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6.1. SR 06-06-2016Request for Action To Item Number Mayor and City Council 6.1 Agenda Section Meeting Date Prepared by Presentations, Awards, June 6, 2016 Lori Ziemer, Interim Finance Director and Recognition Item Description Reviewed by Comprehensive Annual Financial Report for the Cal Portner, City Manager Year Ended December 31, 2015 Reviewed by Action Requested Approve, by motion, the Comprehensive Annual Financial Report for the City of Elk River for the year ended December 31, 2015 Background/Discussion The city is required to have an annual independent audit of its financial statements in which the audit firm issues an opinion on the financial statements. For fiscal year 2015, GASB Statement No. 68 was implemented requiring governments to report their proportionate share of public pension liabilities and expenses on their government -wide financial statements. Andrew Berg, Governmental Services Partner with Abdo, Eick, & Meyers will present the 2015 Comprehensive Annual Financial Report (CAFR) and the audit results. The presentation of the CAFR will review the General Fund, some of the Special Revenue funds and all of the Enterprise funds and is summarized in the City of Elk River Management Letter. The Fire Relief report will be briefly discussed, as a formal presentation was made at the board meeting on June 1. Financial Impact N/A Attachments ■ City of Elk River Management Letter ■ Comprehensive Annual Financial Report for the year ended December 31, 2015 ■ Other Required Report (Legal Compliance) AR 11 JEYE W LLP Certified Public Accountants & Consultants I -r ri ocess. Goi g a Be )ndthe Nl]1T]bers M ABDO kMR (i.SICK & iir� ME 1 lel W LLP Ortified Public Accountants & Consultants May 18, 2016 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, 2015. 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 December 8, 2015. 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 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. 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 In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. 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 a 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. A significant deficiency is a deficiency, or a 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 5201 Eden Avenue, Suite 250 Edina, MN 55436 -1- 952.835.9090 1 Fax 952.835.3261 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, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. 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. As described in Note 9 to the financial statements, the City changed accounting policies related to accounting and financial reporting for pensions by adopting Statement of Governmental Accounting Standards (GASB) Statements No. 68 and 71 in 2015. Accordingly, the cumulative effect of the accounting change as of the beginning of the year is disclosed in Note 9. 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, allocation of payroll and compensated absences, the liability for other postemployment benefits, and the liability for the City's pensions. • Management's estimate of depreciation is based on estimated useful lives of the assets. Depreciation is calculated using the straight-line method. • Allocations of gross wages and payroll benefits are approved by City Council within the City's budget and are derived from each employee's estimated time to be spent servicing the respective functions of the City. These allocations are also used in allocating accrued compensated absences payable. • 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. • Management's estimate of its pension liability is based on several factors including, but not limited to, anticipated investment return rate, retirement age for active employees, life expectancy, salary increases and form of annuity payment upon retirement. o The allocation of the pension liability related to Minnesota Public Employee Retirement Association (PERA) is based on the City's proportionate share of employer contributions to the PERA cost-sharing multiple employer Coordinated pension plan. We evaluated the key factors and assumptions used to develop these accounting estimates 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. People + Process -2- Going Beyondthe Nurribers Management Representations We have requested certain representations from management that are included in the management representations letter dated May 18, 2016. 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 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. Other Matters We applied certain limited procedures to the required supplementary information (RSI) (Management's Discussion and Analysis, the Schedules of Employer's Share of the Net Pension Liability, the Schedules of Employer's Contributions, the Schedule of Changes in Net Pension Liability (Asset) and Related Ratios, and the Schedule of Funding Progress for Other Postemployment benefit plans), which is information that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplementary information (combining and individual fund financial statements and schedules), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory section and statistical section, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on them. -3- People +Process® Going Beyondthe Nuiiibers 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, 2015. General Fund The General fund is used to account for resources traditionally associated with government, which are not required legally or by sound principal management to be accounted for in another fund. The General fund balance increased $401,196 from 2014. The fund balance of $6,564,798 is 47.3 percent of the 2016 budgeted expenditures. The total fund balance and percent of the 2015 budgeted expenditures is split between nonspendable $23,676 (0.2 percent), restricted $7,000 (0.1 percent) committed $376,943 (2.9 percent) and unassigned $6,157,179 (47.9 percent). In addition, the City's fund balance policy for the General fund identified a target 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 as illustrated on the following page. Some of 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. • 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. -4- People +Process® Going Beyondthe Nuiiibers A table summarizing the General fund balance in relation to the following years' original budget follows: $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 Fund Balance as a Percent of Next Year's Budget 2013 2014 2015 2016 � Unassigned Fund Balance � Assigned Fund Balance Committed Fund Balance �Nonspendable Fund Balance (Budget People 1 n_ - ----o dthe -5- Nurtlbers 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 2013 $ 6,054,290 $ 5,791,725 2014 $ 12,870,500 47.0 % 45.0 % 2014 6,163,602 5,822,948 2015 13,312,800 46.3 43.7 2015 6,564,798 6,157,179 2016 13,884,800 47.3 44.3 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 Fund Balance as a Percent of Next Year's Budget 2013 2014 2015 2016 � Unassigned Fund Balance � Assigned Fund Balance Committed Fund Balance �Nonspendable Fund Balance (Budget People 1 n_ - ----o dthe -5- Nurtlbers The 2015 General fund operations are summarized as follows: Revenues Expenditures Deficiency of revenues under expenditures Other financing sources (uses) Transfers in Transfers out Total other financing sources (uses) Final Budgeted Actual Variance with Amounts Amounts Final Budget $ 11,748,550 $ 11,819,999 $ 71,449 (1,433,500) (1,032,304) 401,196 1,684,650 1,684,650 - (251,150) (251,150) - 1,433,500 1,433,500 - Net change in fund balances - 401,196 401,196 Fund balances, January 1 6,163,602 6,163,602 - Fund balances, December 31 $ 6,163,602 $ 6,564,798 $ 401,196 The City amended the General fund budget during the year. The amendment resulted in an increase of revenues ($120,400) and expenditures ($120,400). The final budget called for a net zero change in fund balance. Actual change in fund balance was an increase of $401,196. Overall actual results were very close to final budgeted amounts with both revenues and expenditures have a total variance of less than 3 percent. The largest line item variance was within public safety which was under budget by $235,129. People 1 n_ - ----o dthe -6- Ntuiibers A comparison between 2013, 2014 and 2015 revenues and transfers is presented below: A graphical presentation of 2013, 2014, and 2015 revenues and transfers follows: $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2013 2014 2015 ■ Taxes ■ Intergovernmental ■ Charges for services ■Other • The increase for transfers in over the past three years is the result of increased amounts transferred from the Liquor and Electric enterprise funds. People ,n Beyondthe -7- Nurrlbers Percent of Source 2013 2014 2015 Total Per Capita Taxes $ 9,264,268 $ 9,391,373 $ 9,648,215 73.6 % $ 404 Licenses and permits 513,779 559,286 639,791 4.1 27 Intergovernmental 557,990 286,851 297,669 2.1 12 Charges for services 740,756 816,556 867,211 6.0 36 Fines and forfeits 122,985 128,131 153,344 0.9 6 Interest income 84,214 48,957 79,741 0.4 3 Miscellaneous 87,482 127,392 134,028 0.9 6 Transfers in 1,216,000 1,625,550 1,684,650 12.0 71 Total revenues and transfers $ 12,587,474 $ 12,984,096 $ 13,504,649 100.0 % $ 565 A graphical presentation of 2013, 2014, and 2015 revenues and transfers follows: $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2013 2014 2015 ■ Taxes ■ Intergovernmental ■ Charges for services ■Other • The increase for transfers in over the past three years is the result of increased amounts transferred from the Liquor and Electric enterprise funds. People ,n Beyondthe -7- Nurrlbers A comparison between 2013, 2014 and 2015 expenditures and transfers is presented below: A graphical presentation of 2013, 2014 and 2015 expenditures and transfers follows: $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2013 2014 2015 ■ General government ■ Public safety ■ Public works ■ Other People ,n Beyondthe -g- Numbers Percent of Per Program 2013 2014 2015 Total Capita General government $ 2,846,579 $ 3,033,392 $ 3,141,666 23.9 % $ 132 Public safety 5,468,765 5,790,772 6,060,771 46.4 254 Public works 2,279,059 1,929,210 1,827,323 13.9 77 Culture and recreation 1,619,679 1,810,291 1,822,543 13.9 76 Capital outlay 101,573 10,900 - - - Transfers out 422,843 300,219 251,150 1.9 11 Total expenditures and transfers $ 12,738,498 $ 12,874,784 $ 13,103,453 100.0 % $ 550 A graphical presentation of 2013, 2014 and 2015 expenditures and transfers follows: $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2013 2014 2015 ■ General government ■ Public safety ■ Public works ■ Other People ,n Beyondthe -g- Numbers 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 Nonmaj or Library Ice Arena Landfill Revolving Loan Federal DEED State DEED Development Fund Insurance Reserve Drug Forfeiture Reserve YMCA Grant Economic Development Authority Total The above fund balance classification in total is as follows: Fund balances - nonmajor special revenue funds Nonspendable Restricted Committed Assigned Total -9- Fund Balances December 31, 2014 2015 $ 425,469 315,839 1,312,523 1,216,698 198,272 409,891 1,371,113 268,013 28,208 384,140 683,774 $ 6,613,940 $ 415,778 270,407 1,228,521 1,238,153 200,000 412,728 3,218,469 284,245 13,824 137,268 1,185,064 $ 8,604,457 Increase (Decrease) $ (9,691) (45,432) (84,002) 21,455 1,728 2,837 1,847,356 16,232 (14,384) (246,872) 501,290 $ 1,990,517 $ 103,295 1,812,499 5,329,017 1.359.646 $ 8,604,457 People +Process® t'o Beyo dthe Nurrlbers Debt Service Funds Debt Service funds are a type of governmental fund to account for the accumulation of resources for the payment of interest and principal on debt (other than enterprise fund debt). Debt Service funds may have one or a combination of the following revenue sources pledged to retire debt as follows: • Property taxes - Primarily for general City benefit projects such as parks and municipal buildings. Property taxes may also be used to fund special assessment bonds which are not fully assessed. • Tax increments - Pledged exclusively for tax increment/economic development districts. • Capitalized interest portion of bond proceeds - After the sale of bonds, the project may not produce revenue (tax increments or special assessments) for a period of one to two years. Bonds are issued with this timing difference considered in the form of capitalized interest. • Special assessments - Charges to benefited properties for various improvements. In addition to the above pledged assets, other funding sources may be received by Debt Service funds as follows: • Residual project proceeds from the related capital projects fund • Investment earnings • State or federal grants • Transfers from other funds All Debt Service funds with the total assets and debt remaining to be paid are shown below: People Be o dthe -10- Ntuiibers Cash and Cash Bonds Outstanding Final Temporary with Fiscal Total Source of payment Maturity Debt Service Fund Investments Agent Assets City Fiscal Agent Date Improvement Bonds $ 247,796 $ - $ 486,952 2012B G.O. Improvement Refunding Bonds $ 900,000 $ - 02/01/18 Government Building Bonds 782,583 - 792,665 2006C G.O. Capital Improvement Bonds 2,260,000 - 02/01/27 2010A G.O. Capital Improvement Bonds 3,985,000 - 02/01/23 2012A G.O. Capital Improvement Bonds 6,390,000 - 02/01/33 YMCA Bonds 467,829 9,423,440 9,897,147 2007D EDA G.O. Bonds 775,000 9,225,000 02/01/17 2013A EDA G.O. Refunding Bonds 9,685,000 - 02/01/33 Total Debt Service Funds $ 1,498,208 $ 9,423,440 $11,176,764 $23,995,000 $ 9,225,000 Total interest payments $ 5,130,460 $ 338,456 As a result of the 2013A Refunding Bonds issued within the YMCA Bonds fund, $9,423,440 of cash is held in escrow which will be used to pay principal and interest on a portion of the debt until $9,225,000 is called on the 2007D Bonds in 2017. People Be o dthe -10- Ntuiibers The annual debt service requirements for the next 10 years for the debt detailed on the previous page are as follows: $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ■ Principal ■ Interest ■ P&I Paid by Escrow Capital Projects Funds The fund balances of all capital projects funds are summarized below: Capital Projects Fund Major Tax Increment Financing Districts Pavement Management Total major Nonmaj or Capital Reserve Equipment Replacement Park Dedication Park Improvements Government Buildings GRE Reserve Street Improvements Improvement Projects Total nonmajor Fund Balances December 31, 2014 2015 Increase (Decrease) $ (1,250,359) $ (1,540,086) $ (289,727) 2,330,519 2,770,934 440,415 1,080,160 1,230,848 150,688 1,300,402 973,371 (327,031) 743,405 690,297 (53,108) (476,669) (489,674) (13,005) 140,656 366,170 225,514 3,857,503 3,859,536 2,033 2,547,602 2,755,002 207,400 1,959,985 1,878,713 (81,272) 4,450,622 3,746,418 (704,204) 14,523,506 13,779,833 (743,673) Total $ 15,603,666 $ 15,010,681 $ (592,985) 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 deficit fund balances at the end of the year. The deficits will be eliminated by future tax increment revenues and park People dedication fees. City Council should continue to review planned project sources for these funds and consider +Process® whether they will be available within a sufficient timeframe to cover current activity. Be 6 Uthe -11- Numbers Enterprise Funds The activities of the Enterprise funds include the municipal liquor, garbage, sewer, storm water, 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: 2013 2014 2015 Sales Cost of sales Gross profit Operating revenues Operating expenses Operating income Nonoperating Total Percent Total Percent $ 6,753,521 100.0 % (4,705,979) (69.7) 2,047,542 30.3 3,060 - (1,000,781) (14.8) 1,049,821 15.5 $ 6,823,719 100.0 % (4,750,195) (69.6) 2,073,524 30.4 1,623 - (1,026,678) (15.0) 1,048,469 15.4 Total Percent $ 6,972,614 100.0 % (4,905,302) (70.4) 2,067,312 29.6 1,722 - (1,039,824) (14.9) 1,029,210 14.7 revenues (expenses) (87,003) (1.3) 105,639 1.5 35,687 0.5 Transfers out (672,289) (10.0) (685,060) (10.0) (689,718) (9.9) Change in net position $ 290,529 4.2 % $ 469,048 6.9 % $ 375,179 5.3 Municipal Liquor Fund Cash Balance $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 2013 2014 2015 Unrestricted —*--Minimum target balance (one year of operating expenses) Cash continues to remain strong in relation to operations. The increase in cash for 2015 was a result of net cash provided by operations of $906,743 and cash provided by investing activities of $33,668 exceeding transfers out of $689,718. -12- People i D-:----- Be dthe Numbers 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, 2014. The statewide averages for all operations are summarized below. $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Municipal Liquor Fund Operations Summary Sales, $6,753,521 Sales, $6,823,719 Sales, $6,972,614 1: GP 30.3% GP 30.4% GP 29.6% - 14.2% 16.9% 15.2% 2013 2014 2015 Gross profit Cost of sales ♦ Sales (Operating expenses -I--hlcome before transfers Sales increased consecutively the past three years, while gross profit and operating income decreased slightly in 2015. The gross profit percent of the City for the last three years of 30.3 - 29.6 percent remains above the state-wide average. Also, the City's percentage of income before transfers of 14.2, 16.9, and 15.2 for 2013, 2014, and 2015, respectively, is significantly above the statewide averages. People BIXIS e dthe -13- Nurrlbers Off Sale 2012 2013 2014 Percent Percent Percent of Sales of Sales of Sales Sales 100.0 % 100.0 % 100.0 % Cost of sales 74.2 74.0 73.9 Gross profit 25.8 26.0 26.1 Operating expenses 16.5 16.9 17.1 Operating income 9.3 9.1 9.0 Nonoperating revenue (expense) (02) (03) 0.0 Income before transfers 9.1 % 8.8 % 9.0 % Source: Analysis of Municipal Liquor Store Operations, for the year ended December 31, 2014. Published by the Minnesota Office of the State Auditor $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Municipal Liquor Fund Operations Summary Sales, $6,753,521 Sales, $6,823,719 Sales, $6,972,614 1: GP 30.3% GP 30.4% GP 29.6% - 14.2% 16.9% 15.2% 2013 2014 2015 Gross profit Cost of sales ♦ Sales (Operating expenses -I--hlcome before transfers Sales increased consecutively the past three years, while gross profit and operating income decreased slightly in 2015. The gross profit percent of the City for the last three years of 30.3 - 29.6 percent remains above the state-wide average. Also, the City's percentage of income before transfers of 14.2, 16.9, and 15.2 for 2013, 2014, and 2015, respectively, is significantly above the statewide averages. People BIXIS e dthe -13- Nurrlbers The results of the operations within the remaining enterprise funds in terms of cash flow and the breakdown of the cash balances for the past four years are as follows: $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $(200,000) $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Garbage Fund Cash Flow 2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts Disbursements Disbursements Disbursements Disbursements ■ Operating costs ■ Other (interfund) ■ Operating receipts ■ Other (interfund, interest) Garbage Fund Cash Balance 2012 2013 2014 2015 Unrestricted (Minimum target balance (6 months of operating expenses) 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. Some of the items with significant changes are highlighted below: • Operating receipts (blue) were not sufficient to cover operating costs (grey) for the first time in the prior four years presented. The effect of this can be seen in the decrease in cash balance ($54,964) in 2015. People Be o dthe -14- Nurrlbers $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 Sewer Fund Cash Flow 2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts Disbursements Disbursements Disbursements Disbursements $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $ 6,000,000 $4,000,000 $2,000,000 ■ Operating costs Debt payments (including related transfers) ■ Other (capital, interfund) Operating receipts ■ Other (connection fees, interest, bond proceeds, grants) Sewer Fund Cash Balance 2012 2013 2014 2015 Unrestricted (Minimum target balance (following year debt service plus 6 months of operating expenses) 2012 2013 2014 2015 Bonds payable $ 735,000 $ 560,000 $ 10,000,000 $ 10,000,000 • Except for 2013, operating receipts (blue) have been sufficient to cover operating costs (grey) and debt payments (green) for each of the years shown above. • Acquisition of capital assets in 2015 totaled $10,820,930, related to the construction of a new Wastewater Treatment Plant. People We recommend that the rates be reviewed annually to ensure that they are sufficient to cover operating costs, +Process® annual scheduled debt payments, and planned project costs. Going -15- Nurrlbers $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Storm Water Fund Cash Flow 2015 Disbursements 2015 Receipts ■ Operating costs ■ Capital outlay ■ Operating receipts ■ Other (transfers in, interest) Storm Water Fund Cash Balance 2015 Unrestricted (Minimum target balance (6 months of operating expenses) The City created the Storm Water fund in 2015 to account for activities of the City's storm water collection system. • Operating receipts (blue) were sufficient to cover operating costs (grey) in the funds first year of operation. • A transfer in of $280,762 was completed in 2015 to assist with the start-up of the fund. • Acquisition of capital assets totaled $177,821 in 2015. The City should continue to monitor operations and rates as the fund matures to ensure all operating and capital expenses are covered. People Be o dthe -16- Numbers $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Water Fund Cash Flow 2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts Disbursements Disbursements Disbursements Disbursements ■ Operating costs ■Debt payments ■ Other (capital, interfund, etc.) ■ Operating receipts ■ Other (interest, connection fees, etc.) $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 Water Fund Cash Balance $3,681,481 $3,390,879 $4,367,165 2012 2013 2014 2015 Unrestricted (Unrestricted designated reserve* * Unrestricted Designated Reserve: This reserve is established to address the short-term financial variability inherent in operating a Water Utility. Potential sources of this variability include but are not limited to: risks associated with natural disasters, reduction in overall customer usage, changes in total system usage resulting from the actions of large customers, failure to achieve budgeted levels of net income, changes in interest income, and general operational exposures. The target level for this reserve, included as the red line in the chart above, is 6 months operating expenditures less depreciation plus the sum of next year's total principal and interest payments. The balance above this target level shall be unrestricted. For more information, see separately issued Elk River Municipal Utilities report. -17- People + Prnre�.� m t pmg aa Beyo lithe Numbers $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 Electric Fund Cash Flow 2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts Disbursements Disbursements Disbursements Disbursements ■ Operating costs ■Debt payments ■ Other (capital, interfund, etc.) ■ Operating receipts ■Other (interest, interfund, etc.) $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 Electric Fund Cash Balance $13,175,626 $11,370,664 $12,057,293 $12,097,110 2012 2013 2014 2015 Unrestricted Restricted for debt service (bond covenents) (Unrestricted designated reserve* * Unrestricted designated reserve: established to address the short-term financial variability inherent in operations. Potential sources of this variability include risks associated with natural disasters, reduction in overall customer usage, changes in total system usage resulting from the actions of large customers, failure to achieve budgeted levels of net income, changes in interest income, and general operational exposures. The target level for this reserve, included as the red line in the chart above, is the sum of six months operating expenditures less depreciation and less purchase power costs, plus the sum of next year's total principal and interest payments, plus one month budgeted average purchase power cost. The balance above this target level shall be unrestricted. People For more information, see separately issued Elk River Municipal Utilities report. Peopl PSS® -18- t,pmg aa Beyo lithe Nurribers 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: (1) GASB Statement No. 72 - Fair Value Measurement and Application Summary This statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. Effective Date and Transition The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. This Statement also will enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government's financial position. GASB Statement No. 73 - Accounting and financial reporting for pension and related assets that are not within the scope of GASB Statement No. 68, and amendments to certain provisions of GASB Statements No. 67 and No. 68 Summary The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision -useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement 68 for pension plans and pensions that are within their respective scopes. The requirements of this Statement extend the approach to accounting and financial reporting established in Statement 68 to all pensions, with modifications as necessary to reflect that for accounting and financial reporting purposes, any assets accumulated for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in Statement 68 should not be considered pension plan assets. It also requires that information similar to that required by Statement 68 be included in notes to financial statements and required supplementary information by all similarly situated employers and nonemployer contributing entities. This Statement also clarifies the application of certain provisions of Statements 67 and 68 with regard to the following issues: 1. Information that is required to be presented as notes to the 10 -year schedules of required supplementary information about investment -related factors that significantly affect trends in the amounts reported. 2. Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions. People 3. Timing of employer recognition of revenue for the support of nonemployer contributing entities not in +process® a special funding situation. Going Beyondthe -19- Ntuiibers Future Accounting Standard Changes - Continued Effective Date and Transition The requirements of this Statement that address accounting and financial reporting by employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68 are effective for financial statements for fiscal years beginning after June 15, 2016, and the requirements of this Statement that address financial reporting for assets accumulated for purposes of providing those pensions are effective for fiscal years beginning after June 15, 2015. The requirements of this Statement for pension plans that are within the scope of Statement 67 or for pensions that are within the scope of Statement 68 are effective for fiscal years beginning after June 15, 2015. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will improve financial reporting by establishing a single framework for the presentation of information about pensions, which will enhance the comparability of pension -related information reported by employers and nonemployer contributing entities. GASB Statement No. 74 - Financial Reporting for Postemployment Benefit Plans Other than Pension Plans Summary The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision -useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple -Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. The scope of this Statement includes OPEB plans -defined benefit and defined contribution -administered through trusts that meet the following criteria: • Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. • OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. • OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members. This Statement also includes requirements to address financial reporting for assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria. Effective Date and Transition This Statement is effective for financial statements for fiscal years beginning after June 15, 2016. Earlier application is encouraged. People +Process® -20- Goin' g Beyondthe Numbers Future Accounting Standard Changes - Continued How the Changes in This Statement Will 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 OPEB plans that are administered through trusts that meet the specified criteria. The new information will enhance the decision -usefulness of the financial reports of those OPEB plans, their value for assessing accountability, and their transparency by providing information about measures of net OPEB liabilities and explanations of how and why those liabilities changed from year to year. The net OPEB liability information, including ratios, will offer an up-to-date indication of the extent to which the total OPEB liability is covered by the fiduciary net position of the OPEB plan. The comparability of the reported information for similar types of OPEB plans will be improved by the changes related to the attribution method used to determine the total OPEB liability. The contribution schedule will provide measures to evaluate decisions related to the assessment of contribution rates in comparison with actuarially determined rates, if such rates are determined. In addition, new information about rates of return on OPEB plan investments will inform financial report users about the effects of market conditions on the OPEB plan's assets over time and provide information for users to assess the relative success of the OPEB plan's investment strategy and the relative contribution that investment earnings provide to the OPEB plan's ability to pay benefits to plan members when they come due. GASB Statement No. 75 - Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pension Summary The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB 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 all postemployment benefits (pensions and OPEB) 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. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple -Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB. This Statement also addresses certain circumstances in which a nonemployer entity provides financial support for OPEB of employees of another entity. In this Statement, distinctions are made regarding the particular requirements depending upon whether the OPEB plans through which the benefits are provided are administered through trusts that meet the following criteria: • Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. • OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. • OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, the OPEB plan administrator, and the plan members. -21- People +Process® Going Beyondthe Nuiiibers Future Accounting Standard Changes - Continued Effective Date This Statement is effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. How the Changes in This Statement Will Improve 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 OPEB liability and a more comprehensive measure of OPEB expense. Decision -usefulness and accountability also will be enhanced through new note disclosures and required supplementary information, as follows: • More robust disclosures of assumptions will allow for better informed assessments of the reasonableness of OPEB measurements. • Explanations of how and why the OPEB liability changed from year to year will improve transparency. • The summary OPEB liability information, including ratios, will offer an indication of the extent to which the total OPEB liability is covered by resources held by the OPEB plan, if any. • For employers that provide benefits through OPEB plans that are administered through trusts that meet the specified criteria, the contribution schedules will provide measures to evaluate decisions related to contributions. The consistency, comparability, and transparency of the information reported by employers and governmental nonemployer contributing entities about OPEB transactions will be improved by requiring: • The use of a discount rate that considers the availability of the OPEB plan's fiduciary net position associated with the OPEB of current active and inactive employees and the investment horizon of those resources, rather than utilizing only the long-term expected rate of return regardless of whether the OPEB plan's fiduciary net position is projected to be sufficient to make projected benefit payments and is expected to be invested using a strategy to achieve that return. • A single method of attributing the actuarial present value of projected benefit payments to periods of employee service, rather than allowing a choice among six methods with additional variations. • Immediate recognition in OPEB expense, rather than a choice of recognition periods, of the effects of changes of benefit terms. • Recognition of OPEB expense that incorporates deferred outflows of resources and deferred inflows of resources related to OPEB over a defined, closed period, rather than a choice between an open or closed period. GASB Statement No. 76 - The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Summary The objective of this Statement is to identify -in the context of the current governmental financial reporting environment -the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. Effective Date The requirements of this Statement are effective for financial statements for periods beginning after People June 15, 2015, and should be applied retroactively. Earlier application is permitted. P + PrOCeSS -22- GOM, 9 Beyondthe Numbers Future Accounting Standard Changes - Continued How the Changes in This Statement Will Improve Financial Reporting The requirements in this Statement improve financial reporting by (1) raising the category of GASB Implementation Guides in the GAAP hierarchy, thus providing the opportunity for broader public input on implementation guidance; (2) emphasizing the importance of analogies to authoritative literature when the accounting treatment for an event is not specified in authoritative GAAP; and (3) requiring the consideration of consistency with the GASB Concepts Statements when evaluating accounting treatments specified in nonauthoritative literature. As a result, governments will apply financial reporting guidance with less variation, which will improve the usefulness of financial statement information for making decisions and assessing accountability and enhance the comparability of financial statement information among governments. GASB Statement No. 77 - Tax Abatement Disclosures Summary Financial statements prepared by state and local governments in conformity with generally accepted accounting principles provide citizens and taxpayers, legislative and oversight bodies, municipal bond analysts, and others with information they need to evaluate the financial health of governments, make decisions, and assess accountability. This information is intended, among other things, to assist these users of financial statements in assessing (1) whether a government's current -year revenues were sufficient to pay for current -year services (known as interperiod equity), (2) whether a government complied with finance -related legal and contractual obligations, (3) where a government's financial resources come from and how it uses them, and (4) a government's financial position and economic condition and how they have changed over time. Financial statement users need information about certain limitations on a government's ability to raise resources. This includes limitations on revenue -raising capacity resulting from government programs that use tax abatements to induce behavior by individuals and entities that is beneficial to the government or its citizens. Tax abatements are widely used by state and local governments, particularly to encourage economic development. For financial reporting purposes, this Statement defines a tax abatement as resulting from an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens. Although many governments offer tax abatements and provide information to the public about them, they do not always provide the information necessary to assess how tax abatements affect their financial position and results of operations, including their ability to raise resources in the future. This Statement requires disclosure of tax abatement information about (1) a reporting government's own tax abatement agreements and (2) those that are entered into by other governments and that reduce the reporting government's tax revenues. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements: • Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. • The gross dollar amount of taxes abated during the period. • Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. Governments should organize those disclosures by major tax abatement program and may disclose information for individual tax abatement agreements within those programs. -23- People +Process® Going Beyondthe Nuiiibers Future Accounting Standard Changes - Continued Tax abatement agreements of other governments should be organized by the government that entered into the tax abatement agreement and the specific tax being abated. Governments may disclose information for individual tax abatement agreements of other governments within the specific tax being abated. For those tax abatement agreements, a reporting government should disclose: • The names of the governments that entered into the agreements. • The specific taxes being abated. • The gross dollar amount of taxes abated during the period. Effective Date and Transition The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2015. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government's future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government's financial position and economic condition. GASB Statement No. 78 - Pension Provided Through Certain Multiple -Employer Defined Benefit Pension Plans Summary The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple - employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this Statement, the requirements of Statement 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple -employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. Effective Date The requirements of this Statement are effective for reporting periods beginning after December 15, 2015. Earlier application is encouraged. -24- People +Process® Going Beyondthe Numbers Future Accounting Standard Changes - Continued GASB Statement No. 79 - Certain External Investment Pools and Pool Participants Summary This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. If an external investment pool does not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool's participants should measure their investments in that pool at fair value, as provided in paragraph 11 of Statement 31, as amended. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. Effective Date The requirements of this Statement are effective for reporting periods beginning after June 15, 2015, except for the provisions in paragraphs 18, 19, 23-26, and 40, which are effective for reporting periods beginning after December 15, 2015. How the Changes in This Statement Will Improve Financial Reporting This Statement will enhance comparability of financial statements among governments by establishing specific criteria used to determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement. Those criteria will provide qualifying external investment pools and participants in those pools with consistent application of an amortized cost -based measurement for financial reporting purposes. That measurement approximates fair value and mirrors the operations of external investment pools that transact with participants at a stable net asset value per share. GASB Statement No. 80 - Blending Requirements for Certain Component Units - an Amendment of GASB Statement No. 14 Summary The objective of the Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. People +Process® GOO, 9 Beyondthe -25- Ntuiibers Future Accounting Standard Changes - Continued Effective Date The requirements of this Statement are effective for reporting periods beginning after June 15, 2016. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement enhance the comparability of financial statements among governments. Greater comparability improves the decision -usefulness of information reported in financial statements and enhances its value for assessing government accountability. (1) Note. From GASB Pronouncements Summaries. Copyright 2015 by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, USA, and is reproduced with permission. Restriction on Use This communication is intended solely for the information and use of management, the City Council, others within the City, 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 recommendation in this 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 continued opportunity to be of service, and for the courtesy and cooperation extended to us by your staff. Otlb &)L 4 4"ILL? ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota May 18, 2016 -26- People +Process® Going Beyondthe Numbers City of Comprehensive Annual Financial Report Minnesota For the Year Ended December 31,201 S Mr f city E This page has been left blank intentionally CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2015 PREPARED BY THE FINANCE DEPARTMENT Member of Governmental Finance Officers Association of the United States and Canada city E This page has been left blank intentionally CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2015 L INTRODUCTORY SECTION Letterof Transmittal.......................................................................................................................................................................... 5 Certificateof Achievement................................................................................................................................................................ 8 OrganizationalChart .......................................................................................................................................................................... 9 Electedand Appointed Officials...................................................................................................................................................... 10 IL FINANCIAL SECTION IndependentAuditor's Report ......................................................................................................................................................... 13 Management's Discussion and Analysis.......................................................................................................................................... 17 Basic Financial Statements Government -wide Financial Statements Statementof Net Position......................................................................................................................................................... 28 Statementof Activities............................................................................................................................................................. 30 Fund Financial Statements: BalanceSheet - Governmental Funds....................................................................................................................................... 32 Reconciliation of the Governmental Funds Balance Sheet to theStatement of Net Position................................................................................................................................................ 35 Statement of Revenues, Expenditures, and Changes in FundBalances - Governmental Funds.................................................................................................................................. 36 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statementof Activities.......................................................................................................................................................... 38 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund.............................................................................................................. 39 Statement of Net Position - Proprietary Funds......................................................................................................................... 40 Statement of Revenues, Expenses, and Changes in NetPosition - Proprietary Funds........................................................................................................................................... 44 Statement of Cash Flows - Proprietary Funds.......................................................................................................................... 46 Statement of Fiduciary Net Position - DeveloperEscrow Agency Fund.......................................................................................................................................... 50 Notesto Financial Statements...................................................................................................................................................... 51 Required Supplementary Information Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability - General Employees Retirement Fund.................................................................................................. 90 Schedule of Employer's Public Employees Retirement Association Contributions - GeneralEmployees Retirement Fund....................................................................................................................................... 90 Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability - Public Employees Police and Fire Fund.............................................................................................. 90 Schedule of Employer's Public Employees Retirement Association Contributions - Public Employees Police and Fire Fund................................................................................................................................... 91 Schedule of Changes in the Fire Relief Association's Net Pension Liability (Asset) and Related Ratios ................................... 91 Schedule of Employer's Fire Relief Association Contributions................................................................................................... 92 Schedule of Funding Progress for Other Postemployment Benefit Plans.................................................................................... 92 Combining and Individual Fund Statements and Schedules Nonnajor Governmental Funds Combining Balance Sheet - Nommajor Governmental Funds................................................................................................... 96 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonnajor Govermnental Funds............................................................................................................. 97 Nomnajor Special Revenue Funds Subcombining Balance Sheet - Nommajor Special Revenue Funds........................................................................................ 100 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Funds........................................................................................................... 102 -1- CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2015 IL FINANCIAL SECTION - CONTINUED Special Revenue Funds 130 Schedules of Revenues, Expenditures, and Changes in 132 Fund Balance - Budget and Actual: 136 Library.............................................................................................................................................................................. 104 IceArena......................................................................................................................................................................... 105 Landfill............................................................................................................................................................................ 106 EconomicDevelopment Authority.................................................................................................................................. 107 Nonmajor Debt Service Funds 144 Subcombining Balance Sheet - Nonmajor Debt Service Funds.............................................................................................. 110 Subcombining Statement of Revenues, Expenditures, and Changes in 147 Fund Balances - Nonmajor Debt Service Funds.................................................................................................................. 111 Nonmajor Capital Projects Funds 150 Subcombining Balance Sheet — Nonmajor Capital Projects Funds........................................................................................ 114 Subcombining Statement of Revenues, Expenditures, and Changes in 152 Fund Balances — Nonmajor Capital Projects Funds............................................................................................................. 116 Statement of Changes in Assets and Liabilities - 156 DeveloperEscrow Agency Fund............................................................................................................................................ 120 Component Unit Financial Statements 158 Housing and Redevelopment Authority 159 Fund Financial Statements 160 BalanceSheet................................................................................................................................................................... 122 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position................................................................................................................................... 123 Statement of Revenues, Expenditures, and Change in Fund Balance............................................................................. 124 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balance of Governmental Fund to the Statement of Activities.......................................................................125 III. STATISTICAL SECTION (UNAUDITED) NetPosition by Component........................................................................................................................................................... 130 Changesin Net Position................................................................................................................................................................. 132 FundBalances of Governmental Funds......................................................................................................................................... 136 Changes in Fund Balances of Governinental Funds...................................................................................................................... 138 ElectricSales................................................................................................................................................................................. 140 PrincipalElectric Customers......................................................................................................................................................... 141 Tax Capacity, Market Value and Estimated Actual Value of Taxable Property ............................................................................142 PropertyTax Rates........................................................................................................................................................................ 144 PrincipalTaxpayers....................................................................................................................................................................... 145 PropertyTax Levies and Collections............................................................................................................................................. 147 Ratiosof Outstanding Debt by Type............................................................................................................................................. 148 Ratios of General Bonded Debt Outstanding................................................................................................................................. 150 Direct and Overlapping Governmental Activities Debt................................................................................................................. 151 LegalDebt Margin Information..................................................................................................................................................... 152 Pledged -Revenue Coverage........................................................................................................................................................... 154 Demographicand Economic Statistics.......................................................................................................................................... 156 PrincipalEmployers....................................................................................................................................................................... 157 Full -Tune Equivalent Employees by Function.............................................................................................................................. 158 OperatingIndicators by Function.................................................................................................................................................. 159 Capital Asset Statistics by Function.............................................................................................................................................. 160 -2- INTRODUCTORY SECTION CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -3- city E This page has been left blank intentionally -4- 1Kiver May 18, 2016 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, 2015, 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 unmodified 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 complement 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 23,880. 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, storm water, garbage, and electric services and operates two off -sale liquor stores. -5- IP 0 W E R E 0 R 1 "ATURE] 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 39 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 continued to grow by the increase in building permits with a construction value of $57,694,602 being issued in 2015. This is a 23 percent increase from 2014. New additions and remodels accounted for $26,886,010 of new value, and an additional $16,399,266 in residential construction with miscellaneous permits making up the balance. The number of new housing units remained steady from 72 in 2014 to 74 in 2015. Single family homes accounted for all the new housing units in 2015. The average value of new homes increased to $215,426. Many of Elk River's largest employers reported stable or growing employment levels between 2015 and 2016. This is largely due to the upward trend in manufacturing activity in the region. Many larger Elk River employers are experiencing modest growth There has been continual interest in both affordable and market rate multi-family housing projects. Several Elk River companies made significant new improvements including Sportech, Inc. with the construction of a new 105,000 sq. ft. facility. Several other businesses completed expansions and upgraded their facilities. The outlook in this region looks promising with anticipation of several commercial industrial and housing projects working through the review process, with construction expected the last half of 2016. 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, 2015 is 44%. 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. Replacements of Market Value Homestead Credits (MVHC) with the Market Value Exclusion (WE) program and Local Government Aids (LGA) program 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 2016 General Fund budget. The City does not expect in the short-term to see LGA and MVHC amounts restored to previous year's levels. Major Initiatives In 2015, the city sold three lots in Natures Edge Business Park to Sportech, Inc., Morrell Transfer, and GATR Truck Center to build new facilities. The city completed the Gravel Mining Area Study to shape the future of this highly developable 2,600 -acre segment along US Highway 169. The city implemented a long-term funding plan for our storm water management needs with the creation of a new Enterprise fund financed by user charges to comply with increased requirements for new storm water regulations. In addition, Elk River's Northstar Station continues to have the largest ridership numbers along the rail line that runs from Minneapolis to Big Lake. Awards and Acknowledgements The Government Finance Officers Association of the United Stated and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Elk River for its Comprehensive Annual Financial Report for the fiscal year ended December 31, 2014. This was the 26th 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, 2015. It was the 7th 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 market changes. Respectfully submitted, s s Timothy Simon Finance Director -7- Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Elk River Minnesota For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2014 *lj��e4oeo,4� Executive Director/CEO In CITY OF ELK RIVER ORGANIZATIONAL CHART - City Clerk - Human Resources - Cable TV - Finance - Payroll - Information Tech. - Building Maint. - Liquor - Planning - Police Admin. - Environmental - Patrol - Economic Develop. - Investigations - Engineering - Support Services - Streets - Reserves - Equip. Services - Sewer - Storm Water -9- - Fire - Emergency Mgmt. - Building Safety. - Code Enforcement - Recreation - Park Maintenance - Sr. Center -Ice Arena - Library - Electric - Water CITY OF ELK RIVER, MINNESOTA ELECTED AND APPOINTED OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2015 CITY COUNCIL John Dietz Mayor Barbara Burandt Council member Jerry Olsen Council member Matthew Westgaard Council member Jennifer Wagner Council member APPOINTED PERSONNEL Calvin Portner City Administrator Timothy Simon Finance Director Ron Nierenhausen Police Chief T. John Cunningham Fire Chief Michael Hecker Parks & Recreation Director Justin Femrite City Engineer Suzanne Fischer Community Operations & Development Director -10- Term Expires December 31, 2018 2016 2018 2016 2018 FINANCIAL SECTION CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -11- city E This page has been left blank intentionally -12- M ABDO kMR (i.SICK & iir� ME 1 lel W LLP Certified Public Accountants & Consultants INDEPENDENT AUDITOR'S REPORT 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, 2015, 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. 