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6.1. SR 06-03-2013
Elk REQUEST FOR ACTION River To Item Number Mayor and City Council 6.1 Agenda Section Meeting Date Prepared by Awards/Reco tions/Presentations June 3, 2013 Tim Simon, Finance Director Item Description Reviewed by Comprehensive Annual Financial Report (CAFR) and Audit Cal Portner, City Administrator Results for the Year Ended December 31, 2012 Reviewed by Action Requested Accept by motion,the CAFR for the City of Elk River for the year ended December 31, 2012. Background/Discussion Andrew Berg, Governmental Services Partner with Abdo,Eick, &Meyers will present a PowerPoint presentation of the city's 2012 CAFR and audit results. The CAFR presentation 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 Management Letter. The Fire Relief report will be briefly discussed as a formal presentation was made at the quarterly board meeting on May 29. The CAFR will be available on the city website after the meeting. The following are some highlighted areas of the CAFR and corresponding page numbers. Transmittal letter—page 1-3 Certificate of Achievement for Excellence in Financial Reporting—page 4 Independent Auditor's report—page 7-8 Management's Discussion and Analysis—page 9-18 Enterprise Funds—page 27-34 Statistical Section—page 87-116 Please let finance know if you would like a hard copy of any of the reports. Financial Impact None Attachments • Comprehensive Annual Financial Report for the year ended December 31, 2012 • Other Required Reports (Legal compliance) • City of Elk River Management Letter • Elk River Fire Department Relief Association Financial Statements and Supplementary Information • Elk River Fire Relief Management Letter P 0 w E A E 0 0 T N:\Public Bodies\Agenda Packets\06-03-2013\Fina1\x6.1 sr Auditpresentation.doc INAT- UREI i Com rehensive Annual p Financial Re ort v e i. i MinnesotA", ;, �.. .,... t,- i i `t., -kTY JX2 � ,_ 'L � � /' ,: �n. r�.iV - Y- �' 3u`-+� :.�,�> i�X,- � '�2-.¢•�,� �` cn �t_.� . r P � fo ,ER � i i RIVER,CITY OF ELK MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2012 PREPARED Y THE FINANCE EPA T ENT Member of Government Finance Officers Association of the United. States and Canada CITY OF ELK RIVER,MINNESOTA TABLE OF CONTENTS DECEMBER 31,2012 Page No. I. INTRODUCTORY SECTION Letter of Transmittal ......................................................................................... 1 i Certificate of Achievement .................................................................................. 4 Organizational Chart ......................................................................................... 5 Elected and Appointed Officials ........................................................................... 6 II. FINANCIAL SECTION Independent Auditor's Report .............................................................................. 7 Management's Discussion and Analysis .................................................................. 9 Basic Financial Statements: Goveinment-wide Financial Statements: Statement of Net Position ............................................................................. 19 Statement of Activities ................................................................................. 20 Fund Financial Statements: Balance Sheet-Governmental Funds ............................................................... 22 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ...................................................................... 23 Statement of Revenues,Expenditures,and Changes in Fund Balances-Governmental Funds ............................................................ 24 Reconciliation of the Statement of Revenues,Expenditures,and Changes in Fund Balances of Governmental Funds to the Statement of Activities .............................................................................. 25 Statement of Revenues,Expenditures,and Changes in Fund Balance-Budget and Actual-General Fund ............................................. 26 Statement of Net Position-Proprietary Funds ..................................................... 27 Statement of Revenues,Expenses,and Changes in Fund Net Position-Proprietary Funds ............................................................ 29 Statement of Cash Flows-Proprietary Funds ...................................................... 31 Statement of Fiduciary Net Position-Developer EscrowAgency Fund ................................................................................ 35 Notes to Financial Statements ........................................................................... 36 Required Supplementary Information Schedule of Funding Progress-Elk River Fire Relief Pension Plan ............................... 64 Schedule of Funding Progress-Other Postemployment Benefits .................................. 64 Combining and Individual Fund Statements and Schedules: Nommajor Governmental Funds: Combining Balance Sheet-Nonnajor Governmental Funds .................................... 65 Combining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nommajor Governmental Funds ............................................ 66 Nommajor Special Revenue Funds: Subcombining Balance Sheet-Nommajor Special Revenue Funds ............................. 67 Subcombining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nommajor Special Revenue Funds ............................................. 69 Special Revenue Funds: Schedules of Revenues,Expenditures,and Changes in Fund Balance-Budget and Actual: Library .............................................................................................. 71 i CITY OF ELK RIVER,MINNESOTA TABLE OF CONTENTS DECEMBER 31,2012 Page No. Ice Arena ........................................................................................... 72 i Pinewood Golf Course ........................................................................... 73 Landfill ............................................................................................. 74 Economic Development Authority ............................................................. 75 Nomnajor Debt Service Funds: Subcombining Balance Sheet-Nomnajor Debt Service Funds .................................. 76 Subcombining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nomnajor Debt Service Funds ................................................ 77 Nomnajor Capital Projects Funds: Subcombining Balance Sheet—Nommnajor Capital Projects Funds .............................. 78 Subcombining Statement of Revenues,Expenditures,and Changes in Fund Balances—Nomnajor Capital Projects Funds ............................................ 80 Statement of Changes in Assets and Liabilities- Developer Escrow Agency Fund ..................................................................... 82 Component Unit Financial Statements: Housing and Redevelopment Authority: Fund Financial Statements: BalanceSheet ..................................................................................... 83 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position .............................................................. 84 Statement of Revenues,Expenditures,and Change in Fund Balance ..................... 85 Reconciliation of the Statement of Revenues,Expenditures, and Change in Fund Balance of Governmental Fund to the Statement of Activities ......................................................................... 86 i III. STATISTICAL SECTION(UNAUDITED) Net Position by Component ............................................................................... 87 Changes in Net Position .................................................................................... 89 Fund Balances of Governmental Funds .................................................................. 93 Changes is Fund Balances of Governmental Funds .................................................... 95 ElectricSales ................................................................................................ 97 Principal Electric Customers .............................................................................. 98 Tax Capacity,Market Value and Estimated Actual Value of Taxable Property ................... 99 PropertyTax Rates ......................................................................................... 101 Principal Taxpayers ........................................................................................ 102 Property Tax Levies and Collections .................................................................... 103 i Ratios of Outstanding Debt by Type ..................................................................... 104 Ratios of General Bonded Debt Outstanding ........................................................... 106 Direct and Overlapping Governmental Activities Debt ............................................... 107 Legal Debt Margin Information .......................................................................... 108 Pledged-Revenue Coverage ............................................................................... 110 Demographic and Economic Statistics .................................................................. 112 PrincipalEmployers ....................................................................................... 113 Full-Time Equivalent Employees by Function ......................................................... 114 Operating Indicators by Function ........................................................................ 115 Capital Asset Statistics by Function ..................................................................... 116 i i i i i i INTRODUCTORY SECTION I City of Elk River June 3,2013 Honorable Mayor,Members of the City Council, and Citizens of Elk River: The Comprehensive Annual Financial Report(CAFR)for the City of Elk River for the fiscal year ended December 31, 2012,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 the 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 1880 and consolidated with Elk River Township in 1978 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 growing and will not reach full development in the near future. The current population is approximately 23,220. 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. 1 P 0 E R E O B Y NATURE 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 Policies allow 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 26 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$19,888,860 being issued in 2012. This is a 141 percent increase from 2011. New additions and remodels accounted for$11,310,994 of new value,and an additional$6,588,264 in residential construction with miscellaneous permits making up the balance. The number of new housing units increased from 11 in 2011 to 36 in 2012. The average value of new homes decreased to$183,007. Single family homes accounted for all 36 of the new housing units in 2012. Many of Elk River's largest employers reported stable or growing employment levels between 2012 and 2013. This is largely due to the diversified economic base. Many larger Elk River employers are experiencing modest growth,and several expansions and at least one new construction project is expected in 2013. The companies experiencing the most employment growth were in the industrial sector. Several Elk River companies made significant new investments including Spot-tech who purchased an additional 50,000 square feet of warehouse space,and P.S.Dance Studio who purchased a vacant building.A Brooklyn Park based development company purchased the former Bluffs building in downtown Elk River and converted the condos to luxury apartments. All 63 residential units were full in a matter of months. 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 40-45%of budgeted general fund operating expenditures. The percentage of unassigned fund balance at December 31,2012, is 45%. 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 2013 budget. The City does not expect in the short-term to see LGA and MVHC amounts restored to previously years levels. 2 i i Major Initiatives In 2012,the city completed final design and construction of the Natures Edge Business Center. The project, involved extending municipal streets and utilities to serve a new 28-acre business park. The City also completed a project to connect 90%of our government buildings with a fiber optic network. This network will save money, improve operations, and create opportunities for further collaboration with other governmental organizations. 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. i 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 31,2011. This was the 23`d 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 1,2012. It was the 4"'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, a I i i i Timothy Simon Finance Director 3 uertificate i Achievement for Excellence in I Financial Reporting i Presented to City of Elk River Minnesota For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2011 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. 41�MN � President O Executive Director 4 Raa N ld w3 U cd p R cd ,y C ii y api U a w � x U � � cz to Y �i U U t 40.� OD O L b N N O � 7, U '� 4• � � .� aa�i U Q a° anti oG i U rcA E CA v COD 'c0 to Fii O awwwcn O U Y V O 60 C wa � rA :a L R ti Q u s CITY OF ELK RIVER,MINNESOTA ELECTED AND APPOINTED OFFICIALS YEAR ELIDED DECEMBER 31,2012 Tern?Expires CITY COUNCIL December 31, John Dietz Mayor 2014 Nicholas Zerwas Council member 2014 Jerry Gumphrey Council member 2012 Paul Motin Council member 2014 Matthew Westgaard Council member 2012 i APPOINTED PERSONNEL Calvin Portner City Administrator Timothy Simon Finance Director Bradley Rolfe Police Chief T. Jolm Cunningham Fire Chief Michael Hecker Parks &Recreation Director Justin Femrite City Engineer i i i 6 �I I �I I i -Iwv-"INANCIAL SECTION i I ABDO EICK & e _ 1.1I11? I Cerglied Public.Accorcntrants & Consultants 5201 Edeu Avenue I Suite 250 Edina,MN 55136 INDEPENDENT AUDITOR'S REPORT i Honorable Mayor and City Council City of Elk River,Minnesota Report on the Financial Statements 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 31,2012,and the related notes to the financial statements,which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility 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 2011 financial statements and,in our report dated May 16,2012 we express 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly,we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 952.835.9090 • lax%2.835.3263 7 wwiv.nemcpas.cum � i i rN_11' 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 31,2012,and the respective changes in financial position and,where applicable,cash flows thereof and the respective budgetary comparison for the General fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Change in Accounting Standards As described in the Note 4J to the financial statements,the City adopted the provisions of Governmental Accounting Standards Board (GASB)Statement No.63,Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and Statement No. 65,Items Previously Reported as Assets and Liabilities, for the year ended December 31,2012. Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial statements. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis starting on page 9 and the Schedule of Funding Progress on page 64 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. Supplementary Information in Relation to the Financial Statements as a Whole Our audit was conducted for the purpose of forming opinions 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. Such 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. i May 17,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Certified Public Accountants 952.1335.9090 • Fax 952.1335.3261 8 www.acniepas.com i 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 31,2012. 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 -3 of this report. Financial Highlights The assets and deferred outflows of resources of the City of Elk River exceeded its liabilities at the close of the most recent fiscal year by$201,269,866 (net position). Of this amount,$49,741,432(unrestricted net position)may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net position increased by$291,508. As of the close of the current fiscal year,the City of Elk River's governmental funds reported combined ending fund balances of$34,206,979. Special Debt Capital General Revenue Service Projects Total Nonspendable $ 20,201 $ 101,812 $ - $ - $ 122,013 Restricted - 3,728,299 3,431,878 448,665 7,608,842 Committed 208,486 2,456,185 - - 2,664,671 Assigned 200,000 892,492 - 18,327,318 19,419,810 Unassigned 5,776,627 - - (1,384,984) 4,391,643 $ 6,205,314 $ 7,178,788 $ 3,431,878 $17,390,999 $ 34,206,979 The City of Elk River's total long-term liabilities increased$4,512,499 during the current fiscal year, from$41,454.400 to$45,966,899. Beginning Ending Balance Additions Reductions Balance Governmental activities: Bonds payable $ 24,157,939 $ 8,615,164 $ (2,158,131) $ 30,614,972 Contracts for deeds 1,410,000 - - 1,410,000 Compensated absences 1,278,871 636,195 (519,740) 1,395,326 Net OPEB obligation 156,323 87,865 (35,702) 208,486 Total governmental activities 27,003,133 9,339,224 (2,713,573) 33,628,784 Business-type activities: Bonds payable 11,830,656 - (1,954,089) 9,876,567 i Notes payable 2,162,882 - (187,070) 1,975,812 Compensated absences 403,657 198,785 (184,125) 418,317 Net OPEB obligation 54,072 15,415 (2,068) 67,419 Total business-type activities 14,451,267 214,200 (2,327,352) 12,338,115 Total City long-term liabilities $ 41,454,400 $ 9,553,424 $ (5,040,925) $ 45,966,899 9 i i 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. i Government-wide Financial Statements I 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 position presents information on all of the City of Elk River's assets and deferred outflows of resources, and liabilities and deferred inflows of resources,with the difference between the two reported as net position. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position 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 19-21 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 governments, 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. i 10 I The City of Elk River maintains three 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,Improvement Projects and Government Buildings funds. 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 22-26 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 position and the statement of revenues,expenses,and changes in net position. 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 27-34 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 35 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 36-63 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 64 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 65-86 of this report. Government-wide Financial Analysis As noted earlier,net position may serve over time as a useful indicator of a government's financial position. In the case of the City of Elk River, assets and deferred outflows of resources exceeded liabilities by$201,269,866 at the close of the most recent fiscal year. By far,the largest portion of the City of Elk River's net position(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 future 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. 11 City of Elk River Net Position Governmental Business-type Activities Activities Total 2012 2011 2012 2011 2012 2011 Current and other assets $40,048,326 $39,740,140 $26,864,729 $24,114,008 $66,913,055 $63,854,148 Capital assets 114,193,629 109,601,520 72,120,598 74,426,752 186,314,227 184,028,272 Total assets 154,241,955 149,341,660 98,985,327 98,540,760 253,227,282 247,882,420 Total deferred outflows ofresources 367,111 403,376 83,765 92,004 450,876 495,380 Long-term liabilities outstanding 33,628,784 27,003,133 12,338,115 14,451,267 45,966,899 41,454,400 Other liabilities 3,079,644 2,434,349 3,361,749 3,510,693 6,441,393 5,945,042 Total liabilities 36,708,428 29,437,482 15,699,864 17,961,960 52,408,292 47,399,442 Net investment in capital assets 84,060,768 84,741,957 60,351,984 60,543,619 144,412,752 145,285,576 Restricted 6,391,182 6,283,346 724,500 724,500 7,115,682 7,007,846 Unrestricted 27,448,688 29,282,251 22,292,744 19,402,685 49,741,432 48,684,936 Total net position $117,900,638 $120,307,554 $83,369,228 $80,670,804 $201,269,866 $200,978,358 An additional portion of the City of Elk River's net position(4 percent)represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position($49,741,432)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 position,both for the City as a whole,as well as for its separate governmental and business-type activities. Governmental activities. Governmental activities account for 59%of the City of Elk River's net position. Governmental activities decreased the City's net position by$2,406,916. i 12 i Key elements of the relevant changes are as follows: City of Elk River Changes in Net Position i Governmental Business-type Activities Activities Total I 2012 2011 2012 2011 2012 2011 Revenues: Program revenues: Charges for services $ 2,378,009 $ 2,466,517 $ 42,109,355 $ 39,522,248 $ 44,487,364 $ 41,988,765 Operating grants and contributions 1,018,519 954,831 23,440 38,550 1,041,959 993,381 Capital grants and contributions 1,007,794 1,750,824 490,916 482,319 1,498,710 2,233,143 General revenues: J Property taxes 11,684,445 12,346,305 - - 11,684,445 12,346,305 Other taxes 125,623 83,748 125,623 83,748 Grants and contributions not restricted to specific programs 1,307,662 1,702,334 - - 1,307,662 1,702,334 Unrestricted investment earnings 319,654 499,034 219,950 269,716 539,604 768,750 Gain on disposal of capital assets 49,470 23,233 1,260 - 50,730 23,233 Total revenues 17,891,176 19,826,826 42,844,921 40,312,833 60,736,097 60,139,659 Expenses: General government 2,994,342 3,495,458 - 2,994,342 3,495,458 Public safety 6,187 246 6,238,611 6,187,246 6,238,611 Public works 6,037,000 5,720,759 6,037,000 5,720,759 Culture and recreation 4,013,098 3,851,181 4,013,098 3,851,181 Economic development 1,059,058 1,451,109 1,059,058 1,451,109 Interest on long-term debt 1,163,352 1,045,905 - - 1,163,352 1,045,905 Municipal liquor - - 5,622,305 5,366,557 5,622,305 5,366,557 Garbage 1,276,887 1,304,238 1,276,887 1,304,238 Sewer 2,239,914 2,130,287 2,239,914 2,130,287 Water 2,264,814 2,108,498 2,264,814 2,108,498 Electric 27,586,573 26,726,349 27,586,573 26,726,349 Total expenses 21,454,096 21,803,023 38,990,493 37,635,929 60,444,589 59,438,952 Increase(decrease)in net position before transfers (3,562,920) (1,976,197) 3,854,428 2,676,904 291,508 700,707 Transfer of capital assets (348,259) - 348,259 - - - Transfers 1,504,263 3,610,854 (1,504,263) (3,610,854) - - Change in net position (2,406,916) 1,634,657 2,698,424 (933,950) 291,508 700,707 Net position-beginning,restated 120,307,554 118,672,897 80,670,804 81,604,754 200,978,358 200,277,651 Net position-ending $ 117,900,638 $ 120,307,554 $ 83,369,228 $ 80,670,804 $ 201,269,866 $ 200,978,358 • Special assessments levied in 2012 were about$693,625 lower than in 2011 due to the lack of new development activity in recent years. • The property tax levy for 2012 was reduced by over$425,644due to increased transfers and refunded debt service savings. • Landfill expansion fee revenues decreased$225,007 due to an increase of municipal waste being diverted from the landfill to recycling facilities. • The decrease in general government expenses were attributed largely to legal fees of$329,000 incurred in 2011 for the settlement of a land use claim. • Economic development expenses decreased$406,381 in 2012 due to final payment of development commitments and decertification of two tax increment financing districts. I 13 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 government recreation development long-term debt •Revenue Expense Revenues by Source - Governmental Activities Unrestricted Other Net transfers Charges for investment earnings 0.3/0 6.1% services Operating grants and 1.7% I 12.5% contributions Other taxes 5.3% 0.6% Capital grants and contributions 5.3% Grants and contributions unrestricted 6.9% Property taxes 61.3% 14 Business-type activities. Business-type activities increased the City of Elk River's net position by$2,698,424. Key elements of this increase are as follows: • Charges for services for business-type activities increased$2,587,107due to increased liquor sales,an increase in electric usage in the commercial/industrial sector and increased water usage resulting from the hot dry summer. The electric utility accounts for 72%of the total charges for services. • The increase in operating expenses is largely due to the increase in purchased power for the electric utility of $741,189 or 4.5%over 2011. • Transfers out decreased due to the municipal liquor fund providing$2,750,000 for the public works facility project in 2011. 