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6.6. SR 06-04-2018 Request for Action To Item Number Mayor and City Council 6.6 Agenda Section Meeting Date Prepared by Presentations, Awards, June 4, 2018 Lori Ziemer, Finance Director and Recognition Item Description Reviewed by Comprehensive Annual Financial Report for the Cal Portner, City Administrator Year Ended December 31, 2017 Reviewed by Action Requested Accept, by motion, the Comprehensive Annual Financial Report for the City of Elk River for the year ended December 31, 2017. 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 2017, CliftonLarsonAllen LLP (CLA) conducted the city’s audit and will present a summary of the 2017 Comprehensive Annual Financial Report and audit results. Financial Impact N/A Attachments  Comprehensive Annual Financial Report for the year ended December 31, 2017  Report on Minnesota Legal Compliance  Report on Internal Control  Governance Letter The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity Comprehensive Annual Financial Report For the Year Ended December 31, 2017Minnesota CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2017 PREPARED BY THE FINANCE DEPARTMENT Member of Government Finance Officers Association of the United States and Canada CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2017 Page No. I. INTRODUCTORY SECTION Letter of Transmittal …………………………………………………………………………….. 1 Certificate of Achievement …………………………………………………………………….... 4 Organizational Chart …………………………………………………………………………..… 5 Elected and Appointed Officials ………………………………………………………………… 6 II. FINANCIAL SECTION Independent Auditors’ Report …………………………………………………………………… 7 Management’s Discussion and Analysis ………………………………………………………… 10 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position ………………………………………………………………….. 20 Statement of Activities ……………………………………………………………………... 21 Fund Financial Statements: Balance Sheet - Governmental Funds ……………………………………………………… 22 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ……………………………………………………………. 23 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds …………………………………………………… 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities …………………………………………………………………… 25 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund ……………………………………… 26 Statement of Net Position - Proprietary Funds ………………….………………………….. 27 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds ………..………………………………………………... 29 Statement of Cash Flows - Proprietary Funds …….………………………………………… 31 Statement of Fiduciary Net Position - Agency Funds…………………………………….….. 35 Notes to Financial Statements ………………………………………………………………… 36 Required Supplementary Information Schedule of Proportionate Share of Net Pension Liability - Elk River Fire Relief Pension Plan ….…………………………………………………… 72 Schedule of City Contributions - Elk River Fire Relief Pension Plan ..………………………. 73 Schedule of Funding Progress - Other Post Employment Benefit Plan .. …………………….. 74 Schedule of City Contributions - PERA ………………………...……………………………. 75 Schedule of the City’s Proportionate Share of the Net Pension Liability - PERA …………………………………………………………………………. 76 Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet - Nonmajor Governmental Funds ……………………………… 78 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds …………………………………….. 81 CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2017 Page No. Nonmajor Special Revenue Funds: Subcombining Balance Sheet - Nonmajor Special Revenue Funds ……………………….. 81 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Funds ……………………………………... 83 Special Revenue Funds: Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Library …………………………………………………………………………………. 85 Ice Arena ……………………………………………………………………………… 86 Landfill ………………………………………………………………………………… 87 Economic Development Authority ……………………………………………………. 88 Nonmajor Debt Service Funds: Subcombining Balance Sheet - Nonmajor Debt Service Funds ……………………………. 90 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Funds ………………………………………… 91 Nonmajor Capital Projects Funds: Subcombining Balance Sheet – Nonmajor Capital Projects Funds …………..………….… 93 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances – Nonmajor Capital Projects Funds ……………………….….………… 95 Statement of Changes in Assets and Liabilities - Agency Funds………………………..….… 98 Component Unit Financial Statements: Housing and Redevelopment Authority: Fund Financial Statements: Balance Sheet …………………………………………………………………………. 100 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position …………………………………………………….. 101 Statement of Revenues, Expenditures, and Change in Fund Balance ………………… 102 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balance of Governmental Fund to the Statement of Activities ………………………………………………………………. 103 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component …………………………………………………………….……… 105 Changes in Net Position ………………………………………………………………….…….. 107 Fund Balances of Governmental Funds ………………………………………………….…….. 111 Changes in Fund Balances of Governmental Funds ……………………………………….…… 113 Electric Sales ……………………………………………………………………………….….. 115 Principal Electric Customers ……………………………………………………………….….. 116 Tax Capacity, Market Value and Estimated Actual Value of Taxable Property …………….… 117 Property Tax Rates …………………………………………………………………………….. 119 Principal Taxpayers …………………………………………………………….……………… 120 Property Tax Levies and Collections …………………………………………….……………. 121 Ratios of Outstanding Debt by Type …………………………………………….…………….. 122 Ratios of General Bonded Debt Outstanding …………………………………….……………. 124 Direct and Overlapping Governmental Activities Debt ………………………….……………. 125 Legal Debt Margin Information ………………………………………………….……………. 126 Pledged-Revenue Coverage ……………………………………………………….…………... 128 Demographic and Economic Statistics …………………………………………….………….. 130 Principal Employers ……………………………………………………………….………….. 131 Full-Time Equivalent Employees by Function …………………………………….………….. 132 Operating Indicators by Function ………………………………………………….………….. 133 Capital Asset Statistics by Function …………………………………………………………... 134 This page has been left blank intentionally INTRODUCTORY SECTION 1 J June 4, 2018 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, 2017, 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 CliftonLarsonAllen, LLP was selected to perform the City’s audit and their unmodified opinion has been included in this report. The independent auditors’ report is included in the financial section of this report. This report was prepared by the City’s Finance Department and responsibility for both the completeness and accuracy of this data, as well as the fairness of this presentation including all enclosures, rests with the City. To the best of my knowledge and belief, the enclosed data are accurate in all material respects and are recorded in a manner designed to present fairly the financial position and the results of operations of the various funds of the City. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed to both protect the City’s assets from loss, theft, or misuse, and to compile sufficient reliable information for the preparation of these financial statements in accordance with generally accepted accounting principles (GAAP). Internal accounting controls are designed to provide reasonable but not absolute assurance regarding the safeguarding of the City’s assets against loss, theft, or misuse, and ensuring that adequate financial records are maintained for preparing financial statements, and maintaining accountability for assets. The development of an appropriate internal control system requires estimates and judgments by management to ensure that the costs do not exceed the benefits of the system. The City of Elk River’s internal control structure is designed so that the estimated costs of control do not exceed the benefits. Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to compliment the MD&A and should be read in conjunction with it. The City of Elk River’s MD&A immediately follows the independent auditors’ 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 24,650. 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. 2 The annual budget serves as the foundation for the City of Elk River’s financial planning and control. Budget requests are submitted by all departments to the Finance Department each May. The Finance Department compiles these requests into a proposed budget. The Finance Department and city administrator review the information and present a draft budget to the Council in July for consideration. Following Council discussion and public input, the final tax levy and budget are approved in December. The City’s Financial Management Policies allow department heads to make administrative budget amendments (excluding personal service and capital outlay) throughout the year as long as the total department budget does not change and the amendment is approved by the city administrator and finance director. The Council approves additional budget amendments in December of each year. Budget to actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund this comparison is presented on page 26 as part of the basic financial statements for the governmental funds. For other governmental funds with appropriated annual budgets this comparison is presented in the governmental fund subsection of this report. Local economy The local economy has continued to grow by the increase in building permits with a construction value of $106,982,872 being issued in 2017. $83,584,042 accounts for new construction and $23,398,830 of additions/remodels make up the balance. The number of new housing units increased from 75 in 2016 to 113 in 2017, the largest number of housing starts since 2009. Single family homes accounted for all of the new housing units in 2017, with the average value new home about $230,000. Many of Elk River’s largest employers reported stable or growing employment levels between 2016 and 2017. This is largely due to the upward trend in manufacturing activity in the region. There has been continual interest in both affordable and market rate multi-family housing projects. The commercial/industrial sector has experienced notable growth, expansion and reinvestment as well. In 2017, several new businesses completed construction, in addition several facility expansions and a senior housing project were approved with construction expected to be completed in 2018. The outlook in this region looks promising with commercial industrial activity and the recent increase in single-family residential development projects that have made their way through the review process for construction in 2018. 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 a comprehensive set of Financial Management Policies that provide the basic framework for the overall fiscal management of the City. 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, 2017 is 45%. Since property tax payments are received by the City in two installments in July and December, the City needs adequate cash reserves for cash flow in order to avoid short-term borrowing to finance operations. Major Initiatives The City has completed the long-term strategic plan of the Gravel Mining Area Study to shape the future of this highly developable 2,600-acre segment along US Highway 169 that runs through the City. The City also completed the parks and trails master planning process that will be an important tool used to develop and evaluate future park system projects and identify long-term funding. In 2017, the Wayfinding Master Plan was approved as a city-wide 3 effort to improve community signage to connect residents and visitors to parks, facilities, and places of interest and commerce. The completion in 2017 of a multi-year $17 million wastewater treatment facility expansion, to comply with new pollution control regulations and more efficient treatment processes, will add capacity for future economic development and community growth. The City has begun assembling parcels for redevelopment and development for new commercial and retail projects along Highway 10, one of the major roadways through the City. In partnership with the Southeast Sherburne County Transportation Committee, comprised of City, County and Chamber of Commerce officials, the City has begun to campaign for state and federal transportation funding to help fund improvements to Highway 169 to improve safety and traffic flow through Elk River. 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 States 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, 2016. This was the 28th 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, 2017. It was the ninth 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, Lori Ziemer Finance Director 4 CITY OF ELK RIVER ORGANIZATIONAL CHART -City Clerk -Finance -Planning -Police Admin.- Fire -Recreation -Electric - Human Resources - Payroll -Environmental -Patrol -Emergency Mgmt. - Park Maintenance -Water -Communications -Information Tech. - Engineering -Investigations -Building Safety -Sr. Center -Building Maint.-Streets -Support Services -Code Enforcement - Ice Arena -Liquor -Equip. Services -Reserves -Golf Course -Sewer - Library -Storm Water Mayor & City Council City Administrator Administration Municipal Utilities Parks & Recreation Fire Police Community Operations and Development Finance Boards & Commissions Legal Economic Development 5 6 CITY OF ELK RIVER, MINNESOTA ELECTED AND APPOINTED OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2017 Term Expires CITY COUNCIL December 31, John Dietz Mayor 2018 Jerry Olsen Council member 2018 Nate Ovall Council member 2020 Jennifer Wagner Council member 2018 Matthew Westgaard Council member 2020 APPOINTED PERSONNEL Calvin Portner City Administrator Lori Ziemer 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 This page has been left blank intentionally FINANCIAL SECTION CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT Honorable Mayor and City Council City of Elk River Elk River, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Elk River, as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City of Elk River’s basic financial statements as listed in the table of contents. Our report includes a reference to other auditors who audited the financial statements of the City of Elk River Municipal Utilities, as described in our report on the City of Elk River’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. 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. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Electric and Water proprietary funds, which represent 60% of the assets and deferred outflows, 57% of the net position, and 77% of the revenues of the proprietary funds and business-type activities. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the proprietary funds and business-type activities, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 auditors’ 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 entity’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 entity’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 7 Honorable Mayor and the City Council City of Elk River 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 aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Elk River as of December 31, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, schedule of funding progress for other postemployment benefits, schedule of the City’s proportionate share of the net pension liability, schedule of the City’s pension contributions, and the schedule of changes in net pension liability and related ratios, as listed in the table of contents, 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 of Elk River’s basic financial statements. The introductory section, combining and individual fund statements and schedules, and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements and schedules is the responsibility of management and was derived from and relates 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 statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections 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 it. 8 Honorable Mayor and the City Council City of Elk River Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated REPORT DATE, on our consideration of the City of Elk River's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City of Elk River’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Elk River’s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Minneapolis, Minnesota May 30, 2018 9 10 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, 2017. We encourage readers to consider the information presented here in conjunction with the additional information that we have furnished in our letter of transmittal, which can be found on pages 1 - 3 of this report. Financial Highlights The assets and deferred outflows of resources of the City of Elk River exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by $204,775,121 (net position). Of this amount, $37,973,967 (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 $3,385,235, an increase of $1,211,188 in the governmental activities attributable to capital contributions and an increase of $2,174,047 in the business-type activities attributable to revenues in excess of expenses of $2.9 million in the Electric fund due to increased usage impacted by the additional territory acquisition. As of the close of the current fiscal year, the City of Elk River’s governmental funds reported combined ending fund balances of $29,112,913. Special Debt Capital General Revenue Service Projects Total Nonspendable 88,038$ -$ -$ -$ 88,038$ Restricted - 1,374,722 1,608,880 120,594 3,104,196 Committed - 7,216,091 - 3,138,557 10,354,648 Assigned 356,174 - - 10,984,072 11,340,246 Unassigned 6,853,298 - - (2,627,513) 4,225,785 7,297,510$ 8,590,813$ 1,608,880$ 11,615,710$ 29,112,913$ The City of Elk River’s total long-term liabilities decreased $12,310,763 during the current fiscal year, from $57,478,352 to $45,167,589. Beginning Ending Balance Additions Reductions Balance Governmental activities: Bonds payable 29,973,384$ -$ (10,726,072)$ 19,247,312$ Compensated absences 1,494,429 710,917 (650,309) 1,555,037 Total governmental activities 31,467,813 710,917 (11,376,381) 20,802,349 Business-type activities: Bonds payable 24,321,331 - (1,406,625) 22,914,706 Notes payable 1,214,076 - (195,216) 1,018,860 Compensated absences 475,132 119,036 (162,494) 431,674 Total business-type activities 26,010,539 119,036 (1,764,335) 24,365,240 Total City long-term liabilities 57,478,352$ 829,953$ (13,140,716)$ 45,167,589$ 11 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 supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Elk River’s finances, in a manner similar to a private-sector business. The statement of net 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 20 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. 12 The City of Elk River maintains three individual major governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General, YMCA Bonds, 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 funds is provided in the form of combining statements elsewhere in this report. The City of Elk River adopts an annual 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 22 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 27 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Elk River’s own program. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 35 of this report. Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found starting on page 36 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 72 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 78 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 $204,775,121 at the close of the most recent fiscal year. By far, the largest portion of the City of Elk River’s net position (80 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. 13 2017 2016 2017 2016 2017 2016 Current and other assets $32,661,895 $41,740,557 $33,385,869 $33,038,957 $66,047,764 $74,779,514 Capital assets 98,020,134 97,910,819 107,809,725 107,714,850 205,829,859 205,625,669 Total assets 130,682,029 139,651,376 141,195,594 140,753,807 271,877,623 280,405,183 Deferred outflows of resources 8,677,833 11,703,328 1,373,281 2,118,984 10,051,114 13,822,312 Long-term liabilities 30,660,026 39,193,948 28,982,292 29,692,408 59,642,318 68,886,356 Other liabilities 2,015,482 13,189,478 5,689,085 7,862,145 7,704,567 21,051,623 Total liabilities 32,675,508 52,383,426 34,671,377 37,554,553 67,346,885 89,937,979 Deferred inflows of resources 8,778,520 2,276,632 1,028,211 622,998 9,806,731 2,899,630 Net Position: Net investment in capital assets 78,958,608 78,119,790 83,919,324 82,230,963 162,877,932 160,350,753 Restricted 2,925,562 11,990,647 997,660 997,660 3,923,222 12,988,307 Unrestricted 16,021,664 6,584,209 21,952,303 21,466,617 37,973,967 28,050,826 Total net position $97,905,834 $96,694,646 $106,869,287 $104,695,240 $204,775,121 $201,389,886 Activities Activities Total City of Elk River Net Position Governmental Business-type 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 ($37,973,967) may be used to meet the City of Elk River’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City of Elk River is able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its separate governmental and business-type activities. 14 2017 2016 2017 2016 2017 2016 Revenues: Program revenues: Charges for services 3,544,605$ 2,883,489$ 49,950,014$ 47,867,360$ 53,494,619$ 50,750,849$ Operating grants and contributions 1,319,377 1,692,517 - - 1,319,377 1,692,517 Capital grants and contributions 3,187,830 1,333,057 2,196,626 1,758,131 5,384,456 3,091,188 General revenues: Property taxes 11,645,328 11,136,310 - - 11,645,328 11,136,310 Other taxes 1,543,086 1,552,499 - - 1,543,086 1,552,499 Unrestricted investment earnings 498,235 311,469 231,599 167,849 729,834 479,318 Miscellaneous revenue 1,720,932 1,820,248 - - 1,720,932 1,820,248 Gain on disposal of capital assets 116,012 29,695 17,500 1,050 133,512 30,745 Total revenues 23,575,405 20,759,284 52,395,739 49,794,390 75,971,144 70,553,674 Expenses: General government 3,932,100 3,996,316 - - 3,932,100 3,996,316 Public safety 7,670,839 9,231,492 - - 7,670,839 9,231,492 Public works 6,803,504 5,539,045 - - 6,803,504 5,539,045 Culture and recreation 4,157,960 4,014,737 - - 4,157,960 4,014,737 Economic development 1,221,761 954,723 - - 1,221,761 954,723 Interest on long-term debt 549,303 996,933 - - 549,303 996,933 Municipal liquor - - 6,030,973 6,063,922 6,030,973 6,063,922 Garbage - - 1,521,803 1,475,027 1,521,803 1,475,027 Sewer - - 3,377,828 2,473,139 3,377,828 2,473,139 Storm Water - - 774,805 645,596 774,805 645,596 Water - - 2,856,343 2,532,653 2,856,343 2,532,653 Electric - - 33,688,690 32,190,114 33,688,690 32,190,114 Total expenses 24,335,467 24,733,246 48,250,442 45,380,451 72,585,909 70,113,697 Change in net position before special item and transfers (760,062) (3,973,962) 4,145,297 4,413,939 3,385,235 439,977 Special item - - - 330,923 - 330,923 Transfers 1,971,250 1,791,690 (1,971,250) (1,791,690) - - Change in net position 1,211,188 (2,182,272) 2,174,047 2,953,172 3,385,235 770,900 Net position - beginning 96,694,646 98,876,918 104,695,240 101,742,068 201,389,886 200,618,986 Net position - ending 97,905,834$ 96,694,646$ 106,869,287$ 104,695,240$ 204,775,121$ 201,389,886$ Activities Activities Total City of Elk River Changes in Net Position Governmental Business-type Governmental activities. Governmental activities account for 48 percent of the City of Elk River’s net position. Governmental activities increased the City’s net position by $1,211,188. Key elements of the relevant changes are as follows: •In 2017, the City received $2.7 million from the State for reimbursement of street improvement projects. •The increase in charges for services reflects the increase in building activity experienced in 2017. 