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 presentation of the financial statements. 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 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, 2015, 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 accordance with accounting principles generally accepted in the United States of America. 5201 Eden Avenue, Suite 250 Edina, MN 55436 -13- 952.835.9090 1 Fax 952.835.3261 city E This page has been left blank intentionally -14- Change in Accounting Standards As described in Note 9 to the financial statements, the City adopted the provisions of Governmental Accounting Standard Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions - an Amendment of GASB Statement No. 27 and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an Amendment of GASB Statement No. 68, for the year ended December 31, 2015. Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial statements. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis starting on page 17 and the Schedules of Employer's Share of the Net Pension Liability, the Schedules of Employer's Contributions, the Schedule of Changes in Net Pension Liability (Asset) and Related Ratios, and the Schedule of Funding Progress for Other Post - Employment Benefit Plans starting on page 90 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. 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 basic 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 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated, in all material respects, in relation to the basic 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. OL&�4";Lyf� ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota May 18, 2016 -15- People +Process® Going Beyondthe Numbers city E This page has been left blank intentionally -16- 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, 2015. 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 5 - 7 of this report. Financial Highlights The assets and deferred outflows of resources of the City of Elk River exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by $200,618,986 (net position). Of this amount, $44,675,050 (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 $8,906,787, attributable to capital contributions of $2.7 million in the Sewer fund and Water funds as well as a gain on sale of capital assets in governmental activities of $2.8 million. As of the close of the current fiscal year, the City of Elk River's governmental funds reported combined ending fund balances of $41,112,019. Special General Revenue Debt Capital Service Projects Total Nonspendable $ 23,676 $ 103,295 $ - $ - $ 126,971 Restricted 7,000 1,812,499 10,932,083 457,918 13,209,500 Committed 376,943 5,329,017 - 2,770,934 8,476,894 Assigned - 1,359,646 - 14,219,878 15,579,524 Unassigned 6,157,179 - - (2,438,049) 3,719,130 Total City long-term liabilities $ 6,564,798 $ 8,604,457 $ 10,932,083 $ 15,010,681 $ 41,112,019 The City of Elk River's total long-term liabilities increased $8,255,255 during the current fiscal year, from $57,118,179 to $65,373,434. Beginning Ending Balance Additions Reductions Balance Governmental activities Bonds payable $ 35,270,528 $ - $ (1,556,072) $ 33,714,456 Contracts for deeds 1,410,000 - - 1,410,000 Compensated absences 1,504,686 565,922 (604,370) 1,466,238 Net pension liability - 8,744,979 (1,155,382) 7,589,597 Net OPEB obligation 317,929 11,700 47,314 376,943 Total governmental activities 38,503,143 9,322,601 (3,268,510) 44,557,234 Business -type activities Bonds payable 16,503,233 - (917,999) 15,585,234 Notes payable 1,599,876 - (191,508) 1,408,368 Compensated absences 410,814 144,380 (130,436) 424,758 Net pension liability - 3,810,879 (533,387) 3,277,492 Net OPEB obligation 101,113 17,909 1,326 120,348 Total business -type activities 18,615,036 3,973,168 (1,772,004) 20,816,200 Total City long-term liabilities $ 57,118,179 $ 13,295,769 $ (5,040,514) $ 65,373,434 -17- Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Elk River's basic financial statements. The City's basic financial statements comprise three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City of Elk River's finances, in a manner similar to a private -sector business. The statement of 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, storm water, 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 starting on page 28 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. The City of Elk River maintains four 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, YMCA Bonds, TIF Districts, and Pavement Management 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. -18- 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 starting on page 32 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, storm water, water, and electric operations. The basic proprietary fund financial statements can be found starting on page 40 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 50 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 starting on page 51 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 share of net pension liabilities (assets) for defined benefits plans, schedules of contributions, and progress in funding its obligation to provide pension and other postemployment benefits to its employees. Required supplementary information can be found starting on page 90 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 starting on page 96 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 and deferred inflows of resources by $200,618,986 at the close of the most recent fiscal year. By far, the largest portion of the City of Elk River's net position (76 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. -19- City of Elk River Net Position Governmental Business -type Activities Activities Total Total deferred inflows of resources 2,433,266 - 690,460 - 3,123,726 - Net investment in capital assets 75,030,579 84,921,650 76,747,269 63,392,972 151,777,848 148,314,622 Restricted 3,675,588 4,192,856 490,500 490,500 4,166,088 4,683,356 Unrestricted 20,170,751 24,902,387 24,504,299 24,718,391 44,675,050 49,620,778 Total net position $ 98,876,918 $114,016,893 $101,742,068 $ 88,601,863 $ 200,618,986 $ 202,618,756 An additional portion of the City of Elk River's net position (2 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($44,675,050) 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. -20- 2015 2014 2015 2014 2015 2014 Current and other assets $ 46,019,412 $ 43,319,151 $ 34,093,281 $ 39,001,534 $ 80,112,693 $ 82,320,685 Capital assets 100,211,719 111,622,597 93,681,707 73,546,983 193,893,426 185,169,580 Total assets 146,231,131 154,941,748 127,774,988 112,548,517 274,006,119 267,490,265 Total deferred outflows of resources 1,974,440 294,581 454,331 67,284 2,428,771 361,865 Long-term liabilities outstanding 44,557,234 38,503,143 20,816,200 18,615,036 65,373,434 57,118,179 Other liabilities 2,338,153 2,716,293 4,980,591 5,398,902 7,318,744 8,115,195 Total liabilities 46.895387 41219.436 25.796.791 24.013.938 72.692.178 65233374 Total deferred inflows of resources 2,433,266 - 690,460 - 3,123,726 - Net investment in capital assets 75,030,579 84,921,650 76,747,269 63,392,972 151,777,848 148,314,622 Restricted 3,675,588 4,192,856 490,500 490,500 4,166,088 4,683,356 Unrestricted 20,170,751 24,902,387 24,504,299 24,718,391 44,675,050 49,620,778 Total net position $ 98,876,918 $114,016,893 $101,742,068 $ 88,601,863 $ 200,618,986 $ 202,618,756 An additional portion of the City of Elk River's net position (2 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($44,675,050) 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. -20- Revenues Program revenues Charges for services Operating grants and contributions Capital grants and contributions General revenues Property taxes Othertaxes Grants and contributions not restricted to specific programs Unrestricted investment earnings Gain on disposal of capital assets Total revenues Expenses General government Public safety Public works Culture and recreation Economic development Interest on long-term debt Municipal liquor Garbage Sewer Storm Water Water Electric Total expenses Increase (decrease)in net position before transfers Transfer of capital assets Transfers Change in net position Net position - beginning as restated (note 9) Net position - ending City of Elk River Changes in Net Position Governmental Business -type Activities Activities manic renin nn-ic renin $ 2,827,043 $ 2,666,277 $ 45,680,611 $ 43,751,274 1,033,338 1,049,744 - - 3,574,036 4,020,851 2,708,564 935,909 Total 2015 2014 $ 48,507,654 $ 46,417,551 1,033,338 1,049,744 6,282,600 4,956,760 10,931,945 10,509,231 - - 10,931,945 10,509,231 1,513,621 1,441,259 - - 1,513,621 1,441,259 1,642,098 1,749,886 - - 1,642,098 1,749,886 512,193 1,137,024 259,494 557,659 771,687 1,694,683 2,796,041 29,593 8,899 29,525 2,804,940 59,118 24,830,315 22,603,865 48,657,568 45,274,367 73,487,883 67,878,232 3,619,293 3,554,136 - - 3,619,293 3,554,136 6,720,283 6,615,593 - - 6,720,283 6,615,593 5,351,630 6,860,673 - - 5,351,630 6,860,673 3,970,704 4,088,992 - - 3,970,704 4,088,992 959,414 1,091,125 - - 959,414 1,091,125 1,084,902 1,075,408 - - 1,084,902 1,075,408 - - 5,945,126 5,776,873 5,945,126 5,776,873 - - 1,382,890 1,303,943 1,382,890 1,303,943 - - 2,318,709 2,156,329 2,318,709 2,156,329 - - 736,411 - 736,411 - - - 2,478,904 2,459,319 2,478,904 2,459,319 - - 30,012,830 29,597,247 30,012,830 29,597,247 21,706,226 23,285,927 42,874,870 41,293,711 64,581,096 64,579,638 3,124,089 (682,062) 5,782,698 3,980,656 8,906,787 (11,188,695) (313,287) 11,188,695 313,287 - 297,362 1,332,023 (297,362) (1,332,023) - (7,767,244) 336,674 16,674,031 2,961,920 8,906,787 3,298,594 3,298,594 eWM ",c=rti� W��•rv��fr��•zao�rv��i.�•z�ti��i��r�i�.��=ir�T��r�T�yn��irti� $ 98,876,918 $114,016,893 $101,742,068 $ 88,601,863 $200,618,986 $202,618,756 * GASB Statement No. 68 was implemented for the year ended December 31, 2015 and required a $7,372,731 restatement of beginning net position for governmental activities and $3,533,826 restatement for business -type activities. Prior year amounts were not restated causing a variance in ending net position at December 31, 2014 and beginning net position January 1, 2015. Governmental activities. Governmental activities account for 49 percent of the City of Elk River's net position. Governmental activities decreased the City's net position by $7,767,244. Key elements of the relevant changes are as follows: • In 2015 governmental activities transfers $11,188,695 of capital assets to business -type activities related to the opening of the Storm Water fund. • The City recognized a gain on sale of capital assets of $2,796,041 related to the sale of land and vehicles. -21- $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Expenses and Program Revenues - Governmental Activities General government Unrestricted investment e Other taxes 6.1% PT 44.0% Public safety Public works Culture and Economic recreation development ■ Revenues ■Expenses Revenues by Source - Governmental Activities Other "nraPc fnr srnvirrs -22- Interest on long- term debt sting grants and >ntributions 4.1% Capital grants and contributions 14.4% and contributions inrestricted 6.6% Business -type activities. Business -type activities increased the City of Elk River's net position by $16,674,031. Key elements of this increase are as follows: • Charges for services for business -type activities increased $1,929,337 due largely to an increase in electric usage. The electric utility accounts for 72% of the total charges for services. • Capital grants and contributions increased $1,772,655, primarily as a result of increased municipal construction state aid. $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 Expenses and program Revenues - Business -type Activities Municipal liquor Garbage Sewer Storm Water Water Electric ■ Revenue ■ Expense Revenues by Source - Business -type Activities Capit col Unrestricted Gain on disnosalof -23- 93.88% ices 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 $41,112,019. Approximately 9 percent of this total amount ($3,719,130) constitutes unassigned fund balance. The remainder of fund balance ($37,392,889) is not available for new spending because it is either 1) nonspendable ($126,971), 2) restricted ($13,209,500), 3) committed ($8,476,894) or 4) assigned ($15,579,524) for other purposes. The General fund is the chief operating fund of the City of Elk River. The total fund balance of the General fund increased $401,196 during the current year, resulting primarily from budgeted transfers in. The YMCA Bonds fund decreased $117,162 due to the debt service payments on the crossover advance refunding debt issued in 2013. The TIF Districts fund decreased $289,727 due to the repayment of excess decertified TIF funds returned to the county. The Pavement Management fund increased $440,415 due to collection of franchise fees and intergovernmental revenues in excess of current year expenditures. 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 - $3,124,753, Garbage - $537,038, Sewer - $6,495,624, Storm Water - $168,218, Water - $4,207,713, and Electric - $9,970,953. The Garbage fund net position decreased $61,127 due mainly to the transfers out to the General Fund for administrative services. All other proprietary funds had increases in net position. General Fund Budgetary Highlights There was no difference between the original budget and the final budget for the General fund. The revenue budgets were amended to reflect the increase in building and construction related charges for services. The expenditure budgets were amended to reflect the increase in expenditures related to snow removal and engineering services. Key factors are as follows: • Total revenue collections were 101% of budget. Property tax collections were $52,094 under budget and licenses and permits were $40,391 over due to increased building activity. • Expenditures were under budget by $329,747 due mainly to personnel vacancies in the police department and sound fiscal control by City departments. 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, 2015, amounts to $193,893,426 (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 $8,723,846 or 5 percent. Major capital asset events during the current fiscal year included the following: • $590,000 in public safety equipment and $48,000 in public works equipment. • Construction of $3.7 million for the 2015 street project. • Construction continued on Natures Edge Business Center Phase II project. ($318,113 in 2015) • Construction continued on the wastewater treatment facility improvements totaling over $10.5 million in 2015. • Incurred approximately $600,000 of costs for 2015 storm sewer projects in 2015. -24- City of Elk River Capital Assets (Net of Depreciation) Total $100,211,719 $111,622,597 $ 93,681,707 $ 73,546,983 $193,893,426 $185,169,580 Additional information on the City's capital assets can be found in Note 3C starting on page 64 of this report. Long-term debt. At the end of the current fiscal year, the City had total long-term debt outstanding of $65,373,434, an increase of $8,255,255 from 2014. General obligation improvement bonds ($32,320,000) were issued to finance the construction of a library, a recreation facility, a public safety/city hall facility and a public works facility. General obligation revenue bonds ($12,535,000) were used to finance sewer and water systems. Revenue bonds ($2,985,000) were used to finance electric system improvements. Special assessment bonds ($900,000) financed improvement projects within the City and are assessed to the benefiting properties. Bonds payable G-0. bonds G-0. revenue bonds Revenue bonds Special assessment bonds Issuance premium Total bonds payable, net City of Elk River Outstanding Debt Governmental Activities _ 2015 2014 $ 32,320,000 $ 33,515,000 $ 900,000 1,210,000 494 4S6 545 S?k 33,714,456 35,270,528 Business -type Activities Total MI S ?()14 MIS ?014 12,535,000 2,985,000 (5 15,585,234 $ - $ 32,320,000 Governmental Business -type 12,835,000 3,585,000 2,985,000 3,585,000 Activities Activities Total 628,761 Compensated absences 2015 2014 2015 2014 2015 2014 Land $ 40,876,833 $ 40,911,871 $ 1,526,407 $ 1,526,359 $ 42,403,240 $ 42,438,230 Construction in progress 3,602,680 749,673 13,745,714 3,602,803 17,348,394 4,352,476 Buildings 27,851,240 29,413,979 9,369,167 9,981,099 37,220,407 39,395,078 Other improvements 1,937,065 2,246,132 - - 1,937,065 2,246,132 Equipment 3,704,785 3,717,618 2,270,213 2,094,310 5,974,998 5,811,928 Infrastructure 22,239,116 34,583,324 66,770,206 56,342,412 89,009,322 90,925,736 Total $100,211,719 $111,622,597 $ 93,681,707 $ 73,546,983 $193,893,426 $185,169,580 Additional information on the City's capital assets can be found in Note 3C starting on page 64 of this report. Long-term debt. At the end of the current fiscal year, the City had total long-term debt outstanding of $65,373,434, an increase of $8,255,255 from 2014. General obligation improvement bonds ($32,320,000) were issued to finance the construction of a library, a recreation facility, a public safety/city hall facility and a public works facility. General obligation revenue bonds ($12,535,000) were used to finance sewer and water systems. Revenue bonds ($2,985,000) were used to finance electric system improvements. Special assessment bonds ($900,000) financed improvement projects within the City and are assessed to the benefiting properties. Bonds payable G-0. bonds G-0. revenue bonds Revenue bonds Special assessment bonds Issuance premium Total bonds payable, net City of Elk River Outstanding Debt Governmental Activities _ 2015 2014 $ 32,320,000 $ 33,515,000 $ 900,000 1,210,000 494 4S6 545 S?k 33,714,456 35,270,528 Business -type Activities Total MI S ?()14 MIS ?014 12,535,000 2,985,000 (5 15,585,234 $ - $ 32,320,000 $ 33,515,000 12,835,000 12,535,000 12,835,000 3,585,000 2,985,000 3,585,000 - 900,000 1,210,000 83,233 559,690 628,761 16,503,233 49,299,690 51,773,761 Contracts for deeds 1,410,000 1,410,000 - - 1,410,000 1,410,000 Notes payable - - 1,408,368 1,599,876 1,408,368 1,599,876 Compensated absences 1,466,238 1,504,686 424,758 410,814 1,890,996 1,915,500 Net pension liability 7,589,597 - 3,277,492 - 10,867,089 - Net OPEB obligation 376,943 317,929 120,348 101,113 497,291 419,042 Total $ 44,557,234 $ 38,503,143 $ 20,816,200 $ 18,615,036 $ 65,373,434 $ 57,118,179 Additional long-term debt in the amount of $1,410,000 is for a contract for deed, $1,408,368 is for notes payable, $1,890,996 is for compensated absences, $10,867,089 is for net pension liability, and $497,291 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 $57,026,844. $8,627,815 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 starting on page 69 of this report. -25- 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 improved economy and recent building activity. This was taken into consideration in preparation of the City's 2016 budget. The property tax levy is set annually and is adjusted as necessary to fund the cost of providing services to our citizens and customers. Charges for services are evaluated each year and adjusted if warranted. The City expects to keep the tax levy consistent in upcoming years. Requests for Information This financial report is designed to provide a general overview of the City of Elk River's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to City of Elk River, Attn: Finance Director, 13065 Orono Pkwy, Elk River, Minnesota 55330 or by calling (763) 635-1000. -26- BASIC FINANCIAL STATEMENTS CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -27- CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2015 ASSETS Cash and temporary investments Restricted cash and temporary investments Cash with fiscal agent Receivables Interest Taxes Accounts Special assessments Notes, net Due from other governments Due from primary government Internal balances Inventories Prepaid items Land held for resale Pension asset Capital assets Land and construction in progress Depreciable assets (net of accumulated depreciation) TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES Deferred pension resources Deferred charge on refunding TOTAL DEFERRED OUTFLOW OF RESOURCES LIABILITIES Accounts payable Salaries payable Due to other governments Due to component unit Accrued interest payable Unearned revenue Noncurrent liabilities Due within one year Due in more than one year TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES State aid received for subsequent years Deferred pension resources TOTAL DEFERRED INFLOWS OF RESOURCES The notes to the financial statements are an integral part of this statement. -28- Primary Government Governmental Business -type Component Activities Activities Total Unit - HRA $ 30,626,383 $ 27,782,642 $ 58,409,025 $ 1,173,921 - 490,500 490,500 - 9,423,440 - 9,423,440 - 89,697 36,193 125,890 - 218,345 - 218,345 3,388 473,849 3,230,960 3,704,809 - 1,345,363 - 1,345,363 - 1,949,507 - 1,949,507 539,413 565,407 133,684 699,091 - - - - 215,273 (15,863) 15,863 - - - 2,195,635 2,195,635 - 126,971 207,804 334,775 - 261,400 - 261,400 - 954,913 - 954,913 - 44,479,513 15,272,121 59,751,634 257,100 55,732,206 78,409,586 134,141,792 138,464 146,231,131 127,774,988 274,006,119 2,327,559 1,716,124 395,167 2,111,291 4,629 258,316 59,164 317,480 - 1,974,440 454,331 2,428,771 4,629 904,917 4,382,998 5,287,915 11,788 153,795 107,932 261,727 846 - 210,327 210,327 - 215,273 - 215,273 - 514,200 191,624 705,824 - 549,968 87,710 637,678 - 5,659,646 1,690,040 7,349,686 - 38,897,588 19,126,160 58,023,748 39,524 46,895,387 25,796,791 72,692,178 52,158 315,587 - 315,587 - 2,117,679 690,460 2,808,139 9,025 2,433,266 690,460 3,123,726 9,025 The notes to the financial statements are an integral part of this statement. -28- NET POSITION Net investment in capital assets Restricted for Debt service Landfill mitigation Economic development Law enforcement Fire honor guard Park improvements Street improvements Housing and redevelopment Unrestricted TOTAL NET POSITION CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION - CONTINUED DECEMBER 31, 2015 The notes to the financial statements are an integral part of this statement. -29- Primary Government Governmental Business -type Component Activities Activities Total Unit - HRA $ 75,030,579 $ 76,747,269 $ 151,777,848 $ 395,564 1,154,728 490,500 1,645,228 - 460,524 - 460,524 - 1,305,182 - 1,305,182 - 12,099 - 12,099 - 6,000 - 6,000 - 402,872 - 402,872 - 334,183 - 334,183 - - - - 1,875,441 20,170,751 24,504,299 44,675,050 - $ 98,876,918 $ 101,742,068 $ 200,618,986 $ 2,271,005 The notes to the financial statements are an integral part of this statement. -29- Functions/Programs Primary government Governmental activities General government Public safety Public works Culture and recreation Economic development Interest on long-term debt Total governmental activities Business -type activities Municipal liquor Garbage Sewer Storm Water Water Electric Total business -type activities Total primary government Component unit Housing and Redevelopment Authority CITY OF ELK RIVER, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2015 General revenues Taxes Property taxes, levied for general purposes Property taxes, levied for debt service Tax increments Other taxes Grants and contributions not restricted to specific programs 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, January 1 as restated (Note 9) Net position, December 31 The notes to the financial statements are an integral part of this statement. -30- Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 3,619,293 $ 439,826 $ - $ - 6,720,283 1,194,458 301,579 - 5,351,630 174,452 365,482 3,497,229 3,970,704 925,591 308,722 76,807 959,414 92,716 57,555 - 1,084,902 - - - 21,706,226 2,827,043 1,033,338 3,574,036 5,945,126 6,974,336 - - 1,382,890 1,321,301 - - 2,318,709 1,818,476 - 2,454,630 736,411 355,454 - - 2,478,904 2,379,835 - 253,934 30,012,830 32,831,209 - - 42,874,870 45,680,611 - 2,708,564 $ 64,581,096 $ 48,507,654 $ 1,033,338 $ 6,282,600 $ 161,164 $ 10 $ - $ - General revenues Taxes Property taxes, levied for general purposes Property taxes, levied for debt service Tax increments Other taxes Grants and contributions not restricted to specific programs 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, January 1 as restated (Note 9) Net position, December 31 The notes to the financial statements are an integral part of this statement. -30- Net (Expenses) Revenues and Changes in Net Position Primary Government Component Unit Governmental Business -type $ (3,179,467) $ (5,224,246) (1,314,467) (2,659,584) (809,143) (1,084,902) (14,271,809) - $ (3,179,467) $ - (5,224,246) - (1,314,467) - (2,659,584) - (809,143) - (1,084,902) - (14,271,809) - 1,029,210 1,029,210 - (61,589) (61,589) - 1,954,397 1,954,397 - (380,957) (380,957) - 154,865 154,865 - 2,818,379 2,818,379 1,513,621 - 5,514,305 5,514,305 - (14,271,809) 5,514,305 (8,757,504) - - - (161,154) 10,011,541 - 10,011,541 254,498 655,765 - 655,765 - 264,639 - 264,639 - 1,513,621 - 1,513,621 - 1,642,098 - 1,642,098 142 512,193 259,494 771,687 5,920 2,796,041 8,899 2,804,940 - (11,188,695) 11,188,695 - - 297,362 (297,362) - - 6,504,565 11,159,726 17,664,291 260,560 (7,767,244) 16,674,031 8,906,787 99,406 106,644,162 85,068,037 191,712,199 2,171,599 $ 98,876,918 $ 101,742,068 $ 200,618,986 $ 2,271,005 -31- CITY OF ELK RIVER, MINNESOTA BALANCE SHEET GOVERNMENTALFUNDS DECEMBER 31, 2015 ASSETS Cash and temporary investments Cash with fiscal agent Receivables Interest Taxes Accounts Special assessments Notes, net Due from other governments Due from other funds Due from component unit Prepaid items Land held for resale TOTAL ASSETS LIABILITIES Accounts payable Salaries payable Due to other funds Due to component unit Unearned revenue TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES State aid received for subsequent years Unavailable revenues - taxes Unavailable revenues - special assessments Unavailable revenues - other TOTAL DEFERRED INFLOWS OF RESOURCES FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned TOTAL FUND BALANCES TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES General YMCA Fund Bonds TIF Districts $ 6,658,237 $ 467,829 $ 621 - 9,423,440 - 20,359 - - 194,923 5,878 - 12,555 - - - - 56,046 56,898 - - 113,014 - - 7,656 - - 23,676 - - $ 7,087,318 $ 9,897,147 $ 56,667 $ 250,441 $ 147,228 - 1,373,824 - 222,929 397,669 - 1,596,753 124,851 2,889 - 124,851 2,889 - 23,676 - - 7,000 9,894,258 56,046 376,943 - - 6,157,179 - (1,596,132) 6,564,798 9,894,258 (1,540,086) $ 7,087,318 $_9,897 ,147 $ 56,667 The notes to the financial statements are an integral part of this statement. -32- Pavement Management Other Total Governmental Governmental Funds Funds $ 2,795,549 $ 20,704,147 $ 30,626,383 - - 9,423,440 8,652 60,686 89,697 - 17,544 218,345 163,765 297,529 473,849 - 1,345,363 1,345,363 - 1,893,461 1,949,507 501,274 7,235 565,407 207,294 1,146,841 1,467,149 - - 7,656 - 103,295 126,971 - 261,400 261,400 $ 3,676,534 $ 25,837,501 $ 46,555,167 $ 255,830 $ 398,646 $ 904,917 - 6,567 153,795 - 109,188 1,483,012 - - 222,929 - 549,968 549,968 255,830 1,064,369 3,314,621 315,587 - 315,587 - 11,379 139,119 - 1,339,638 1,339,638 334,183 - 334,183 649,770 1,351,017 2,128,527 - 103,295 126,971 - 3,252,196 13,209,500 2,770,934 5,329,017 8,476,894 - 15,579,524 15,579,524 - (841,917) 3,719,130 2,770,934 23,422,115 41,112,019 $ 3,676,534 $ 25,837,501 $ 46,555,167 -33- city E This page has been left blank intentionally -34- CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2015 Amounts reported for the governmental activities in the statement of net position are different because Total fund balances - governmental funds $ 41,112,019 1. Long-term assets for pensions reported in governmental activities are not financial resources and therefore are not reported as assets in the funds. 954,913 2. Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Governmental capital assets 169,538,187 Less accumulated depreciation (69,326,468) 100,211,719 3. Unavailable revenue in governmental funds is susceptible to full accrual on the government -wide statements. 