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 --- -- -- - -- $- - Mur&ipalliquor Garbage Sewer Water Electric ■Revenue ■Expense Revenues by Source - Business-type Activities Capital grants and contributions Unrestricted Operating grants and 1.1% investment earnings contributions 0.5% 0.1% Charges for services 98.3% 15 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 $34,206,979. Approximately 13%of this total amount($4,391,643)constitutes unassigned fund balance. The remainder of fund balance($29,815,336)is not available for new spending because it is either 1)nonspendable($122,013),2)restricted ($7,608,842),3)committed($2,664,671)or 4)assigned($19,419,810)for other purposes. i The General fund is the chief operating fund of the City of Elk River. The total fund balance of the General fund decreased $92,298 during the current year,resulting primarily from the intended use of fund balance and less than anticipated expenditures. The Improvement Projects fund decreased$120,093 due mainly to the transfer out to the street improvements fund. The Government Buildings fund decreased$981,622 due to the construction of a public works facility. 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 position in the respective proprietary funds are Municipal Liquor-$2,120,545, Garbage-$618,673, Sewer-$5,419,009,Water-$3,344,499,and Electric-$10,790,018. The Sewer fund net position decreased$314,584 due mainly to system repairs and maintenance. All other proprietary funds had increases in net position. General Fund Budgetary Highlights Differences between the original budget and the final budget for the General fund amounted to$131,200. The expenditure budgets were amended to reflect the decrease in expenditures related to personnel adjustments. Key factors are as follows: • Total revenue collections were 100%of budget. Property tax collections were$42,058 over budget due to delinquent collections and other taxes were$55,623 over due to increased gravel tax collections. • 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 almost$582,000 due mainly to several vacant positions,savings realized through the state fuel contract and sound fiscal control by city departments. • Transfers out were over budget due to an unbudgeted transfer to the capital outlay reserve fund for capital equipment. 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 31,2012,amounts to$186,314,227(net of accumulated depreciation). This investment in capital assets includes land,buildings, improvements,equipment and infrastructure. The total increase in the City of Elk River's investment in capital assets for the current year was 1 percent(a 4 percent increase for governmental activities and a 3 percent decrease for business-type activities). Major capital asset events during the current fiscal year included the following: • $261,000 in public safety vehicles,$314,500 in public works equipment. $172,500 in parks equipment ® Infrastructure improvements for Nature's Edge Business Park totaled$1,177,000. ® Added$7,898,422 of construction costs for the public works facility expansion. ® Park property was purchased for$99,669 and$69,800 of vacant municipal liquor property was transferred to public works for street right-of-way. ® $270,000 installation of fiber optic infrastructure to connect the city's network system. • System improvements for water and electric totaled almost$1,500,000. 16 City of Elk River Capital Assets (Net of Depreciation) Governmental Business-type i Activities Activities Total 2012 2011 2012 2011 2012 2011 I Land $ 37,864,101 $ 37,694,632 $ 1,486,693 $ 1,516,631 $ 39,350,794 $ 39,211,263 Construction in progress 8,861,930 2,180,426 285,001 205,726 9,146,931 2,386,152 Buildings 23,780,074 25,151,074 11,167,594 11,642,403 34,947,668 36,793,477 Other improvements 2,062,487 2,307,354 - - 2,062,487 2,307,354 Equipment 3,530,374 3,537,075 1,336,055 1,309,392 4,866,429 4,846,467 Infrastructure 38,094,663 38,730,959 57,845,255 59,752,600 95,939,918 98,483,559 Total $114,193,629 $109,601,520 $ 72,120,598 $ 74,426,752 $186,314,227 $184,028,272 Additional information on the City's capital assets can be found in Note 3C on pages 47-48 of this report. Long-term debt. At the end of the current fiscal year,the City had total long-term debt outstanding of$45,966,899,an increase of$4,512,499 from 2011. General obligation improvement bonds($26,334,000)were issued to finance the construction of a library,a recreation facility,a public safety/city hall-facility,a public works facility and a street corridor project. General obligation revenue bonds($4,750,000)were used to finance sewer and water systems. Revenue bonds ($5,085,000)were used to finance the construction of a liquor store and electric system improvements. Special assessment bonds($3,975,000)financed improvement projects within the City and are assessed to the benefiting properties. Tax increment bonds financed the City's economic development program. City of Elk River Outstanding Debt Governmental Business-type Activities Activities Total 2012 2011 2012 2011 2012 2011 Bonds payable: G.O.bonds $ 26,334,000 $ 20,676,000 $ - $ $ 26,334,000 $ 20,676,000 G.O.revenue bonds - - 4,750,000 5,475,000 4,750,000 5,475,000 Revenue bonds - - 5,085,000 6,310,000 5,085,000 6,310,000 Special assessment bonds 3,975,000 2,955,000 - - 3,975,000 2,955,000 Tax increment bonds - 305,000 - - - 305,000 Unamortized premium 305,972 221,939 41,567 45,656 347,539 267,595 Total bonds payable,net 30,614,972 24,157,939 9,876,567 11,830,656 40,491,539 35,988,595 Contracts for deeds 1,410,000 1,410,000 - - 1,410,000 1,410,000 Notes payable - - 1,975,812 2,162,882 1,975,812 2,162,882 Compensated absences 1,395,326 1,278,871 418,317 403,657 1,813,643 1,682,528 Net OPEB obligation 208,486 156,323 67,419 54,072 275,905 210,395 Total $ 33,628,784 $ 27,003,133 $ 12,338,115 $ 14,451,267 $ 45,966,899 $ 41,454,400 Additional long-term debt in the amount of$1,410,000 is for a contract for deed,$1,975,812 is for notes payable, $1,813,643 is for compensated absences,and$275,905 is for other postemployment benefits obligations. The City maintains a bond rating of AA+from Standard&Poor's for general obligation debt. 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$58,316,472. $22,084,574 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 3E on pages 50 -53 of this report. 17 Economic Factors and Next Year's Budget The City of Elk River estimates that the demand for city services will begin to grow at increased levels as compared to the prior years due to the recent building activity. This was taken into consideration in preparation of the City's 2013 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 I 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. I i i i I 18 i I i i BASIC FINANCIAL STATEEMIE"NTS I i CITY OF ELK RIVER,MINNESOTA STATEMENT OF NET POSITION DECEMBER 31,2012 I Primary Government Governmental Business-type Component Activities Activities Total Unit-RRA ASSETS Cash and investments $ 34,235,512 $ 21,335,715 $ 55,571,227 $ 862,972 Restricted cash and investments - 724,500 724,500 - Cash with fiscal agent 1,553,188 - 1,553,188 - Receivables(net): Interest 96,336 33,239 129,575 - Taxes 499,568 - 499,568 13,267 Accounts 453,608 2,531,008 2,984,616 - Special assessments 2,665,342 - 2,665,342 - Notes 334,969 - 334,969 400,000 Due from other governments 127,123 - 127,123 - Due from primary government - - - 235,648 Internal balances (39,333) 39,333 - - Inventories - 1,978,523 1,978,523 - Prepaid items 122,013 222,411 344,424 - Capital assets: Nondepreciable 46,726,031 1,771,694 48,497,725 257,100 Depreciable(net) 67,467,598 70,348,904 137,816,502 173,322 Total assets 154,241,955 98,985,327 253,227,282 1,942,309 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 367,111 83,765 450,876 - LIABILITIES Accounts payable 1,491,240 2,820,830 4,312,070 831 Salaries payable 306,229 127,923 434,152 2,207 Due to other govenmlents 1,464 222,158 223,622 - Due to component unit 235,648 - 235,648 Accrued interest payable 523,894 149,494 673,388 - Unearned revenue 521,169 41,344 562,513 - Non-current liabilities: Due within one year 5,409,990 1,666,201 7,076,191 - Due in more than one year 28,218,794 10,671,914 38,890,708 - Total liabilities 36,708,428 15,699,864 52,408,292 3,038 w NET POSITION Net investment in capital assets 84,060,768 60,351,984 144,412,752 430,422 Restricted for: Debt service 3,044,599 724,500 3,769,099 - Landfrll mitigation 763,939 - 763,939 - Economic development 2,536,506 - 2,536,506 - Insurance benefits 22,850 - 22,850 - Law enforcement 23,288 - 23,288 - Housing and redevelopment - - - 1,508,849 Unrestricted 27,448,688 22,292,744 49,741,432 - Total net position $ 117,900,638 $ 83,369,228 $ 201,269,866 $ 1,939,271 The notes to the financial statements are an integral part of this statement. 19 f CITY OF ELK RIVER,MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2012 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Functions/Programs Primary Government: Governmental Activities: General government $ 2,994,342 $ 369,794 $ - $ - Public safety 6,187,246 789,728 256,269 - Public works 6,037,000 82,173 341,174 921,281 Culture and recreation 4,013,098 1,128,070 369,850 86,513 Economic development 1,059,058 8,244 51,226 - Interest on long-term debt 1,163,352 - - - Total governmental activities 21,454,096 2,378,009 1,018,519 1,007,794 Business-type Activities: Municipal liquor 5,622,305 6,525,234 - - Garbage 1,276,887 1,302,920 23,440 - Sewer 2,239,914 1,533,851 - 316,309 Water 2,264,814 2,343,881 - 174,607 Electric 27,586,573 30,403,469 - - Total business-type activities 38,990,493 42,109,355 23,440 490,916 Total primary government $ 60,444,589 $ 44,487,364 $ 1,041,959 $ 1,498,710 Component Unit: Housing and Redevelopment Authority $ 154,818 $ 1,302 $ - $ - 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 of capital assets Transfers Total general revenues and transfers Change in net position Net position-beginning,restated Net position-ending The notes to the financial statements are an integral part of this statement. 20 Net(Expense)Revenue and Changes in Net Position Primary Government Govermnental Business-Type Component Activities Activities Total Unit-HRA $ (2,624,548) $ - $ (2,624,548) $ - (5,141,249) - (5,141,249) - (4,692,372) - (4,692,372) - (2,428,665) - (2,428,665) - (999,588) - (999,588) - (1,163,352) - (1,163,352) - (17,049,774) - (17,049,774) - - 902,929 902,929 - - 49,473 49,473 - - (389,754) (389,754) - - 253,674 253,674 - - 2,816,896 2,816,896 - - 3,633,218 3,633,218 - (17,049,774) 3,633,218 (13,416,556) - - - (153,516) 10,031,907 - 10,031,907 292,318 822,334 - 822,334 - 830,204 - 830,204 - 125,623 - 125,623 - 1,307,662 - 1,307,662 115 319,654 219,950 539,604 4,501 49,470 1,260 50,730 - (348,259) 348,259 - - 1,504,263 (1,504,263) - - 14,642,858 (934,794) 13,708,064 296,934 (2,406,916) 2,698,424 291,508 143,418 120,307,554 80,670,804 200,978,358 1,795,853 $ 117,900,638 $ 83,369,228 $ 201,269,866 $ 1,939,271 21 i CITY OF ELK RIVER,MINNESOTA GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31,2012 Other Total General Improvement Government Governmental Governmental Fund Projects Buildings Funds Funds ASSETS Cash and investments $ 6,554,601 $ 4,626,825 $ 5,045,469 $ 18,008,617 $ 34,235,512 Cash with fiscal agent - - - 1,553,188 1,553,188 Receivables: Interest 22,510 13,273 14,496 46,057 96,336 Taxes 418,830 2,652 - 78,086 499,568 Accounts 12,801 - 117,009 323,798 453,608 Special assessments - 1,112,712 - 1,552,630 2,665,342 Notes - - 334,969 334,969 Due from other governments 46,920 80,203 127,123 Due from other funds 78,174 1,078,214 1,156,388 Due from component unit 5,317 - 5,317 Prepaid items 20,201 - - 101,812 122,013 Total assets $ 7,159,354 $ 5,755,462 $ 5,176,974 $ 23,157,574 $ 41,249,364 LIABILITIES Accounts payable $ 326,436 $ - $ 650,609 $ 514,195 $ 1,491,240 Salaries payable 286,660 473 - 19,096 306,229 Due to other governments - - 1,464 1,464 Due to other funds 350,839 844,882 1,195,721 Due to component unit - - 240,965 240,965 Unearned revenue 14,040 - 507,129 521,169 Total liabilities 627,136 351,312 650,609 2,127,731 3,756,788 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 326,904 2,049 - 62,786 391,739 Unavailable revenue-special assessments - 1,094,805 1,545,679 2,640,484 Unavailable revenue-notes - - 253,374 253,374 Total deferred inflows of resources 326,904 1,096,854 1,861,839 3,285,597 FUND BALANCES Nonspendable 20,201 101,812 122,013 Restricted - 7,608,842 7,608,842 Committed 208,486 - - 2,456,185 2,664,671 Assigned 200,000 4,307,296 4,526,365 10,386,149 19,419,810 Unassigned 5,776,627 - (1,384,984) 4,391,643 Total fiord balances 6,205,314 4,307,296 4,526,365 19,168,004 34,206,979 Total liabilities,deferred inflows of resources,and fund balances $ 7,159,354 $ 5,755,462 $ 5,176,974 $ 23,157,574 $ 41,249,364 The notes to the financial statements are an integral part of this statement. 22 i CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31,2012 I' I FUND BALANCE-TOTAL GOVERNMENTAL FUNDS $ 34,206,979 Amounts reported for governmental activities in the statement of net position are different because: 1. Capital assets used in governmental activities are not financial resources and,therefore,are not reported in the governmental funds: Governmental capital assets $175,834,852 Less accumulated depreciation (61,641,223) 114,193,629 2. Unavailable revenue in governmental fluids is susceptible to full accrual on the government-wide statements. 3,285,597 3. Long-term liabilities are not due and payable in the current period and, therefore,are not reported in the governmental funds: i Bonds payable (30,309,000) Deferred charge on refunding 367,111 Issuance premium (305,972) Contracts for deeds (1,410,000) Accrued interest payable (523,894) Compensated absences (1,395,326) Net OPEB obligation (208,486) (33,785,567) NET POSITION OF GOVERNMENTAL ACTIVITIES $117,900,638 i i I The notes to the financial statements are an integral part of this statement. i 23 CITY OF ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2012 Other Total General Improvement Government Governmental Governmental Fund Projects Buildings Funds Funds REVENUES Taxes: Property taxes $ 9,184,258 $ 50,154 $ $ 2,485,899 $ 11,720,311 Other taxes 125,623 - - 125,623 Licenses and permits 408,232 - 408,232 Intergovernmental revenue 542,790 893,823 1,436,613 Charges for services 636,300 1,023,686 1,659,986 Fines and forfeits 121,047 - 16,772 137,819 Special assessments - 241,515 603,597 845,112 Interest income 56,346 45,338 51,006 166,964 319,654 Miscellaneous: Landfill expansion fee - - 671,897 - 671,897 Refunds and reimbursements 60,217 - 136,951 197,168 Contributions 22,632 - 978,318 1,000,950 Other 4,960 - 19,689 85,543 110,192 Total revenues 11,162,405 337,007 742,592 6,391,553 18,633,557 EXPENDITURES Current: General government 2,490,127 28,921 96,534 2,615,582 Public safety 5,304,063 - 23,566 24,620 5,352,249 Public works 2,039,644 144,889 287,535 459,658 2,931,726 Culture and recreation 1,739,797 - 9,253 1,090,416 2,839,466 Economic development - - 1,087,467 1,087,467 Debt service: Principal 2,127,000 2,127,000 Interest and service charges - 996,454 996,454 Bond issuance costs - 42,520 26,380 68,900 Capital outlay: General government 15,292 - 371,722 387,014 Public safety 66,871 - 260,741 327,612 Public works 18,623 7,733,792 1,485,312 9,237,727 Culture and recreation - - 311,921 311,921 Total expenditures 11,674,417 144,889 8,125,587 8,338,225 28,283,118 Excess(deficiency)of revenues over expenditures (512,012) 192,118 (7,382,995) (1,946,672) (9,649,561) OTHER FINANCING SOURCES(USES) Transfers in 1,024,500 40,000 3,728,443 4,792,943 Transfers out (604,786) (352,211) (619,040) (1,712,643) (3,288,680) General obligation bonds issued 6,975,000 - 6,975,000 Refunding bonds issued - 1,525,000 1,525,000 Premium on debt issued 45,413 69,751 115,164 Sale of capital assets - - 49,470 49,470 Total other financing sources(uses) 419,714 (312,211) 6,401,373 3,660,021 10,168,897 Net change in fiord balances (92,298) (120,093) (981,622) 1,713,349 519,336 Fund balances-January 1 6,297,612 4,427,389 5,507,987 17,454,655 33,687,643 Fund balances-December 31 $ 6,205,314 $ 4,307,296 $ 4,526,365 $ 19,168,004 $ 34,206,979 i I The notes to the financial statements are an integral part of this statement. 24 i 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 FOR THE YEAR ENDED DECEMBER 31,2012 NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ 519,336 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 these assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense in the current period. Capital outlay $10,047,515 Depreciation expense (5,522,913) 4,524,602 2. The net effect of various miscellaneous transactions involving capital assets including transfers and disposals,which increase net position. Transfers of capital assets 69,800 Disposals (585,873) Depreciation on disposals 583,580 67,507 3. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental finds. Property taxes (35,866) Special assessments (704,866) Notes (22,849) (763,581) 4. The issuance of long-term debt provides current financial resources to govermuental 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 position. Also,governmental fiords report the effect of premiums, discounts and similar items when debt is first issued,whereas these amounts are deferred and amortized in the statement of activities. The amounts below are the effects of these differences in the treatment of long-term debt and related items. Issuance of long-term debt (8,500,000) Repayment of principal of long-term debt 2,127,000 Bond premium (115,164) (6,488,164) 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 fields. Accrued interest payable (92,864) Amortization of issuance premium 31,131 Amortization of deferred charge from refunding (36,265) Compensated absences (116,455) Net OPEB obligation (52,163) (266,616) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $(2,406,916) The notes to the financial statements are an integral part of this statement. 25 CITY OF ELK RIVER,MINNESOTA GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Taxes: Property taxes $ 9,142,200 $ 9,142,200 $ 9,184,258 $ 42,058 Other taxes 70,000 70,000 125,623 55,623 Licenses and permits 412,650 412,650 408,232 (4,418) Intergovernmental revenue 542,450 542,450 542,790 340 Charges for services 665,350 665,350 636,300 (29,050) Fines and forfeits 132,500 132,500 121,047 (11,453) Interest income 100,000 100,000 56,346 (43,654) Miscellaneous revenue: Refunds and rcimbursements 66,500 66,500 60,217 (6,283) Contributions 25,650 25,650 22,632 (3,018) Other 8,000 8,000 4,960 (3,040) Total revenues 11,165,300 11,165,300 11,162,405 (2,895) EXPENDITURES Current: General government 2,830,100 2,640,050 2,490,127 149,923 Public safety 5,615,000 5,615,000 5,304,063 310,937 Public works 2,058,650 2,093,500 2,039,644 53,856 Culture and recreation 1,761,700 1,785,700 1,739,797 45,903 Capital outlay: General government 15,600 15,600 15,292 308 Public safety 69,000 69,000 66,871 2,129 Public works 20,000 20,000 18,623 1,377 Culture and recreation 17,500 17,500 - 17,500 Total expenditures 12,387,550 12,256,350 11,674,417 581,933 Deficiency of revenues over expenditures (1,222,250) (1,091,050) (512,012) 579,038 OTHER FINANCING SOURCES(USES) Transfers in 1,146,600 1,146,600 1,024,500 (122,100) Transfers out (290,500) (290,500) (604,786) (314,286) Total other financing sources(uses) 856,100 856,100 419,714 (436,386) Net change in fund balance (366,150) (234,950) (92,298) 142,652 Fund balance-January 1 6,297,612 6,297,612 6,297,612 - Fund balance-December 31 $ 5,931,462 $ 6,062,662 $ 6,205,314 $ 142,652 The notes to the financial statements are an integral part of this statement. 26 CITY OF ELI';RIVER,MINNESOTA STATEMENTS OF NET POSITION PROPRIETARY FUNDS DECEMBER 31,2012 AND 2011 I i Municipal Liquor Garbage Restated i Current Year Prior Year Current Year Prior Year ASSETS Current assets: Cash and investments $ 1,555,676 $ 1,797,477 $ 591,503 $ 540,516 Restricted cash and investments - - - - Receivables(net): Interest 4,635 10,274 1,637 2,959 Accounts - - 14,281 13,001 Due from other governments - - Due from other funds - - 104,952 107,723 Inventories 1,032,803 1,001,736 - - Prepaid items - - - - Total current assets 2,593,114 2,809,487 712,373 664,199 Noncurrent assets: Capital assets: Nondepreciable 753,961 823,761 Depreciable 3,084,328 3,051,787 Accumulated depreciation (1,472,028) (1,347,678) Total noncurrent assets 2,366,261 2,527,870 - - Total assets 4,959,375 5,337,357 712,373 664,199 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding LIABILITIES Current liabilities: Accounts payable 268,789 305,609 92,912 95,660 Salaries payable 22,217 19,489 788 949 Due to other governments 66,933 62,867 - - Due to other funds - - Unearned revenue 1,987 1,836 Accrued interest - 13,688 Compensated absences payable-current 44,498 38,328 Notes payable-current - - Bonds payable-current - 160,000 - Total current liabilities 404,424 601,817 93,700 96,609 Noncurrent liabilities: Compensated absences payable 54,815 48,851 - - Net other postemployment benefits obligation 13,330 8,830 Notes payable - - Bonds payable - 570,000 Total noncurrent liabilities 68,145 627,681 - Total liabilities 472,569 1,229,498 93,700 96,609 NET POSITION Net investment in capital assets 2,366,261 1,797,870 Restricted for debt service - - - - Unrestricted 2,120,545 2,309,989 618,673 567,590 Total net position $ 4,486,806 $ 4,107,859 $ 618,673 $ 567,590 i The notes to the financial statements are an integral part of this statement. 