15 $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 General government Public safety Public works Culture and recreation Economic development Interest on long- term debt Expenses and Program Revenues -Governmental Activities Revenues Expenses Charges for services 13.9%Operating grants and contributions 5.2% Capital grants and contributions 12.5% Miscellaneous 6.7%Property taxes 45.5% Other taxes 6.0% Unrestricted investment earnings 2.0% Other 0.5% Net transfers 7.7% Revenues by Source -Governmental Activities 16 Business-type activities. Business-type activities increased the City of Elk River’s net position by $2,174,047. Key elements of this increase are as follows: •Charges for services for business-type activities increased $2,082,654 due largely to an increase in electric revenues impacted partly by territory acquisition and increased construction activity. The electric utility accounts for 73% of the total charges for services. •Depreciation expense in the Sewer fund increased due to the first full year of depreciation on the expansion of the wastewater treatment plant. $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 Municipal liquor Garbage Sewer Storm Water Water Electric Expenses and Program Revenues -Business -type Activities Revenues Expenses Charges for services 95.3% Capital grants and contributions 4.2% Unrestricted investment earnings 0.4% Gain on disposal of capital assets 0.1% Revenues by Source -Business -type Activities 17 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 $29,112,913. Approximately 15 percent of this total amount ($4,225,785) constitutes unassigned fund balance. The remainder of fund balance ($24,887,128) is not available for new spending because it is either 1) non-spendable ($88,038), 2) restricted ($3,104,196), 3) committed ($10,354,648) or 4) assigned ($11,340,246) 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 $539,433 during the current year, resulting primarily from budgeted transfers in. The YMCA Bonds fund decreased $9,246,547 due to the refunding of the 2007 EDA General Obligation bonds. The Pavement Management fund decreased $673,231 due to the 2017 street improvements. Those expenditures were largely offset by the collection of franchise fees and intergovernmental revenues. 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 - $3,860,570, Garbage - $228,421, Sewer - $3,514,216, Storm Water - $409,910, Water - $4,833,491 and Electric - $9,105,695. The Garbage fund net position decreased $163,042 due to an increase in garbage disposal fees. The Sewer fund net position decreased $167,765 due to budgeted transfers to other funds for administrative expenses. The Storm Water fund net position decreased $246,672 due mainly to depreciation expense. All other proprietary funds had increases in net position. General Fund Budgetary Highlights The original budget for the General fund was amended to reflect an increase in public safety state aid revenue with a corresponding increase in public safety expenditures. At year-end the City Council made a number of transfers which were not budgeted to finance capital projects that will be completed in the future. Key factors are as follows: •Total revenue collections were 104% of final budget. Licenses and permits were over budget $292,593 and charges for services were over $116,903 due mainly to increased building activity. •Expenditures were under budget by $444,988 due mainly to personnel vacancies and sound fiscal control by City departments. •Transferred $147,450 to the Capital Reserve fund and $119,382 to the Park Improvement fund for future capital projects. 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, 2017, amounts to $205,829,859 (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 $204,190 or 0.1 percent. Major capital asset events during the current fiscal year included the following: •$300,000 in public safety equipment. •Construction of $4.1 million for the 2017 street improvement project. •Completion of the $500,000 River’s Edge Park expansion. •Completed construction on the $18 million wastewater treatment plant expansion. •The Electric utility acquired additional infrastructure territory which included approximately 480 customers. 18 2017 2016 2017 2016 2017 2016 Land 40,984,633$ 40,876,833$ 1,843,977$ 1,609,491$ 42,828,610$ 42,486,324$ Intangible assets - - 10,375,677 9,804,951 10,375,677 9,804,951 Construction in progress 23,415 437,501 736,872 3,714,934 760,287 4,152,435 Buildings 24,559,757 26,204,505 18,800,729 16,844,345 43,360,486 43,048,850 Other improvements 2,240,194 1,676,441 - - 2,240,194 1,676,441 Equipment 3,852,427 3,973,515 8,184,069 8,365,622 12,036,496 12,339,137 Infrastructure 26,359,708 24,742,024 67,868,401 67,375,507 94,228,109 92,117,531 Total 98,020,134$ 97,910,819$ 107,809,725$ 107,714,850$ 205,829,859$ 205,625,669$ Activities Activities Total City of Elk River Capital Assets Governmental Business-type (Net of Depreciation) Additional information on the city’s capital assets can be found in Note 5 starting on page 48 of this report. Long-term debt. At the end of the current fiscal year, the City had total long-term debt outstanding of $59,642,318, a decrease of $22,264,421 from 2016. General obligation improvement bonds ($18,560,000) financed the construction of a recreation facility, a public safety/city hall facility, and a public works facility. General obligation revenue bonds ($11,105,000) were used to finance sewer and water systems. Revenue bonds ($11,325,000) were used to finance electric system improvements. Special assessment bonds ($295,000) financed improvement projects within the City and are assessed to the benefiting properties. 2017 2016 2017 2016 2017 2016 Bonds payable: General obligation bonds 18,560,000$ 28,935,000$ -$ -$ 18,560,000$ 28,935,000$ G.O. revenue bonds - - 11,105,000 11,830,000 11,105,000 11,830,000 Revenue bonds - - 11,325,000 11,955,000 11,325,000 11,955,000 Special assessment bonds 295,000 595,000 - - 295,000 595,000 Issuance premium 392,312 443,384 484,706 536,331 877,018 979,715 Total bonds payable, net 19,247,312 29,973,384 22,914,706 24,321,331 42,162,018 54,294,715 Notes payable - - 1,018,860 1,214,076 1,018,860 1,214,076 Compensated absences 1,555,037 1,494,429 431,674 475,132 1,986,711 1,969,561 Net OPEB obligation 468,119 426,720 156,161 138,683 624,280 565,403 Net pension liability 9,389,558 18,541,368 4,460,891 5,321,616 13,850,449 23,862,984 Total 30,660,026$ 50,435,901$ 28,982,292$ 31,470,838$ 59,642,318$ 81,906,739$ City of Elk River Outstanding Debt TotalActivities Governmental Business-type Activities Additional long-term debt in the amount of $1,018,860 is for notes payable, $1,986,711 is for compensated absences, $624,280 is for other postemployment benefits obligations, and $13,850,449 is for net pension liability. 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 $61,802,478. $13,953,921 of the City’s net outstanding debt is counted within the statutory limitation. Additional information on the City’s long-term debt can be found in Note 7 starting on page 52 of this report. 19 Economic Factors and Next Year’s Budget The City of Elk River estimates that the demand for City services will begin to grow at increased levels as compared to the prior years due to the improved economy and recent building activity. This was taken into consideration in preparation of the City’s 2018 budget. The property tax levy is set annually and is adjusted as necessary to fund the cost of providing services to our citizens and customers. Charges for services are evaluated each year and adjusted if warranted. The City expects to keep the tax levy consistent in upcoming years. Requests for Information This financial report is designed to provide a general overview of the City of Elk River’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to City of Elk River, Attn: Finance Director, 13065 Orono Pkwy, Elk River, Minnesota 55330 or by calling (763) 635-1000. BASIC FINANCIAL STATEMENTS This page has been left blank intentionally The notes to the financial statements are an integral part of this statement. 20 Governmental Business-type Component Activities Activities Total Unit - HRA ASSETS Cash and investments 27,346,618$ 26,349,048$ 53,695,666$ 1,227,668$ Restricted cash and investments - 997,660 997,660 - Receivables: Interest 124,307 49,128 173,435 - Taxes 270,141 - 270,141 6,798 Accounts 590,937 3,853,028 4,443,965 1,758 Special assessments 726,038 - 726,038 - Notes, net 2,006,425 - 2,006,425 629,765 Due from other governments 397,470 - 397,470 - Due from primary government - - - 200,498 Internal balances 187,128 (187,128) - - Inventories - 2,099,475 2,099,475 - Prepaid items 88,038 224,658 312,696 - Property held for resale 175,000 - 175,000 42,400 Pension asset 749,793 - 749,793 - Capital assets: Nondepreciable 41,008,048 12,956,526 53,964,574 257,100 Depreciable (net)57,012,086 94,853,199 151,865,285 115,225 Total assets 130,682,029 141,195,594 271,877,623 2,481,212 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows - pensions 8,492,047 1,330,116 9,822,163 16,528 Deferred charge on refunding 185,786 43,165 228,951 - Total deferred outflows of resources 8,677,833 1,373,281 10,051,114 16,528 LIABILITIES Accounts payable 758,018 3,976,978 4,734,996 14,061 Salaries payable 230,390 138,769 369,159 1,383 Due to other governments 17,460 233,183 250,643 - Due to component unit 200,498 - 200,498 - Accrued interest payable 201,755 266,564 468,319 - Customer deposits payable - 978,076 978,076 - Unearned revenue 607,361 95,515 702,876 - Non-current liabilities: Net other postemployment benefits obligation 468,119 156,161 624,280 - Net pension liability 9,389,558 4,460,891 13,850,449 60,586 Other due within one year 2,161,661 1,797,383 3,959,044 - Other due in more than one year 18,640,688 22,567,857 41,208,545 - Total liabilities 32,675,508 34,671,377 67,346,885 76,030 DEFERRED INFLOWS OF RESOURCES Deferred inflows - pensions 8,778,520 1,028,211 9,806,731 14,916 NET POSITION Net investment in capital assets 78,958,608 83,919,324 162,877,932 372,325 Restricted for: Debt service 1,427,230 997,660 2,424,890 - Landfill mitigation 215,010 - 215,010 - Economic development 1,150,274 - 1,150,274 - Law enforcement 12,454 - 12,454 - Park improvements 120,594 - 120,594 - Housing and redevelopment - - - 2,034,469 Unrestricted 16,021,664 21,952,303 37,973,967 - Total net position 97,905,834$ 106,869,287$ 204,775,121$ 2,406,794$ Primary Government CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2017 21Operating Capital Charges for Grants and Grants and Governmental Business-Type Component Expenses Services Contributions Contributions Activities Activities Total Unit - HRA Functions/Programs Primary Government: Governmental Activities: General government 3,932,100$ 756,586$ -$ -$ (3,175,514)$ -$ (3,175,514)$ -$ Public safety 7,670,839 1,471,063 545,457 - (5,654,319) - (5,654,319) - Public works 6,803,504 177,802 391,158 2,976,293 (3,258,251) - (3,258,251) - Culture and recreation 4,157,960 1,051,312 281,832 211,537 (2,613,279) - (2,613,279) - Economic development 1,221,761 87,842 100,930 - (1,032,989) - (1,032,989) - Interest and fiscal charges 549,303 - - - (549,303) - (549,303) - Total governmental activities 24,335,467 3,544,605 1,319,377 3,187,830 (16,283,655) - (16,283,655) - Business-type Activities: Municipal liquor 6,030,973 6,951,988 - - - 921,015 921,015 - Garbage 1,521,803 1,352,728 - - - (169,075) (169,075) - Sewer 3,377,828 2,116,900 - 1,155,094 - (105,834) (105,834) - Storm water 774,805 509,365 - 33,258 - (232,182) (232,182) - Water 2,856,343 2,553,651 - 799,223 - 496,531 496,531 - Electric 33,688,690 36,465,382 - 209,051 - 2,985,743 2,985,743 - Total business-type activities 48,250,442 49,950,014 - 2,196,626 - 3,896,198 3,896,198 - Total primary government 72,585,909$ 53,494,619$ 1,319,377$ 5,384,456$ (16,283,655) 3,896,198 (12,387,457) - Component Unit: Housing and Redevelopment Authority 244,325$ -$ -$ -$ - - - (244,325) General revenues: Property taxes: Levies for general purposes 10,529,352 - 10,529,352 290,238 Levies for debt service 876,237 - 876,237 - Tax increments 239,739 - 239,739 - Other taxes 1,543,086 - 1,543,086 - Grants and contributions not restricted 1,720,932 - 1,720,932 164 Unrestricted investment earnings 498,235 231,599 729,834 8,670 Gain on disposal of capital assets 116,012 17,500 133,512 - Transfers 1,971,250 (1,971,250) - - Total general revenues and transfers 17,494,843 (1,722,151) 15,772,692 299,072 Change in net position 1,211,188 2,174,047 3,385,235 54,747 Net position - beginning 96,694,646 104,695,240 201,389,886 2,352,047 Net position - ending 97,905,834$ 106,869,287$ 204,775,121$ 2,406,794$ The notes to the financial statements are an integral part of this statement. Primary Government Net (Expense) Revenue and Changes in Net PositionProgram Revenues CITY OF ELK RIVER, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. 22 Other Total General YMCA Pavement Governmental Governmental Fund Bonds Management Funds Funds ASSETS Cash and investments 7,226,873$ 521,874$ 2,764,788$ 16,833,083$ 27,346,618$ Receivables: Interest 35,414 - 12,560 76,333 124,307 Taxes 235,481 11,464 - 23,196 270,141 Accounts 31,905 - 140,812 418,220 590,937 Special assessments - - - 726,038 726,038 Notes, net - - - 2,006,425 2,006,425 Due from other governments 57,352 - 231,916 108,202 397,470 Due from other funds 170,394 - 287,045 1,560,967 2,018,406 Due from component unit 8,755 - -- 8,755 Prepaid items 88,038 - -- 88,038 Property held for resale - - - 175,000 175,000 Total assets 7,854,212$ 533,338$ 3,437,121$ 21,927,464$ 33,752,135$ LIABILITIES Accounts payable 218,179$ -$ 128,509$ 411,330$ 758,018$ Salaries payable 220,134 - - 10,256 230,390 Due to other governments 15,542 - - 1,918 17,460 Due to other funds 2,195 - 2,964 1,826,119 1,831,278 Due to component unit - - - 209,253 209,253 Unearned revenue 16,000 - - 591,361 607,361 Total liabilities 472,050 - 131,473 3,050,237 3,653,760 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes 84,652 4,103 - 8,929 97,684 Unavailable revenue - special assessments - - - 720,687 720,687 Unavailable revenue - other - - 167,091 - 167,091 Total deferred inflows of resources 84,652 4,103 167,091 729,616 985,462 FUND BALANCES Nonspendable 88,038 - - - 88,038 Restricted - 529,235 - 2,574,961 3,104,196 Committed - -3,138,557 7,216,091 10,354,648 Assigned 356,174 - - 10,984,072 11,340,246 Unassigned 6,853,298 - - (2,627,513) 4,225,785 Total fund balances 7,297,510 529,235 3,138,557 18,147,611 29,112,913 Total liabilities, deferred inflows of resources, and fund balances 7,854,212$ 533,338$ 3,437,121$ 21,927,464$ 33,752,135$ CITY OF ELK RIVER, MINNESOTA GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. 23 FUND BALANCE - TOTAL GOVERNMENTAL FUNDS 29,112,913$ Amounts reported for governmental activities in the statement of net position are different because: 1.Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Governmental capital assets 175,705,752$ Less accumulated depreciation (77,685,618) 98,020,134 2.Long-term assets for pensions reported in governmental activities are not financial resources and therefore are not reported as assets in the funds.749,793 3.Unavailable revenue in governmental funds is susceptible to full accrual on the government-wide statements.985,462 4.Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Bonds payable (18,855,000) Deferred charge on refunding 185,786 Issuance premium (392,312) Accrued interest payable (201,755) Compensated absences (1,555,037) Net pension liability (9,389,558) Net OPEB obligation (468,119) (30,675,995) 5.Governmental funds do not report long-term amounts related to pensions. Deferred outflows of pension resources 8,492,047$ Deferred inflows of pension resources (8,778,520) (286,473) NET POSITION OF GOVERNMENTAL ACTIVITIES 97,905,834$ CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. 24 Other Total General YMCA Pavement Governmental Governmental Fund Bonds Management Funds Funds REVENUES Taxes: Property taxes 9,943,268$ 509,693$ -$ 1,189,817$ 11,642,778$ Other taxes 144,132 - 1,398,954 - 1,543,086 Licenses and permits 1,007,543 - -- 1,007,543 Intergovernmental revenue 546,362 - 2,052,018 1,329,994 3,928,374 Charges for services 1,033,053 - - 1,193,883 2,226,936 Fines and forfeits 178,671 - - 26,785 205,456 Special assessments - - - 241,304 241,304 Interest income 120,645 55,236 69,870 252,484 498,235 Miscellaneous: Landfill expansion fee - - - 1,126,743 1,126,743 Refunds and reimbursements 130,003 - 167,091 196,978 494,072 Contributions 16,000 235,266 - 352,383 603,649 Other 5,015 - - 83,909 88,924 Total revenues 13,124,692 800,195 3,687,933 5,994,280 23,607,100 EXPENDITURES Current: General government 3,355,858 - - 168,776 3,524,634 Public safety 6,723,602 - - 68,136 6,791,738 Public works 1,866,693 - - 107,402 1,974,095 Culture and recreation 1,913,809 - - 1,023,524 2,937,333 Economic development - - - 1,108,233 1,108,233 Capital outlay: General government - - - 117,912 117,912 Public safety - - - 442,518 442,518 Public works - - 4,361,164 1,373,231 5,734,395 Culture and recreation - - - 762,661 762,661 Economic development - - - 107,800 107,800 Debt service: Principal - 9,620,000 - 1,055,000 10,675,000 Interest and service charges - 426,742 - 313,018 739,760 Total expenditures 13,859,962 10,046,742 4,361,164 6,648,211 34,916,079 Excess (deficiency) of revenues over expenditures (735,270) (9,246,547) (673,231) (653,931) (11,308,979) OTHER FINANCING SOURCES (USES) Transfers in 1,872,050 - - 2,403,747 4,275,797 Transfers out (597,347) - - (1,707,200) (2,304,547) Sale of capital assets - - - 116,012 116,012 Total other financing sources (uses)1,274,703 - - 812,559 2,087,262 Net change in fund balances 539,433 (9,246,547) (673,231) 158,628 (9,221,717) Fund balances - January 1 6,758,077 9,775,782 3,811,788 17,988,983 38,334,630 Fund balances - December 31 7,297,510$ 529,235$ 3,138,557$ 18,147,611$ 29,112,913$ CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. 25 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS (9,221,717)$ Amounts reported for governmental activities in the statement of activities are different because 1.Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation expense exceeded capital outlays in the current period. Capital outlay 5,216,676$ Capital contributions 221,720 Depreciation expense (5,329,081) 109,315 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 2,550 Special assessments (204,885) Other revenue (167,092) (369,427) 3.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 of long-term debt 10,675,000 Amortization of issuance premium 51,072 Amortization of deferred charge from refunding (36,265) Accrued interest payable 175,650 10,865,457 4.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. Compensated absences (60,608) Net OPEB obligation (41,399) (102,007) 5.Long-term pension activity is not reported in governmental funds.(70,433) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 1,211,188$ FOR THE YEAR ENDED DECEMBER 31, 2017 CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES The notes to the financial statements are an integral part of this statement. 26 Variance with Original Final Actual Final Budget REVENUES Taxes: Property taxes 9,969,250$ 9,969,250$ 9,943,268$ (25,982)$ Other taxes 140,000 140,000 144,132 4,132 Licenses and permits 714,950 714,950 1,007,543 292,593 Intergovernmental revenue 293,500 509,500 546,362 36,862 Charges for services 916,150 916,150 1,033,053 116,903 Fines and forfeits 155,000 155,000 178,671 23,671 Interest income 90,000 90,000 120,645 30,645 Miscellaneous revenue: Refunds and reimbursements 101,000 101,000 130,003 29,003 Contributions 20,000 20,000 16,000 (4,000) Other 6,500 6,500 5,015 (1,485) Total revenues 12,406,350 12,622,350 13,124,692 502,342 EXPENDITURES Current: General government 3,463,450 3,463,450 3,355,858 107,592 Public safety 6,729,050 6,945,050 6,723,602 221,448 Public works 1,917,800 1,917,800 1,866,693 51,107 Culture and recreation 1,978,650 1,978,650 1,913,809 64,841 Total expenditures 14,088,950 14,304,950 13,859,962 444,988 Deficiency of revenues under expenditures (1,682,600) (1,682,600) (735,270) 947,330 OTHER FINANCING SOURCES (USES) Transfers in 1,972,050 1,972,050 1,872,050 (100,000) Transfers out (289,450) (289,450) (597,347) (307,897) Total other financing sources (uses)1,682,600 1,682,600 1,274,703 (407,897) Net change in fund balance - - 539,433 539,433 Fund balance - January 1 6,758,077 6,758,077 6,758,077 - Fund balance - December 31 6,758,077$ 6,758,077$ 7,297,510$ 539,433$ Budget CITY OF ELK RIVER, MINNESOTA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. 