4. Long-term liabilities are not due and payable in the current period and, therefore are not reported in governmental funds. Bonds payable Deferred charge on refunding Issuance premium Contract for deeds Accrued interest payable Compensated absences Net pension liability Net OPEB obligation 5. Governmental funds do not report long-term amounts related to pensions. Deferred outflows of pension resources Deferred inflows of pension resources Total net position - governmental activities The notes to the financial statements are an integral part of this statement. -35- 1,812,940 (33,220,000) 258,316 (494,456) (1,410,000) (514,200) (1,466,238) (7,589,597) (376,943) (44,813,118) 1,716,124 (2,117,679) (401,555) $ 98,876,918 CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2015 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,032,304) YMCA (289,727) OTHER FINANCING SOURCES (USES) General Bonds TIF Districts REVENUES 1,684,650 250,000 Taxes (251,150) - Property taxes $ 9,483,656 $ 289,550 $ 264,639 Other taxes 164,559 - - Licenses and permits 639,791 - - Intergovernmental 297,669 - - Charges for services 867,211 - 1,251 Fines and forfeits 153,344 - - Special assessments - - - Interest income 79,741 69,012 2,531 Miscellaneous Landfill expansion fee - - - Refunds and reimbursements 105,951 - - Contributions 22,505 248,656 - Other 5,572 - - TOTAL REVENUES 11,819,999 607,218 268,421 EXPENDITURES Current General government 3,141,666 - - Public safety 6,060,771 - - Public works 1,827,323 - - Culture and recreation 1,822,543 - - Economic development - - 517,978 Debt service Principal - 330,000 - Interest and service charges - 644,380 40,170 Capital outlay General government - - - Public safety - - Public works - - Culture and recreation - - - Economic development - - - TOTAL EXPENDITURES 12,852,303 974,380 558,148 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,032,304) (367,162) (289,727) OTHER FINANCING SOURCES (USES) Transfers in 1,684,650 250,000 Transfers out (251,150) - Sale of capital assets - - - TOTAL OTHER FINANCING SOURCES (USES) 1,433,500 250,000 - NET CHANGE IN FUND BALANCES 401,196 (117,162) (289,727) FUND BALANCES, JANUARY 1 6,163,602 10,011,420 (1,250,359) FUND BALANCES, DECEMBER 31 $ 6,564,798 $ 9,894,258 $ (1,540,086) The notes to the financial statements are an integral part of this statement. -36- 1,175,000 1,505,000 429,413 1,113,963 - 55,707 Other Total Pavement Governmental Governmental Management Funds Funds 186,595 4,101,214 5,042,258 23,528,303 $ - $ 915,788 $ 10,953,633 1,349,062 - 1,513,621 - - 639,791 2,992,363 623,689 3,913,721 - 893,496 1,761,958 - 16,115 169,459 - 315,259 315,259 33,013 327,896 512,193 - 1,052,234 1,052,234 167,091 163,409 436,451 - 375,560 646,721 100 28,711 34,383 4,541,629 4,712,157 21,949,424 - 223,904 3,365,570 - 142,440 6,203,211 326,212 164,588 2,318,123 - 993,868 2,816,411 436,695 954,673 1,175,000 1,505,000 429,413 1,113,963 - 55,707 55,707 - 694,450 694,450 3,775,002 377,211 4,152,213 - 162,387 162,387 - 186,595 186,595 4,101,214 5,042,258 23,528,303 440,415 (330,101) (1,578,879) - 2,769,137 4,703,787 - (4,155,275) (4,406,425) - 3,017,674 3,017,674 - 1,631,536 3,315,036 440,415 1,301,435 1,736,157 2,330,519 22,120,680 39,375,862 $ 2,770,934 $ 23,422,115 $ 41,112,019 -37- CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2015 Amounts reported for governmental activities in the statement of activities are different because Total net change in fund balances - governmental funds $ 1,736,157 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 depreciation expense exceeded capital outlays in the current period. Capital outlays 5,220,743 Depreciation expense (5,219,342) 1,401 2. The net effect of various miscellaneous transactions involving capital assets including transfers and disposals, which decrease net position. Transfers of capital assets (11,188,695) Disposals (714,245) Depreciation on disposals 490,661 (11,412,279) 3. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Other revenue 334,183 Property taxes (21,688) Special assessments (255,005) 57,490 4. The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds 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. Repayment of principal on long-term debt 1,505,000 5. Some expenses reported in the statement of activities do not require use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Accrued interest payable 14,254 Amortization of issuance premium 51,072 Amortization of deferred charge from refunding (36,265) Compensated absences 38,448 Net OPEB obligation (59,014) 8,495 6. Long-term pension activity is not reported in governmental funds. Pension expense 309,132 Direct aid contributions 27,360 336,492 Change in net position - governmental activities $ (7,767,244) The notes to the financial statements are an integral part of this statement. -38- CITY OF ELK RIVER, MINNESOTA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2015 The notes to the financial statements are an integral part of this statement. -39- Budget Actual Variance with Original Final Amounts Final Budget REVENUES Taxes Property taxes $ 9,420,750 $ 9,535,750 $ 9,483,656 $ (52,094) Other taxes 125,000 125,000 164,559 39,559 Licenses and permits 599,400 599,400 639,791 40,391 Intergovernmental 286,550 286,550 297,669 11,119 Charges for services 854,450 854,450 867,211 12,761 Fines and forfeits 125,000 130,400 153,344 22,944 Interest income 85,000 85,000 79,741 (5,259) Miscellaneous Refunds and reimbursements 101,000 101,000 105,951 4,951 Contributions 25,000 25,000 22,505 (2,495) Other 6,000 6,000 5,572 (428) TOTAL REVENUES 11,628,150 11,748,550 11,819,999 71,449 EXPENDITURES Current General government 3,159,750 3,163,150 3,141,666 21,484 Public safety 6,263,400 6,295,900 6,060,771 235,129 Public works 1,807,750 1,870,400 1,827,323 43,077 Culture and recreation 1,830,750 1,852,600 1,822,543 30,057 TOTAL EXPENDITURES 13,061,650 13,182,050 12,852,303 329,747 DEFICIENCY OF REVENUES UNDER EXPENDITURES (1,433,500) (1,433,500) (1,032,304) 401,196 OTHER FINANCING SOURCES (USES) Transfers in 1,684,650 1,684,650 1,684,650 - Transfers out (251,150) (251,150) (251,150) - TOTAL OTHER FINANCING SOURCES (USES) 1,433,500 1,433,500 1,433,500 - NET CHANGE IN FUND BALANCES - - 401,196 401,196 FUND BALANCES, JANUARY 1 6,163,602 6,163,602 6,163,602 - FUND BALANCES, DECEMBER 31 $ 6,163,602 $ 6,163,602 $ 6,564,798 $ 401,196 The notes to the financial statements are an integral part of this statement. -39- CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION - CONTINUED ON THE FOLLOWING PAGES PROPRIETARY FUNDS DECEMBER 31, 2015 DEFERRED OUTFLOWS OF RESOURCES Deferred pension resources 51,179 2,269 34,733 Deferred charge on refunding - - - TOTAL DEFERRED OUTFLOW OF RESOURCES 51,179 2,269 34,733 LIABILITIES Municipal CURRENT LIABILITIES Liquor Garbage Sewer ASSETS Salaries payable 8,455 271 6,138 CURRENT ASSETS 67,337 - - Due to other funds Cash and temporary investments $ 2,820,640 $ 551,393 $ 7,171,788 Cash held with fiscal agent - - - Receivables (net) - - - Notes payable - current Accrued interest 8,739 1,598 22,219 Accounts - 14,522 358,517 Due from other governments - - 133,684 Due from other funds - 108,523 320,686 Inventories 1,190,057 - - Prepaid items - - - TOTAL CURRENT ASSETS 4,019,436 676,036 8,006,894 NONCURRENT ASSETS Capital assets Nondepreciable 753,961 - 13,645,066 Depreciable 3,040,025 - 37,518,979 Accumulated depreciation (1,776,280) - (18,374,312) TOTAL NONCURRENT ASSETS 2,017,706 - 32,789,733 TOTAL ASSETS 6,037,142 676,036 40,796,627 DEFERRED OUTFLOWS OF RESOURCES Deferred pension resources 51,179 2,269 34,733 Deferred charge on refunding - - - TOTAL DEFERRED OUTFLOW OF RESOURCES 51,179 2,269 34,733 LIABILITIES CURRENT LIABILITIES Accounts payable 209,860 117,196 1,014,996 Salaries payable 8,455 271 6,138 Due to other governments 67,337 - - Due to other funds - - - Accrued interest payable - - 115,169 Unearned revenue 1,419 - - Compensated absences payable - current - - - Notes payable - current - - - Bonds payable - current - - 400,000 TOTAL CURRENT LIABILITIES 287,071 117,467 1,536,303 The notes to the financial statements are an integral part of this statement. -40- Storm Water Water Electric Total 17,790,123 34,730,104 48,706,993 141,786,224 $ 186,530 $ 4,367,165 $ 12,685,126 $ 27,782,642 - - 490,500 490,500 581 611 2,445 36,193 1,673 191,754 2,664,494 3,230,960 - - - 133,684 35,109 223,992 - 688,310 - 14,015 991,563 2,195,635 - 29,025 178,779 207,804 223,893 4,826,562 17,012,907 34,765,728 321,737 160,289 391,068 15,272,121 17,790,123 34,730,104 48,706,993 141,786,224 (7,214,177) (14,165,419) (21,846,450) (63,376,638) 10,897,683 20,724,974 27,251,611 93,681,707 11,121,576 25,551,536 44,264,518 128,447,435 5,547 28,490 272,949 395,167 - 11,809 47,355 59,164 5,547 40,299 320,304 454,331 147 183,177 2,857,622 4,382,998 865 14,173 78,030 107,932 - 2,976 140,014 210,327 - 23,034 649,413 672,447 - 26,563 49,892 191,624 - 86,291 - 87,710 1,176 16,555 153,002 170,733 - - 194,307 194,307 - 233,000 692,000 1,325,000 2,188 585,769 4,814,280 7,343,078 -41- CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION - CONTINUED PROPRIETARY FUNDS DECEMBER 31, 2015 NONCURRENT LIABILITIES Compensated absences payable Net other postemployment benefits obligation Net pension liability Notes payable Bonds payable TOTAL NONCURRENT LIABILITIES TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Deferred pension resources NET POSITION Net investment in capital assets Restricted Unrestricted TOTAL NET POSITION Municipal Liquor Garbage Sewer $ 94,605 $ - $ 16,438 27,445 - 29,006 436,965 19,376 296,544 - - 9,600,000 559,015 19,376 9,941,988 846,086 136,843 11,478,291 99,776 4,424 67,712 2,017,706 - 22,789,733 3,124,753 537,038 6,495,624 $ 5,142,459 $ 537,038 $ 29,285,357 The notes to the financial statements are an integral part of this statement. -42- Storm Water Water Electric Total $ - $ 12,454 $ 130,528 $ 254,025 856 - 63,041 120,348 47,363 234,129 2,243,115 3,277,492 - - 1,214,061 1,214,061 - 1,635,859 3,024,375 14,260,234 48,219 1,882,442 6,675,120 19,126,160 50,407 2,468,211 11,489,400 26,469,238 10,815 47,987 459,746 690,460 10,897,683 18,867,924 22,174,223 76,747,269 - - 490,500 490,500 168,218 4,207,713 9,970,953 24,504,299 $ 11,065,901 $ 23,075,637 $ 32,635,676 $101,742,068 -43- CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2015 SALES AND COST OF SALES Sales Cost of sales Gross profit OPERATING REVENUES User Charges Delinquency collections Other TOTAL OPERATING REVENUES OPERATING EXPENSES Personnel services Supplies Purchased power Other service charges Depreciation Ito] r:1l[6]»1.7:r110WID O9a0.yILI OPERATING INCOME (LOSS) NONOPERATING REVENUES (EXPENSES) Interest income Miscellaneous revenues Interest expense Gain (loss) on disposal of capital assets TOTAL NONOPERATING REVENUES (EXPENSES) INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS CAPITAL CONTRIBUTIONS CAPITAL CONTRIBUTIONS FROM OTHER FUNDS TRANSFERS IN TRANSFERS OUT Cy: V.110M 01►a►1 no Kell I IM L41 NET POSITION, JANUARY 1 AS RESTATED (NOTE 9) NET POSITION, DECEMBER 31 Municipal Liquor Garbage Sewer $ 6,972,614 $ - $ - (4,905,302) - - 2,067,312 - - - 1,308,815 1,812,117 - 10,529 4,134 1,722 1,957 2,225 1,722 1,321,301 1,818,476 661,659 33,545 453,554 31,542 1,537 108,816 225,221 1,347,808 461,914 121,402 - 1,017,240 1,039,824 1,382,890 2,041,524 1,029,210 (61,589) (223,048) 35,687 8,828 90,135 (277,185) 35,687 8,828 (187,050) 1,064,897 (52,761) (410,098) 2,454,630 - - 12,666 35,584 1,000,000 (689,718) (43,950) (120,000) 375,179 (61,127) 2,937,198 4,767,280 598,165 26,348,159 $ 5,142,459 $ 537,038 $ 29,285,357 The notes to the financial statements are an integral part of this statement. -44- Storm Water Water Electric Total $ 6,972,614 - - - (4,905,302) - - - 2,067,312 353,420 2,141,096 32,951,267 38,566,715 2,034 18,898 238,339 273,934 - 42,543 (642,384) (593,937) 355,454 2,202,537 32,547,222 38,246,712 132,579 499,539 2,344,264 4,125,140 1,767 253,528 197,014 594,204 - - 22,034,307 22,034,307 160,476 530,118 3,398,210 6,123,747 441,589 1,130,584 1,922,359 4,633,174 736,411 2,413,769 29,896,154 37,510,572 (380,957) (211,232) 2,651,068 2,803,452 4,645 24,666 95,533 259,494 - 177,298 283,987 461,285 - (65,135) (116,676) (458,996) - - 8,899 8,899 4,645 136,829 271,743 270,682 (376,312) (74,403) 2,922,811 3,074,134 - 253,934 - 2,708,564 11,161,451 14,578 - 11,188,695 280,762 94,703 - 1,411,049 - (30,000) (824,743) (1,708,411) 11,065,901 258,812 2,098,068 16,674,031 - 22,816,825 30,537,608 85,068,037 $ 11,065,901 $ 23,075,637 $ 32,635,676 $ 101,742,068 -45- CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS - CONTINUED ON THE FOLLOWING PAGES PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2015 Municipal CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users Other operating cash receipts Payments to suppliers Payments to employees Net cash provided (used) by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds Transfers to other funds Decrease (increase) in due from other funds Increase (decrease) in due to other funds Net cash provided (used) by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets Proceeds from sale of capital assets Connection fees received Grant received Principal paid on capital debt Interest paid on capital debt Principal paid on promissory note Net cash provided (used) by capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, January 1 Cash and cash equivalents, December 31 $ 6,971,868 $ 1,310,832 $ 1,556,476 1,722 1,957 2,225 (5,400,083) (1,339,821) (605,602) (666,764) (28,345) (464,269) 2,592,308 606,357 14,348,133 906,743 (55,377) 488,830 35,584 1,000,000 (689,718) (43,950) (120,000) (689,718) (8,366) 880,000 (22,361) - (10,820,930) - - 736,270 1,718,360 - - (261,499) (22,361) - (8,627,799) 33,668 8,779 82,624 228,332 (54,964) (7,176,345) 2,592,308 606,357 14,348,133 $ 2,820,640 $ 551,393 $ 7,171,788 The notes to the financial statements are an integral part of this statement. -46- 318,672 $ 2,218,848 $ 32,460,951 $ 44,837,647 - 252,022 326,880 584,806 (162,096) (777,734) (25,682,803) (33,968,139) (77,051) (530,331) (2,003,949) (3,770,709) 79,525 1,162,805 5,101,079 7,683,605 280,762 94,703 - 1,411,049 - (30,000) (824,743) (1,708,411) 239,870 - 239,870 280,762 304,573 (779,120) (11,869) (177,821) (764,695) (2,345,925) (14,131,732) - - 8,899 8,899 - 253,934 - 990,204 24,146 93,451 1,718,360 - (228,000) (672,000) (900,000) - (67,079) (136,360) (464,938) (177,821) (805,840) (3,336,894) (12,970,715) 4,064 24,146 93,451 246,732 186,530 685,684 1,078,516 (5,052,247) - 3,681,481 12,097,110 33,325,389 $ 186,530 $ 4,367,165 $ 13,175,626 $ 28,273,142 -47- CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2015 Reconciliation of cash and cash equivalents to the statement of net position Cash and investments Restricted cash and investments Total cash and cash equivalents Reconciliation of operating income (loss) to net cash provided (used) by operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities Other revenue related to operations Depreciation expense (Increase) decrease in assets/deferred outflows Accounts receivable Due from other funds Due from other governments Inventories Prepaid items Deferred pension resources Increase (decrease) in liabilities/deferred inflows Accounts payable Salaries payable Due to other governments Unearned revenue OPEB liability Compensated absences payable Deferred pension resources Net pension liability Net cash provided (used) by operating activities Noncash capital and related financing activities Amortization of bond premium Amortization of deferred charges on refunding Contribution of capital assets from other funds Capital assets purchased on account Municipal Liquor Garbage Sewer $ 2,820,640 $ 551,393 $ 7,171,788 $ 2,820,640 $ 551,393 $ 7,171,788 $ 1,029,210 $ (61,589) $ (223,048) 121,402 - 1,017,240 - 1,588 (124,465) - (10,100) (1,626) - - (133,684) (84,562) - - (51,179) (2,269) (34,733) (153,190) 9,524 (34,872) (16,893) (788) (9,670) (266) - - (746) - - 5,135 - 51135 194 - 2,321 99,776 4,424 67,712 (42,138) 3,833 (41,480) $ 906,743 $ (55,377) $ 488,830 12,666 959,784 The notes to the financial statements are an integral part of this statement. -48- Storm Water Water Electric Total $ 186,530 $ 4,367,165 $ 12,685,126 $ 27,782,642 - - 490,500 490,500 $ 186,530 $ 4,367,165 $ 13,175,626 $ 28,273,142 $ (380,957) $ (211,232) $ 2,651,068 $ 2,803,452 - 177,298 283,987 461,285 441,589 1,130,584 1,922,359 4,633,174 (1,673) 25,633 (63,678) (162,595) (35,109) - - (46,835) - - 25,832 (107,852) - 2,466 (12,434) (94,530) - (670) (3,092) (3,762) (5,547) (28,490) (272,949) (395,167) 147 111,503 281,355 214,467 865 (8,607) (72,884) (107,977) - 276 10,716 10,726 - 12,660 - 11,914 856 - 8,109 19,235 1,176 (61,021) 71,274 13,944 10,815 47,987 459,746 690,460 47,363 (35,582) (188,330) (256,334) $ 79,525 $ 1,162,805 $ 5,101,079 $ 7,683,605 $ - $ 818 $ 17,181 $ 17,999 1,648 6,472 8,120 11,161,451 14,578 - 11,188,695 - - - 959,784 -49- CITY OF ELK RIVER, MINNESOTA STATEMENT OF FIDUCIARY NET POSITION DEVELOPER ESCROW AGENCY FUND DECEMBER 31, 2015 ASSETS Cash Accounts receivable TOTAL ASSETS LIABILITIES Refundable deposits payable Agency Fund $ 115,073 510 $ 115,583 $ 115,583 The notes to the financial statements are an integral part of this statement. -50- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 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 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 personnel responsible for the proper administration of all affairs relating to the City. As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Elk River (the primary government) and its component units. The Elk River Municipal Utilities is considered to be part of the primary government. The Elk River Municipal Utilities was established and statutory authority is provided in accordance with Chapter 412.321 of the Minnesota Statutes and is considered to be part of the City. The Utilities Commission has three council approved members who serve overlapping three year terms. The statutes provide the City Council all the discretionary authority necessary to operate the utilities, except as its powers have been delegated to the Commission. The Utility funds are included with the enterprise funds of this report. Separate financial statements for the Utilities may be obtained at the Elk River Municipal Utilities, 13069 Orono Pkwy, Elk River. The City has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. Based upon the application of these criteria, 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 City has operational responsibility and that it is this criterion that results in the EDA being reported as a blended component unit. 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 legally separate entity created to carry out community development consistent with policies established by the City Council. The HRA is governed by five council appointed members, one of which is a Council Member; however, the City does not have a financial benefit or burden relationship and does not have operational responsibility. The criterion that results in the HRA being reported as a discretely presented component unit include 1) the five council appointed member board and 2) the ability of the City to impose its will on the HRA by significantly influencing the programs, projects, activities or level of service performed by the HRA by approving the HRH's budget. The HRA does not issue separate financial statements and are included in the financial section of this report. -51- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 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 government -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. The emphasis of fund financial statements is on major governmental 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 YMCA bonds debt service fund is used to account for the accumulation of resources and payment of principal and interest on bonds used to finance the construction of a recreation facility which is leased to the YMCA. The TIF districts capital projects fund is used to account for administrative and development costs associated with the various tax increment financing projects. The Pavement Management fund is used to account for franchise taxes collected to fund expenditures for the ongoing maintenance and repair of the City streets. 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 garbage and recycling collection programs. The Sewer fund accounts for the activities of the sanitary sewer treatment system. The Storm Water fund accounts for the activities of the storm water collection system. The Water fund accounts for the activities of the water distribution system. The Electric fund accounts for the activities of the 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. -52- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED During the course of operations the government 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 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. The government -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 yearend). 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 yearend). 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. -53- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED F. Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are legally adopted for the General fund and the Library, Ice Arena, 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. On or before July 1 of each year, all departments and agencies of the City submit requests for appropriation to the City's administrator so that a budget may be prepared. Before September 30, 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. G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance 1. Cash and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash balances from all funds are combined and invested to the extent available in authorized investments. Earnings from such investments are allocated to the respective funds on the basis of applicable cash balance participation of each fund. Investments are reported at fair value, based upon quoted market prices. The Minnesota Municipal Money Market fund operates in accordance with appropriate State of Minnesota laws and regulations. The reported value of the pool is the same as the fair value of the pool shares. 2. Receivables 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. 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. -54- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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, 2015 is as follows: 2015 Electric $ 109,845 Water 26,250 Total $ 136,095 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 governmental 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, 2015, the total delinquent special assessment receivable balance was $80,737. Notes Receivable Notes receivable consist primarily of loans made by the City to area businesses for development purposes. The terms and interest rates of the individual loans vary. 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. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. 4. Property Held for Resale These assets are recorded at the lower of original cost or current net realizable value in the governmental fund which purchased them. 5. 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. -55- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. 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 $10,000 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: Asset Buildings and improvements Other park improvements Machinery and equipment Public domain infrastructure System infrastructure 7. Deferred Outflows/Inflows of Resources Years 10-40 10-20 3-20 15-50 4-50 In addition 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 has two items that qualify for reporting in this category. A deferred charge on refunding reported in the government -wide 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. Deferred pension resources are reported only in the statements of net position. This item results from actuarial calculations and current year pension contributions made subsequent to the measurement date. In addition to liabilities, the statement of financial position and fund financial statements 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 two types of items, which arise under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the items, state aid received for subsequent years and unavailable revenue, are reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from three sources: property taxes, special assessments and other. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The state aid received for subsequent years also qualifies and is presented as a deferred inflow of resources on the statement of net position. Furthermore, the City has one additional item which qualifies for reporting in this category on the statements of net position. The item, deferred pension resources, is reported only in the statements of net position and results from actuarial calculations involving net differences between projected and actuarial earnings on plan investments and changes in proportions. -56- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 8. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA's fiscal year is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. For purposes of measuring the net pension liability (asset), deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the defined benefit plan administered by Elk River Fire Relief Association and additions to and deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. Investments are reported at fair value. 9. 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, 2015, the balance reported in the governmental fund financial statements consists of $549,968 from unearned park dedication credits. 10. 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 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. 11. 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 200 hours, the limit of which is determined by years of service. All vacation pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. In the event a liability is recorded in the governmental funds, the General fund would be used to liquidate the compensated absences payable. Employees can also accrue an unlimited amount of unused sick leave. Employees with two or more years of service are entitled to receive severance pay equal to 50 percent of unused sick leave, up to a maximum of 480 hours. The liability for severance pay is accounted for the same as accrued vacation pay. -57- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 12. Fund Balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of resources reported in governmental funds. These classifications are as follows: Nonspendable - consists of amounts that cannot be spent because it is not in spendable form, such as prepaid items. Restricted - consists of amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed - consists of amounts that are constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Assigned - consists of amounts intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the general fund, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to City Council Resolution, the City's Finance Director and/or City Administrator is authorized to establish assignments of fund balance. Unassigned - is the residual classification for the general fund and also reflects negative residual amounts in other funds. The City uses restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City Council has formally adopted a fund balance policy for the General Fund. The City's policy is to maintain a minimum unassigned fund balance of 40-45% of budgeted operating expenditures for cash-flow timing needs. 13. Net Position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. 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". When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. -58- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 14. 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. Note 2: STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Excess of Expenditures Over Appropriations For the year ended December 31, 2015, expenditures exceeded appropriations in the Ice Arena fund by $128,927, which was funded by available fund balance. B. Deficit Fund Equity The following funds had deficit fund balances at December 31, 2015: Primary Government TIF Districts - major capital projects fund Park Dedication - capital projects fund $ 1,540,086 489,674 The City plans to eliminate these deficits through future park dedication and tax increment fund revenues. -59- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the City's deposits may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes, the City maintains deposits at the depository banks authorized by the City Council, all of which are members of the Federal Reserve System. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds. Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City Treasurer or in a financial institution other than that furnishing the collateral. At year end, the City's carrying amount of deposits was $15,744,681 and the bank balance was $15,857,026. The bank balance was covered by federal depository insurance totaling $1,004,739 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 $1,173,921 and the bank balance was $1,173,745. 