27 i i i i Sewer Water Electric i Restated Restated Restated Total Current Year Prior Year Current Year Prior Year Current Year Prior Year Current Year $ 5,287,842 $ 5,007,654 $ 3,254,530 $ 2,619,574 $ 10,646,164 $ 8,380,396 $ 21,335,715 - - - - 724,500 724,500 724,500 15,359 28,633 2,322 1,187 9,286 4,749 33,239 44,854 10,783 152,945 127,101 2,318,928 2,503,609 2,531,008 - - - - - 1,627 - 303,851 296,806 87,211 142,471 - - 496,014 - - 16,920 25,909 928,800 997,125 1,978,523 - - 34,572 18,685 187,839 122,066 222,411 5,651,906 5,343,876 3,548,500 2,934,927 14,815,517 12,734,072 27,321,410 411,095 411,095 92,242 86,427 514,396 401,074 1,771,694 37,200,800 36,880,768 33,539,230 33,214,128 53,494,906 52,384,131 127,319,264 (15,638,513) (14,644,218) (11,976,338) (10,949,382) (27,883,481) (25,885,141) (56,970,360) 21,973,382 22,647,645 21,655,134 22,351,173 26,125,821 26,900,064 72,120,598 I 27,625,288 27,991,521 25,203,634 25,286,100 40,941,338 39,634,136 99,442,008 16,754 18,402 67,011 73,603 83,765 172,734 55,509 39,519 91,373 2,246,876 2,376,698 2,820,830 15,121 15,453 8,065 6,463 81,732 74,499 127,923 - - - 918 155,225 193,408 222,158 - - 456,681 372,554 456,681 31,095 29,900 8,262 - 41,344 11,693 14,172 43,005 49,071 94,796 103,131 149,494 9,792 10,991 44,229 41,881 101,094 92,925 199,613 - - - - 186,588 183,444 186,588 175,000 170,000 517,000 491,000 588,000 559,000 1,280,000 384,340 266,125 682,913 710,606 3,919,254 3,955,659 5,484,631 9,828 8,938 38,088 39,624 115,973 122,119 218,704 13,729 9,483 - - 40,360 35,759 67,419 - - - - 1,789,224 1,979,438 1,789,224 560,000 735,000 2,626,313 3,144,131 5,410,254 6,001,525 8,596,567 583,557 753,421 2,664,401 3,183,755 7,355,811 8,138,841 10,671,914 967,897 1,019,546 3,347,314 3,894,361 11,275,065 12,094,500 16,156,545 21,238,382 21,742,645 18,528,575 18,734,444 18,218,766 18,250,260 60,351,984 - - - - 724,500 724,500 724,500 5,419,009 5,229,330 3,344,499 2,675,697 10,790,018 8,638,479 22,292,744 $ 26,657,391 $ 26,971,975 $ 21,873,074 $ 21,410,141 $ 295733,284 $ 27,613,239 $ 83,369,228 28 CITY OF ELK RIVER,MINNESOTA STATEMENTS OF REVENUES,EXPENSES,AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 Municipal Liquor Garbage Restated Current Year Prior Year Current Year Prior Year Sales and cost of sales: Sales $ 6,516,386 $ 6,139,096 $ $ Cost of sales (4,638,550) (4,385,452) - Gross profit 1,877,836 1,753,644 - Operating revenues: User charges - - 1,279,607 1,287,667 Delinquency collections - - 11,540 10,839 Other 8,848 6,596 35,213 46,168 Total operating revenues 8,848 6,596 1,326,360 1,344,674 Operating expenses: Personal services 607,500 589,576 54,678 33,791 Supplies 16,887 24,291 4,262 32,311 Purchased power - - - - Other service charges 221,593 210,695 1,217,947 1,238,136 Depreciation 124,350 123,130 - - Total operating expenses 970,330 947,692 1,276,887 1,304,238 Operating income(loss) 916,354 812,548 49,473 40,436 Nonoperating revenues(expenses): Interest income 14,485 45,444 5,730 8,005 Miscellaneous revenue - - - - Interest expense (13,425) (33,413) Gain(loss)on disposal of capital assets - Capital asset transfer (69,800) - - Total nonoperating revenues(expenses) (68,740) 12,031 5,730 8,005 Income before contributions and transfers 847,614 824,579 55,203 48,441 Contributions-connection fees - - - - Capital contributions - - Transfers in 18,330 Transfers out (468,667) (3,115,592) (4,120) - Change in net position 378,947 (2,291,013) 51,083 66,771 Net position-beginning,restated 4,107,859 6,398,872 567,590 500,819 Net position-ending $ 4,486,806 $ 4,107,859 $ 618,673 $ 567,590 The notes to the financial statements are an integral part of this statement. 29 Sewer Water Electric j Restated Restated Restated Total Current Year Prior Year Current Year Pri or Year Current Year Prior Year Current Year $ $ - $ $ - $ $ $ 6,516,386 - - (4,638,550) 1,877,836 1,527,337 1,487,669 2,219,145 1,796,086 30,365,645 28,150,773 35,391,734 2,389 2,066 20,610 18,845 238,314 257,040 272,853 4,125 5,615 25,387 17,886 (345,269) 176,173 (271,696) 1,533,851 1,495,350 2,265,142 1,832,817 30,258,690 28,583,986 35,392,891 477,598 457,612 392,768 371,663 1,707,401 1,692,020 3,239,945 115,607 121,117 273,183 243,125 135,161 132,149 545,100 - - - - 20,499,773 19,758,584 20,499,773 623,453 523,650 465,014 393,774 2,908,383 2,808,580 5,436,390 994,295 993,043 1,028,593 980,197 2,099,594 2,041,717 4,246,832 2,210,953 2,095,422 2,159,558 1,988,759 27,350,312 26,433,050 33,968,040 (677,102) (600,072) 105,584 (155,942) 2,908,378 2,150,936 3,302,687 51,112 73,733 30,870 28,551 117,753 113,983 219,950 - - 78,739 84,567 144,779 73,712 223,518 (28,961) (34,865) (105,256) (119,740) (236,261) (256,141) (383,903) (1,000) 2,260 (37,158) 1,260 - - - - (69,800) 22,151 38,868 3,353 (6,622) 28,531 (105,604) (8,975) i (654,951) (561,204) 108,937 (162,564) 2,936,909 2,045,332 3,293,712 316,309 286,466 174,607 195,853 490,916 199,214 - 218,845 - 418,059 - - 312,823 - (175,156) (90,000) (39,456) (25,000) (816,864) (711,415) (1,504,263) (314,584) (364,738) 462,933 321,112 2,120,045 1,333,917 2,698,424 26,971,975 27,336,713 21,410,141 21,089,029 27,613,239 26,279,322 80,670,804 i $ 26,657,391 $ 26,971,975 $ 21,873,074 $ 21,410,141 $ 29,733,284 $ 27,613,239 $ 83,369,228 30 i CITY OF ELK RIVER,MINNESOTA STATEMENTS OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 Municipal Liquor Garbage Current Year Prior Year Current Year Prior Year CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 6,516,537 $ 6,138,965 $ 1,292,638 $ 1,315,462 Other operating cash receipts 8,848 6,596 35,213 46,168 Payments to suppliers (4,940,851) (4,652,919) (1,224,957) (1,280,782) Payments to employees (588,138) (572,352) (54,839) (33,668) Net cash provided by operating activities 996,396 920,290 48,055 47,180 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds - - - 18,330 Transfers to other funds (468,667) (3,115,592) (4,120) - Decrease(increase)in due from other funds Increase(decrease)in due to other funds - Net cash provided(used)by noncapital financing activities (468,667) (3,115,592) (4,120) 18,330 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (32,541) - Proceeds from sale of capital assets Contributions from developers and residents Principal paid on capital debt (730,000) (150,000) Interest paid on capital debt (27,113) (36,225) Principal paid on promissory note Net cash used by capital and related financing activities (789,654) (186,225) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 20,124 56,778 7,052 7,336 Net increase(decrease)in cash and cash equivalents (241,801) (2,324,749) 50,987 72,846 Cash and cash equivalents,January 1 1,797,477 4,122,226 540,516 467,670 Cash and cash equivalents,December 31 $ 1,555,676 $ 1,797,477 $ 591,503 $ 540,516 Reconciliation of cash and cash equivalents to the statement of net position: Cash and investments $ 1,555,676 $ 1,797,477 $ 591,503 $ 540,516 Restricted cash and investments - - - - Total cash and cash equivalents $ 1,555,676 $ 1,797,477 $ 591,503 $ 540,516 I I I I I The notes to the financial statements are an integral part of this statement. 31 i II Continued Sewer Water Electric Total Current Year Prior Year Current Year Prior Year Current Year Prior Year Current Year $ 1,488,609 $ 1,487,336 $ 2,231,224 $ 1,826,255 $ 30,481,587 $ 28,519,094 $ 42,010,595 4,125 5,615 87,822 88,153 125,965 121,385 261,973 (621,835) (651,578) (836,986) (611,490) (23,771,526) (22,728,996) (31,396,155) (473,992) (452,167) (351,049) (335,002) (1,460,301) (1,515,439) (2,928,319) 396,907 389,206 1,131,011 967,916 5,375,725 4,396,044 7,948,094 312,823 (175,157) (90,000) (39,456) (25,000) (816,864) (711,415) (1,504,264) 55,260 (13,621) - - 55,260 - (13,350) 84,127 (103) 84,127 (175,157) (90,000) 15,804 260,852 (732,737) (711,518) (1,364,877) (120,818) (114,709) (1,024,229) (1,517,549) (1,010,116) (1,785,617) - - - - 14,458 14,458 316,309 286,466 174,607 195,853 - 490,916 (170,000) (160,000) (491,000) (477,000) (559,000) (548,000) (1,950,000) (31,440) (37,115) (110,492) (124,603) (241,275) (260,945) (410,320) - (187,070) (182,436) (187,070) (5,949) 89,351 (541,594) (1,429,979) (2,490,436) (2,001,497) (3,827,633) 64,387 68,953 29,735 27,643 113,216 110,350 234,514 280,188 457,510 634,956 (173,568) 2,265,768 1,793,379 2,990,098 5,007,654 4,550,144 2,619,574 2,793,142 9,104,896 7,311,517 19,070,117 $ 5,287,842 $ 5,007,654 $ 3,254,530 $ 2,619,574 $ 11,370,664 $ 9,104,896 $ 22,060,215 $ 5,287,842 $ 5,007,654 $ 3,254,530 $ 2,619,574 $ 10,646,164 $ 8,380,396 $ 21,335,715 - - - - 724,500 724,500 724,500 $ 5,287,842 $ 5,007,654 $ 3,254,530 $ 2,619,574 $ 11,370,664 $ 9,104,896 $ 22,060,215 32 CITY OF ELK RIVER,MINNESOTA STATEMENTS OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 Municipal Liquor Garbage Current Year Prior Year Current Year Prior Year Reconciliation of operating income(loss)to net cash provided by operating activities: Operating income(loss) $ 916,354 $ 812,548 $ 49,473 $ 40,436 Adjustments to reconcile operating income(loss)to net cash provided by operating activities: Other revenue related to operations - - Depreciation expense 124,350 123,130 - (Increase)decrease in assets: Accounts receivable - - (1,280) (973) Due from other funds 2,771 (1,383) Due from other goverments - 19,312 Inventories (31,067) (102,269) - Prepaid items 4,678 Increase(decrease)in: Accounts payable (36,820) 2,243 (2,748) (10,335) Salaries payable 2,728 1,390 (161) 123 Due to other govermnents 4,066 62,867 - - Unearned revenue 151 (131) OPEB liability 4,500 4,704 Compensated absences payable 12,134 11,130 - Net cash provided by operating activities $ 996,396 $ 920,290 $ 48,055 $ 47,180 Noncash capital and related financing activities: Amortization of bond premium $ - $ $ $ Amortization of deferred charges on refunding Contribution of capital assets from(to)municipality (69,800) Assets purchased on account Disposal of capital assets,net i The notes to the financial statements are an integral part of this statement. 33 Sewer Water Electric Total Current Year Prior Year CuiTent Year Prior Year Current Year Prior Year Current Year $ (677,102) $ (600,072) $ 105,584 $ (155,942) $ 2,908,378 $ 2,150,936 $ 3,302,687 - - 78,739 84,567 144,779 73,712 223,518 994,295 993,043 1,028,593 980,197 2,099,594 2,041,717 4,246,832 (34,071) 4,733 (25,844) (13,408) 184,681 (47,878) 123,486 (7,045) (7,132) (4,274) - - 1,627 - 1,627 81989 12,839 68,325 20,967 46,247 - (15,887) (263) (65,773) 18,050 (81,660) 117,225 (6,811) (51,854) 45,701 50,178 58,492 75,981 (332) 2,094 11602 2,168 7,233 2,844 11,070 - - (918) 916 (38,183) 71,130 (35,035) - - 1,195 10,733 8,262 - 9,608 4,246 4,532 - - 4,601 5,663 13,347 (309) (1,181) 812 408 2,023 411 14,660 $ 396,907 $ 389,206 $ 1,131,011 $ 967,916 $ 5,375,725 $ 4,396,044 $ 7,948,094 1 1 2 $ $ $ 8 8 $ 8 9 $ 3, 1 7 $ 3,275 $ 4,089 11648 1,650 6,592 6,600 8,240 199,214 218,845 - - - 348,259 - - 180,000 - 1,000 12,198 58,285 13,198 it I �I 34 i CITY OF ELK RIVER,MINNESOTA STATEMENT OF FIDUCIARY NET POSITION DEVELOPER ESCROW AGENCY FUND DECEMBER 31,2012 Agency Fund ASSETS Cash $ 51,752 Accounts receivable 1,381 Total assets $ 53,133 i LIABILITIES Refundable deposits payable $ 53,133 i i i The notes to the financial statements are an integral part of this statement. 35 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of Government-Wide Financial Statements The government-wide financial statements(i.e.,the statement of net position and the statement of activities)report information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities,which normally are supported by I taxes and intergovernmental revenues,are reported separately from business-type activities,which rely to a significant extent on fees and charges to external customers for support. Likewise,the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. B. 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 personiel 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 j 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 EDA is reported as a special revenue fund and does not issue separate financial statements. Discretely Presented Component Unit The Housing and Redevelopment Authority(HRA)is a separate legal entity created for the put-pose of providing redevelopment within the city'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 HRA does not issue separate financial statements and are included in the financial section of this report. 36 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 i Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED C. Basis of Presentation—Government-Wide Financial Statements While separate government-wide and fund financial statements are presented,they are interrelated. The governmental activities column incorporates data from governmental funds,while business-type activities incorporate data from the City's enterprise funds. Separate financial statements are provided for governmental funds,proprietary funds,and fiduciary funds,even though the latter are excluded from the govenmient-wide financial statements. As discussed earlier,the City has one discretely presented component unit. While the HRA is not considered to be a major component unit,it is nevertheless shown in a separate column in the government-wide financial statements. As a general rule,the effect of interfund activity has been eliminated from 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 City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. D. Basis of Presentation—Fund Financial Statements The fund financial statements provide information about the City's funds,including its fiduciary funds and blended component units. Separate statements for each fund category—governmental,proprietary,and fiduciary—are presented. j The emphasis of fund financial statements is on major goverrmlental and enterprise funds,each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following major governmental funds: The General fund is the City'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 Buildings capital projects fund is used to account for the construction and improvements of the City's facilities. The government reports the following major enterprise 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. i i The Sewer fund accounts for the activities of the City's sanitary sewer treatment system. The mater fund accounts for the activities of the City's water distribution system. The Electric fiend accounts for the activities of the City's electric distribution system Additionally,the government reports the following fund types: 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. During the course of operations the goverrunent has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds. While these balances are reported in fund financial 37 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED statements,certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities(i.e.,the governmental funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly,balances between the funds included in business-type activities(i.e.,the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further,certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in governmental activities column. Similarly,balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column. E. Measurement Focus,Basis of Accounting,and Financial Statement Presentation The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. i The govermnent-wide 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. 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. 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. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources 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. Entitlements are recorded as revenues when all eligibility requirements are met,including any time requirements,and the amount is received during the period or within the availability period for this revenue source(within 60 days of year end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met,and the amount is received during the period or within the availability period for this revenue source(within 60 days of year end). 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. The proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. 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. i 38 I CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED F. Budgetary Information 1. Budgetary Basis of Accounting 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, I 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. i On or before July l 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$131,200 due mainly to personnel adjustments. 2. Excess of Expenditures Over Appropriations For the year ended December 31,2012,expenditures exceeded appropriations in the Landfill fund by$28,086 and the Economic Development Authority fund by$26,259,which were funded by available fund balance. G. Assets,Liabilities,Deferred Outflows/Inflows of Resources,and Net Position/Fund Balance 1. Cash and Investments I i 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. Eaniings from such investments are allocated to the respective fiends 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 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. Property tax levies are based on property values assessed on January 2 of the preceding year. The County spreads all levies over all taxable property. 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. 39 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED i In the fund financial statements,taxes that remain unpaid at December 31 are classified as delinquent taxes and are offset by a deferred inflow of resources for delinquent taxes not received within 60 days after year end. Deferred inflow of resources for taxes in governmental activities is susceptible to full accrual on the government-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, 2012 and December 31,2011 is as follows: Increase 2012 2011 (Decrease) Electric $ 78,750 $ 78,750 $ - Water 26,250 26,250 - Total $ 105,000 $ 105.000 $ - Special Assessments Special assessments receivable include the following components: • Delinquent-includes amounts billed to property owners but not paid. • Unavailable-includes assessment installments that will be billed to property owners in future years. Special assessments represent the financing for public improvements paid for by benefiting property owners. These assessments are recorded as receivables upon certification to the County. In goverrmlental fund financial statements, special assessments are recognized as revenue when they are received in cash or within 60 days after year end. All governmental special assessments receivable not received within 60 days after year end are offset by a deferred inflow of resources in the governmental fund financial statements. At December 31,2012,the total delinquent special assessment receivable balance was$187,661. Notes Receivable The City received grant proceeds from 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 a deferred inflow of resources. Deferred inflow of resources 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. 40 I CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED I 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. 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 i 6. Deferred Outflows/Inflows of Resources In additions to assets,the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element,deferred outflows of resources,represents a consumption of net position that applies to a future period(s)and so will not be recognized as an outflow of resources (expense/expenditure)until then. The City only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the government-wide and proprietary funds statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities,the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element,deferred inflows of resources,represents an acquisition of net position that applies to a future period(s)and so will not be recognized as an inflow of resources (revenue)until that time. The City has only one type of item,which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly,the item,unavailable revenue,is reported only in the goverunental funds balance sheet. The governmental funds report unavailable revenues from three sources: property taxes,special assessments and notes receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. 7. Unearned Revenue Unearned 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 unearned revenue. At December 31,2012,the balance reported in the governmental fund financial statements consists of$502,671 from unearned park dedication credits and$18,498 from other unearned miscellaneous fees and contributions. 41 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—CONTINUED 8. 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 position. The recognition of bond premiums and discounts are delayed and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as an expense in the period incurred. 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. 9. Compensated Absences It is the City'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 govermnent-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. 10. 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 goveriunental 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 conunitted amounts cannot be used for any other purpose unless 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. 42 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—CONTINUED 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 40-45%of budgeted operating expenditures for cash-flow timing needs. 11. Net Position Net position represents the difference between assets and deferred outflows and liabilities. Net position is displayed in three components: a. Net investment in capital assets -Consists of capital assets,net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. b. Restricted net position-Consist of net position balances 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 position-All other net position balances that does not meet the definition of"restricted"or "net investment in capital assets". 12. Revenues and Expenditures/Expenses 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. 13. 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. 43 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 2: STEWARDSHIP,COMPLIANCE,AND ACCOUNTABILITY A. Deficit Fund Equity The following funds had deficit fund balances at December 31,2012: Primary Government Capital Projects Funds Park Dedication $843,369 TIF Districts 92,950 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 govermnent 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$12,594,260 and the bank balance was$14,070,637. 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. The carrying amount of deposits for the HRA,a discretely presented component unit,was$862,972 and the bank balance was$862,972. 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. 