27 Municipal Storm Liquor Garbage Sewer Water ASSETS Current assets: Cash and investments 3,754,059$ 245,076$ 3,778,728$ 430,083$ Restricted cash and investments - - - - Receivables (net): Interest 18,416 986 18,535 2,856 Accounts - 5,295 322,893 757 Due from other funds - 112,864 345,136 38,486 Inventories 1,133,505 - - - Prepaid items - - - - Total current assets 4,905,980 364,221 4,465,292 472,182 Noncurrent assets: Capital assets: Nondepreciable 753,961 - 411,095 - Depreciable 3,040,025 - 52,724,512 18,187,777 Accumulated depreciation (2,016,566) - (17,633,985) (8,107,974) Total noncurrent assets 1,777,420 - 35,501,622 10,079,803 Total assets 6,683,400 364,221 39,966,914 10,551,985 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows - pensions 144,463 4,112 112,901 16,928 Deferred charge on refunding - - - - Total deferred outflows of resources 144,463 4,112 112,901 16,928 LIABILITIES Accounts and contracts payable 346,652 115,914 368,633 53 Salaries payable 10,952 393 9,881 1,409 Due to other governments 68,152 - - - Due to other funds - 4,823 517 876 Unearned revenue 2,179 - - - Accrued interest - - 108,460 - Customer deposits payable - - - - Compensated absences payable - current 19,587 - 11,597 1,408 Notes payable - current - - - - Bonds payable - current - - 415,000 - Total current liabilities 447,522 121,130 914,088 3,746 Noncurrent liabilities: Compensated absences payable 45,587 - 10,746 2,702 Net other postemployment benefits obligation 36,822 - 38,383 2,419 Net pension liability 529,569 15,072 413,870 55,056 Notes payable - - - - Bonds payable - - 8,780,000 - Total noncurrent liabilities 611,978 15,072 9,242,999 60,177 Total liabilities 1,059,500 136,202 10,157,087 63,923 DEFERRED INFLOWS OF RESOURCES Deferred inflows - pensions 130,373 3,710 101,890 15,277 NET POSITION Net investment in capital assets 1,777,420 - 26,306,622 10,079,803 Restricted for debt service - - - - Unrestricted 3,860,570 228,421 3,514,216 409,910 Total net position 5,637,990$ 228,421$ 29,820,838$ 10,489,713$ CITY OF ELK RIVER, MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUNDS DECEMBER 31, 2017 28 Water Electric Total 5,335,070$ 12,806,032$ 26,349,048$ - 997,660 997,660 1,667 6,668 49,128 192,793 3,331,290 3,853,028 129,349 10,875 636,710 16,276 949,694 2,099,475 32,575 192,083 224,658 5,707,730 18,294,302 34,209,707 224,542 11,566,928 12,956,526 36,963,214 53,775,601 164,691,129 (16,438,545) (25,640,860) (69,837,930) 20,749,211 39,701,669 107,809,725 26,456,941 57,995,971 142,019,432 169,845 881,867 1,330,116 8,633 34,532 43,165 178,478 916,399 1,373,281 47,026 3,098,700 3,976,978 14,563 101,571 138,769 2,002 163,029 233,183 27,164 790,458 823,838 93,336 - 95,515 20,360 137,744 266,564 108,675 869,401 978,076 26,204 150,335 209,131 - 198,252 198,252 255,000 720,000 1,390,000 594,330 6,229,490 8,310,306 21,162 142,346 222,543 1,394 77,143 156,161 556,723 2,890,601 4,460,891 - 820,608 820,608 1,135,284 11,609,422 21,524,706 1,714,563 15,540,120 27,184,909 2,308,893 21,769,610 35,495,215 125,475 651,486 1,028,211 19,367,560 26,387,919 83,919,324 - 997,660 997,660 4,833,491 9,105,695 21,952,303 24,201,051$ 36,491,274$ 106,869,287$ The notes to the financial statements are an integral part of this statement. 29 Municipal Storm Liquor Garbage Sewer Water Sales and cost of sales: Sales 6,947,768$ -$ -$ -$ Cost of sales (4,925,531) - - - Gross profit 2,022,237 - - - Operating revenues: User charges - 1,348,001 2,030,475 508,660 Delinquency collections - 3,783 581 705 Other 4,220 944 85,844 - Total operating revenues 4,220 1,352,728 2,116,900 509,365 Operating expenses: Personal services 710,239 18,569 600,646 78,098 Supplies 13,563 16,049 212,455 188 Purchased power - - - - Other service charges 262,454 1,487,185 734,675 243,691 Depreciation 119,186 - 1,568,622 452,828 Total operating expenses 1,105,442 1,521,803 3,116,398 774,805 Operating income (loss)921,015 (169,075) (999,498) (265,440) Nonoperating revenues (expenses): Interest income 44,010 8,153 68,069 510 Miscellaneous revenue - - - - Interest expense - - (261,430) - Grants - - 163,561 - Gain on disposal of capital assets - - - - Total nonoperating revenues (expenses)44,010 8,153 (29,800) 510 Income (loss) before contributions and transfers 965,025 (160,922) (1,029,298) (264,930) Capital contributions - - 991,533 33,258 Transfers in - 44,030 - - Transfers out (710,866) (46,150) (130,000) (15,000) Change in net position 254,159 (163,042) (167,765) (246,672) Net position - beginning 5,383,831 391,463 29,988,603 10,736,385 Net position - ending 5,637,990$ 228,421$ 29,820,838$ 10,489,713$ CITY OF ELK RIVER, MINNESOTA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 30 Water Electric Total -$ -$ 6,947,768$ - - (4,925,531) - - 2,022,237 2,252,751 36,458,061 42,597,948 19,263 242,739 267,071 54,231 (579,976) (434,737) 2,326,245 36,120,824 42,430,282 856,067 2,712,070 4,975,689 225,650 106,500 574,405 - 25,402,576 25,402,576 532,378 3,126,390 6,386,773 1,191,894 2,046,935 5,379,465 2,805,989 33,394,471 42,718,908 (479,744) 2,726,353 1,733,611 31,314 79,543 231,599 227,406 344,558 571,964 (50,354) (294,219) (606,003) 40,000 209,051 412,612 2,348 15,152 17,500 250,714 354,085 627,672 (229,030) 3,080,438 2,361,283 759,223 - 1,784,014 - - 44,030 - (1,113,264) (2,015,280) 530,193 1,967,174 2,174,047 23,670,858 34,524,100 104,695,240 24,201,051$ 36,491,274$ 106,869,287$ The notes to the financial statements are an integral part of this statement. 31 Municipal Storm Liquor Garbage Sewer Water CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users 6,948,714$ 1,355,278$ 2,098,031$ 511,049$ Other operating cash receipts 4,220 944 85,844 - Payments to suppliers (5,218,377) (1,498,966) (1,637,670) (249,396) Payments to employees (712,556) (21,021) (562,308) (78,396) Net cash provided (used) by operating activities 1,022,001 (163,765) (16,103) 183,257 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds - 44,030 - - Transfers to other funds (710,866) (46,150) (130,000) (15,000) Decrease (increase) in due from other funds - - - - Increase in due to other funds - - - - Net cash provided (used) by noncapital financing activities (710,866) (2,120) (130,000) (15,000) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Connection fees received - - 954,087 - Grants received - - 182,724 - Acquisition of capital assets - - (711,995) (152,712) Proceeds from sale of capital assets - - - - Principal paid on capital debt - - (405,000) - Interest paid on capital debt - - (264,805) - Principal paid on promissory note - - - - Net cash provided (used) by capital and related financing activities - - (244,989) (152,712) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 40,607 8,819 67,749 (279) Net increase (decrease) in cash and cash equivalents 351,742 (157,066) (323,343) 15,266 Cash and cash equivalents, January 1 3,402,317 402,142 4,102,071 414,817 Cash and cash equivalents, December 31 3,754,059$ 245,076$ 3,778,728$ 430,083$ Reconciliation of cash and cash equivalents to the statement of net position: Cash and investments 3,754,059$ 245,076$ 3,778,728$ 430,083$ Restricted cash and investments - - - - Total cash and cash equivalents 3,754,059$ 245,076$ 3,778,728$ 430,083$ CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 32 Water Electric Total 2,325,049$ 35,680,481$ 48,918,602$ 219,519 332,851 643,378 (884,758) (28,749,027) (38,238,194) (547,498) (2,473,566) (4,395,345) 1,112,312 4,790,739 6,928,441 - - 44,030 - (1,113,264) (2,015,280) 299,940 (459) 299,481 3,568 34,919 38,487 303,508 (1,078,804) (1,633,282) 799,223 - 1,753,310 - - 182,724 (877,420) (3,423,737) (5,165,864) 7,448 15,152 22,600 (244,000) (706,000) (1,355,000) (52,750) (356,558) (674,113) - (195,216) (195,216) (367,499) (4,666,359) (5,431,559) 30,785 77,425 225,106 1,079,106 (876,999) 88,706 4,255,964 14,680,691 27,258,002 5,335,070$ 13,803,692$ 27,346,708$ 5,335,070$ 12,806,032$ 26,349,048$ - 997,660 997,660 5,335,070$ 13,803,692$ 27,346,708$ The notes to the financial statements are an integral part of this statement. 33 Municipal Storm Liquor Garbage Sewer Water Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss)921,015$ (169,075)$ (999,498)$ (265,440)$ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Other revenue related to operations - - - - Depreciation expense 119,186 - 1,568,622 452,828 (Increase) decrease in assets and deferred outflows: Accounts receivable - - 74,818 2,238 Due from other funds - (1,778) (7,843) (554) Due from other goverments - 5,272 - - Inventories 83,457 - - - Prepaid items - - - - Deferred outflows - pensions 82,852 3,873 60,068 8,606 Increase (decrease) in liabilities and deferred inflows: Accounts payable (97,667) 505 (690,548) (5,498) Salaries payable (1,583) (23) 205 87 Due to other funds - 3,763 8 (19) Due to other governments (2,619) - - - Unearned revenue 946 - - - OPEB liability 4,378 - 4,378 730 Compensated absences payable (33,786) - 1,317 163 Net pension liability (97,617) (6,958) (63,370) (15,396) Deferred inflows - pensions 43,439 656 35,740 5,512 Net cash provided (used) by operating activities 1,022,001$ (163,765)$ (16,103)$ 183,257$ Noncash capital and related financing activities: Amortization of bond premium -$ -$ -$ -$ Amortization of deferred charges on refunding - - - - Contribution of capital assets - - 37,446 33,258 Capital assets purchased on account - - - - STATEMENT OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 CITY OF ELK RIVER, MINNESOTA 34 Water Electric Total (479,744)$ 2,726,353$ 1,733,611$ 227,406 344,558 571,964 1,191,894 2,046,935 5,379,465 (11,296) (598,086) (532,326) - - (10,175) - - 5,272 (3,272) (156,314) (76,129) (4,594) 5,356 762 (21,207) 603,156 737,348 (61,314) 401,348 (453,174) (920) 927 (1,307) - -3,752 (123) 49,951 47,209 3,590 (875) 3,661 1,394 6,598 17,478 5,174 (16,326) (43,458) 181,438 (858,822) (860,725) 83,886 235,980 405,213 1,112,312$ 4,790,739$ 6,928,441$ 829$ 50,796$ 51,625$ 1,671 6,684 8,355 - 209,051 279,755 - 570,725 570,725 35 ASSETS Cash 1,112,465$ Accounts receivable 1,406 Prepaid items 38 Total assets 1,113,909$ LIABILITIES Accounts payable 13,212$ Refundable deposits payable 1,100,697 Total liabilities 1,113,909$ CITY OF ELK RIVER, MINNESOTA STATEMENT OF FIDUCIARY NET POSITION AGENCY FUNDS DECEMBER 31, 2017 The notes to the financial statements are an integral part of this statement. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 36 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization 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 City Council is composed of an elected mayor and four elected Council Members. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The financial statements and the accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. B.Reporting Entity 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 five 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 has 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, MN 55330. 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 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-member Council-appointed 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 HRA’s budget. The HRA does not issue separate financial statements and they are included in the financial section of this report. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 37 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED C.Government-Wide Financial Statements The government-wide financial statements (statement of net position and statement of activities) display information about the reporting government as a whole. These statements include all of the financial activities of the City, except fiduciary funds. Since, by definition, fiduciary fund assets are held for the benefit of a third party and cannot be used for activities or obligations of the City, these funds are excluded from the government-wide 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 sales, fees, and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other internally directed revenues are reported as general revenues. 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 and special assessments are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized when all eligibility and time requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. However, charges between the City’s enterprise funds and other functions are not eliminated, as that would distort the direct costs and program revenues reported in those functions. The City applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available. Depreciation expense can be specifically identified by function. Interest on long-term debt is considered an indirect expense and is reported separately on the statement of activities. D.Fund Financial Statement Presentation 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. 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 and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 38 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED D.Fund Financial Statement Presentation (Continued) Proprietary fund financial statements are reported using the economic resources measurement focus and accrual basis of accounting, similar to the government-wide financial statements. 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. The operating expenses for the 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. Fiduciary fund financial statements use the accrual basis of accounting. Agency funds, the City’s only fiduciary type, are custodial in nature (assets equal liabilities) and do not have a measurement focus. 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 Pavement Management fund is used to account for franchise taxes collected to fund expenditures for the ongoing maintenance and repair of 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. The FSA Plans agency fund is used to account for resources received from employees for the City’s self- administered medical and dependent care FSA plans. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 39 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED E.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 year-end. 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. F.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 generally reported at fair value or amortized cost, based upon quoted market prices. The Minnesota Municipal Money Market (4M) is an external investment pool regulated by Minnesota statutes that is not registered with the Securities and Exchange Commission (SEC). The City’s investment in this fund is measured based on the amortized cost method that approximates fair value. G.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, 2017 is as follows: 2017 Electric $ 109,845 Water 26,250 Total $ 136,095 CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 40 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED H.Property Taxes T he 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. I.Special Assessments Special assessments receivable includes 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, 2017, the total delinquent special assessment receivable balance was $32,857. J.Notes Receivable Notes receivable consists primarily of loans made by the City to area businesses for development purposes. The terms and interest rates of the individual loans vary. K.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 an expenditure/expense when consumed rather than when purchased. L.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. M.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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 41 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED N.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 acquisition value at the date of donation. With the initial capitalization of general infrastructure assets (i.e., those reported by governmental activities), the City chose to include all such items regardless of their acquisition date. The City was able to obtain historical costs for the initial reporting of these assets through public works project records. Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, net of interest earned on the invested proceeds over the same period. Property, plant, and equipment of the City, as well as the component units, are depreciated using the straight line method over the following estimated useful lives: Assets Years Buildings and improvements 10 - 40 Other park improvements 10 - 20 Machinery and equipment 3 - 20 Public domain infrastructure 15 - 50 System infrastructure 4 – 50 O.Deferred Outflows/Inflows of Resources 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 only has two items that qualify for reporting in this category. A deferred charge on refunding, reported in the government-wide and proprietary funds statement of net position, 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, reported only in the statements of net position, result 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 that qualify for reporting in this category. Accordingly, unavailable revenue is 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. 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 42 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED P.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 or amortized cost. Q.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, 2017, the balance reported in the governmental fund financial statements consists of $588,127 from unearned park dedication credits and $19,234 from other unearned miscellaneous fees and contributions. R.Long-Term Liabilities 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. Bond premiums and discounts, if material, are amortized over the life of the bonds using the straight-line method. Bond issuance costs are expensed as incurred. In the governmental fund financial statements, long-term debt and other long-term obligations are not reported as liabilities. The face amount of debt issued is reported as other financing sources. Premiums or discounts on debt issuances are reported as other financing sources or uses, respectively. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. S.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 240 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 43 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED T.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 they are 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. U.Net Position Net position represents the difference between assets and deferred outflows and liabilities and deferred inflows. Net position is displayed in three components: Net investment in capital assets - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. 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. Unrestricted net position - All other net position balances that do 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 44 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED V.Interfund Receivables and Payables Activity between funds that is representative of lending or borrowing arrangements is reported as either “due to/from other funds” (current portion) or “advances to/from other funds”. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances”. W.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 AND ACCOUNTABILITY A.Expenditures in Excess of Appropriations For the year ended December 31, 2017, expenditures exceeded appropriations in the Landfill fund by $21,054, which was funded by available fund balance. B.Deficit Fund Balance The following funds had deficit fund balances at December 31, 2017: Primary Government: TIF Districts - capital projects fund 2,018,613$ Park Dedication - capital projects fund 488,306 The City plans to eliminate these deficits through future park dedication and tax increment fund revenues. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 45 NOTE 3: DEPOSITS AND INVESTMENTS A.Components of Cash and Investments Cash and investments at year-end consist of the following: Primary Component Government Unit - HRA Deposits 17,700,085$ 1,227,668$ Investments 38,089,591 - Cash on Hand 16,115 - Total 55,805,791$ 1,227,668$ Cash and investments are presented in the financial statements as follows: Primary Component Government Unit - HRA Statement of Net Position Cash and investments 53,695,666$ 1,227,668$ Restricted cash and investments 997,660 - Statement of Fiduciary Net Assets Cash and investments - Agency Funds 1,112,465 - Total 55,805,791$ 1,227,668$ B.Deposits In accordance with applicable Minnesota statutes, the City maintains deposits at depository banks authorized by the City Council, including checking accounts and certificates of deposits. The following is considered the most significant risk associated with deposits: Custodial credit risk – In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may be lost. Minnesota statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The value of collateral pledged must equal 110% of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated “A” or better; revenue obligations rated “A” or better; irrevocable standby letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The City (including Elk River Municipal Utilities) has an investment policy in place to address custodial credit risk for deposits, stating all deposits and investments must be in compliance with Minnesota Statutes 118A, with collateralization levels of 110% of the market value of the principal and accrued interest. At year-end, the carrying amount of the City’s deposits was $17,700,085 while the balance on the bank records was $17,750,107. At December 31, 2017, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City’s agent in the City’s name. At year-end, the carrying amount of deposits for the HRA, a discretely presented component unit, was $1,227,668 and the bank balance was $1,227,553. At December 31, 2017, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City’s agent in the City’s name. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 46 NOTE 3: DEPOSITS AND INVESTMENTS – CONTINUED C.Investments Minnesota statutes and the City’s investment policy authorize the City to invest in the following: a.Direct obligations or obligations guaranteed by the United States or its agencies. b.Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. c.General obligations of the State of Minnesota or any of its municipalities. d.Bankers acceptances of United States banks eligible for purchase by the Federal Reserve System. e.Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and maturing in 270 days or less. The City has the following investments at year-end: Fair Value Measurement Investment Type Rating Using Less than 1 1 to 5 More than 5 Total Investments Measured at Fair Value Negotiable Certificates of Deposit Not Rated Level 2 3,881,098$ 4,817,238$ 486,501$ 9,184,837$ FNMA AAA Level 1 - 499,275 968,530 1,467,805 Municipal Bonds AA- to AAA Level 2 1,051,418 8,955,458 9,776,833 19,783,709 Total Investments Measured at Fair Value 4,932,516 14,271,971 11,231,864 30,436,351 Investments Measured at Amortized Cost UBS Select Prime Institutional Money Market Not Rated 3,372,575 4M Fund Not Rated 4,250,601 Other Money Market Funds Not Rated 30,064 Total Investments Measured at Amortized Cost 7,653,240 Total Investments 38,089,591$ Maturity Duration in Years Investments are subject to various risks, the following of which are considered the most significant: Custodial credit risk - For investments, the custodial credit risk is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker-dealer) the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. As of December 31, 2017, all investments were insured or registered, or securities were held by the City or its agent in the City’s name. Credit risk – This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota statutes limit the City’s investments in certain types of investments. The City’s investment policy does not further limit the ratings of their investments. Concentration risk – This is the risk associated with investing a significant portion of the City’s investment (considered 5% or more) in the securities of a single issuer and no more than 50% of the City’s total investment portfolio may be invested in certificates of deposit or commercial paper. At December 31, 2017, the following is a list of investments which individually comprise more that 5% of the City’s total investments: UBS Select Prime Institutional Money Market $3,372,575 8.85% 4M Fund $4,250,601 11.16% CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 47 NOTE 3: DEPOSITS AND INVESTMENTS – CONTINUED C.Investments (Continued) Interest rate risk – This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City’s investment policy uses diversification of maturity dates as a means of managing exposure to fair value by stating that no more the 30% of the City’s investments may extend beyond a five-year maturity. Fair Value Measurements – The City uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The City follows an accounting standard which defines fair value, establishes framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, the City has categorized its investments, based on the priority of inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quotes and prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the combined statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 – Financial assets and liabilities are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets and liabilities. Level 2 – Financial assets and liabilities are valued based on quoted prices for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 3 – Financial assets and liabilities are valued using pricing inputs which are unobservable for the asset, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset. NOTE 4: NOTES RECEIVABLE The City has made several business subsidy loans to local businesses, some of which were funded with grant proceeds received from the state and federal governments. The 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 $284,782 in the State Deed fund and $512,259 in the Revolving Loan fund are outstanding at December 31, 2017. 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 $1,209,384 in the Development fund is outstanding at December 31, 2017. 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, 2017. Since 2015, the HRA has 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%. Note receivables of $229,765 in the HRA are outstanding at December 31, 2017. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 48 NOTE 5: CAPITAL ASSETS Capital asset activity for the year ended December 31, 2017 was as follows: Beginning Ending Primary Government Balance Additions Deletions Balance Governmental activities: Capital assets not being depreciated: Land 40,876,833$ 107,800$ -$ 40,984,633$ Construction in progress 437,501 91,648 (505,734) 23,415 Total capital assets not being depreciated 41,314,334 199,448 (505,734) 41,008,048 Capital assets being depreciated: Buildings 45,048,097 - - 45,048,097 Other improvements 5,438,466 805,825 - 6,244,291 Equipment 12,764,099 754,619 (408,323) 13,110,395 Infrastructure 66,110,684 4,184,238 - 70,294,922 Total capital assets being depreciated 129,361,346 5,744,682 (408,323) 134,697,705 Less accumulated depreciation for: Buildings 18,843,593 1,644,747 - 20,488,340 Other improvements 3,762,026 242,071 - 4,004,097 Equipment 8,790,582 875,709 (408,323) 9,257,968 Infrastructure 41,368,660 2,566,554 - 43,935,214 Total accumulated depreciation 72,764,861 5,329,081 (408,323) 77,685,619 Total capital assets being depreciated, net 56,596,485 415,601 - 57,012,086 Governmental activities capital assets, net 97,910,819$ 615,049$ (505,734)$ 98,020,134$ Business-type activities: Capital assets not being depreciated: Land 1,609,491$ 234,486$ -$ 1,843,977$ Intangible assets 9,804,951 570,726 - 10,375,677 Construction in progress 3,714,934 4,196,615 (7,174,677) 736,872 Total capital assets not being depreciated 15,129,376 5,001,827 (7,174,677) 12,956,526 Capital assets being depreciated: Buildings 24,363,780 3,049,907 (219,894) 27,193,793 Equipment 10,665,822 454,272 (84,271) 11,035,823 Collection and distribution 122,107,290 4,362,965 (8,742) 126,461,513 Total capital assets being depreciated 157,136,892 7,867,144 (312,907) 164,691,129 Less accumulated depreciation for: Buildings 7,519,435 878,668 (5,039) 8,393,064 Equipment 2,300,200 635,826 (84,272) 2,851,754 Collection and distribution 54,731,783 3,864,971 (3,642) 58,593,112 Total accumulated depreciation 64,551,418 5,379,465 (92,953) 69,837,930 Total capital assets being depreciated, net 92,585,474 2,487,679 (219,954) 94,853,199 Business-type activities capital assets, net 107,714,850$ 7,489,506$ (7,394,631)$ 107,809,725$ CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 49 NOTE 5: CAPITAL ASSETS - CONTINUED Capital asset activity for the HRA component unit for the year ended December 31, 2017 was as follows: Beginning Ending Component Unit Balance Additions Deletions Balance Capital assets not being depreciated: Land 257,100$ -$ -$ 257,100$ Capital assets being depreciated: Other improvements 174,290 - - 174,290 Less accumulated depreciation for: Other improvements 47,445 11,620 - 59,065 Total capital assets being depreciated, net 126,845 (11,620) - 115,225 Component unit capital assets, net 383,945$ (11,620)$ -$ 372,325$ Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government 294,731$ Public safety 766,103 Public works 3,200,732 Culture and recreation 1,067,515 Total depreciation expense - governmental activities 5,329,081$ Business-type activities: Municipal liquor 119,186$ Sewer 1,568,622 Storm Water 452,828 Water 1,191,894 Electric 2,046,935 Total depreciation expense - business-type activities 5,379,465$ The City has the following construction commitments at December 31, 2017: Spent Remaining to date Commitment 2017 Street Improvements 4,125,098$ 41,668$ Wastewater Treatment Facility Improvements 16,411,735 195,573 Total 20,536,833$ 237,241$ Project CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 50 NOTE 6: INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The composition of interfund balances as of December 31, 2017 is as follows: Due to/from other funds: Payable Fund Amount General Electric 128,813$ General Water 27,164 General Nonmajor governmental funds 14,417 Pavement Management Electric 287,045 Nonmajor governmental funds Nonmajor governmental funds 1,511,053 Nonmajor governmental funds Electric 49,914 Garbage Electric 112,864 Sewer Electric 173,336 Sewer Nonmajor governmental funds 171,800 Storm Water Electric 38,486 Water General 440 Water Pavement Management 60 Water Nonmajor governmental funds 128,849 Electric General 1,755 Electric Garbage 4,823 Electric Sewer 517 Electric Storm Water 876 Electric Pavement Management 2,904 Total 2,655,116$ Receivable Fund 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: Payable Entity Amount Primary government - General Fund Component unit - HRA 8,755$ Component unit - HRA Primary government - TIF Districts 209,253 Receivable Entity The outstanding balance between the primary government and the component unit represents the transfer for administrative services and the lending/borrowing arrangement to finance construction costs. The $209,253 payable to the HRA will be paid with the collection of tax increment revenue and will not be repaid within one year. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 51 NOTE 6: INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS - CONTINUED Interfund transfers: Governmental funds:Transfer In Transfer Out Major fund - General 1,872,050$ 597,347$ Nonmajor funds 2,403,747 1,707,200 Total governmental funds 4,275,797 2,304,547 Proprietary funds: Municipal liquor - 710,866 Garbage 44,030 46,150 Sewer - 130,000 Storm Water - 15,000 Electric - 1,113,264 Total proprietary funds 44,030 2,015,280 Total 4,319,827$ 4,319,827$ Interfund transfers are used 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, 2017 52 NOTE 7: LONG-TERM DEBT A.Components of Long-term Debt The City had the following long-term liabilities outstanding at December 31, 2017: Issue Maturity Interest Oroginal Payable PRIMARY GOVERNMENT Date Date Rate Issue 12/31/17 GOVERNMENTAL ACTIVITIES: General Obligation Bonds: 2010A G.O. Capital Improvement Bonds 4/21/2010 2/1/2023 2.00-4.00% 6,105,000$ 3,090,000$ 2012A G.O. Capital Improvement Bonds 3/15/2012 2/1/2033 1.00-2.50%6,975,000 5,785,000 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 18,560,000 Special Assessment Bonds: 2012B G.O. Improvement Refunding Bonds 3/15/2012 2/1/2018 2.00% 1,525,000 295,000 Total Bonds 18,855,000 Unamortized bond premiums 392,312 Compensated absences payable 1,555,037 Total Governmental Activities 20,802,349$ BUSINESS-TYPE ACTIVITIES: General Obligation Revenue Bonds: 2008A G.O.Water Revenue Refunding Bonds 2/20/2008 2/1/2022 2.50-3.65% 3,085,000$ 1,255,000$ 2010A G.O. Capital Improvement Bonds 4/21/2010 8/1/2023 2.00-4.00% 1,265,000 655,000 2014B G.O. Sewer Revenue Bonds 8/21/2014 2/1/2035 2.00-3.50% 10,000,000 9,195,000 Total General Obligation Revenue Bonds 11,105,000 Revenue Bonds: 2014A Electric Revenue Refunding Bonds 3/13/2014 8/1/2018 2.00-4.00% 2,030,000 420,000 2016A Electric Revenue Bonds 7/14/2016 2/1/2036 2.00-4.00% 9,755,000 9,755,000 2016B Electric Revenue Refunding Bonds 7/14/2016 2/1/2022 2.00-4.00% 1,370,000 1,150,000 Total Revenue Bonds 11,325,000 Total Bonds 22,430,000 Unamortized bond premiums 484,706 Promissory note 3/19/2002 2/19/2022 -%3,521,000 1,018,860 Compensated absences payable 431,674 Total Business-type Activities 24,365,240$ Total Primary Government 45,167,589$ CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 53 NOTE 7: LONG-TERM DEBT – CONTINUED A.Components of Long-term Debt (Continued) For the governmental activities, bonds payable can be summarized in the following categories: The general obligation bonds were used to construct a recreation facility, a public safety facility, and a public works facility. The recreation facility is leased to the YMCA, which has pledged to pay one-third of the bonds outstanding. The bonds are general obligations of the City and are backed by its full faith and credit. The special assessment bonds were used to finance assessable street 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. In 2013 the EDA issued $9,685,000 G.O. Refunding Bonds, Series 2013A. The bonds bear an average coupon rate of 2.2% and were 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 have saved $1,001,112 in debt service payments and achieved an economic gain (the present value of the difference between the old and the new debt service) of $795,866. For the business-type activities, the general obligation revenue bonds were issued to finance capital improvements. The bonds are payable from future revenues pledged from the Sewer and Water funds and are backed by the full faith and credit of the City. Annual principal and interest payments on the bonds are expected to require about 32% and 13% of revenues from the Sewer, Water funds, respectively. The revenue bonds were issued to finance the acquisition and construction of major capital facilities and are to be repaid from future revenues pledged from the Electric fund. Annual principal and interest payment on the bonds require about 3% of revenues from the Electric fund. The City also issued a promissory note to provide for the construction of a landfill gas generator. The note is to be paid from revenue of the system and is secured by the facility. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 54 NOTE 7: LONG-TERM DEBT – CONTINUED B.Changes in Long-Term Debt Long-term liability activity for the year ended December 31, 2017 was as follows: Beginning Ending Due Within PRIMARY GOVERNMENT Balance Additions Reductions Balance One Year GOVERNMENTAL ACTIVITIES: Bonds payable: General obligation bonds 28,935,000$ -$ (10,375,000)$ 18,560,000$ 1,280,000$ Special assessment bonds 595,000 - (300,000) 295,000 295,000 Issuance premium 443,384 - (51,072) 392,312 - Total bonds payable 29,973,384 - (10,726,072) 19,247,312 1,575,000 Compensated absences 1,494,429 710,917 (650,309) 1,555,037 586,661 Total Governmental Activities 31,467,813 710,917 (11,376,381) 20,802,349 2,161,661 BUSINESS-TYPE ACTIVITIES: Bonds payable General obligation revenue bonds 11,830,000 - (725,000) 11,105,000 750,000 Revenue bonds 11,955,000 - (630,000) 11,325,000 640,000 Issuance premium 536,331 - (51,625) 484,706 - Total bonds payable 24,321,331 - (1,406,625) 22,914,706 1,390,000 Notes payable 1,214,076 - (195,216) 1,018,860 198,252 Compensated absences 475,132 119,036 (162,494) 431,674 209,131 Total Business-type Activities 26,010,539 119,036 (1,764,335) 24,365,240 1,797,383 Total Primary Government 57,478,352$ 829,953$ (13,140,716)$ 45,167,589$ 3,959,044$ CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 55 NOTE 7: LONG-TERM DEBT – CONTINUED C.Future Minimum Debt Payments Annual debt service requirements to maturity for long-term obligations are as follows: Principal Interest Principal Interest 2018 1,280,000$ 460,862$ 295,000$ 2,950$ 2019 1,315,000 425,413 - - 2020 1,350,000 388,862 - - 2021 1,390,000 351,163 - - 2022 1,430,000 312,262 - - 2023 - 2027 5,290,000 1,126,031 - - 2028 - 2032 5,340,000 531,088 - - 2033 1,165,000 16,413 - - Total 18,560,000$ 3,612,094$ 295,000$ 2,950$ Principal Interest Principal Interest Principal Interest 2018 750,000$ 320,103$ 640,000$ 307,425$ 198,252$ -$ 2019 760,000 299,795 635,000 286,375 200,916 - 2020 785,000 278,803 665,000 264,925 203,952 - 2021 810,000 256,875 680,000 242,675 206,616 - 2022 835,000 233,933 710,000 219,575 209,124 - 2023 - 2027 2,515,000 938,938 2,550,000 862,450 - - 2028 - 2032 2,755,000 559,097 2,870,000 553,994 - - 2033 - 2035 1,895,000 99,813 2,575,000 156,956 - - Total 11,105,000$ 2,987,357$ 11,325,000$ 2,894,375$ 1,018,860$ -$ Primary Government - Governmental Activities Notes Payable Primary Government - Business-Type Activities G.O. Revenue Bonds Revenue Bonds General Obligation Bonds Special Assessment Bonds CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 56 NOTE 8: FUND BALANCES At December 31, 2017, a summary of the governmental fund balance classifications are as follows: Other General YMCA Pavement Governmental Fund Bonds Management Funds Total Nonspendable: Prepaid items 88,038$ -$ -$ -$ 88,038$ Restricted for: Debt service -$ 529,235$ -$ 1,079,645$ 1,608,880$ Landfill mitigation - -- 215,010 215,010 Economic development - -- 1,147,258 1,147,258 Law enforcement - -- 12,454 12,454 Park improvements - -- 120,594 120,594 Total restricted -$ 529,235$ -$ 2,574,961$ 3,104,196$ Committed to: Library operations -$ -$ -$ 437,087$ 437,087$ Landfill mitigation - - - 827,166 827,166 Ice arena - - - 581,670 581,670 Economic development - - - 5,193,050 5,193,050 Law enforcement - - - 2,409 2,409 Insurance reserve - - - 174,709 174,709 Street improvements - - 3,138,557 - 3,138,557 Total committed -$ -$ 3,138,557$ 7,216,091$ 10,354,648$ Assigned to: Capital equipment -$ -$ -$ 1,991,716$ 1,991,716$ Building construction/improvements - - - 2,284,977 2,284,977 Street improvements 356,174 - - 827,202 1,183,376 Other improvement projects - - - 5,646,602 5,646,602 Park improvements - - - 233,575 233,575 Total assigned 356,174$ -$ -$ 10,984,072$ 11,340,246$ CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 57 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE 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 under section 401 (a) of the Internal Revenue Code. 1.General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City of Elk River are covered by the 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. 2.Public Employees Police and Fire Fund (PEPPF) 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 state 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% funded for two consecutive years are given 2.5% increases. Members in plans that have not exceeded 90% funded, or have fallen below 80%, are given 1% 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. 1.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% of average salary for each of the first 10 years of service and 2.7% for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2% of average salary for each of the first 10 years and 1.7% for each remaining year. Under Method 2, the annuity accrual rate is 2.7% of average salary for Basic Plan members and 1.7% 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 58 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED B.Benefits Provided (Continued) 2.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% after five years up to 100% after ten years of credited service. Benefits for PEPFF member first hired after June 30, 2014, vest on a prorated basis from 50% after ten years up to 100% after twenty years of credited service. The annuity accrual rate is 3% of average salary for each year of service. For PEPFF members 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. 1. GERF Contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10% and 6.50%, respectively, of their annual covered salary in calendar year 2017. The City was required to contribute 11.78% of pay for Basic Plan members and 7.50% for Coordinated Plan members in calendar year 2017. The City and HRA contributions to the GERF for the year ended December 31, 2017 were $713,412 and $4,494, respectively. Both the City and HRA contributions were equal to the required contributions set by state statute. 2.PEPFF Contributions Plan members were required to contribute 10.8% of their annual covered salary in calendar year 2017. The City was required to contribute 16.20% of pay for members in calendar year 2017. The City contributions to the PEPFF for the year ended December 31, 2017 were $508,774. The City contributions were equal to the required contributions set by state statute. D.Pension Costs 1. GERF Pension Costs At December 31, 2017, the City and HRA reported liabilities of $9,611,075 and $60,586, respectively, for its proportionate share of the GERF’s net pension liability. The net pension liability reflected a reduction due to the State of Minnesota’s contribution of $6 million to the fund in 2017. The State of Minnesota is considered a non-employer contributing entity and the state’s contribution meets the definition of a special funding situation. The State of Minnesota’s proportionate share of the net pension liability associated with the City and the HRA totaled $120,413 and $1,170, respectively. The net pension liability was measured as of June 30, 2017 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City and HRA’s proportions of the net pension liability was based on their respective contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2016 through June 30, 2017 relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2017 the City and HRA’s combined proportion was .1515%, an increase of .008% from its proportion measured as of June 30, 2016. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 59 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED D.Pension Costs (Continued) For the year ended December 31, 2017, the City and HRA recognized pension expense of $433,969 and $2,109, respectively, for its proportionate share of the GERF’s pension expense. In addition, the City and HRA recognized an additional $3,478 and $34, respectively, for its proportionate share of the State of Minnesota’s contribution of $6 million to GERF. At December 31, 2017, the City reported its proportionate share of GERF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual experience 316,640$ 623,399$ Changes in actuarial assumptions 1,596,734 960,180 Net difference between projected and actual earnings on plan investments - 413,315 Changes in proportion 444,504 290,019 Contributions to GERF subsequent to the measurement date 365,123 - Total 2,723,001$ 2,286,913$ A total of $365,123 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Year Ending December 31,Amount 2018 (123,398)$ 2019 663,853 2020 (62,922) 2021 (406,568) CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 60 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED D.Pension Costs (Continued) 1. GERF Pension Costs At December 31, 2017, the HRA reported its proportionate share of the GERF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual experience 3,101$ 6,106$ Changes in actuarial assumptions 15,640 9,405 Net difference between projected and actual earnings on plan investments - 4,048 Changes in proportion 4,354 2,841 Contributions to GERF subsequent to the measurement date 3,576 - Total 26,671$ 22,400$ A total of $3,576 reported as deferred outflows of resources related to pensions resulting from HRA contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Year Ending December 31,Amount 2018 (1,209)$ 2019 6,502 2020 (616) 2021 (3,982) 2.PEPFF Pension Costs At December 31, 2017, the City reported a liability of $4,239,374 for its proportionate share of the PEPFF’s net pension liability. The net pension liability was measured as of June 30, 2017, 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, 2016 through June 30, 2017 relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2017, the City’s proportionate share was .3140%, an increase of .0080% from its proportion measured as of June 30, 2016. The City also recognized $28,260 for the year ended December 31, 2017 as revenue and an offsetting reduction of net pension liability 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 61 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED D.Pension Costs (Continued) For the year ended December 31, 2017, the City recognized pension expense of $423,689 for its proportionate share of PEPFF’s of the PEPFF pension expense. At December 31, 2017, the City reported its proportionate share of PEPFF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual experience 99,478$ 1,133,350$ Changes in actuarial assumptions 5,887,128 6,018,859 Net difference between projected and actual earnings on plan investments - 360,125 Changes in proportion 576,843 - Contributions to PEPFF subsequent to the measurement date 272,933 - Total 6,836,382$ 7,512,334$ A total of $272,933 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending December 31,Amount 2018 (32,911)$ 2019 385,438 2020 59,552 2021 (200,121) 2022 (1,160,843) The City’s and HRA’s total pension expense for the year ended December 31, 2017 for all of the defined benefit pension plans in which it participates, including the Fire Relief Association plan found in Note 11, was $881,784 and $2,109, respectively. E.Actuarial Assumptions The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Active member payroll growth 3.25% per year Investment rate of return 7.50% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors and disabilitants were based on RP-2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit PERA’s experience. Cost of living benefit increases for retirees are assumed to be 1% per year for the GERF through 2044 and PEPFF through 2064 and then 2.5% thereafter for both plans. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 62 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED E.Actuarial Assumptions (Continued) Actuarial assumptions used in the June 30, 2017 valuation were based on the results of actuarial experience studies. The most recent four-year experience study in the GERF was completed in 2015. The most recent five-year experience study for PEPFF was completed in 2016. There following changes in actuarial assumptions occurred in 2017: General Employees Fund •The Combined Service Annuity (CSA) loads were changed from .8% for active members and 60% for vested and non-vested deferred members. The revised CSA loads are now 0% for active member liability, 15% for vested deferred member liability and 3% for non-vested deferred member liability. •The assumed post-retirement benefit increase rate was changed from 1% per year for all years to 1% per year through 2044 and 2.5% per year thereafter. Police and Fire Fund •Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average.34% lower than the previous rates. •Assumed rates of retirement were changed, resulting in fewer retirements. •The Combined Service Annuity (CSA) load was 30% for vested and non-vested deferred members. The CSA has been changed to 33% for vested members and 2% for non-vested members. •The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of .96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees. •Assumed termination rates were decreased to 3% for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall. •Assumed percentage of married female member was decreased from 65% to 60%. •Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two years older than females. •The assumed percentage of female members electing Joint and Survivor annuities was increased. •The assumed post-retirement benefit increase rate was changed from 1% for all years to 1% per year through 2064 and 2.5% thereafter. 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: Long-term Target Expected Real Asset Class Allocation Rate of Return Domestic stocks 39.00 %5.10 % International stocks 19.00 5.30 Bonds 20.00 0.75 Alternative assets 20.00 5.90 Cash 2.00 Totals 100.00 % CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 63 NOTE 9: DEFINED BENEFIT PENSION PLANS – STATE-WIDE - CONTINUED F.Discount Rate The discount rate used to measure the total pension liability in 2017 was 7.5%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the GERF and PEPFF was projected to be available to make all projected future benefit payments of current plan 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 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: Current Discount 1% Lower (6.5%)Rate (7.5%)1% Higher (8.5%) Primary Government:GERF - City 14,855,949$ 9,611,075$ 5,256,758$ PEPFF 7,983,978 4,239,374 1,147,997 Component Unit:GERF - HRA 145,514 60,586 51,490 City Proportionate Share of NPL H.Pension Plan Fiduciary Net Position Detailed information about each 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. NOTE 10: DEFINED CONTRIBUTION PLAN Three council members of the City of Elk River are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by 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% 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% of employer contributions and twenty-five hundredths of one percent (.0025) of the assets in each member’s account annually. Total contributions made by the City of Elk River during fiscal year 2017 were: Required Employee Employer Employee Employer Rate $1,405 $1,405 5.0% 5.0%5.0% Contribution Amount Percentage of Covered Payroll CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 64 NOTE 11: 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, 2017, the plan covered 44 active firefighters and 6 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% of the pension as prescribed by the bylaws. This percentage increases 4% 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 $182,297 in fire state aid to the plan on behalf of the City Fire Department for the year ended December 31, 2017, which was recorded as revenue. Required employer contributions are calculated annually based on statutory provisions. The City’s statutorily-require contribution to the plan for the year ended December 31, 2017 was $0 but the City voluntarily contributed $30,000. D.Pension Costs At December 31, 2017, the City reported a net pension asset of $749,793 for the plan. The net pension liability (asset) was measured as of December 31, 2016. 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, 2016. For the year ended December 31, 2017, the City recognized pension expense of $24,126. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 65 NOTE 11: DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION - CONTINUED D.Pension Costs (Continued) At December 31, 2017, the City reported deferred outflows of resources and deferred inflows of resources, including its contributions subsequent to the measurement date, related to pension from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Changes in actuarial assumptions 219,874$ -$ Net difference between projected and actual earnings on plan investments 32,760 - Total 252,634$ -$ Deferred outflows of resources totaling $0 related to pensions resulting from the City’s contributions to the plan subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in pension expense as follows: Year Ending December 31,Amount 2018 86,355$ 2019 86,355 2020 75,493 Thereafter 4,431 E.Actuarial Assumptions The total pension liability at December 31, 2016 was determined using the entry age normal actuarial cost and level dollar closed amortization methods with the following actuarial assumptions: Retirement eligibility Age 50 or after 20 years of 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 Inflation 2.75% per year Discount rate 6.00% per year Investment rate of return 6.00% per year 20-year municipal bond yield 3.31% per year The 6.00 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 66 NOTE 11: DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION - CONTINUED E.Actuarial Assumptions (Continued) The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-term Target Expected Real Allocation Rate of Return Domestic equities 42.88 %5.58 % International equities 12.09 5.71 Fixed income 29.51 2.27 Real estate and alternative 1.74 4.44 Cash and cash equivalents 13.78 0.84 Total 100.00 % Asset Class F.Discount Rate The discount rate used to measure the total pension liability was 6.00%. 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% Lower (5.00%)Current 1% Higher (7.00%) Net pension liability (asset)($696,350) ($749,793) ($801,918) F.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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 67 NOTE 12: POST EMPLOYMENT 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. 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 30 years. The URHP has elected to calculate the ARC and related information using the alternative measurement method permitted for employers in plans with fewer than one hundred total plan members. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation: Municipal Utility Retiree Retiree Health Plan Health Plan Annual required contribution (ARC)107,970$ 10,411$ Interest on net OPEB obligation 17,320 2,469 Adjustment to ARC (26,447) (3,836) Annual OPEB cost 98,843 9,044 Contributions made (47,958) (1,052) Increase in net OPEB obligation 50,885 7,992 Net OPEB obligation - beginning of year 494,858 70,545 Net OPEB obligation - end of year 545,743$ 78,537$ CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 68 NOTE 12: POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS – CONTINUED C.Annual OPEB Cost and Net OPEB Obligation (Continued) The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the last three years are as follows: Percentage of Annual Employer Annual OPEB Net Pension Fiscal Year Ended OPEB Cost Contribution Cost Contributed Obligation MRHP: 12/31/2017 98,843$ 39,599$ 49%545,743$ 12/31/2016 117,191 48,803 48%494,858 12/31/2015 118,780 36,810 41%434,250 URHP: 12/31/2017 9,044$ 1,052$ 12%78,537$ 12/31/2016 10,559 3,055 29%70,545 12/31/2015 10,260 2,151 21%63,041 D.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, 2017 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 3.5% investment rate of return and an annual healthcare cost trend rate of 6.5% initially, reduced incrementally to an ultimate rate of 5% after six years. The actuarial value of assets was not determined as the City has not advance-funded its obligation. The plan’s unfunded actuarial accrued liability was amortized as a level dollar amount over a closed basis. The remaining amortization period at December 31, 2017 was over no more than thirty years. For the URHP, the following simplifying assumptions were made: Retirement age for active employees – Based on the historical average retirement age for the covered group, active plan members were assumed to retire at age 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 69 NOTE 12: POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS – CONTINUED D.Actuarial Methods and Assumptions (Continued) Healthcare cost trend rate – The expected rate of increase in healthcare insurance premiums was based on projections of the “Getzen” model published by the Society of Actuaries. A rate of 6.8% initially, reduced to an ultimate rate of 5.4%, was used. Health insurance premiums – 2017 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 3.5% 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, 2017 was thirty years. NOTE 13: 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. 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. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 70 NOTE 13: OTHER INFORMATION – CONTINUED C.Territorial Acquisition Agreement (Continued) 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 $268 in 2017 for loss of revenues under this agreement. All amounts paid are included in property and equipment. In 2015, the Utilities entered into an 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 designated service area 1 in 2015 for $877,807 and service area 2 in 2016 for $663,586. Service areas 3 and 4 were acquired in 2017 for $276,776. The loss of revenue payments made was $411,157 in 2017 and $575,725 will be in 2018. All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets. 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, 2017, there were five series of revenue bonds outstanding, with an aggregate principal payable amount of $12,946,921. E.Commitments The Utilities has received notice from their power supplier exercising their right to give ten years notice to cancel the existing power 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 Municipal Power Agency/Services (CMPAS) 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 CMPAS is designed to provide approximately $124,000 annually over the 40 year project life. The transmission payments for 2017 were $22,050 of which $2,067 was receivable at December 31, 2017. CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 71 NOTE 13: OTHER INFORMATION – CONTINUED 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, 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. NOTE 14: TAX ABATEMENTS T he City of Elk River has established a tax abatement program pursuant to Minnesota Statutes, Sections 469.1812 through 469.1815. As part of the program the City enters into agreements through the use of tax increment financing districts under Minnesota Statutes Section 469.174 to 469.179 (the Tax Increment Act). Under these statutes the City annually abates taxes collected above the district’s base tax capacity which is established during adoption of the Tax increment district. These agreements are established to foster economic development and redevelopment through creating jobs, removing blight and providing affordable housing. For fiscal year ending December 31, 2017, the City has three agreements established under Minnesota Statutes Section 469.174 to 469.179 which resulted in property taxes totaling $238,590 being abated. Individual abatement payments which constituted more than 1% of the City’s 2017 tax levy include: •A pay-as-you-go note resulting in an abatement amount of $117,724 for a financial institution. •A pay-as-you-go note resulting in an abatement amount of $113,767 for an industrial developer. As part of the City’s tax abatement program, the City also enters into agreements with local businesses in the form of business subsidy agreement established under Minnesota Statutes Section 116J.993 through 116J.995. These agreements must meet a public purpose which may include, by may not be limited to, increasing the tax base. In 2017 the City of Elk River had nine business subsidy agreements in place which resulted in property taxes totaling $194,750 being abated. Individual agreements which result in taxes abated in excess of 1% of the City’s total tax levy would be disclosed individually. There were no such payments made in 2017 in excess of this amount. REQUIRED SUPPLEMENTARY INFORMATION 72 2016 2015 2014 Total pension liability Service cost 107,095$ 99,459$ 93,312$ Interest 142,222 127,413 126,522 Assumption changes - 297,706 - Plan changes 55,532 - 62,318 Difference between expected and actual experience (147,992) - - Benefit payments (147,015) (423,760) - Net change in pension liability 9,842 100,818 282,152 Total pension liability - beginning 2,336,784 2,235,966 1,953,814 Total pension liability - ending (a)2,346,626$ 2,336,784$ 2,235,966$ Plan fiduciary net position Contributions - employer 30,000$ 30,000$ 30,000$ Contributions - state 179,192 177,826 164,825 Net investment income 55,756 54,358 77,412 Net gain (loss) on investments 173,668 (197,938) 46,697 Benefite payments (147,015) (423,760) - Administrative expense (12,884) (13,663) (8,634) Net change in plan fiduciary net position 278,717 (373,177) 310,300 Plan fiduciary net position - beginning 2,817,702 3,190,879 2,880,579 Plan fiduciary net position - ending (b)3,096,419$ 2,817,702$ 3,190,879$ Fire Relief's net pension liability (asset) - (a-b)(749,793)$ (480,918)$ (954,913)$ Plan fiduciary net position as a percentage of the total pension liability Covered payroll N/A N/A N/A Fire relief's net pension liability (asset) as a percentage of covered payroll N/A N/A N/A Notes to Schedule Ten years of data will eventually be presented when available. CITY OF ELK RIVER, MINNESOTA SCHEDULE OF PROPORTIONATE SHARE OF NET PENSION LIABILITY ELK RIVER FIRE RELIEF DECEMBER 31, 2017 Changes of assumptions. No changes in 2016. 73 Actuarial Actual Contribution Year Determined Contributions Deficiency Ending Contribution (a)Paid (b)(Excess) (a-b) 12/31/17 182,297$ 212,297$ (30,000)$ 12/31/16 179,192 209,192 (30,000) 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) Ten years of data will eventually be presented when available. DECEMBER 31, 2017 SCHEDULE OF CITY CONTRIBUTIONS ELK RIVER FIRE RELIEF CITY OF ELK RIVER, MINNESOTA 74 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) 01/01/17 -$ 867,777$ 867,777$ 0.00%8,406,057$ 10.32% 01/01/14 - 996,344 996,344 0.00%7,442,216 13.39% 01/01/11 - 908,610 908,610 0.00%6,901,671 13.17% 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) 01/01/17 -$ 48,766$ 48,766$ 0.00%3,362,758$ 1.45% 01/01/14 - 68,948 68,948 0.00%2,810,413 2.45% 01/01/11 - 42,681 42,681 0.00%2,286,547 1.87% Utilities Retiree Health Plan Municipal Retiree Health Plan CITY OF ELK RIVER, MINNESOTA SCHEDULE OF FUNDING PROGRESS - OTHER POSTEMPLOYMENT BENEFIT PLAN DECEMBER 31, 2017 75 Primary Government: Contributions in Relation to Contribution Contributions as Statutorily the Statutorily Deficiency City's a Percentage Year Required Required (Excess)Covered of Covered Ending Contribution (a)Contribution (b)(b -a)Payroll (c)Payroll (b/c) 12/31/17 706,492$ 706,492$ - 9,812,389$ 7.2% 12/31/16 684,110 684,110 - 9,501,528 7.2% 12/31/15 662,147 662,147 - 9,196,486 7.2% 12/31/14 609,362 609,362 - 8,463,361 7.2% Contributions in Relation to Contribution Contributions as Statutorily the Statutorily Deficiency City's a Percentage Year Required Required (Excess)Covered of Covered Ending Contribution (a)Contribution (b)(b -a)Payroll (c)Payroll (b/c) 12/31/17 508,774$ 508,774$ - 3,140,580$ 16.2% 12/31/16 495,478 495,478 - 3,058,506 16.2% 12/31/15 478,192 478,192 - 2,951,802 16.2% 12/31/14 418,280 418,280 - 2,581,975 16.2% Component Unit: Contributions in Relation to Contribution Contributions as Statutorily the Statutorily Deficiency HRA's a Percentage Year Required Required (Excess)Covered of Covered Ending Contribution (a)Contribution (b)(b -a)Payroll (c)Payroll (b/c) 12/31/17 4,494$ 4,494$ - 62,417$ 7.2% 12/31/16 4,352 4,352 - 60,444$ 7.2% 12/31/15 4,212 4,212 - 58,500$ 7.2% 12/31/14 3,877 3,877 - 53,847$ 7.2% Ten years of data will eventually be presented when available. General Employees Retirement Fund Public Employees Police and Fire Fund SCHEDULE OF CITY CONTRIBUTIONS - PERA General Employees Retirement Fund CITY OF ELK RIVER, MINNESOTA DECEMBER 31, 2017 76 Primary Government: City's State's Proportionate Proportionate Share of the City's Share of Net Pension Plan Fiduciary City's Proportionate the Net Pension Liability as a Net Position Fiscal Proportion of Share of Liability City's Percentage as a Percentage Year the Net Pension the Net Pension Associated Total Covered of Covered of the Total Ending Liability Liability (a)with the City (b)(a+b)Payroll (c)Payroll ((a+b)/c)Pension Liability 06/30/17 0.1505%9,611,075$ 120,413$ 9,731,488$ 9,689,768$ 100.4%75.9% 06/30/16 0.1426%11,578,084 151,214 11,729,298 8,845,917 132.6%68.9% 06/30/15 0.1429%7,405,511 - 7,405,511 8,657,146 85.5%78.2% 06/30/14 0.1577%7,407,964 - 7,407,964 8,279,769 89.5%78.7% City's State's Proportionate Proportionate Share of the City's Share of Net Pension Plan Fiduciary City's Proportionate the Net Pension Liability as a Net Position Fiscal Proportion of Share of Liability City's Percentage as a Percentage Year the Net Pension the Net Pension Associated Total Covered of Covered of the Total Ending Liability Liability (a)with the City (b)(a+b)Payroll (c)Payroll ((a+b)/c)Pension Liability 06/30/17 0.3140%4,239,374$ 43,337$ 4,282,711$ 3,211,726$ 133.3%85.4% 06/30/16 0.3060%12,280,312 53,870 12,334,182 2,952,673 417.7%63.9% 06/30/15 0.3040%3,454,151 - 3,454,151 2,788,952 123.9%86.6% 06/30/14 0.2990%3,229,323 - 3,229,323 2,440,932 132.3%87.1% Component Unit: HRA's State's Proportionate Proportionate Share of the HRA's Share of Net Pension Plan Fiduciary HRA's Proportionate the Net Pension Liability as a Net Position Fiscal Proportion of Share of Liability HRA's Percentage as a Percentage Year the Net Pension the Net Pension Associated Total Covered of Covered of the Total Ending Liability Liability (a)with the HRA (b)(a+b)Payroll (c)Payroll ((a+b)/c)Pension Liability 06/30/17 0.0010%60,586$ 1,170$ 61,756$ 61,433$ 100.4%75.9% 06/30/16 0.0009%73,404 959 74,363 56,083 132.6%68.9% 06/30/15 0.0009%46,951 - 46,951 54,886 85.5%78.2% 06/30/14 0.0010%46,966 - 46,966 52,493 89.5%78.7% Ten years of data will eventually be presented when available. General Employees Retirement Fund General Employees Retirement Fund Public Employees Police and Fire Fund DECEMBER 31, 2017 CITY OF ELK RIVER, MINNESOTA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - PERA COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 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. 77 78 Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds FundsASSETS Cash and investments 4,813,129$ 1,066,593$ 10,953,361$ 16,833,083$ Receivables: Interest 18,341 4,075 53,917 76,333 Taxes 13,963 9,037 196 23,196 Accounts 188,428 - 229,792 418,220 Special assessments - 15,942 710,096 726,038 Notes, net 2,006,425 - - 2,006,425 Due from other governments 40 - 108,162 108,202 Due from other funds 1,511,053 - 49,914 1,560,967 Property held for resale 175,000 - -175,000 Total assets 8,726,379$ 1,095,647$ 12,105,438$ 21,927,464$ LIABILITIES Accounts payable 100,509$ -$ 310,821$ 411,330$ Salaries payable 10,256 - -10,256 Due to other governments 1,918 - -1,918 Due to other funds 14,416 - 1,811,703 1,826,119 Due to component unit - - 209,253 209,253 Unearned revenue 3,234 - 588,127 591,361 Total liabilities 130,333 - 2,919,904 3,050,237 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes 5,233 3,529 167 8,929 Unavailable revenue - special assessments - 12,473 708,214 720,687 Total deferred inflows of resources 5,233 16,002 708,381 729,616 FUND BALANCES Restricted 1,374,722 1,079,645 120,594 2,574,961 Committed 7,216,091 - - 7,216,091 Assigned - - 10,984,072 10,984,072 Unassigned - - (2,627,513) (2,627,513) Total fund balances 8,590,813 1,079,645 8,477,153 18,147,611 Total liabilities, deferred inflows of resources, and fund balances 8,726,379$ 1,095,647$ 12,105,438$ 21,927,464$ CITY OF ELK RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2017 79 Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds FundsREVENUES Taxes: Property taxes 583,999$ 366,007$ 239,811$ 1,189,817$ Intergovernmental revenue 18,670 - 1,311,324 1,329,994 Charges for services 937,291 - 256,592 1,193,883 Fines and forfeits 26,785 - -26,785 Special assessments - 106,349 134,955 241,304 Interest income 83,987 12,564 155,933 252,484 Miscellaneous revenue: Landfill expansion fee - - 1,126,743 1,126,743 Refunds and reimbursements 196,978 - - 196,978 Contributions 6,040 - 346,343 352,383 Other 67,265 - 16,644 83,909 Total revenues 1,921,015 484,920 3,588,345 5,994,280 EXPENDITURES Current: General government 159,778 - 8,998 168,776 Public safety 24,187 - 43,949 68,136 Public works 55,004 - 52,398 107,402 Culture and recreation 940,531 - 82,993 1,023,524 Economic development 434,898 - 673,335 1,108,233 Capital outlay: General government - - 117,912 117,912 Public safety - - 442,518 442,518 Public works - - 1,373,231 1,373,231 Culture and recreation - - 762,661 762,661 Economic development - - 107,800 107,800 Debt service: Principal - 1,055,000 - 1,055,000 Interest and service charges - 278,925 34,093 313,018 Total expenditures 1,614,398 1,333,925 3,699,888 6,648,211 Excess (deficiency) of revenues over (under) expenditures 306,617 (849,005) (111,543) (653,931) OTHER FINANCING SOURCES (USES) Transfers in 135,415 863,897 1,404,435 2,403,747 Transfers out (214,830) - (1,492,370) (1,707,200) Sale of capital assets 73,619 - 42,393 116,012 Total other financing sources (uses)(5,796) 863,897 (45,542) 812,559 Net change in fund balances 300,821 14,892 (157,085) 158,628 Fund balances - January 1 8,289,992 1,064,753 8,634,238 17,988,983 Fund balances - December 31 8,590,813$ 1,079,645$ 8,477,153$ 18,147,611$ FOR THE YEAR ENDED DECEMBER 31, 2017 CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS NONMAJOR SPECIAL REVENUE FUNDS Library - This fund accounts for any library maintenance costs which are not paid by the Great River Regional Library System. Ice Arena - This fund accounts for the operation and maintenance of the ice arena which is funded by user fees. Pinewood Golf Course - This fund was established to account for the operation and maintenance of the municipal-owned nine-hole golf course which is funded by user fees. 