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. -60- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 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: • 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, 2015 all investments were insured or registered, or securities were held by the City or its agent in the City's name. • Credit risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper that is rated in the highest quality category by at least two nationally recognized rating agencies. The City's investment policy does not further limit the ratings of their investments. • Concentration risk - Concentration risk is the risk of loss that may be caused by the City's investment in a single issuer. The City does not have a formal policy that limits the amount of investments in a single issuer. As of December 31, 2015, more than 5% of the City's investments were held in the following U.S. Agencies: Federal National Mortgage Association (12%), Federal Home Loan Bank (11%), and Federal Farm Credit Bank (7%). • Interest rate risk - In accordance with its investment policy, the City diversifies its investment portfolio to eliminate the risk of loss resulting from the over -concentration of assets in a specific maturity. The maturities selected shall provide for stability of income and reasonable liquidity. The Minnesota Municipal Money Market Fund (4M Fund) is an external investment pool allowable under Minnesota Statutes and regulated by the Board of Directors of the League of Minnesota Cities. The 4M Fund is a customized cash management and investment program for Minnesota public funds designed to address the daily and long term investment needs of Minnesota cities and other municipal entities. The 4M Fund is an unrated 2a7 -like pool and the fair value of the position in the pool is the same as the value of pool shares. Financial statements of the 4M Fund can be obtained by contacting RBC Global Asset Management at 100 South Fifth Street Suite 2300, Minneapolis, MN 55402-1240. -61- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED As of December 31, 2015, the City had the following investments that are insured or registered, or securities held by the City or its agent in the City's name. Types of Investments Pooled investments Minnesota Municipal Money Market Fund Broker Money Markets Total pooled investments Non -pooled investments U -S. Government Securities Total U.S. Government Securities U.S. Treasury Securities Total U -S. Treasury Securities Municipal Securities Total Municipal Securities Negotiable CD's Total negotiable CD's Total non -pooled investments Total investments Deposits Cash on hand Total cash and investments 44,985,393 52,688,302 15,744,681 5,055 $ 68,438,038 (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_ -62- Fair Value Credit Segmented and Quality/ Time Carrying Ratings (1) Distribution (2) Amount N/A Less than 6 months $ 5,357,342 N/A Less than 6 months 2,345,567 7,702,909 AAA 1 to 5 years 7,088,074 AAA More than 5 years 9,044,180 16,132,254 AAA Less than 6 months 129,719 AAA 1 to 5 years 9,293,721 9,423,440 AAA Less than 6 months 385,284 AAA 6 to 12 months 500,950 AA More than 5 years 1,048,760 AAA 1 to 5 years 2,914,802 AAA More than 5 years 2,375,913 7,225,709 N/A Less than 6 months 1,187,708 6 to 12 months 2,796,478 1 to 5 years 8,219,804 12,203,990 44,985,393 52,688,302 15,744,681 5,055 $ 68,438,038 (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_ -62- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Cash and investments are presented in the financial statements as follows: Statement of Net Position Cash and investments Restricted cash and investments Cash with fiscal agent Statement of Fiduciary Net Assets Cash and investments Total B. Notes Receivable Primary Component Government Unit - HRA $ 58,409,025 $ 1,173,921 490,500 - 9,423,440 - 115,073 - $ 68,438,038 $ 1,173,921 The City has made several business subsidy loans to local businesses, some of which were funded with grant proceeds received from the state and federal governments. The terms of repayment vary with each loan and will be repaid over a period of ten years. Under the terms of the grant agreement, the City retains the grant repayments. Notes receivable of $56,046 in the TIF Districts fund, $286,963 in the Revolving Loan fund and $317,909 in the State DEED fund are outstanding at December 31, 2015. The Federal DEED fund loaned $311,155 to several businesses through the Forgivable Loan Program targeting manufacturing, industrial, and high-tech businesses to stimulate private sector investment. The notes are deferred until the businesses have complied with the note agreements for a minimum of one year, at which time the note is then forgiven. In 2015, the City issued a $1,288,589 long-term note receivable related to the sale of property to a developer under an abatement agreement. The note shall be payable in semiannual installments as tax abatement revenues are received, commencing on August 1, 2017, and maturing February 1, 2037. A note receivable of $1,288,589 in the Development Fund is outstanding at December 31, 2015. 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. Notes receivable of $400,000 in the HRA is outstanding at December 31, 2015. In 2015, the HRA issued loans to applicants under the rehabilitation loan program. The terms of each loan vary and are payable over 5-15 years with rates from 1.25-3.25 percent. Notes receivable of $139,413 in the HRA are outstanding at December 31, 2015. -63- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 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, 2015 was as follows: Primary Government Governmental activities: Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated Buildings Other improvements Equipment Infrastructure Total capital assets being depreciated Less accumulated depreciation for Buildings Other improvements Equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Governmental activities capital assets, net Beginning Ending Balance Transfers Additions Deletions Balance $ 40,911,871 $ - $ 186,595 $ (221,633) $ 40,876,833 749,673 - 3,602,680 (749,673) 3,602,680 41,661,544 - 3,789,275 (971,306) 44,479,513 45,041,224 - 89,443 (82,570) 45,048,097 5,393,304 - - - 5,393,304 11,538,335 - 852,176 (401,123) 11,989,388 79,349,645 (17,493,650) 771,890 - 62,627,885 141,322,508 (17,493,650) 1,713,509 (483,693) 125,058,674 (15,627,245) - (1,652,182) 82,570 (17,196,857) (3,147,172) - (309,067) - (3,456,239) (7,820,717) - (863,057) 399,171 (8,284,603) (44,766,321) 6,772,588 (2,395,036) - (40,388,769) (71,361,455) 6,772,588 (5,219,342) 481,741 (69,326,468) 69,961,053 (10,721,062) (3,505,833) (1,952) 55,732,206 $111,622,597 $ (10,721,062) $ 283,442 $ (973,258) $100,211,719 -64- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Total capital assets being depreciated, net 68,417,821 10,721,062 (622,998) (106,299) 78,409,586 Business -type activities capital assets, net $ 73,546,983 $ 10,721,062 $ 11,934,345 $ (2,520,683) $ 93,681,707 Capital asset activity for the HRA component unit for the year ended December 31, 2015 was as follows: Beginning Ending Component Unit Capital assets not being depreciated Land Capital assets being depreciated Other improvements Less accumulated depreciation for Other improvements Total capital assets being depreciated, net Component unit capital assets, net $ 257,100 $ - $ 174,290 - (24,207) (11,619) 150,083 (11,619) $ 257,100 174,290 - (35,826) 138,464 $ 407,183 $ (11,619) $ - $ 395,564 -65- Ending Ending Primary Government Balance Transfers Additions Deletions Balance Business -type activities: Capital assets not being depreciated Land $ 1,526,359 $ - $ 48 $ - $ 1,526,407 Construction in progress 3,602,803 - 12,557,295 (2,414,384) 13,745,714 Total capital assets not being depreciated 5,129,162 - 12,557,343 (2,414,384) 15,272,121 Capital assets being depreciated: Buildings 19,500,114 - 29,815 (4,028) 19,525,901 Equipment 4,145,010 - 503,155 (239,704) 4,408,461 Collection and distribution 96,881,006 17,493,650 3,477,206 - 117,851,862 Total capital assets being depreciated 120,526,130 17,493,650 4,010,176 (243,732) 141,786,224 Less accumulated depreciation for: Buildings (9,519,015) - (641,747) 4,028 (10,156,734) Equipment (2,050,700) - (220,953) 133,405 (2,138,248) Collection and distribution (40,538,594) (6,772,588) (3,770,474) - (51,081,656) Total accumulated depreciation (52,108,309) (6,772,588) (4,633,174) 137,433 (63,376,638) Total capital assets being depreciated, net 68,417,821 10,721,062 (622,998) (106,299) 78,409,586 Business -type activities capital assets, net $ 73,546,983 $ 10,721,062 $ 11,934,345 $ (2,520,683) $ 93,681,707 Capital asset activity for the HRA component unit for the year ended December 31, 2015 was as follows: Beginning Ending Component Unit Capital assets not being depreciated Land Capital assets being depreciated Other improvements Less accumulated depreciation for Other improvements Total capital assets being depreciated, net Component unit capital assets, net $ 257,100 $ - $ 174,290 - (24,207) (11,619) 150,083 (11,619) $ 257,100 174,290 - (35,826) 138,464 $ 407,183 $ (11,619) $ - $ 395,564 -65- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Depreciation expense was charged to functions/programs of the primary government and component unit as follows: Primary Government Governmental activities General government $ 286,600 Public safety 693,263 Public works 3,070,354 Culture and recreation 1,169,125 Total depreciation expense - governmental activities $ 5,219,342 Business -type activities Municipal liquor $ 121,402 Sewer 1,017,240 Storm Water 441,589 Water 1,130,584 Electric 1,922,359 Total depreciation expense - business -type activities $ 4,633,174 Component Unit Housing and Redevelopment Authority $ 11,619 Construction commitments The City has the following construction commitments at December 31, 2015: Spent Remaining Project to date Commitment 2015 Street Improvements $ 3,685,933 $ 267,307 Wastewater Treatment Facility Improvements 12,128,251 4,396,949 Total $ 15,814,184 $ 4,664,256 The commitment for the 2015 Street Improvements project is being financed by resources available in the Pavement Management fund, including franchise fees and intergovernmental revenues. The commitment for the Wastewater Treatment Facility Improvements is being funded by bond proceeds which will be repaid by revenues from the Sewer fund. -66- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED D. Interfund Receivables, Payables, and Transfers The composition of interfund balances as of December 31, 2015 is as follows: Due to/from other funds Receivable Fund General General General Pavement Management Garbage Sewer Storm Water Sewer Water Water Nonmajor governmental funds Nonmajor governmental funds Nonmajor governmental funds Total Payable Fund Amount Electric $ 77,165 Water 23,034 Nonmajor governmental funds 12,815 Electric 207,294 Electric 108,523 Electric 148,886 Electric 35,109 TIF Districts 171,800 TIF Districts 128,850 Nonmajor governmental funds 95,142 TIF Districts 1,073,174 Electric 72,436 Nonmajor governmental funds 1,231 $ 2,155,459 The interfund receivable/payable balances result from the distribution of utility collections and the lending/borrowing arrangements between funds for operating or capital purposes. Due to/from component unit Receivable Entity Payable Entity Primary government - General Fund Component unit - HRA Component unit - HRA Primary government - TIF Districts Amount $ 7,656 222,929 The outstanding balance between the primary government and the component unit represents the transfer for administrative services and the lendingiborrowing arrangement to finance construction costs. The $222,929 payable to the HRA will be paid with the collection of tax increment revenue and will not be repaid within one year. -67- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Interfund transfers Governmental funds Major funds - General YMCA bonds Nonmajor funds Total governmental funds Proprietary funds Municipal liquor Garbage Sewer Storm Water Water Electric Total proprietary funds Total Transfer In Transfer Out $ 1,684,650 $ 251,150 250,000 - 2,769,137 4,155,275 4,703,787 4,406,425 - 689,718 35,584 43,950 1,000,000 120,000 280,762 - 94,703 30,000 - 824,743 1,411,049 1,708,411 $ 6,114,836 $ 6,114,836 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED E. Long-term Debt Long-term debt obligations outstanding at year end are summarized as follows: BUSINESS -TYPE ACTIVITIES General Obligation Revenue Bonds 2008A G.O. Water Revenue Refunding Bonds 2010A G.O. Capital Improvement Bonds 2014B G.O. Sewer Revenue Bonds Total general obligation revenue bonds Revenue Bonds 2007A Electric Revenue Bonds 2014A Electric Revenue Refunding Bonds Total revenue bonds Total bonded indebtedness Promissory note Compensated absences payable Net pension liability Net OPEB obligation Total business -type activities indebtedness Total primary government indebtedness DISCRETE COMPONENT UNIT Housing and Redevelopment Authority Net pension liability 2/20/2008 2/1/2022 2.50-3.65% $ 3,085,000 $ 1,695,000 4/21/2010 8/1/2023 2.00-4.00% 1,265,000 840,000 8/21/2014 2/1/2035 2.00-3.50% 10,000,000 10,000,000 14,350,000 12,535,000 3/28/2007 2/1/2022 4.00% 2,875,000 1,750,000 3/13/2014 8/1/2018 2.00-4.00% 2,030,000 1,235,000 4,905,000 2,985,000 19,255,000 15,520,000 3/19/2002 12/31/2022 -69- 3,521,000 1,408,368 - 424,758 - 3,277,492 - 120,348 S 22,776,000 $ 20,750,966 S 62,086,000 $ 64,813,744 $ 39,524 Issue Maturity Interest Authorized Payable PRIMARY GOVERNMENT Date Date Rate and Issued 12/31/15 GOVERNMENTAL ACTIVITIES General Obligation Bonds 2006C G.O. Capital Improvement Bonds 12/14/2006 2/1/2027 3.80-4.05% $ 3,220,000 $ 2,260,000 2007D EDA G.O. Bonds 11/8/2007 2/1/2017 3.80% 10,000,000 10,000,000 2010A G.O. Capital Improvement Bonds 4/21/2010 2/1/2023 2.00-4.00% 6,105,000 3,985,000 2012A G.O. Capital Improvement Bonds 3/15/2012 2/1/2033 1.00-2.50% 6,975,000 6,390,000 2013A EDA G.O. Refunding Bonds 2/12/2013 2/1/2033 2.00-3.00% 9,685,000 9,685,000 Total general obligation bonds 35,985,000 32,320,000 Special Assessment Bonds 2012B G.O. Improvement Refunding Bonds 3/15/2012 2/1/2018 2.00% 1,525,000 900,000 Total bonded indebtedness 37,510,000 33,220,000 Contracts for deeds 4/12/2008 5/15/2016 5.00-6.00% 1,800,000 1,410,000 Compensated absences payable - 1,466,238 Net pension liability - 7,589,597 Net OPEB obligation - 376,943 Total governmental activities indebtedness $ 39,310,000 $ 44,062,778 BUSINESS -TYPE ACTIVITIES General Obligation Revenue Bonds 2008A G.O. Water Revenue Refunding Bonds 2010A G.O. Capital Improvement Bonds 2014B G.O. Sewer Revenue Bonds Total general obligation revenue bonds Revenue Bonds 2007A Electric Revenue Bonds 2014A Electric Revenue Refunding Bonds Total revenue bonds Total bonded indebtedness Promissory note Compensated absences payable Net pension liability Net OPEB obligation Total business -type activities indebtedness Total primary government indebtedness DISCRETE COMPONENT UNIT Housing and Redevelopment Authority Net pension liability 2/20/2008 2/1/2022 2.50-3.65% $ 3,085,000 $ 1,695,000 4/21/2010 8/1/2023 2.00-4.00% 1,265,000 840,000 8/21/2014 2/1/2035 2.00-3.50% 10,000,000 10,000,000 14,350,000 12,535,000 3/28/2007 2/1/2022 4.00% 2,875,000 1,750,000 3/13/2014 8/1/2018 2.00-4.00% 2,030,000 1,235,000 4,905,000 2,985,000 19,255,000 15,520,000 3/19/2002 12/31/2022 -69- 3,521,000 1,408,368 - 424,758 - 3,277,492 - 120,348 S 22,776,000 $ 20,750,966 S 62,086,000 $ 64,813,744 $ 39,524 CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Annual debt service requirements to maturity for long-term obligations are as follows: -70- Primary Government - Governmental Activities G.O. Bonds Special Assessment Bonds Contract for deed Principal Interest Principal Interest Principal Interest 2016 $ 3,385,000 $ 953,456 $ 305,000 $ 14,950 $ 1,410,000 $ 84,600 2017 10,375,000 876,566 300,000 8,900 - - 2018 1,280,000 460,863 295,000 2,950 - - 2019 1,315,000 425,413 - - - - 2020 1,350,000 388,863 - - - - 2021-2025 6,160,000 1,402,012 - - - - 2026-2030 5,065,000 790,593 - - - - 2031 -2033 3,390,000 144,350 - - - - Total $ 32,320,000 $ 5,442,116 $ 900,000 $ 26,800 1,410,000 84,600 Primary Government - Business -Type Activities G.O. Revenue Bonds Revenue Bonds Notes Payable Principal Interest Principal Interest Principal Interest 2016 $ 705,000 $ 356,738 $ 620,000 $ 90,400 $ 194,307 $ - 2017 725,000 339,205 635,000 73,500 195,216 - 2018 750,000 320,103 660,000 56,000 198,252 - 2019 760,000 299,795 250,000 37,800 200,916 - 2020 785,000 278,803 260,000 27,600 203,952 - 2021-2025 3,170,000 1,093,046 560,000 22,600 415,725 - 2026-2030 2,590,000 726,100 - - - - 2031 -2035 3,050,000 269,508 - - - - Total $ 12,535,000 $ 3,683,298 $ 2,985,000 $ 307,900 $ 1,408,368 $ - -70- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Long-term liability activity for the year ended December 31, 2015 was as follows: Business -type activity long-term liabilities 18,615,036 3,973,168 (1,772,004) 20,816,200 1,690,040 Total primary government long-term liabilities $ 57,118,179 $ 13,295,769 $ (5,040,514) $ 65,373,434 $ 7,349,686 DISCRETE COMPONENT UNIT Housing and Redevelopment Authority Net pension liability $ - $ 43,920 * $ (4,396) $ 39,524 $ - * Includes 1/1/2015 pension liability balance related to GASB Statement No_ 68 implementation_ See Note 9 for further detail. -71- Beginning Ending Due Within PRIMARY GOVERNMENT Balance Additions Reductions Balance One Year GOVERNMENTAL ACTIVITIES Bonds payable General obligation bonds $ 33,515,000 $ - $ (1,195,000) $ 32,320,000 $ 3,385,000 Special assessment bonds 1,210,000 - (310,000) 900,000 305,000 Issuance premium 545,528 - (51,072) 494,456 - Total bonds payable 35,270,528 - (1,556,072) 33,714,456 3,690,000 Contracts for deeds 1,410,000 - - 1,410,000 1,410,000 Compensated absences 1,504,686 565,922 (604,370) 1,466,238 559,646 Net pension liability - 8,744,979 * (1,155,382) 7,589,597 - Net OPEB obligation 317,929 11,700 47,314 376,943 - Governmental activity long-term liabilities 38,503,143 9,322,601 (3,268,510) 44,557,234 5,659,646 BUSINESS -TYPE ACTIVITIES Bonds payable G.O. revenue bonds 12,835,000 - (300,000) 12,535,000 705,000 Revenue bonds 3,585,000 - (600,000) 2,985,000 620,000 Issuance premium 83,233 - (17,999) 65,234 - Total bonds payable 16,503,233 - (917,999) 15,585,234 1,325,000 Notes payable 1,599,876 - (191,508) 1,408,368 194,307 Compensated absences 410,814 144,380 (130,436) 424,758 170,733 Net pension liability - 3,810,879 * (533,387) 3,277,492 - Net OPEB obligation 101,113 17,909 1,326 120,348 - Business -type activity long-term liabilities 18,615,036 3,973,168 (1,772,004) 20,816,200 1,690,040 Total primary government long-term liabilities $ 57,118,179 $ 13,295,769 $ (5,040,514) $ 65,373,434 $ 7,349,686 DISCRETE COMPONENT UNIT Housing and Redevelopment Authority Net pension liability $ - $ 43,920 * $ (4,396) $ 39,524 $ - * Includes 1/1/2015 pension liability balance related to GASB Statement No_ 68 implementation_ See Note 9 for further detail. -71- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 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 $10,000,000 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. 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. Net pension liabilities are liquidated through the General fund and enterprise funds. 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 14 and 13 percent of revenues from the Sewer and Water funds, respectively. For 2015, principal and interest paid and total operating revenues for the Sewer fund were $261,499 and $1,818,476, respectively. For 2015, principal and interest paid and total operating revenues for the Water fund were $295,079 and $2,202,537, respectively. The revenue bonds were issued to finance the acquisition and construction of major capital facilities and are to be repaid from future revenues pledged from the Electric fund. Annual principal and interest payment on the bonds required about 2 percent of revenues from the Electric fund. For 2015, principal and interest paid and total customer revenues for the Electric fund were $710,600 and $32,551,722, 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. In 2013 the EDA issued $9,685,000 G.O. Refunding Bonds, Series 2013A. The bonds bear an average coupon rate of 2.2 percent and will be used to call $9,225,000 of the outstanding principal of the EDA G.O. Bonds, Series 2007D on February 1, 2017. As a result of the refunding issue, the EDA will save $1,001,112 in debt service payments and achieve an economic gain (the present value of the difference between the old and the new debt service) of $795,866. -72- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED F. Fund Balance Classification At December 31, 2015, a summary of the governmental fund balance classifications are as follows: -73- Other General YMCA Pavement Governmental Fund Bonds TIF Districts Management Funds Total Nonspendable Prepaid items $ 23,676 $ - $ - $ - $ 103,295 $ 126,971 Restricted for Debt service $ - $ 9,894,258 $ - $ - $ 1,130,389 $ 11,024,647 Landfill mitigation - - - - 460,524 460,524 Economic development - - 56,046 - 1,247,312 1,303,358 Law enforcement - - - - 12,099 12,099 Fire Honor Guard 6,000 - - - - 6,000 Park improvements 1,000 - - - 401,872 402,872 Total restricted $ 7,000 $ 9,894,258 $ 56,046 $ - $ 3,252,196 $ 13,209,500 Committed to Library operations $ - $ - $ - $ - $ 415,778 $ 415,778 Ice arena - - - - 270,407 270,407 Economic development - - - - 4,461,882 4,461,882 Insurance reserve - - - - 180,950 180,950 Street improvements - - - 2,770,934 - 2,770,934 OPEB obligation 376,943 - - - - 376,943 Total committed $ 376,943 $ - $ - $ 2,770,934 $ 5,329,017 7-7,476,894 Assigned to Landfill mitigation $ - $ - $ - $ - $ 767,997 $ 767,997 Law enforcement - - - - 1,725 1,725 Debt service - - - - 44,704 44,704 Economic development - - - - 545,220 545,220 Capital equipment - - - - 1,663,668 1,663,668 Building construction/improvements - - - - 3,859,536 3,859,536 Street improvements - - - - 1,878,713 1,878,713 Other improvement projects - - - - 6,501,420 6,501,420 Park improvements - - - - 316,541 316,541 Total assigned $ - $ - $ - $ - $ 15,579,524 $ 15,579,524 -73- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE A. Plan Description The City participates in the following cost-sharing multiple -employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA's defined benefit pension plans are established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERA's defined benefit pension plans are tax qualified plans under Section 401 (a) of the Internal Revenue Code. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City are covered by the General Employees Retirement Fund (GERF). 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. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. Public Employees Police and Fire Fund (PEPFF) The PEPFF, originally established for police officers and firefighters not covered by a local relief association, now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the PEPFF also covers police officers and firefighters belonging to a local relief association that elected to merge with and transfer assets and administration to PERA. B. Benefits Provided PERA provides retirement, disability and death benefits. Benefit provisions are established by Minnesota statute and can only be modified by the state legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90 percent funded, or have fallen below 80 percent, are given 1 percent increases. The benefit provisions stated in the following 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. GERF benefits 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 ten 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 ten years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. -74- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED PEPFF benefits Benefits for the PEPFF members first hired after June 30, 2010, but before July 1, 2014, vest on a prorated basis from 50 percent after five years up to 100 percent after ten years of credited service. Benefits for PEPFF members first hired after June 30, 2014, vest on a prorated basis from 50 percent after ten years up to 100 percent after twenty years of credited service. The annuity accrual rate is 3 percent of average salary for each year of service. For PEPFF who were first hired prior to July 1, 1989, a full annuity is available when age plus years of service equal at least 90. C. Contributions Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state legislature. GERF contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.50 percent, respectively, of their annual covered salary in calendar year 2015. The City was required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2015. The City's contributions to the GERF for the years ending December 31, 2015, 2014 and 2013 were $668,633, $615,331 and $584,075, respectively. The City's contributions were equal to the contractually required contributions for each year as set by Minnesota statute. PEPFF contributions Plan members were required to contribute 10.8 percent of their annual covered salary in calendar year 2015. The City was required to contribute 16.20 percent of pay for PEPFF members in calendar year 2015. The City's contributions to the PEPFF for the years ending December 31, 2015, 2014 and 2013 were $478,192, $418,280 and $383,545 respectively. The City's contributions were equal to the contractually required contributions for each year as set by Minnesota statute. D. Pension costs GERF pension costs At December 31, 2015, the City reported a liability of $7,452,462 for its proportionate share of the GERF's net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City's proportion of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2014 through June 30, 2015 relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2015, the City's proportionate share was 0.1438 percent which was a decrease of 0.0149 from its proportion measured as of June 30, 2014. For the year ended December 31, 2015, the City recognized pension expense of $600,138 for its proportionate share of GERF's pension expense. -75- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED At December 31, 2015, the City reported its proportionate share of GERF's deferred outflows of resources and deferred inflows of resources, and its contributions subsequent to the measurement date, from the following sources: Differences between expected and actual experience Changes in actuarial assumptions Net difference between projected and actual earnings on plan investments Changes in proportion Contributions to GERF subsequent to the measurement date Total Deferred Deferred Outflows Inflows of Resources of Resources 76,273 $ 375,731 456,950 - 663,408 604,627 350,936 $ 884,159 $ 1,643,766 Deferred outflows of resources totaling $350,936 related to pensions resulting from the City's contributions to GERF subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2016. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will be recognized in pension expense as follows: 2016 2017 2018 2019 PEPFF pension costs $ (340,099) (340,099) (606, 714) 176,369 At December 31, 2015, the City reported a liability of $3,454,151 for its proportionate share of the PEPFF's net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City's proportion of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2014 through June 30, 2015 relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2015, the City's proportionate share was 0.304 percent which was an increase of 0.005 percent from its proportion measured as of June 30, 2014. For the year ended December 31, 2015, the City recognized pension expense of $366,161 for its proportionate share of PEPFF's pension expense. The City also recognized for the year ended December 31, 2015 $27,360 as pension grant revenue for its proportionate share of the State of Minnesota's on -behalf contributions to the PEPFF. Legislation passed in 2013 required the State of Minnesota to begin contributing $9 million to the PEPFF each year, starting in fiscal year 2014. -76- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED At December 31, 2015, the City reported its proportionate share of PEPFF's deferred outflows of resources and deferred inflows of resources, and its contributions subsequent to the measurement date, from the following sources: Differences between expected and actual experience Changes in actuarial assumptions Net difference between projected and actual earnings on plan investments Changes in proportion Contributions to PEPFF subsequent to the measurement date Total Deferred Deferred Outflows Inflows of Resources of Resources 3,614 $ 560,150 656,588 - 613,248 55,896 267,388 $ 983,486 $ 1,173,398 Deferred outflows of resources totaling $267,388 related to pensions resulting from the City's contributions to PEPFF subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2016. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will be recognized in pension expense as follows: 2016 $ 190,370 2017 190,370 2018 190,370 2019 (214,657) 2020 100,847 E. Actuarial assumptions The total pension liability in the June 30, 2015 actuarial valuation was determined using the following actuarial assumptions: Inflation Active member payroll growth Investment rate of return 2.75% per year 3.50% per year 7.90% Salary increases were based on a service -related table. Mortality rates for active members, retirees, survivors and disabilitants were based on RP -2000 tables for males or females, as appropriate, with slight adjustments. Cost of living benefit increases for retirees are assumed to be: 1 percent effective every January I't until 2034, then 2.5 percent for GERF and PEPFF. Actuarial assumptions used in the June 30, 2015 valuation were based on the results of actuarial experience studies. The experience study in the GERF was for the period July 1, 2004 through June 30, 2008, with an update of economic assumptions in 2014. The experience study for PEPFF was for the period July 1, 2004, through June 30, 2009. Experience studies have not been prepared for PERA's other plans, but assumptions are reviewed annually. There were no changes in actuarial assumptions in 2015. -77- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED The long-term expected rate of return on pension plan investments is 7.9 percent. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best -estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Total F. Discount rate 100.00 % The discount rate used to measure the total pension liability was 7.9 percent. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption, each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension liability sensitivity The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: City Proportionate Share of NPL 1 Percent 1 Percent Decrease (6.90%) Current (7.90%) Increase (8.90%) GERF $ 11,717,920 $ 7,452,462 $ 3,929,850 PEPFF 6,732,177 3,454,151 745,931 H. Pension plan fiduciary net position Detailed information about each defined benefit pension plan's fiduciary net position is available in a separately -issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org; by writing to PERA at 60 Empire Drive #200, St. Paul, Minnesota, 55103-2088; or by calling (651) 296-7460 or (800) 652-9026. -78- Long-term Target Expected Real Asset Class Allocation Rate of Return Domestic stocks 45.00 % 5.50 % International stocks 15.00 6.00 Bonds 18.00 1.45 Alternative assets 20.00 6.40 Cash 2.00 0.50 Total F. Discount rate 100.00 % The discount rate used to measure the total pension liability was 7.9 percent. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption, each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension liability sensitivity The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: City Proportionate Share of NPL 1 Percent 1 Percent Decrease (6.90%) Current (7.90%) Increase (8.90%) GERF $ 11,717,920 $ 7,452,462 $ 3,929,850 PEPFF 6,732,177 3,454,151 745,931 H. Pension plan fiduciary net position Detailed information about each defined benefit pension plan's fiduciary net position is available in a separately -issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org; by writing to PERA at 60 Empire Drive #200, St. Paul, Minnesota, 55103-2088; or by calling (651) 296-7460 or (800) 652-9026. -78- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 5: DEFINED CONTRIBUTION PLAN Two 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. 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. Total contributions made by the City of Elk River during fiscal year 2015 were: Contribution Amount Employee Employer $1,380 $1,380 Percentage of Covered Payroll Required Employee Employer Rates 5.0% 5.0% 5.0% Note 6: DEFINED BENEFIT PENSION PLANS - FIRE RELIEF ASSOCIATION A. Plan Description All members of the Elk River Fire Department (the Department) are covered by a defined benefit plan administered by the Elk River Fire Department Relief Association (the Association). As of December 31, 2014, the plan covered 40 active firefighters and 5 vested terminated fire fighters whose pension benefits are deferred. The plan is a single employer retirement plan and is established and administered in accordance with Minnesota statute, chapter 69. The Association maintains a separate Special fund to accumulate assets to fund the retirement benefits earned by the Department's membership. Funding for the Association is derived from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (chapter 261 as amended by chapter 509 of Minnesota statutes 1980). Funds are also derived from investment income. B. Benefits Provided A fire fighter who completes at least 20 years as an active member of the Department is entitled, after age 50, to a full service pension upon retirement. The bylaws of the Association also provide for an early vested service pension for a retiring member who has completed fewer than 20 years of service. The reduced pension, available to members with a minimum of 5 years of service, shall be equal to 40 percent of the pension as prescribed by the bylaws. This percentage increases 4 percent per year so that at 20 years of service, the full amount prescribed is paid. Members who retire with less than 20 years of service and have reached the age of 50 years and have completed at least 5 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. C. Contributions Minnesota statutes, chapters 424 and 424A authorize pension benefits for volunteer fire relief associations. The plan is funded by fire state aid, investment earnings and, if necessary, employer contributions as specified in Minnesota statutes and voluntary City contributions (if applicable). The State of Minnesota contributed $164,825 in fire state aid to the plan on behalf of the City Fire Department for the year ended December 31, 2014, which was recorded as a revenue. Required employer contributions are calculated annually based on statutory provisions. The City's statutorily -required contributions to the plan for the year ended December 31, 2015 were $174,826. The City's contributions were equal to the required contributions as set by state statute. In addition, the City made voluntary contributions of $30,000 to the plan. -79- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 6: DEFINED BENEFIT PENSION PLANS - FIRE RELIEF ASSOCIATION - CONTINUED D. Pension Costs At December 31, 2015, the City reported a net pension asset of $954,913 for the plan. The net pension liability (asset) was measured as of December 31, 2014. The total pension liability used to calculate the net pension liability (asset) in accordance with GASB 68 was determined by Van Iwaarden Associates applying an actuarial formula to specific census data certified by the Department as of December 31, 2014. For the year ended December 31, 2015, the City recognized pension expense of $123,228. At December 31, 2015, the City reported deferred outflows of resources, including its contributions subsequent to the measurement date, related to pension from the following sources: Net difference between projected and actual earnings on plan investments Contributions to plan subsequent to the measurement date Total Deferred Outflows of Resources $ 43,449 204,826 $ 248,275 Deferred outflows of resources totaling $204,826 related to pensions resulting from the City's contributions to the plan subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2016. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in pension expense as follows: 2016 $ 10,862 2017 10,862 2018 10,862 2019 10,863 E. Actuarial Assumptions The total pension liability at December 31, 2014 was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Retirement eligibility Age 50 or after 20 years service If both age 50 and minimum 5 years of service but not 20 years, pension reduced 4% for each year less than 20 years_ Salary increases 2.75% per year Cost of living increases Investment rate of return 20 year municipal bond yield There were no changes in actuarial assumptions in 2014. -80- 2.75% per year 6.00% 3.56% CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 6: DEFINED BENEFIT PENSION PLANS - FIRE RELIEF ASSOCIATION - CONTINUED The 6.0 percent long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimates for expected future real rates of return (expected returns, net of inflation) were developed for each asset class using the plan's target investment allocation along with long-term return expectations by asset class. Inflation expectations were applied to derive the nominal rate of return for the portfolio. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Total F. Discount Rate 100.00 % The discount rate used to measure the total pension liability was 6.0 percent. The projection of cash flows used to determine the discount rate assumed that contributions to the plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension Liability Sensitivity The following presents the City's net pension liability (asset) for the plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate 1 percent lower or 1 percent higher than the current discount rate: 1 Percent 1 Percent Decrease (5.00%) Current (6.00%) Increase (7.00%) Defined benefit plan $ (884,877) $ (954,913) $ (1,023,588) H. Pension plan fiduciary net position The Association issues a publicly available financial report. The report may be obtained by writing to the Elk River Fire Department Relief Association, 13073 Orono Parkway, Elk River, MN 55330. Note 7: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS 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. -81- Long-term Target Expected Real Asset Class Allocation Rate of Return Equities 47.00 % 7.75 % Fixed income 25.00 4.50 Real estate 13.00 6.75 Cash 15.00 3.00 Total F. Discount Rate 100.00 % The discount rate used to measure the total pension liability was 6.0 percent. The projection of cash flows used to determine the discount rate assumed that contributions to the plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension Liability Sensitivity The following presents the City's net pension liability (asset) for the plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate 1 percent lower or 1 percent higher than the current discount rate: 1 Percent 1 Percent Decrease (5.00%) Current (6.00%) Increase (7.00%) Defined benefit plan $ (884,877) $ (954,913) $ (1,023,588) H. Pension plan fiduciary net position The Association issues a publicly available financial report. The report may be obtained by writing to the Elk River Fire Department Relief Association, 13073 Orono Parkway, Elk River, MN 55330. Note 7: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS 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. -81- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 7: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS - CONTINUED 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: Annual required contribution (ARC) Interest on net OPEB obligation Adjustment to ARC Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year Municipal Retiree Health Plan $ 125,720 14,564 (21,504) 118,780 (48,640) 70,140 364,110 $ 434,250 Utility Retiree Health Plan $ 11,240 2,197 (3,177) 10,260 (2,151) 8,109 54,932 $ 63,041 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 Fiscal Year Annual Employer Annual OPEB Net Pension Ended OPEB Cost Contribution Cost Contributed Obligation MRHP 12/31/2013 $ 96,519 $ 48,803 51 % $ 283,261 12/31/2014 120,448 39,599 33 364,110 12/31/2015 118,780 48,640 41 434,250 URHP 12/31/2013 $ 6,073 $ 1,391 23 % $ 45,042 12/31/2014 9,890 - - 54,932 12/31/2015 10,260 2,151 21 63,041 -82- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 7: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS - CONTINUED D. Funded Status and Funding Progress As of January 1, 2014, the most recent actuarial valuation date, the funded status of the plan was as follows: Municipal Retiree Health Plan Actuarial accrued liability (a) $ 996,344 Actuarial value of plan assets (b) - Unfunded actuarial accrued liability (a -b) $ 996,344 Funded ratio (b/a) - % Covered payroll (c) $ 7,442,216 Unfunded actuarial accrued liability as a percentage of covered payroll ((a - b) / c) 13.4 % Utility Retiree Health Plan 68,948 $ 68,948 $ 2,810,413 2.5 % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information, following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. For the MRHP, in the January 1, 2014 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 7.5% initially, reduced incrementally to an ultimate rate of 5% after ten 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, 2015 was over no more than thirty years. -83- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 7: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS - CONTINUED 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 60, 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 mortality tables from the National Center for Health Statistics. The 2000 United States Life Tables for Males and for Females were used. Turnover — Non -group -specific age -based turnover data from GASB Statement 45 were used as the basis for assigning active member a probability of remaining employed until the assumed retirement age and for developing an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid. Healthcare cost trend rate — The expected rate of increase in healthcare insurance premiums was based on projections of the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 7.5% initially, reduced to an ultimate rate of 5% after eight years, was used. Health insurance premiums — 2014 health insurance premiums for retirees were used per the valuation report. 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, a simplified version of the entry age 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, 2015 was thirty years. Note 8: OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts; theft of damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance. The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT) which is a risk sharing pool with approximately 800 other governmental units. The City pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. -84- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 8: 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 In 1991, the Utilities entered into a 20 year agreement to transfer ownership of electric plant and electric service to customers in certain areas receiving electric service from Anoka Electric Cooperative, Inc. (AEC). In 2010 the Utility completed the final purchase under this agreement. The agreed cost of property purchased from AEC is net book value. The Utilities also pays AEC for loss of revenue for each area acquired based on a formula outlined in the agreement. In addition, the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from AEC for a period of ten years from the date of sale of each individual area. The Utilities paid $211 in 2015, respectively, for loss of revenues under this agreement. All amounts paid are included in property and equipment. In 2015, the Utilities entered into a 10 year agreement to transfer ownership of electric plant and electric service to customers in eight designated areas receiving service from Connexus Energy. Specific payment terms have been negotiated for 5 years, and if any of the eight areas are not acquired within this timeframe, the payment terms may be renegotiated. The agreed cost of property purchased from Connexus Energy is net book value, integration expenses, and a loss of revenue payment. The loss of revenue payment for each area acquired is based on a formula outlined in the agreement, payable for the subsequent ten years after initial purchase. The Utilities acquired the first of the designated service areas in 2015 for $877,807. The first loss of revenue payment will be made in 2017. All amounts paid are included in property and equipment. D. Conduit Debt Obligations From time to time, the City has issued revenue bonds to provide financial assistance to private -sector entities for the acquisition and construction of industrial and commercial, multi -family and educational facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payment received from the benefited entity. Neither the City, the state, nor any political subdivision thereof is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of December 31, 2015, there were five series of revenue bonds outstanding, with an aggregate principal payable amount of $13,038,118. -85- CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 8: OTHER INFORMATION - CONTINUED E. Commitments The Utilities 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. On May 14, 2013 the Utilities signed a new agreement with Minnesota Municipal Power Agency (MMPA). The Utilities entered into an agreement in 2007 with Central Minnesota Municipal Power Agency (CMMPA) to acquire an interest in the CAPX Initiative Brookings Project, a power transmission line in Minnesota. The project is a 250 mile, 345 kV AC transmission line with a rating of 2,300 MW, between Brookings, South Dakota, and the Southeast Twin Cities. In 2011 there was increased opportunity for investment, and subsequent agreements provide the Utilities with an ownership share of $5.6 million or 18.89 percent. The return on this investment through CMMPA is designed to provide approximately $124,000 annually over the 40 year project life. The transmission payments for 2015 were $42,532 of which $24,353 was receivable at December 31, 2015. F. Joint Ventures The City has agreements with government and other entities which provide reduced costs, better service and additional benefits to the participants. In 2007, the City and neighboring municipalities formed the Sherburne/Wright Cable Communications Commission (the "Commission"). The purpose of the organization is to monitor the operation and activities of cable communications of the member municipalities. The Commission also provides coordination, administration and enforcement of the franchises for the cable communication system. Financial statements for the Commission can be obtained by writing to: Sherburne/Wright Cable Communications Commission at 444 Cedar St, Suite 950, St. Paul, MN 55101. G. Segment Information The City maintains six enterprise funds that account for the municipal liquor operations, garbage collections, and sewer, storm water, water and electric utilities. The City considers each of its enterprise funds to be a segment. Since the required segment information is already included in the City's proprietary funds' balance sheet and statement of revenues, expenses, and changes in net position balance, this information has not been repeated in the notes to the basic financial statements. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 9: CHANGE IN ACCOUNTING STANDARDS During 2015, the City implemented several new accounting pronouncements issued by the Governmental Accounting Standards Board (GASB), including Statement No. 68, Accounting and Financial Reporting for Pensions - an Amendment of GASB Statement No. 27 and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an Amendment of GASB Statement No. 68, for the year ended December 31, 2015. These standards required a retroactive implementation which resulted in the restatement of beginning balances in the December 31, 2014 financial statements. Changes related to these standards are reflected in the financial statements and schedules and related disclosures are included in Note 4 and 6. As a result of the restatement of beginning balances, the following schedule reconciles the previously reported December 31, 2014 balances to the December 31, 2015 financial statements: PRIMARY GOVERNMENT Governmental activities Business -type activities Business -type activities Liquor Store Garbage Sewer Water Electric Total business -type activities DISCRETE COMPONENT UNIT Housing and Redevelopment Authority December 31, 2015 Net Position January 1, 2015 Net Position as Previously Prior Period January 1, 2015 Reported Restatement (1) as Restated $ 114,016,893 $ (7,372,731) $ 106,644,162 $ 88,601,863 $ (3,533,826) $ 85,068,037 $ 5,246,383 $ (479,103) $ 4,767,280 613,708 (15,543) 598,165 26,686,183 (338,024) 26,348,159 23,086,536 (269,711) 22,816,825 32,969,053 (2,431,445) 30,537,608 $ 88,601,863 $ (3,533,826) $ 85,068,037 $ 2,207,499 $ (35,900) $ 2,171,599 (1) To record beginning net pension liability, deferred inflows of resources and deferred outflow of resources at December 31, 2014. -87- city E This page has been left blank intentionally -88- REQUIRED SUPPLEMENTARY INFORMATION CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -89- CITY OF ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2015 Schedule of employer's share of PERA net pension liability - General Employees Retirement Fund Schedule of employer's PERA contributions - General Employees Retirement Fund Year Ending 12/31/15 Required Supplementary Information Contributions in Required Supplementary Information Relation to the Statutorily City's Contribution City's Contributions as Required State's Deficiency Proportionate a Percentage of Contribution Contribution (Excess) Proportionate Covered Payroll Share of the (b) (a -b) (c) City's Share of Net Pension Proportionate the Net Pension Liability as a Plan Fiduciary City's Share of Liability City's Percentage of Net Position Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage Year the Net Pension Liability the City Total Payroll Payroll of the Total Ending Liability (a) (b) (a+b) (c) ((a+b)/c) Pension Liability 06/30/15 0.1438 % $ 7,452,462 $ - $ 7,452,462 $ 8,712,032 85.5 % 78.7 % Schedule of employer's PERA contributions - General Employees Retirement Fund Year Ending 12/31/15 Required Supplementary Information $ 668,633 $ 668,633 $ $ 8,915,107 7.5 % Schedule of employer's share of PERA net pension liability - Public Employees Police and Fire Fund Contributions in Required Supplementary Information Relation to the Statutorily Statutorily Contribution City's Contributions as Required Required Deficiency Covered a Percentage of Contribution Contribution (Excess) Payroll Covered Payroll (a) (b) (a -b) (c) (b/c) $ 668,633 $ 668,633 $ $ 8,915,107 7.5 % Schedule of employer's share of PERA net pension liability - Public Employees Police and Fire Fund -90- Required Supplementary Information City's State's Proportionate Proportionate Share of the City's Share of Net Pension Proportionate the Net Pension Liability as a Plan Fiduciary City's Share of Liability City's Percentage of Net Position Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage Year the Net Pension Liability the City Total Payroll Payroll of the Total Ending Liability (a) (b) (a+b) (c) ((a+b)/c) Pension Liability 06/30/15 0.3040 % $ 3,454,151 $ - $ 3,454,151 $ 2,788,952 123.9 % 86.6 % -90- CITY OF ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2015 Schedule of employer's PERA contributions - Public Employees Police and Fire Fund Year Ending 12/31/15 Required Supplementary Information $ 478,192 $ 478,192 $ $ 2,951,802 16.2 % Schedule of changes in the Fire Relief Association's net pension liability (asset) and related ratios Contributions in Total pension liability 164,825 Service cost $ 93,312 Relation to the 126,522 Changes of benefit terms 62,318 Statutorily Statutorily Contribution City's Contributions as Required Required Deficiency Covered a Percentage of Contribution Contribution (Excess) Payroll Covered Payroll (a) (b) (a -b) (c) (b/c) $ 478,192 $ 478,192 $ $ 2,951,802 16.2 % Schedule of changes in the Fire Relief Association's net pension liability (asset) and related ratios Total pension liability - December 31, 2014 (a) $ 2,235,966 Plan fiduciary net position Contributions - employer 2015 Total pension liability 164,825 Service cost $ 93,312 Interest 126,522 Changes of benefit terms 62,318 Net change in total pension liability 282,152 Total pension liability - January 1, 2014 1,953,814 Total pension liability - December 31, 2014 (a) $ 2,235,966 Plan fiduciary net position Contributions - employer $ 30,000 Contributions - state 164,825 Net investment income 124,109 Administrative expense (8,634) Net change in plan fiduciary net position 310,300 Plan fiduciary net position - January 1, 2014 2,880,579 Plan fiduciary net position - December 31, 2014 (b) $ 3,190,879 Fire Reliefs net pension liability (asset) - December 31, 2014 (a -b) $(954,913) Plan fiduciary net position as a percentage of the total pension liability (b/a) 142.71% Covered -employee payroll N/A Fire Reliefs net pension liability (asset) as a percentage of covered -employee payroll N/A Notes to Schedule Benefit changes. In 2015, the benefit terms were modified to base public safety employee pensions on a final three-year average salary instead of a final five- year average salary. Changes of assumptions. In 2015, amounts reported as changes of assumptions resulted primarily from adjustments to expected retirement ages of general employees. In 2015, amounts reported as changes of assumptions resulted primarily from adjustments to expected retirement ages of public safety employees. In 2015, amounts reported as changes of assumptions resulted primarily from adjustments to assumed life expectancies as a result of adopting the RP -2000 Healthy Annuitant Mortality Table for purposes of developing mortality rates. This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10 -year trend is compiled, governments should present information for those years for which information is available. -91- CITY OF ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2015 Schedule of employer's Fire Relief Association contributions Schedule of funding progress for the other postemployment benefit plans Municipal Retiree Health Plan Required Supplementary Information Unfunded Actuarial Actual Contribution Actuarial Actuarial Determined Contributions Deficiency Year Contribution Paid (Excess) Ending (a) (b) (a -b) 12/31/15 $ 174,826 $ 204,826 $ (30,000) 12/31/14 164,825 194,825 (30,000) 12/31/13 167,103 197,103 (30,000) Schedule of funding progress for the other postemployment benefit plans Municipal Retiree Health Plan Utilities Retiree Health Plan Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Annual Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets (a) Liability (b) Liability (b -a) Rate Payroll (c) Payroll ((b-a)/c) 01/01/08 $ - $ 88,718 $ 88,718 - % $ 4,095,000 2.17 % O1/01/11 - 908,610 908,610 - 6,901,671 13.17 01/01/14 - 996,344 996,344 - 7,442,216 13.39 Utilities Retiree Health Plan -92- 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 - % $ 2,300,000 2.47 % O1/01/11 - 42,681 42,681 - 2,286,547 1.87 01/01/14 - 68,948 68,948 - 2,810,413 2.45 -92- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -93- city E This page has been left blank intentionally -94- 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. -95- CITY OF ELK RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2015 Special Debt Capital Total Nonmajor Revenue Service Project Governmental Funds Funds Funds Funds ASSETS Cash and investments Receivables Interest Taxes Accounts Special assessments Notes, net Due from other governments Due from other funds Prepaid items Land held for resale TOTAL ASSETS LIABILITIES Accounts payable Salaries payable Due to other funds Unearned revenue TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes Unavailable revenues - special assessments TOTAL DEFERRED INFLOWS OF RESOURCES FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned TOTAL FUND BALANCES TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 5,272,042 $ 1,030,379 $ 14,401,726 $ 20,704,147 12,882 3,156 44,648 60,686 9,196 7,956 392 17,544 186,543 - 110,986 297,529 - 238,126 1,107,237 1,345,363 1,893,461 - - 1,893,461 1,645 - 5,590 7,235 1,075,414 - 71,427 1,146,841 103,295 - - 103,295 261,400 - - 261,400 $ 8,815,878 $ 1,279,617 $ 15,742,006 $ 25,837,501 $ 184,958 $ - $ 213,688 $ 398,646 6,567 - - 6,567 14,485 - 94,703 109,188 - - 549,968 549,968 206,010 - 858,359 1,064,369 5,411 5,576 392 11,379 - 236,216 1,103,422 1,339,638 5,411 241,792 1,103,814 1,351,017 103,295 - - 103,295 1,812,499 1,037,825 401,872 3,252,196 5,329,017 - - 5,329,017 1,359,646 - 14,219,878 15,579,524 - - (841,917) (841,917) 8,604,457 1,037,825 13,779,833 23,422,115 $ 8,815,878 $ 1,279,617 $ 15,742,006 $ 25,837,501 -96- CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2015 REVENUES Taxes Property taxes Intergovernmental revenue Charges for services Fines and forfeits Special assessments Interest income Miscellaneous Landfill expansion fee Refunds and reimbursements Contributions Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Culture and recreation Economic development Debt service Principal Interest and service charges Capital outlay General government Public safety Public works Culture and recreation Economic development TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Sale of capital assets TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 -97- Special Debt Capital Total Nonmajor Revenue Service Project Governmental Funds Funds Funds Funds $ 541,194 $ 370,135 $ 4,459 $ 915,788 4,859 - 618,830 623,689 849,959 - 43,537 893,496 16,115 - - 16,115 - 162,519 152,740 315,259 102,992 9,914 214,990 327,896 - - 1,052,234 1,052,234 163,409 - - 163,409 30,561 - 344,999 375,560 28,106 - 605 28,711 1,737,195 542,568 2,432,394 4,712,157 89,137 - 134,767 223,904 30,927 - 111,513 142,440 29,195 - 135,393 164,588 809,667 - 184,201 993,868 436,695 - - 436,695 - 1,175,000 - 1,175,000 - 413,140 16,273 429,413 - - 55,707 55,707 - - 694,450 694,450 - - 377,211 377,211 127,835 - 34,552 162,387 186,595 - - 186,595 1,710,051 1,588,140 1,744,067 5,042,258 27,144 (1,045,572) 688,327 (330,101) 436,580 1,100,163 1,232,394 2,769,137 (1,427,447) - (2,727,828) (4,155,275) 2,954,240 - 63,434 3,017,674 1,963,373 1,100,163 (1,432,000) 1,631,536 1,990,517 54,591 (743,673) 1,301,435 6,613,940 983,234 14,523,506 22,120,680 $ 8,604,457 $ 1,037,825 $ 13,779,833 $ 23,422,115 city E This page has been left blank intentionally -98- 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. 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. 