44 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 I Note 3: DETAILED NOTES ON ALL FUNDS-CONTINUED 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: I • 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 31,2012 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 conmmercial 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 31,2012,more than 5%of the City's investments were held in the following U.S.Agencies:Federal Home Loan Bank(22%)and Federal National Mortgage Association(14%). • 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 un•ated 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. As of December 31,2012,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. Fair Value Credit Segmented and Quality/ Time Carrying Types of Investments Ratings(1) Distribution(2) Amount Pooled investments: Minnesota Municipal Money Market Fund N/A Less than 6 months $ 6,056,108 Broker Money Markets N/A Less than 6 months 7,673,757 Total pooled investments 13,729,865 Non-pooled investments: U.S.Government Securities AAA 1 to 5 years 1,040,059 AAA More than 5 years 16,556,728 Total U.S.Government Securities 17,596,787 U.S.Treasury Securities AAA Less than 6 months 1,553,188 Municipal Securities AA 1 to 5 years 250,870 AA More than 5 years 502,400 AAA 1 to 5 years 248,250 AAA More than 5 years 1,982,239 Total Municipal Securities 2,983,759 45 i CITE'OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS-CONTINUED Fair Value Credit Segmented and j Quality/ Time Carrying Types of Investments Ratings(1) Distribution(2) Amount Negotiable CD's N/A Less than 6 months 2,991,285 I 6 to 12 months 889,341 1 to 5 years 4,536,363 More than 5 years 480,593 Total negotiable CD's 8,897,582 Total non-pooled investments 31,031,316 i Total investments 44,761,181 Deposits 13,134,761 Cash on hand 4,725 Total cash and investments $ 57,900,667 (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: Primary Component Government Unit-HRA Statement of Net Position Cash and investments $ 55,571,227 $ 862,972 Restricted cash and investments 724,500 - Cash with fiscal agent 1,553,188 Statement of Fiduciary Net Assets Cash and investments 51,752 - Total $ 57,900,667 $ 862,972 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 govermuents. The terms 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 $253,374 in the Revolving Loan fiend and$81,595 in the TIF Districts fund are outstanding at December 31,2012, 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. 46 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED C. Capital Assets In accordance with GASB Statement No. 34,the City has reported all capital assets including infrastructure in the government-wide statement of net position. Capital asset activity for the year ended December 31,2012 was as follows: Beginning Ending I Primary Government Balance Additions Deletions Balance Governmental activities: Capital assets not being depreciated: Land $ 37,694,632 $ 169,469 $ - $ 37,864,101 Constriction in progress 2,180,426 7,898,422 (1,216,918) 8,861,930 Total capital assets not being depreciated 39,875,058 8,067,891 (1,216,918) 46,726,031 Capital assets being depreciated: Buildings 36,268,984 - - 36,268,984 Other improvements 4,720,657 59,229 - 4,779,886 Equipment 10,310,169 839,049 (431,920) 10,717,298 Infrastructure 75,128,542 2,368,064 (153,953) 77,342,653 Total capital assets being depreciated 126,428,352 3,266,342 (585,873) 129,108,821 Less accumulated depreciation for: Buildings 11,117,910 1,371,000 - 12,488,910 Other improvements 2,413,303 304,096 - 2,717,399 Equipment 6,773,094 843,457 (429,627) 7,186,924 Infrastructure 36,397,583 3,004,360 (153,953) 39,247,990 Total accumulated depreciation 56,701,890 5,522,913 (583,580) 61,641,223 Total capital assets being depreciated,net 69,726,462 (2,256,571) (2,293) 67,467,598 Governmental activities capital assets,net $ 109,601,520 $ 5,811,320 $ (1,219,211) $ 114,193,629 Business-type activities: Capital assets not being depreciated: Land $ 1,5165631 $ 39,862 $ (69,800) $ 1,486,693 Construction in progress 2055726 1,399,943 (1,320,668) 285,001 Total capital assets not being depreciated 1,722,357 1,439,805 (1,390,468) 1,771,694 Capital assets being depreciated: Buildings 19,342,790 175,397 (105456) 19,507,731 Equipment 5,130,389 324,209 (105,633) 5,348,965 Collection and distribution 101,057,635 1,404,933 - 102,4622568 Total capital assets j being depreciated 1255530,814 1,904,539 (116,089) 127,319,264 I Less accumulated depreciation for: Buildings 7,700,387 639,750 - 8,340,137 Equipment 3,820,997 294,804 (102,891) 4,012,910 Collection and distribution 41,305,035 3,312,278 - 44,617,313 Total accumulated depreciation 52,826,419 45246,832 (102,891) 56,970,360 Total capital assets being depreciated,net 72,704,395 (2,342,293) (135198) 70,348,904 i Business-type activities capital assets,net $ 74,426,752 $ (902,488) $ (1,403,666) $ 72,120,598 i 47 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED Capital asset activity for the HRA component unit for the year elided December 31,2012 was as follows: Beginning Ending Component Unit Balance Additions Deletions Balance Capital assets not being depreciated: Land $ 257,100 $ - $ - $ 257,100 Capital assets being depreciated: Other improvements - 174,290 - 174,290 Less accumulated depreciation for: Other improvements - 968 - 968 Total capital assets being depreciated,net - 173,322 - 173,322 Component unit capital assets,net $ 257,100 $ 173,322 $ - $ 430,422 Depreciation expense was charged to fiinctions/programs of the primary government as follows: Governmental activities: General government $ 307,706 Public safety 656,279 Public works 3,360,588 Culture and recreation 1,198,340 Total depreciation expense-governmental activities $ 5,522,913 Business-type activities: Municipal liquor $ 124,350 Sewer 994,295 Water 1,028,593 Electric 2,099,594 Total depreciation expense-business-type activities $ 4,246,832 Construction commitments At December 31,2012,the City had a construction project contract in progress. The commitment related to the remaining contract balance is summarized as follows: Spent Remaining Project to date Conuuitment Public Works Facility Expansion $ 8,150,429 $ 580,276 48 i i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED D. Interfund Receivables,Payables,and Transfers The composition of interfund balances as of December 31,2012 is as follows: Due to/from other funds: Receivable Fund Payable Fund Amount General Electric $ 67,531 General Nomnajor governmental funds 10,643 Garbage Electric 104,952 Sewer Electric 132,051 Sewer Nomnajor governmental funds 171,800 Water Nomnajor governmental funds 87,211 Nomnajor govenunental funds Improvement Projects 350,839 Nomnajor governmental funds Electric 152,147 Nomnajor governmental funds Nonmajor governmental funds 575,228 Total $ 1,652,402 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 Amount Primary govermnent-General Fund Component unit-HRA $ 5,317 Component unit-HRA Primary government-TIF Districts 240,965 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$240,965 payable to the HRA will be paid with the collection of tax increment revenue and will not be repaid within one year. Interfund transfers: Governmental funds: Transfer In Transfer Out Major funds- General $ 1,024,500 $ 604,786 Improvement projects 40,000 352,211 Government buildings - 619,040 Nonmajor funds 3,728,443 1,712,643 Total governmental funds 4,792,943 3,288,680 Proprietary funds: Municipal liquor - 468,667 Garbage 4,120 Sewer - 175,156 Water - 39,456 Electric - 816,864 Total proprietary funds - 1,504,263 Total $ 4,792,943 $ 4,792,943 49 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED 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 2012,the Economic Development Authority fund transferred$450,000 and the Improvement Projects fund transferred$350,839 to the Street Improvements fund to provide financing for the Nature's Edge Business Park infrastructure improvements. E. Long-term Debt s Long-term debt obligations outstanding at year end are summarized as follows: Issue Maturity Interest Authorized Payable PRIMARY GOVERNMENT Date Date Rate and Issued 12/31/12 GOVERNMENTAL ACTIVITIES: General Obligation Bonds: i 2006C G.O. Capital Improvement Bonds 12/14/2006 2/1/2027 3.80-4.05% $ 3,220,000 $ 2,665,000 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% 2,000,000 945,000 State-Aid Road Bonds 7/7/2008 8/20/2013 1.31% 2,431,500 499,000 2010A G.O. Capital Improvement Bonds 4/21/2010 2/1/2023 2.00-4.00% 6,105,000 5,250,000 2012A G.O, Capital Improvement Bonds 3/15/2012 2/1/2033 1.00-2.50% 6,975,000 6,975,000 Total general obligation bonds 30,731,500 26,334,000 Special Assessment Bonds: 2003A G.O.Improvement Bonds 12/9/2003 2/1/2014 2.00-4.00% 1,255,000 150,000 2005A G.O.Improvement Bonds 6/14/2005 2/1/2016 2.75-3.70% 1,070,000 450,000 2007C G.O.Improvement Bonds 6/26/2007 2/1/2013 4.00% 3,090,000 1,850,000 2012B G.O.Improvement Refunding Bonds 3/15/2012 2/1/2018 2.00% 1,525,000 1,525,000 Total special assessment bonds 6,940,000 3,975,000 Total bonded indebtedness 37,671,500 30,309,000 Contracts for deeds 4/12/2008 4/6/2013 5.00-6.00% 1,800,000 1,410,000 Compensated absences payable - 1,395,326 Net OPEB obligation - 208,486 Total governmental activities indebtedness $ 39,471,500 $ 33,322,812 50 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED Issue Maturity Interest Authorized Payable PRIMARY GOVERNMENT Date Date Rate and Issued 12/31/12 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 $ 465,000 2005B G.O. Sewer Revenue Refunding Bonds 6/14/2005 2/1/2016 3.00-4.00% 1,660,000 735,000 2008A G.O.Water Revenue Refunding Bonds 2/20/2008 2/1/2022 2.50-3.65% 3,085,000 2,450,000 2010A G.0.Capital Improvement Bonds 4/21/2010 8/1/2023 2.00-4.00% 1,265,000 1,100,000 Total general obligation revenue bonds 8,005,000 4,750,000 Revenue Bonds: 2004A Electric Revenue Bonds 8/1/2004 2/1/2015 3.00-4.25% 940,000 330,000 2006A Electric Revenue Bonds 3/2/2006 8/1/2021 3.15-4.00% 3,595,000 2,405,000 2007A Electric Revenue Bonds 3/28/2007 2/1/2022 4.00% 2,875,000 2,350,000 Total revenue bonds 7,410,000 5,085,000 Total bonded indebtedness 15,415,000 9,835,000 Promissory note 3/19/2002 12/31/2022 -% 3,521,000 1,975,812 Compensated absences payable - 418,317 Net OPEB obligation - 67,419 Total business-type activities indebtedness $ 18,936,000 $ 12,296,548 Total City indebtedness $ 58,407,500 $ 45,619,360 Annual debt service requirements to maturity for long-term obligations are as follows: Primary Government-Governmental Activities G.O.Bonds Special Assessment Bonds Contract for deed Principal Interest Principal Interest Principal Interest 2013 $ 1,344,000 $ 915,673 $ 2,050,000 $ 85,680 $ 1,410,000 $ 84,600 2014 1,160,000 828,942 485,000 38,870 - - 2015 1,195,000 801,408 425,000 27,425 - - 2016 1,275,000 769,521 420,000 17,078 - - 2017 1,305,000 731,389 300,000 8,900 -2018-2022 7,240,000 2,941,924 295,000 2,950 -2023-2027 6,175,000 1,717,402 - - - 2028-2032 5,425,000 731,384 - 2033 1,215,000 22,297 - - - - Total $ 26,334,000 $ 9,459,940 $ 3,975,000 $ 180,903 1,410,000 84,600 i 51 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS-CONTINUED Primary Government-Business-Type Activities G.O.Revenue Bonds Revenue Bonds Notes Payable Principal Interest Principal Interest Principal Interest 2013 $ 760,000 $ 148,658 $ 520,000 $ 192,358 $ 186,588 $ - 2014 775,000 124,350 545,000 172,220 189,353 - 2015 485,000 104,224 570,000 150,924 191,511 2016 500,000 88,233 470,000 131,160 194,297 2017 320,000 74,849 490,000 113,053 195,212 2018-2022 1,785,000 193,933 2,490,000 254,780 1,018,851 2023 125,000 2,500 - - - Total $ 4,750,000 $ 736,747 $ 5,085,000 $ 1,014,495 $ 1,975,812 $ Long-term liability activity for the year ended December 31,2012 was as follows: Beginning Ending Due Within PRIMARY GOVERNMENT Balance Additions Reductions Balance One Year GOVERNMENTAL ACTIVITIES: Bonds payable: General obligation bonds $ 20,676,000 $ 6,975,000 $ (1,317,000) $ 26,334,000 $ 1,344,000 Special assessment bonds 2,955,000 1,525,000 (505,000) 3,975,000 2,050,000 Tax increment bonds 305,000 - (305,000) - - Issuance premium 221,939 115,164 (31,131) 305,972 - Total bonds payable 24,157,939 8,615,164 (2,158,131) 30,614,972 3,394,000 Contracts for deeds 1,410,000 - - 1,410,000 1,410,000 Compensated absences 1,278,871 636,195 (519,740) 1,395,326 605,990 Net OPEB obligation 156,323 87,865 (35,702) 208,486 - Governmental activity long-term liabilites 27,003,133 9,339,224 (2,713,573) 33,628,784 5,409,990 BUSINESS-TYPE ACTIVITIES: Bonds payable G.O.revenue bonds 5,475,000 - (725,000) 4,750,000 760,000 Revenue bonds 6,310,000 - (1,225,000) 5,085,000 520,000 Issuance premium 45,656 - (4,089) 41,567 - Total bonds payable 11,830,656 - (1,954,089) 9,876,567 1,280,000 Notes payable 2,162,882 - (187,070) 1,975,812 186,588 Compensated absences 403,657 198,785 (184,125) 418,317 199,613 Net OPEB obligation 54,072 15,415 (2,068) 67,419 - I Business-type activity long-term liabilities 14,451,267 214,200 (2,327352) 12,338,115 1,666,201 i Total primary government long-term liabilities $ 41,454,400 $ 9,553,424 $ (5,040,9251 $ 45,966,899 $ 7,076,191 i 52 I CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS—CONTINUED 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,a public works facility and finance a street improvement project. The recreation facility is leased to the YMCA,which has pledged to pay one-third of the$10,945,000 bonds outstanding. The bonds are general obligations of the City and are backed by its full faith and credit. 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. The tax increment bonds were 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. 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 from 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 27 percent of revenues from the Sewer and Water funds,respectively. For 2012,principal and interest paid and total customer revenues for the Sewer fund were$201,440 and$1,533,851,respectively. For 2012,principal and interest paid and total customer revenues for the Water fund were$601,492 and$2,265,142,respectively. The revenue bonds were issued to finance the acquisition and construction of major capital facilities. They are repaid from future revenues pledged from the Municipal Liquor and Electric fund. Annual principal and interest payment on the bonds required about 40 and 3 percent of revenues from the Municipal Liquor and Electric funds,respectively. For 2012,principal and interest paid and total customer revenues for the Municipal Liquor fund were$757,113 and $1,886,684,respectively. For 2012,principal and interest paid and total customer revenues for the Electric fund were $800,275 and$30,258,690,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. On March 15,2012,the City issued$1,525,000 General Obligation Improvement Refunding Bonds, Series 2012B. The 2012B 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. 53 I CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 3: DETAILED NOTES ON ALL FUNDS-CONTINUED F. Fund Balance Classification At December 31,2012,a summary of the govermnental fund balance classifications are as follows: I Other General Improvement Government Govermnental Fund Projects Buildings Funds Total Nonspendable: Prepaid items $ 20,201 $ $ $ 101,812 $ 122,013 I Restricted for: Debt service $ - $ - $ $ 4,274,442 $ 4,274,442 Landfill mitigation 763,939 763,939 Economic development 2,524,323 2,524,323 Insurance benefits 22,850 22,850 Law enforcement 23,288 23,288 Total restricted $ $ $ $ 7,608,842 $ 7,608,842 Committed to: Library operations $ $ $ - $ 454,571 $ 454,571 Ice arena - 169,970 169,970 Senior citizen programs - 11,270 11,270 Economic development 1,572,471 1,572,471 Insurance reserve 247,903 247,903 OPEB obligation 208,486 - 208,486 Total committed $ 208,486 $ $ $ 2,456,185 $ 2,664,671 Assigned to: 2013 budget $ 200,000 $ $ $ - $ 200,000 Landfill mitigation - - 697,428 697,428 Law enforcement - 376 376 Debt service 28,150 28,150 Economic development 166,538 166,538 Capital equipment 2,503,027 2,503,027 Building construction/improvements 4,526,365 - 4,526,365 Street improvements - 5,091,471 5,091,471 Other improvement projects 4,307,296 1,673,347 5,980,643 Park improvements - - 225,812 225,812 Total assigned $ 200,000 $ 4,307,296 $ 4,526,365 $ 10,386,149 $ 19,419,810 Note 4: OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts;theft of damage to and'destiuction 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. 54 i CITY OF ELIC RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION—CONTINUED 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. 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 j 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. The Utilities paid$3,948 and$8,114 in 2012 and 2011,respectively,for loss of revenues under this agreement. All amounts paid are included in property and equipment. D. Pension Plans i 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. i 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 55 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION–CONTINUED I 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. 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.mnyera.org,by writing to PERA,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 2012. PEPFF members were required to contribute 9.6%of their annual covered salary in 2012. In 2012,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 31,2012,2011 and 2010 were$553,395,$528,696 and$501,726,respectively. The City's contributions to the Public Employees Police&Fire Fund for the years ending December 31,2012,2011 and 2010 were$369,421,$355,670 and$357,977,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 56 i CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION—CONTINUED 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. I Total contributions made by the City of Elk River during fiscal year 2012 were: Contribution Amount Percentage of Covered Payroll Required Employee Employer Employee Employer Rates $1,405 $1,405 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. i 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 Minnnesota Statutes 1980). The Fire Relief Association issues a publicly available financial report that includes financial statements and required supplementary inforrnation. 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 i 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 $118,465 made by the State of Minnesota for the Fire Relief Association. i i I i I i i 57 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION—CONTINUED The following summarizes the City's annual pension cost and other related information for the current year: Annual Pension Cost $148,465 Contributions Made: City $30,000 State Aid $118,465 Actuarial Valuation Date 12/31/12 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 The City's annual pension cost,the percentage of amival pension cost contributed,and the net pension obligation for the Relief Association for the year ended December 31,2012 and the preceding fiscal years was as follows: Three Year Trend Information Annual Percentage Year Pension of APC Net Pension Ending Cost(APC) Contributed Obligation 12/31/10 $ 131,255 100% - 12/31/11 157,022 100% - 12/31/12 148,465 100% - c. Funded Status and Funding Progress As of December 31,2012,the actuarial accrued liability was$2,551,430,of which$95,119 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. Assets in Excess of Actuarial Actuarial Actuarial (Unfunded) Valuation Value of Accrued Accrued Percentage Date Assets Liability Liability Funded 12/31/12 $ 2,456,311 $ 2,551,430 $ (95,119) 96.3% 58 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION-CONTINUED 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. 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: Municipal Utility Retiree Retiree Health Plan Health Plan Annual required contribution(ARC) $ 100,739 $ 6,527 Interest on net OPEB obligation 6,985 1,430 Adjustment to ARC (10,005) (3,356) Annual OPEB cost 97,719 4,601 Contributions made (36,810) - Increase in net OPEB obligation 60,909 4,601 Net OPEB obligation-beginning of year 174,636 35,759 Net OPEB obligation-end of year $ 235,545 $ 40,360 59 r CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION-CONTINUED 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: Percentage of Annual Employer Annual OPEB Net Pension Fiscal Year Ended OPEB Cost Contribution Cost Contributed Obligation MRHP: I 12/31/2010 $ 2,734 $ 2,851 104% $ 100,579 12/31/2011 99,058 25,001 25% 174,636 12/31/2012 97,719 36,810 38% 235,545 URHP: 12/31/2010 $ 9,853 $ % $ 30,096 12/31/2011 5,663 - % 35,759 12/31/2012 4,601 - % 40,360 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 amival 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. 60 CITY OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION—CONTINUED 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 31,2012 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. Life Expectancy—Life expectancies were based on mortatity tables from the National Center for Health Statistics. The 2000 United States Life Tables for Males and for Females were used. I 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 put-poses 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. j 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. I 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 1 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 31,2012 was thirty years. F. 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 fiends'balance sheet and statement of revenues,expenses,and changes in net position balance,this information has not been repeated in the notes to the basic financial statements. I 61 CITE'OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION CONTINUED G. 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 arc 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 31,2012,there were seven series of revenue bonds outstanding,with an aggregate principal payable amount of$23,950,191, H. Commitments I 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 was paid off with pennanent financing. I. Change in Accounting Principle During fiscal year 2012,the City implemented several new accounting pronouncements issued by the Government Accounting Standards Board(GASB),including Statement No. 63, "Financial Reporting of Deferred Outflows of Resources,Deferred Inflows of Resources, and Net Position"and Statement No. 65, "Items Previously Reported as Assets and Liabilities". These standards required a retroactive implementation which resulted in the restatement of beginning balances in the December 31,2012 financial statements. Changes related to these standards are reflected in the financial statements and related disclosures are included in Note 1. As a result of the restatement of begitming balances,the following schedule reconciles the previously reported December 31,2010 balance to the December 31,2012 financial statements: Net Position December 31,2010 Net Position as Previously January 1,2011 Reported (1)Restatement as Restated i Governmental activities $ 118,726,162 $ (53,265) $ 118,672,897 I Business-type activities 81,834,516 (229,762) 81,604,754 Proprietary fiords Municipal Liquor 6,400,560 (1,688) 6,398,872 Garbage 500,819 - 500,819 Sewer 27,350,053 (13,340) 27,336,713 Water 21,188,987 (995959) 21,089,028 Electric 26,394,097 (114,775) 26,279,322 Total business-type activities $ 81,834,516 $ (229,762) $ 81,604,754 I (1) Write-off of unamortized bond issuance cost balances at December 31,2010. 62 I CITE'OF ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 Note 4: OTHER INFORMATION—CONTINUED As a result of the restatement of beginning balances,the following schedule reconciles the previously reported December 31,2011 balance to the December 31,2012 financial statements: Net Position December 31,2011 Net Position as Previously January 1,2012 Reported (1)Restatement as Restated i Govennnental activities $ 120,356,425 $ (48,871) $ 120,307,554 i Business-type activities 80,873.307 12 503) 80,670,804 Proprietary finds Municipal Liquor 4,109,133 (1,274) 4,107,859 Garbage 567,590 - 567,590 Sewer 26,982,691 (10,716) 26,971,975 Water 21,497,788 (87,647) 21,410,141 Electric 27,716,105 (102,866) 27,613,239 Total business-type activities $ 80,873,307 $ (202,503) $ 80,670,804 (1) Write-off of unamortized bond issuance cost balances at December 31,2011. J. Subsequent Events On February 12,2013,the City issued$9,685,000 General Obligation Refunding Bonds,. The$9,685,000 General Obligation Refunding Bonds were issued to redeem the 2018 through 2033 maturities of the$10,000,000 General Obligation Bonds,Series 2007. 