. These recommendations resulted from our observations made in connection with our audit of the Association's financial statements for the year ended December 31, 2011. Investment Return A summary of the investment rate of return is summarized below: 40.00% 30.00% 20.00% 10.00% (10.00 %) (20.00 %) (30.00 %) (40.00 %) (50.00 %) Investment Rate of Return -o 7.7% 8.0% (L9 %) o 2007 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn 2008 2009 2010 2 ()11 Net Assets Appreciation Total Held in (Depreciation) Investment Trust for Investment Interest of Investments Income Pension Rate of Year Income less fees (loss) Benefits Return 2007 $ 52,211 $ 120,572 $ 172,783 $ 2,420,742 7.7 % 2008 32,524 (713,435) (680,911) 1,696,356 (33.1) 2009 23;827 416,652 440,479 2;224,430 22.5 2010 51,384 125,756 177,140 2,189,448 8.0 2011 72,988 (114,235) (41,247) 2,260,830 (1.9) 40.00% 30.00% 20.00% 10.00% (10.00 %) (20.00 %) (30.00 %) (40.00 %) (50.00 %) Investment Rate of Return -o 7.7% 8.0% (L9 %) o 2007 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn 2008 2009 2010 2 ()11 Elk River Fire Department Relief Association May 1, 2012 Page 4 Peer Group Comparisons The following are two comparisons of statistics that will provide information on how your organization compares with other fire relief associations around the State. We used averages from approximately 60 fire relief associations with under $200,000 in assets to several million in assets. These averages include a 5-year trend of the rate of return and a 5 -year trend of funding percentage as compared to averages of the other 40 relief associations. Averages Calculation 2007 2008 2009 2010 2011 Average rate of returns Net investment income/ 7.7% (33.1 %) 22.5% 8.0% (1.9 %) average net assets 5.9% (22.1 %) 14.3% 8.1% N/A Percentage funded Net assets /accrued liability 114.7% 70.9% 87.2% 91.3% 89.0% 108.6% 82.5% 90.3% 97.4% N/A Elk River Fire Relief Association Peer Group Rate of Return The rate of return is calculated by taking the net investment income and dividing it by the beginning net assets. This will show a trend of your returns over a 5 -year period and show your performance related to other relief associations. 30.0% 20.0% 10.0% (10.0 %) (20.0 %) (30.0 %) (40.0 %) 22.5% 8.1% 5.9% 14.3% 7.7%o 8.0% \N� A/ (1.9 %) (22.1 %) (33.1 %) 2007 2008 2009 2010 2011 -+--Fire relief rate (Peer group average 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn Elk River Fire Department Relief Association May 1, 2012 Page 5 Funding Percentage The funding percentage is calculated by taking the Special fund net assets and dividing it by the accrued pension liability. This graph will show your funding percentage for a 5 -year period and compare _your percentage to other relief associations. 170.0% 150.0% 130.0% 110.0% 90.0% 70.0% 50.0% Reconciling items 114.7% ° 9( ").3% 97.4% 108.6/0 82.5% 87.2% 91.3% 89.0% 70.9% 2007 2008 2009 2010 2011 —$--Fire relief percent (Peer group average As of December 31, 2011, the Association had an accounts receivable balance of $1,620. This is due from the State for supplemental benefit reimbursements for the following members: Steve Greene $1,000 and Brian Borntager $620 for pension payouts in 2011. Please ensure that Form SBR has been completed and submitted to Minnesota Revenue to receive the reimbursements. There was also an accounts payable balance of $6,903. This is due to the IRS for taxes withheld from the two pension payouts in 2011. Please pay the taxes using the EFTPS payment system on the IRS website. This report is intended solely for the information and use of the Board of Trustees, members and the Minnesota Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by your staff. May 1, 2012 ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota Certified Public Accountants 952.835.9090 • Fax 952.835.3261 www.aetncpas.cotn ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FINANCIAL STATEMENTS AND REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 THIS PAGE IS LEFT BLANK INTENTIONALLY ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA TABLE OF CONTENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 INTRODUCTORY SECTION Organization FINANCIAL SECTION Page No. Independent Auditor's Report 9 Management's Discussion and Analysis 13 Basic Financial Statements Governmental Fund - General Fund Balance Sheets 18 Statements of Revenues, Expenditures and Changes in Fund Balances 19 Fiduciary Funds - Special Pension Trust Fund Statements of Fiduciary Net Assets 20 Statements of Changes in Fiduciary Net Assets 21 Notes to the Financial Statements 23 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress 32 Schedule of Employer Contribution 32 Notes to Required Supplementary Infonnation 32 COMPLIANCE SECTION Report on Minnesota Legal Compliance 35 -1- THIS PAGE IS LEFT BLANK INTENTIONALLY -2- INTRODUCTORY SECTION ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 -3- THIS PAGE IS LEFT BLANK INTENTIONALLY ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA ORGANIZATION FOR THE YEAR