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 Authority - This fund was established to account for a special tax levy authorized to help encourage development in the City. -99- CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS DECEMBER 31, 2015 ASSETS Cash and investments Receivables Interest Taxes Accounts Notes, net Due from other governments Due from other funds Prepaid items Land held for resale TOTAL ASSETS LIABILITIES Accounts payable Salaries payable Due to other funds TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes FUND BALANCES Nonspendable Restricted Committed Assigned TOTAL FUND BALANCES TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES -100- Revolving Library Ice Arena Landfill Loan $ 414,383 $ 256,270 $ 1,227,917 $ 950,710 1,269 785 3,914 2,945 1,265 - - - - 174,959 88 - - - - 286,963 - 2,240 - - $ 416,917 $ 434,254 $ 11231,919 $ 11240,618 225 $ 158,638 $ 3,308 $ 2,465 - 5,209 90 - 295 163,847 3,398 2,465 844 - - - - - 460,524 - 415,778 270,407 - 1,238,153 - - 767,997 - 415,778 270,407 1,228,521 1,238,153 $ 416,917 $ 434,254 $ 11231,919 $ 11240,618 -101- Drug Economic Federal State Insurance Forfeiture YMCA Development DEED DEED Development Reserve Reserve Grant Authority Total $ 200,000 $ 94,526 $ 853,098 $ 184,663 $ 13,579 $ 136,849 $ 940,047 $ 5,272,042 - 293 2,643 572 42 419 - 12,882 - - 3,771 - - - 4,160 9,196 - - - 11,496 - - - 186,543 - 317,909 1,288,589 - - - - 1,893,461 - - - - 203 - 1,442 1,645 - - 1,073,174 - - - - 1,075,414 - - - 103,295 - - - 103,295 - - - - - - 261,400 261,400 $ 200,000 $ 412,728 $ 3,221,275 $ 300,026 $ 13,824 $ 137,268 $ 1,207,049 $ 8,815,878 - $ - $ 63 $ 15,781 $ - $ - $ 4,478 $ 184,958 - - - - - - 1,268 6,567 - - - - - - 14,415 14,485 - - 63 15,781 - - 20,161 206,010 - - 2,743 - - - 1,824 5,411 - - - 103,295 - - - 103,295 200,000 407,468 - - 12,099 92,564 639,844 1,812,499 - 5,260 3,218,469 180,950 - - - 5,329,017 - - - - 1,725 44,704 545,220 1,359,646 200,000 412,728 3,218,469 284,245 13,824 137,268 1,185,064 8,604,457 200,000 $ 412,728 $ 31221,275 $ 300,026 $ 13,824 $ 137,268 $ 11207,049 $ 81815,878 -101- 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, 2015 REVENUES Property taxes Intergovernmental revenue Charges for services Fines and forfeits Interest income Miscellaneous Refunds and reimbursements Contributions Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Culture and recreation Economic development Capital outlay Culture and recreation Economic development TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Sale of capital assets TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 -102- - - 29,195 - 102,475 707,192 - - - - - 3,572 - 127,835 - - 102,475 835,027 29,195 3,572 (9,691) (45,432) 5,532 21,455 - - (89,534) - - - (89,534) - (9,691) (45,432) (84,002) 21,455 425,469 315,839 1,312,523 1,216,698 $ 415,778 $ 270,407 $ 11228,521 $ 11238,153 Revolving Library Ice Arena Landfill Loan $ 62,513 $ - $ - $ - - - 4,680 - - 760,825 11,134 2,500 5,560 4,757 18,913 12,399 - - - 3,139 24,711 5,850 - - - 18,163 - 6,989 92,784 789,595 34,727 25,027 -102- - - 29,195 - 102,475 707,192 - - - - - 3,572 - 127,835 - - 102,475 835,027 29,195 3,572 (9,691) (45,432) 5,532 21,455 - - (89,534) - - - (89,534) - (9,691) (45,432) (84,002) 21,455 425,469 315,839 1,312,523 1,216,698 $ 415,778 $ 270,407 $ 11228,521 $ 11238,153 - - - 89,137 Drug - Economic 89,137 Federal State - Insurance Forfeiture YMCA Development 30,927 DEED DEED Development Reserve Reserve Grant Authority Total $ - $ - $ 155,624 $ - $ - $ - $ 323,057 $ 541,194 - - - - - - 179 4,859 - 2,000 70,000 - - - 3,500 849,959 - - - - 16,115 - - 16,115 1,728 5,828 44,739 3,037 428 3,128 2,475 102,992 - - 57,555 102,332 - - 383 163,409 - - - - - - - 30,561 - 2,954 - - - - - 28,106 1,728 10,782 327,918 105,369 16,543 3,128 329,594 1,737,195 - - - 89,137 - - - 89,137 - - - - 30,927 - - 30,927 - - - - - - - 29,195 - - - - - - - 809,667 - 7,945 192,294 - - - 232,884 436,695 - - - - - - - 127,835 - - 186,595 - - - - 186,595 - 7,945 378,889 89,137 30,927 - 232,884 1,710,051 1,728 2,837 (50,971) 16,232 (14,384) 3,128 96,710 27,144 - - - - - - 436,580 436,580 - - (1,055,913) - - (250,000) (32,000) (1,427,447) - - 2,954,240 - - - - 2,954,240 - - 1,898,327 - - (250,000) 404,580 1,963,373 1,728 2,837 1,847,356 16,232 (14,384) (246,872) 501,290 1,990,517 198,272 409,891 1,371,113 268,013 28,208 384,140 683,774 6,613,940 $ 200,000 $ 412,728 $ 31218,469 $ 284,245 $ 13,824 $ 137,268 $ 11185,064 $ 81604,457 -103- CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LIBRARY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2015 REVENUES Property taxes Interest income Miscellaneous Contributions TOTAL REVENUES EXPENDITURES Current Culture and recreation NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 Budget Original Final $ 63,100 $ 63,100 6,400 6,400 Actual $ 62,513 5,560 Variance with Final Budget $ (587) (840) 28,900 28,900 24,711 (4,189) 98,400 98,400 92,784 (5,616) 98,400 119,400 102,475 16,925 $ - $ (21,000) (9,691) $ 11,309 -104- 425,469 $ 415,778 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ICE ARENA SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2015 REVENUES Charges for services Interest income Miscellaneous Vending machines Contributions Other TOTAL REVENUES EXPENDITURES Current Culture and recreation Capital outlay Culture and recreation TOTAL EXPENDITURES NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 Budget Original Final Actual Final Budget $ 758,350 $ 758,350 2,200 2,200 14,000 14,000 6,500 6,500 694,600 Variance with Actual Final Budget $ 760,825 $ 2,475 4,757 2,557 15,360 1,360 5,850 (650) 694,600 694,600 707,192 (12,592) 11,500 11,500 127,835 (116,335) 706,100 706,100 835,027 (128,927) $ 79,050 $ 79,050 (45,432) $ (124,482) -105- 315,839 $ 270,407 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LANDFILL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2015 Budget Original Final REVENUES Intergovernmental $ 2,500 $ 2,500 Charges for services 11,000 11,000 Interest income 8,500 8,500 TOTAL REVENUES 22,000 22,000 EXPENDITURES Current Public works EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING USES Transfers out NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 36,850 40,850 29,195 11,655 (14,850) (18,850) 5,532 24,382 (68,550) (68,550) (89,534) (20,984) $ (83,400) $ (87,400) (84,002) $ 3,398 1,312,523 $ 1,228,521 -106- Variance with Actual Final Budget 4,680 $ 2,180 11,134 134 18,913 10,413 34,727 12,727 36,850 40,850 29,195 11,655 (14,850) (18,850) 5,532 24,382 (68,550) (68,550) (89,534) (20,984) $ (83,400) $ (87,400) (84,002) $ 3,398 1,312,523 $ 1,228,521 -106- CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ECONOMIC DEVELOPMENT AUTHORITY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2015 REVENUES Property taxes Intergovernmental Charges for services Interest income Miscellaneous Refunds and reimbursements TOTAL REVENUES EXPENDITURES Current Economic development EXCESS OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 Budget 268,500 232,884 Variance with Original Final Actual Final Budget $ 345,750 $ 345,750 $ 323,057 $ (22,693) - - 179 179 3,500 3,500 3,500 - 4,500 4,500 2,475 (2,025) - - 383 383 353,750 353,750 329,594 (24,156) 253,100 268,500 232,884 35,616 100,650 85,250 96,710 11,460 - - 436,580 436,580 (32,000) (32,000) (32,000) - (32,000) (32,000) 404,580 436,580 $ 68,650 $ 53,250 501,290 $ 448,040 -107- 683,774 $ 1,185,064 city E This page has been left blank intentionally -108- 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. -109- CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR DEBT SERVICE FUNDS DECEMBER 31, 2015 ASSETS Cash and investments Receivables Interest Taxes Special assessments TOTAL ASSETS DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes Unavailable revenues - special assessments TOTAL DEFERRED INFLOWS OF RESOURCES FUND BALANCES Restricted TOTAL DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES -110- Government Improvement Building Bonds Bonds Total $ 247,796 $ 782,583 $ 1,030,379 759 2,397 3,156 271 7,685 7,956 238,126 - 238,126 $ 486,952 $ 792,665 $ 1,279,617 $ 533 $ 5,043 $ 5,576 236,216 - 236,216 236,749 5,043 241,792 250,203 787,622 1,037,825 $ 486,952 $ 792,665 $ 1,279,617 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, 2015 REVENUES Property taxes Special assessments Interest income TOTAL REVENUES EXPENDITURES Debt service Principal Interest and service charges TOTAL EXPENDITURES DEFICIENCY OF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES Transfers in NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 -111- Government Improvement Building Bonds Bonds Total $ 65 $ 370,070 $ 370,135 162,519 - 162,519 2,171 7,743 9,914 164,755 377,813 542,568 310,000 865,000 1,175,000 21,550 391,590 413,140 331,550 1,256,590 1,588,140 (166,795) (878,777) (1,045,572) 181,348 918,815 1,100,163 14,553 40,038 54,591 235,650 747,584 983,234 $ 250,203 $ 787,622 $ 1,037,825 city E This page has been left blank intentionally -112- 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. Government Buildings - This fund is used to account for resources and expenditures related to City facilities projects. The major source of revenue is from landfill expansion fees. GRE Reserve - This fund was established to account for revenues received from the license agreement between the City and Great River Energy. Street Improvements - This fund is used to account for the construction of street improvement projects throughout the City. hnprovement Projects — This fund is used to account for the construction of various improvements within the City. -113- CITY OF ELK RIVER, MINNESOTA SUBCOMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS DECEMBER 31, 2015 ASSETS Cash and temporary investments Receivables Interest Delinquent taxes Accounts Special assessments Due from other governments Due from other funds TOTAL ASSETS LIABILITIES Accounts payable Due to other funds Unearned revenue TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes Unavailable revenues - special assessments TOTAL DEFERRED INFLOWS OF RESOURCES FUND BALANCES Restricted Assigned Unassigned TOTAL FUND BALANCES TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES -114- Capital Equipment Park Reserve Replacement Dedication $ 999,092 $ 723,299 $ 63,450 3,132 2,241 194 - 54 - 6,389 - - 5,590 - - 9,991 61,436 - $ 1,024,194 $ 787,030 $ 63,644 $ 44,433 $ 96,733 $ 3,350 - - 549,968 44,433 96,733 553,318 6,390 - - 6,390 - - - - 352,243 973,371 690,297 - - - (841,917) 973,371 690,297 (489,674) $ 1,024,194 $ 787,030 $ 63,644 -115- Park Government GRE Street huprovement Improvements Buildings Reserve Improvements Projects Total $ 365,057 $ 3,741,957 $ 2,746,493 $ 1,933,296 $ 3,829,082 $ 14,401,726 1,118 11,593 8,509 5,998 11,863 44,648 - - - 338 - 392 - 110,986 - - - 110,986 - - - 424,503 676,345 1,107,237 - - - - - 5,590 - - - - - 71,427 $ 366,175 $ 3,864,536 $ 2,755,002 $ 2,364,135 $ 4,517,290 $ 15,742,006 $ 5 $ 5,000 $ - $ 64,167 $ - $ 213,688 - - - - 94,703 94,703 - - - - - 549,968 5 5,000 - 64,167 94,703 858,359 - - - 392 - 392 - - - 420,863 676,169 1,103,422 - - - 421,255 676,169 1,103,814 49,629 - - - - 401,872 316,541 3,859,536 2,755,002 1,878,713 3,746,418 14,219,878 - - - - - (841,917) 366,170 3,859,536 2,755,002 1,878,713 3,746,418 13,779,833 $ 366,175 $ 3,864,536 $ 2,755,002 $ 2,364,135 $ 4,517,290 $ 15,742,006 -115- -116- 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, 2015 Capital Equipment Park Reserve Replacement Dedication REVENUES Property taxes $ - $ 105 $ - Intergovernmental revenue 16,237 255,596 - Charges for services - - 26,807 Special assessments 9,094 - - Interest income 21,436 10,407 1,112 Miscellaneous Landfill expansion fee - - - Contributions 128,305 - - Other 605 - - TOTAL REVENUES 175,677 266,108 27,919 EXPENDITURES Current General government 134,767 - - Public safety 65,043 - - Public works 34,491 - - Culture and recreation - - 24,651 Debt service Interest and service charges - - 16,273 Capital outlay General government 55,707 - - Public safety - 623,994 - Public works - 59,097 - Culture and recreation - 34,552 - TOTAL EXPENDITURES 290,008 717,643 40,924 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (114,331) (451,535) (13,005) OTHER FINANCING SOURCES (USES) Transfers in - 334,993 - Transfers out (212,700) - - Sale of capital assets - 63,434 - TOTAL OTHER FINANCING SOURCES (USES) (212,700) 398,427 - NET CHANGE IN FUND BALANCES (327,031) (53,108) (13,005) FUND BALANCES, JANUARY 1 1,300,402 743,405 (476,669) FUND BALANCES, DECEMBER 31 $ 973,371 $ 690,297 $ (489,674) -116- Park Government GRE Street Improvement 1,744,067 Improvements Buildings Reserve Improvements Projects Total $ - $ - $ - $ 4,354 $ - $ 4,459 50,000 - - 296,997 - 618,830 16,730 - - - - 43,537 - - - 137,723 5,923 152,740 4,076 48,486 37,206 24,443 67,824 214,990 - 1,052,234 - - - 1,052,234 7,000 - 209,694 - - 344,999 - - - - - 605 77,806 1,100,720 246,900 463,517 73,747 2,432,394 134,767 46,470 - - - 111,513 - 46,356 - 45,327 9,219 135,393 142,960 16,590 - - - 184,201 - - - - - 16,273 - - - - 55,707 70,456 - - - 694,450 - - 318,114 - 377,211 - - 34,552 142,960 179,872 - 363,441 9,219 1,744,067 (65,154) 920,848 246,900 100,076 64,528 688,327 290,668 - - - 606,733 1,232,394 - (918,815) (39,500) (181,348) (1,375,465) (2,727,828) - - - - - 63,434 290,668 (918,815) (39,500) (181,348) (768,732) (1,432,000) 225,514 2,033 207,400 (81,272) (704,204) (743,673) 140,656 3,857,503 2,547,602 1,959,985 4,450,622 14,523,506 $ 366,170 $ 3,859,536 $ 2,755,002 $ 1,878,713 $ 3,746,418 $ 13,779,833 -117- city E This page has been left blank intentionally -118- 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. -119- CITY OF ELK RIVER, MINNESOTA STATEMENT OF CHANGES IN ASSETS AND LIABILITIES DEVELOPER ESCROW AGENCY FUND FOR THE YEAR ENDED DECEMBER 31, 2015 -120- Beginning Ending Balance Additions Deductions Balance ASSETS Cash $ 91,132 $ 78,781 $ 54,840 $ 115,073 Accounts receivable 266 2,964 2,720 510 TOTAL ASSETS $ 91,398 $ 81,745 $ 57,560 $ 115,583 LIABILITIES Refundable deposits payable $ 91,398 $ 92,784 $ 68,599 $ 115,583 -120- COMPONENT UNIT FINANCIAL STATEMENTS The Housing and Redevelopment Authority of Elk River is a component unit of the City. Its operations are presented as a separate column on the combined financial statements. Governmental Fund Housing and Redevelopment Authority Fund - This fund is used to account for housing and redevelopment activities. Revenues are derived from the HRA property tax levy. -121- HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER, MINNESOTA BALANCESHEET GOVERNMENTAL FUND DECEMBER 31, 2015 ASSETS Cash and investments $ 1,173,921 Receivables Taxes 3,388 Notes 539,413 Due from primary government 215,273 TOTAL ASSETS $ 1,931,995 LIABILITIES Accounts payable $ 11,788 Salaries payable 846 TOTAL LIABILITIES 12,634 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes 1,554 FUND BALANCES Nonspendable 539,413 Restricted 1,378,394 TOTAL FUND BALANCES 1.917.807 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 1,931,995 -122- HOUSING AND REDEVELOPMENT AUTHORITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2015 Amounts reported for governmental activities in the statement of net position are different because Fund balance - housing and redevelopment authority 1. Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds Governmental capital assets Less accumulated depreciation 2. Unavailable revenue in governmental funds is susceptible to full accrual on the government -wide statements. 3. Long-term liabilities are not due and payable in the current period and, therefore are not reported in governmental funds. Net pension liability 4. Governmental funds do not report long-term amounts related to pensions. Deferred outflows of pension resources Deferred inflows of pension resources Net position of housing and redevelopment authority -123- $ 1,917,807 $ 431,390 (35,826) 395,564 1,554 (39,524) 4,629 (9,025) (4,396) $ 2,271,005 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, 2015 REVENUES Property taxes $ 256,740 Intergovernmental revenue 142 Interest income 5,920 Miscellaneous 10 TOTAL REVENUES 262,812 EXPENDITURES Current Economic development 141,525 NET CHANGE IN FUND BALANCES 121,287 FUND BALANCES, JANUARY 1 1,796,520 FUND BALANCES, DECEMBER 31 $ 1,917,807 -124- 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, 2015 Amounts reported for governmental activities in the statement of activities are different because Net change in fund balances - housing and redevelopment authority 1. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation expense exceeded capital outlays in the current period. Depreciation expense 2. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Property taxes Long-term pension activity is not reported in governmental funds. Pension expense Change in net position of housing and redevelopment authority -125- 121,287 (11,619) (2,242) (8,020) $ 99,406 city E This page has been left blank intentionally -126- STATISTICAL SECTION (UNAUDITED) CITY OF ELK RIVER ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2015 -127- city E This page has been left blank intentionally -128- 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 130 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 140 These schedules contain information to help the reader assess the City's most significant local revenue sources; electric sales and property taxes. Debt Capacity 148 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 156 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information 158 These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. -129- Governmental activities Net investment in capital assets Restricted Unrestricted Total governmental activities net position Business -type activities Net investment in capital assets Restricted Unrestricted Total business -type activities net position Primary government CITY OF ELK RIVER, MINNESOTA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) $ 82,663,610 4,802,808 17 4052 Gal Fiscal Year 2007 2008 $ 85,293,459 $ 85,390,968 6,189,063 5,569,773 1G CA] 5220 17 0752 '722 1nno $ 86,149,417 4,723,030 I52 S5252 2nd Net investment in capital assets 11 /,1G+,JJO .D 110,007,'+/'+ .D 117,'+VV,/01 $ 145,751,278 Restricted 5,248,708 6,922,463 $ 59,410,729 $ 59,942,345 $ 60,750,900 $ 59,601,861 445,900 733,400 724,500 724,500 13,839,859 17,028,349 17,696,135 19,793,756 $ 73,696,488 $ 77,704,094 $ 79,171,535 $ 80,120,117 Net investment in capital assets $ 142,074,339 $ 145,235,804 $ 146,141,868 $ 145,751,278 Restricted 5,248,708 6,922,463 6,294,273 5,447,530 Unrestricted 41,838,402 42,670,185 45,324,868 48,382,060 Total primary government net position $ 189,161,449 $ 194,828,452 $ 197,761,009 $ 199,580,868 Note: The City implemented GASB Statement No. 63 and GASB Statement No. 65 in fiscal year 2012. Net position information has been restated for 2011 for this accounting change. Years prior to 2011 have not been restated. -130- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 84,629,091 $ 84,741,957 $ 84,060,768 $ 84,353,785 $ 84,921,650 $ 75,030,579 7,341,554 6,283,346 6,391,182 5,256,724 4,192,856 3,675,588 $ 60,972,838 $ 60,525,218 $ 60,268,219 $ 62,035,437 $ 63,392,972 $ 76,747,269 724,500 724,500 724,500 647,000 490,500 490,500 19,907,416 19,421,085 22,376,508 22,957,506 24,718,391 24,504,299 $ 81,604,754 $ 80,670,803 $ 83,369,227 $ 85,639,943 $ 88,601,863 $ 101,742,068 $ 145,601,929 $ 145,267,175 $ 144,328,987 $ 146,389,222 $ 148,314,622 $ 151,777,848 8,066,054 7,007,846 7,115,682 5,903,724 4,683,356 4,166,088 -131- CITY OF ELK RIVER, MINNESOTA CHANGES IN NET POSITION - CONTINUED ON THE FOLLOWING PAGES LAST TEN FISCAL YEARS (accrual basis of accounting) Note: The City implemented GASB Statement No. 63 and GASB Statement No. 65 in fiscal year 2012. Net position information has been restated for 2011 for this accounting change. Years prior to 2011 have not been restated. -132- Fiscal Year 2006 2007 2008 2009 Expenses Governmental activities General government $ 2,560,213 $ 2,732,697 $ 3,286,350 $ 2,777,568 Public safety 5,606,438 5,924,093 6,715,607 6,106,181 Public works 6,169,030 6,527,565 5,875,992 5,397,058 Culture and recreation 2,859,058 3,598,695 3,549,637 3,767,312 Economic development 631,437 1,001,829 1,893,707 1,569,432 Interest on long-term debt 764,725 952,082 1,315,275 1,252,493 Total governmental activities expenses 18,590,901 20,736,961 22,636,568 20,870,044 Business -type activities Municipal Liquor 5,202,087 5,301,597 5,464,819 5,374,453 Garbage 1,094,788 1,114,133 1,166,709 1,256,177 Sewer 1,721,522 1,786,266 1,849,031 1,781,804 Storm Water - - - - Water 2,104,827 2,413,942 2,506,510 2,334,388 Electric 16,588,510 18,718,636 22,036,471 23,258,383 Total business -type activities expenses 26,711,734 29,334,574 33,023,540 34,005,205 Total primary government expenses $ 45,302,635 $ 50,071,535 $ 55,660,108 $ 54,875,249 Program Revenues Governmental activities Charges for services General government $ 246,541 $ 283,003 $ 371,911 $ 334,100 Public safety 2,403,601 1,533,699 962,275 634,242 Public works 617,099 76,117 159,664 47,860 Culture and recreation 1,065,218 1,083,081 1,084,067 1,074,266 Economic development 178,217 92,486 65,999 60,335 Operating grants and contributions 387,584 362,313 977,411 758,958 Capital grants and contributions 8,117,032 4,174,427 4,302,760 2,599,593 Total governmental activities program revenues 13,015,292 7,605,126 7,924,087 5,509,354 Business -type activities Charges for services Municipal Liquor 5,906,768 6,043,088 6,213,657 6,094,058 Garbage 1,106,268 1,139,763 1,160,774 1,194,937 Sewer 1,352,647 1,454,219 1,511,165 1,504,785 Storm Water - - - - Water 1,770,819 2,144,622 2,139,046 2,218,816 Electric 17,143,485 19,895,323 22,941,903 24,258,120 Operating grants and contributions 504,168 295,081 149,327 92,957 Capital grants and contributions 4,297,666 1,996,636 888,925 267,233 Total business -type activities program revenues 32,081,821 32,968,732 35,004,797 35,630,906 Total primary government program revenues $ 45,097,113 $ 40,573,858 $ 42,928,884 $ 41,140,260 Note: The City implemented GASB Statement No. 63 and GASB Statement No. 65 in fiscal year 2012. Net position information has been restated for 2011 for this accounting change. Years prior to 2011 have not been restated. -132- Fiscal Year Imn InIl InIl InIl IMA Imc $ 3,028,102 $ 3,495,458 $ 2,994,342 $ 3,344,317 $ 3,554,136 $ 3,619,293 6,011,477 6,238,611 6,187,246 6,173,244 6,615,593 6,720,283 5,447,282 5,720,759 6,037,000 6,535,616 6,860,673 5,351,630 3,702,671 3,851,181 4,013,098 3,914,000 4,088,992 3,970,704 1,438,742 1,451,109 1,059,058 2,088,064 1,091,125 959,414 1,138,414 1,045,905 1,163,352 1,288,020 1,075,408 1,084,902 20,766,688 21,803,023 21,454,096 23,343,261 23,285,927 21,706,226 4,382,215 5,172,172 4,404,322 4,617,928 7,736,872 7,434,417 5,267,041 5,366,557 5,622,305 5,706,760 5,776,873 5,945,126 1,331,514 1,304,238 1,276,887 1,251,420 1,303,943 1,382,890 1,962,431 2,130,287 2,239,914 2,320,743 2,156,329 2,318,709 - - - - - 736,411 2,089,889 2,108,499 2,264,814 2,332,680 2,459,319 2,478,904 25,452,567 26,726,349 27,586,573 28,422,759 29,597,247 30,012,830 36,103,442 37,635,930 38,990,493 40,034,362 41,293,711 42,874,870 $ 56,870,130 $ 59,438,953 $ 60,444,589 $ 63,377,623 $ 64,579,638 $ 64,581,096 $ 301,509 $ 425,954 $ 369,794 $ 338,469 $ 385,238 $ 439,826 722,073 787,884 789,728 961,072 1,063,725 1,194,458 61,605 79,073 82,173 206,606 233,593 174,452 1,089,058 1,102,630 1,128,070 1,075,576 906,291 925,591 125,759 70,976 8,244 274,833 77,430 92,716 763,551 954,831 1,018,519 954,164 1,049,744 1,033,338 1,318,660 1,750,824 1,007,794 807,208 4,020,851 3,574,036 4,382,215 5,172,172 4,404,322 4,617,928 7,736,872 7,434,417 5,953,626 6,145,692 6,525,234 6,756,581 6,825,342 6,974,336 1,282,013 1,310,014 1,302,920 1,285,138 1,304,750 1,321,301 1,483,120 1,491,460 1,533,851 1,613,276 1,734,141 1,818,476 - - - - - 355,454 1,961,760 1,917,384 2,343,881 2,381,651 2,290,824 2,379,835 26,840,983 28,657,698 30,403,469 31,029,299 31,596,217 32,831,209 103,324 38,550 23,440 - - - 397,989 482,319 490,916 924,641 935,909 2,708,564 38,022,815 40,043,117 42,623,711 43,990,586 44,687,183 48,389,175 $ 42,405,030 $ 45,215,289 $ 47,028,033 $ 48,608,514 $ 52,424,055 $ 55,823,592 -133- CITY OF ELK RIVER, MINNESOTA CHANGES IN NET POSITION - CONTINUED LAST TEN FISCAL YEARS (accrual basis of accounting) Net (expense)/revenue Governmental activities Business -type activities Total primary government net (expense)/revenue General Revenues and Other Changes in Net Position Governmental activities Property taxes Tax increment Other taxes Unrestricted grants and contributions Investment earnings Miscellaneous Transfers of capital assets Transfers Total governmental activities Business -type activities Investment earnings Miscellaneous Transfers of capital assets Transfers Total business -type activities Total primary government Change in Net Position Governmental activities Business -type activities Total primary government Fiscal Year 2006 2007 2008 2009 $ (5,575,609) $ (13,131,835) $ (14,712,481) 5,370,087 3,634,158 1,981,257 $ (205,522) $ (9,497,677) $ (12,731,224) $ 8,754,923 $ 9,744,930 $ 11,095,407 790,882 894,595 1,041,300 2,577,700 2,395,665 1,775,536 1,151,144 1,465,401 1,215,053 28,450 23,213 - - (511,412) - 908,826 778,840 1,050,301 14,211,925 14,791,232 16,177, 597 589,210 640,876 534,485 2,108 - 2,000 - 511,412 - (908,826) (778,840) (1,050,301) (317,508) 373,448 (513,816) $ 13,894,417 $ 15,164,680 $ 15,663,781 $ 8,636,316 $ 1,659,397 $ 1,465,116 5,052,579 4,007,606 1,467,441 $ 13,688,895 $ 5,667,003 $ 2,932,557 Note: The City implemented GASB Statement No. 63 and GASB Statement No. 65 in fiscal year 2012. Net position information has been restated for 2011 for this accounting change. Years prior to 2011 have not been restated. -134- $ (15,360,690) 1,625,701 $ (13,734,989) $ 11,440,991 1,080,142 156,894 1,940,274 548,651 20,013 1,045,002 16,231,967 367,883 (1,045,002) (677,119) $ 15,554,848 $ 871,277 948,582 $ 1,819,859 Fiscal Year 2010 2011 2012 2013 2014 2015 $ (16,384,473) $ (16,630,851) $ (17,049,774) $ (18,725,333) $ (15,549,055) $ (14,271,809) 1,919,373 2,407,187 3,633,218 3,956,224 3,393,472 5,514,305 $ (14,465,100) $ (14,223,664) $ (13,416,556) $ (14,769,109) $ (12,155,583) $ (8,757,504) $ 11,254,752 $ 11,398,819 $ 10,854,241 $ 10,742,370 $ 10,378,906 $ 10,667,306 1,071,099 947,486 830,204 87,848 130,325 264,639 193,466 83,748 125,623 829,112 1,441,259 1,513,621 2,000,923 1,702,334 1,307,662 1,436,135 1,749,886 1,642,098 359,733 499,034 319,654 (663,762) 1,137,024 512,193 61,308 23,233 49,470 629,177 29,593 2,796,041 (303,051) - (348,259) (121,172) (313,287) (11,188,695) 958,389 3,610,854 1,504,263 1,565,206 1,332,023 297,362 15,596,619 18,265,508 14,642,858 14,504,914 15,885,729 6,504,565 220,602 269,716 219,950 (243,047) 557,659 259,494 - - 1,260 1,572 29,525 8,899 303,051 - 348,259 121,172 313,287 11,188,695 (958,389) (3,610,854) (1,504,263) (1,565,206) (1,332,023) (297,362) (434,736) (3,341,138) (934,794) (1,685,509) (431,552) 11,159,726 $ 15,161,883 $ 14,924,370 $ 13,708,064 $ 12,819,405 $ 15,454,177 $ 17,664,291 $ (787,854) $ 1,634,657 $ (2,406,916) $ (4,220,419) $ 336,674 $ (7,767,244) 1,484,637 (933,951) 2,698,424 2,270,715 2,961,920 16,674,031 $ 696,783 $ 700,706 $ 291,508 $ (1,949,704) $ 3,298,594 $ 8,906,787 -135- CITY OF ELK RIVER, MINNESOTA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) Fiscal Year 2006 2007 2008 2009 General fund Reserved $ - $ 5,938 $ - $ - Unreserved 4,816,386 5,346,066 5,190,662 5,699,575 Nonspendable - - - - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total General fund $ 4,816,386 $ 5,352,004 $ 5,190,662 $ 5,699,575 All other governmental funds Reserved $ 9,979,026 $ 14,453,663 $ 6,953,630 $ 6,535,205 Unreserved, reported in Special revenue funds 5,070,764 3,849,815 7,751,286 7,844,537 Capital projects funds 8,091,573 9,179,236 9,574,268 10,101,066 Nonspendable - - - - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total all other governmental funds $ 23,141,363 $ 27,482,714 $ 24,279,184 $ 24,480,808 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. -136- Fiscal Year 2010 2011 2012 2013 2014 2015 -137- - - 20,201 14,628 22,725 23,676 - 20,390 - - - 7,000 91,502 156,323 208,486 247,937 317,929 376,943 727,443 859,508 200,000 - - - 5,187,520 5,261,391 5,776,627 5,791,725 5,822,948 6,157,179 $ 6,006,465 $ 6,297,612 $ 6,205,314 $ 6,054,290 $ 6,163,602 $ 6,564,798 -137- 93,080 57,870 101,812 99,703 101,910 103,295 6,936,113 5,942,368 7,608,842 14,800,868 13,925,683 13,202,500 2,506,814 2,712,645 2,456,185 4,393,689 5,829,001 8,099,951 16,984,061 19,736,795 19,219,810 15,455,671 15,883,279 15,579,524 (1,011,820) (1,059,647) (1,384,984) (2,324,550) (2,527,613) (2,438,049) $ 25,508,248 $ 27,390,031 $ 28,001,665 $ 32,425,381 $ 33,212,260 $ 34,547,221 -137- CITY OF ELK RIVER, MINNESOTA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) Other financing sources (uses) Transfers in 5,923,474 Fiscal Year 3,868,359 2,887,624 2006 2007 2008 2009 Revenues Proceeds of long-term debt 3,657,000 13,390,500 2,277,946 Property taxes $ 9,529,773 $ 10,571,695 $ 12,037,076 $ 12,329,194 Other taxes - - - 156,894 Licenses and permits 1,207,368 987,708 460,108 322,338 Intergovernmental 4,142,937 2,973,505 4,134,779 3,117,997 Charges for services 2,485,464 1,786,094 1,849,307 1,465,898 Fines and forfeits 175,155 156,407 150,086 141,629 Special assessments 1,566,880 1,909,595 1,712,551 1,464,348 Interest 1,151,144 1,465,401 1,215,053 548,651 Miscellaneous 2,555,842 1,545,181 1,628,567 1,853,966 Total revenues 22,814,563 21,395,586 23,187,527 21,400,915 Expenditures General government 2,251,111 2,450,722 2,480,208 2,458,879 Public safety 4,941,706 5,109,371 5,565,474 5,377,208 Public works 2,538,658 4,170,119 3,246,436 2,656,097 Culture and recreation 2,605,861 3,386,681 2,890,683 2,666,146 Economic development 627,467 573,446 2,216,617 1,589,464 Capital outlay 10,729,882 12,803,023 10,381,359 4,627,322 Debt service Principal 7,051,836 1,767,617 2,022,616 3,162,117 Interest and service charges 909,904 902,415 1,198,174 1,289,087 Bond issuance costs - - - - Total expenditures 31,656,425 31,163,394 30,001,567 23,826,320 Excess (deficiency) of revenues over (under) expenditures (8,841,862) (9,767,808) (6,814,040) (2,425,405) Other financing sources (uses) Transfers in 5,923,474 4,785,257 3,868,359 2,887,624 Transfers out (5,014,648) (4,006,417) (2,818,058) (1,842,622) Proceeds of long-term debt 3,657,000 13,390,500 2,277,946 2,074,311 Premium on long-term debt issued - - 36,542 - Discount on long-term debt issued (29,252) (50,477) - - Payment to refunded bond escrow agent - - - - Principal paid