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 2013A Bonds through February 1,2017; and to pay the callable principal on the Series 2007 Bonds on February 1,2017. The City will continue to pay principal and interest on the Series 2007 Bonds until the call date. The new refunding bonds have an average coupon rate of 2.3 percent and will mature on February 1,2033. The net cash flow savings is calculated at$1,001,112. i i 63 CITY OF ELK RIVER,MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31,2012 Elk River Fire Relief Pension Plan Schedule of Funding Progress Assets in Excess of Pension Actuarial Actuarial Actuarial (Unfunded) Benefit Valuation Value of Accrued Accrued Percentage Per Year Date Assets Liability Liability Funded of Service 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 12/31/12 2,456,311 2,551,430 (95,119) 96.3% 5,091 Other Postemployment Benefits Schedules of Funding Progress Municipal 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 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% O1/01/11 - 42,681 42,681 0.00% 2,286,547 1.87% I I 64 I i NonMaJor Governmental Funds 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. CITY OF ELK RIVER,MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31,2012 Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds ASSETS Cash and investments $ 6,926,116 $ 1,867,745 $ 9,214,756 $ 18,008,617 Cash with fiscal agent - 1,553,188 - 1,553,188 Receivables: Interest 16,441 4,202 25,414 46,057 Taxes 35,691 39,936 2,459 78,086 Accounts 323,280 - 518 323,798 Special assessments - 727,509 825,121 1,552,630 Notes 253,374 - 81,595 334,969 Due from other governments 11 - 80,192 80,203 Due from other funds 109,616 - 968,598 1,078,214 Prepaid items 101,812 - - 101,812 Total assets $ 7,766,341 $ 4,192,580 $ 11,198,653 $ 23,157,574 LIABILITIES Accounts payable $ 83,781 $ 4,000 $ 426,414 $ 514,195 Salaries payable 19,096 - - 19,096 Due to other governments - - 1,464 1,464 Due to other funds 198,299 - 646,583 844,882 Due to component unit - - 240,965 240,965 Unearned revenue 4,458 - 502,671 507,129 Total liabilities 305,634 4,000 1,818,097 2,127,731 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 28,545 32,391 1,850 62,786 Unavailable revenue-special assessments - 724,311 821,368 1,545,679 Unavailable revenue-notes 253,374 - - 253,374 Total deferred inflows of resources 281,919 756,702 823,218 1,861,839 FUND BALANCES Nonspendable 101,812 - - 101,812 Restricted 3,728,299 3,431,878 448,665 7,608,842 Committed 2,456,185 - - 2,456,185 Assigned 892,492 - 9,493,657 10,386,149 Unassigned - - (1,384,984) (1,384,984) Total fund balances 7,178,788 3,431,878 8,557,338 19,168,004 Total liabilities,deferred inflows of resources,and fund balances $ 7,766,341 $ 4,192,580 $ 11,198,653 $ 23,157,574 65 CITY OF ELK RIVER,MINNESOTA COMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2012 Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds REVENUES Property taxes $ 808,421 $ 828,602 $ 848,876 $ 2,485,899 Intergovernmental revenue 18,127 501,767 373,929 893,823 Charges for services 967,246 - 56,440 1,023,686 Fries and forfeits 16,772 - - 16,772 Special assessments - 287,759 315,838 603,597 Interest income 65,036 7,787 94,141 166,964 Miscellaneous revenue: Refunds and reimbursements 136,951 - - 136,951 Contributions 30,798 245,729 701,791 978,318 Other 67,401 - 18,142 85,543 Total revenues 2,110,752 1,871,644 2,409,157 6,391,553 EXPENDITURES Current: General government 56,644 - 39,890 96,534 Public safety 7,305 - 17,315 24,620 Public works 84,286 - 375,372 459,658 Culture and recreation 934,276 - 156,140 1,090,416 Economic development 703,734 - 383,733 1,087,467 Debt service: Principal - 2,127,000 - 21127,000 Interest and service charges - 897,070 99,384 996,454 Bond issuance costs - 26,380 - 26,380 Capital outlay: General government - - 371,722 371,722 Public safety - - 260,741 260,741 Public works - - 1,485,312 1,485,312 Culture and recreation 17,786 - 294,135 311,921 Total expenditures 1,804,031 3,050,450 3,483,744 8,338,225 Excess(deficiency)of revenues over expenditures 306,721 (1,178,806) (1,074,587) (1,946,672) OTHER FINANCING SOURCES(USES) Transfers in 448,068 1,180,234 2,100,141 3,728,443 Transfers out (1,312,649) - (399,994) (1,712,643) Refunding bonds issued 1,525,000 - 1,525,000 Premium on debt issued 69,751 - 69,751 Sale of capital assets - 49,470 49,470 Total other financing sources(uses) (864,581) 2,774,985 1,749,617 3,660,021 Net change in fund balances (557,860) 1,596,179 675,030 1,713,349 Fund balances-January 1 7,736,648 1,835,699 7,882,308 17,454,655 Fund balances-December 31 $ 7,178,788 $3,431,878 $ 8,557,338 $ 19,168,004 66 A NONMAJOR 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. Federal DEED-This fund was established to account for the federal share of Department of Employment and Economic Development grant repayments which are used to fund economic development projects. State DEED—This fund was established to account for the state share of Department of Employment 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 refunds. 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 fund was established to account for grant revenues received from the County for the YMCA building. Economic Development AuthoritX-This fund was established to account for a special tax levy authorized to help encourage development in the City. i CITY OF ELK RIVER,MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS DECEMBER 31,2012 Senior Pinewood Citizen Revolving Library Ice Arena Golf Course Account Landfill Loan ASSETS Cash and investments $ 454,568 $ $ 14,957 $ 12,250 $1,459,200 $ 924,517 Receivables: Interest 1,304 - 35 4,246 21652 Taxes 2,827 - - - Accounts - 227,765 3,170 50,000 Notes - - 253,374 Due from other governments - - Due from other funds 2,240 Prepaid items - - - Total assets $ 458,699 $ 230,005 $ 14,957 $ 12,285 $1,466,616 $1,230,543 LIABILITIES Accounts payable $ 1,822 $ 42,202 $ 8,864 $ 1,015 $ 4,461 $ 17,474 Salaries payable - 12,250 2,747 - 788 - Due to other funds 80 4,471 - - Unearned revenue - 1,112 3,346 - - - Totalliabilities 1,902 60,035 14,957 1,015 5,249 17,474 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 2,226 - - - - - Unavailable revenue-notes - 253,374 Total deferred inflows of resources 2,226 253,374 FUND BALANCES Nonspendable - - Restricted - - - 763,939 - Committed 454,571 169,970 11,270 - 959,695 Assigned - - - 697,428 - Total fund balances 454,571 169,970 - 11,270 1,461,367 959,695 Total liabilities,deferred inflows of resources,and fund balances $ 458,699 $ 230,005 $ 14,957 $ 12,285 $1,466,616 $1,230,543 67 Emergency/ Drug Economic Total Nonmajor Federal State Development Insurance Forfeiture YMCA Development Special Revenue DEED DEED Fund Reserve Reserve Grant Authority Funds $ 704,596 $ 400,913 $ 644,058 $ 217,500 $ 23,880 $ 868,223 $1,201,454 $ 6,926,116 2,021 1,150 1,848 625 69 2,491 - 16,441 - - 17,714 - - - 15,150 35,691 42,345 - 323,280 253,374 II II 51,226 56,150 109,616 - - - 101,812 101,812 $ 706,617 $ 402,063 $ 757,191 $ 376,087 $ 23,960 $ 870,714 $1,216,604 $ 7,766,341 $ $ $ - $ 3,522 $ 296 $ - $ 4,125 $ 83,781 3,311 19,096 130,279 63,469 198,299 - 4,458 130,279 3,522 296 70,905 305,634 14,136 - - 12,183 28,545 _ - 253,374 14,136 12,183 281,919 - 101,812 - - - 101,812 706,617 402,063 - 22,850 23,288 842,564 966,978 3,728,299 - - 612,776 247,903 - - - 2,456,185 - - - 376 28,150 166,538 892,492 706,617 402,063 612,776 372,565 23,664 870,714 1,133,516 7,178,788 $ 706,617 $ 402,063 $ 757,191 $ 376,087 $ 23,960 $ 870,714 $1,216,604 $ 7,766,341 r 68 CITY OF ELK RIVER,MINNESOTA SUBCOMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED DECEMBER 31,2012 Senior Pinewood Citizen Revolving Library Ice Arena Golf Course Account Landfill Loan REVENUES Property taxes $ 62,496 $ $ $ $ - $ Intergovernmental revenue - 18,000 Charges for services 760,248 186,173 12,466 - 350 Fines and forfeits - - - - - Interest income 4,365 248 128 15,220 12,580 Miscellaneous revenue: Refimds and reimbursements - - - - - Contributions 22,223 7,732 843 - Other - 17,927 - - - 49,474 Total revenues 89,084 786,155 186,173 13,437 33,220 62,404 EXPENDITURES Current: General government - - - - - - Public safety - Public works - - - - 84,286 Culture and recreation 76,696 612,154 232,751 12,675 - - Economic development - - - - 28,272 Capital outlay: Culture and recreation - 17,786 - - Total expenditures 76,696 629,940 232,751 12,675 84,286 28,272 Excess(deficiency)of revenues over expenditures 12,388 156,215 (46,578) 762 (51,066) 34,132 OTHER FINANCING SOURCES(USES) Transfers in - - 46,578 - - - 55, 401,490) Transfers out - - - ( 880) Total other financing sources(uses) - - 46,578 (55,880) (401,490) Net change in Rind balances 12,388 156,215 - 762 (106,946) (367,358) Fund balances-January 1 442,183 13,755 10,508 1,568,313 1,327,053 Fund balances-December 31 $ 454,571 $ 169,970 $ $ 11,270 $1,461,367 $ 959,695 i i 69 Emergency/ Drug Economic Total Nonmajor Federal State Development Insurance Forfeiture YMCA Development Special Revenue DEED DEED Fund Reserve Reserve Grant Authority Funds $ $ $ 423,050 $ $ $ $ 322,875 $ 808,421 - 127 18,127 4,469 3,540 967,246 - - - 16,772 - 16,772 5,854 573 9,274 2,526 154 9,885 4,229 65,036 - - 51,226 85,725 - - - 136,951 - - 30,798 - _ _ _ _ - 67,401 10,323 573 483,550 88,251 16,926 9,885 330,771 2,110,752 - - - 56,644 - - - 56,644 - 7,305 7,305 - 84,286 - - 934,276 399,403 276,059 703,734 - - - - 17,786 399,403 56,644 7,305 276,059 1,804,031 10,323 573 84,147 31,607 9,621 9,885 54,712 306,721 - 401,490 - - - - - 448,068 - (130,279) (250,000) (475,000) (1,312,649) 401,490 (130,279) (250,000) (475,000) (864,581) 10,323 402,063 (46,132) 31,607 9,621 (240,115) (420,288) (557,860) 696,294 - 658,908 340,958 14,043 1,110,829 1,553,804 7,736,648 $ 706,617 $ 402,063 $ 612,776 $ 372,565 $ 23,664 $ 870,714 $ 1,133,516 $ 7,178,788 70 i CITY OF ELK RIVER,MINNESOTA SPECIAL REVENUE FUND-LIBRARY MAINTENANCE FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR TIIE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES General property taxes $ 63,100 $ 63,100 $ 62,496 $ (604) Interest income 6,900 6,900 4,365 (2,535) Miscellaneous revenue: Contributions 27,000 27,000 22,223 (4,777) Total revenues 97,000 97,000 89,084 (7,916) EXPENDITURES Culture and recreation: Current 97,000 97,000 76,696 20,304 Net change in fund balance $ - $ - 12,388 $ 12,388 Fund balance-January 1 442,183 Fund balance-December 31 $ 454,571 i 71 CITY OF ELK RIVER,MINNESOTA SPECIAL REVENUE FUND-ICE ARENA FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Charges for services $ 717,500 $ 717,500 $ 760,248 $ 42,748 Interest income - - 248 248 Miscellaneous revenue: Vending machines 14,000 14,000 13,879 (121) Contributions - - 7,732 7,732 Other 2,900 2,900 4,048 1,148 Total revenues 734,400 734,400 786,155 51,755 EXPENDITURES Culture and recreation: Current 623,950 623,950 612,154 11,796 Capital outlay 20,500 20,500 17,786 2,714 Total expenditures 644,450 644,450 629,940 14,510 Net change in fund balance $ 89,950 $ 89,950 156,215 $ 66,265 Fund balance-January 1 13,755 Fund balance-December 31 $ 169,970 72 CITY OF ELK RIVER,MINNESOTA SPECIAL REVENUE FUND-PINEWOOD GOLF COURSE FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Charges for services $ 196,000 $ 196,000 $ 186,173 $ (9,827) EXPENDITURES Culture and recreation: Current 236,500 236,500 232,751 3,749 Deficiency of revenues over expenditures (40,500) (40,500) (46,578) (6,078) OTHER FINANCING SOURCES Transfers in 40,500 40,500 46,578 6,078 Net change in fund balance $ - $ - - $ - Fund balance-January 1 - i Fund balance-December 31 $ - i i 73 i CITY OF ELK RIVER,MINNESOTA SPECIAL REVENUE FUND-LANDFILL FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Intergovernmental revenue $ - $ - $ 18,000 $ 18,000 Interest income 13,500 13,500 15,220 1,720 Total revenues 13,500 13,500 33,220 19,720 EXPENDITURES Public works: Current 56,200 56,200 84,286 (28,086) Deficiency of revenues over expenditures (42,700) (42,700) (51,066) (8,366) OTHER FINANCING USES Transfers out (72,000) (72,000) (55,880) 16,120 Net change in fund balance $ (114,700) $ (114,700) (106,946) $ 7,754 Fund balance-January 1 1,568,313 Fund balance-December 31 $ 1,461,367 i 74 i CITY OF ELK RIVER,MINNESOTA SPECIAL REVENUE FUND-ECONOMIC DEVELOPMENT AUTHORITY FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Property taxes $ 349,900 $ 349,900 $ 322,875 $ (27,025) Intergovernmental revenue - - 127 127 Charges for services 3,500 3,500 3,540 40 Interest income 9,000 9,000 4,229 (4,771) Total revenues 362,400 362,400 330,771 (31,629) EXPENDITURES Current: Economic development 249,800 249,800 276,059 (26,259) Excess of revenues over expenditures 112,600 112,600 54,712 (57,888) OTHER FINANCING USES Transfers out (25,000) (25,000) (475,000) (450,000) Net change in fund balance $ 87,600 $ 87,600 (420,288) $ (507,888) Fund balance-January 1 1,553,804 Fund balance-December 31 $ 1,133,516 75 NONMAJOR DEBT 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-This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of city facilities. 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 31,2012 Government Total Nonmajor Improvement Building MPFA Debt Service Bonds Bonds Loan TIF Bonds YMCA Bonds Funds ASSETS Cash and investments S 662,381 $ 802,165 $ 3,271 $ $ 399,928 $ 1,867,745 Cash with fiscal agent 1,553,188 - - - 1,553,188 Receivables: Interest 1,901 2,301 - 4,202 Taxes 8,981 19,742 11,213 39,936 Special assessments 727,509 - - - 727,509 Total assets $ 2,953,960 $ 824,208 $ 3,271 $ $ 411,141 $ 4,192,580 LIABILITY Accounts payable S - $ - $ - $ $ 4,000 $ 4,000 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 7,120 16,496 8,775 32,391 Unavailable revenue-special assessments 724,311 - - 724,311 Total deferred inflows of resources 731,431 16,496 - 8,775 756,702 FUND BALANCES Restricted 2,222,529 807,712 3,271 398,366 3,431,878 Total liability,deferred inflows of resources,and fund balances $ 2,953,960 $ 824,208 $ 3,271 $ $ 411,141 $ 4,192,580 76 CITY OF ELK RIVER,MINNESOTA SUBCOMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED DECEMBER 31,2012 Government Total Nonmajor Improvement Building MPFA Debt Service Bonds Bonds Loan TIF Bonds YMCA Bonds Funds REVENUES Property taxes $ 204,809 $ 367,791 $ - $ $ 256,002 $ 828,602 Intergovernmental revenue - - 501,767 - 501,767 Special assessments 287,759 - - - 287,759 Interest income 3,264 4,482 41 7,787 Miscellaneous revenue: Contributions - - - 245,729 245,729 Total revenues 495,832 372,273 501,767 501,772 1,871,644 EXPENDITURES Debt service: Principal 505,000 535,000 492,000 305,000 290,000 2,127,000 Interest and service charges 122,209 296,126 12,992 13,194 452,549 897,070 Bond issuance costs 26,380 - - - - 26,380 Total expenditures 653,589 831,126 504,992 318,194 742,549 3,050,450 Deficiency of revenues over expenditures (157,757) (458,853) (3,225) (318,194) (240,777) (1,178,806) OTI3ER FINANCING SOURCES Transfers in - 612,040 318,194 250,000 1,180,234 Refunding bonds issued 1,525,000 - - - 1,525,000 Premium on debt issued 69,751 - - 69,751 Total other financing sources 1,594,751 612,040 318,194 250,000 2,774,985 Net change in fund balances 1,436,994 153,187 (3,225) - 9,223 1,596,179 Fund balances-January 1 785,535 654,525 6,496 389,143 1,835,699 Fund balances-December 31 $ 2,222,529 $ 807,712 $ 3,271 $ $ 398,366 $ 3,431,878 77 NONMAJOR CAPITAL PROJECTS FUNDS Capital 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. 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. i { CITY OF ELK RIVER,MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS DECEMBER 31,2012 Capital Equipment Park Park Reserve Replacement Dedication Improvements ASSETS Cash and investments $ 1,807,392 $ 887,338 $ 5,235 $ 122,303 Receivables: Interest 4,162 2,545 - 351 Taxes - 1,718 - - Accounts 518 - - - Special assessments 26,052 - - - Notes - - - - Due from other governments 41,192 - - - Due from other funds 79,139 57,938 - 103,969 Total assets 1,958,455 949,539 5,235 226,623 LIABILITIES Accounts payable $ 358,546 $ 19,144 $ - $ 811 Due to other govermnents - - - - Due to other funds - - 345,933 - Due to component unit - - - - Unearned revenue - - 502,671 - Total liabilities 358,546 19,144 848,604 811 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes - 1,263 - - Unavailable revenue-special assessments 26,014 - - - Total deferred inflows of resources 26,014 1,263 - - FUND BALANCES Restricted - - - - Assigned 1,573,895 929,132 - 225,812 Unassigned - - (843,369) - Total fund balances 1,573,895 929,132 (843,369) 225,812 Total liabilities,deferred inflows of resources,and fund balances $ 1,958,455 $ 949,539 $ 5,235 $ 226,623 78 Total Nonmajor Street Capital Projects GRE Reserve Improvements TIF Districts Funds $ 1,383,930 $ 4,639,840 $ 368,718 $ 9,214,756 3,983 13,315 1,058 25,414 - 741 - 2,459 - - 518 799,069 - 825,121 - - 81,595 81,595 39,000 - - 80,192 246,434 481,118 - 968,598 1,673,347 5,934,083 451,371 11,198,653 $ - $ 46,671 $ 1,242 $ 426,414 - 1,464 1,464 300,650 646,583 - 240,965 240,965 - - - 502,671 - 46,671 544,321 1,818,097 - 587 - 1,850 - 795,354 - 821,368 - 795,941 - 823,218 - - 448,665 448,665 1,673,347 5,091,471 - 9,493,657 - - (541,615) (1,384,984) 1,673,347 5,091,471 (92,950) 8,557,338 $ 1,673,347 $ 5,934,083 $ 451,371 $ 11,198,653 79 i CITY OF ELK RIVER,MINNESOTA SUBCOMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED DECEMBER 31,2012 r Capital Equipment Park Park Reserve Replacement Dedication Improvements REVENUES Property taxes $ - $ 1,774 $ - $ - Intergovermnental revenue 41,192 - - - Charges for services - - 47,513 7,395 Special assessments 14,469 - - - Interest income 14,218 8,561 22 1,170 Miscellaneous revenue: Contributions 105,838 - - 70,691 Other 14,718 2,555 - - Total revenues 190,435 12,890 47,535 79,256 EXPENDITURES Current: General government 39,890 - - - Public safety 17,315 - - - Public works 79,017 - - - Culture and recreation 6,237 - - 149,903 Economic development - - - - Debt service: Interest and service charges - - 99,384 - Capital outlay: General government 331,288 40,434 - - Public safety - 260,741 - - Public works - 299,164 - - Culture and recreation 49,116 145,350 - - Total expenditures 522,863 745,689 99,384 149,903 Excess(deficiency)of revenues over expenditures (332,428) (732,799) (51,849) (70,647) OTHER FINANCING SOURCES (USES) Transfers in 514,660 503,553 42,300 108,510 Transfers out - - - - Sale of capital assets - 49,470 - - Total other financing sources(uses) 514,660 553,023 42,300 108,510 Net change in fund balances 182,232 (179,776) (9,549) 37,863 Fund balances-January 1 1,391,663 1,108,908 (833,820) 187,949 Fund balances-December 31 $ 1,573,895 $ 929,132 $ (843,369) $ 225,812 80 Total Nonmajor Street Capital Projects GRE Reserve Improvements TIF Districts Funds $ - $ 16,898 $ 830,204 $ 848,876 39,000 293,737 - 373,929 - - 1,532 56,440 - 301,369 - 315,838 13,443 53,659 3,068 94,141 525,262 - - 701,791 856 13 - 18,142 578,561 665,676 834,804 2,409,157 - - - 39,890 - - 17,315 296,355 - 375,372 - - 156,140 383,733 383,733 - 99,384 - 371,722 - - 260,741 - 1,186,148 - 1,485,312 99,669 - - 294,135 99,669 1,482,503 383,733 3,483,744 478,892 (816,827) 451,071 (1,074,587) 931,118 - 2,100,141 (81,800) - (318,194) (399,994) 49,470 (81,800) 931,118 (318,194) 1,749,617 397,092 114,291 132,877 675,030 1,276,255 4,977,180 (225,827) 7,882,308 $ 1,673,347 $ 5,091,471 $ (92,950) $ 8,557,338 81 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 funds relating to private development projects. i CITY OF ELK RIVER,MINNESOTA STATEMENT OF CHANGES IN ASSETS AND LIABILITIES DEVELOPER ESCROW AGENCY FUND FOR THE YEAR ENDED DECEMBER 31,2012 Beginning Ending Balance Additions Deductions Balance ASSETS Cash $ 62,856 $ 30,073 $ 41,177 $ 51,752 Accounts receivable 2,171 4,682 5,472 1,381 Total assets $ 65,027 $ 34,755 $ 46,649 $ 53,133 LIABILITIES Refundable deposits payable $ 65,027 $ 30,287 $ 42,181 $ 53,133 i i i i i i 82 i COMPONENT UNIT FINANCIAL STATEMENTS !, I The Housing nd Redevelopment Authority of Elk River is a component unit of the City. Its operations are g p Y P Y 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. I I� i i I i i i HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER,MINNESOTA BALANCESHEET GOVERNMENTAL FUND DECEMBER 31,2012 I ASSETS Cash and investments $ 862,972 Receivables: Taxes 13,267 Notes 400,000 Due from primary government 240,965 Total assets $ 1,517,204 LIABILITIES Accounts payable $ 831 Salaries payable 2,207 j Due to primary govermnent 5,317 Total liabilities 8,355 i DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 10,572 i FUND BALANCES Nonspendable 400,000 Restricted 1,098,277 Total fund balances 1,498,277 Total liabilities,deferred inflows of resources and fund balances $ 1,517,204 i I 83 HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31,2012 FUND BALANCE-TOTAL GOVERNMENTAL FUNDS $ 1,498,277 Amounts reported for governmental activities in the statement of net position 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 431,390 Less accumulated depreciation (968) 430,422 2. Unavailable revenue in govermmental funds is susceptible to frill accrual on the government-wide statements. 10,572 NET POSITION OF GOVERNMENTAL ACTIVITIES $ 1,939,271 84 i HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENDITURES,AND CHANGE IN FUND BALANCE GOVERNMENTAL FUND FOR THE YEAR ENDED DECEMBER 31,2012 REVENUES Property taxes $ 293,155 Intergovernmental revenue 115 Interest income 4,501 Miscellaneous revenue 1,302 Total revenues 299,073 EXPENDITURES Economic development: Current 153,325 Capital outlay 174,815 Total expenditures 328,140 Net change in fund balance (29,067) Fund balance-January 1 1,527,344 Fund balance-December 31 $ 1,498,277 i I i i i i i 85 HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES, AND CHANGE IN FUND BALANCE OF GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2012 NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ (29,067) 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. Capital outlay 174,290 Depreciation expense (968) 173,322 i 2. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. I Property taxes (837) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 143,418 i i I i i 86 i STATISTICAL SECTION (UNAUDITED) 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 87 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 97 These schedules contain information to help the reader assess the city's most significant local revenue sources; electric sales and property taxes. Debt Capacity 104 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 112 These schedules offer demographic and economic indicators to help the reader understand the environment within which the cit) s financial activities take place. Operating Information 114 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 fi•om the comprehensive annual financial reports for the relevant year. I i CITY OF ELIC RIVER,MINNESOTA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 Governmental activities Net investment in capital assets $ 57,293,997 $ 68,351,167 $ 73,150,041 $ 82,663,610 Restricted 8,383,884 10,963,518 12,410,832 4,802,808 Unrestricted 22,441,594 19,452,247 21,267,772 27,998,543 Total governmental activities net position $ 88,119,475 $ 98,766,932 $ 106,828,645 $ 115,464,961 Business-type activities Net investment in capital assets $ 46,341,983 $ 52,377,687 $ 54,577,074 $ 59,410,729 Restricted 1,947,067 2,197,066 2,256,419 445,900 Unrestricted 11,065,736 10,332,005 11,810,416 13,839,859 Total business-type activities net position $ 59,354,786 $ 64,906,758 $ 68,643,909 $ 73,696,488 Primary government Net investment in capital assets $ 103,635,980 $ 120,728,854 $ 127,727,115 $ 142,074,339 Restricted 10,330,951 13,160,584 14,667,251 5,248,708 Unrestricted 33,507,330 29,784,252 33,078,188 41,838,402 Total primary government net position $ 147,474,261 $ 163,673,690 $ 175,472,554 $ 189,161,449 I i i r I 87 I Fiscal Year 2007 2008 2009 2010 2011 2012 $ 85,293,459 $ 85,390,968 $ 86,149,417 $ 84,629,091 $ 84,741,957 $ 84,060,768 6,189,063 5,569,773 4,723,030 7,341,554 6,283,346 6,391,182 25,641,836 27,628,733 28,588,304 26,702,252 29,282,251 27,448,688 $ 117,124,358 $ 118,589,474 $ 119,460,751 $ 118,672,897 $ 120,307,554 $ 117,900,638 $ 59,942,345 $ 60,750,900 $ 59,601,861 $ 60,972,838 $ 60,525,218 $ 60,268,219 733,400 724,500 724,500 724,500 724,500 724,500 17,028,349 17,696,135 19,793,756 19,907,416 19,421,085 22,376,508 $ 77,704,094 $ 79,171,535 $ 80,120,117 $ 81,604,754 $ 80,670,803 $ 83,369,227 $ 145,235,804 $ 146,141,868 $ 145,751,278 $ 145,601,929 $ 145,267,175 $ 144,328,987 6,922,463 6,294,273 5,447,530 8,066,054 7,007,846 7,115,682 42,670,185 45,324,868 48,382,060 46,609,668 48,703,336 49,825,196 $ 194,828,452 $ 197,761,009 $ 199,580,868 $ 200,277,651 $ 200,978,357 $ 201,269,865 i 88 CITY OF ELK RIVER,MINNESOTA CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 Expenses Governmental activities: General government $ 3,290,711 $ 2,440,200 $ 2,503,826 $ 2,560,213 Public safety 4,229,109 4,988,424 5,255,974 5,606,438 Public works 3,737,678 4,277,071 4,281,725 6,169,030 Culture and recreation 1,747,322 2,058,882 2,535,955 2,859,058 Economic development 549,149 912,698 938,164 631,437 Interest on long-term debt 1,050,823 936,515 881,001 764,725 Total governmental activities expenses 14,604,792 15,613,790 16,396,645 18,590,901 Business-type activities: Municipal Liquor 3,621,087 3,760,156 4,348,673 5,202,087 Garbage 884,532 953,432 1,047,479 1,094,788 Sewer 1,406,713 1,457,386 1,633,276 1,721,522 Water 1,713,217 1,783,081 2,091,723 2,104,827 Electric 11,929,596 13,362,081 14,877,986 16,588,510 Total business-type activities expenses 19,555,145 21,316,136 23,999,137 26,711,734 Total primary government expenses $ 34,159,937 $ 36,929,926 $40,395,782 $45,302,635 Program Revenues Governmental activities: Charges for services: General government $ 194,246 $ 308,781 $ 288,032 $ 246,541 Public safety 1,897,883 1,956,967 2,050,437 2,403,601 Public works 148,904 226,907 280,583 617,099 Culture and recreation 729,932 812,401 877,789 1,065,218 Economic development 71,379 96,396 379,002 178,217 Operating grants and contributions 487,560 427,513 480,649 387,584 Capital grants and contributions 6,064,491 11,879,536 7,573,752 8,117,032 Total governmental activities program revenues 9,594,395 15,708,501 11,930,244 13,015,292 Business-type activities: Charges for services: Municipal Liquor 4,156,276 4,345,702 4,806,061 5,906,768 Garbage 820,278 973,176 1,055,753 1,106,268 Sewer 1,808,817 2,365,262 1,261,853 1,352,647 Water 1,807,334 2,095,018 1,365,136 1,770,819 Electric 13,774,777 14,765,479 15,955,440 17,143,485 Operating grants and contributions 10,530 8,615 9,255 504,168 Capital grants and contributions 1,053,994 3,028,454 3,654,383 4,297,666 Total business-type activities program revenues 23,432,006 27,581,706 28,107,881 32,081,821 Total primary government program revenues $ 33,026,401 $43,290,207 $40,038,125 $ 45,097,113 Net(expense)/revenue Governmental activities $ (5,010,397) $ 94,711 $ (4,466,401) $ (5,575,609) Business-type activities 3,876,861 6,265,570 4,108,744 5,370,087 Total primary government net(expense)/revenue $ (1,133,536) $ 6,360,281 $ (357,657) $ (205,522) i 89 Fiscal Year 2007 2008 2009 2010 2011 2012 i i $ 2,732,697 $ 3,286,350 $ 2,777,568 $ 3,028,102 $ 3,495,458 $ 2,994,342 5,924,093 6,715,607 6,106,181 6,011,477 6,238,611 6,187,246 6,527,565 5,875,992 5,397,058 5,447,282 5,720,759 6,037,000 3,598,695 3,549,637 3,767,312 3,702,671 3,851,181 4,013,098 1,001,829 1,893,707 1,569,432 1,438,742 1,451,109 1,059,058 952,082 1,315,275 1,252,493 1,138,414 1,045,905 1,163,352 20,736,961 22,636,568 20,870,044 20,766,688 21,803,023 21,454,096 5,301,597 5,464,819 5,374,453 5,267,041 5,366,557 5,622,305 1,114,133 1,166,709 1,256,177 1,331,514 1,304,238 1,276,887 1,786,266 1,849,031 1,781,804 1,962,431 2,130,287 2,239,914 2,413,942 2,506,510 2,334,388 2,089,889 2,108,499 2,264,814 18,718,636 22,036,471 23,258,383 25,452,567 26,726,349 27,586,573 29,334,574 33,023,540 34,005,205 36,103,442 37,635,930 38,990,493 $ 50,071,535 $55,660,108 $ 54,875,249 $ 56,870,130 $ 59,438,953 $ 60,444,589 i i $ 283,003 $ 371,911 $ 334,100 $ 301,509 $ 425,954 $ 369,794 1,533,699 962,275 634,242 722,073 787,884 789,728 76,117 159,664 47,860 61,605 79,073 82,173 1,083,081 1,084,067 1,074,266 1,089,058 1,102,630 1,128,070 92,486 65,999 60,335 125,759 70,976 8,244 362,313 977,411 758,958 763,551 954,831 1,018,519 4,174,427 4,302,760 2,599,593 1,318,660 1,750,824 1,007,794 7,605,126 7,924,087 5,509,354 4,382,215 5,172,172 4,404,322 i 6,043,088 6,213,657 6,094,058 5,953,626 6,145,692 6,525,234 1,139,763 1,160,774 1,194,937 1,282,013 1,310,014 1,302,920 1,454,219 1,511,165 1,504,785 1,483,120 1,491,460 1,533,851 2,144,622 2,139,046 2,218,816 1,961,760 1,917,384 2,343,881 19,895,323 22,941,903 24,258,120 26,840,983 28,657,698 30,403,469 295,081 149,327 92,957 103,324 38,550 23,440 1,996,636 888,925 267,233 397,989 482,319 490,916 32,968,732 35,004,797 35,630,906 38,022,815 40,043,117 42,623,711 $40,573,858 $42,928,884 $41,140,260 $42,405,030 $ 45,215,289 $ 47,028,033 $(13,131,835) $(14,712,481) $(15,360,690) $(16,384,473) $ (16,630,851) $ (17,049,774) 3,634,158 1,981,257 1,625,701 1,919,373 2,407,187 3,633,218 $ (9,497,677) $(12,731,224) $(13,734,989) $(14,465,100) $ (14,223,664) $ (13,416,556) I 90 i i Fiscal Year 2003 2004 2005 2006 General Revenues and Other Changes in Net Position Governmental activities: Property taxes $ 5,830,468 $ 6,425,933 $ 7,569,131 $ 8,754,923 Tax increment 682,855 734,115 768,397 790,882 Other taxes - - - - Unrestricted grants and contributions 2,237,750 2,141,152 2,427,605 2,577,700 Investment earnings 304,237 375,550 758,612 1,151,144 Miscellaneous - 9,180 326,853 28,450 Transfers of capital assets - - - - Transfers 639,924 866,816 677,516 908,826 Total governmental activities 9,695,234 10,552,746 12,528,114 14,211,925 Business-type activities: Investment earnings 155,802 153,218 305,923 589,210 Miscellaneous - - - 2,108 Transfers of capital assets - - Transfers (639,924) (866,816) (677,516) (908,826) Total business-type activities (484,122) (713,598) (371,593) (317,508) Total primary government $ 9,211,112 $ 9,839,148 $ 12,156,521 $ 13,894,417 Change in Net Position Governmental activities $ 4,684,837 $ 10,647,457 $ 8,061,713 $ 8,636,316 Business-type activities 3,392,739 5,551,972 3,737,151 5,052,579 Total primary government $ 8,077,576 $ 16,199,429 $ 11,798,864 $ 13,688,895 I i I I i i i i 91 Fiscal Year 2007 2008 2009 2010 2011 2012 $ 9,744,930 $ 11,095,407 $ 11,440,991 $ 11,254,752 $ 11,398,819 $ 10,854,241 894,595 1,041,300 1,080,142 1,071,099 947,486 830,204 - - 156,894 193,466 83,748 125,623 2,395,665 1,775,536 1,940,274 2,000,923 1,702,334 1,307,662 1,465,401 1,215,053 548,651 359,733 499,034 319,654 23,213 - 20,013 61,308 23,233 49,470 (511,412) - - (303,051) - (348,259) 778,840 1,050,301 1,045,002 958,389 3,610,854 1,504,263 14,791,232 16,177,597 16,231,967 15,596,619 18,265,508 14,642,858 640,876 534,485 367,883 220,602 269,716 219,950 - 2,000 - - - 1,260 511,412 - 303,051 348,259 (778,840) (1,050,301) (1,045,002) (958,389) (3,610,854) (1,504,263) 373,448 (513,816) (677,119) (434,736) (3,341,138) (934,794) $ 15,164,680 $ 15,663,781 $ 15,554,848 $ 15,161,883 $ 14,924,370 $ 13,708,064 $ 1,659,397 $ 1,465,116 $ 871,277 $ (787,854) $ 1,634,657 $ (2,406,916) 4,007,606 1,467,441 948,582 1,484,637 (933,951) 2,698,424 $ 5,667,003 $ 2,932,557 $ 1,819,859 $ 696,783 $ 700,706 $ 291,508 92 i CITY OF ELK RIVER,MINNESOTA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 General fund Reserved $ 348,026 $ 115,746 $ 210,298 $ - Unreserved 3,384,023 3,851,634 4,391,083 4,816,386 Nonspendable - - - - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total General fund $ 3,732,049 $ 3,967,380 $ 4,601,381 $ 4,816,386 All other governmental funds Reserved $ 12,598,358 $ 11,570,003 $ 11,475,837 $ 9,979,026 Unreserved,reported in: Special revenue funds 3,742,244 4,597,195 5,453,061 5,070,764 Capital projects funds 4,585,550 5,401,112 8,382,625 8,091,573 Nonspendable - - - - Restricted - - - - Conunitted - - - - Assigned - - - - Unassigned - - - - Total all other governmental funds $ 20,926,152 $ 21,568,310 $ 25,311,523 $ 23,141,363 i 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. i i I r i 93 i Fiscal Year 2007 2008 2009 2010 2011 2012 $ 5,938 $ - $ - $ - $ - $ - 5,346,066 5,190,662 5,699,575 - - - - - - - - 20,201 - - - 20,390 - 91,502 156,323 208,486 727,443 859,508 200,000 - - - 5,187,520 5,261,391 5,776,627 $ 5,352,004 $ 5,190,662 $ 5,699,575 $ 6,006,465 $ 6,297,612 $ 6,205,314 i $ 14,453,663 $ 6,953,630 $ 6,535,205 $ - $ - $ - 3,849,815 7,751,286 7,844,537 - - - 9,179,236 9,574,268 10,101,066 - - - - - - 93,080 57,870 101,812 - - - 6,936,113 5,942,368 7,608,842 - - 2,506,814 2,712,645 2,456,185 - - - 16,984,061 19,736,795 19,219,810 - - - (1,011,820) (1,059,647) (1,384,984) $ 27,482,714 $ 24,279,184 $ 24,480,808 $ 25,508,248 $ 27,390,031 $ 28,001,665 94 CITY OF ELK RIVER,MINNESOTA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 Revenues Property taxes $ 6,507,578 $ 7,118,568 $ 8,283,983 $ 9,529,773 Other taxes - - - - Licenses and permits 1,143,612 1,249,844 1,240,336 1,207,368 Intergovernmental revenue 2,141,277 1,544,485 1,979,405 4,142,937 Charges for services 2,042,391 2,381,670 2,571,767 2,485,464 Fines and forfeits 190,911 164,800 190,062 175,155 Special assessments 2,433,939 2,375,902 3,414,090 1,566,880 Interest 304,237 375,548 758,612 1,151,144 Miscellaneous 2,159,373 1,799,736 2,004,286 2,555,842 Total revenues 16,923,318 17,010,553 20,442,541 22,814,563 Expenditures General government 2,265,779 2,161,356 2,204,626 2,251,111 Public safety 4,145,996 4,163,345 4,649,010 4,941,706 Public works 1,814,818 1,850,281 2,192,336 2,538,658 Culture and recreation 1,635,806 1,655,298 2,088,505 2,605,861 Economic development 649,463 703,591 785,584 627,467 Capital outlay 8,389,740 2,997,696 4,191,817 10,729,882 Debt service Principal 2,355,800 2,494,483 2,174,266 7,051,836 Interest and service charges 1,102,548 965,984 881,305 909,904 Total expenditures 22,359,950 16,992,034 19,167,449 31,656,425 f Excess(deficiency)of revenues over(under)expenditures (5,436,632) 18,519 1,275,092 (8,841,862) Other financing sources(uses) Transfers in 4,654,396 4,666,581 2,888,975 5,923,474 Transfers out (4,003,800) (3,799,765) (2,211,459) (5,014,648) Proceeds of long-term debt 1,612,100 331,000 1,715,000 3,657,000 Payment to refunded bond escrow agent - - - - Premium on long-term debt issued - - - - Discount on long-term debt issued (5,566) - (8,560) (29,252) Capital leases issued - - - 2,332,694 Sale of capital assets 34,562 9,180 718,166 17,439 Total other financing sources(uses) 2,291,692 1,206,996 3,102,122 6,886,707 Net change in fund balances $ (3,144,940) $ 1,225,515 $ 4,377,214 L(1,955,155) Debt service as a percentage of noncapital expenditures' 25.3% 24.1% 21.0% 37.1% i 95 i I Fiscal Year 2007 2008 2009 2010 2011 2012 $ 10,571,695 $ 12,037,076 $ 12,329,194 $ 12,355,953 $ 12,461,403 $ 11,720,311 - - 156,894 193,466 83,748 125,623 987,708 460,108 322,338 402,076 432,875 408,232 2,973,505 4,134,779 3,117,997 1,135,060 1,678,555 1,436,613 1,786,094 1,849,307 1,465,898 1,727,276 1,573,367 1,659,986 156,407 150,086 141,629 161,074 149,102 137,819 1,909,595 1,712,551 1,464,348 999,633 989,101 845,112 1,465,401 1,215,053 548,651 359,731 499,034 319,654 1,545,181 1,628,567 1,853,966 2,587,771 2,568,159 1,980,207 21,395,586 23,187,527 21,400,915 19,922,040 20,435,344 18,633,557 I 2,450,722 2,480,208 2,458,879 2,629,731 3,157,307 2,615,582 5,109,371 5,565,474 5,377,208 5,266,803 5,291,617 5,352,249 4,170,119 3,246,436 2,656,097 2,291,196 2,752,469 2,931,726 3,386,681 2,890,683 2,666,146 2,569,464 2,663,806 2,839,466 573,446 2,216,617 1,589,464 1,512,138 1,479,140 1,087,467 12,803,023 10,381,359 4,627,322 1,879,604 2,874,212 10,264,274 1,767,617 2,022,616 3,162,117 2,411,062 2,618,146 2,127,000 902,415 1,198,174 1,289,087 1,182,993 1,059,804 1,065,354 31,163,394 30,001,567 23,826,320 19,742,991 21,896,501 28,283,118 (9,767,808) (6,814,040) (2,425,405) 179,049 (1,461,157) (9,649,561) 4,785,257 3,868,359 2,887,624 2,682,562 5,978,905 4,792,943 (4,006,417) (2,818,058) (1,842,622) (1,724,173) (2,368,051) (3,288,680) 13,390,500 2,277,946 2,074,311 6,184,243 - 8,500,000 - - - (6,303,897) - - 36,542 - 255,238 - 115,164 (50,477) - - - - 325,000 - - - - - 200,914 84,379 16,629 61,308 23,233 49,470 14,644,777 3,449,168 3,135,942 1,155,281 3,634,087 10,168,897 $ 4,876,969 $ (3,364,872) $ 710,537 $ 1,334,330 $ 2,172,930 $ 519,336 15.1% 16.9% 23.7% 20.1% 19.6% 17.5% 96 CITY OF ELK RIVER,MINNESOTA ELECTRIC SALES LAST TEN FISCAL YEARS Fiscal Number of Total Year Customers KWh's Sold Billings 2003 7,376 161,852,054 $ 11,679,055 2004 7,907 165,595,414 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 2012 9,285 273,455,846 28,344,845 Source: Elk River Municipal Utilities 97 i CITY OF ELK RIVER,MINNESOTA PRINCIPAL ELECTRIC CUSTOMERS CURRENT YEAR AND NINE YEARS AGO 2012 2003 Percentage Percentage Total KWh Total of Total Total KWh Total of Total Customer Sold Billings Billings Sold Billings Billings Data Center 2 53,001,600 $4,187,988 14.78% $ - Data Center 1 19,051,200 1,636,213 5.77% - - Walmart 5,496,000 458,759 1.62% 2,749,200 104,454 0.89% Faribault Foods 5,292,000 454,374 1.60% 3,650,800 138,752 1.19% E&0 Tool 5,335,600 449,358 1.59% 3,939,220 149,745 1.28% Jerry's Enterprises 5,063,400 414,856 1.46% 9,066,841 185,120 1.59% Menards 3,629,000 322,837 1.14% 2,929,680 111,297 0.95% Target 3,574,500 313,422 1.11% - - - Sherburne Co.Govt.Center 3,096,960 273,280 0.96% 4,554,880 173,273 1.48% Coborns 2,958,000 247,109 0.87% 3,612,000 137,130 1.17% All Tool - - - 2,463,120 93,634 0.80% Home Depot - - - 2,358,480 89,662 0.77% TOTAL 106,498,260 $ 8,758,196 30.90% 35,324,221 $ 1,183,067 10.12% Source: Elk River Municipal Utilities i i f i i 98 i i CITY OF ELK RIVER,MINNES®TA TAX CAPACITY,MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS 2003 2004 2005 2006 I Tax capacity Real property $ 13,734,734 $ 15,387,792 $ 17,838,528 $ 20,514,092 Personal property 258,501 215,581 237,262 246,741 j Total tax capacity 13,993,235 15,603,373 18,075,790 20,760,833 Tax increment (588,732) (608,609) (654,325) (675,049) Taxable net tax capacity $ 13,404,503 $ 14,994,764 $ 17,421,465 $ 20,085,784 I Total tax capacity rate 44.614% 43.782% 43.763% 43.929% Taxable market value Real property $ 1,141,917,000 $ 1,299,691,938 $ 1,528,254,150 $ 1,773,917,600 Personal property 13,112,800 10,934,000 12,020,800 12,494,300 Taxable market value $ 1,155,029,800 $ 1,310,625,938 $ 1,540,274,950 $ 1,786,411,900 i Estimated actual market value of taxable property $ 1,382,785,926 $ 1,567,581,017 $ 1,805,774,228 $ 2,109,366,764 Taxable market value as a percentage of estimated actual market value 83.53% 83.61% 85.30% 84.69% i i I Source: Sherburne County Assessor Note: Property in the county is reassessed annually. The county assessor's market value of property is approximately 104 percent of actual value for all types of real and personal property. I i i I 99 2007 2008 2009 2010 2011 2012 $ 23,166,911 $ 25,790,055 $ 26,550,210 $ 25,611,065 $ 24,736,999 $ 21,946,865 281,606 279,154 302,166 310,180 350,946 344,032 23,448,517 26,069,209 26,852,376 25,921,245 25,087,945 22,290,897 (786,795) (744,597) (899,835) (888,285) (784,101) (698,130) $ 22,661,722 $ 25,324,612 $ 25,952,541 $ 25,032,960 $ 24,303,844 $ 21,592,767 43.056% 42.494% 43.280% 44.560% 45.723% 47.588% $ 1,998,598,900 $2,186,595,580 $ 2,235,538,000 $ 2,121,774,900 $ 2,035,543,052 $ 1,926,469,500 14,318,500 14,221,560 15,363,900 15,764,700 17,758,600 17,412,900 $ 2,012,917,400 $ 2,200,817,140 $ 2,250,901,900 $ 2,137,539,600 $ 2,053,301,652 $ 1,943,882,400 $ 2,262,479,345 $ 2,457,361,368 $ 2,429,563,505 $ 2,191,955,185 $ 2,403,906,238 $ 1,862,705,099 88.97% 89.56% 92.65% 97.52% 85.42% 104.36% I 100 I I CITY OF ELK RIVER,MINNESOTA PROPERTY TAX RATES DIRECT AND OVERLAPPING' GOVERNMENTS LAST TEN FISCAL YEARS I City of Elk River Overlapping Rates Total School District Direct& j Fiscal Debt Referendum Special Overlapping Year Operating Service Total County Operating Mkt.Value Districts Rates 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 I 2012 44.925 2.663 47.588 52.014 45.548 0.187 5.296 150.633 Source: Sherburne County Auditor/Treasurer Overlapping rates are those of local and county governments that apply to property owners within the City of 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. i I I I i I 101 CITY Or ELK RIVER,MINNESOTA PRINCIPAL TAXPAYERS CURRENT YEAR AND NINE YEARS AGO 2012 2003 Percentage Percentage Net Tax of Total Net Net Tax of Total Net Taxpayer Capacity Rank Tax Capacity Capacity Rank Tax Capacity Great River Energy $ 1,235,908 1 5.72% $ 512,354 1 3.66% JPM Capital Corporation 509,102 2 2.36 - - - Target Corp. 388,730 3 1.80 103,308 9 0.74 BRE Retail Residual Owner,LLC 294,070 4 1.36 - - - Walmart Stores 282,622 5 1.31 163,494 3 1.17 Menards,Inc 183,200 6 0.85 123,548 5 0.88 Phoenix Enterprises 151,877 7 0.70 - - - Horne Depot 138,982 8 0.64 121,734 7 0.87 7040 Lakeland Partners LLC 137,310 9 0.64 - - - Minnegasco Property 133,976 10 0.62 122,508 6 0.88 Resource Recovery Technology - - - 263,296 2 1.88 Bradley Operating LP - 155,229 4 1.11 B&G Realty,Inc - - 107,104 8 0.77 Medical Facilities - - - 100,050 10 0.72 TOTAL $ 3,455,777 16.00% $ 1,772,625 12.68% Source: Sherburne County Assessor 102 CITY OF ELK RIVER,MINNESOTA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS 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 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 97.64 209,360 9,343,050 99.88 2008 10,360,068 10,075,018 97.25 259,798 10,334,816 99.76 2009 10,845,709 10,466,823 96.51 324,545 10,791,368 99.50 2010 10,755,202 10,403,335 96.73 232,974 10,636,309 98.89 2011 10,697,398 10,450,388 97.69 79,850 10,530,238 98.44 2012 10,271,754 10,023,373 97.58 - 10,023,373 97.58 1 Total tax levy for years 2003-2010 does not include Market Value Homestead Credit received from the State. 103 CITY OF ELK RIVER,MINNESOTA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Governmental Activities General Permanent Fiscal General Obligation Lease Special Improvement Tax Year Obligation Revenue Revenue Assessment Revolving Increment 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 20,897,939 - - 2,955,000 - 305,000 2012 26,579,666 - 4,035,306 - - Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Seethe Schedule of Demographic and Economic Statistics on page 112 for personal income and population data. 104 I i I Governmental Activities Business-Type Activities General Total Percentage Certificates of Obligation Revenue Certificates of Notes Primary of Personal Per Indebtedness Other Revenue Bonds Indebtedness Payable Government Income' Capita` $ 612,950 $ 47,976 $ 10,100,000 $ 2,330,000 $ 500,000 $ 2,775,424 $ 38,353,850 7.84% $ 2,045 705,967 - 7,990,000 3,060,000 375,000 2,663,145 34,525,112 6.27% 1,706 1,035,201 - 9,160,000 3,725,000 250,000 2,538,226 35,650,927 6.00% 1,654 1,134,334 1,908,725 7,015,000 7,185,000 125,000 3,066,820 36,307,379 5.74% 1,610 1,090,350 2,123,092 6,465,000 9,690,000 - 2,879,054 49,897,496 7.29% 2,152 756,033 1,839,792 8,630,000 9,280,000 2,701,994 51,730,765 6.97% 2,166 421,716 1,646,492 8,070,000 8,840,000 2,524,646 49,465,611 7.14% 2,093 87,400 1,499,746 6,180,000 6,940,000 2,345,318 43,429,464 6.32% 1,890 - 1,410,000 5,520,656 6,310,000 2,162,882 39,561,477 5.81% 1,713 1,410,000 4,791,567 5,085,000 - 1,975,812 43,877,351 na 1,890 i r i i i i I I I 105 CITY OF ELK RIVER,MINNESOTA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS 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' 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% 696.49 2012 23,286,667 1,202,093 22,084,574 102.28% 951.10 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. 2 See the Schedule of Tax Capacity,Market Value and Estimated Actual Value of Taxable Property on page 99-100 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics on page 112. 106 i CITE'OF ELK RIVER,MINNESOTA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT DECEMBER 31,2012 Percent of Debt City's Outstanding Applicable Share Debt to City' of Debt Direct Debt: City of Elk River2 $ 32,024,972 100.00% $ 32,024,972 Overlapping Debt: Sherburne County 19,110,000 26.84 5,129,984 School District#728 166,240,000 32.63 54,235,966 Total overlapping debt 185,350,000 59,365,950 Total direct and overlapping debt $ 217,374,972 $ 91,390,922 I I I Debt Ratios: Ratio of debt per capita(23,220 population) $3,936 Ratios of debt to taxable market value of$1,943,882,400 4.91% I i i 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 enterprise revenue. Note: Overlapping governements 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 bonne 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. III �I 107 II i CITY OF ELK RIVER,MINNESOTA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS I 2003 2004 2005 2006 Debt limit $ 23,100,596 $ 26,212,519 $ 30,805,499 $ 35,728,238 Bonds 10,307,950 10,060,967 10,040,201 13,124,334 Reserves 837,754 925,148 950,793 1,003,315 Total net debt applicable to limit 9,470,196 9,135,819 9,089,408 12,121,019 Legal debt margin $ 13,630,400 $ 17,076,700 $ 21,716,091 $ 23,607,219 Total net debt applicable to the limit as a percentage of debt limit 41.00% 34.85% 29.51% 33.93% I I i I I i 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. t Only 2/3 of the$10,000,000 GO EDA Bonds,Series 2007 and the$945,000 GO EDA Bonds, Series 2008A are subject to the debt limit. The Remaining 1/3 will be paid by the YMCA. 108 I I 2007 200E 2009 2010 2011 2012 $ 40,258,348 $ 66,024,514 $ 67,527,057 $ 64,126,188 $ 61,599,050 $ 58,316,472 17,792,017 18,391,033 17,471,716 18,040,733 17,120,000 23,286,667 861,726 1,318,186 1,418,700 1,164,060 1,030,418 1,202,093 16,930,291 17,072,847 16,053,016 16,876,673 16,089,582 22,084,574 $ 23,328,057 $ 48,951,667 $ 51,474,041 $ 47,249,515 $ 45,509,468 $ 36,231,898 42.05% 25.86% 23.77% 26.32% 26.12% 37.87% Legal Debt Margin Calculation for Fiscal Year 2012 Estimated taxable market value $ 1,943,882,400 Debt limit(3%of market value) $ 58,316,472 Debt applicable to limit: G.O.capital improvement bonds 15,990,000 G.O.EDA bonds 7,296,667 Less: Cash and investments in related debt service funds (1,202,093) Total net debt applicable to limit 22,084,574 Legal debt margin $ 36,231,898 i 109 i CITY OF ELK RIVER,MINNESOTA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS I Revenue Bonds 1 Net Fiscal Gross Operating Revenue Debt Service Year Revenue a Expenses' Available Principal Interest Coverage 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 i 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 2012 35,944,367 28,444,321 7,500,046 1,950,000 410,320 3.18 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 Gross revenue excludes interest income,connection fees and miscellaneous revenues ' Expenses exclude depreciation,interest on bonds and miscellaneous expenses I i I 110 Special Assessment Bonds Special Assessment Debt Service Collections Principal Interest Coverage $ 1,705,463 $ 1,185,000 $ 321,911 1.13 1,901,427 1,060,000 297,840 1.40 1,123,407 925,000 264,999 0.94 999,232 4,475,000 198,650 0.21 231,839 395,000 64,339 0.50 611,290 345,000 192,553 1.14 421,724 510,000 168,335 0.62 368,936 510,000 148,276 0.56 327,975 505,000 124,185 0.52 I 287,759 505,000 122,209 0.46 I 111 CITY OF ELK RIVER,MINNESOTA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Personal Fiscal Income Per Capita Median School Unemployment Year Population) (in thousands) Income2 Age3 Enrollmene Rate 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 ' 687,129 29,909 33 13,036 8.1% 2011 23,101 681,179 29,487 34 13,117 7.3% 2012 23,220 * na na 34 13,255 6.4% I I Data Sources: I 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 s 112 i CITY OF ELK RIVER,MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2012 2003 Percentage Percentage of Total City of Total City Employer Employees Rank Employment Employees Rank Employment Independent Sebool District 728 1 1,573 1 13.93% 1,000 1 9.74% Sherburne County 578 2 5.12% 492 2 4.79% Walmart 380 3 3.37% 366 3 3.56% Guardian Angels of Elk River 317 4 2.81% 330 5 3.21% Great River Energy 223 5 1.98% 331 4 3.22% City of Elk River 214 6 1.90% 242 6 2.36% Tescom Corporation 174 7 1.54% 186 8 1,81% Menards 150 8 1.33% 170 10 1.65% Cornerstone Auto Resource 147 9 1.30% - - - E&O Tool&Plastics,Inc 141 10 1.25% - - - Cub Foods - - - 200 7 1.95% Target - - 180 9 1.75% Total 3,897 34.53% 3,497 34.04% i Total Employment 2 11,290 10,272 Total District 2 Minnesota Department of Employment and Economic Development i i 113 M O O l- O H O V) O O O O O O O, rf• -+ oo O L- - V) O N M "O 00 O r N N M 0 0 l- O ,O O V) 0\ O V) O O O Vl .y M (D 00 M O V) N (=> N .N-� � W) N O ® N M d N N M O O l- O \O O O O\ O O O O O V7 M .