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. 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. Economic Development Authority - This fund was established to account for a special tax levy authorized to help encourage development in the City. 80 81 Pinewood Library Ice Arena Golf Course Landfill ASSETS Cash and investments 438,050$ 436,155$ 3,270$ 1,036,285$ Receivables: Interest 2,087 2,076 - 5,298 Taxes 1,303 - - - Accounts - 182,265 - 2,434 Notes, net - -- - Due from other governments - -- - Due from other funds - -- - Property held for resale - -- - Total assets 441,440$ 620,496$ 3,270$ 1,044,017$ LIABILITIES Accounts payable 3,852$ 28,857$ 36$ 1,710$ Salaries payable - 8,051 - 131 Due to other governments - 1,918 - - Due to other funds - -- - Unearned revenue - -3,234 - Total liabilities 3,852 38,826 3,270 1,841 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes 501 - - - FUND BALANCES Restricted - - - 215,010 Committed 437,087 581,670 - 827,166 Total fund balances 437,087 581,670 - 1,042,176 Total liabilities, deferred inflows of resources, and fund balances 441,440$ 620,496$ 3,270$ 1,044,017$ CITY OF ELK RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS DECEMBER 31, 2017 82 Drug Economic Total Nonmajor Revolving State Development Insurance Forfeiture Development Special Revenue Loan DEED Fund Reserve Reserve Authority Funds 661,353$ 205,198$ 739,727$ 181,790$ 23,068$ 1,088,233$ 4,813,129$ 3,244 1,006 3,629 891 110 - 18,341 - - 4,314 - - 8,346 13,963 - - - 3,729 - - 188,428 512,259 284,782 1,209,384 - - - 2,006,425 - - - - 40 - 40 - - 1,511,053 - - - 1,511,053 - - - - - 175,000 175,000 1,176,856$ 490,986$ 3,468,107$ 186,410$ 23,218$ 1,271,579$ 8,726,379$ -$ -$ 37,954$ 11,701$ 8,355$ 8,044$ 100,509$ - - - - - 2,074 10,256 - - - - - -1,918 - - - - - 14,416 14,416 - - - - - -3,234 - - 37,954 11,701 8,355 24,534 130,333 - - 1,716 - - 3,016 5,233 - 490,986 - - 12,454 656,272 1,374,722 1,176,856 - 3,428,437 174,709 2,409 587,757 7,216,091 1,176,856 490,986 3,428,437 174,709 14,863 1,244,029 8,590,813 1,176,856$ 490,986$ 3,468,107$ 186,410$ 23,218$ 1,271,579$ 8,726,379$ 83 Pinewood Library Ice Arena Golf Course Landfill REVENUES Property taxes 53,443$ -$ -$ -$ Intergovernmental revenue - - - 18,468 Charges for services - 798,248 90,861 24,682 Fines and forfeits - - - - Interest income 8,380 10,354 - 18,466 Miscellaneous revenue: Refunds and reimbursements - - - - Contributions - 6,040 - - Other - 18,607 - - Total revenues 61,823 833,249 90,861 61,616 EXPENDITURES Current: General government - - - - Public safety - - - - Public works - - - 55,004 Culture and recreation 81,151 727,454 131,926 - Economic development - - - - Total expenditures 81,151 727,454 131,926 55,004 Excess (deficiency) of revenues over (under) expenditures (19,328) 105,795 (41,065) 6,612 OTHER FINANCING SOURCES (USES) Transfers in 28,350 - 41,065 - Transfers out - - - (100,030) Sale of capital assets - - - - Total other financing sources (uses)28,350 - 41,065 (100,030) Net change in fund balances 9,022 105,795 - (93,418) Fund balances - January 1 428,065 475,875 - 1,135,594 Fund balances - December 31 437,087$ 581,670$ -$ 1,042,176$ CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 84 Drug Economic Total Nonmajor Revolving State Development Insurance Forfeiture Development Special Revenue Loan DEED Fund Reserve Reserve Authority Funds -$ -$ 171,978$ -$ -$ 358,578$ 583,999$ - - - - - 202 18,670 - - 20,000 - - 3,500 937,291 - - - - 26,785 - 26,785 7,489 180 33,419 1,455 453 3,791 83,987 - - 100,930 96,048 - - 196,978 - - - - - - 6,040 14,757 5,908 - - - 27,993 67,265 22,246 6,088 326,327 97,503 27,238 394,064 1,921,015 - - - 159,778 - - 159,778 - - - - 24,187 - 24,187 - - - - - - 55,004 - - - - - - 940,531 19,189 70 189,188 - - 226,451 434,898 19,189 70 189,188 159,778 24,187 226,451 1,614,398 3,057 6,018 137,139 (62,275) 3,051 167,613 306,617 - 66,000 - - - - 135,415 - -(14,000) - - (100,800) (214,830) - -73,619 - - - 73,619 - 66,000 59,619 - - (100,800) (5,796) 3,057 72,018 196,758 (62,275) 3,051 66,813 300,821 1,173,799 418,968 3,231,679 236,984 11,812 1,177,216 8,289,992 1,176,856$ 490,986$ 3,428,437$ 174,709$ 14,863$ 1,244,029$ 8,590,813$ 85 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LIBRARY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2017 Variance with Original Final Actual Final Budget REVENUES Property taxes 53,650$ 53,650$ 53,443$ (207)$ Interest income 5,500 5,500 8,380 2,880 Total revenues 59,150 59,150 61,823 2,673 EXPENDITURES Current: Culture and recreation 87,500 87,500 81,151 6,349 Capital outlay: Culture and recreation 10,000 10,000 - 10,000 Total expenditures 97,500 97,500 81,151 16,349 Excess (deficiency) of revenues over (under) expenditures (38,350) (38,350) (19,328) 19,022 OTHER FINANCING SOURCES Transfers in 28,350 28,350 28,350 - Net change in fund balance (10,000)$ (10,000)$ 9,022 19,022$ Fund balance - January 1 428,065 Fund balance - December 31 437,087$ Budget 86 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ICE ARENA FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2017 Variance with Original Final Actual Final Budget REVENUES Charges for services 769,400$ 769,400$ 798,248$ 28,848$ Interest income 4,500 4,500 10,354 5,854 Miscellaneous revenue: Vending machines 15,000 15,000 15,411 411 Contributions 6,100 6,100 6,040 (60) Other 4,200 4,200 3,196 (1,004) Total revenues 799,200 799,200 833,249 34,049 EXPENDITURES Current: Culture and recreation 827,550 827,550 727,454 100,096 Net change in fund balance (28,350)$ (28,350)$ 105,795 134,145$ Fund balance - January 1 475,875 Fund balance - December 31 581,670$ Budget 87 CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LANDFILL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2017 Variance with Original Final Actual Final Budget REVENUES Intergovernmental revenue 8,200$ 8,200$ 18,468$ 10,268$ Charges for services 11,000 11,000 24,682 13,682 Interest income 8,500 8,500 18,466 9,966 Total revenues 27,700 27,700 61,616 33,916 EXPENDITURES Current: Public works 33,950 33,950 55,004 (21,054) Excess (deficiency) of revenues over (under) expenditures (6,250) (6,250) 6,612 12,862 OTHER FINANCING USES Transfers out (100,600) (100,600) (100,030) 570 Net change in fund balance (106,850)$ (106,850)$ (93,418) 13,432$ Fund balance - January 1 1,135,594 Fund balance - December 31 1,042,176$ Budget 88 Variance with Original Final Actual Final Budget REVENUES Property taxes 374,900$ 374,900$ 358,578$ (16,322)$ Intergovernmental revenue - - 202 202 Charges for services 3,500 3,500 3,500 - Interest income 5,500 5,500 3,791 (1,709) Miscellaneous revenue: Other - - 27,993 27,993 Total revenues 383,900 383,900 394,064 10,164 EXPENDITURES Current: Economic development 259,700 259,700 226,451 33,249 Excess (deficiency) of revenues over (under) expenditures 124,200 124,200 167,613 43,413 OTHER FINANCING USES Transfers out (34,800) (100,800) (100,800) - Net change in fund balance 89,400$ 23,400$ 66,813 43,413$ Fund balance - January 1 1,177,216 Fund balance - December 31 1,244,029$ FOR THE YEAR ENDED DECEMBER 31, 2017 Budget CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ECONOMIC DEVELOPMENT AUTHORITY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL 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. 89 90 Government Total Nonmajor Improvement Building Debt Service Bonds Bonds Funds ASSETS Cash and investments 210,721$ 855,872$ 1,066,593$ Receivables: Interest - 4,075 4,075 Taxes 269 8,768 9,037 Special assessments 15,942 - 15,942 Total assets 226,932$ 868,715$ 1,095,647$ DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes 231$ 3,298$ 3,529$ Unavailable revenue - special assessments 12,473 - 12,473 Total deferred inflows of resources 12,704 3,298 16,002 FUND BALANCES Restricted 214,228 865,417 1,079,645 Total deferred inflows of resources and fund balances 226,932$ 868,715$ 1,095,647$ CITY OF ELK RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR DEBT SERVICE FUNDS DECEMBER 31, 2017 91 Government Total Nonmajor Improvement Building Debt Service Bonds Bonds Funds REVENUES Property taxes 91$ 365,916$ 366,007$ Special assessments 106,349 - 106,349 Interest income 1,767 10,797 12,564 Total revenues 108,207 376,713 484,920 EXPENDITURES Debt service: Principal 300,000 755,000 1,055,000 Interest and service charges 12,450 266,475 278,925 Total expenditures 312,450 1,021,475 1,333,925 Excess (deficiency) of revenues over (under) expenditures (204,243) (644,762) (849,005) OTHER FINANCING SOURCES Transfers in 173,222 690,675 863,897 Net change in fund balances (31,021) 45,913 14,892 Fund balances - January 1 245,249 819,504 1,064,753 Fund balances - December 31 214,228$ 865,417$ 1,079,645$ CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 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. Improvement Projects - This fund is used to account for the construction of various improvements within the city. TIF Districts - This fund is us to account for administrative and development costs associated with the various tax increment financing projects. 92 93 Capital Equipment Park Park Reserve Replacement Dedication Improvements ASSETS Cash and investments 900,351$ 1,020,244$ 99,348$ 295,276$ Receivables: Interest 4,422 5,005 473 1,653 Taxes - 3 - - Accounts 55,190 - - - Special assessments 834 - - - Due from other governments 450 - - - Due from other funds - 49,914 - - Total assets 961,247$ 1,075,166$ 99,821$ 296,929$ LIABILITIES Accounts payable 43,863$ -$ -$ 63,354$ Due to other funds - - - - Due to component unit - - - - Unearned revenue - - 588,127 - Total liabilities 43,863 - 588,127 63,354 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes - - - - Unavailable revenue - special assessments 834 - - - Total deferred inflows of resources 834 - - - FUND BALANCES Restricted - - 120,594 - Assigned 916,550 1,075,166 - 233,575 Unassigned - - (608,900) - Total fund balances 916,550 1,075,166 (488,306) 233,575 Total liabilities, deferred inflows of resources, and fund balances 961,247$ 1,075,166$ 99,821$ 296,929$ CITY OF ELK RIVER, MINNESOTA COMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS DECEMBER 31, 2017 94 Total Nonmajor Government Street Improvement TIF Capital Projects Buildings GRE Reserve Improvements Projects Districts Funds 2,183,968$ 1,901,515$ 832,793$ 3,717,523$ 2,343$ 10,953,361$ 10,714 9,328 4,086 18,236 - 53,917 - - 193 - - 196 174,602 - - - - 229,792 - - 222,140 487,122 - 710,096 - - 107,712 - - 108,162 - - - - - 49,914 2,369,284$ 1,910,843$ 1,166,924$ 4,222,881$ 2,343$ 12,105,438$ 84,307$ -$ 119,297$ -$ -$ 310,821$ - - - - 1,811,703 1,811,703 - - - - 209,253 209,253 - - - - - 588,127 84,307 - 119,297 - 2,020,956 2,919,904 - - 167 - - 167 - - 220,258 487,122 - 708,214 - - 220,425 487,122 - 708,381 - - - - - 120,594 2,284,977 1,910,843 827,202 3,735,759 - 10,984,072 - - - - (2,018,613) (2,627,513) 2,284,977 1,910,843 827,202 3,735,759 (2,018,613) 8,477,153 2,369,284$ 1,910,843$ 1,166,924$ 4,222,881$ 2,343$ 12,105,438$ 95 Capital Equipment Park Park Reserve Replacement Dedication Improvements REVENUES Taxes: Property taxes -$ 14$ -$ -$ Intergovernmental revenue 22,668 271,265 - - Charges for services 32,880 - 211,537 12,175 Special assessments 1,232 - -- Interest income 10,786 8,150 2,266 7,523 Miscellaneous revenue: Landfill expansion fee - - - - Contributions 127,324 - - 24,526 Other - 958 - - Total revenues 194,890 280,387 213,803 44,224 EXPENDITURES Current: General government - - - - Public safety - - - - Public works 47,888 - - - Culture and recreation - - 2,645 - Economic development - - - - Capital outlay: General government 75,804 42,108 - - Public safety 113,679 328,839 - - Public works - 76,518 - - Culture and recreation - 117,580 68,233 576,848 Economic development - - - Debt service: Interest and service charges - - 20,065 - Total expenditures 237,371 565,045 90,943 576,848 Excess (deficiency) of revenues over (under) expenditures (42,481) (284,658) 122,860 (532,624) OTHER FINANCING SOURCES (USES) Transfers in 147,450 339,364 570,223 347,398 Transfers out (13,250) - - - Sale of capital assets - 42,393 - - Total other financing sources (uses)134,200 381,757 570,223 347,398 Net change in fund balances 91,719 97,099 693,083 (185,226) Fund balances - January 1 824,831 978,067 (1,181,389) 418,801 Fund balances - December 31 916,550$ 1,075,166$ (488,306)$ 233,575$ NONMAJOR CAPITAL PROJECTS FUNDS CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2017 96 Total Nonmajor Government Street Improvement TIF Capital Projects Buildings GRE Reserve Improvements Projects Districts Funds -$ -$ 58$ -$ 239,739$ 239,811$ - - 1,017,391 - - 1,311,324 - - - - - 256,592 - - 91,716 42,007 - 134,955 18,832 26,190 22,824 59,362 - 155,933 - - 1,126,743 - - - - 1,126,743 - 194,493 - - - 346,343 - - - - 15,686 16,644 1,145,575 220,683 1,131,989 101,369 255,425 3,588,345 8,998 - - - - 8,998 43,949 - - - - 43,949 4,510 - - - - 52,398 79,097 1,251 - - - 82,993 - - - - 673,335 673,335 - - - - - 117,912 - - - - - 442,518 - - 1,296,713 - - 1,373,231 - - - - - 762,661 - - - - 107,800 107,800 - - - - 14,028 34,093 136,554 1,251 1,296,713 - 795,163 3,699,888 1,009,021 219,432 (164,724) 101,369 (539,738) (111,543) - - - - - 1,404,435 (690,675) (615,223) (173,222) - - (1,492,370) - - - - - 42,393 (690,675) (615,223) (173,222) - - (45,542) 318,346 (395,791) (337,946) 101,369 (539,738) (157,085) 1,966,631 2,306,634 1,165,148 3,634,390 (1,478,875) 8,634,238 2,284,977$ 1,910,843$ 827,202$ 3,735,759$ (2,018,613)$ 8,477,153$ 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 Funds during the year: Developer Fee Escrow - This fund is used to account for the collection and distribution of funds relating to private development projects. FSA Plans - This fund is used to account for the collection of contributions from employees and distributions related to the City’s self-administered medical and dependent care FSA plans. 97 98 CITY OF ELK RIVER, MINNESOTA STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2017 Beginning Ending Balance Additions Deductions Balance ASSETS Cash 194,795$ 1,076,469$ 172,011$ 1,099,253$ Accounts receivable 17,248 8,962 24,804 1,406 Prepaid items 660 2,000 2,622 38 Total assets 212,703$ 1,087,431$ 199,437$ 1,100,697$ LIABILITIES Refundable deposits payable 212,703$ 1,143,262$ 255,268$ 1,100,697$ Beginning Ending Balance Additions Deductions Balance ASSETS Cash 11,174$ 36,923$ 34,885$ 13,212$ LIABILITIES Accounts payable 11,174$ 36,923$ 34,885$ 13,212$ Developers Escrow FSA Plans Fund 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. 99 100 ASSETS Cash and investments 1,227,668$ Receivables: Taxes 6,798 Accounts 1,758 Notes 629,765 Due from primary government 200,498 Land held for redevelopment 42,400 Total assets 2,108,887$ LIABILITIES Accounts payable 14,061$ Salaries payable 1,383 Total liabilities 15,444 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - taxes 2,479 FUND BALANCES Nonspendable 672,165 Restricted 1,418,799 Total fund balances 2,090,964 Total liabilities, deferred inflows of resources and fund balances 2,108,887$ CITY OF ELK RIVER, MINNESOTA HOUSING AND REDEVELOPMENT AUTHORITY BALANCE SHEET GOVERNMENTAL FUND DECEMBER 31, 2017 101 FUND BALANCE - HOUSING AND REDEVELOPMENT AUTHORITY 2,090,964$ Amounts reported for governmental activities in the statement of net position are different because: 1.Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds: Land 257,100$ Other Improvements 174,290 Total Capital Assets 431,390 Less accumulated depreciation (59,065)372,325 2.Unavailable revenue in governmental funds is susceptible to full accrual on the government-wide statements.2,479 3.Long-term liabilities are not due and payable in the current period and therefore not reported in the governmental funds: Net pension liability (60,586) 4.Governmental funds do not report long-term amounts related to pensions. Deferred outflows of pension resources 16,528 Deferred inflows of pension resources (14,916)1,612 NET POSITION OF HOUSING AND REDEVELOPMENT AUTHORITY 2,406,794$ CITY OF ELK RIVER, MINNESOTA DECEMBER 31, 2017 HOUSING AND REDEVELOPMENT AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION 102 REVENUES Property taxes 290,146$ Intergovernmental revenue 164 Interest income 8,670 Total revenues 298,980 EXPENDITURES Economic development: Current 227,145 Net change in fund balance 71,835 Fund balance - January 1 2,019,129 Fund balance - December 31 2,090,964$ CITY OF ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2017 HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF REVENUES, EXPENDITURES, AND GOVERNMENTAL FUND CHANGE IN FUND BALANCE 103 NET CHANGE IN FUND BALANCES - HOUSING AND REDEVELOPMENT AUTHORITY 71,835$ Amounts reported for governmental activities in the statement of activities are different because: 1.Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation expense exceeded capital outlays in the current period. Depreciation expense (11,620) 2.Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Unavailable Revenue - Property taxes 92 3.Long-term pension activity is not reported in governmental funds. Pension expense (5,560) CHANGE IN NET POSITION OF HOUSING AND REDEVELOPMENT AUTHORITY 54,747$ CITY OF ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2017 HOUSING AND REDEVELOPMENT AUTHORITY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE OF GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES 104 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 105 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 115 These schedules contain information to help the reader assess the city’s most significant local revenue sources; electric sales and property taxes. Debt Capacity 122 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 130 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 133 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. 105 2008 2009 2010 2011 Governmental activities Net investment in capital assets 85,390,968$ 86,149,417$ 84,629,091$ 84,741,957$ Restricted 5,569,773 4,723,030 7,341,554 6,283,346 Unrestricted 27,628,733 28,588,304 26,702,252 29,282,251 Total governmental activities net position 118,589,474$ 119,460,751$ 118,672,897$ 120,307,554$ Business-type activities Net investment in capital assets 60,750,900$ 59,601,861$ 60,972,838$ 60,525,218$ Restricted 724,500 724,500 724,500 724,500 Unrestricted 17,696,135 19,793,756 19,907,416 19,421,085 Total business-type activities net position 79,171,535$ 80,120,117$ 81,604,754$ 80,670,803$ Primary government Net investment in capital assets 146,141,868$ 145,751,278$ 145,601,929$ 145,267,175$ Restricted 6,294,273 5,447,530 8,066,054 7,007,846 Unrestricted 45,324,868 48,382,060 46,609,668 48,703,336 Total primary government net position 197,761,009$ 199,580,868$ 200,277,651$ 200,978,357$ 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. Fiscal Year CITY OF ELK RIVER, MINNESOTA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) 106 2012 2013 2014 2015 2016 2017 84,060,768$ 84,353,785$ 84,921,650$ 75,030,579$ 78,119,790$ 78,958,608$ 6,391,182 5,256,724 4,192,856 3,675,588 11,990,647 2,925,562 27,448,688 24,069,710 24,902,387 20,170,751 6,584,209 16,021,664 117,900,638$ 113,680,219$ 114,016,893$ 98,876,918$ 96,694,646$ 97,905,834$ 60,268,219$ 62,035,437$ 63,392,972$ 76,747,269$ 82,230,963$ 83,919,324$ 724,500 647,000 490,500 490,500 997,660 997,660 22,376,508 22,957,506 24,718,391 24,504,299 21,466,617 21,952,303 83,369,227$ 85,639,943$ 88,601,863$ 101,742,068$ 104,695,240$ 106,869,287$ 144,328,987$ 146,389,222$ 148,314,622$ 151,777,848$ 160,350,753$ 162,877,932$ 7,115,682 5,903,724 4,683,356 4,166,088 12,988,307 3,923,222 49,825,196 47,027,216 49,620,778 44,675,050 28,050,826 37,973,967 201,269,865$ 199,320,162$ 202,618,756$ 200,618,986$ 201,389,886$ 204,775,121$ Fiscal Year 107 2008 2009 2010 2011 Expenses Governmental activities: General government 3,286,350$ 2,777,568$ 3,028,102$ 3,495,458$ Public safety 6,715,607 6,106,181 6,011,477 6,238,611 Public works 5,875,992 5,397,058 5,447,282 5,720,759 Culture and recreation 3,549,637 3,767,312 3,702,671 3,851,181 Economic development 1,893,707 1,569,432 1,438,742 1,451,109 Interest and fiscal charges 1,315,275 1,252,493 1,138,414 1,045,905 Total governmental activities expenses 22,636,568 20,870,044 20,766,688 21,803,023 Business-type activities: Municipal Liquor 5,464,819 5,374,453 5,267,041 5,366,557 Garbage 1,166,709 1,256,177 1,331,514 1,304,238 Sewer 1,849,031 1,781,804 1,962,431 2,130,287 Storm Water - - - - Water 2,506,510 2,334,388 2,089,889 2,108,499 Electric 22,036,471 23,258,383 25,452,567 26,726,349 Total business-type activities expenses 33,023,540 34,005,205 36,103,442 37,635,930 Total primary government expenses 55,660,108$ 54,875,249$ 56,870,130$ 59,438,953$ Program Revenues Governmental activities: Charges for services: General government 371,911$ 334,100$ 301,509$ 425,954$ Public safety 962,275 634,242 722,073 787,884 Public works 159,664 47,860 61,605 79,073 Culture and recreation 1,084,067 1,074,266 1,089,058 1,102,630 Economic development 65,999 60,335 125,759 70,976 Operating grants and contributions 977,411 758,958 763,551 954,831 Capital grants and contributions 4,302,760 2,599,593 1,318,660 1,750,824 Total governmental activities program revenues 7,924,087 5,509,354 4,382,215 5,172,172 Business-type activities: Charges for services: Municipal Liquor 6,213,657 6,094,058 5,953,626 6,145,692 Garbage 1,160,774 1,194,937 1,282,013 1,310,014 Sewer 1,511,165 1,504,785 1,483,120 1,491,460 Storm Water - - - - Water 2,139,046 2,218,816 1,961,760 1,917,384 Electric 22,941,903 24,258,120 26,840,983 28,657,698 Operating grants and contributions 149,327 92,957 103,324 38,550 Capital grants and contributions 888,925 267,233 397,989 482,319 Total business-type activities