on refunded bonds - - - - Capital leases issued 2,332,694 325,000 - - Sale of capital assets 17,439 200,914 84,379 16,629 Total other financing sources (uses) 6,886,707 14,644,777 3,449,168 3,135,942 Net change in fund balances $ (1,955,155) $ 4,876,969 $ (3,364,872) $ 710,537 Debt service as a percentage of noncapital expenditures 37.1% 15.1% 16.9% 23.7% -138- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 12,355,953 $ 12,461,403 $ 11,720,311 $ 10,930,129 $ 10,640,251 $ 10,953,633 193,466 83,748 125,623 829,112 1,441,259 1,513,621 402,076 432,875 408,232 513,779 559,286 639,791 1,135,060 1,678,555 1,436,613 1,161,458 838,573 3,913,721 1,727,276 1,573,367 1,659,986 1,926,906 2,091,107 1,761,958 161,074 149,102 137,819 163,481 160,298 169,459 999,633 989,101 845,112 764,006 881,271 315,259 359,731 499,034 319,654 (663,763) 1,146,462 512,193 2,587,771 2,568,159 1,980,207 2,193,571 2,358,709 2,169,789 19,922,040 20,435,344 18,633,557 17,818,679 20,117,216 21,949,424 2,629,731 3,157,307 2,615,582 2,956,500 3,181,547 3,365,570 5,266,803 5,291,617 5,352,249 5,497,493 5,909,653 6,203,211 2,291,196 2,752,469 2,931,726 2,800,012 2,974,219 2,318,123 2,569,464 2,663,806 2,839,466 2,652,817 2,881,985 2,816,411 1,512,138 1,479,140 1,087,467 1,656,922 1,095,535 954,673 1,879,604 2,874,212 10,264,274 5,243,189 2,277,477 5,251,352 2,411,062 2,618,146 2,127,000 2,194,000 1,535,000 1,505,000 1,126,789 1,059,804 996,454 1,129,572 1,105,114 1,113,963 GG 7nA G4 nnn I GZ '7nG 179,049 (1,461,157) (9,649,561) (6,465,621) (843,314) (1,578,879) 2,682,562 5,978,905 4,792,943 6,457,233 4,837,016 4,703,787 (1,724,173) (2,368,051) (3,288,680) (4,892,027) (3,504,993) (4,406,425) 6,184,243 - 8,500,000 9,685,000 - - 255,238 - 115,164 341,700 - - (6,303,897) - - - - - - - - (1,540,000) - - 61,308 23,233 49,470 686,407 44,827 3,017,674 1,155,281 3,634,087 10,168,897 10,738,313 1,376,850 3,315,036 $ 1,334,330 $ 2,172,930 $ 519,336 $ 4,272,692 $ 533,536 $ 1,736,157 19.8% 19.6% 17.1% 16.9% 14.1% 14.3% -139- CITY OF ELK RIVER, MINNESOTA ELECTRIC SALES LAST TEN FISCAL YEARS Fiscal Number of Total Year Customers KWh's Sold Billings 2006 8,562 194,975,530 $ 15,494,068 2007 8,945 211,298,886 17,704,210 2008 9,203 224,226,048 22,303,994 2009 9,170 232,772,722 23,591,485 2010 9,207 250,711,834 26,060,301 2011 9,227 261,235,297 27,894,341 2012 9,285 273,455,846 30,070,045 2013 9,358 273,945,354 30,983,220 2014 9,449 274,546,059 31,517,888 2015 10,499 282,265,268 32,704,279 Source: Elk River Municipal Utilities -140- Customer Customer 1 Customer 2 Customer 3 Customer 6 Customer 4 Customer 5 Customer 7 Customer 8 Customer 9 Customer 10 Customer 11 Customer 12 TOTAL Total KWh 55,070,400 26,035,200 5,634,000 5,265,000 4,779,200 4,490,400 3,448,750 3,427,000 2,912,600 2,724,000 CITY OF ELK RIVER, MINNESOTA PRINCIPAL ELECTRIC CUSTOMERS CURRENT YEAR AND NINE YEARS AGO 2015 113,786,550 $ 9,219,697 30.32 % 2006 Percentage Total KWh Total of Total Sold Billings Billings 6,470,200 Percentage Total of Total Billings Billings $ 3,991,415 13.13 % 2,302,359 7.57 517,594 1.70 470,441 1.55 440,325 1.45 333,193 1.1 326,632 1.07 312,539 1.03 259,606 0.85 265,593 0.87 113,786,550 $ 9,219,697 30.32 % 2006 Percentage Total KWh Total of Total Sold Billings Billings 6,470,200 392,236 6,063,000 363,712 5,284,000 313,778 4,783,180 308,467 3,427,200 221,442 3,373,400 200,284 3,223,200 213,055 2,407,920 158,266 1,888,400 145,310 36,920,500 $ 2,316,550 Source: Elk River Municipal Utilities Minnesota Statute 13.685 considers data on customers of municipal electric utilities as private data and will no longer be disclosing customer names. -141- �o 2.53 2.35 2.03 1.99 1.43 1.29 1.38 1.02 0.94 14.96 % CITY OF ELK RIVER, MINNESOTA TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS 2006 2007 2008 2009 Tax capacity Real property Personal property Total tax capacity Tax increment Taxable net tax capacity Total tax capacity rate Taxable market value Real property Personal property Taxable market value Estimated actual market value of taxable property Taxable market value as a percentage of estimated actual market value $ 20,514,092 $ 23,166,911 $ 25,790,055 $ 26,550,210 246,741 281,606 279,154 302,166 20,760,833 23,448,517 26,069,209 26,852,376 (675,049) (786,795) (744,597) (899,835) $ 20,085,784 $ 22,661,722 $ 25,324,612 $ 25,952,541 43.929% 43.056% 42.494% 43.280% $1,773,917,600 $1,998,598,900 $2,186,595,580 $ 2,235,538,000 12,494,300 14,318,500 14,221,560 15,363,900 $ 1,786,411,900 $ 2,012,917,400 $ 2,200,817,140 $ 2,250,901,900 $ 2,109,366,764 $ 2,262,479,345 $ 2,457,361,368 $ 2,429,563,505 84.69% 88.97% 89.56% 92.65% Source: Sherburne County Assessor Note: Property in the county is reassessed annually. The county assessor's market value of property is approximately 93 percent of actual value for all types of real and personal property. -142- 2010 2011 2012 2013 2014 2015 $ 25,611,065 $ 24,736,999 $ 21,946,865 $ 19,969,977 $ 20,047,632 $ 21,060,822 310,180 350,946 344,032 353,390 367,641 366,113 25,921,245 25,087,945 22,290,897 20,323,367 20,415,273 21,426,935 (888,285) (784,101) (698,130) (122,648) (116,513) (198,997) $ 25,032,960 $ 24,303,844 $ 21,592,767 $ 20,200,719 $ 20,298,760 $ 21,227,938 44.560% 45.723% 47.588% 50.373% 48.544% 47.190% $ 2,121,774,900 $ 2,035,543,052 $ 1,775,334,600 $ 1,599,513,500 $ 1,622,624,100 $ 1,735,898,300 15,764, 700 17,758,600 17,412, 900 18,05 5,900 18,736,600 18,5 85,200 $ 2,137,539,600 $ 2,053,301,652 $ 1,792,747,500 $ 1,617,569,400 $ 1,641,360,700 $ 1,754,483,500 $ 2,191,955,185 $ 2,403,906,238 $ 1,907,992,306 $ 1,758,428,600 $ 1,796,401,800 $ 1,900,894,800 97.52% 85.42% 93.96% 91.99% 91.37% 92.30% -143- CITY OF ELK RIVER, MINNESOTA PROPERTY TAX RATES DIRECT AND OVERLAPPING' GOVERNMENTS LAST TEN FISCAL YEARS Source: Sherburne County Auditor/Treasurer ' Overlapping rates are those of local and county governments that apply to property owners within the City 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. -144- City of Elk River Overlapping Rates Total School District Direct & Fiscal Debt Referendum Special Overlapping Year Operating Service Total County Operating Mkt. Value Districts Rates 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 2012 44.925 2.663 47.588 52.014 45.548 0.187 5.296 150.633 2013 47.222 3.151 50.373 54.420 50.058 0.190 5.260 160.301 2014 46.740 1.804 48.544 54.861 51.286 0.156 4.987 159.834 2015 45.433 1.757 47.190 51.979 42.483 0.209 4.779 146.640 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. -144- CITY OF ELK RIVER, MINNESOTA PRINCIPAL TAXPAYERS CURRENT YEAR AND NINE YEARS AGO Source: Sherburne County Assessor -145- 2015 2006 Percentage Percentage Net Tax of Total Net Net Tax of Total Net Taxpayer Capacity Rank Tax Capacity Capacity Rank Tax Capacity Great River Energy $ 1,071,962 1 5.05 % $ 493,460 1 2.38 % JPM Capital Corporation 379,972 2 1.79 - - - BRE Retail Residual Owner, LLC 269,158 3 1.27 214,754 3 1.03 Walmart Stores 267,192 4 1.26 111,788 10 0.54 Target Corp. 262,808 5 1.24 - - - Menards, Inc 176,714 6 0.83 134,695 6 0.65 Envision Company LLC 143,730 7 0.68 117,716 8 0.57 Home Depot 142,754 8 0.67 - - - Minnegasco 137,068 9 0.65 131,716 7 0.63 ARHC ERELKMNO 1 LLC 108,140 10 0.51 - - - Resource Recovery Technology - - - 282,818 2 1.36 Bradley Operating LP - - - 173,027 4 0.83 Phoenix Enterprises - - - 135,322 5 0.65 B & G Realty, Inc - - - 112,498 9 0.54 TOTAL $ 2,959,498 13.94 % $ 1,907,794 9.18 % Source: Sherburne County Assessor -145- city E This page has been left blank intentionally -146- CITY OF ELK RIVER, MINNESOTA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS -147- 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 2006 $ 8,730,932 $ 8,551,757 97.95 % $ 178,432 $ 8,730,189 99.99 % 2007 9,694,925 9,475,220 97.73 217,629 9,692,849 99.98 2008 11,033,630 10,750,281 97.43 281,895 11,032,176 99.99 2009 11,433,704 11,074,590 96.86 354,657 11,429,247 99.96 2010 11,164,258 10,920,348 97.82 232,731 11,153,079 99.90 2011 11,164,581 11,052,081 98.99 95,555 11,147,636 99.85 2012 10,701,225 10,592,493 98.98 90,972 10,683,465 99.83 2013 10,658,280 10,574,080 99.21 54,317 10,628,397 99.72 2014 10,350,673 10,300,688 99.52 22,377 10,323,065 99.73 2015 10,589,969 10,511,527 99.26 - 10,511,527 99.26 -147- CITY OF ELK RIVER, MINNESOTA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. ' See the Schedule of Demographic and Economic Statistics for personal income and population data. -148- Governmental Activities General Permanent Fiscal General Obligation Lease Special Improvement Tax Certificates of Year Obligation Revenue Revenue Assessment Revolving Increment Indebtedness Other 2006 $ 3,220,000 $ 1,430,000 $ 8,265,000 $ 2,130,000 $ - $ 827,500 $1,134,334 $ 1,908,725 2007 13,220,000 1,200,000 7,730,000 4,825,000 - 675,000 1,090,350 2,123,092 2008 15,412,946 955,000 7,170,000 4,480,000 - 505,000 756,033 1,839,792 2009 16,677,757 700,000 6,175,000 3,970,000 - 440,000 421,716 1,646,492 2010 22,002,000 540,000 - 3,460,000 - 375,000 87,400 1,499,746 2011 20,897,939 - - 2,955,000 - 305,000 - 1,410,000 2012 26,579,666 - - 4,035,306 - - - 1,410,000 2013 35,223,141 - - 1,633,459 - - - 1,410,000 2014 34,023,916 - - 1,246,612 - - - 1,410,000 2015 32,789,690 - - 924,765 - - - 1,410,000 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. ' See the Schedule of Demographic and Economic Statistics for personal income and population data. -148- -149- Business -Type Activities General Total Percentage Obligation Revenue Certificates of Notes Primary of Personal Per Revenue Bonds Indebtedness Payable Government Income' Capita' $ 7,015,000 $ 7,185,000 $ 125,000 $ 3,066,820 $36,307,379 5.74 % $ 1,610 6,465,000 9,690,000 - 2,879,054 49,897,496 7.29 2,152 8,630,000 9,280,000 - 2,701,994 51,730,765 6.97 2,166 8,070,000 8,840,000 - 2,524,646 49,465,611 7.14 2,093 6,180,000 6,940,000 - 2,345,318 43,429,464 6.32 1,890 5,520,656 6,310,000 - 2,162,882 39,561,477 5.81 1,713 4,791,567 5,085,000 - 1,975,812 43,877,351 6.30 1,890 4,027,478 4,340,000 - 1,789,224 48,423,302 7.00 2,072 12,868,388 3,634,845 - 1,599,876 54,783,637 7.14 2,316 12,564,299 3,020,935 - 1,408,368 52,118,057 na 2,182 -149- CITY OF ELK RIVER, MINNESOTA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Less 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 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics. -150- Percentage of Net Bonded Debt to Tax Capacity2 Net Bonded Debt per Capita3 Amounts Less 59.74 583.90 General Restricted Cash with Net Fiscal Bonded for Debt Fiscal Bonded Year Debt' Service Agent Debt 2006 $ 11,474,334 $ 2,842,412 $ - $ 8,631,922 2007 17,792,017 4,253,142 - 13,538,875 2008 18,391,033 3,712,036 - 14,678,997 2009 17,471,716 3,027,915 - 14,443,801 2010 18,040,733 3,787,324 - 14,253,409 2011 17,120,000 3,234,939 - 13,885,061 2012 23,286,667 3,044,599 - 20,242,068 2013 32,141,667 2,329,723 9,712,875 20,099,069 2014 31,001,667 1,599,852 9,580,144 19,821,671 2015 28,986,667 1,154,728 9,423,440 18,408,499 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 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics. -150- Percentage of Net Bonded Debt to Tax Capacity2 Net Bonded Debt per Capita3 42.98 % $ 382.79 59.74 583.90 57.96 614.49 55.65 611.17 56.94 620.41 57.13 601.06 93.74 871.75 99.50 860.04 97.65 837.91 86.72 770.88 CITY OF ELK RIVER, MINNESOTA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT DECEMBER 31, 2015 Direct Debt City of Elk River' Overlapping Debt Sherburne County School District #728 Total overlapping debt Total direct and overlapping debt Debt Ratios Ratio of debt per capita (23,880 population) Ratios of debt to taxable market value of $1,754,483,500 Source: Sherburne County and School District #728 Percent ' 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. ' Excludes debt payable from enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is home 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 home 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. -151- of Debt City's Outstanding Applicable Share Debt to City' of Debt $ 35,124,455 100.00% $ 35,124,455 13,559,437 26.07 3,534,945 287,380,000 32.90 94,548,020 300,939,437 98,082,965 $ 336,063,892 $ 133,207,420 $ 5,578 7.59% ' 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. ' Excludes debt payable from enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is home 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 home 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. -151- Debt limit Bonds Reserves Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit CITY OF ELK RIVER, MINNESOTA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS 2006 2007 2008 2009 $ 35,728,238 $ 40,258,348 $ 66,024,514 $ 67,527,057 13,124,334 17,792,017 18,391,033 17,471,716 1,003,315 861,726 1,318,186 1,418,700 $ 23,607,219 $ 23,328,057 $ 48,951,667 $ 51,474,041 33.93% 42.05% 25.86% 23.77% Note: Under state law, the City of Elk River's outstanding general obligation debt should not exceed 3 percent of the market value of taxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. ' Only 2/3 of the $10,000,000 GO EDA Bonds, Series 2007 is subject to the debt limit. The Remaining 1/3 will be paid by the YMCA -152- 2010 2011 2012 2013 2014 2015 $ 64,126,188 $ 61,599,050 $ 58,316,472 $ 52,752,858 $ 53,892,054 $ 57,026,844 18,040,733 17,120,000 23,286,667 32,141,667 30,071,667 19,301,667 1,164,060 1,030,418 1,202,093 10,819,006 10,743,409 10,673,852 16,876,673 16,089,582 22,084,574 21,322,661 19,328,258 8,627,815 $ 47,249,515 $ 45,509,468 $ 36,231,898 $ 31,430,197 $ 34,563,796 $ 48,399,029 26.32% 26.12% 37.87% 40.42% 35.86% 15.13% Legal Debt Margin Calculation for Fiscal Year 2015 Estimated taxable market value $ 1,900,894,800 Debt limit (3% of market value) $ 57,026,844 Debt applicable to limit G.O. capital improvement bonds 12,635,000 G.O. EDA bonds' 6,666,667 Less: Cash and investments in related debt service funds (10,673,852) Total net debt applicable to limit 8,627,815 Legal debt margin $ 48,399,029 -153- CITY OF ELK RIVER, MINNESOTA PLEDGED -REVENUE COVERAGE LAST TEN FISCAL YEARS Note: Details regarding the government's outstanding debt can be found in the notes to the financial statements. ' Includes Liquor, Sewer, Water and Electric revenue bonds 2 Gross revenue excludes interest income, connection fees and miscellaneous revenues 3 Expenses exclude depreciation, interest on bonds and miscellaneous expenses 4 Excludes $1,540,000 refunded principal paid through cash with fiscal agent. -154- Revenue Bonds' Net Fiscal Gross Operating Revenue Debt Service Year Revenue z Expenses' Available Principal Interest Coverage 2006 $ 21,940,299 $ 16,970,625 $ 4,969,674 $ 2,405,000 $ 573,345 1.67 2007 25,212,616 19,212,200 6,000,416 1,045,000 595,642 3.66 2008 28,380,372 22,562,437 5,817,935 1,330,000 669,406 2.91 2009 29,665,332 23,654,659 6,010,673 1,000,000 681,124 3.58 2010 31,869,940 25,849,033 6,020,907 3,785,000 564,105 1.38 2011 33,672,393 27,326,836 6,345,557 1,335,000 458,888 3.54 2012 35,944,367 28,444,321 7,500,046 1,950,000 410,320 3.18 2013 34,737,779 28,629,356 6,108,423 1,505,000 341,419 3.31 2014 35,249,153 29,806,010 5,443,143 3,940,000 282,209 1.29 2015 36,568,235 30,281,264 6,286,971 900,000 464,938 4.61 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 2 Gross revenue excludes interest income, connection fees and miscellaneous revenues 3 Expenses exclude depreciation, interest on bonds and miscellaneous expenses 4 Excludes $1,540,000 refunded principal paid through cash with fiscal agent. -154- Special Assessment Bonds Special Assessment Debt Service Collections Principal Interest Coverage $ 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 0.52 287,759 505,000 122,209 0.46 202,457 850,000 4 87,268 0.22 182,191 375,000 29,000 0.45 162,519 310,000 21,550 0.49 -155- CITY OF ELK RIVER, MINNESOTA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Data Sources ' State Demographer 2 Bureau of Economic Analysis ' US Census Bureau 4 School District 5 Minnesota Department of Employment and Economic Development N/A - not available -156- Personal Fiscal Income Per Capita Median School Unemployment Year Population' (in thousands) Income Age' Enrollment' Rates 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 23,147 696,794 30,103 34 13,255 6.4 2013 23,370 691,962 29,609 35 13,367 5.5 2014 23,656 767,666 32,350 36 13,627 4.1 2015 23,880 ' N/A N/A 35 13,751 4.0 Data Sources ' State Demographer 2 Bureau of Economic Analysis ' US Census Bureau 4 School District 5 Minnesota Department of Employment and Economic Development N/A - not available -156- CITY OF ELK RIVER, MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Employer Employees Independent School District 728 1,450 Sherburne County 618 Walmart 380 Guardian Angels of Elk River 317 Great River Energy 236 City of Elk River 223 Tescom Corporation 187 Sportech, Inc. 185 Menards 150 Cornerstone Auto Resource 147 Cretex Companies, Inc. Cub Foods Total 3,893 Total Employment 2 12,325 2015 2006 31.57 % 4,205 39.63 % 10,608 1 Total District 2 Minnesota Department of Employment and Economic Development -157- Percentage Percentage of Total City of Total City Rank Employment Employees Rank Employment 1 11.76 % 1,500 1 14.14 % 2 5.01 572 2 5.39 3 3.08 400 4 3.77 4 2.57 316 5 2.98 5 1.91 449 3 4.23 6 1.81 224 6 2.11 7 1.52 195 7 1.84 8 1.50 - - - 9 1.22 190 8 1.79 10 1.19 - - - - - 185 9 1.74 - - 174 10 1.64 31.57 % 4,205 39.63 % 10,608 1 Total District 2 Minnesota Department of Employment and Economic Development -157- CITY OF ELK RIVER, MINNESOTA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS Fiscal Year Source: City of Elk River Finance Department -158- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Function General government 26.5 25.8 25.3 24.8 24.8 24.8 25.8 26.9 28.3 29.3 Public safety Police Officers 29.0 30.0 31.0 31.0 31.0 30.0 31.0 31.0 31.0 32.0 Civilians 9.0 9.0 9.0 8.0 8.0 8.0 8.0 9.0 9.0 9.0 Fire Fire administration 3.0 3.5 3.5 3.5 3.7 3.7 1.7 1.7 2.7 3.0 Paid on-call volunteers 39.0 39.0 39.0 39.0 38.0 40.0 40.0 40.0 40.0 44.0 Other public safety 11.5 11.5 10.5 7.6 7.6 7.6 8.4 8.6 9.0 9.0 Public works 13.5 15.0 15.0 13.1 14.0 14.5 15.5 15.0 15.0 15.0 Culture and recreation 19.3 19.3 19.9 19.4 19.4 19.4 18.5 18.5 18.5 17.5 Economic development 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Municipal liquor 11.5 11.0 11.5 12.0 14.0 12.5 13.0 13.0 13.0 13.0 Sewer 5.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Storm Water - - - - - - - - - 1.0 Water 5.0 6.0 5.0 5.0 5.0 5.0 8.0 8.0 8.0 8.0 Electric 29.0 30.0 29.0 28.5 29.0 29.0 30.0 31.0 31.0 34.0 Total 203.3 208.1 206.7 199.9 202.5 202.5 207.9 209.7 213.5 222.8 Source: City of Elk River Finance Department -158- CITY OF ELK RIVER MINNESOTA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Function Planning Land use applications 104 85 88 64 43 54 56 71 85 118 Police Police calls 18,494 19,277 21,997 22,231 21,751 20,707 20,451 20,676 21,585 21,930 Traffic citations na na 2,323 2,620 2,638 2,125 1,840 1,925 1,930 2,778 Fire Fire calls 451 436 453 364 443 469 355 446 411 436 Building/environmental Permits issued 4,388 2,382 2,021 1,369 2,105 1,841 1,683 1,866 1,956 1,722 Valuation of permits $95,844 $67,309 $41,006 $14,265 $22,312 $20,719 $25,585 $38,440 $47,037 $57,965 (thousands of dollars) Public works Street sweeping (hours) 1,192 627 1,085 1,287 1,063 1,494 1,811 1,652 1,888 1,824 Snowplowing (hours) 1,648 4,380 2,737 2,305 3,425 2,964 1,675 4,263 5,872 3,018 Equipment repair (hours) 5,660 6,440 5,038 6,482 5,378 5,711 5,051 5,125 5,210 3,575 Culture and recreation Recreation participants 10,633 14,104 20,631 26,124 26,061 26,934 26,803 27,065 27,330 27,348 Ice arena usage (hours) 4,266 4,193 4,386 4,684 4,624 4,740 4,752 4,736 4,568 4,569 Golf rounds 10,000 10,971 11,533 11,079 10,707 9,150 11,480 9,743 - - Sewer Average daily treatment flow 1,163 1,190 1,230 1,300 1,200 1,245 1,200 1,203 1,200 1,200 (thousands of gallons) Water Number of customers 4,317 4,413 4,508 4,467 4,511 4,515 4,542 4,613 4,676 4,763 Average daily consumption 2,226 2,394 1,992 1,941 1,718 1,786 2,321 2,152 2,143 2,192 (thousands of gallons) Electric Number of customers 8,562 8,945 9,203 9,170 9,207 9,227 9,285 9,358 9,449 10,499 Average daily consumption 534 579 614 638 687 716 749 751 752 773 (thousands of KWh's) 169,482 147,725 130,845 110,390 117,873 114,397 119,639 134,085 136,092 144,710 Sources: Various city departments Note: The golf course was purchased in 2006 and was not open during 2014 or 2015. -159- CITY OF ELK RIVER, MINNESOTA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS Fiscal Year Sources: Various city departments Note: No capital asset indicators are available for the general government function. -160- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Function Public safety Police Stations 1 1 1 1 1 1 1 1 1 1 Patrol units 11 11 12 12 12 12 12 12 12 13 Fire Stations 2 2 2 2 2 2 2 2 2 2 Public works Streets (miles) 151 151 151 151 151 151 151 151 151 151 Culture and recreation Parks 44 44 44 44 44 44 45 45 46 46 Parks acreage 927 964 964 964 964 964 988 988 1,324 1,324 Sewer Sanitary sewers (miles) 73 75 78 79 79 80 80 80 80 80 Lift stations 21 21 21 21 21 21 21 21 21 21 Maximum daily treatment capacity 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 (thousands of gallons) Water Maximum daily capacity 8,100 8,100 8,100 8,100 8,100 8,100 10,000 10,000 10,000 10,000 (thousands of gallons) Electric Generating facilities 6 6 6 6 6 6 6 6 6 6 Sources: Various city departments Note: No capital asset indicators are available for the general government function. -160- City of Elk River Elk River, Minnesota For the Year Ended December 31, 2015 ABDO IMP SICK & People M EYERS LLP + Process® Goim Certified Public Accountants & Consultants Bei&dth� Numbers CITY OF ELK RIVER, MINNESOTA OTHER REQUIRED REPORT TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2015 OTHER REQUIRED REPORT Independent Auditor's Report on Minnesota Legal Compliance -1- Page No. ABDO Via (i.e� SICK & ME 1 lel W LLP Certified Public Accountants & Consultants INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and City Council City of Elk River, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, 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, 2015, and the related notes to the financial statements, and have issued our report thereon dated May 18, 2016. The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statute §6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City's noncompliance with the above referenced provisions. This report is intended solely for the information and use of those charged with governance and management of the City and the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. 0L&&0ft4wjLLe ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota May 18, 2016 5201 Eden Avenue, Suite 250 Edina, MN 55436 -2- 952.835.9090 1 Fax 952.835.3261 2015 Audit Presentation City of Elk River June 6, 2016 Presented by: Andy Berg ABDO IICK & 11'JE1 E S LLP Caty7ed Public Accountants & Consultants People +Process® Goin Beyondthe Nuifibers 2015 Results • Auditor's Responsibility S. — Opinion — unqualified (clean opinion) — No audit findings — No MN legal compliance finding From the Minnesota Office of the State Auditor 1. Contracting and bidding 2. Deposits and investments 3. Conflicts of interest 4. Public indebtedness 5. Claims and disbursements 6. Tax increment financing 7. Miscellaneous provisions ABDO, EICK & MEYERS, LLP Congratulations — 26 Years Certificate of Achievement for Excellence in Financial Reporting Was received by the City for the 2014 Comprehensive Annual Financial Report S. ABDO, EICK & MEYERS, LLP New Accounting Standard —GASB 68 Pensions Pension Asset Fire Relief Pension Liability PERA GERF - City GERF - ERMU PEPFF - City $ 954,913 $ 41975,218 214771244 31454,151 Total Pension Liability $10,906,613 ABDO, EICK & MEYERS, LLP $16.000.000 $14.000.000 $12.000.000 $10.000.000 $8,000,000 $6.000.000 $4,000,000 $2,000,000 $- ;c. General Fund Balance $12,870,500 $13,312, 800 $13,884,800 0.1% 0.2% 0.2% 1.9% 2.4% 2.7% 45.0%0 0.1% 43.7 /4 44.3% 2013 2014 2015 2016 Unassigned Fund Balance � Assigned Fund Balance Committed Fund Balance �Nonspendable Fund Balance -0—Budget ABDO, EICK & MEYERS, LLP Revenues Expenditures 2015 General Fund Operations Final Budgeted Amounts $ 11,748,550 13,1.82,050 Actual Amounts $ 11,819,999 12,852,303 Deficiency of revenues under expenditure: (1,433,500) (1,032,304) Other financing sources (uses) Transfers in Transfers out 1,684,650 1,684,650 (251,150) (251,150) Total other financing sources (uses) 1,433,500 1,433,500 Net change in fluid balances Fund balances, January 1 Fund balances, December 31 401,196 6,163,602 6,163,602 Variance with Final Budget $ 71,449 329,747 401,196 401,196 $ 6,163,602 $ 6,564,798 $ 401,196 ABDO, EICK & MEYERS, LLP $12,000,000 $10.000.000 $8,000,000 $6.000.000 $4,000,000 $2,000.000 General Fund Revenues 2013 2014 2015 ■ Taxes ■ Intergovernmental ■ Charges for services ■Other ABDO, EICK & MEYERS, LLP $?.000.000 $6.000.000 $5.000.000 $4.000.000 $1.000.000 $?.000.000 $1,000.000 General Fund Expenditures 2013 2014 2015 ■ General government ■ Public safety m Public works ■ Other ABDO, EICK & MEYERS, LLP Special Revenue Funds Fluid Nonmajor Library Ice Arena Landfill Revolving Loan Federal DEED State DEED Development Fiord Insurance Reserve Ding Forfeiture Reserve YMCA Grant Economic Development Authority Total Fluid Balances December 31, Increase 2014 2015 (Decrease) $ 425,469 $ 415,778 $ (9,691) 315,839 270,407 (45,432) 1,312,523 1,228,521 (84,002) 1,216,698 1,238,153 21,455 198,272 200,000 1,728 409,891 412,728 2,837 1,371,113 3,218,469 1,847,356 268,013 284,245 16,232 28,208 13,824 (14,384) 384,140 137,268 (246,872) 683,774 1,185,064 501,290 $ 6,613,940 $ 8,604,457 $ 1,990,517 Nonspendable Restricted Committed Assigned $ 103,295 1,812,499 5,329,017 1,359,646 Total $ 8,604,457 ABDO, EICK & MEYERS, LLP Cash and Temporary Investments Debt Service Funds Cash with Fiscal Agent Total Assets Bonds Outstanding Source of payment City Fiscal Agent $ 1,498,208 $ 9,423,440 $11,176,764 $23,995,000 $ 9,225,000 $14.000.000 $12.000.000 $10.000.000 $8,000,000 $6.000,000 $4,000,000 $2,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ■ Principal ■ Interest ■ P&I Paid by Escrow ABDO, EICK & MEYERS, LLP S. Capital Project Funds Fimd Balances December 31. 2014 '015 Increase (Decrease) Major Tax Increment Financing Districts $ (1,250,359) $ (1,540,086) $ (289,727) Pavement Management 2,330,519 2,770,934 440,415 Total major 1,080,160 1,230,848 150,688 Nonmajor Capital Reserve 1,300,402 973,371 (327,031) Equipment Replacement 743,405 690,297 (53,108) Park Dedication (476,669) (489,674) (13,005) Park Improvements 140,656 366,170 225,514 Government Buildings 3,857,503 3,859,536 2,033 GRE Reserve 2,547,602 2,755,002 207,400 Street Improvements 1,959,985 1,878,713 (81,272) Improvement Projects 4,450,622 3.746.418 (704,204) Total nonm ajor 14,523,506 13,779,833 (743,673) Total S 15.603.666 S 15.010.681 S (592,985) ABDO, EICK & MEYERS, LLP $3,500,000 $3,000,000 52,500.000 $2,000,000 $1.500.000 $1.000.000 $500.000 I 6. Municipal Liquor Cash Balance 2013 2014 2015 Unrestricted —*--Miniumm target balance (one year of operating expenses) ABDO, EICK & MEYERS, LLP $8,000,000 $7,000,000 $6,000.000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 411. People Municipal Liquor Fund Operations Sales, $6,753,521 Sales, $6,823,719 Sales, $6,972,614 GP 30.3% GP 30.4% GP 29.6%© 14.2% 16.90,° 15.2% 2013 2014 2015 Gross profit Cost of sales ♦ Sales (Operating expenses —*—Income before transfers ABDO, EICK & MEYERS, LLP $800.000 $ 700.000 $600.000 $500,000 $400,000 $300.000 $200.000 $100.000 Garbage Fund Cash Balance 2012 2013 2014 2015 IUnrestricted —*--Minimum target balance (6 months of operating expenses) ABDO, EICK & MEYERS, LLP $14.000.000 $12.000.000 $10.000.000 ss.000.000 56.000.000 $4.000.000 $2,000,000 Sewer Fund Cash Flow 2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts Disbursements Disbursements Disbursements ■ Operating costs ■ Other (capital_ interfiind) ■ Other (connection fees, interest, bond proceeds, gram) Debt payments (induding related transfers) ■ Operating receipts 2015 2015 Receipts Disbursements ABDO, EICK & MEYERS, LLP $16,000,000 $14,000.000 $12,000.000 $10,000,000 $8.000,000 $6,000,000 $4,000.000 $2,000,000 C Sewer Fund Cash Balance 2012 2013 2014 2015 Unrestricted fMinimuiii target balance (following year debt service plus 6 montlis of operating expenses) ABDO, EICK & MEYERS, LLP $700,000 $600,000 $500,000 $400.000 $300,000 $200,000 $100.000 Storm Water Fund Cash Flow 2015 Disbursements 2015 Receipts I1 ■ Operating costs ■ Capital outlay ■ Operating receipts ■ Other {transfers in, interest} ABDO, EICK & MEYERS, LLP $ 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 Water Fund Cash Balance 2012 2013 2014 2015 IUnrestricted Unrestricted designated reserve* 14 People + Process (Going BeVondthe ABDO, EICK & MEYERS, LLP $16,000,000 $14,000,000 $12,000,000 $10.000.000 $8.000.000 $6.000.000 $4,000,000 $2,000,000 Electric Fund Cash Balance 2012 2013 2014 2015 �Unrestiicted � Restricted for debt service (bond covenents) Unrestricted designated reserve* le cess® ABDO, EICK & MEYERS, LLP 1-15.0% 120.0% 115.0°do- 110.0% 105.0% 100.0% 95.0°.fa 90_C/G 85_C°0 80_C°la Fire Relief Funding Percent —State Statute 2011 2012 2013 2014 -1015 –4—Association percent Peer group average ABDO, EICK & MEYERS, LLP ABDO EICK & ME 1 lel S LLP Caty7ed Public Accountants & Consultants People +Process. Going Bey0ndthe Numbers