-+ oo M oo V) N 't O N et �O V) O1 N O N O O\ O O O O V) d1 . . 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'., N y '`1• ,.~�• 4y. cc3 ' CIJ U N �O" a0.+• 0 V) � � WC7 =0 O 116 i 4 13 4 4 CITY OF ELK RIVER ELK RIVER, MINNESOTA OTHER REQUIRED REPORTS FOR THE YEAR ENDED 21,7 DECEMBER 31, 2012 i N 2 4 5 4 41 4 4 1 A ABDO EICK & f MEYERSLLP Certified Public Accountants & Consultants CITY OF ELK RIVER ELK RIVER, MINNESOTA OTHER REQUIRED REPORTS FOR THE YEAR ENDED DECEMBER 31, 2012 CITY OF ELK RIVER,MINNESOTA TABLE OF CONTENTS DECEMBER 31,2012 Page No. OTHER REQUIRED REPORTS Auditor's Report on Legal Compliance 2 -1- M 1I AR DQ wr EICK & � t e i �� _ MaERS LLP Certified Public Accountants& Consultants 5201 Eden Avenue Suite 250 Edina,MN 55436 AUDITOR'S REPORT ON LEGAL COMPLIANCE Honorable Mayor and City 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 31,2012,which collectively comprise the City's basic financial statements as listed in the table of contents and have issued our report thereon dated May 17,2013. 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 Political Subdivisions,promulgated by 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 Political Subdivisions covers seven 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 City 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. 04&&�, if 4"J Ly May 17,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Certified Public Accountants 952.835.9090 • Fax 952.835.3261 -2- www.aemepas.com I 13 I CITY OF ELK RIVER ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED 27 DECEMBER 31, 2012 i I 41 4 4 1 A 1 ABDO EICK & MEYERSUP 4 Certified Public Accountants & Consultants 61 CITY OF ELK RIVER ELK RIVER,MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2012 r 6 'ABDO EICK o� � t J MEYEl LS LLP Certified Public Accountants& Consultants May 17,2013 5201 Eden Avenue Suite 250 Edina,MN 55436 Management,Honorable Mayor and City 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)for the year ended December 31,2012.Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards as well as certain information related to the planned scope and timing of our audit.We have communicated such information in our letter to you dated November 13,2012.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. Significant Audit Findings Management of the City is responsible for establishing and maintaining effective internal control over financial reporting.In planning and performing our audit,we considered the City's internal control over financial reporting 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 City's internal control over financial reporting. Accordingly,we do not express an opinion on the effectiveness of the City's internal control over financial reporting. 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 and therefore,there can be no assurance that all deficiencies,significant deficiencies, or material weaknesses have been identified.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.aemepas.com City of Elk River May 17,2013 Page 2 I 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. Planned Scope and Timing of the Audit We performed 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. The requirements of GASB statements No. 63 and 65 were adopted for the year ended December 31,2012.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.Depreciation is calculated using the straight- line method. 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 17,2013. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 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 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. 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 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 31,2012. 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 decreased$92,298 from 2011. The fund balance of$6,205,314 is 48.3 percent of the 2013 budgeted expenditures. The total fund balance and percent of the 2013 budgeted expenditures is split between nonspendable$20,201 (0.1 percent),committed$208,486(1.6 percent),assigned$200,000 (1.6 percent)and unassigned$5,776,627(45.0 percent). In addition,the City has formally adopted a fund balance policy for the General fund to maintain a minimum unassigned fund balance of 40-45 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 54 of the comprehensive annual financial report. The purposes and benefits of a 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 formula.An adequate fund balance will provide a temporary buffer against aid adjustments. • Expenditures not anticipated at the time the annual budget was adopted may need immediate City 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. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 4 I A table summarizing the General fund balance in relation to the following years'budget follows: Percent of Percent of Total Unassigned General Total Unassigned Fund Balance Fund Balance Budget Fund Fund Balance Fund Balance Year December 31 December 31 Year Budget to Budget to Budget 2010 $ 6,006,465 $ 5,187,520 2011 $ 12,590,050 47.7 % 412 % 2011 6,297,612 5,261,391 2012 12,546,850 50.2 41.9 2012 6,205,314 5,776,627 2013 12,836,950 48.3 45.0 Fund Balance as a Percent of Next Year's Budget $14,000,000 $12,590,050 $12,546,850 $12,836,950 $12,000,000 $10,000,000 $8,000,000 0.2% 0.1% $6,000,000 0.7% 1.2% 1.6% 5.8% 6.9% 1.6% 41.2% 41.9% 45.0% $4,000,000 $2,000,000 $- 2010 2011 2012 2013 Unassigned Fund Balance �Assigned Fund Balance Committed Fund Balance �Nonspendable Fund Balance —0—Budget The 2012 and prior budgets are the final amended budgets. The 2013 budget is the adopted original budget. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 5 I The 2012 General fund operations are summarized as follows: Final Budgeted Actual Variance with Amounts Amounts Final Budget Revenues $ 11,165,300 $ 11,162,405 $ (2,895) Expenditures 12,256,350 11,674,417 581,933 Deficiency of revenues under expenditures (1,091,050) (512,012) 579,038 Other financing sources(uses) Transfers in 1,146,600 1,024,500 (122,100) Transfers out (290,500) (604,786) (314,286) Total other financing uses 856,100 419,714 (436,386) Net change in fund balances (234,950) (92,298) 142,652 Fund balances,January 1 6,297,612 6,297,612 - Fund balances,December 31 $ 6,062,662 $ 6,205,314 $ 142,652 The City amended the General fund budget during the year. The amendment resulted in a decrease of expenditures($131,200). The final budget called for a decrease of$234,950 of fund balance reserves. Actual change in fund balance was a decrease of $92,298. Some of the line items with significant variances from the final budget are highlighted below: • Each expenditure function was under budget.The largest current expenditure variances were in general government and public safety under budget by$149,923 and$310,937,respectively. • Transfers out were$314,286 over budget related to a transfer to the Capital Reserve fund for future expenditures. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 6 I A comparison between 2010,2011 and 2012 General fund revenues and transfers is presented below: Percent of Source 2010 2011 2012 Total Per Capita Taxes $ 9,570,875 $ 9,660,847 $ 9,309,881 76.4 % $ 401 Licenses and permits 402,076 432,875 408,232 3.3 18 Intergovernmental 348,073 535,084 542,790 4.5 23 Charges for services 533,476 594,877 636,300 52 27 Fines and forfeitures 132,968 126,832 121,047 1.0 5 Interest 62,779 91,696 56,346 0.5 2 Miscellaneous 97,208 106,436 87,809 0.7 4 Transfers in 596,100 769,500 1,024,500 8.4 44 Total revenues and transfers $ 11,743,555 $ 12,318,147 $ 12,186,905 100.0 % $ 524 A graphical presentation of 2010,2011,and 2012 revenues and transfers follows: $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- 2010 2011 2012 ■ Taxes ■ Intergovernmental ■ Charges for services ■Other 952.835.9090 • Fax 952.835.3261 www.aemepas.com City of Elk River May 17,2013 Page 7 I A comparison between 2010,2011 and 2012 General fund expenditures and transfers is presented below: Percent of Per Program 2010 2011 2012 Total Capita General government $ 2,480,825 $ 2,536,399 $ 2,490,127 20.2 % $ 107 Public safety 5,258,550 5,255,608 5,304,063 43.3 228 Public works 1,777,912 2,062,508 2,039,644 16.6 88 Culture and recreation 1,596,267 1,655,757 1,739,797 14.2 75 Capital outlay 83,798 119,562 100,786 0.8 4 Transfers out 380,337 397,166 604,786 4.9 26 Total expenditures and transfers $ 11,577,689 $ 12,027,000 $ 12,279,203 100.0 % $ 529 A graphical presentation of 2010,2011 and 2012 expenditures and transfers follows: $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2010 2011 2012 ■ General government ■ Public safety ■ Public works ■Other 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 8 I Special Revenue Funds Special revenue funds receive revenue from specific sources and expenditures are for specific purposes.The following funds, with fund balances included,comprise the special revenue fund type: Fund Balances December 31, Increase Fund 2011 2012 (Decrease) Nonmaj or Library $ 442,183 $ 454,571 $ 12,388 Ice Arena 13,755 169,970 156,215 Pinewood Golf Course - - - Senior Citizen Account 10,508 11,270 762 Landfill 1,568,313 1,461,367 (106,946) Revolving Loan 1,327,053 959,695 (367,358) Federal DEED 696,294 706,617 10,323 State DEED - 402,063 402,063 Development Fund 658,908 612,776 (46,132) Emergency/Insurance Reserve 340,958 372,565 31,607 Drug Forfeiture Reserve 14,043 23,664 9,621 YMCA Grant 1,110,829 870,714 (240,115) Economic Development Authority 1,553,804 1,133,516 (420,288) Total $ 7,736,648 $ 7,178,788 $ (557,860) The above fund balance classification in total is as follows: Fund balances-nonmajor special revenue funds Nonspendable $ 101,812 Resticted 3,728,299 Committed 2,456,185 Assigned 892,492 Total $ 7,178,788 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 9 I 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 ftmds with the total assets and debt remaining to be paid are shown below: Cash and Final Temporary Total Bonds Maturity Debt Service Fund Investments Assets Outstanding Date Improvement Bonds $ 2,215,569 $ 2,953,960 2003A G.O.Improvement Bonds $ 150,000 02/01/14 2005A G.O.Improvement Bonds 450,000 02/01/16 2007C G.O.Improvement Bonds 1,850,000 02/01/18 2012B G_O.Improvement Refunding Bonds 1,525,000 02/01/18 Government Building Bonds 802,165 824,208 2006C G.O.Capital Improvement Bonds 2,665,000 02/01/27 2010A G.O.Capital Improvement Bonds 5,250,000 02/01/23 2012A G.O.Capital Improvement Bonds 6,975,000 02/01/33 MPFA Loan 3,271 3,271 State-Aid Road Bonds 499,000 08/20/13 YMCA Bonds 399,928 411,141 2007D EDA G.O.Bonds 10,000,000 02/01/33 2008A EDA G_O.Bonds 945,000 02/01/15 Total Debt Service Funds $ 3,420,933 $ 4,192,580 $ 30,309,000 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 10 The annual debt service requirements for the next 10 years for the debt detailed on the previous page are as follows: $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Hai 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Principal Interest Capital Projects Funds The fund balances of all capital projects funds are summarized below: Fund Balances December 31, Increase Capital Projects Fund 2011 2012 (Decrease) Major Improvement Projects $ 4,427,389 $ 4,307,296 $ (120,093) Government Buildings 5,507,987 4,526,365 (981,622) Total major 9,935,376 8,833,661 (1,101,715) Nonmaj or Capital Reserve 1,391,663 1,573,895 182,232 Equipment Replacement 1,108,908 929,132 (179,776) Park Dedication (833,820) (843,369) (9,549) Park Improvements 187,949 225,812 37,863 GRE Reserve 1,276,255 1,673,347 397,092 Street Improvement 4,977,180 5,091,471 114,291 Tax Increment Financing Districts (225,827) (92,950) 132,877 Total nonmajor 7,882,308 8,557,338 675,030 Total $ 17,817,684 $ 17,390,999 $ (426,685) 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 will be eliminated by future revenues or park development. City 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. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 11 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 City 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: 2010 2011 2012 Total Percent Total Percent Total Percent Sales $ 5,948,986 100.0 % $ 6,139,096 100.0 % $ 6,516,386 100.0 % Cost of sales (4,273,029) (71.8) (4,385,452) (71.4) (4,638,550) Gross profit 1,675,957 28.2 1,753,644 28.6 1,877,836 28.8 Operating revenues 4,640 0.1 6,596 0.1 8,848 0.1 Operating expenses (954,037) (16.0) (947,692) (15"4) (970,330) (14"9) Operating income 726,560 12.3 812,548 13.3 916,354 14.0 Nonoperating revenues(expenses) 3,531 0.1 12,031 0.2 (68,740) (1.1) Transfers out (341,415) (5.7) (3,115,592) (50.8) (468,667) (7.2) Change in net position $ 388,676 6.7 % $ (2,291,013) (37.3) % $ 378,947 5.7 % Cash and investments $ 4,122,226 $ 1,797,477 $ 1,555,676 Bonds payable $ 880,000 $ 730,000 $ - Municipal Liquor Fund Operations Summary $7,000,000 $6,000,000 28.8% 282% 28.6% $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2010 2011 2012 Sales (Gross profit (Operating income Cash and investment Sales,gross profit and operating income increased consecutively the past two years.The 2011 change in net position decreased significantly due to a transfer out to provide funding for the public works facility project.The change in net position for 2012 is comparable to 2010.The decrease in cash compared to 2011 was a result of$570,000 debt prepaid. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 12 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, 2011. The statewide averages for all operations are summarized below. Off Sale 2009 2010 2011 Percent Percent Percent of Sales of Sales of Sales Sales 100.0 % 100.0 % 100.0 % Cost of sales 74.9 74.8 74.6 Gross profit 25.1 25.2 25.4 Operating expenses 17.0 17.1 17.1 Operating income 8.1 8.1 8.3 Nonoperating revenue(expense) 0.0 (0.1) 0.1 Income before transfers 8.1 % 8.0 % 8.4 % Source:Analysis of Municipal Liquor Store Operations,for the year ended December 31,2011. Published by the Minnesota Office of the State Auditor The gross profit percent of the City of 28.2-28.8 percent remains above the state-wide average. Also,the City's percentage of income before transfers of 12.4, 13.5,and 12.9 for 2010,2011,and 2012,respectively is significantly above the statewide averages. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 13 Garbage Fund The following is a summary of operations in the Garbage fund for the past three years: 2010 2011 2012 Total Percent Total Percent Total Percent Operating revenues $ 1,385,337 100.0 % $ 1,344,674 100.0 % $ 1,326,360 100.0 % Operating expenses 1,331,514 96.1 1,304,238 97.0 1,276,887 96.3 Operating income 53,823 3.9 40,436 3.0 49,473 3.7 Nonoperating revenues 5,041 0.4 8,005 0.6 5,730 0.4 Transfers in 58,457 4.2 18,330 1.4 - - Transfers out - - - - (4,120) (0.3) Change in net position $ 117,321 8.5 % $ 66,771 5.0 % $ 51,083 3.8 % Cash and investments $ 467,670 $ 540,516 $ 591,503 Garbage Fund Operations Summary $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- 2010 2011 2012 ■Operating revenues ■Operating expenses ■Operating income ■Change in net position ■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 position decreased from the prior year as a result of no transfers in. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 14 Sewer Fund The following is a summary of operations in the Sewer fund for the past three years: 2010 2011 2012 Total Percent Total Percent Total Percent Operating revenues $ 1,483,120 100.0 % $ 1,495,350 100.0 % $ 1,533,851 100.0 % Operating expenses 1,922,183 129.6 2,095,422 140.1 2,210,953 144.1 Operating loss (439,063) (29.6) (600,072) (40.1) (677,102) (44.1) Nonoperating revenues 7,023 0.5 36,244 2.4 22,151 1.4 Contributions-connection fees 242,230 16.3 286,466 19.2 316,309 20.6 Capital contributions (1,724) (01) - - 199,214 13.0 Transfers out (65,000) (4.4) (90,000) (6.0) (175,156) (11.4) Change in net position $ (256,534) (17.3) % $ (367,362) (24.5) % $ (314,584) (20.5) Cash and investments $ 4,550,144 $ 5,007,654 $ 5,287,842 Bonds payable $ 1,065,000 $ 905,000 $ 735,000 Sewer Fund Operations Summary $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- $(1,000,000) 2010 2011 2012 ■Operating revenues ■Operatlnff expenses ■Operatlna loss ■Chanize in net position ■Cash and investments TE:I= rm=®IMr IIDEE[J7 C [II E[EErEMA T[T7 [rEEk FPA- Eld = ITFFIl❑❑If ❑Iir❑" ❑fl FFFIJ-❑ Ell= ❑T=E=t❑ FM ElE rFFFFd ==2012 ❑ FM Er FIDIT[1ID=FM FFMA FM Ell FFFITEFFd❑❑Cd MFFA ID IIDFFUEt F"ElD❑Ct 11 Ell EE:1�2 Ell FM2012, 11=FM7"❑d IID=EEI ❑❑d ❑d IIIID=FFTT [III❑ ❑r ❑ELd =C MM r== [Ir ❑ EE[J7 ❑❑d FFIFT❑Et 952.835.9090 • Fax 952.835.3261 www.aemepas.com City of Elk River May 17,2013 Page 1❑ ❑ ater Fund The following is a summary of operations in the Water fund for the past three years 11 2010 2011 2012 Total Percent Total Percent Total Percent Operating revenues ❑ 1,1:4 3,m 100.0 ❑ ❑ 1,02,111 7 100.0 C C 2,2 EF—1 Q 100.0 C Operating expenses 1,ELU0EE 101.❑ 1,❑F:Q7m lOCC 2,1EF— EE3 Operating income(loss) (31,3 (LE (1EU EE:2) (G E) 10C; 1 E7 Nonoperating revenues (expenses) (7qELL) (❑0) (El E22) (0.7 3,30 0.1 Contributions-connection fees 1 EQ7 m ❑1 1 EQ 2i 10.7 17111:07 7.7 Capital contributions 30 q77❑ 11111 - - 21 q FM ❑7 Transfers in 17,A❑ 0.C 312,E23 17.1 - - Transfers out (25,000) (1.3) (25,000) (1.-) (38156) (1.7) Change in net position ❑ 3❑6,6❑ 1❑0 ❑ C 321,112 17.5 ❑ ❑ C62,03 20.5 C Cash and investments ❑ 2,7 13,1 E2 ❑ 2,61 L57 C ❑ 3,25E 530 Bonds payable ❑ COC2,= C 3,635,131 ❑ 3,1 E3,313 ❑ ater Fund Operations Summary 0,500,000 0,000,000 ❑2,500,000 0.,000,000 ❑1,500,000 E1,000,000 1000,000 2010 2011 2012 ■Operating revenues ■Operating expenses ■Cash and investments For more information,see separately issued Elk River Municipal Utilities report. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 16 Electric Fund A comparison of the past three year's Electric fund operations is as follows: 2010 2011 2012 Total Percent Total Percent Total Percent Operating revenues $ 26,792,562 100.0 % $ 28,583,986 100.0 % $ 30,258,690 100.0 % Operating expenses 25,162,191 93.9 26,433,050 92.5 27,350,312 90.4 Operating income 1,630,371 6.1 2,150,936 7.5 2,908,378 9.6 Nonoperating revenues (expenses) (154,956) (0.6) (105,604) (0.4) 28,531 0.1 Transfers in 53,741 0.2 - - - - Transfers out (657,086) (2-5) (711,415) (2.5) (816,864) (2.7) Change in net position $ 872,070 3.2 % $ 1,333,917 4.6 % $ 2,120,045 7.0 % Cash and investments $ 7,311,517 $ 9,104,896 $ 11,370,664 Bonds and notes payable $ 9,376,915 $ 8,723,407 $ 7,974,066 Electric Fund Operations Summary $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 2010 2011 2012 ■Operating revenues ■Operating expenses ■Cash and investments For more information, see separately issued Elk River Municipal Utilities report. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 17 Future Accounting Standard Changes The following Governmental Accounting Standards Board(GASB)Statements have been issued and may have an impact on future City financial statements: GAS❑Statement ❑o FM-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. [low the Changes in This Statement ❑ ill 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. GAS❑Statement ❑o FM-Technical Corrections-an Amendment of GASB Statements No. 10 and No. 62 Summary The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54,Fund Balance Reporting and Governmental Fund Type Definitions,and No. 62,Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement are effective for financial statements for[periods beginning after December 15,2012.Earlier application is encouraged. [low the Changes in This Statement ❑ ill Improve Financial Reporting The requirements of this Statement resolve conflicting accounting and financial reporting guidance that could diminish the consistency of financial reporting and thereby enhance the usefulness of the financial reports. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 18 Future Accounting Standard Changes ❑Continued GAS❑Statement ❑o FM-The Financial Reporting for Pension Plans-an Amendment to GASB Statement No. 25 Summary The objective of this Statement is to improve financial reporting by state and local governmental pension plans.This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information,supporting assessments of accountability and interperiod equity,and creating additional transparency. This Statement replaces the requirements of Statements No.25,Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans,and No. 50,Pension Disclosures,as they relate to pension plans that are administered through trusts or equivalent arrangements(hereafter jointly referred to as trusts)that meet certain criteria. The requirements of Statements No.25 and No.50 remain applicable to pension plans that are not administered through trusts covered by the scope of this Statement and to define contribution plans that provide postemployment benefits other than pensions. This Statement is effective for financial statements for fiscal years beginning after June 15,2013.Earlier application is encouraged. ❑ow the Changes in This Statement ❑ ill Improve Financial Reporting The requirements of this Statement will improve financial reporting primarily through enhanced note disclosures and schedules of required supplementary information that will be presented by the pension plans that are within its scope.The new information will enhance the decision-usefulness of the financial reports of these pension plans,their value for assessing accountability,and their transparency by providing information about measures of net pension liabilities and explanations of how and why those liabilities changed from year to year.The net pension liability information,including ratios,will offer an up-to-date indication of the extent to which the total pension liability is covered by the fiduciary net position of the pension plan.The comparability of the reported information for similar types of pension plans will be improved by the changes related to the attribution method used to determine the total pension liability.The contribution schedule will provide measures to evaluate decisions related to the assessment of contribution rates in comparison to actuarially determined rates,when such rates are determined.In that circumstance,it also will provide information about whether employers and nonemployer contributing entities,if applicable,are keeping pace with actuarially determined contribution measures.In addition,new information about rates of return on pension plan investments will inform financial report users about the effects of market conditions on the pension plan assets over time and provide information for users to assess the relative success of the pension plan[s]investment strategy and the relative contribution that investment earnings provide to the pension plan©ability to pay benefits to plan members when they come due. 952.835.9090 • Fax 952.835.3261 www.aemcpas.com City of Elk River May 17,2013 Page 19 Future Accounting Standard Changes ❑Continued GAS❑Statement ❑o FM-The Accounting and Financial Reporting of Pensions-an Amendment of GASB Statement No. 27 The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions.It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities.This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information,supporting assessments of accountability and interperiod equity,and creating additional transparency. This Statement replaces the requirements of Statement No.27,Accounting for Pensions by State and Local Governmental Employers,as well as the requirements of Statement No. 50,Pension Disclosures,as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements(hereafter jointly referred to as trusts)that meet certain criteria.The requirements of Statements 27 and 50 remain applicable for pensions that are not covered by the scope of this Statement. This Statement is effective for fiscal years beginning after June 15,2014.Earlier application is encouraged. ❑ow the Changes in This Statement ❑ ill Clnprove Financial Reporting The requirements of this Statement will improve the decision-usefulness of information in employer and governmental nonemployer contributing entity financial reports and will enhance its value for assessing accountability and interperiod equity by requiring recognition of the entire net pension liability and a more comprehensive measure of pension expense.Decision- usefulness and accountability also will be enhanced through new note disclosures and required supplementary information. ❑ ❑ ❑ ❑ ❑ This communication is intended solely for the information and use of City 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 17,2013 ABDO,EICK ❑ MEYERS,LLP Minneapolis,Minnesota Certified Public Accountants 952.835.9090 • Fax 952.835.3261 www.aemcpas.com ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER,MINNESOTA FINANCIAL STATEMENTS AND REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA TABLE OF CONTENTS FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 Page No. INTRODUCTORY SECTION Organization 5 FINANCIAL SECTION Independent Auditor's Report 9 Management's Discussion and Analysis 13 Basic Financial Statements Governmental Fund-General Fund Balance Sheets 20 Statements of Revenues,Expenditures and Changes in Fund Balances 21 Fiduciary Funds-Special Pension Trust Fund Statements of Fiduciary Net Position 22 Statements of Changes in Fiduciary Net Position 23 Notes to the Financial Statements 25 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress 35 Schedule of Employer Contribution 35 Notes to Required Supplementary Information 35 COMPLIANCE SECTION Auditor's Report on Legal Compliance 39 -1- INTRODUCTORY SECTION ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 -3- THIS PAGE IS LEFT BLANK INTENTIONALLY -4- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA ORGANIZATION FOR THE YEAR ENDED DECEMBER 31,2012 Board of Trustees Name Title Scott Schmitt President Dave King Vice President Robert Pearson Secretary Joe Libor Treasurer Rich Czech Trustee Keith Thorson Trustee Ex-Officio Trustees Name Title John Dietz Mayor Tim Simon Finance Director T_John Cunningham Fire Chief -5- THIS PAGE IS LEFT BLANK INTENTIONALLY -6- FINANCIAL SECTION ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 -7- THIS PAGE IS LEFT BLANK INTENTIONALLY -8- e - ABDO 601 , I EICI� &� r. 110 ME 1 E LLP Certified Public Accountants & Consultants 5201 Eden Avenue Suite 250 Edina,MIFF 55336 INDEPENDENT AUDITOR'S REPORT Board of Trustees Elk River Fire Relief Association Elk River,Minnesota Report on the Financial Statements 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 ended December 31,2012 and 2011,and the related notes to the financial statements,which collectively comprise the Association's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment,including,the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the Association's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control. Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and significant accounting estimates made by management,as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 31,2012 and 2011,and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America. 952.835.9090 ■ Fax 952.835.3261 www.aemepas.com -9- THIS PAGE IS LEFT BLANK INTENTIONALLY LA Other Matters Change in Accounting Standards As described in Note 8 to the basic financial statements,the Association adopted the provisions of Governmental Accounting Standard Board(GASB)Statement No. 63,Financial Reporting of Deferred Outflows and Resources,Deferred Inflows of Resources, and Net Position and Statement No. 65,Items Previously Reported as Assets and Liabilities, for the year ended December 31,2012. Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial statements. Required Supplementary Information 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 35 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. Supplementary Information in Relation to the Financial Statements as a Whole Our audit 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 or provide any assurance on it. May 1,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Certified Public Accountant 952.835.9090 ■ Fax 952.835.3261 www.aemepas.com -11- 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 31,2012 and 2011. 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 Position(see page 22)and the Statements of Changes in Fiduciary Net Position(see page 23).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 position increased by$195,481 (or 8.6 percent)as a result of the fiscal year's activities. • The contributions from the State and the City decreased$8,557. • Net investment income increased$254,302(or 616.5 percent). • Accrued pension liability increased$11,065(or-0.4 percent). • The General fund balance decreased$2,178(or 55.8 percent).The fund balance of the General fund is$1,727 at year end. -13- Plan Highlights The Plan's funding level increased from 89.0 percent to 96.3 percent. Plan Net Position December 31, 2012 2011 Change Cash and cash equivalents $ 68,696 $ 72,669 $ (3,973) Investments 2,386,412 2,193,006 193,406 Receivables 1,203 2,383 (1,180) Total additions 2,456,311 2,268,058 188,253 Accounts payable - 7,228 (7,228) Assets held in trust for pension benefits $ 2,456,311 $ 2,260,830 $ 195,481 For the current fiscal year 2012 there is a net increase of$195,481 from the previous fiscal year 2011.The previous fiscal year 2011 had a net increase of$71,382 from fiscal year 2010. Changes in Plan Net Position The following comparative summary of the changes in net assets reflects the activities of the Plan: December 31 2012 2011 Change Revenues Contributions $ 148,465 $ 157,022 $ (8,557) Miscellaneous income 196 200 (4) Net investment earnings 234,743 (18,153) 252,896 Less investment fees (21,688) (23,094) 1,406 Total revenues 361,716 115,975 245,741 Expenditures 166,235 44,593 121,642 Change in net position 195,481 71,382 124,099 Net position-January 1 2,260,830 2,189,448 71,382 Net position- December 31 $ 2,456,311 $ 2,260,830 $ 195,481 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. -14- Plan Membership The following table reflects the Association's Plan membership as of the beginning and ending of the year: December 31, Increase 2012 2011 (Decrease) Active participants Vested Fully 10 11 (1) Partially 23 21 2 Non-vested(less than 5 years of service) 3 6 (3) Deferred Members 3 3 - Total Membership 39 41 (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 years. -15- Funding Year Assets Liabilities Percentage 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 2012 2,456,311 2,551,430 96.3 Six Years Funding Progress $2,900,000 $2,700,000 $2,550,808 $2,540,365 $2,551,430 IML $2,500,000 114.7% $2,392,353 $2,398,067 $2,300,000 96.3% $2,100,000 /87.2% 89.0% $2,110,264 91.3% $1,900,000 $1,700,000 70.9% $1,500,000 2007 2008 2009 2010 2011 2012 Assets (Liabilities -16- Asset Allocation The following table and graph indicates the asset allocation for December 31,2012 and 2011. December 31, 2012 2011 Cash and CD's $ 68,696 2.8 % $ 72,669 3.2 % Broker money market 196,744 8.0 248,604 11.0 Domestic stock 1,172,719 47.8 1,236,456 54.5 Mutual funds 1,016,949 41.4 707,946 31.3 Total cash and investments $ 2,455,108 100.0 % $ 2,265,675 100.0 % Cash and CD's Broker money market 2.8% 8.0% Mutual funds 41.4% Domrestic stock 47.8% Investment Activities 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. -17- THIS PAGE IS LEFT BLANK INTENTIONALLY -18- FINANCIAL STATEMENTS ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 -19- ELK RIVER FIRE RELIEF ASSOCIATION,MINNESOTA ELK RIVER,MINNESOTA BALANCE SHEETS GOVERNMENTAL FUND-GENERAL FUND DECEMBER 31,2012 AND 2011 General Fund 2012 2011 ASSETS Cash and cash equivalents $ 1,727 $ 3,905 FUND BALANCES Unassigned $ 1,727 $ 3,905 The notes to the financial statements are an integral part of this statement. -20- ELK RIVER FIRE RELIEF ASSOCIATION,MINNESOTA ELK RIVER,MINNESOTA STATEMENTS OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUND-GENERAL FUND FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 General Fund 2012 2011 REVENUES Donations $ 6,565 $ 12,660 Fundraising events - 8,846 TOTAL REVENUES 6,565 21,506 EXPENDITURES Conventions and meetings 603 275 Dues 22 278 Relief events 7,410 7,417 Fundraising - 10,287 Other 708 31 TOTAL EXPENDITURES 8,743 18,288 NET CHANGE IN FUND BALANCES (2,178) 3,218 FUND BALANCES,JANUARY 1 3,905 687 FUND BALANCES,DECEMBER 31 $ 1,727 $ 3,905 The notes to the financial statements are an integral part of this statement. -21- ELK RIVER FIRE RELIEF ASSOCIATION STATEMENTS OF FIDUCIARY NET POSITION FIDUCIARY FUND-SPECIAL PENSION TRUST FUND DECEMBER 31,2012 AND 2011 Special Pension Trust Fund 2012 2011 ASSETS Cash and cash equivalents $ 68,696 $ 72,669 Investments 2,386,412 2,193,006 Receivables Interest 203 763 State of Minnesota 1,000 1,620 TOTAL ASSETS 2,456,311 2,268,058 LIABILITIES Accounts payable - 7,228 NET POSITION Held in trust for pension benefits $ 2,456,311 $ 2,260,830 The notes to the financial statements are an integral part of this statement. -22- ELK RIVER FIRE RELIEF ASSOCIATION STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUND-SPECIAL PENSION TRUST FUND FOR THE YEARS ENDED DECEMBER 31,2012 AND 2011 Special Pension Trust Fund 2012 2011 ADDITIONS Contributions State of Minnesota $ 117,465 $ 116,902 10%supplemental reimbursement 1,000 1,620 City of Elk River 30,000 38,500 Miscellaneous income 196 200 Total contributions 148,661 157,222 Investment earnings(losses) Interest and dividends 76,041 72,988 Appreciation(depreciation)in investments 158,702 (91,141) Less investment fees (21,688) (23,094) Total investment earnings(losses) 213,055 (41,247) TOTAL ADDITIONS 361,716 115,975 DEDUCTIONS Benefits Pension benefits 154,154 34,517 Administrative expenses Salaries 3,255 3,255 Professional fees 6,850 6,490 Bond 315 331 Miscellaneous 1,661 - TOTAL DEDUCTIONS 166,235 44,593 CHANGE IN NET POSITION 195,481 71,382 NET POSITION,JANUARY 1 2,260,830 2,189,448 NET POSITION,DECEMBER 31 $ 2,456,311 $ 2,260,830 The notes to the financial statements are an integral part of this statement. -23- THIS PAGE IS LEFT BLANK INTENTIONALLY -24- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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 31,2012 and 2011,membership data related to the Association were: 2012 2011 Retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them 3 3 Active plan participants Vested Fully 10 11 Partially 23 21 Nonvested 3 6 Total 39 41 -25- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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 Non-forfeitable percentage of service of pension amount 5 40% 6 44 7 48 8 52 9 56 10 60 11 64 12 68 13 72 14 76 15 80 16 84 17 88 18 92 19 96 20 and thereafter 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. -26- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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 fund 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 Special Pension Trust 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. -27- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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 Association 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. -28- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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. -29- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 Note 3: DETAILED NOTES ON ACCOUNTS-CONTINUED Following is a summary of the deposits covered by FDIC insurance at December 31,2012 and 2011: 2012 Fund Book Bank General $ 1,727 $ 1,983 Special Pension Trust 68,696 68,696 Total $ 70,423 $ 70,679 2011 Fund Book Bank General $ 3,905 $ 3,905 Special Pension Trust 72,669 72,669 Total $ 76,574 $ 76,574 Investments 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) 2012 2011 Pooled investments Broker money market N/A N/A less than 6 mo. $ 196,744 $ 248,604 Mutual funds N/A N/A N/A 1,016,949 707,946 Total pooled investments 1,213,693 956,550 Non-pooled investments Domestic stock N/A N/A N/A 1,172,719 1,236,456 Total investments $ 2,386,412 $ 2,193,006 (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. -30- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 Note 3: DETAILED NOTES ON ACCOUNTS-CONTINUED The Association's investments are subject to the following risks: • Credit Risk.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 common 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 party. • 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: Minimum Maximum Asset Class Percentage Percentage Stocks 25% 75% Bonds 0% 50% Non-fluctuating share value 0% 10% Cash 0% 10% Note 4: FUNDING STATUS AND PROGRESS 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 fmancial 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. -31- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 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$117,465 and$116,902 plus an additional supplemental benefit amount of$1,000 and$1,620 was made by the State in accordance with Minnesota statute for the years ended December 31,2012 and 2011, respectively.A required contribution of$29,818 and$38,490 was made by the City for the years ended December 31,2012 and 2011,respectively. There was also a voluntary contribution of$182 and$10 made by the City for the years ended December 31,2012 and 2011,respectively. 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: EVALUATION OF SUBSEQUENT EVENTS The Organization has evaluated subsequent events through May 1,2013,the date which the financial statements were available to be issued. Note 8: ACCOUNTING CHANGE Governmental Accounting Standard Board(GASB)Statement No. 63,Financial Reporting of Deferred Outflows of Resources,Deferred Inflows of Resources, and Net Position, will improve financial reporting by the presentation of deferred outflows of resources and deferred inflows of resources and their effects on the Association's net position. GASB Statement No. 65,Items Previously Reported as Assets and Liabilities, will improve financial reporting by clarifying the appropriate use of the financial statement elements deferred outflows of resources and deferred inflows of resources to ensure consistency in financial reporting. The Association implemented these standards for the fiscal year ended December 31,2012. The Association enters into transactions that result in the consumption or acquisition of assets in one period that are applicable to future periods. These consumptions or acquisitions are deferred outflows of resources and deferred inflows of resources and are distinguished from assets and liabilities. Net position is the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. The Statement of Net Position(renamed from the Statement of Net Assets)is presented in a format that shows assets,plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position. -32- REQUIRED SUPPLEMENTARY INFORMATION ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2012 -33- THIS PAGE IS LEFT BLANK INTENTIONALLY -34- ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31,2012 A. Schedule of funding progress Assets in Excess of Actuarial Actuarial Actuarial (Unfunded) Benefit Valuation Value of Accrued Accrued Funded per Year Date Assets Liability Liability Rate of Service 12/31/12 $ 2,456,311 $ 2,551,430 $ (95,119) 96.3 % $ 5,091 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 B. Schedule of employer contributions Annual Percentage Year Pension of APC Ending Cost Contributed 12/31/12 $ 148,465 100.0 % 12/31/11 157,022 100.0 12/31/10 131,255 100.0 12/31/09 127,024 100.0 12/31/08 143,999 100.0 12/31/07 159,023 100.0 C. Notes to supplementary information Valuation date 12/31/12 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 -35- THIS PAGE IS LEFT BLANK INTENTIONALLY -36- COMPLIANCE SECTION ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2012 -37- THIS PAGE IS LEFT BLANK INTENTIONALLY -38- MuABDO �'. EICK & � t e,A _ 1VI URSLLP CQrttfW Public Accountants & Consultants 5201 Eden Avenue Suite 250 Edina,MN 55436 AUDITOR'S REPORT ON 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 Elk River Fire Relief Association(the Association)as of and for the years ended December 31,2012 and 2011,and have issued our report thereon dated, May 1,2013. 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 Political Subdivisions,promulgated by 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 Political Subdivisions covers three 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,the 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. 4wj4WILy 014k&�. 4 May 1,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Certified Public Accountants 952.835.9090 ■ Fax 952.855.3261 www.acmepas.com -39- 4 13 ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER, MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED 27 DECEMBER 31, 2012 A i 5 4 I4 tA 1 ABDO 4 EICK & HEYERSUP • i Certified Public Accountants & Consultants ELK RIVER FIRE RELIEF ASSOCIATION ELK RIVER,MINNESOTA MANAGEMENT LETTER FOR THE YEAR ENDED DECEMBER 31, 2012 � : MBDO �i. EICK & � t 1VI URSLLP Certified Pubhe Accountants & Consultants May 1,2013 5201 Fden Avenue Suite 250 Edina,NIN 55436 Board of Trustees and Plan Participants Elk River Fire Department Relief Association Elk River,Minnesota 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 31,2012 and 2011,and have issued our report thereon dated May 1,2013.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 audits to obtain reasonable,but not absolute,assurance that the financial statements are free of material misstatement.As part of our audits,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 planning and performing our audits of the financial statements of the Association for the years ended December 31,2012 and 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.We did not identify any deficiencies in internal control that we consider to be significant deficiencies. 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.&35.9090 • Fax 952.935.3261 www.aemcpes.com Elk River Fire Department Relief Association May 1,2013 M id 7M Page 2 c0 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 statements No. 63 and 65 were adopted for the year ended December 31,2012.We noted no transactions entered into by the Association 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 communicate 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 1,2013. 952.835.9090 • Fax 952.835.3261 w ww.aemcpas.coin Elk River Fire Department Relief Association May 1,2013 M id 7M Page 3 c0 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 31,2012. Investment Return A summary of the investment rate of return is summarized below: Assets Total Held in Investment Trust for Investment Interest Investment Appreciation Income Pension Rate of Year and Dividends Fees (Depreciation) (loss) Benefits Return 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 16,484 142,240 177,140 2,189,448 8.0 2011 72,988 23,094 (91,141) (41,247) 2,260,830 (1.9) 2012 76,041 21,688 158,702 213,055 2,456,311 9.0 Investment Rate of Return 40.00% 30.00% 22.5% 20.00% 10.00% 8-0% 9.00/0 (10.00%) (1-90/0) (20.00%) (30.00%) (33.1%) (40.00%) (50.00%) 2008 2009 2010 2011 2012 952.835.9090 • Fax 952.835.3261 w ww.aemcpas.coin Elk River Fire Department Relief Association May 1,2013 M id 7M Page 4 c0 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 60 relief associations. Averages Calculation 2008 2009 2010 2011 2012 Average rate of returns Net investment income/ (33.1%) 22.5% 8.0% (1.9%) 9.0% average assets (22.001.) 14.7% 8.1% (0.8%) Percentage funded Assets/accrued liability 70.9% 87.2% 91.3% 89.0% 96.3% 83.2% 91.6% 99.3% 98.2% 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 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% 22.5% 20.0% 8.1% 10.0% 14.7% o (0.8%) 9.0% 8 (10.0%) (1.90/0) (22.0%) (20.0%) or (30.0%) (40.0%) (33.1%) 2008 2009 2010 2011 2012 tAssociation rate (Peer group average 952.835.9090 • Fax 952.835.3261 w ww.aemcpas.corn Elk River Fire Department Relief Association May 1,2013 M id 7M Page 5 c0 Funding Percentage The funding percentage is calculated by taking the Special fund 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. 130.0% 120.0% 110.0% 99.3% 98.2% 100.0% 83.2% 91.6% 90.0% 91.3% 89.0% 963% 80.0% 872% 70.0% 70.9% 60.0% 50.0% 2008 2009 2010 2011 2012 tAssociation percent (Peer group average 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. OL'&&)L�"1 U? May 1,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Certified Public Accountants 952.835.9090 • Fax 952.835.3261 w ww.aemcpas.com