ENDED DECEMBER 31, 2011 Board of Trustees Name Scott Schnutt President Dave King Vice President Robert Pearson Secretary Chad Peterson Treasurer Rich Czech Trustee Keith Thorson Trustee Name John Dietz Tim Simon T. John Cunningham Ex- Officio Trustees -5- Title Title Mayor Finance Director Fire Chief THIS PAGE IS LEFT BLANK INTENTIONALLY FINANCIAL SECTION ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 -7- THIS PAGE IS LEFT BLANK INTENTIONALLY -8- ABDO EICIi ME lY EYE W LLP Certified Public Accountants & Consultants 5201 Eden Avenue Suite 250 Edina, MN 55436 INDEPENDENT AUDITOR'S REPORT Board of Trustees Elk River Fire Relief Association Elk River, Minnesota We have audited the accompanying financial statements of the governmental and fiduciary activities of the Elk River Fire Relief Association (the Association) as of and for the years December 31, 2011 and 2010, which collectively comprise the Association's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Association's management. Our responsibility is to express opinions on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental and fiduciary activities of the Association as of December 31, 2011 and 2010, and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 8 to the basic financial statements, the fire relief adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, for the year ended December 31, 2011. Adoption of the provision of this statement results in significant changes to the classifications of the components of fund balances. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis starting on page 13 and the Required Supplementary Information on page 32 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures, to the required supplementary information in accordance with auditing standards generally accepted in the United States of America which, consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 952.835.9090 • Fax 952.835.3261 www.aemcpas.coin -9- THIS PAGE IS LEFT BLANK INTENTIONALLY -10- Our audits was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Association's basic financial statements as a whole. The introductory section listed in the table of contents is presented for the purposes of additional analysis and is not a required part of the basic financial statements. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. May 1, 2012 Minneapolis, Minnesota 952.835.9090 • Fax 952.835.3261 w ww.aemcpas. com -11- ¢" ABDO, EICK & MEYERS, LLP Certified Public Accountants THIS PAGE IS LEFT BLANK INTENTIONALLY -12- Management's Discussion and Analysis The discussion and analysis of the Elk River Fire Relief Association's (the Association) financial performance provides an overview of the financial activities and funding conditions for the fiscal years ended December 31, 2011 and 2010. Using the Annual Report The financial statements, which reflect the activities of the Special Pension Trust (the Plan), are reported in the Statements of Fiduciary Net Assets (see page 20) and the Statements of Changes in Fiduciary Net Assets (see page 21). These statements are presented on a full accrual basis and reflect all trust activities as incurred. The financial statements also include activities of the General Fund, which is primarily used to account for the fund raising activities of the Association. Financial Highlights • The Plan's net assets increased by $71,382 (or 3.3 percent) as a result of the fiscal year's activities. • The contributions from the State and the City increased $25,767. • Net investment income decreased $211,777 (or 109.4 percent). • Accrued pension liability increased $142,298 (or 5.9 percent). • The General Fund balance increased $1,218 (or 468.4 percent). The fund balance of the General Fund is $3,905 at year end. Plan Highlights The Plan's funding level decreased from 91.3 percent to 89.0 percent. Cash and cash equivalents Investments Receivables Total restricted net assets Accounts payable Net assets held in trust for pension benefits Plan Net Assets December 31, 2011 2010 Change $ 72,669 $ 60,476 $ 12,193 2,193,006 2,127,351 65,655 2,383 3,000 (617) 2,268,058 2,190,827 77,231 7,228 1,379 5,849 $ 2,260,830 $ 2,189,448 $ 71,382 For the current fiscal year 2011 there is a net increase of $71,382 from the previous fiscal year 2010. The previous fiscal year 2010 had a net decrease of $34,982 from fiscal year 2009. -13- Changes in Plan Net Assets The following comparative summary of the changes in net assets reflects the activities of the Plan: Revenues Contributions Miscellaneous income Net investment income (loss) Less investment fees Total revenues Expenditures Change in net assets December 31 2011 2010 Change $ 157,022 $ 131,255 $ 25,767 200 - 200 (18,153) 193,624 (211,777) (23,094) (16,484) (6,610) 115,975 308,395 (192,420) 44,593 343,377 (298,784) 71,382 (34,982) 106,364 Net assets - January 1 2,189,448 2,224,430 (34,982) Net assets - December 31 $ 2,260,830 $ 2,189,448 $ 71,382 The Association's funding policy provided for contributions from the State of Minnesota (the State) and the City of Elk River in amounts sufficient to accumulate assets to pay benefits when due. The annual contributions are the sum of the normal cost, the State contribution payment and the provision for administrative expenses. Plan Membership The following table reflects the Association's Plan membership as of the beginning and ending of the year: December 31, Increase 2011 2010 (Decrease) Active participants Vested Fully Partially Non - vested (less than 5 years of service) Deferred Members Total Membership -14- 11 9 2 21 23 (2) 6 6 - 3 5 (2) 41 43 (2) Funding Status The amount of the total accrued pension liability is based on a standardized measurement established by the Governmental Accounting Standards Board (GASB) that, with some exceptions, must be used by the relief associations for financial statement presentations. This standardized measurement is based on Minnesota statute 69.772. This pension valuation method reflects the present value of estimated pension benefits that will be paid in future years as a result of service years performed by the members of the Association. A standardized measure of the accrued pension liability was adopted by GASB to enable the readers of relief association financial statements to (a) assess the relief association's funding status on a going- concern basis, (b) assess progress being made in accumulating sufficient assets to pay benefits when due, and (c) make comparisons among relief associations. Because the standardized measure is used only for disclosure purposes by the Association, the measurement is independent of an actuarial computation made to determine contributions to the Association. The following represents the percentage funded trend for the last six nears. $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Prior Six Years Funding Process $2,550,808 $2,540,365 114.7% $2.392,353 $2,398,067 114.8% 87.2% 91.3% 89.0% $2,110,264 $1,823,195 70.9% 2006 2007 2008 2009 2010 2011 Assets --M—Liabilities -15- Funding Year Net Assets Liabilities Percentage 2006 $ 2,092,351 $ 1,823,195 114.8 % 2007 2,420,742 2,110,264 114.7 2008 1,696,356 2,392,353 70.9 2009 2,224,430 2,550,808 87.2 2010 2,189,448 2,398,067 91.3 2011 2,260,830 2,540,365 89.0 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Prior Six Years Funding Process $2,550,808 $2,540,365 114.7% $2.392,353 $2,398,067 114.8% 87.2% 91.3% 89.0% $2,110,264 $1,823,195 70.9% 2006 2007 2008 2009 2010 2011 Assets --M—Liabilities -15- Asset Allocation The following table and graph indicates the asset allocation for December 31, 2011 and 2010. Cash and CD's Broker money market Exchange traded funds Domestic stock Mutual fiords Total cash and investments Mutual funds 31.3% Domestic s 14.6% Investment Activities December 31, 2011 2010 $ 72,669 3.2 % $ 60,476 2.8 % 248,604 11.0 217,442 9.9 905,102 39.9 496,334 22.7 331,354 14.6 631,139 28.8 707,946 31.3 782,436 35.8 $ 2,265,675 100.0 % $ 2,187,827 100.0% 2011 Asset Allocation Cash and CD's 3.2 % Broker money market 11.0% Exchange traded funds 39.9% Investment income is vital to the Plan's current and continued financial stability. Therefore, the Board of Trustees has a fiduciary responsibility to act prudently when making Plan investment decisions. Portfolio performance is reviewed quarterly by the Board of Trustees. The Association also has an active Investment Committee to broaden its attention to asset allocation and fund returns. Economic Factors The primary function of the pension trust is to (a) appropriately award and pay benefits and (b) manage investments. The opportunity available considering various investment choices is invaluable in the asset allocation and money manager oversight. Contacting the Plan's Financial Management The financial report is designed to provide citizens, taxpayers, plan participants and the marketplace's credit analysis with an overview of the Plan's finances and the prudent exercise of the Board's oversight. If you have any questions regarding this report or need additional financial information, please contact the Elk River Fire Relief Association, 13065 Orono Parkway, Elk River, Minnesota 55330. -16- FINANCIAL STATEMENTS ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 -17- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION, MINNESOTA ELK RIVER, MINNESOTA BALANCE SHEETS GOVERNMENTAL FUND - GENERAL FUND DECEMBER 31, 2011 AND 2010 ASSETS Cash and cash equivalents FUND BALANCES Unassigned General Fund 2011 2010 $ 3,905 $ 687 $ 3,905 $ 687 The notes to the financial statements are an integral part of this statement. -18- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION, MINNESOTA ELK RIVER, MINNESOTA STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUND - GENERAL FUND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 REVENUES Donations Fundraising events TOTAL REVENUES EXPENDITURES Conventions and meetings Dues Relief events Fundraising Other TOTAL EXPENDITURES NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 General Fund 2011 2010 $ 12,660 $ 13,510 8,846 4,966 21,506 18,476 275 - 278 259 7,417 9,012 10,287 6,468 31 2,264 18,288 18,003 3,218 473 687 214 $ 3,905 $ 687 The notes to the financial statements are an integral part of this statement. -19- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION STATEMENTS OF FIDUCIARY NET ASSETS FIDUCIARY FUND - SPECIAL PENSION TRUST FUND DECEMBER 31, 2011 AND 2010 ASSETS Cash and cash equivalents Investments Receivables Interest State of Minnesota TOTAL ASSETS LIABILITIES Accounts payable NET ASSETS Held in trust for pension benefits Special Pension Trust Fund 2011 2010 $ 72,669 $ 60,476 2,193,006 2,127,351 763 - 1,620 3,000 2,268,058 2,190,827 7,228 1,379 $__2,260,830 $ 2,189,448 The notes to the financial statements are an integral part of this statement. -20- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION STATEMENTS OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUND - SPECIAL PENSION TRUST FUND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 ADDITIONS Contributions State of Minnesota 10% supplemental reimbursement City of Elk River Miscellaneous income Interest income Net appreciation (depreciation) in investments Less investment fees TOTAL ADDITIONS DEDUCTIONS Benefits Pension benefits Administrative expenses Salaries Professional fees Bond Miscellaneous TOTAL DEDUCTIONS CHANGE IN NET ASSETS NET ASSETS, JANUARY 1 NET ASSETS, DECEMBER 31 Special Pension Trust Fund 2011 2010 $ 116,902 $ 98,255 1,620 3,000 38,500 30,000 200 - 72,988 51,384 (91,141) 142,240 (23,094) (16,484) 115,975 308,395 34,517 335,188 3,255 3,255 6,490 4,300 331 379 - 255 44,593 343,377 71,382 (34,982) 2,189,448 2,224,430 $ 2,260,830 $ 2,189,448 The notes to the financial statements are an integral part of this statement. -21- THIS PAGE IS LEFT BLANK INTENTIONALLY -22- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 1: PLAN DESCRIPTION A. The financial reporting entity Firefighters of the City of Elk River (the City) are members of the Elk River Fire Relief Association (the Association). The Association is the administrator of a single - employer defined benefit pension plan (the Plan) available to firefighters. The Plan was established in 1922 under the provisions of Minnesota Laws 1965, chapter 446 as amended and Minnesota statute, chapters 69 and 424. It is governed by a Board of Trustees made up of six members elected by the members of the Association for three year terms, and the Mayor, Finance Director and Fire Chief, who serve as ex- officio voting members of the Board of Trustees. For financial reporting purposes, the Association's financial statements are not included with the City financial statements because the Association is not a component unit of the City. The Association does not have any component units. B. Membership information As of December 31, 2011 and 2010, membership data related to the Association were: Retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them Active plan participants Vested Fully Partially Nonvested Total -23- 2011 2010 11 9 21 23 41 43 ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 1: PLAN DESCRIPTION - CONTINUED C. Pension benefits The Association operates under a defined benefit plan. The pension liability is calculated by the number of active service years multiplied by a set benefit level. The Association's current level is at $5,091 per active year. According to the bylaws of the Association and pursuant to Minnesota statute 424A.02, subdivisions 2 and 4, members who retire with less than 20 years of service and have reached the age of 50 years and have completed at least five years of active membership are entitled to a reduced service pension not to exceed the amount calculated by multiplying the member's service pension for the completed years of service times the applicable non - forfeitable percentage of pension as follows: Completed years of service 10 11 12 13 14 15 16 17 18 19 20 and thereafter Non - forfeitable percentage of pension amount 40% 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 If a member of the Association shall become totally and permanently disabled, with a service related disability (injured in the line of duty) to the extent that a physician or surgeon acceptable to the Board shall certify that such disability will permanently prevent said member from performing said member's duties in the Department, the Association shall pay to such member the sum of the current pension amount for each year and fractions of a year that the member has served as an active member of the Department, without regard to minimum or partial vesting requirements. If a member who has received such a disability pension should subsequently recover and return to active duty in the Department, any amount paid to said member as a disability pension shall be deducted from said member's service pension. Upon the death of any member of the Association who is in good standing at the time of said member's death, the Association shall pay to the surviving spouse, if any, and if there is no surviving spouse, to child or children, if any, and if no child or children survive, to the estate of such deceased member, the credited sum of said member's pension. -24- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS A. Measurement focus, basis of accounting and basis of presentation Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Revenues susceptible to accrual include contributions from the State of Minnesota and the City of Elk River and investment revenue, including interest on deposits and dividends. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. The fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. B. Description of funds The resources of the Association are accounted for in two funds. Each fiend is accounted for as an independent entity. Descriptions of the funds included in this report are: Major governmental funds: The General fund is a governmental fund that accounts for the resources not accounted for in other funds. It is used for the good and benefit of the Association as determined by Association bylaws. Its resources consist of fundraising proceeds, investment earnings, and miscellaneous sources. The Fiduciary fund accounts for assets held by the Association in a trustee capacity for its members. The Fiduciary fund is a special pension trust fund for the accumulation of resources to be used for retirement, dependency and disability annuity payments of appropriate amounts and at appropriate times in the future. Resources are contributed by the City at amounts determined by law, (taxes), and from the two- percent insurance premium tax and amortization aid from the State of Minnesota. -25- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS - CONTINUED C. Fund balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the fire relief is bound to observe constraints imposed upon the use of resources reported in the governmental funds. These classifications are defined as follows: Nonspendable — Amounts that cannot be spent because they are not in spendable form, such as prepaid items. Restricted Amounts related to externally imposed constraints established by creditors, grantors or contributors: or constraints imposed by state statutory provisions. Committed Amounts constrained for specific purposes that are internally imposed by formal action (resolution) of the Board of Directors (the Board), which is the fire relief's highest level of decision - making authority. Committed amounts cannot be used for any other purpose unless the Board modifies or rescinds the commitment by resolution. Assigned Amounts constrained for specific purposes that are internally imposed. In governmental funds other than the General fund, assigned fund balance represents all remaining amounts that are not classified as nonspendable and are neither restricted nor committed. In the General fund, assigned amounts represent intended uses established by the Board itself or by an official to which the governing body delegates the authority. Unassigned The residual classification for the General fund and also negative residual amounts in other funds. The fire relief considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the fire relief would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. D. Comparative data Comparative data for the prior year have been presented in the accompanying financial statements to provide an understanding of changes in the Association's financial position and operations. -26- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 3: DETAILED NOTES ON ACCOUNTS Deposits and investments The Association's cash and cash equivalents are considered to be demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Deposits Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the Association's deposits and investments may not be returned or the Association will not be able to recover collateral securities in the possession of an outside parry. In accordance with Minnesota statutes and as authorized by the Board, the Association maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota statutes require that all Association deposits be protected by insurance, surety bond or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. Authorized collateral in lieu of a corporate surety bond includes: • United States government Treasury bills, Treasury notes, Treasury bonds; • Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity, • General obligation securities of any state or local government with taxing powers which is rated "A" or better by a national bond rating service, or revenue obligation securities of any state or local government with taxing powers which is rated "AA" or better by a national bond rating service; • General obligation securities of a local government with taxing powers may be pledged as collateral against funds deposited by that same local government entity: • Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by written evidence that the bank's public debt is rated "AA" or better by Moody's Investors Service, Inc., or Standard & Poor's Corporation, and • Time deposits that are fully insured by any federal agency. Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the Association. -27- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED Following is a summary of the deposits covered by FDIC insurance at December 31, 2011: Fund Book Bank General $ 3,905 $ 3,905 Special pension trust 72,669 72,669 Total $ 76,574 $ 76,574 Following is a summary of the deposits covered by FDIC insurance at December 31, 2010: Fund Book Bank General Special pension trust Total Investments $ 687 $ 687 60,476 60,476 $ 61,163 $ 61,163 At year end, the Association had the following investments that are insured or registered, or securities held by the Association or its agent in the Association's name: Credit Concentration Segmented Fair Value and Quality/ of Time Carrying Amount Type of Investment Ratings (1) Credit Risk Distribution (2) 2011 2010 Pooled investments Exchange traded funds N/A N/A N/A $ 905,102 $ 496,334 Broker money market N/A N/A less than 6 mo. 248,604 217,442 Mutual Funds N/A N/A N/A 707,946 782,436 Total pooled investments 1,861,652 1,496,212 Non - pooled investments Domestic stock N/A N/A N/A 331,354 631,139 Total investments $ 2,193,006 $ 2,127,351 (1) Ratings are provided by various credit rating agencies where applicable to indicate associated credit risk. (2) Interest rate risk is disclosed using the segmented time distribution method. N/A indicates not applicable or available. -28- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED The Association's investments are subject to the following risks: CreditRisk. Is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota statutes, section I IA.24, contains a specific list of asset classes available for investment, including connnon stocks, bonds, short term securities, real estate, private equity, and resource funds. The statutes prescribe the maximum percentage of fund assets that may be invested in various asset classes and contain specific restrictions to ensure the quality of the investments. • Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside parry. • Concentration of Credit Risk. Is the risk of loss attributed to the magnitude of a government's investment in a single issuer. • Interest rate risk. Is the risk that changes in interest rates will adversely affect the fair value of an investment. Investment policy. The Association has adopted an investment policy with regard to investing the financial assets of the Association. All assets will be invested in accordance with this policy, Minnesota statutes chapter 69.775 and written administrative procedures. It shall be the policy of the Association to invest the assets in accordance with the minimum and maximum range for each asset class as stated below: Asset Class Stocks Bonds Non - Fluctuating Share Value Cash Note 4: FUNDING STATUS AND PROGRESS Minimum Maximum Percentage Percentage 25% 75% 0% 50% 0% 10% 0% 10% The amount of the total accrued pension liability is based on a standardized measurement established by the Governmental Accounting Standards Board (GASB) that, with some exceptions, must be used by the relief associations for financial statement presentation. This standardized measurement is based on Minnesota statute 69.772. This pension valuation method reflects the present value of estimated pension benefits that will be paid in future years as a result of service years performed by the members of the Association. A standardized measure of the accrued pension liability was adopted by GASB to enable the readers of relief association financial statements to (a) assess the relief association's funding status on a going - concern basis, (b) assess progress being made in accumulating sufficient assets to pay benefits when due, and (c) make comparisons among relief associations. Because the standardized measure is used only for disclosure purposes by the Association, the measurement is independent of an actuarial computation made to determine contributions to the Association. -29- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Note 5: CONTRIBUTIONS REQUIRED AND CONTRIBUTIONS MADE The Association's funding policy provided for contributions from the State and the City in amounts sufficient to accumulate sufficient assets to pay benefits when due. The annual contribution is the sum of the normal cost, the State contribution payment and the provision for administrative expenses. The Association is comprised of volunteers; therefore, there are no payroll expenditures or covered payroll percentage calculations. A required contribution of $116,902 and $98,255 plus an additional supplemental benefit amount of $1,620 and $3,000 was made by the State in accordance with Minnesota statute for the years ended December 31, 2011 and 2010, respectively. Voluntary contributions of $10 and $30,000 were made by the City for the years ended December 31, 2011 and 2010, respectively. There was also a required contribution of $38,490 paid by the City for the year ended December 31, 2011. Note 6: RISK MANAGEMENT The Association is exposed to various risks of loss related to theft of assets for which the Association carried commercial insurance policies. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any part of the past three fiscal years. The Association invests in mutual funds that are subject to market value fluctuations. Note: 7: ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES During 2010, the Association received information indicating their tax exempt status may be uncertain. Under FASB ASC 740- 10 -50, formerly FIN 48, the Association is required to disclose any uncertain tax position. The Association is currently operating as a 501(c) 4 under IRS code. The Association is currently in the process of re- instating their exempt status as a 501(c) 4 retroactively from the date of revocation. If the IRS does not grant the re- instatement of the exempt status, the Association would be treated as a for profit entity and subject to business income tax. A tax liability will not be accrued because the amount is not easily estimated. During 2011 no penalties or interest were recorded. Note 8: ACCOUNTING CHANGE GASB Statement 54 "Fund Balance Reporting and Governmental Fund Type Definitions" enhances the usefulness of fiord balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. The Association implemented this standard for fiscal year end December 31, 2011. Changes to governmental fund type fund balance reporting is reflected in the financial statements and schedules and related disclosures are included in Note 2. Note 9: EVALUATION OF SUBSEQUENT EVENTS The Organization has evaluated subsequent events through May 1, 2012, the date which the financial statements were available to be issued. -30- REQUIRED SUPPLEMENTARY INFORMATION ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2011 -31- A. Schedule of funding progress ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2011 Required Supplementary Information B. Schedule of employer contributions Year Ending 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07 12/31/06 C. Notes to supplementary information Valuation date Actuarial cost method Amortization method Remaining amortization period Normal cost Prior service cost Asset valuation method Actuarial assumptions Investment rate of return Projected salary increases Inflation rate Cost of living adjustments -32- Annual Pension Cost Percentage of APC Contributed $ 157,022 Assets in 131,255 100.0 127,024 100.0 143,999 Excess of 159,023 100.0 Actuarial Actuarial Actuarial (Unfunded) Benefit Valuation Value of Accrued Accrued Funded per Year Date Assets Liability Liability Rate of Service 12/31/11 $ 2,260,830 $ 2,540,365 $ (279,535) 89.0 % $ 5,091 12/31/10 2,189,448 2,398,067 (208,619) 91.3 5,091 12/31/09 2,224,430 2,550,808 (326,378) 87.2 5,091 12/31/08 1,696,356 2,392,353 (695,997) 70.9 5,091 12/31/07 2,420,742 2,110,264 310,478 114.7 4,450 12/31/06 2,092,351 1,823,195 269,156 114.8 4,175 B. Schedule of employer contributions Year Ending 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07 12/31/06 C. Notes to supplementary information Valuation date Actuarial cost method Amortization method Remaining amortization period Normal cost Prior service cost Asset valuation method Actuarial assumptions Investment rate of return Projected salary increases Inflation rate Cost of living adjustments -32- Annual Pension Cost Percentage of APC Contributed $ 157,022 100.0 % 131,255 100.0 127,024 100.0 143,999 100.0 159,023 100.0 177,405 100.0 12/31/11 Entry age normal Level dollar closed 20 years 5 years Market 5% N/A N/A None COMPLIANCE SECTION ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2011 -33- THIS PAGE IS LEFT BLANK INTENTIONALLY -34- nano EICK & XMWA MEYE1 L S LLP C,ertiM Public Accountants & Consultants 5201 Eden Avenue Suite 250 Edina, MIDI 55436 REPORT ON MINNESOTA LEGAL COMPLIANCE Board of Trustees Elk River Fire Relief Association Elk River, Minnesota We have audited the financial statements of the governmental and fiduciary funds of the Ell-, River Fire Relief Association (the Association) as of and for the years ended December 31, 2011 and 2010, and have issued our report thereon dated, May 1, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Mimnesota Office of the State Auditor pursuant to Minnesota statute 6.65. Accordingly, the audit included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers three main categories of compliance to be tested in audits of relief associations: deposits and investments, conflicts of interest, and public relief associations. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the Association complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the Board of Trustees, City of Elk River, members, and the Minnesota Office of the State Auditor, and is not intended to be and should not be used by anyone other than these specified parties. May 1, 2012 Minneapolis, Minnesota 952.835.9090 • Fax 952.835.3261 www.aemcpas.eotn -35- ABDO, EICK & MEYERS, LLP Certified Public Accountants