program revenues 35,004,797 35,630,906 38,022,815 40,043,117 Total primary government program revenues 42,928,884$ 41,140,260$ 42,405,030$ 45,215,289$ Net (expense)/revenue Governmental activities (14,712,481)$ (15,360,690)$ (16,384,473)$ (16,630,851)$ Business-type activities 1,981,257 1,625,701 1,919,373 2,407,187 Total primary government net (expense)/revenue (12,731,224)$ (13,734,989)$ (14,465,100)$ (14,223,664)$ 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. Fiscal Year CITY OF ELK RIVER, MINNESOTA CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) 108 2012 2013 2014 2015 2016 2017 2,994,342$ 3,344,317$ 3,554,136$ 3,619,293$ 3,996,316$ 3,932,100$ 6,187,246 6,173,244 6,615,593 6,720,283 9,231,492 7,670,839 6,037,000 6,535,616 6,860,673 5,351,630 5,539,045 6,803,504 4,013,098 3,914,000 4,088,992 3,970,704 4,014,737 4,157,960 1,059,058 2,088,064 1,091,125 959,414 954,723 1,221,761 1,163,352 1,288,020 1,075,408 1,084,902 996,933 549,303 21,454,096 23,343,261 23,285,927 21,706,226 24,733,246 24,335,467 5,622,305 5,706,760 5,776,873 5,945,126 6,063,922 6,030,973 1,276,887 1,251,420 1,303,943 1,382,890 1,475,027 1,521,803 2,239,914 2,320,743 2,156,329 2,318,709 2,473,139 3,377,828 - - - 736,411 645,596 774,805 2,264,814 2,332,680 2,459,319 2,478,904 2,532,653 2,856,343 27,586,573 28,422,759 29,597,247 30,012,830 32,190,114 33,688,690 38,990,493 40,034,362 41,293,711 42,874,870 45,380,451 48,250,442 60,444,589$ 63,377,623$ 64,579,638$ 64,581,096$ 70,113,697$ 72,585,909$ 369,794$ 338,469$ 385,238$ 439,826$ 678,679$ 756,586$ 789,728 961,072 1,063,725 1,194,458 1,041,141 1,471,063 82,173 206,606 233,593 174,452 199,034 177,802 1,128,070 1,075,576 906,291 925,591 931,674 1,051,312 8,244 274,833 77,430 92,716 32,961 87,842 1,018,519 954,164 1,049,744 1,033,338 1,692,517 1,319,377 1,007,794 807,208 4,020,851 3,574,036 1,333,057 3,187,830 4,404,322 4,617,928 7,736,872 7,434,417 5,909,063 8,051,812 6,525,234 6,756,581 6,825,342 6,974,336 7,009,574 6,951,988 1,302,920 1,285,138 1,304,750 1,321,301 1,342,900 1,352,728 1,533,851 1,613,276 1,734,141 1,818,476 1,921,190 2,116,900 - - - 355,454 477,377 509,365 2,343,881 2,381,651 2,290,824 2,379,835 2,370,221 2,553,651 30,403,469 31,029,299 31,596,217 32,831,209 34,746,098 36,465,382 23,440 - - - - - 490,916 924,641 935,909 2,708,564 1,758,131 2,196,626 42,623,711 43,990,586 44,687,183 48,389,175 49,625,491 52,146,640 47,028,033$ 48,608,514$ 52,424,055$ 55,823,592$ 55,534,554$ 60,198,452$ (17,049,774)$ (18,725,333)$ (15,549,055)$ (14,271,809)$ (18,824,183)$ (16,283,655)$ 3,633,218 3,956,224 3,393,472 5,514,305 4,245,040 3,896,198 (13,416,556)$ (14,769,109)$ (12,155,583)$ (8,757,504)$ (14,579,143)$ (12,387,457)$ Fiscal Year 109 2008 2009 2010 2011 Fiscal Year General Revenues and Other Changes in Net Position Governmental activities: Property taxes 11,095,407$ 11,440,991$ 11,254,752$ 11,398,819$ Tax increment 1,041,300 1,080,142 1,071,099 947,486 Other taxes - 156,894 193,466 83,748 Unrestricted grants and contributions 1,775,536 1,940,274 2,000,923 1,702,334 Investment earnings 1,215,053 548,651 359,733 499,034 Miscellaneous - 20,013 61,308 23,233 Transfers of capital assets - -(303,051) - Transfers 1,050,301 1,045,002 958,389 3,610,854 Total governmental activities 16,177,597 16,231,967 15,596,619 18,265,508 Business-type activities: Investment earnings 534,485 367,883 220,602 269,716 Miscellaneous 2,000 - - - Transfers of capital assets - - 303,051 - Transfers (1,050,301) (1,045,002) (958,389) (3,610,854) Total business-type activities (513,816) (677,119) (434,736) (3,341,138) Total primary government 15,663,781$ 15,554,848$ 15,161,883$ 14,924,370$ Change in Net Position Governmental activities 1,465,116$ 871,277$ (787,854)$ 1,634,657$ Business-type activities 1,467,441 948,582 1,484,637 (933,951) Total primary government 2,932,557$ 1,819,859$ 696,783$ 700,706$ 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. 110 2012 2013 2014 2015 2016 2017 Fiscal Year 10,854,241$ 10,742,370$ 10,378,906$ 10,667,306$ 10,870,308$ 11,405,589$ 830,204 87,848 130,325 264,639 266,002 239,739 125,623 829,112 1,441,259 1,513,621 1,552,499 1,543,086 1,307,662 1,436,135 1,749,886 1,642,098 1,820,248 1,720,932 319,654 (663,762) 1,137,024 512,193 311,469 498,235 49,470 629,177 29,593 2,796,041 29,695 116,012 (348,259) (121,172) (313,287) (11,188,695) - - 1,504,263 1,565,206 1,332,023 297,362 1,791,690 1,971,250 14,642,858 14,504,914 15,885,729 6,504,565 16,641,911 17,494,843 219,950 (243,047) 557,659 259,494 167,849 231,599 1,260 1,572 29,525 8,899 331,973 17,500 348,259 121,172 313,287 11,188,695 - - (1,504,263) (1,565,206) (1,332,023) (297,362) (1,791,690) (1,971,250) (934,794) (1,685,509) (431,552) 11,159,726 (1,291,868) (1,722,151) 13,708,064$ 12,819,405$ 15,454,177$ 17,664,291$ 15,350,043$ 15,772,692$ (2,406,916)$ (4,220,419)$ 336,674$ (7,767,244)$ (2,182,272)$ 1,211,188$ 2,698,424 2,270,715 2,961,920 16,674,031 2,953,172 2,174,047 291,508$ (1,949,704)$ 3,298,594$ 8,906,787$ 770,900$ 3,385,235$ 111 2008 2009 2010 2011 General fund Unreserved 5,190,662$ 5,699,575$ -$ -$ Nonspendable - - -- Restricted - - -20,390 Committed - - 91,502 156,323 Assigned - - 727,443 859,508 Unassigned - - 5,187,520 5,261,391 Total General fund 5,190,662$ 5,699,575$ 6,006,465$ 6,297,612$ All other governmental funds Reserved 6,953,630$ 6,535,205$ -$ -$ Unreserved, reported in: Special revenue funds 7,751,286 7,844,537 - - Capital projects funds 9,574,268 10,101,066 - - Nonspendable - - 93,080 57,870 Restricted - - 6,936,113 5,942,368 Committed - - 2,506,814 2,712,645 Assigned - - 16,984,061 19,736,795 Unassigned - - (1,011,820) (1,059,647) Total all other governmental funds 24,279,184$ 24,480,808$ 25,508,248$ 27,390,031$ 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. Fiscal Year CITY OF ELK RIVER, MINNESOTA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) 112 2012 2013 2014 2015 2016 2017 -$ -$ -$ -$ -$ -$ 20,201 14,628 22,725 23,676 20,964 88,038 - - - 7,000 - - 208,486 247,937 317,929 376,943 - - 200,000 - - - 266,832 356,174 5,776,627 5,791,725 5,822,948 6,157,179 6,470,281 6,853,298 6,205,314$ 6,054,290$ 6,163,602$ 6,564,798$ 6,758,077$ 7,297,510$ -$ -$ -$ -$ -$ -$ - - - - - - - - - - - - 101,812 99,703 101,910 103,295 108,176 - 7,608,842 14,800,868 13,925,683 13,202,500 12,245,679 3,104,196 2,456,185 4,393,689 5,829,001 8,099,951 9,250,014 10,354,648 19,219,810 15,455,671 15,883,279 15,579,524 12,632,948 10,984,072 (1,384,984) (2,324,550) (2,527,613) (2,438,049) (2,660,264) (2,627,513) 28,001,665$ 32,425,381$ 33,212,260$ 34,547,221$ 31,576,553$ 21,815,403$ Fiscal Year 113 2008 2009 2010 2011 Revenues Property taxes 12,037,076$ 12,329,194$ 12,355,953$ 12,461,403$ Other taxes -156,894 193,466 83,748 Licenses and permits 460,108 322,338 402,076 432,875 Intergovernmental revenue 4,134,779 3,117,997 1,135,060 1,678,555 Charges for services 1,849,307 1,465,898 1,727,276 1,573,367 Fines and forfeits 150,086 141,629 161,074 149,102 Special assessments 1,712,551 1,464,348 999,633 989,101 Interest 1,215,053 548,651 359,731 499,034 Miscellaneous 1,628,567 1,853,966 2,587,771 2,568,159 Total revenues 23,187,527 21,400,915 19,922,040 20,435,344 Expenditures General government 2,480,208 2,458,879 2,629,731 3,157,307 Public safety 5,565,474 5,377,208 5,266,803 5,291,617 Public works 3,246,436 2,656,097 2,291,196 2,752,469 Culture and recreation 2,890,683 2,666,146 2,569,464 2,663,806 Economic development 2,216,617 1,589,464 1,512,138 1,479,140 Capital outlay 10,381,359 4,627,322 1,879,604 2,874,212 Debt service Principal 2,022,616 3,162,117 2,411,062 2,618,146 Interest and service charges 1,198,174 1,289,087 1,126,789 1,059,804 Bond issuance costs - - 56,204 - Total expenditures 30,001,567 23,826,320 19,742,991 21,896,501 Excess (deficiency) of revenues over (under) expenditures (6,814,040)(2,425,405)179,049 (1,461,157) Other financing sources (uses) Transfers in 3,868,359 2,887,624 2,682,562 5,978,905 Transfers out (2,818,058) (1,842,622) (1,724,173) (2,368,051) Proceeds of long-term debt 2,277,946 2,074,311 6,184,243 - Premium on long-term debt issued 36,542 -255,238 - Payment to refunded bond escrow agent - - (6,303,897)- Sale of capital assets 84,379 16,629 61,308 23,233 Total other financing sources (uses)3,449,168 3,135,942 1,155,281 3,634,087 Net change in fund balances (3,364,872)$ 710,537$ 1,334,330$ 2,172,930$ Debt service as a percentage of noncapital expenditures1 16.9%23.7%19.8%19.6% Fiscal Year CITY OF ELK RIVER, MINNESOTA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) 114 2012 2013 2014 2015 2016 2017 11,720,311$ 10,930,129$ 10,640,251$ 10,953,633$ 11,171,496$ 11,642,778$ 125,623 829,112 1,441,259 1,513,621 1,552,499 1,543,086 408,232 513,779 559,286 639,791 655,607 1,007,543 1,436,613 1,161,458 838,573 3,913,721 1,681,666 3,928,374 1,659,986 1,926,906 2,091,107 1,761,958 1,851,408 2,226,936 137,819 163,481 160,298 169,459 167,526 205,456 845,112 764,006 881,271 315,259 456,666 241,304 319,654 (663,763) 1,146,462 512,193 311,469 498,235 1,980,207 2,193,571 2,358,709 2,169,789 1,455,555 2,313,388 18,633,557 17,818,679 20,117,216 21,949,424 19,303,892 23,607,100 2,615,582 2,956,500 3,181,547 3,365,570 3,601,468 3,524,634 5,352,249 5,497,493 5,909,653 6,203,211 6,859,139 6,791,738 2,931,726 2,800,012 2,974,219 2,318,123 1,861,251 1,974,095 2,839,466 2,652,817 2,881,985 2,816,411 2,872,281 2,937,333 1,087,467 1,656,922 1,095,535 954,673 949,205 1,122,261 10,264,274 5,243,189 2,277,477 5,251,352 2,682,358 7,165,286 2,127,000 2,194,000 1,535,000 1,505,000 5,100,000 10,675,000 996,454 1,129,572 1,105,114 1,113,963 1,148,535 725,732 68,900 153,795 - - - - 28,283,118 24,284,300 20,960,530 23,528,303 25,074,237 34,916,079 (9,649,561)(6,465,621)(843,314)(1,578,879)(5,770,345)(11,308,979) 4,792,943 6,457,233 4,837,016 4,703,787 6,524,537 4,275,797 (3,288,680) (4,892,027) (3,504,993) (4,406,425) (4,832,400) (2,304,547) 8,500,000 9,685,000 - - - - 115,164 341,700 - - - - - - - - - - 49,470 686,407 44,827 3,017,674 80,587 116,012 10,168,897 12,278,313 1,376,850 3,315,036 1,772,724 2,087,262 519,336$ 5,812,692$ 533,536$ 1,736,157$ (3,997,621)$ (9,221,717)$ 17.1%16.9%14.1%14.3%27.4%38.4% Fiscal Year 115 Fiscal Number of Total Year Customers KWh's Sold Billings 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 2016 10,816 305,337,641 34,569,098 2017 11,448 313,952,561 36,458,061 Source: Elk River Municipal Utilities CITY OF ELK RIVER, MINNESOTA ELECTRIC SALES LAST TEN FISCAL YEARS 116 Percentage Percentage Total KWh Total of Total Total KWh Total of Total Customer Sold Billings Billings Sold Billings Billings Customer 1 54,897,600 4,108,019$ 11.27%10,176,000 1,221,253$ 6.11% Customer 2 28,756,800 2,513,154 6.89%14,092,800 1,027,913 5.14% Customer 3 4,806,000 435,064 1.19%- - - Customer 6 4,685,600 461,913 1.27%- - - Customer 4 4,384,200 340,754 0.93%3,222,240 252,719 1.26% Customer 5 4,230,500 459,488 1.26%5,487,600 415,202 2.08% Customer 7 4,156,400 405,813 1.11%5,403,750 381,081 1.91% Customer 8 3,341,000 312,560 0.86%5,120,000 370,498 1.85% Customer 9 2,721,600 248,099 0.68%4,910,280 325,780 1.63% Customer 10 2,609,500 254,109 0.70%3,760,200 280,807 1.40% Customer 11 - - - 3,400,200 239,469 1.20% Customer 12 - - - 2,760,960 226,667 1.13% TOTAL 114,589,200 9,538,973$ 26.16%58,334,030 4,741,389$ 23.71% 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. CITY OF ELK RIVER, MINNESOTA PRINCIPAL ELECTRIC CUSTOMERS CURRENT YEAR AND NINE YEARS AGO 2017 2008 117 2008 2009 2010 2011 Tax capacity Real property 25,790,055$ 26,550,210$ 25,611,065$ 24,736,999$ Personal property 279,154 302,166 310,180 350,946 Total tax capacity 26,069,209 26,852,376 25,921,245 25,087,945 Tax increment (744,597) (899,835) (888,285) (784,101) Taxable net tax capacity 25,324,612$ 25,952,541$ 25,032,960$ 24,303,844$ Total tax capacity rate 42.494%43.280%44.560%45.723% Taxable market value Real property 2,186,595,580$ 2,235,538,000$ 2,121,774,900$ 2,035,543,052$ Personal property 14,221,560 15,363,900 15,764,700 17,758,600 Taxable market value 2,200,817,140$ 2,250,901,900$ 2,137,539,600$ 2,053,301,652$ Estimated actual market value of taxable property 2,457,361,368$ 2,429,563,505$ 2,191,955,185$ 2,403,906,238$ Taxable market value as a percentage of estimated actual market value 89.56%92.65%97.52%85.42% 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. CITY OF ELK RIVER, MINNESOTA TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS 118 2012 2013 2014 2015 2016 2017 21,946,865$ 19,969,977$ 20,047,632$ 21,060,822$ 21,850,219$ 22,672,085$ 344,032 353,390 367,641 366,113 385,056 381,355 22,290,897 20,323,367 20,415,273 21,426,935 22,235,275 23,053,440 (698,130) (122,648) (116,513) (198,997) (204,017) (184,717) 21,592,767$ 20,200,719$ 20,298,760$ 21,227,938$ 22,031,258$ 22,868,723$ 47.588%50.373%48.544%47.190%46.170%46.193% 1,775,334,600$ 1,599,513,500$ 1,622,624,100$ 1,735,898,300$ 1,826,858,800$ 1,909,814,070$ 17,412,900 18,055,900 18,736,600 18,585,200 19,469,900 19,234,400 1,792,747,500$ 1,617,569,400$ 1,641,360,700$ 1,754,483,500$ 1,846,328,700$ 1,929,048,470$ 1,907,992,306$ 1,758,428,600$ 1,796,401,800$ 1,900,894,800$ 1,978,763,900$ 2,060,082,600$ 93.96%91.99%91.37%92.30%93.31%93.64% 119 CITY OF ELK RIVER, MINNESOTA PROPERTY TAX RATES DIRECT AND OVERLAPPING1 GOVERNMENTS LAST TEN FISCAL YEARS Total Direct & Fiscal Debt Referendum Special Overlapping Year Operating Service Total County Operating Mkt. Value Districts Rates 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 2016 44.507 1.663 46.170 50.478 39.268 0.215 4.778 140.909 2017 44.584 1.609 46.193 50.460 36.659 0.219 4.509 138.040 Source: Sherburne County Auditor/Treasurer 1 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. City of Elk River Overlapping Rates School District 120 Percentage Percentage Net Tax of Total Net Net Tax of Total Net Taxpayer Capacity Rank Tax Capacity Capacity Rank Tax Capacity Great River Energy 1,011,560$ 1 4.42%674,974$ 1 2.59% JPM Capital Corporation 373,636 2 1.63%- -- Target Corp.259,086 3 1.13%355,538 2 1.36% BRE Retail Residual Owner, LLC 235,846 4 1.03%- -- Walmart Stores 219,930 5 0.96%295,786 4 1.13% Minnegasco 161,490 6 0.71%- -- Broadstone STI Minnesota LLC 133,314 7 0.58%- -- Menards, Inc 122,204 8 0.53%191,466 6 0.73% Home Depot 114,464 9 0.50%145,284 9 0.56% ARHC ERELKMN01 LLC 100,958 10 0.44%- -- Resource Recovery Technology - -- 310,806 3 1.19% Bradley Operating LP - -- 194,666 5 0.75% Phoenix Enterprises - -- 178,905 7 0.69% Minn West Bank - -- 150,991 8 0.58% B & G Realty, Inc - -- 124,120 10 0.48% TOTAL 2,732,488$ 11.93%2,622,536$ 10.06% Source: Sherburne County Assessor ` CITY OF ELK RIVER, MINNESOTA PRINCIPAL TAXPAYERS CURRENT YEAR AND NINE YEARS AGO 2017 2008 121 CITY OF ELK RIVER, MINNESOTA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collections in Fiscal Total Year's Percentage Subsequent Percentage Year Tax Levy Amount of Levy Years Amount of Levy 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 97.82 238,576 11,158,924 99.95 2011 11,164,581 11,052,081 98.99 101,188 11,153,269 99.90 2012 10,701,225 10,592,493 98.98 98,018 10,690,511 99.90 2013 10,685,603 10,574,080 98.96 65,685 10,639,765 99.57 2014 10,315,213 10,300,688 99.86 10,091 10,310,779 99.96 2015 10,541,719 10,511,527 99.71 18,646 10,530,173 99.89 2016 10,862,662 10,843,359 99.82 2,617 10,845,976 99.85 2017 11,415,935 11,362,631 99.53 - 11,362,631 99.53 Collected within the Fiscal Year of the Levy Total Collections to Date This page has been left blank intentionally 122 General Fiscal General Obligation Lease Special Tax C Year Obligation Revenue Revenue Assessment Increment 2008 15,412,946$ 955,000$ 7,170,000$ 4,480,000$ 505,000$ 2009 16,677,757 700,000 6,175,000 3,970,000 440,000 2010 22,002,000 540,000 - 3,460,000 375,000 2011 20,897,939 - - 2,955,000 305,000 2012 26,579,666 - - 4,035,306 - 2013 35,223,141 - - 1,633,459 - 2014 34,023,916 - - 1,246,612 - 2015 32,789,690 - - 924,765 - 2016 29,365,466 - - 607,918 - 2017 18,951,241 - - 296,071 - Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 See the Schedule of Demographic and Economic Statistics for personal income and population data. CITY OF ELK RIVER, MINNESOTA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Governmental Activities 123 General Total Percentage Certificates of Obligation Revenue Notes Primary of Personal Per Indebtedness Other Revenue Bonds Payable Government Income 1 Capita1 756,033$ 1,839,792$ 8,630,000$ 9,280,000$ 2,701,994$ 51,730,765$ 6.97%2,166$ 421,716 1,646,492 8,070,000 8,840,000 2,524,646 49,465,611 7.14%2,093 87,400 1,499,746 6,180,000 6,940,000 2,345,318 43,429,464 6.32%1,890 - 1,410,000 5,520,656 6,310,000 2,162,882 39,561,477 5.81%1,713 - 1,410,000 4,791,567 5,085,000 1,975,812 43,877,351 6.30%1,890 - 1,410,000 4,027,478 4,340,000 1,789,224 48,423,302 7.00%2,072 - 1,410,000 12,868,388 3,634,845 1,599,876 54,783,637 7.14%2,316 - 1,410,000 12,564,299 3,020,935 1,408,368 52,118,057 6.69%2,183 - -11,858,552 12,462,779 1,214,076 55,508,791 6.81%2,294 - -11,132,723 11,781,983 1,018,860 43,180,878 na 1,752 Business-Type ActivitiesGovernmental Activities 124 CITY OF ELK RIVER, MINNESOTA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Less Amounts Less Percentage Net General Restricted Cash with Net of Net Bonded Bonded Fiscal Bonded for Debt Fiscal Bonded Debt to Tax Debt per Year Debt1 Service Agent Debt Capacity2 Capita3 2008 18,391,033$ 3,712,036$ -$ 14,678,997$ 57.96%614.49$ 2009 17,471,716 3,027,915 - 14,443,801 55.65%611.17 2010 18,040,733 3,787,324 - 14,253,409 56.94%620.41 2011 17,120,000 3,234,939 - 13,885,061 57.13%601.06 2012 23,286,667 3,044,599 - 20,242,068 93.74%874.50 2013 32,141,667 2,329,723 9,712,875 20,099,069 99.50%860.04 2014 31,001,667 1,599,852 9,580,144 19,821,671 97.65%837.91 2015 28,986,667 1,154,728 9,423,440 18,408,499 86.72%770.88 2016 25,728,333 1,298,327 9,284,303 15,145,703 68.75%621.54 2017 15,331,667 1,427,230 - 13,904,437 60.80%564.07 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 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. 125 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT DECEMBER 31, 2017 Percent of Debt City's Outstanding Applicable Share Debt to City1 of Debt Direct Debt: City of Elk River2 19,247,312$ 100.00%19,247,312$ Overlapping Debt: Sherburne County 47,825,131 25.94%12,405,839 School District #728 229,745,000 30.93%71,060,129 Total overlapping debt 277,570,131 83,465,968 Total direct and overlapping debt 296,817,443$ 102,713,280$ Debt Ratios: Ratio of debt per capita (24,650 population)$4,167 Ratios of debt to taxable market value of $1,929,048,470 5.32% Source: Sherburne County and School District #728 1 The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's and school district's taxable market value that is within the city's boundaries and dividing it by the county's and school district's total taxable market value. 2 Excludes debt payable from enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and business of the City of Elk River. This process recognizes that, when considering the city's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. CITY OF ELK RIVER, MINNESOTA 126 2008 2009 2010 2011 Debt limit 66,024,514$ 67,527,057$ 64,126,188$ 61,599,050$ Bonds 18,391,033 17,471,716 18,040,733 17,120,000 Reserves 1,318,186 1,418,700 1,164,060 1,030,418 Total net debt applicable to limit 17,072,847 16,053,016 16,876,673 16,089,582 Legal debt margin 48,951,667$ 51,474,041$ 47,249,515$ 45,509,468$ Total net debt applicable to the limit as a percentage of debt limit 25.86%23.77%26.32%26.12% 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. 1 Only 2/3 of the $9,685,000 GO EDA Refunding Bonds, Series 2013A are subject to the debt limit. The Remaining 1/3 will be paid by the YMCA. CITY OF ELK RIVER, MINNESOTA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS 127 2012 2013 2014 2015 2016 2017 58,316,472$ 52,752,858$ 53,892,054$ 57,026,844$ 59,362,917$ 61,802,478$ 23,286,667 32,141,667 30,071,667 28,986,667 25,706,667 15,331,667 1,202,093 10,819,006 10,743,409 10,673,852 10,560,614 1,377,746 22,084,574 21,322,661 19,328,258 18,312,815 15,146,053 13,953,921 36,231,898$ 31,430,197$ 34,563,796$ 38,714,029$ 44,216,864$ 47,848,557$ 37.87%40.42%35.86%32.11%25.51%22.58% Legal Debt Margin Calculation for Fiscal Year 2017 Estimated taxable market value 2,060,082,600$ Debt limit (3% of market value)61,802,478$ Debt applicable to limit: G.O. capital improvement bonds 8,875,000 G.O. EDA bonds1 6,456,667 Less: Cash and investments in related debt service funds (1,377,746) Total net debt applicable to limit 13,953,921 Legal debt margin 47,848,557$ 128 Net Fiscal Gross Operating Revenue Debt Service Year Revenue 2 Expenses 3 Available Principal Interest Coverage 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 36,586,235 30,281,264 6,286,971 900,000 464,938 4.61 2016 38,559,107 32,376,907 6,182,200 2,860,000 183,634 2.03 2017 40,563,969 34,509,407 6,054,562 1,355,000 673,662 2.98 Note: Details regarding the government's outstanding debt can be found in the notes to the financial statements. 1 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 $1,540,000 refunded principal paid through cash with fiscal agent. Revenue Bonds 1 CITY OF ELK RIVER, MINNESOTA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS 129 Special Assessment Debt Service Collections Principal Interest Coverage 611,290$ 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 0.49 135,447 305,000 15,400 0.42 106,349 300,000 8,900 0.34 Special Assessment Bonds 130 Personal Fiscal Income Per Capita Median School Unemployment Year Population1 (in thousands)Income2 Age3 Enrollment4 Rate5 2008 23,888 742,439$ 31,080$ 33 13,031 8.2% 2009 23,633 692,376 29,297 33 13,073 9.0% 2010 22,974 3 687,129 29,909 33 13,036 8.1% 2011 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 23,730 767,666 32,350 36 13,627 4.1% 2015 23,987 782,528 32,623 35 13,751 4.0% 2016 24,368 815,597 33,470 36 14,077 3.4% 2017 24,650 na na 36 14,294 4.0% Data Sources: 1 State Demographer 2 Bureau of Economic Analysis 3 US Census Bureau 4 School District 5 Minnesota Department of Employment and Economic Development na - not available CITY OF ELK RIVER, MINNESOTA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS 131 Percentage Percentage of Total City of Total City Employer Employees Rank Employment Employees Rank Employment Independent School District 728 1 1,510 1 12.00%1,544 1 14.14% Sherburne County 641 2 5.09%650 2 5.95% Guardian Angels of Elk River 383 3 3.04%332 4 3.04% Walmart 354 4 2.81%417 3 3.82% Sportech, Inc.238 5 1.89%- -- City of Elk River 223 6 1.77%204 5 1.87% Great River Energy 207 7 1.64%195 6 1.79% Menards 200 8 1.59%150 8 1.37% Tescom Corporation 150 9 1.19%167 7 1.53% Cornerstone Auto Resource 138 10 1.10%- -- Cub Foods - --145 9 1.33% Coborn's - --132 10 1.21% Total 4,044 32.12%3,936 36.05% Total Employment 2 12,585 10,919 1 Total District 2 Minnesota Department of Employment and Economic Development 2017 2008 CITY OF ELK RIVER, MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Function 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General government 25.3 24.8 24.8 24.8 25.8 26.9 28.3 29.3 29.3 29.3 Public safety: Police Officers 31.0 31.0 31.0 30.0 31.0 31.0 31.0 32.0 32.0 32.0 Civilians 9.0 8.0 8.0 8.0 8.0 9.0 9.0 9.0 9.0 9.0 Fire Fire administration 3.5 3.5 3.7 3.7 1.7 1.7 2.7 3.0 3.0 3.0 Paid on-call volunteers 39.0 39.0 38.0 40.0 40.0 40.0 40.0 44.0 44.0 44.0 Other public safety 10.5 7.6 7.6 7.6 8.4 8.6 9.0 9.0 9.0 9.0 Public works 15.0 13.1 14.0 14.5 15.5 15.0 15.0 15.0 15.0 15.0 Culture and recreation 19.9 19.4 19.4 19.4 18.5 18.5 18.5 17.5 17.5 17.8 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 12.0 14.0 12.5 13.0 13.0 13.0 13.0 13.0 13.0 Sewer 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Storm Water - - - - - - - 1.0 1.0 1.0 Water 5.0 5.0 5.0 5.0 8.0 8.0 8.0 8.0 8.0 8.0 Electric 29.0 28.5 29.0 29.0 30.0 31.0 31.0 34.0 34.0 34.0 Total 206.7 199.9 202.5 202.5 207.9 210.7 213.5 222.8 222.8 223.1 Source: City of Elk River Finance Department132 CITY OF ELK RIVER, MINNESOTA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function Planning Land use applications 88 64 43 54 56 71 85 118 138 122 Police Police calls 21,997 22,231 21,751 20,707 20,451 20,676 21,585 21,930 24,728 26,329 Arrests 969 940 957 866 847 694 572 2,778 2,818 3,294 Fire Fire calls 453 364 443 469 355 446 411 436 442 473 Building/environmental Permits issued 2,021 1,369 2,105 1,841 1,683 1,866 1,956 1,722 1,804 2,245 Valuation of permits 41,006$ 14,265$ 22,312$ 20,719$ 25,585$ $38,440 $47,037 57,965$ $51,368 $106,983 (thousands of dollars) Public works Street sweeping (hours)1,085 1,287 1,063 1,494 1,811 1,652 1,888 1,824 1,520 1,314 Snowplowing (hours)2,737 2,305 3,425 2,964 1,675 4,263 5,872 3,018 3,368 3,812 Equipment repair (hours)5,038 6,482 5,378 5,711 5,051 5,125 5,210 3,575 3,688 4,196 Culture and recreation Recreation participants 20,631 26,124 26,061 26,934 26,803 27,065 27,330 27,348 27,452 27,608 Ice arena usage (hours)4,386 4,684 4,624 4,740 4,752 4,736 4,568 5,469 4,583 4,518 Golf rounds 11,533 11,079 10,707 9,150 11,480 9,743 - - - 5,400 Sewer Average daily treatment flow 1,230 1,300 1,200 1,245 1,200 1,203 1,200 1,200 1,300 1,300 (thousands of gallons) Water Number of customers 4,508 4,467 4,511 4,515 4,542 4,613 4,676 4,672 4,903 5,011 Average daily consumption 1,992 1,941 1,718 1,786 2,321 2,152 2,143 2,192 2,196 2,159 (thousands of gallons) Electric Number of customers 9,203 9,170 9,207 9,227 9,285 9,358 9,449 10,499 10,816 11,448 Average daily consumption 614 638 687 716 749 795 790 773 837 878 (thousands of KWh's) Sources: Various city departments Note: The golf course was closed from 2014-2016 and reopened in 2017.133CITY OF ELK RIVER, MINNESOTA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function Public safety Police: Stations 1 1 1 1 1 1 1 1 1 1 Patrol units 12 12 12 12 12 12 12 13 13 13 Fire Stations 2 2 2 2 2 2 2 2 2 2 Public works Streets (miles)151 151 151 151 151 151 151 151 155 155 Culture and recreation Parks 44 44 44 44 45 45 46 46 46 46 Parks acreage 964 964 964 964 988 988 1,324 1,324 1,324 1,324 Sewer Sanitary sewers (miles)78 79 79 80 80 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 4,500 4,500 (thousands of gallons) Water Maximum daily capacity 8,100 8,100 8,100 8,100 10,000 10,000 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.134Fiscal Year CITY OF ELK RIVER, MINNESOTA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS CliftonLarsonAllen LL P CLAconnect.com INDEPENDENT AUDITORS’ REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and Members of the City Council City of Elk River Elk River, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, 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 as of and for the year then ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated May 30, 2018. Our report includes a reference to other auditors who audited the financial st atements of the City of Elk River Municipal Utilities, as described in our report on the City of Elk River’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. 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 of Elk River, Minnesota 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 of Elk River, Minnesota’s noncompliance with the above-referenced provisions. The purpose of this report is solely to describe the scope of our testing of compliance relating to the provisions of the Minnesota Legal Compliance Audit Guide for Cities and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. CliftonLarsonAllen LLP Minneapolis, Minnesota May 30, 2018 CliftonLarsonAllen LL P CLAconnect.com INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and City Council City of Elk River Elk River, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, 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, as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City of Elk River’s basic financial statements, and have issued our report thereon dated May 30, 2018. Our report includes a reference to other auditors who audited the financial statements of the City of Elk River Municipal Utilities, as described in our report on the City of Elk River’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statement of Elk River Municipal Utilities were not audited in accordance with Government Auditing Standards. Internal control over financial reporting In planning and performing our audit of the financial statements, we considered the City of Elk River'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 of Elk River’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Elk River’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 c orrected 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 limitat ions, 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. Honorable Mayor and City Council City of Elk River Compliance and other matters As part of obtaining reasonable assurance about whether the City of Elk River's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. 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. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. CliftonLarsonAllen LLP Minneapolis, Minnesota May 30, 2018 CliftonLarsonAllen LL P CLAconnect.com Honorable Mayor and City Council City of Elk River 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 as of and for the year ended December 31, 2017, and have issued our report thereon dated May 30, 2018. We have previously communicated to you information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. Professional standards also require that we communicate to you the following information related to our audit. Significant audit findings Qualitative aspects of accounting practices Accounting policies Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by City of Elk River are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2017. We noted no transactions entered into by the entity 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 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 were:  Management’s estimate of the valuation of investments is based on published market values as of December 31, 2017. We evaluated the key factors and assumptions used to develop the value of investments in determining that it is reasonable i n relation to the financial statements taken as a whole.  Management’s estimate of the depreciation expense on capital assets is based on management’s estimated useful lives of those assets. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Honorable Mayor and City Council City of Elk River Page 2  Management’s estimate of the valuation of land held for resale is based on the lower of the cost of the land or the current market value. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.  Management’s estimate of City’s liability for other postemployment benefits is based on an actuarial determined liability which is based on various assumptions, including investment rates of return, health care trend rates, mortality rates, etc. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole.  Management’s estimate of the City’s liability for compensated absences is based on employee wage information and the City’s policies of earning vacation and sick pay. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole.  Management’s estimate of the City’s proportionate share of PERA’s GERF and PEPFF net pension liabilities as well as the related deferred inflows and outflows is based on guidance from GASB Statement No. 68, GASB Statement No. 71, and the plans’ allocation tables. The plans’ allocation tables allocate a portion of the plans’ net pension liabilities based on the City’s contributions during the plans’ fiscal years as a percentage of total contributions received for the related fiscal year by the plans. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole.  Management’s estimate of the City’s net pension asset and related deferred inflows and outflows related to the City’s Fire Relief Association are based on an actuarially determined liability. This liability is based on various assumptions including the investments rate of return, projected salary increases, and mortality rates. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole. Financial statement disclosures Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the City’s financial statements was:  The disclosures surrounding GASB 68 pension accounting for the City’s participation in the Minnesota Public Employees Retirement Plan and the Fire Relief Association. The financial statement disclosures are neutral, consistent, and clear. Difficulties encountered in performing the audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Uncorrected misstatements Professional standards require us to accumulate all misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management did not identify and we did not notify them of any uncorrected financial statement misstatements. Honorable Mayor and City Council City of Elk River Page 3 Corrected misstatements None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors’ report. No such disagreements arose during our audit. Management representations We have requested certain representations from management that are included in the management representation letter dated May 30, 2018. 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 entity’s financial statements or a determination of the type of auditors’ 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. Significant issues discussed with management prior to engagement We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to engagement as the entity’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our engagement. Other audit findings or issues We have provided a separate letter to you dated May 30, 2018, communicating internal control related matters identified during the audit. Audits of group financial statements We noted no matters related to the group audit that we consider to be significant to the responsibilities of those charged with governance of the group. Quality of component auditor’s work There were no instances in which our evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor’s work. Limitations on the group audit There were no restrictions on our access to information of components or other limitations on the group audit. Honorable Mayor and City Council City of Elk River Page 4 Other information in documents containing audited financial statements With respect to the required supplementary information (RSI) accompanying the financial statements, we made certain inquiries of management about the methods of preparing the RSI, including whether the RSI has been measured and presented in accordance with prescribed guidelines, whether the methods of measurement and preparation have been changed from the prior period and the reasons for any such changes, and whether there were any significant assumptions or interpretations underlying the measurement or presentation of the RSI. We compared the RSI for consistency with management’s responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained during the audit of the basic financial statements. Because these limi ted procedures do not provide sufficient evidence, we did not express an opinion or provide any assurance on the RSI. With respect to the combining and individual fund financial statements and component unit financial statements (collectively, the supplementary information) accompanying the financial statements, on which we were engaged to report in relation to the financial statements as a whole, we made certain inquiries of management and evaluated the form, content, and methods of preparing the i nformation 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 or the reasons for such changes, 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. W e have issued our report thereon dated May 30, 2018. The introductory and statistical accompanying the financial statements, which is the responsibility of management, was prepared for purposes of additional analysis and is not a required part of the financial statements. Such information was not subjected to the auditing procedures applied in the audit of the financial statements, and, accordingly, we did not express an opinion or provide any assurance on it. Other information is being included in documents containing the audited financial statements and the auditors’ report thereon. Our responsibility for such other information does not extend beyond the financial information identified in our auditors’ report. We have no responsibility for determining whether such other information is properly stated and do not have an obligation to perform any procedures to corroborate other information contained in such documents. As required by professional standards, we read the introductory and statistical sections (the other information) in order to identify material inconsistencies between the audited financial statements and the other information. We did not identify any material inconsistencies between the other information and the audited financial statements Our auditors’ opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a document you prepare, such as an annual report, should be done only with our prior approval and review of the document. Honorable Mayor and City Council City of Elk River Page 5 This communication is intended solely for the information and use of the City council and management of the City of Elk River and is not intended to be, and should not be, used by anyone other than these specified parties. CliftonLarsonAllen LLP Minneapolis, Minnesota May 30, 2018 City of Elk River, Minnesota Audit Presentation Exit Conference Year Ending December 31, 2017 Monday, June 4, 2018 www.CLAconnect.com Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. | ©2016 CliftonLarsonAllen LLP WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Required Communications •The City has an unmodified (clean) opinion for the December 31, 2017 financial statement audit. •See separate Governance Communication Letter. 2 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Internal Control Items Material Weaknesses–deficiencies in internal control such that there is a reasonable possibility that a material misstatementwould not be prevented or detected and corrected on a timely basis. None Noted  Significant Deficiencies-deficiencies in internal control that are less severe than material weaknesses, yet important enough to merit attention by those charged with governance. None Noted  3 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Minnesota Legal Compliance Auditors conducted applicable testing and completed a 25 page check list to verify that the City complied with the applicable Minnesota State Statutes. No Findings  4 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP General Fund Financial Results -Revenues General Fund Revenue by Source •Proportion of taxes Year Ended December 31, sliding down in 2017 while licenses and $14,000,000 permits slightly up. $12,000,000 •Intergovernmental, Charges for Services, $10,000,000 and Other are similar $8,000,000 to the prior year. $6,000,000 $4,000,000 $2,000,000 $- 20132014201520162017 TaxesLicenses and PermitsIntergovernmentalCharges for ServicesAll Other 5 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP General Fund Financial Results –Revenue Budget General Fund Revenue •Over budget $502k Budget and Actual (4.0%) –Licenses and Taxes Permits revenue had largest Intergovernmental overage ($293k) –Charges for Charges for Services Services over budget ($117k) Licenses and Permits All Other $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 Millions BudgetActual 6 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP General Fund Financial Results -Expenditures •Total expenditures General Fund Expenditures by Function increased each year Year Ended December 31, between 2.1% (2014 $14,000,000 and 2017) and 5.6% $12,000,000 (2016) •Overall increase of $10,000,000 12.5% from 2013 to $8,000,000 2017 •Proportions by $6,000,000 function remained the $4,000,000 same in 2017 as 2016. Public safety (49%) and $2,000,000 General Government $- (24%) are the largest 20132014201520162017 General GovernmentPublic SafetyPublic WorksCulture and Recreation 7 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP General Fund Financial Results –Expenditure Budget •Under budget General Fund Expenditures $445K (3.2%) Budget and Actual –All functions were under General Government budget –Public Safety under budget by Public Safety $221k, mostly in wages and benefits Public Works –General Government Parks and Recreation under budget by $108k $- $1 $2 $3 $4 $5 $6 $7 Millions BudgetActual 8 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP General Fund Financial Results –Fund Balance General Fund Financial Position •Fund Balance Year Ended December 31, 49% Policy $16,000,00050% –Unassigned of 40%-45% $14,000,000 47% 47.9% 47.7% of next year’s budget 46% $12,000,000 –Right at 45% $10,000,000 to allow for assignments $8,000,00045% 45% $6,000,000 $4,000,000 $2,000,000 $-40% 20132014201520162017 Unassigned Fund BalanceCash Balance (net)Expenditures% of Fund Balance 9 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results –Sewer Fund •Covering approximately Sewer Fund 36% of depreciation. Year Ended December 31, $3.5 Millions –Decrease from 70% in 2016 –Peak was 78% in 2015 $3.0 •Operating revenues $2.5 increased from prior year. (usage and rate increase). $2.0 •Cash and investments $1.5 used by operations $16K in 2017. $1.0 •Total cash and $0.5 investments of $3.8M and operating expenses of $0.0 20132014201520162017 $3.1M . Operating ExpenseDepreciationOperating RevenueIncome Before Depreciation 10 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results –Garbage Fund Garbage Fund •No depreciation in Fund Year Ended December 31, $1.8 •Operating revenues slight Millions $1.6 increase from prior year. $1.4 •Operating expenses increased from prior year $1.2 (contracted services) $1.0 •Cash and investments used $0.8 by operations $164K in $0.6 2017. $0.4 •Total cash and investments $0.2 of $245K and operating $0.0 expenses of $1.52M. -$0.2 20132014201520162017 Operating ExpenseDepreciation Operating RevenueIncome Before Depreciation 11 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results –Storm Water Fund Storm Water Fund •Covering 41% of Year Ended December 31, $1.4 Depreciation in 2017 and Millions 63% in 2016 $1.2 •Operating revenues slight increase from prior year. $1.0 •Operating expenses increase $0.8 from prior year (ongoing storm water dredging $0.6 project) $0.4 •Cash and investments provided by operations $0.2 $183K in 2017. $0.0 •Total cash and investments 201520162017 Operating ExpenseDepreciation of $430K and operating Operating RevenueIncome Before Depreciation expenses of $775K. 12 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results –Liquor •Gross profit percentage Gross Profit Percentage down slightly from prior 31.0% year. •2016 gross profit %for 30.0% 30.4% 30.3% 29.6% the 7-County Metro area 29.1% was 26.9%. 29.0% 28.7% 28.2% •2017 gross profit %for 27.9% 28.0% the 7-County Metro area 27.9% is unknown at this time. 27.0% •Equal or higher than 26.9% other Metro Cities 26.0% –Monticello –25.9% –Big Lake –29.3% 25.0% –Buffalo –27.6% 20132014201520162017 –Anoka –22.7% Gross Profit as a percentage of SalesRegion 7W –Fridley –26.9% 13 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results –Taxable Market Values •2017 = $1.9B –$83M increase •2009 was the previous peak at $2.25B 14 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Financial Results Tax Rates *Rates Expressed as a percentage of net tax capacity All CitiesSeven-CountyCity of State-WideMetro AreaElk River 201620172016201720162017 Average Tax Rate City 46.5 46.5 43.0 43.0 46.2 46.2 County 44.1 44.1 43.0 42.3 50.5 50.5 School 27.5 27.5 26.6 28.6 39.5 36.9 Special Taxing 6.9 6.9 8.7 8.7 4.8 4.5 Total125.05125.05121.294122.6 141.0138.04 •2017 data for other cities is not yet available •Controlling what the City can control. •School rate –is a blend of Districts serving the City. -Source: League of Minnesota Cities Tax Rate Tables 15 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Conclusion •Meeting fund balance policy for General Fund •No internal control or legal compliance findings •Liquor and Storm Water funds are providing cash flows from operations, Sewer and Garbage are not •Garbage fund will continue to need to be monitored as change in fund balance and operating cash flows are negative and fund balance is on track to be depleted at end of 2019 •Liquor fund transferred over $700k to other funds •Last year, for the 2016 CAFR audit, the City was awarded the GFOA Certificate for Excellence in Financial Reporting. –28 consecutive years! 16 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Accounting Standards •Governmental Accounting Standards Board Statement Nos. 74 and 75 –#74 Applicable December 31, 2017 –#75 Applicable December 31, 2018 –Other Postemployment Benefits •Statement No. 83 –Asset Retirement Obligations –December 31, 2019 •Statement No. 84 –Fiduciary Activities –December 31, 2019 17 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING ©2016 CliftonLarsonAllen LLP Thank you to all for helping to get this audit completed timely and for allowing us to serve you! Contact Information: Chris KnopikMichelle Hoffman 612-397-3266612-397-3269 christopher.knopik@claconnect.commichelle.hoffman@claconnect.com 18 WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING