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2.0. ERMUSR 08-29-2018
PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 9,2018 NEW ISSUE Moody's Rating: Requested __ BANK QUALIFIED 12. In t e opinion of Kennedy&Graven, Chartered,Bond Counsel for the Bonds, based on present federal and Minnesota laws, regulations,rulings and decisions (w ich excludes any pending legislation which may have a retroactive effect),and assuming compliance with certain covenants,interest to be paid on the Bonds is o N exc uded from gross income for federal income tax purposes and, to the same extent,from taxable net income of individuals, estates and trusts for Minnesota , income purposes,and is not a preference item for purposes of computing the federal alternative minimum tax(although interest on the Bonds is included in adjusted _ c ent earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1,2018)or the Minnesota alternative wmi imum tax imposed on individuals, trusts,and estates. Such interest is subject to Minnesota franchise taxes on corporations(including financial institutions) 9. . o measured by income. No opinion will be expressed by Kennedy&Graven regarding other state or federal tax consequences caused by the receipt or accrual of own int- est on the Bonds or arising with respect to ownership of the Bonds. The Bonds will be designated as "qualified tax-exempt obligations"for purposes of " Sec On 265(b)(3)of the Internal Revenue Code of 1986,as amended,relating to the ability of financial institutions to deduct from income for federal income tax pu poses,interest expense that is allocable to carrying and acquiring tax-exempt obligations.See"TAX EXEMPTION"and"OTHER FEDERAL AND STATE TAX n CO'SIDERATIONS"herein. $10,000,000* o City of Elk River, Minnesota s N Electric Revenue Bonds, Series 2018A ao (Book Entry Only) T 3 .o D.ted Date: Date of Delivery Interest Due: Each February 1 and August 1, 3 .s commencing February 1,2019 R., T e Bonds(as defined herein)will mature August 1 in the years and amounts* as follows: o T 2019 $260,000 2025 $235,000 2031 $285,000 2037 $350,000 2043 $445,000 w 2020 $210,000 2026 $240,000 2032 $295,000 2038 $365,000 2044 $460,000 O y 2021 $210,000 2027 $250,000 2033 $305,000 2039 $375,000 2045 $480,000 ' 2022 $215,000 2028 $255,000 2034 $315,000 2040 $390,000 2046 $500,000 O 3 S , : 2023 $225,000 2029 $265,000 2035 $325,000 2041 $410,000 2047 $525,000 7d 8:1E 2024 $230,000 2030 $275,000 2036 $335,000 2042 $425,000 2048 $545,000 o ti ' T e City may elect on August 1, 2028 and on any day thereafter, to redeem Bonds due on or after August 1, 2029 t at . price of par plus accrued interest. g o Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term = boi ds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to he date of redemption scheduled to conform to the respective maturity schedule set forth above. 8 R 7 The Bonds will be special obligations of the City of Elk River, Minnesota (the "City") payable solely from net c0 e o re enues of the electric system of the Elk River Municipal Utilities Commission (the "Commission") and shall not co stitute a debt for which the full faith and credit or taxing powers of the City will be pledged. The proceeds of the Bonds, along with available City funds, will be used to finance the remaining cost of acquisition of the o Commission's membership interest in the Minnesota Municipal Power Agency (MMPA). mo.`s .2 a Proposals shall be for not less than $9,850,000 plus accrued interest, if any, on the total principal amount of the .N 3 Bonds. Proposals shall specify rates in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for a • ea h maturity as stated on the proposal must be 98.0% or greater. Following receipt of proposals, a good faith deposit will be required to be delivered to the Issuer by the lowest bidder as described in the "Terms of Proposal" he ein. Award of the Bonds will be made on the basis of True Interest Cost(TIC). d N E I T e Bonds will be issued as fully registered bonds without coupons and, when issued, will be registered in the ° na e of Cede& Co., as nominee of The Depository Trust Company ("DTC"). DTC will act as securities depository for the Bonds. Individual purchases may be made in book entry form only, in the principal amount of E $5,000 and integral multiples thereof. Investors will not receive physical certificates representing their interest in ° the Bonds purchased. (See "Book Entry System" herein.) U.S. Bank National Association, Saint Paul, Minnesota wil 1 serve as registrar(the "Registrar") for the Bonds. The Bonds will be available for delivery at DTC on or about o September 26,2018. bt y PROPOSALS RECEIVED: Wednesday,August 29,2018 until 9:30 A.M., Central Time CONSIDERATION OF AWARD: Commission meeting commencing at 3:00 P.M., Central Time on s a Wednesday,August 29,2018 Hoo - a D Further information may be obtained from SPRINGSTED Incorporated, S p r n q s t e d Municipal Advisor to the City, 380 Jackson Street, Suite 300, Saint Paul, H u.? N Minnesota 55101-2887(651)223-3000. * Preliminary;subject to change. 1 CITY OF ELK RIVER, MINNESOTA CITY COUNCIL John Dietz Mayor Jerry Olsen Council Member, Ward 1 Matthew Westgaard Council Member, Ward 2 Nate Oval Council Member, Ward 3 Jennifer Wagner Council Member, Ward 4 CITY ADMINISTRATOR Calvin Portner FINANCE DIRECTOR Lori Ziemer ELK RIVER MUNICIPAL UTILITIES COMMISSION John Dietz Chair Paul Bell Commissioner Al Nadeau Commissioner Mary Stewart Commissioner Matthew Westgaard Commissioner GENERAL MANAGER Troy Adams FINANCE AND OFFICE MANAGER Theresa Slominski MUNICIPAL ADVISOR Springsted Incorporated Saint Paul, Minnesota BOND COUNSEL Kennedy &Graven, Chartered Minneapolis,Minnesota 2 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this doc ent, as the same may be supplemented or corrected by the City or the Commission from time to tim , may be treated as a Preliminary Official Statement with respect to the Bonds described herein that is dee ed final as of the date hereof (or of any such supplement or correction) by the City or the Co mission. By awarding the Bonds to any underwriter or underwriting syndicate submitting a Proposal therefor, the Co mission agrees that, no more than seven business days after the date of such award, it shall provide wi out cost to the senior managing underwriter of the syndicate to which the Bonds are awarded copies oft e Final Official Statement in the amount specified in the Terms of Proposal. No dealer, broker, salesman or other person has been authorized by the City or the Commission to give any information or to make any representations with respect to the Bonds, other than as contained in the Pre iminary Official Statement or the Final Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Co mission. Ce ain information contained in the Preliminary Official Statement or the Final Official Statement may hav- been obtained from sources other than records of the City or the Commission and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EX'RESSIONS OF OPINION IN THE PRELIMINARY OFFICIAL STATEMENT AND THE FINAL OF ICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE P' LIMINARY OFFICIAL STATEMENT NOR THE FINAL OFFICIAL STATEMENT NOR ANY SA E MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT TH RE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY OR THE COMMISSION SINCE TH RESPECTIVE DATE THEREOF. Re'-rences herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not p sort to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exc-ptions to statements made herein. Where full texts have not been included as appendices to the p pp Pre iminary Official Statement or the Final Official Statement,they will be furnished upon request. An CUSIP numbers for the Bonds included in the Final Official Statement are provided for convenience of he owners and prospective investors. The CUSIP numbers for the Bonds are assigned by an organization unaffiliated with the City or the Commission. Neither the City nor the Commission is responsible for the selection of the CUSIP numbers and makes no representation as to the accuracy the eof as printed on the Bonds or as set forth in the Final Official Statement. No assurance can be given by he City or the Commission that the CUSIP numbers for the Bonds will remain the same after the del very of the Final Official Statement or the date of issuance and delivery of the Bonds. 3 TABLE OF CONTENTS Page(s) Terms of Proposal i-v Introductory Statement 1 Continuing Disclosure 1 The Bonds 2 Risk Factors 4 Authority and Purpose 10 Sources and Uses of Funds 10 Security and Financing 11 Elk River Municipal Utilities 13 The Electric System 14 Utility Financial Statements 16 Debt Service and Coverage Calculation 20 Utility Revenue Debt 20 Future Financing 21 Litigation 22 Legality 22 Tax Exemption 22 Oter Federal and State Tax Considerations 22 Barak- Qualified Tax-Exempt Obligations 23 Rating 23 M nicipal Advisor 24 C:rtification 24 G:neral Information Concerning the City 25 Pr'posed Form of Legal Opinion Appendix I C.ntinuing Disclosure Undertaking Appendix II E Icerpt of the City's 2017 Comprehensive Annual Financial Report Appendix III E icerpt of the Utility's 2017 Annual Financial Report Appendix IV 4 THE CITY AND THE COMMISSION HAS AUTHORIZED SPRINGSTED INCORPORATED TO NEGOTIATE THIS ISSUE ON ITS BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $10,000,000* CITY OF ELK RIVER,MINNESOTA ELECTRIC REVENUE BONDS, SERIES 2018A (BOOK ENTRY ONLY) Proposals for the above-referenced obligations (the "Bonds") will be received on Wednesday, August 29, 2018, (the "Sale Date") until 9:30 A.M., Central Time at the offices of Springsted Incorporated ("Springsted"), 380 Jackson Street, Suite 300, Saint Paul, Minnesota, 55101, after which time proposals will be opened and tabulated. Consideration for award of the Bonds will be by the Elk River Municipal Utilities Commission (the "Commission") at its meeting commencing at 3:00 P.M., Central Time, of the same day. SUBMISSION OF PROPOSALS Springsted will assume no liability for the inability of a bidder to reach Springsted prior to the time of sale specified above. All bidders are advised that each proposal shall be deemed to constitute a contract between the bidder and the City of Elk River, Minnesota(the"City") and the Commission to purchase the Bonds regardless of the manner in which the proposal is submitted. (a) Sealed Bidding. Proposals may be submitted in a sealed envelope or by fax (651)223-3046 to Springsted. Signed proposals, without final price or coupons, may be submitted to Springsted prior to the time of sale. The bidder shall be responsible for submitting to Springsted the final proposal price and coupons, by telephone (651)223-3000 or fax(651)223-3046 for inclusion in the submitted proposal. OR (b) Electronic Bidding. Notice is hereby given that electronic proposals will be received via PARITY®. For purposes of the electronic bidding process, the time as maintained by PARITY® shall constitute the official time with respect to all proposals submitted to PARITY®. Each bidder shall be solely responsible for making necessary arrangements to access PARITY®for purposes of submitting its electronic proposal in a timely manner and in compliance with the requirements of the Terms of Proposal. Neither the City, Commission, its agents, nor PARITY® shall have any duty or obligation to undertake registration to bid for any prospective bidder or to provide or ensure electronic access to any qualified prospective bidder, and neither the City, the Commission, its agents, nor PARITY® shall be responsible for a bidder's failure to register to bid or for any failure in the proper operation of, or have any liability for any delays or interruptions of or any damages caused by the services of PARITY®. The City is using the services of PARITY® solely as a communication mechanism to conduct the electronic bidding for the Bonds, and PARITY®is not an agent of the City or the Commission. If any provisions of this Terms of Proposal conflict with information provided by PARITY®, this Terms of Proposal shall control. Further information about PARITY®, including any fee charged, may be obtained from: PARITY®, 1359 Broadway, 2nd Floor,New York,New York 10018 Customer Support: (212) 849-5000 * Preliminary;subject to change. - i - 5 DETAILS OF THE BONDS The Bonds will be dated as of the date of delivery and will bear interest payable on February 1 and August 1 of each year, commencing February 1, 2019. Interest will be computed on the basis of a 360- day year of twelve 30-day months. The Bonds will mature August 1 in the years and amounts* as follows: 2019 $260,000 2025 $235,000 2031 $285,000 2037 $350,000 2043 $445,000 2020 $210,000 2026 $240,000 2032 $295,000 2038 $365,000 2044 $460,000 2021 $210,000 2027 $250,000 2033 $305,000 2039 $375,000 2045 $480,000 2022 $215,000 2028 $255,000 2034 $315,000 2040 $390,000 2046 $500,000 2023 $225,000 2029 $265,000 2035 $325,000 2041 $410,000 2047 $525,000 2024 $230,000 2030 $275,000 2036 $335,000 2042 $425,000 2048 $545,000 * The City and the Commission reserve the right, after proposals are opened and prior to award, to increase or reduce the principal amount of the Bonds or the amount of any maturity or maturities in multiples of$5,000. In the event the amount of any maturity is modified, the aggregate purchase price will be adjusted to result in the same gross spread per$1,000 of Bonds as that of the original proposal. Gross spread for this purpose is the differential between the price paid to the City for the new issue and the prices at which the proposal indicates the securities will be initially offered to the investing public. Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. In order to designate term bonds, the proposal must specify "Years of Term Maturities" in the spaces provided on the proposal form. BOOK ENTRY SYSTEM The Bonds will be issued by means of a book entry system with no physical distribution of Bonds made to the public. The Bonds will be issued in fully registered form and one Bond, representing the aggregate principal amount of the Bonds maturing in each year, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"),New York,New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds may be made in the principal amount of $5,000 or any multiple thereof of a single maturity through book entries made on the books and records of DTC and its participants. Principal and interest are payable by the registrar to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants will be the responsibility of such participants and other nominees of beneficial owners. The lowest bidder (the "Purchaser"), as a condition of delivery of the Bonds, will be required to deposit the Bonds with DTC. REGISTRAR The City will name the registrar which shall be subject to applicable regulations of the Securities and Exchange Commission. The City will pay for the services of the registrar. OPTIONAL REDEMPTION The City may elect on August 1, 2028 and on any day thereafter, to redeem Bonds due on or after August 1, 2029. Redemption may be in whole or in part and if in part at the option of the City and in su,h manner as the City shall determine. If less than all Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be redeemed. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will the n select by lot the beneficial ownership interests in such maturity to be redeemed. All redemptions shall be at a price of par plus accrued interest. -ii- 6 SECURITY AND PURPOSE The Bonds will be special obligations of the City payable solely from net revenues of the electric system of the Commission and shall not constitute a debt for which the full faith and credit or taxing powers of the City will be pledged. The proceeds of the Bonds, along with available City funds, will be used to finance the remaining cost of acquisition of the Commission's membership interest in the Minnesota Municipal Power Agency(MMPA). BIDDING PARAMETERS Proposals shall be for not less than $9,850,000 plus accrued interest, if any, on the total principal amount of the Bonds. No proposal can be withdrawn or amended after the time set for receiving proposals on the Sale Date unless the meeting of the Commission scheduled for award of the Bonds is adjourned, recessed, or continued to another date without award of the Bonds having been made. Rates shall be in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity as stated on the proposal must be 98.0% or greater. Bonds of the same maturity shall bear a single rate from the date of the Bonds to the date of maturity. No conditional proposals will be accepted. ESTABLISHMENT OF ISSUE PRICE In order to provide the City with information necessary for compliance with Section 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (collectively, the "Code"), the Purchaser will be required to assist the City in establishing the issue price of the Bonds and shall complete, execute, and deliver to the City prior to the closing date, a written certification in a form acceptableto the Purchaser, the City, and Bond Counsel (the `"Issue Price Certificate") containing the following for each maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity):: (i) the interest rate; (ii) the reasonably expected initial offering price to the "public" (as said term is defined in Treasury Regulation Section 1.148-1(f) (the"Regulation")) or the sale price; and(iii) pricing wires or equivalent communications supporting such offering or sale price. Any action to be taken or documentation to be received by the City pursuant hereto may be taken or received on behalf of the City by Springsted. The City intends that the sale of the Bonds pursuant to this Terms of Proposal shall constitute a "competitive sale" as defined in the Regulation based on the following: (i) the City shall cause this Terms of Proposal to be disseminated to potential bidders in a manner that is reasonably designed to reach potential bidders; (ii) all bidders shall have an equal opportunity to submit a bid; (iii) the City reasonably expects that it will receive bids from at least three bidders that have established industry reputations for underwriting municipal bonds such as the Bonds; and (iv) the City anticipates awarding the sale of the Bonds to the bidder who provides a proposal with the lowest true interest cost, as set forth in this Terms of Proposal (See "AWARD" herein). Any bid submitted pursuant to this Terms of Proposal shall be considered a firm offer for the purchase of the Bonds, as specified in the proposal. The Purchaser shall constitute an "underwriter" as said term is defined in the Regulation. By submitting its proposal, the Purchaser confirms that it shall require any agreement among underwriters, a selling group agreement, or other agreement to which it is a party re ating to the initial sale of the Bonds, to include provisions requiring compliance with the provisions of th- Code and the Regulation regarding the initial sale of the Bonds. If all of the requirements of a"competitive sale" are not satisfied, the City shall advise the Purchaser of s ch fact prior to the time of award of the sale of the Bonds to the Purchaser. In such event, any p oposal submitted will not be subject to cancellation or withdrawal. Within twenty-four(24) hours o'the notice of award of the sale of the Bonds, the Purchaser shall advise the City and Springsted if 10% o' any maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate - iii- 7 CU.IP number within that maturity) has been sold to the public and the price at which it was sold. The Ci will treat such sale price as the "issue price" for such maturity, applied on a maturity-by-maturity bas s. The City will not require the Purchaser to comply with that portion of the Regulation commonly des ribed as the "hold-the-offering-price" requirement for the remaining maturities, but the Purchaser ma elect such option. If the Purchaser exercises such option,the City will apply the initial offering price to tl e public provided in the proposal as the issue price for such maturities. If the Purchaser does not exe cise that option, it shall thereafter promptly provide the City and Springsted the prices at which 10% of .uch maturities are sold to the public; provided such determination shall be made and the City and Spn ngsted notified of such prices whether or not the closing date has occurred, until the 10% test has bee satisfied as to each maturity of the Bonds or until all of the Bonds of a maturity have been sold. GOOD FAITH DEPOSIT To ave its proposal considered for award, the Purchaser is required to submit a good faith deposit to the Ci in the amount of$100,000 (the "Deposit") no later than 1:00 P.M., Central Time on the Sale Date. Th: Deposit may be delivered as described herein in the form of either (i) a certified or cashier's check payable to the City; or (ii) a wire transfer. The Purchaser shall be solely responsible for the timely del very of its Deposit whether by check or wire transfer. Neither the City nor Springsted have any liasility for delays in the receipt of the Deposit. If the Deposit is not received by the specified time, the Ci may, at its sole discretion, reject the proposal of the lowest bidder, direct the second lowest bidder to sub it a Deposit, and thereafter award the sale to such bidder. Ce tified or Cashier's Check. A Deposit made by certified or cashier's check will be considered timely delivered to the City if it is made payable to the City and delivered to Springsted Incorporated, 381 Jackson Street, Suite 300, Saint Paul, Minnesota 55101 by the time specified above. Wi e Transfer. A Deposit made by wire will be considered timely delivered to the City upon submission of. federal wire reference number by the specified time. Wire transfer instructions will be available from Spr ngsted following the receipt and tabulation of proposals. The successful bidder must send an e-mail inc uding the following information: (i)the federal reference number and time released; (ii)the amount of the wire transfer; and(iii)the issue to which it applies. On,e an award has been made, the Deposit received from the Purchaser will be retained by the City and no nterest willaccrueDepositat settlement to the Purchaser. The amount of the will be deducted from the purchase price. In the event the Purchaser fails to comply with the accepted proposal, said amount wil be retained by the City. AWARD Th: Bonds will be awarded on the basis of the lowest interest rate to be determined on a true interest cost (TI ) basis calculated on the proposal prior to any adjustment made by the City or the Commission. The Co mission's computation of the interest rate of each proposal, in accordance with customary practice, wil be controlling. Th: Commission will reserve the right to: (i)waive non-substantive informalities of any proposal or of ma ers relating to the receipt of proposals and award of the Bonds, (ii) reject all proposals without cause, an. (iii)reject any proposal that the Commission determines to have failed to comply with the terms her-in. BOND INSURANCE AT PURCHASER'S OPTION Nether the City nor the Commission have applied for or pre-approved a commitment for any policy of mu icipal bond insurance with respect to the Bonds. If the Bonds qualify for municipal bond insurance an. a bidder desires to purchase a policy, such indication, the maturities to be insured, and the name of the desired insurer must be set forth on the bidder's proposal. The Commission specifically reserves the rig t to reject any bid specifying municipal bond insurance, even though such bid may result in the lowest TI I to the City and the Commission. All costs associated with the issuance and administration of such - iv- 8 policy and associated ratings and expenses (other than any independent rating requested by the City) shall be paid by the successful bidder. Failure of the municipal bond insurer to issue the policy after the award of the Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Bonds. CUSIP NUMBERS If he Bonds qualify for the assignment of CUSIP numbers such numbers will be printed on the Bonds; ho ever, neither the failure to print such numbers on any Bond nor any error with respect thereto will co stitute cause for failure or refusal by the Purchaser to accept delivery of the Bonds. Springsted will ap.ly for CUSIP numbers pursuant to Rule G-34 implemented by the Municipal Securities Rulemaking Board. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be pa d by the Purchaser. SETTLEMENT O or about September 26, 2018, the Bonds will be delivered without cost to the Purchaser through DTC in New York, New York. Delivery will be subject to receipt by the Purchaser of an approving legal op nion of Kennedy & Graven, Chartered of Minneapolis, Minnesota, and of customary closing papers, in luding a no-litigation certificate. On the date of settlement, payment for the Bonds shall be made in federal, or equivalent, funds that shall be received at the offices of the City or its designee not later than 12 00 Noon, Central Time. Unless compliance with the terms of payment for the Bonds has been made im ossible by action of the City, or its agents, the Purchaser shall be liable to the City for any loss su fered by the City by reason of the Purchaser's non-compliance with said terms for payment. CONTINUING DISCLOSURE In accordance with SEC Rule 15c2-12(b)(5), the City and the Commission will undertake, pursuant to the resolution awarding sale of the Bonds, to provide annual reports and notices of certain events. A de.cription of this undertaking is set forth in the Official Statement. The Purchaser's obligation to p chase the Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of he Bonds. OFFICIAL STATEMENT T e City and the Commission has authorized the preparation of a Preliminary Official Statement co taming pertinent information relative to the Bonds, and said Preliminary Official Statement has been de-med final by the City and the Commission as of the date thereof within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. For copies of the Preliminary Official Statement or for any ad.itional information prior to sale, any prospective purchaser is referred to the Municipal Advisor to the Ci and the Commission, Springsted Incorporated, 380 Jackson Street, Suite 300, Saint Paul, Minnesota 55101,telephone(651)223-3000. A Final Official Statement (as that term is defined in Rule 15c2-12) will be prepared, specifying the maturity dates, principal amounts, and interest rates of the Bonds, together with any other information re•uired by law. By awarding the Bonds to the Purchaser, the Commission agrees that, no more than se en business days after the date of such award, it shall provide without cost to the Purchaser up to 25 copies of the Final Official Statement. The Commission designates the Purchaser as its agent for p I loses of distributing copies of the Final Official Statement to each syndicate member, if applicable. T e Purchaser agrees that if its proposal is accepted by the Commission, (i) it shall accept designation and (iil it shall enter into a contractual relationship with its syndicate members for purposes of assuring the rei eipt of the Final Official Statement by each such syndicate member. D.ted July 10, 2018 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/Theresa Slominski Finance and Office Manager - v- 9 OFFICIAL STATEMENT $10,000,000* CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE BONDS,SERIES 2018A (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT This Official Statement contains certain information relating to the City of Elk River, Minnesota (the"City"); the Elk River Municipal Utilities (the "Utility"); the Elk River Municipal Utilities Commission (the "Commission"); and the issuance of $10,000,000* Electric Revenue Bonds, Series 2018A (the "Bonds"). The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 453, and Sections 412.321 through 412.391, all as amended; a resolution adopted by the City on J y 16, 2018 (the "City Resolution") approving the issuance of the Bonds and authorizing certain action to be taken by the Commission with respect to the issuance of the Bonds; and a resolution adopted by the Commission on July 10,2018 authorizing the issuance of the Bonds. The Commission has been given authority by the City, pursuant to the City Resolution, to adopt the resolution awarding the sale of the Bonds. On August 29, 2018, the Commission will receive proposals to purchase the Bonds. If a proposal for the Bonds is acceptable, the Commission will adopt a resolution (the "Awarding Resolution") authorizing the issuance of the Bonds, establishing the terms of the Bonds, and awarding the sale of the Bonds. The Bonds are special obligations of the City payable solely from Net Revenues (as defined herein)of the City's electric system (the "Electric System") operated by the Commission. The Bonds are being issued on a parity with the City's Electric Revenue Bonds, Series 2016A (the "Series 2016A Bonds") and Electric Revenue Refunding Bonds, Series 2016B (the "Series 2016B Bonds" and, together with the Series 2016A Bonds, the "Outstanding Bonds"). The Outstanding Bonds and the Bonds are collectively referred to as the"Parity Bonds." See"UTILITY REVENUE DEBT"herein. Inquiries regarding the Utility may be directed to Ms. Theresa Slominski, Finance and Office Manager, Elk River Municipal Utilities, 13069 Orono Parkway, Elk River, Minnesota 55330-0490, by telephoning (7.3) 635-1325, or by emailing tslominski@elkriverutilities.com. Inquiries regarding the City may be di ected to Ms. Lori Ziemer, Finance Director, City of Elk River, 13065 Orono Parkway, Elk River, linnesota 55330-0490, by telephoning (763) 635-1022, or by emailing lziemer@elkrivermn.gov. In.uiries may also be made to Springsted Incorporated, 380 Jackson Street, Suite 300, Saint Paul, linnesota 55101-2887, by telephoning(651) 223-3000, or by emailing bond_services@springsted.com. CONTINUING DISCLOSURE I order to assist the Underwriters in complying with SEC Rule 15c2-12 (the "Rule"), pursuant to the A arding Resolution, the City and the Commission have covenanted to comply with the continuing di.closure undertaking (the "Undertaking") for the benefit of holders or beneficial owners of the Bonds to p .vide certain financial information and operating data relating to the City and the Utility to the Municipal S:curities Rulemaking Board annually, and to provide notices of the occurrence of certain events * Preliminary;subject to change. - 1 - 10 enumerated in the Rule to the Municipal Securities Rulemaking Board and to any state information depository. The specific nature of the Undertaking, as well as the information to be contained in the annual report or the notices of material events, is set forth in the Undertaking in substantially the form attached her.to as Appendix II, subject to such modifications thereof or additions thereto as: (i) consistent with req irements under the Rule, (ii)required by the purchaser of the Bonds from the City, and (iii)acceptable to tie City and the Commission. Th. City and the Commission believe they have complied for the past five years in accordance with the ter s of their previous continuing disclosure undertakings entered into pursuant to the Rule, except to the ext:nt the following are deemed to be material. In reviewing its past disclosure practices, the City notes the ollowing: • The Economic Development Authority of the City of Elk River, Minnesota's General Obligation Bonds, Series 2007 (the "Series 2007 Bonds") were originally insured by MBIA Insurance Corp. ("MBIA") and subsequently became part of the insured portfolio of National Public Finance Guarantee ("NPFG"), an MBIA Public Finance Subsidiary. Material event notices regarding certain insurance rating changes within the past five years have not been filed; however, the information was publicly available through other sources. The Series 2007 Bonds were redeemed in full on February 1, 2017 and are no longer outstanding. • Prior continuing disclosure undertakings entered into by the City and the Commission included language stating that the City's and the Commission's audited financial statements would be filed"as soon as available." Although not always filed"as soon as available,"the audited financial statements were filed within the required twelve (12) month timeframe as required in the undertaking. A :ilure by the City or the Commission to comply with the Undertakings will not constitute an event of def.ult on the Bonds(although holders or other beneficial owners of the Bonds will have the sole remedy of bri ging an action for specific performance). Nevertheless, such a failure must be reported in accordance wit' the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure ma adversely affect the transferability and liquidity of the Bonds and their market price. THE BONDS Ge 1 eral Description The Bonds are dated as of the date of delivery and will mature annually on August 1 as set forth on the front cover of this Official Statement. The Bonds are issued in book entry form. Interest on the Bonds is payable on February 1 and August 1 of each year, commencing February 1, 2019. Interest will be payable to the holder(initially Cede&Co.)registered on the books of the Registrar as of the fifteenth day of ti e calendar month next preceding such interest payment date. Interest will be computed on the basis of : 360-day year of twelve 30-day months. Principal of and interest on the Bonds will be paid as des ribed in the section herein entitled "Book Entry System." U.S. Bank National Association, Saint Pa 1, Minnesota will serve as Registrar for the Bonds, and the City will pay for registrar services. Re ii emption Provisions Ma led notice of redemption shall be given to the registered owner(s) of the Bonds in accordance with the req irements of DTC which currently requires no less than twenty (20) days nor more than sixty (60) da s prior to the redemption date. Failure to give such written notice to any registered owner of the Bonds or any defect therein shall not affect the validity of any proceedings for the redemption of the Bo ds. All Bonds or portions thereof called for redemption will cease to bear interest after the specified red mption date,provided funds for their redemption are on deposit at the place of payment. -2- 11 Optional Redemption The City may elect on August 1, 2028 and on any day thereafter, to redeem Bonds due on or after Au:.ust 1, 2029. Redemption may be in whole or in part and if in part at the option of the City and in suci manner as the City shall determine. If less than all the Bonds of a maturity are called for red:mption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will det:rmine by lot the amount of each participant's interest in such maturity to be redeemed and each p. i'cipant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All pre.ayments shall be at a price of par plus accrued interest. Bo i k Entry System The Depository Trust Company ("DTC"),New York, New York, will act as securities depository for the Bo ds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (D C's partnership nominee) or such other name as may be requested by an authorized representative of DTI . One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate pri cipal amount of such maturity, and will be deposited with DTC. DTI is a limited-purpose trust company organized under the New York Banking Law, a "banking org. ization" within the meaning of the New York Banking Law, a member of the Federal Reserve Sys em, a"clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "cl:aring agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 193'. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity iss -s, corporate and municipal debt issues, and money market instruments (from over 100 countries)that DTI 's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade sett ement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. Thi. eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certl in other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Cor.oration ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Co .oration, and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTI C is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to oth:rs such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing co .orations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The DTC Rules applicable to its Participants are on file wit the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Pur hases of Bonds under the DTC system must be made by or through Direct Participants, which will rec ive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bo d ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Be eficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as per'odic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Ow er entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by ntries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in t e event that use of the book-entry system for the Bonds is discontinued. To acilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an aut orized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Ce.e & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no kno ledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the - 3 - 12 Di ect Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial O 'vers. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Co veyance of notices and other communications by DTC to Direct Participants, by Direct Participants to In.irect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be go erned by arrangements among them, subject to any statutory or regulatory requirements as may be in eff ct from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the tray smission to them of notices of significant events with respect to the Bonds, such as redemptions, tens ers, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide th&r names and addresses to the registrar and request that copies of notices be provided directly to them. Re.emption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being re.eemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in su•h maturity to be redeemed. Ne ther DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bo ds unless authorized by a Direct Participant in accordance with DTC's MMI procedures. Under its us al procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. Th- Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Pr xy). Re emption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co. or su h other nominee as may be requested by an authorized representative of DTC. DTC's practice is to cre it Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information fro the Issuer or its agent on the payable date in accordance with their respective holdings shown on D C's records. Payments by Participants to Beneficial Owners will be governed by standing instructions an customary practices, as is the case with securities held for the accounts of customers in bearer form or re istered in"street name,"and will be the responsibility of such Participant and not of DTC or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or its agent, dis.ursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of.uch payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. D C may discontinue providing its services as depository with respect to the Bonds at any time by giving re.sonable notice to Issuer or its agent. Under such circumstances, in the event that a successor depository is not obtained,certificates are required to be printed and delivered. Th- Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. Th- information in this section concerning DTC and DTC's book-entry system has been obtained from so Imes that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy th:reof. RISK FACTORS IN ESTORS SHOULD BE AWARE THAT INVESTMENT IN THE BONDS MAY ENTAIL SOME D:GREE OF RISK. EACH PROSPECTIVE INVESTOR IN THE BONDS IS ENCOURAGED TO ' :AD THIS OFFICIAL STATEMENT IN ITS ENTIRETY. PARTICULAR ATTENTION SHOULD -4- 13 B GIVEN TO THE FACTORS DESCRIBED BELOW WHICH, AMONG OTHERS, COULD A FECT THE PAYMENT OF PRINCIPAL AND INTEREST ON THE BONDS AND WHICH C•ULD ALSO AFFECT THE MARKET PRICE OF THE BONDS TO AN EXTENT THAT CANNOT B DETERMINED. THIS DISCUSSION OF RISK FACTORS IS NOT,AND IS NOT INTENDED TO B , EXHAUSTIVE. L mited Obligation Tie obligation of the City to pay the principal of and interest on the Parity Bonds is a limited obligation. Tie full faith and credit and taxing powers of the City are not pledged to pay the principal and interest on th- Parity Bonds and the City has not pledged ad valorem property taxes to pay the principal and interest o the Parity Bonds. As further described elsewhere herein, the principal of and interest on the Parity Bonds is payable solely from Net Revenues of the Utility (as defined under "SECURITY AND F I ANCING"herein). While it is believed that revenues of the Utility will be sufficient to pay operating a d maintenance expenses of the Utility as well as the principal of and interest on the Bonds when due, a n mber of factors described below may affect the receipt of sufficient revenues from the Utility for such p rposes, which may impair the ability of the City to make timely principal and interest payments on the P. ity Bonds. G•neral Factors that May Affect Sufficiency of Revenues A. stated above, the City is obligated to pay the principal of and interest on the Bonds solely from Net R venues of the Utility. A number of factors may have an adverse effect on the receipt of revenues in an a ount sufficient to pay operating and maintenance expenses of the Utility as well as the principal and in erest on the Parity Bonds. These include potential adverse changes in the economic condition of the C ty, including potential decreases in population that may arise from decisions by employers located in • d around the City to relocate their operations elsewhere; and potential unemployment at a level that would preclude residents of the City from paying sufficient user fees in order to support the operations of th- Utility and the payment of principal and interest on the Parity Bonds. The loss of any of the major el-ctric or water users would also have an adverse effect on the revenues of the Utility. U I foreseen Problems with the Utility Payment of the principal of and interest on the Parity Bonds is dependent to a considerable degree upon t - continued operation of the Utility for the purposes for which they were designed. While the City b:Heves that the Utility has been designed and constructed in such a manner as to permit their continued operation without requiring unreasonable costs for maintenance or repairs and has provided under the to s of the Awarding Resolution for the creation and maintenance of funds in amounts which the City b:Heves to be sufficient to provide for the necessary repairs and maintenance of the Utility, there can be no assurance that such amounts will, in fact, be sufficient to assure the ongoing operation of the Utility. Although the Utility is covered by policies of insurance as otherwise described herein, casualties and o.I er occurrences may result in damage to the Utility, which may not be covered by the net proceeds of y insurance award. Any material interruption of the operation of the Utility may have an adverse effect o the ability of the City to collect fees from users of the Utility and could, in turn, have a materially a'verse effect on the ability of the Utility to make timely payments of principal and interest on the Bonds. T e Electric Utility Industry Generally T e electric utility industry has been, and in the future will be, affected by a number of factors which could impact the financial condition and competitiveness of electric utilities, such as the Utility. Such f.ctors include, among others: (i) effects of compliance with changing environmental, safety, licensing, regulatory and legislative requirements; (ii) changes resulting from conservation and demand-side - 5 - 14 m. agement programs on the timing and use of electric energy; (iii) other federal and state legislative chal ges; (iv) effects of competition from other electric utilities (including increased competition resulting fro mergers, acquisitions, and "strategic alliances" of competing electric (and gas) utilities and from co petitors offering less expensive electricity from much greater distances transmitted over an inte connected system, and new methods of producing low cost electricity; (v) increased competition fro independent power producers, marketers and brokers; (vi)"self-generation" by certain industrial and co mercial customers; (vii) issues relating to the ability to issue tax-exempt obligations; (viii) severe rest ictions on the ability to sell to nongovernmental entities electricity from generation projects financed wit 1 outstanding tax-exempt obligations; (ix) changes from projected future load requirements; (x) ncreases in costs; (xi) shifts in the availability and relative costs of different fuels; and (xii)global w. ing and the future legislation and regulations that target contributions made by coal-fired and other fos'il-fueled generating units. Any of these factors and the factors discussed herein (as well as other factors)could have an effect on the financial condition of the Utility. The Utility and other electric utilities are subject to various federal and state laws requiring compliance witi environmental rules and regulations. In addition, the Utility is also subject to various federal and stat- laws relating to its facilities as well as various federal and state laws which affect the construction and operation of its facilities. En:rgy Policy Act of 1992 The Energy Policy Act of 1992 (the "Energy Policy Act of 1992") made fundamental changes in the fed:ral regulation of the electric utility industry, particularly in the area of transmission access under Sec ions 211, 212, and 213 of the Federal Power Act. The purpose of these changes, in part, was to bring abo t increased competition. While the Utility could contest before the Federal Energy Regulatory Co mission("FERC") or in federal court any application under Sections 211, 212 and 213 of the Federal Po er Act on jurisdictional, procedural or substantive grounds, those Sections of the Federal Power Act pro ided the FERC with the authority, upon application by an electric utility, federal power marketing age cy, or any person generating electricity for sale or resale, to require a transmitting utility such as the Uti ity to provide transmission services to the applicant at rates, charges, terms and conditions set by FE'C based on standards and provisions in the Federal Power Act. However, the Energy Policy Act of 199► specifically denied the FERC the authority to mandate "retail wheeling," under which a retail cus lomer of one utility could obtain power from another utility or non-utility power generator. On April 24, 1996, the FERC issued two final rules. The final rules effected significant changes in the reg lation of transmission services provided by public utilities (as defined in the Federal Power Act) that owl, operate or control interstate transmission facilities and which are subject to the FERC jurisdiction ove wholesale contracts, rates and services ("jurisdictional utilities"). The Utility is not a public utility, as .efined by the Federal Power Act, and is not a jurisdictional utility under the Federal Power Act for its sales or generation of power. Onof the final rules, Order No. 888, (i) requires the provision of open access transmission services on a no iscriminatory basis by all jurisdictional utilities by requiring all such utilities to file tariffs that offer oth r entities seeking to effect wholesale power transactions the same transmission services they provide the selves, under comparable terms and conditions, and (ii)may require a non-jurisdictional utility, such as t e Utility, that purchases transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to, in turn, provide open access service to the jun dictional utility under terms that are comparable to the service that the non jurisdictional utility pro ides itself. This is referred to as the reciprocity requirement. Order No. 888 also includes provisions which, in effect, would permit jurisdictional utilities to recover under certain conditions so-called "stranded costs" for generating and other facilities from wholesale customers of a utility which use open acc•ss transmission service to purchase from other power suppliers. - 6 - 15 The other final rule, Order No. 889, (i) implements standards of conduct for jurisdictional utilities that off:r open access transmission services to ensure that transmission owners and their affiliates do not have an infair competitive advantage in using transmission to sell power, and (ii)requires those jurisdictional util ties to establish or use an electronic "Open Access Same-time Information System" ("OASIS") to sh.le transmission-related information (including information about available capacity) on the Internet, and to require that those jurisdictional utilities also obtain information about their transmission systems for their own wholesale power transactions, such as available capacity, in the same way that their co petitors do through the OASIS. In .007, the FERC issued Order No. 890 which, as modified and clarified on rehearing, updated Order No,. 888 and 889. Order 890 did not substantially change the requirements or jurisdictional reach of tho.e orders with respect to the Utility. Th: Utility, as a non jurisdictional utility, is not directly subject to Order No. 888, 889, and 890. Th: efore at this time, the Utility is unable to predict what effect, if any these rules will have on the Uti ity. En:rgy Policy Act of 2005 Th: Energy Policy Act of 2005 (the "2005 Act") made additional changes to the federal regulation of the ele.tric utility industry, some of which affect the Utility. Th- 2005 Act required the creation of an electric reliability organization that has authority to establish and enforce mandatory reliability standards on a nation-wide basis. The electric reliability organization is sub ect to FERC's oversight. FERC approved the North American Electric Reliability Council ("NERC") as t e electric reliability organization and has approved nation-wide reliability standards. FERC has also app oved NERC's delegation of certain functions to regional reliability organizations, including the Mi west Reliability Organization("MRO"). The standards that are administered by NERC and the MRO app y to all users, owners, and operators of the bulk power system including the Utility. Th 2005 Act requires the Department of Energy to designate national interest electric transmission cor idors, where constraints or congestion adversely affect consumers. FERC may authorize the siting of tra smission facilities within those corridors if the states have failed to act. The courts held that FERC may act when a state, rather than failing to act, has denied an application for siting. It is anticipated that FERC will continue to assert broad authority to authorize the siting of transmission facilities and that Co gress might act expressly to expend FERC's authority. Th: 2005 Act requires price transparency and prohibits market manipulation for all wholesale markets. Th: requirements apply to all entities that participate in those markets, including the Utility. Re'•it Electric Service Territories Th: State of Minnesota(the "State")presently prohibits other electric utilities from serving areas within a mug icipality which are presently receiving retail electric service from a municipal utility. The State pe I its municipal utilities to expand their retail electric services to additional areas located within the mug icipalities' boundaries, including areas added by way of annexation. When municipal utilities expand thei retail electric service territory, they are required to pay compensation to any other displaced electric util ty. The compensation due to such displaced utilities is determined by the courts, utility regulatory co 1 missions, or by mutual agreement between the two parties. - 7 - 16 Sta e Regulatory Initiatives On I ay 21, 2001, the Minnesota Legislature passed the Minnesota Energy Security and Reliability Act (the "Act") which was signed by the Governor into law on May 29, 2001 and became Chapter 212 of La s of Minnesota 2001. Although the Act constituted the most extensive re-write of the State's law on ene gy policy in 25 years, the focus was primarily on promoting conservation and renewables rather than on I reating a more effective process for securing needed transmission and generation facilities. In part, to add ess the issue of the need for substantial new investment in transmission, the Minnesota Legislature also passed the Omnibus Energy Bill, Laws of Minnesota 2005, Chapter 97 (the "Omnibus Energy Bill"), cod fled in Minnesota Statutes Chapter 216B, as amended, whose provisions took effect August 1, 2005. The following discussion of some major provisions that affect municipal utilities is a summary and is qua ified in its entirety by reference to the Act and the Omnibus Energy Bill. Dis ributed Generation. The Omnibus Energy Bill establishes the terms and conditions that govern the interconnection and parallel operation of on-site distributed generation. The Public Utility Commission of ti e State of Minnesota(the"PUC")has established generic standards for utility tariffs providing for the st. dardized interconnection of facilities and reasonable interconnection agreements. Municipal utilities and cooperatives must adopt tariffs of their own, which must address the same issues as those addressed by he PUC. The Act requires all utilities to keep records of applications for interconnections and to ann ally report interconnection activity to the Commissioner of the Minnesota Department of Commerce (the"DOC"). Re ewables. Renewables are generally defined as solar, wind, or hydroelectric facilities; however, the Om ibus Energy Bill allows for biogas projects to be eligible for the renewal energy production incentive and promotes the use of soy-diesel and hydrogen as energy sources. The Act, amended in 2010, allows for all tilities to offer its customers one or more options to secure electric energy from renewables or high effi,iency, low emissions distributed generation such as fuel cells and micro-turbines fueled by renewable fuel.. The DOC Commissioner must certify the applicable power source as renewable. Electric utilities una.le to supply their customers with the renewable option must provide an explanation to the PUC. The Om ibus Energy Bill makes a number of changes designed to promote the use of renewable resources, whi h include expediting regulatory approval of transmission projects related to renewable generation, estaio fishing a framework for a (non-binding) wind energy tariff for community-based energy for dev•lopment projects, requiring utility participation in a wind integration study, requiring the adjustment of po er purchase agreements to account for production tax payments, and requiring a study of the use of bio-diesel fuel to heat homes. The 2005 Minnesota Legislature authorized a study to determine if the State cou d reliably and cost-effectively integrate a Renewable Energy Standard ("RES") mandate. This study was delivered late in 2006 and the 2007 Minnesota Legislature, acting on the strength of the study results, pas.ed into law the Net Generation Energy Act("NGEA"), Laws of Minnesota 2007, Chapter 3,which will req ire 25%renewable electric generation by the year 2025,with intervening steps to reach the standard. Co sumer Protection. Changes were made to the list of concerns that a municipal or an electric coo.erative must address before disconnecting a residential customer for non-payment during the winter hea ing season. The Act also requires all utilities to offer a payment agreement to residential customers for oast due bills or for making up undercharges, if the undercharge is caused through no fault of the cus omer. If a utility has more than 3,000 customers, it must provide budget billing for residential cus omers. Conservation Improvement Program ("CIP"). In 2007, the State established new conservation of energy policy that sets CIP goals for all energy utilities in the State to reduce energy consumption by 1.5% per ye. . While not a mandate with penalties, this new law will guide the expansion of utility incentives to dri e energy efficiency at the consumer level. The 1.5% is an annual target and shouldn't be viewed cu ulatively. NGEA also increases mandatory CIP expenditures from 1% to 1.5% of gross revenues. CIprogress reports submitted to DOC,Division of Energy Resources, have received favorable response. - 8 - 17 The Omnibus Energy Bill. The Omnibus Energy Bill makes several other major changes to the statutory and regulatory scheme that governs the operation of electric utilities. The Omnibus Energy Bill allows investor-owned utilities ("IOUs"), with the approval of the PUC, to include in their rates the cost of new tra smission improvements without going through an expensive general rate case. This authority will pro ide greater incentive to IOUs to make needed improvements to their transmission systems. Th Omnibus Energy Bill modifies several State approval processes involving the construction of large power plants and transmission lines. It transfers the authority for routing transmission lines and siting power plants from the Environmental Quality Board to the PUC, thereby centralizing the need certification and the siting processes in one agency. The law eliminates the limits involved in the need certification and siting processes, provides added criteria to analyze the need for transmission projects, and eliminates the deadline imposed on the PUC for need certification decisions. It i., not possible to predict whether the Minnesota State Legislature or Congress will enact further legi.lation restructuring the electric utility industry or what the substance of any such legislation would be or hat the effect might be upon the Utility. En ironmental Matters The Utility's generation operations are subject to continuing environmental regulation by the U.S. En ironmental Protection Agency (the "EPA"), the Minnesota Pollution Control Agency (the "MPCA") and other regulatory agencies and are in compliance with all regulations. Fed-ral, state and local standards and rules which regulate the environmental impact of generation and tr. ,mission facilities used by the Utility are subject to change. These changes may arise from continuing legi.lative, regulatory and judicial action regarding such standards and rules. Consequently, there is no ass ance that the asset in operation or contemplated will remain subject to the regulations currently in effe t, will always be in compliance with future regulations, or will always be able to obtain all required ope ating permits. An inability to comply with environmental standards could result in a reduced ope ating level or the complete shutdown of individual electric generating units not in compliance. Fed-ral legislation and EPA rule-making have had a significant effect on electric utilities. The Clean Air Act Amendments ("CAA") established requirements to obtain operating permits for an affected facility whi h set forth emissions limits and other requirements, including monitoring, record keeping and reporting. The CAA also established a regulatory program to address the effects of acid rain and impose rest ictions on sulfur dioxide(SO2) and nitrogen oxide(NOx). The EPA has introduced or proposed in recent years various rules to reduce NOx and SO2 emissions on a regi nal level to achieve ambient air quality standards, reduce hazardous air pollutants from power plants, to r duce regional haze and to regulate the disposal and management of coal combustion by-products. The CAA also requires that the EPA establish National Ambient Air Quality Standards and the regulation of:reenhouse gases. Revisions to the Clean Water Act Section 316 (a) and(b)may have an impact on the electric utility industry, but the cost at this time is impossible to estimate. The Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act currently are scheduled for reauthorization by Congress. The impact of this legislation on the electric utility ind I stry is uncertain; however, no new programs related to the electric utility industry are expected. A n mber of electrical industry and other studies have been conducted regarding the potential long-term hea th effects resulting from exposure to electromagnetic fields ("EMF") created by transmission and dist ibution lines and equipment. At this time, any relationship between EMF and certain adverse health effe is remains inconclusive; however, electric utilities have been experiencing challenges in various fo s claiming financial damages associated with electric equipment and EMF. At this time, it is not possible to predict the extent of the cost, if any, and other impacts which the EMF concern may have on ele tric utilities, including the Utility. Up to this point there have been no claims against the Utility rela ed to EMF exposure. - 9- 18 Li ligation claiming personal or property injury arising from alleged stray voltage has resulted in some day age awards against some electric utilities (other than the Utility). In 1993, the Minnesota Legislature expended service requirements governing grounding and stray voltage to electric utilities that provide or fu ish retail electric service to agricultural customers in Minnesota. It cannot be predicted at this time w ether such legislation or litigation may affect the operations and costs of the Utility. Th- Utility cannot predict at this time whether any additional legislation or rules will be enacted which wi 1 affect the Utility's operations, and if such laws or rules are enacted, what the costs to the Utility mi•ht be in the future because of such action. Se ondary Markets and Prices N:ither the City nor the Commission will be obligated to repurchase any of the Bonds, and no representation is made concerning the existence of any secondary market for the Bonds. No assurance ca be given that any secondary market will develop following the completion of the offering of the Bends and no assurance can be given that the initial offering prices for the Bonds will continue for any pe iod of time. AUTHORITY AND PURPOSE Th- Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 453, and Sections 412.321 t eugh 412.391, all as amended, the City Resolution, and the Awarding Resolution. The proceeds of the Bends, along with available City funds, will be used to finance the remaining cost of acquisition of the Commission's membership interest in the Minnesota Municipal Power Agency (MMPA). Th- Commission, on behalf of the City, entered into a New Member Agreement with MMPA dated M.y 14, 2013 (the "Agreement") under which the City became a member of MMPA effective June 4, 2013. Pursuant to the Agreement, to become a member of MMPA, the Commission is required to pay a buy-in fee to MMPA prior to October 1, 2018, the date on which the City will begin purchasing electric pover and energy from MMPA. The City issued its Series 2016A Bonds to finance an initial buy-in deposit, and the proceeds of the Bonds will finance the remaining cost of acquisition of the Commission's membership interest in the MMPA. The City has agreed to a buy in equal to 120% of the Commission's proportionate share of MMPA's net position (equity) and related rate accruals of MMPA through an ag eed upon formula. SOURCES AND USES OF FUNDS T e composition of the Bonds is estimated to be as follows: Sources of Funds: Principal Amount $10,000,000 Available City Funds 2,217,869 Total Sources of Funds $12,217,869 Uses of Funds: Deposit to Project Account $11,708,025 Deposit to Reserve Account 275,819 Allowance for Discount Bidding 150,000 Costs of Issuance 84,025 Total Uses of Funds $12,217,869 - 10 - 19 SECURITY AND FINANCING The Bonds are special limited obligations of the City payable, together with the Outstanding Bonds, solely from Net Revenues of the Electric System. Net Revenues of the Electric System are defined as Gross Revenues less Operating Expenses. Operating Expenses are defined as the current expenses of operation, maintenance and minor or current repair of the Electric System for any specified period. Operating Expenses include, without limitation, administrative expenses of the Commission relating to the Electric System, franchise fees, premiums for insurance relating to the Electric System, and amounts necessary to accumulate and maintain the Operating Reserve Requirement. Operating Expenses do not include depreciation, amortization, or interest expense. Gross Revenues are defined as all revenues and receipts from rates, fees, charges, and rentals imposed by the Commission for the availability, benefit, use and products of the Electric System or any part thereof, and any penalties and interest thereon, and income from the investment thereof. Gross Revenues do not include amounts received from the sale of property which is part of the Electric System or amounts borrowed with respect to the Electric System. The Bonds have a first charge and lien on the Net Revenues of the Electric System and are issued on a parity with the Outstanding Bonds. Rate Covenant The Commission has pledged to establish user rates and charges for the Electric System so that annual Net Revenues shall not be less than 110% of the average annual debt service on the Parity Bonds and any additional parity bonds. The City and the Commission covenant: to charge reasonable and just rates; to maintain the Electric System in efficient operating condition; to keep proper books and records; to have an annual audit prepared by an independent auditor in accordance with generally accepted accounting principles; to maintain proper billing procedures; to carry insurance; and not to dispose of the Electric System until all Parity Bonds are paid in full or otherwise discharged. F nds and Accounts T le following summary of certain covenants in the Awarding Resolution are not to be considered a full statement of the provisions of the Awarding Resolution and are qualified by reference to the Awarding R•solution. Tie Awarding Resolution will provide for the continuation of the Electric Fund (the"Fund") established u der prior resolutions of the Commission and the accounts therein. All Gross Revenues of the Electric S stem are irrevocably pledged and appropriated and shall be credited to the Fund as received. Within th- Fund, the accounts discussed below will be maintained, and Gross Revenues received in the Fund s all be apportioned to the said accounts as described below. Project Account into which there shall be paid the proceeds from the sale of the Bonds, plus available C'ty funds, less the proceeds of the Bonds deposited into the Reserve Account, and less any accrued interest paid by the Purchaser of the Bonds and other amounts deposited into the Debt Service Account as d termined by the Finance and Office Manager of the Commission. Operating Account into which all Gross Revenues are received. There shall be paid form the Operating A count when due all reasonable, necessary, and current Operating Expenses of the Electric System. All money on hand in the Operating Account as of the first day of each month in excess of the sum of (i r Operating Expenses then due and payable and to become due and payable during such calendar month, p s (ii)the Operating Reserve Requirement, shall constitute Net Revenues and shall be credited to other al counts in the Electric Fund. - 11 - 20 Debt Service Account into which is deposited any accrued interest paid by the Purchaser(s) of the Bonds and other amounts deposited into the Debt Service Account as determined by the Finance and Office Manager of the Commission. There shall also be credited to the Debt Service Account, out of the Net Revenues on hand in the Operating Account, an amount equal to not less than 1/6 of the interest due within the next six months and 1/12 of the principal due within the next twelve months on all Parity Bonds; provided that the Commission shall be entitled to reduce a monthly apportionment by the amount of any surplus previously credited and then on hand in the Debt Service Account. Money on hand in the Debt Service Account shall be disbursed only to pay principal of and interest on the Parity Bonds when due; provided that on any date when the amount then on hand in the Debt Service Account, plus the amount in the Reserve Account allocable to a series of bonds, is sufficient with other money available for the purpose to pay or discharge all bonds of that series and the interest accrued thereon in full, it may be used for that purpose. If any payment of principal of or interest on the Parity Bonds becomes due when money in the Debt Service Account is temporarily insufficient, an amount equal to such deficiency shall be transferred from the Reserve Account or the Repair and Replacement Account, in that order. Reserve Account in which the Commission will maintain the amount of the Reserve Requirement, which is an amount equal to the least of(i) 10% of the original principal amount of the Parity Bonds and any Additional Bonds; (ii) the maximum amount of principal and interest payable during the then current fislcal year or any future fiscal year on all Parity Bonds and Additional Bonds determined as of the date of issuance of each series of bonds; or(iii) 125% of the average annual principal and interest payable on all P ity Bonds and Additional Bonds determined as of the date of issuance of each series of bonds. A proximately $275,819 will be deposited into the Reserve Account upon delivery of the Bonds. If he balance in the Reserve Account is ever less than the applicable Reserve Requirement, as of the first da of each month all Net Revenues in the Operating Account remaining after the required credit to the D bt Service Account shall be credited to the Reserve Account until the balance therein equals the R serve Requirement. If the balance in the Reserve Account has not been restored to the Reserve R quirement from transfers of Net Revenues within six months of the deficiency, the Commission shall transfer to the Reserve Account, from the Repair and Replacement Account, an amount sufficient to re tore the balance to the Reserve Requirement. R;.air and Re•lacement Account into which shall be credited from the Operating Account such portion of the Net Revenues in excess of the current requirements of the Debt Service Account and the Reserve Account ("Surplus Revenues") as the Commission shall determine to be required for replacement or re 1 ewal of worn out, obsolete, or damaged properties and equipment of the Electric System. Money in the Repair and Replacement Account shall be used only for the purposes above stated or, if so directed by the Commission, to pay Operating Expenses, to redeem bonds which are subject to redemption according to their terms, to pay principal or interest when due as required by the Awarding Resolution, to restore a der iciency in the Reserve Account, or to pay the cost of improvements to the Electric System; provided that, in the event additional improvements or additions to the Electric System are financed other than from bonds payable from the Debt Service Account, Surplus Revenues from time to time received may be se.regated and paid in to on e or more separate and additional accounts for the repayment of such ind ebtedness and interest thereon, in advance of payments required to be made in to the Repair and R:placement Account. N=t Revenues in excess of those required for the foregoing purpose may be used for any proper purpose. A d ditional Parity Bonds Additional obligations may be issued on a parity of lien with the Bonds and the Outstanding Bonds so lo i g as the Net Revenues of the Electric System for the audited fiscal year immediately preceding the is,uance of such Additional Bonds, adjusted as described below, are not less than 125% of the average ual principal and interest due on all Outstanding Bonds and the Additional Bonds to be issued, during th remaining term of the Outstanding Bonds. - 12- 21 For purposes of the coverage test set forth above, the Net Revenues for the last audited fiscal year immediately preceding the issuance of such Additional Bonds may be adjusted for such fiscal year as follows: (i) the Gross Revenues for such audited fiscal year may be increased to reflect the Gross Revenues which would have been received had any rate increase placed in effect after the commencement of the audited fiscal year been in effect for the entire audited fiscal year; and (ii) by including the additional revenues reasonably determined by the Commission to be likely to result from the acquisition and construction of the facilities to be financed by such Additional Bonds, provided that the debt service on t e proposed Additional Bonds is funded until the estimated date of completion of such facilities. The Commission also reserves the right to cause the issuance of Additional Bonds if and to the extent needed to refund maturing Bonds payable from the Debt Service Account in case the money on hand therm is insufficient to pay the same at maturity, which refunding revenue bonds may be on a parity with the Outstanding Bonds, but shall mature subsequent to all Outstanding Bonds which are not to be refu ded by such Additional Bonds. The Commission also reserves the right to cause the issuance of Additional Bonds payable on a parity as to both principal and interest with the Outstanding Bonds to refund Bonds if the maximum amount of prin ipal and interest payable on the Outstanding Bonds and such Additional Bonds in the then current or any future calendar year is not increased by more than 5.00%. ELK RIVER MUNICIPAL UTILITIES Or.anization The control, management and operation of the electric and water systems of the Elk River Municipal Util ties (the "Utility") is under the direction of the Elk River Municipal Utilities Commission (the "Commission"). The four Commission members are appointed by the Mayor, with City Council confirmation, and serve three-year overlapping terms. The Commission has complete authority to estaolish rates and charges for the Utility. The present members of the Commission are: Expiration of Term Jo Dietz Chair February 28, 2019 Pau Bell Commissioner February 28, 2021 Al adeau Commissioner February 28, 2020 M. 6 Stewart Commissioner February 28, 2019 Ma hew Westgaard Commissioner February 28, 2020 Ma i agement Mr. Troy Adams serves as the General Manager of the Utility and as Secretary to the Commission, and has been with the Utility since April 2006. Ms. Theresa Slominski serves as the Finance and Office Ma ager, and has been with the Utility since December 2004. Mr. Mark Fuchs serves as the Sup-rintendentof the Electric Department, Mr. Eric Volk serves as the Superintendent of the Water Department, and Mr. Mike Tietz serves as the Superintendent of the Technical Services Department. The Util ty employs a staff of 44. - 13 - 22 THE ELECTRIC SYSTEM Th: Utility provides power to the cities of Elk River, Otsego, and Dayton and surrounding rural areas. Th: Utility purchases all of its power, and generates a small portion of power for sale through purchase po er agreements, power from its landfill operations. The current power provider through September 201: is Great River Energy, and starting October 2018 the power provider will be Minnesota Municipal Po er Agency. The Utility distributes electricity at not-for-profit rates as a public service similar to other public services such as the police department, schools, fire department, and local library. The Utility is co munity-based, which means that utility revenues stay close to home to keep the local economy strong, pro' ote business participation, and ensure response to community needs. The tradition of local ow ership and local decisions results in lower electricity rates for the customers. The Utility serves the intel ests of the community and plans to remain the first choice for electricity in the future. Ele tric Generating Facilities Year Nameplate Uni No. Model Installed Type of Fuel kW Rating Dependable kW 1 Worthington 1948 Diesel 600 660 Worthington 1948 Diesel 600 500 3 Cooper 1962 Gas/Diesel 3,000 3,300 Worthington 1972 Gas/Diesel 5,000 5,700 5 3 Caterpillars 2002 Landfill Gas (LFG) 2,400 2,400 6 1 Caterpillar 2006 Landfill Gas(LFG) 800 800 Tei Largest Electric Customers Minnesota Statute 13.685 considers data on customers of municipal electric utilities as private data and will no longer be disclosed. Therefore, the following information is presented without revealing customer names. Percent of Customer kWh Sold Total Revenue Total Sales Customer 1 54,897,600 $4,108,019 11% Customer 2 28,756,800 2,513,154 7 Customer 3 4,806,000 435,064 1 Customer 4 4,685,600 461,913 1 Customer 5 4,384,200 340,754 1 Customer 6 4,230,500 459,488 1 Customer 7 4,156,400 405,813 1 Customer 8 3,341,000 312,560 1 Customer 9 2,721,600 248,099 1 Customer 10 2,609,500 254,109 1 $9,538,973 26% - 14 - 23 Electricity Purchased and Purchased Cost kWh Purchased Year Purchased Cost 2017 320,349,631 $25,402,576 2016 311,990,595 23,991,069 2015 294,441,957 22,034,307 2014 288,320,724 21,981,079 2013 290,025,919 21,240,936 Sales History Number of Meters kWh Total Year in Service Sold Billing 2017 11,448 313,952,561 $36,458,061 2016 10,816 305,337,641 34,569,098 2015 10,499 282,265,268 32,704,279 2014 9,449 274,546,059 31,514,246 2013 9,358 273,945,354 30,978,790 Meter Connections Year Residential Commercial Industrial Total 2017 9,900 1,328 220 11,448 2016 9,371 1,235 210 10,816 2015 9,205 1,105 189 10,499 2014 8,303 1,005 141 9,449 2013 8,237 986 135 9,358 Peak Demand Year MW Season 2017 64.7 Summer 2016 64.2 Summer 2015 55.8 Summer 2014 55.3 Summer 2013 61.0 Summer 2012 59.6 Summer - 15 - 24 Electric Rates and Charges The following electric rates and charges became effective January 1, 2017. Residential Electric Rates Basic Monthly Charge $13.50 June-October Usage $0.1370 per kWh November-May Usage $0.1215 per kWh Off Peak Rates Energy Storage $0.0463 per kWh per month Dual Fuel $0.0602 per kWh per month Cornmercial/Industrial Non-Demand Customers (Demand in kW less than 50kW) Basic Monthly Charge $26.00 June-October 0.1314 Usage per kWh $ November-May Usage $0.1095 per kWh Th: minimum bill for non-demand customers is the basic monthly charge plus $1.00 per KVA per month of:xcess transformer capacity requested by the customer. A power factor of 95% must be maintained or a p:nalty may be assessed. Demand Customers (Demand in kW greater than 50kW) Basic Monthly Charge $75.00 Energy Charge $0.0667 per kWh June-October Demand Charge $17.00 per kW November-May Demand Charge $12.00 per kW Th: minimum bill for demand customers is the greater of the maximum billing demand during the pre ious twelve months times 3% of the demand charge, or the actual demand multiplied by the demand ch. ge; plus $1.00 per KVA per month of excess transformer capacity requested by the customer. A po er factor of 95%must be maintained or a penalty may be assessed. UTILITY FINANCIAL STATEMENTS Th: tables on the following pages provide the Utility's Statement of Net Position; Statement of Revenues, Ex tenses and Changes in Fund Net Position; and Statement of Cash Flows of the Electric System for the ye• s ended December 31, 2013 through 2017. The financial statement information was taken from the Ci 's audited comprehensive annual financial reports and should be read in conjunction with the City's 2017 Comprehensive Annual Financial Report ("CAFR"), an excerpt of which is provided as Apmendix III of this Official Statement. Please also reference the Utility's Annual Financial Report for fis al year ended December 31, 2017, an excerpt of which is included as Appendix IV of this Official Sta ement. - 16 - 25 CITY OF ELK RIVER,MINNESOTA Elk Riser Municipal Utilities-Electric System Statement of Net Position For Fiscal Years Ended December 31 2013 2014 2015 2016 2017 AS•EIS Cur ent Assets Cash and Investments $ 11,410,293 $ 11,606,610 $ 12,685,126 $ 13,683,031 $ 12,806,032 Restricted Cash and Investments 647,000 490,500 490,500 997,660 997,660 Receivables: Interest 13,225 363 2,445 4,550 6,668 Accounts 2,488,572 2,599,664 2,664,494 2,733,204 3,331,290 Due from Other Governments 12,209 25,832 - - - Due from Other Funds - - - 10,416 10,875 Inventories 963,608 979,129 991,563 793,380 949,694 Prepaid Items 178,028 175,687 178,779 197,439 192,083 Total Current Assets $ 15,712,935 $ 15,877,785 $ 17,012,907 $ 18,419,680 $ 18,294,302 Non urrent Assets Capital Assets: Nondepreciable $ 1,818,210 $ 470,352 $ 391,068 $ 10,173,274 $ 11,566,928 Depreciable 54,095,276 46,395,743 48,706,993 51,422,779 53,775,601 Less:Accumulated Depreciation (28,786,989) (20,038,050) (21,846,450) (23,639,805) (25,640,860) Net Capital Assets $ 27,126,497 $ 26,828,045 $ 27,251,611 $ 37,956,248 $ 39,701,669 Total Noncurrent Assets $ 27,126,497 $ 26,828,045 $ 27,251,611 $ 37,956,248 $ 39,701,669 TO AL ASSETS $ 42,839,432 $ 42,705,830 $ 44,264,518 $ 56,375,928 $ 57,995,971 DL5 a • a,OUTFLOWS OF RESOURCES Deferred pension resources $ - $ - $ 272,949 $ 1,485,023 $ 881,867 Deferred Charge on Refunding 60,419 53,827 47,355 41,216 34,532 Total Deferred Outflow of Resources $ 60,419 $ 53,827 $ 320,304 $ 1,526,239 $ 916,399 :KITES Cur ent Liabilities Accounts Payable $ 3,233,508 $ 2,575,115 $ 2,857,622 $ 3,407,185 $ 3,098,700 Salaries Payable 134,394 150,914 78,030 100,644 101,571 Due to Other Governments - 129,298 140,014 113,078 163,029 Due to Other Funds 550,216 603,790 649,413 755,539 790,458 Unearned Revenue - - - 875 - Accrued Interest 82,026 58,867 49,892 155,971 137,744 Customer deposits payable 869,401 Compensated Absences Payable(Current) 106,070 58,906 153,002 156,874 150,335 Notes Payable(Current) 189,353 191,518 194,307 195,216 198,252 Bonds Payable(Current) 503,000 672,000 692,000 706,000 720,000 Total Current Liabilities $ 4,798,567 $ 4,440,408 $ 4,814,280 $ 5,591,382 $ 6,229,490 Non urrent Liabilities Compensated Absences Payable $ 137,437 $ 153,350 $ 130,528 $ 152,133 $ 142,346 Net Other Postemployment Benefits Obligation 45,042 54,932 63,041 70,545 77,143 Net Pension Liability - - 2,243,115 3,749,423 2,890,601 - Notes Payable 1,599,871 1,408,358 1,214,061 1,018,860 820,608 Bonds Payable 4,678,983 3,733,556 3,024,375 12,380,218 11,609,422 Total Noncurrent Liabilities $ 6,461,333 $ 5,350,196 $ 6,675,120 $ 17,371,179 $ 15,540,120 TO AL LIABILITIES $ 11,259,900 $ 9,790,604 $ 11,489,400 $ 22,962,561 $ 21,769,610 D a a•• al INFLOWS OF RESOURCES Deferred Pension Resources $ - $ - $ 459,746 $ 415,506 $ 651,486 POSITION Invested in Capital Assets(Net of Related Debt) $ 20,215,709 $ 20,876,440 $ 22,174,223 $ 23,697,170 $ 26,387,919 Restricted for Debt Service 647,000 490,500 490,500 997,660 997,660 Unrestricted 10,777,242 11,602,113 9,970,953 9,829,270 9,105,695 TOTAL NEC POSITION $ 31,639,951 $ 32,969,053 $ 32,635,676 $ 34,524,100 $ 36,491,274 - 17 - 26 CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Dectric System Statement of Revenues,Expenses,and Changes in Net Position For Fiscal Years ended December 31 2013 2014 2015 2016 2017 OP:w••TING REVENUES ser Charges $ 31,261,292 $ 31,756,165 $ 32,951,267 $ 34,746,670 $ 36,458,061 •-linquency Collections 254,542 244,857 238,339 253,137 242,739 •her (669,455) (634,337) (642,384) (535,411) (579,976) Total Operating Revenues $ 30,846,379 $ 31,366,685 $ 32,547,222 $ 34,464,396 $ 36,120,824 OP:••TING EXPENSES P-rsonalServices $ 1,815,680 $ 2,051,979 $ 2,344,264 $ 2,853,048 $ 2,712,070 S pplies 129,967 172,354 197,014 110,343 106,500 P rchased Power 21,254,950 21,994,652 22,034,307 23,991,069 25,402,576 •her Service Charges 2,897,799 3,259,076 3,398,210 2,867,046 3,126,390 •-preciation 2,029,496 1,914,062 1,922,359 2,005,093 2,046,935 Total Operating Expense $ 28,127,892 $ 29,392,123 $ 29,896,154 $ 31,826,599 $ 33,394,471 OP:M••TING INCOME(LOSS) $ 2,718,487 $ 1,974,562 $ 2,651,068 $ 2,637,797 $ 2,726,353 NO OPERATING REVENUES(EXPENSES) I Merest Income $ 81,289 $ 98,442 $ 95,533 $ 90,804 $ 79,543 Miscellaneous Revenue 182,920 229,532 283,987 281,702 344,558 BI terest Expense (211,429) (160,274) (116,676) (198,194) (294,219) ond Issuance Costs - (44,850) - (85,195) - Gants - - - - 209,051 Gain(Loss)on Sale of Capital Assets (83,438) 29,525 8,899 (80,126) 15,152 Total Nonoperating Revenues(Expenses) $ (30,658) $ 152,375 $ 271,743 $ 8,991 $ 354,085 INC•ME(LOSS)BEFORE CONTRIBUTIONS I TRANSFERS $ 2,687,829 $ 2,126,937 $ 2,922,811 $ 2,646,788 $ 3,080,438 sfers In - - - - - -ansfers Out (781,162) (797,835) (824,743) (1,089,287) (1,113,264) C • GEIN NET POS MON $ 1,906,667 $ 1,329,102 $ 2,098,068 $ 1,557,501 $ 1,967,174 S.ecial Item $ 330,923 C • GE IN NET POSITION AFTER SPECIAL ITIM $ 1,888,424 TO IAL NET POSITION(JANUARY 1) $ 29,733,284 $ 31,639,951 $ 32,969,053 * $ 32,635,676 $ 34,524,100 PRI•R PERIOD ADJUSTMENTS - - (2,431,445) - - TO IAL NET POSITION,RESTATED(JANUARY I) $ - $ 30,537,608 TO IAL NET POSITION(DECEMBER 31) $ 31,639,951 $ 32,969,053 $ 32,635,676 $ 34,524,100 $ 36,491,274 *,As restated. - 18 - 27 CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Electric System Statement of Cash Flows For Fiscal Years Ended December 31 2013 2014 2015 2016 2017 CASH FLOWS FROM OPERATING ACTIVITIES Receipts From Customers and Users $ 30,744,006 $ 31,288,755 $ 32,460,951 $ 34,621,945 $ 35,680,481 Other Operating Cash Receipts 134,209 192,433 326,880 288,497 332,851 Payments to Suppliers (24,329,126) (25,686,149) (25,682,803) (27,213,605) (28,749,027) Payments to Employees (1,518,107) (1,748,714) (2,003,949) (2,243,498) (2,473,566) Net Cash Provided by Operating Activities $ 5,030,982 $ 4,046,325 $ 5,101,079 $ 5,453,339 $ 4,790,739 CASH FLOWS FROM NONCAPITAL F NANCING ACTIVITIES Transfers From Other Funds $ - $ - $ - $ - $ - Transfers to Other Funds (781,162) (797,835) (824,743) (1,089,287) (1,113,264) Decrease(Increase)in Due From Other Funds - - - (396) (459) Increase(Decrease)in Due to Other Funds 93,535 53,574 45,623 96,106 34,919 Sale of Business Line - - - 330,923 - Net Cash Provided(Used)by Noncapital Financing Activities $ (687,627) $ (744,261) $ (779,120) $ (662,654) $ (1,078,804) CA.H FLOWS FROM CAPITAL AND RELATED I ANCING ACTIVITIES Acquisition of Capital Assets $ (2,540,610) $ (2,219,085) $ (2,345,925) $ (12,422,917) $ (3,423,737) Proceeds From Sale of Capital Assets 27,000 33,000 8,899 44,218 15,152 Principal Paid on Capital Debt (813,000) (2,853,000) (672,000) (2,227,000) (706,000) Proceeds of Bonds Issued,Net of Issuance Costs and Premium on Bonds - 2,046,586 - 11,545,329 - Interest Paid on Capital Debt (220,878) (191,704) (136,360) (119,657) (356,558) Payments on Short Temi Account to Acquire Capital Assets - - - - - Proceeds ofRefundng Bonds Issued - - - - - Payment to Escrow Agent for Refunded Bond - - - - - Principal Paid on Promissory Note (186,588) (189,348) (191,508) (194,292) (195,216) Net Cash Provided(Used)by Capital and Related Financing Activities $ (3,734,076) $ (3,373,551) $ (3,336,894) $ (3,374,319) $ (4,666,359) CA.H FLOWS FROM INVESTING ACTIVITIES Interest Received 77,350 111,304 93,451 88,699 77,425 Net Increase(Decrease)in Cash and Cash Equivalents $ 686,629 $ 39,817 $ 1,078,516 $ 1,505,065 $ (876,999) Cash and Cash Equivalents(January 1) $ 11,370,664 $ 12,057,293 $ 12,097,110 $ 13,175,626 $ 14,680,691 Cas.and Cash Equivalents(December 31) $ 12,057,293 $ 12,097,110 $ 13,175,626 $ 14,680,691 $ 13,803,692 Re.onciliation of Cash and Cash Equivalents t.the Statement of Net Position Cash and Investments $ 11,410,293 $ 11,606,610 $ 12,685,126 $ 13,683,031 $ 12,806,032 Restricted Cash and Investments 647,000 490,500 490,500 997,660 997,660 Total Cash and Cash Equivalents $ 12,057,293 $ 12,097,110 $ 13,175,626 $ 14,680,691 $ 13,803,692 Re.onciliation of Operating income(Loss)to Net Cash P ovided by Operating Activities Operating Income(Loss) $ 2,718,487 $ 1,974,562 $ 2,651,068 $ 2,637,797 $ 2,726,353 Adjustments to Reconcile Operating Income(Loss) to Net Cash Provided by Operating Activities: Other Revenue Related to Operations 182,920 229,532 283,987 283,665 344,558 Depreciation Expense 2,029,496 1,914,062 1,922,359 2,005,093 2,046,935 (Increase)Decrease in Assets: Accounts Receivable (169,644) (111,092) (63,678) (71,825) (598,086) Due From Other Governments (12,209) (13,623) 25,832 - - Inventories (34,808) (15,521) (12,434) 198,183 (156,314) Prepaid Items 9,811 2,341 (3,092) (18,660) 5,356 Deferred pension resources - - (272,949) (1,212,074) 603,156 Increase(Decrease)In: Accounts Payable 386,632 (58,393) 281,355 (95,736) 401,348 Salaries Payable 52,662 16,520 (72,884) 22,614 927 Due to Other Governments (155,225) 129,298 10,716 (26,936) 49,951 Deposits Payable - - - 235,294 - Unearned Revenue (8,262) - - 875 (875) OPEB Liability 4,682 9,890 8,109 7,504 6,598 Compensated Absences Payable 26,440 (31,251) 71,274 25,477 (16,326) Deferred Pension Resources - - 459,746 (44,240) 235,980 Deferred Inflows-Pensions - - (188,330) 1,506,308 (858,822) Net Cash Provided by Operating Activities $ 5,030,982 $ 4,046,325 $ 5,101,079 $ 5,453,339 $ 4,790,739 No cash Capital and Related Financing Activities Amortization of Bond Premium $ 3,271 $ 14,863 $ 17,181 $ - $ 50,796 Amortization of Deferred Charges - - - - - Amortization of Deferred Charges on Refunding 6,592 6,592 6,472 - 6,684 Capital Assets Purchased on Account 600,000 - - - 570,725 Disposal of Capital Assets 110,438 3,475 - - - ContributionofCapitalAssets 0 0 0 - 209,051 - 19- 28 DEBT SERVICE AND COVERAGE CALCULATION Elk River Municipal Utilities-Electric Fund Net Revenues Available For Debt Service Fiscal Years Ended December 31,2015,2016 and 2017 December 31, 2015 December 31, 2016 December 31, 2017 Operating Revenue $ 32,551,722 $ 34,464,396 $ 36,120,824 Operating Expense (29,896,154) (31,826,599) (33,394,471) N:t Operating Income(Loss) $ 2,655,568 $ 2,637,797 $ 2,726,353 Aid Back Depreciation 1,922,359 2,005,093 2,046,935 At d Other Income 375,020 372,506 424,101 A ailable for Debt Service $ 4,952,947 $ 5,015,396 $ 5,197,389 A erage Annual Debt Service * $ 1,013,595 Cpverage 5.12x * Includes average annual debt service for the Bonds and the Parity Bonds. Sou ces: The Utility's Annual Financial Reports for the fiscal years ended December 31, 2015, 2016, and 2017. UTILITY REVENUE DEBT Est. Principal tate Original Final Outstanding o Issue Amount Purpose Maturity As of 9-26-18 -14-16 $10,000,000 Electric Revenue 2-1-2036 $ 9,755,000 -14-16 1,460,000 Electric Revenue Refunding 2-1-2022 930,000 -26-18 10,000,000 Electric Revenue(the Bonds) 2-1-2048 10,000,000 Tot:l $20,685,000 - 20 - 29 Estimated Calendar Year Debt Service Payments Including the Bonds Utility Revenue Debt Principal Year Principal &Interest(a) 2018(at 9-26) (Paid) (Paid) 2019 $ 895,000 $ 1,494,053 2020 875,000 1,503,398 2021 890,000 1,491,318 2022 925,000 1,498,073 2023 705,000 1,253,540 2024 725,000 1,252,953 2025 745,000 1,251,438 2026 765,000 1,251,723 2027 790,000 1,258,873 2028 805,000 1,255,223 2029 825,000 1,255,390 2030 850,000 1,259,141 2031 870,000 1,256,285 2032 895,000 1,256,782 2033 920,000 1,255,649 2034 945,000 1,251,915 2035 975,000 1,251,375 2036 1,015,000 1,259,400 2037 350,000 571,638 2038 365,000 573,338 2039 375,000 569,285 2040 390,000 569,660 2041 410,000 573,280 2042 425,000 571,060 2043 445,000 573,210 2044 460,000 569,520 2045 480,000 570,200 2046 500,000 569,080 2047 525,000 572,080 2048 545,000 568,980 Total $20,685,000(a) $30,407,860 (a) Includes the Bonds at an assumed average annual interest rate of 4.00%. (6) 39.3%of this debt will be retired within ten years. FUTURE FINANCING The City does not anticipate issuing any additional long-term debt within the next 90 days. - 21 - 30 LITIGATION Nei'her the City nor the Commission are aware of any threatened or pending litigation affecting the vali.ity of the Bonds or the City's ability to meet its financial obligations. LEGALITY The Bonds are subject to approval as to certain matters by Kennedy & Graven, Chartered, of Mi eapolis, Minnesota, as Bond Counsel. Bond Counsel has not participated in the preparation of this Off cial Statement and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify, any of the financial or statistical statements, or data con iained in this Official Statement and will express no opinion with respect thereto. A legal opinion in sub.tantially the form set out in Appendix I herein will be delivered at closing. TAX EXEMPTION At •losing Kennedy & Graven, Chartered, of Minneapolis, Minnesota, Bond Counsel for the Bonds, will ren.er an opinion that, at the time of their issuance and delivery to the original purchaser, under present fed=ral and State of Minnesota laws, regulations, rulings and decisions (which excludes any pending legi.lation which may have a retroactive effect), the interest on the Bonds is excluded from gross income for .urposes of United States income tax and is excluded, to the same extent, from taxable net income of indi iduals, estates and trusts for Minnesota income purposes, and is not a preference item for purposes of co puting the federal alternative minimum tax (although interest on the Bonds is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, 2018) or the Minnesota alternative minimum tax imposed on individuals, trusts, and esta es. Such interest is subject to Minnesota franchise taxes on corporations (including financial inst tutions) measured by income. No opinion will be expressed by Kennedy & Graven regarding other fed ral or state tax consequences caused by the receipt or accrual of interest on the Bonds or arising with res ect to ownership of the Bonds. Preservation of the exclusion of interest on the Bonds from federal gro s income and state gross and taxable net income, however, depends upon compliance by the City with all equirements of the Internal Revenue Code of 1986, as amended, (the "Code") that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be)excluded from federal gross income and state gross and taxable net income. The City and the Commission will covenant to comply with requirements necessary under the Code to esta.lish and maintain the Bonds as tax-exempt under Section 103 thereof, including without limitation, req irements relating to temporary periods for investments and limitations on amounts invested at a yield gre.ter than the yield on the Bonds. OTHER FEDERAL AND STATE TAX CONSIDERATIONS Pro a erty and Casualty Insurance Companies Pro;serty and casualty insurance companies are required to reduce the amount of their loss reserve ded ction by the applicable percentage of the amount of tax-exempt interest received or accrued during the axable year on certain obligations, including interest on the Bonds. -22- 31 Foreign Insurance Companies Foreign companies carrying on an insurance business in the United States are subject to a tax on income which is effectively connected with their conduct of any trade or business in the United States, including "net investment income." Net investment income includes tax-exempt interest such as interest on the Bonds. Branch Profits Tax A foreign corporation is subject to a branch profits tax imposed by Section 884 of the Code. A branch's ear ings and profits may include tax-exempt municipal bond interest, such as interest on the Bonds. Passive Investment Income of S Corporations Pas.ive investment income, including interest on the Bonds, may be subject to federal income taxation un.er Section 1375 of the Code for an S corporation that has Subchapter C earnings and profits at the clo.e of the taxable year if more than a certain percentage of the gross receipts of such S corporation is pas.ive investment income. Ge eral Th: preceding is not a comprehensive list of all federal or State tax consequences which may arise from the receipt or accrual of interest on the Bonds. The receipt or accrual of interest on the Bonds may oth rwise affect the federal income tax (or Minnesota income tax or franchise tax) liability of the reci.ient based on the particular taxes to which the recipient is subject and the particular tax status of other items of income or deductions. All prospective purchasers of the Bonds are advised to consult their owl tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Bo ds. BANK-QUALIFIED TAX-EXEMPT OBLIGATIONS Th- Bonds will be designated as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended, relating to the ability of financial institutions to deduct fro income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. Financial institutions are not generally entitled to a deduction for interest exp-nses allocable to the owners of tax-exempt obligations purchased after August 7, 1986. RATING Ap plication for a rating for the Bonds has been made to Moody's Investors Service("Moody's"), 7 World Tra.e Center, 250 Greenwich Street, 23rd Floor, New York, New York. If a rating is assigned, it will refl-ct only the opinion of Moody's. Any explanation of the significance of the rating may be obtained onl from Moody's. Th;re is no assurance that a rating, if assigned, will continue for any given period of time, or that such rati g will not be revised, suspended or withdrawn, if, in the judgment of Moody's, circumstances so w. ant. A revision, suspension or withdrawal of a rating may have an adverse effect on the market price oft e Bonds. - 23 - 32 MUNICIPAL ADVISOR The City and the Commission have retained Springsted Incorporated, Public Sector Advisors, of Saint Paul, Minnesota("Springsted"), as municipal advisor in connection with certain aspects of the issuance of the Bonds and, in that capacity, Springsted has assisted the City and the Commission in preparing this Official Statement. The information contained herein is derived from governmental officials and other sources who have access to relevant data to provide accurate information for this Official Statement. Springsted makes no representation, warranty or guarantee regarding the accuracy or completeness of the information in this Official Statement, and its assistance in preparing this Official Statement should not be construed as a representation that it has independently verified such information. Springsted is an independent advisory firm, registered as a municipal advisor, and is not engaged in the business of underwriting,trading or distributing municipal securities or other public securities. Spr'ngsted is under common ownership with Springsted Investment Advisors, Inc. ("SIA"), an investment adv ser registered in the states where services are provided. SIA may provide investment advisory se ices to the Issuer from time to time in connection with the investment of proceeds from the Bonds as wel as advice with respect to portfolio management and investment policies for the Issuer. SIA pays Spr'ngsted,as municipal advisor, a referral fee from the fees paid to SIA by the Issuer. CERTIFICATION The City and the Commission have authorized the distribution of the Preliminary Official Statement for use in connection with the initial sale of the Bonds and a Final Official Statement following award of the Bo ds. The Purchaser will be furnished with a certificate signed by the appropriate officers of the Issuer stafng that the Issuer examined each document and that, as of the respective date of each document and the 'ate of such certificate, each document did not and does not contain any untrue statement of material fact or omit to state a material fact necessary, in order to make the statements made therein, in light of the circ mstances under which they were made, not misleading. -24- 33 GENERAL INFORMATION CONCERNING THE CITY The Bonds are special obligations of the City payable solely from net revenues of the City's electric syst•m and shall not constitute a debt for which the full faith and credit or taxing powers of the Ci will be pledged. The following information concerning the City is provided for informational pur s oses only and not as a representation of security for the Bonds. Ge eral Information The City is the Sherburne County seat and is located approximately 30 miles northwest of the Minneapolis/Saint Paul metropolitan area. The City encompasses an area of approximately 43.75 square mil=s(28,000 acres). Pop lation The City's population trend is shown below. Percent Population Change 2017 U.S. Census Estimate 24,506 6.7% 2010 U.S. Census 22,974 39.7 2000 U.S. Census 16,447 47.6 1990 U.S. Census 11,143 64.2 1980 U.S. Census 6,785 -- Sou ces: United States Census Bureau, http://www.census.gov/. The City's approximate population by age group for the past five years is as follows: Data Year/ Report Year 0-17 18-34 35-64 65 and Over 201 r/18 6,500 5,194 10,145 3,011 201../17 6,367 5,111 9,845 2,860 2011/16 6,385 5,076 9,788 2,728 201 /15 6,447 5,046 9,632 2,570 2011/14 6,473 5,080 9,558 2,433 Sou ces: Environics Analytics, Claritas, Inc. and The Nielsen Company. Tra sportation U.S Highways 10 and 169, State Highway 101, and Interstate 94 run through and/or adjacent to the City. Ci residents are served by the Anoka County/Blaine Airport, St. Cloud Regional Airport, and the Mi eapolis/Saint Paul Regional Airport. Rail service is provided by Burlington Northern Santa Fe Rai road and the Northstar Commuter Rail, which has a station located in the City and provides a con enient connection to downtown Minneapolis and other communities throughout the region. Bus se ices are provided to City residents by Northstar Link Commuter Bus, Speco Charter Services, Vision of Elk River, and TriCAP. The Sherburne County Veteran's Office also coordinates a transportation proLram, Sherburne County VA Medical Center Transportation, which provides veterans transportation to the inneapolis and St. Cloud VA Medical Centers free of charge. -25 - 34 Major Employers Approximate Number Em t to er Product/Service of Employees Ind=pendent School District No. 728 ( lk River) Education 2,005(a) She i burne County County government 678(b) Gu.i dian Angels Care Center Skilled nursing facility 389 Spo ech, Inc. Thermoformed plastic products 362 Wal Mart Stores,Inc. Retail store 362(b) Gre,;t River Energy Electric power distributor 220 Me ards Retail home improvement 198(b) Em;rson Processing Management(d) Pressure control devices 150(c) Ci of Elk River City government 148(b) Cori erstone Auto Group Automobile dealership 138(b)(c) Cob.rn's Grocery store 126(b) Cho Banquet Center Restaurant/banquet facility 125(c) Mo ell Companies Freight trucking 105(b) E&0 Tools&Plastics,Inc. Plastic injection molding manufacturer 103 Cub Foods Grocery store 100(b)(c) Ho i e Depot Retail home improvement 100(b)(c) (a) ncludes full-time,part-time, and contract employees, as well as substitute teachers. (b) ncludes full-and part-time employees. (c) •s of January 2014; most recent information available. (d) ormerly Tescom Corporation. Sou ce: This does not purport to be a comprehensive list and is based on a July and August 2018 telephone survey of individual employers. Some employers do not respond to inquiries. La 8 or Force Data Annual Average June 2014 2015 2016 2017 2018 Labor Force: S erburne County 49,013 49,098 49,674 50,681 52,497 S ate of Minnesota 2,973,073 2,998,352 3,036,278 3,063,604 3,132,913 Uner ployment Rate: S erburne County 4.5% 4.0% 4.1% 3.9% 2.9% S ate of Minnesota 4.2 3.7 3.9 3.5 2.9 Sou ce: Minnesota Department of Employment and Economic Development, https://apps.deedstate.mn.us/lmi/laust 2018 data are preliminary. -26 - 35 Ret i1 Sales and Effective Buying Income (EBI) Ci ; of Elk River Data Year/ Total Retail Total Median Report Year Sales($000) EBI ($000) Household EBI 2017/18 N/A $691,908 $70,030 2016/17 N/A 697,764 68,376 2015/16 $676,924 607,853 63,072 2014/15 461,135 558,758 58,966 2013/14 498,560 529,863 56,402 Sherburne County Data Year/ Total Retail Total Median Report Year Sales($000) EBI ($000) Household EBI 2017/18 N/A $2,519,649 $67,255 2016/17 N/A 2,502,175 66,377 2015/16 $1,475,728 2,279,505 63,755 2014/15 1,052,144 2,024,570 57,782 2013/14 985,356 1,922,575 56,306 The 2017/18 Median Household EBI for the State of Minnesota was $56,669. The 2017/18 Median Hot sehold EBI for the United States was$50,620. Sou ces: Environics Analytics, Claritas, Inc. and The Nielsen Company. Bui ding Permits New Single New Total Value Family Residential Commercial/Industrial (All Permits) Ye. Number Value Number Value 201: (to 6-30) 64 $14,387,361 3 $ 5,923,000 $ 31,010,279 201 113 23,851,938 8 53,925,200 106,982,873 201. 73 15,808,688 4 667,171 51,368,317 201. 74 15,941,551 8 16,299,690 57,694,602 201, 68 13,792,869 7 6,988,939 49,037,206 2011 82 15,182,066 2 4,225,000 38,440,129 201► 36 6,588,264 3 1,936,650 25,585,264 2011 11 2,264,011 0 -0- 20,719,402 2011 15 3,098,919 3 5,120,272 22,311,703 200: 16 3,391,309 5 1,650,863 14,265,340 Sou ce: City of Elk River. - 27- 36 Recent Development The following development activity occurred within the City in 2017: Chow Banquet Center constructed an 8,654 square foot restaurant and banquet facility on six acres of lane. She burne County Government Center constructed a 100,000 square-foot addition with new office, cou-troom and conference room spaces in a three-story building. The Truck Shop Project was a City-led redevelopment project. Beaudry Oil constructed a 7,210 square-foot light maintenance facility for their fleet trucks on 2.5 acres. Beaudry Oil anticipates the cre.tion of five new full-time jobs. APEX Embroidery provides a wide variety of apparel decorating solutions including screen printed tran.fers, custom applique, custom rhinestones, and digital transfers. APEX Embroidery completed the con.truction of a 13,312 square-foot facility and created 25 new jobs in the City. E' is a premier, year-round motorsports facility, and constructed a brand new 16,062 square-foot recr-ational facility to house their equipment and provide for office space. Pet.mart constructed a 17,441 square-foot retail facility specializing in pet care products and services. AEI IR Brewing Co. remodeled a 1,102 square-foot vacant building in the City's downtown area into a ne tap room. Elk River Senior Living recently completed the construction of a 94,410 square-foot senior living facility. The facility features a total of 94 units. Seventy four of units are comprised of independent care and assi.ted living, while the remaining 24 units are designated for memory care. Co struction began in summer of 2018 on Jackson Hills, LLC, a 40-unit, mixed-income apartment co plex. The City Council approved 15 years of Tax Increment Financing("TIF")assistance through the est.Ilishment of a Housing TIF District to finance the portion associated with affordable housing. Fin:ncial Institutions(') The following full service banks are located in the City: Deposits as of March 31,2018(b) The Bank of Elk River $374,579,000 The First National Bank of Elk River 202,903,000 Total $577,482,000 In .ddition, branch offices of American National Bank of Minnesota, Midwestone Bank Wells Fargo B. k, National Association; U.S. Bank National Association; Pine River State Bank; and TCF National B. are located throughout the City. (a) This does not purport to be a comprehensive list. (b) Most recent information available. Sou ce: Federal Deposit Insurance Corporation, https://www.fdic.gov/. - 28 - 37 Health Care Services The following is a summary of health care facilities located in the City: Facility Location No. of Beds Guardian Angels Care Center(Nursing Home) City of Elk River 120 Source: Minnesota Department of Health, http://www.health.state.mn.us/. Education Public Education The following district serves the residents of the City: 2017/18 District Location Grades Enrollment Elk River Community Schools City of Elk River K-12 13,461 So rce: Minnesota Department of Education, http:!education.state.mn.us/mde/index.html. Nan-Public Education Ci residents are also served by the following private schools: 2017/18 Sc ool Location Grades Enrollment St.Andrew's Catholic School City of Elk River K-5 125 St. John's Lutheran City of Elk River K-8 85 M,. Queen of Peace Catholic School City of Elk River K-5 44 So id Rock Christian Academy City of Elk River K-12 11 T e City is also served by Spectrum Charter School which serves grades 6-12 and has an estimated 691 students. So rce: The City and Minnesota Department of Education, http://education.state.mn.us/mde/index.html. G u vernmental Organization and Services T e City of Elk River was organized as a municipality in 1977 and is a statutory city. The City's go erning body is the City Council, comprised of the Mayor and four Council members. The Mayor sei es a four-year term of office; Council members are elected by ward to serve overlapping four-year to s. The following individuals comprise the current City Council: Expiration of Term Jo Dietz Mayor December 31, 2018 Jerry Olsen Council Member, Ward 1 December 31, 2018 Matthew Westgaard Council Member, Ward 2 December 31, 2020 Nate Oval Council Member, Ward 3 December 31, 2020 Jennifer Wagner Council Member, Ward 4 December 31,2018 T e daily administration of City operations is the responsibility of the City Administrator, Calvin Portner, w o has served in this position since October 2011. Ms. Lori Ziemer is the City's Finance Director and ha. served in this position since May 2016. The City has 148 employees. -29 - 38 Se ices In .ddition to providing general governmental services, the City provides a full range of other services, including (but not limited to) police and fire protection, building and other safety inspections, planning anis zoning, economic development, environmental services, parks and recreation, library, street, snow re oval, and infrastructure maintenance and repair. The City also provides municipal water, sewer, sto water,garbage, and electric services, and operates two off-sale liquor stores. Fu ds on Hand(as of June 30,2018) General Fund $ 5,835,066 Special Revenue Funds 4,087,865 Debt Service Funds 471,849 Capital Project Funds 14,641,728 Enterprise Fund 8,875,116 Agency Funds 1,153,106 Total Cash and Investments $35,064,730 In estments Th- City has a formal investment policy and all investments are made in accordance with Minnesota St.tutes. The primary objectives of the City's investment policy, in priority order, include safety, liq idity, return on investment, and maintaining the public's trust. Permitted investments include re.urchase agreements, United States securities (excluding high-risk mortgage-backed securities), the Mi esota Joint Powers Investment Trust, State and local securities, commercial paper, and time deposits. G . anteed investment contracts and reverse repurchase agreements have specifically been excluded from the City's investment policy. As per the City's investment policy, the Finance Director shall be res.onsible for all transactions undertaken and shall establish a system of controls to regulate the act vities of subordinate officials. As of June 30,2018,the City had investments totaling$34,352,084 (includes money market funds). La'or Contracts Th- status of labor contracts in City is as follows: No. of Expiration Date Bargaining Unit Employees of Current Contract LES,Local 231 (Police) 26 December 31, 2018 LE S, Local 271 (Police Sergeants) 5 December 31,2018 IUOE,Local 49* 23 December 31,2018 Su•total 54 No -unionized employees 94 To al employees 148 * Labor contract for street,park, and building maintenance employees. - 30 - 39 Employee Pensions All full-time employees and certain part-time employees of the City are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF),which are cost-sharing multiple-employer retirement plans. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Se urity and Basic members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by PEPFF. PERA provides retirement and disability benefits to its members, and to survivors upon death of eligible members. Benefits are established by State statute; vest after three years of service; and are based on a member's highest average salary for any five successive years of allowable service, age, and a fo ula multiplier based on years of credit at termination of service. Th. City's contributions to GERF and PEPFF are equal to the contractually required contributions for ea.h year as set by State Statute, and are as follows for the past five years: GERF PEPFF 2017 $706,492 $508,774 2016 690,881 495,478 2015 668,633 478,192 2014 615,331 418,280 2013 584,075 383,545 T ee Council members of the City are covered by the Public Employees Defined Contribution Plan (P DCP), 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 the time of withdrawal. Plan benefits depend solely on the amounts co tributed to the plan plus investment earnings less administrative expenses. An eligible elected official wh chooses to participate in the plan contributes 5% of their salary, which is matched by the elected of cial's employer. For salaried employees, employer contributions are determined by the employer and m st be a fixed percentage of salary. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. PERA receives 2% of employer contributions and 0.025% of the assets in each member's account annually for administering the plan. The City's contributions to PEDCP for the past three years are as follows: PEDCP 2017 $1,405 2016 1,405 2015 1,380 2014 940 2013 940 Th. Elk River Fire Relief Association(the "Association") is the administrator of a single employer public emi•loyee defined benefit retirement system established to provide benefits for members of the Elk River Fir Department (the "Fire Department"). The Association maintains a separate special fund to ac.umulate assets to fund the retirement benefits earned by the Fire Department's membership. Funding for the Association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). Funds are also derived from investment income. The financial requirements of the special fund are determined in accordance with Minnesota Statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The As ociation is comprised of volunteers and, therefore, members do not have any contribution re uirements, but the City has voluntarily contributed $30,000 for the past five years in addition to co tributions made by the State of Minnesota. - 31 - 40 The total payments for the past five years are as follows: State City Contribution Contribution Total 2017 $182,297 $30,000 $212,297 2016 179,192 30,000 209,192 2015 174,826 30,000 204,826 2014 164,825 30,000 194,825 2013 167,103 30,000 197,103 For more information regarding the liability of the City with respect to its employees, please reference "No e 9, Defined Pension Plans—State-Wide," "Note 10, Defined Contribution Plan," "Note 11, Defined Ben-fit Pension Plans — Fire Relief Association," and "Required Supplementary Information" of the Ci 's Comprehensive Annual Financial Report for fiscal year ended December 31, 2017, an excerpt of whi,h is included as Appendix IV of this Official Statement. GA'B 68 The Government Accounting Standards Board (GASB) has issued Statement No. 68, Accounting and Fin.ncial Reporting for Pensions (GASB 68) and related GASB Statement No. 71, Pension Transition for Con ributions Made Subsequent to the Measurement Date-an amendment to GASB 68, which revised exis ing standards for measuring and reporting pension liabilities for pension plans provided to City employees and require recognition of a liability equal to the City's proportionate share of net pension liab lity, which is measured as the total pension liability less the amount of the pension plan's fiduciary net position. The City's proportionate shares of the pension costs and the City's net pension liability for GERF and PE'I F for the past four years are as follows: GERF PEPFF Proportionate Net Proportionate Net Share of Pension Share of Pension Pension Costs Liability Pension Costs Liability 2017 0.1505% $ 9,611,075 0.314% $ 4,239,374 2016 0.1426 11,578,084 0.306 12,280,312 2015 0.1429 7,405,511 0.304 3,454,151 2014 0.1577 7,407,964 0.299 3,229,323 For more information regarding GASB 68 with respect to the City, please reference please reference "No e 9, Defined Pension Plans — State-Wide" and "Required Supplementary Information" of the City's Co iprehensive Annual Financial Report for fiscal year ended December 31, 2017, an excerpt of which is incl ded as Appendix IV of this Official Statement. Ada itional and detailed information about GERF's net position is available in a separately-issued PERA fin. cial report, which may be obtained at www.mnpera.org; by writing to PERA at 60 Empire Drive 4201, Saint Paul, Minnesota, 55103-2088; or by calling 1-800-652-9026. 201: Omnibus Retirement Bill On Thursday, May 31, 2018, Minnesota Governor Mark Dayton signed into law the 2018 Omnibus Retie ement Bill, which includes sustainability measures for all four of the State's public pension systems, incl ding PERA. The City anticipates this legislation will have some level of positive impact on the proportionate share of pension costs and net pension liability for GERF for the fiscal year ending Dec-mber 31,2018 and thereafter. Sou ces: City's Comprehensive Annual Financial Reports. - 32- 41 Oth:r Post-Employment Benefits The overnmental Accounting Standards Board(GASB)previously issued Statement No. 45,Accounting and inancial Reporting by Employers for Post-employment Benefits Other Than Pensions (GASB 45), whic addresses how state and local governments must account for and report their obligations related to post employment healthcare and other non-pension benefits (referred to as Other Post-Employment Ben:fits or"OPEB"). The City provides other postemployment health insurance benefits for retired employees through two defi ed benefit plans: the Municipal Retirees Health Plan (MRHP), a single-employer plan; and the Utili ies Retirees Health Plan (URHP), a multi-employer plan. Each plan provides benefits for eligible refines and their dependents through the City's group health insurance plans, which cover both active and retir:d members. Since the premium is a blended rate determined on the active and retiree population,the retir:es are receiving an implicit rate subsidy. The implicit rate subsidy is the additional cost of health ins ance to current employees and the City as a result of the higher cost of providing health insurance to retir:es. Contribution requirements are reviewed at the time changes are made to the plans. Benefit prov sions for MRHP are established and amended by the City, while the Utility has been delegated authority to establish and amend benefit provisions for URHP. Eligible retirees receiving benefits are requ red to pay 100%of the total premium. The ity's annual OPEB cost for each plan is calculated based on the annual required contribution(ARC) oft - employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARS represents the level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The URHP has elected to calculate the ARC and related information using the alternative measurement method permitted for employers in plans with fewer than one hundred total plan members. Co ponents of the annual OPEB cost, the amount actually contributed to the plan, and the changes in the net l FEB obligation to the plan for the fiscal year ended December 31, 2017 are as follows: MRHP URHP Annual required contribution $107,970 $10,411 Interest on net OPEB obligation 17,320 2,469 Adjustment to ARC (26,447) (3,836) Annual OPEB cost(expense) $ 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 Funi ed status of the OPEB as reported in the last three actuarial reports received: Unfunded UAAL as Actuarial Actuarial a percentage •ctuarial Actuarial Value Accrued Accrued of Annual Val ation Date of Assets Liability Liability(UAAL) Covered Payroll MH' ': Jan . y 1, 2017 - 0 - $867,777 $867,777 10.32% Jan . 1, 2014 - 0 - 996,344 996,344 13.39 Jan . 1, 2011 - 0 - 908,610 908,610 13.17 UH" : Jan ary 1, 2017 - 0 - $48,766 $48,766 1.45% Jan ary 1,2014 -0- 68,948 68,948 2.45 Jan ary 1,2011 -0- 42,681 42,681 1.87 - 33 - 42 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: Fiscal OPEB Employer %of Annual OPEB OPEB Ye. Ended Cost Contributions Cost Contributed Obligation M' RP: De ember 31,2017 $98,843 $39,599 49% $545,743 De ember 31, 2016 117,191 48,803 48 494,858 De ember 31, 2015 118,780 36,810 41 434,250 UHRP: December 31, 2017 $9,044 1,052 12% $78,537 December 31, 2015 10,559 3,055 29 70,545 December 31, 2016 10,260 2,151 21 63,041 Fo• more information regarding the liability of the City and the Utility with respect to its employees, please reference "Note 12, Post-Employment Benefits Other Than Pensions" and "Required Supplementary Information" of the City's Comprehensive Annual Financial Report for fiscal year ended December 31, 2017, an excerpt of which is included as Appendix IV of this Official Statement. GASB 75 In une 2015, the Government Accounting Standards Board approved Statement No. 75, Accounting and Fi ancial Reporting for Postemployment Benefits Other Than Pensions (GASB 75), establishing new accounting and financial reporting requirements for government employer OPEB plans. GASB 75 will re glace GASB 45 and will take effect for the City for the fiscal year ending December 31,2018. The City anlicipates some level of impact on its financial statements for the fiscal year ending December 31, 2018; ho ever, the City's financial statements for the fiscal year ending December 31, 2018 are not yet ay.ilable. So rces: City's Comprehensive Annual Financial Reports. (The Balance of This Page Has Been Intentionally Left Blank) - 34 - 43 APPENDIX I PROPOSED FORM OF LEGAL OPINION Kennedy dy Offices in 470 U.S.Bank Plaza e Muu►eapol. 200 South Sixth Street Minneapolis MN 55402-1458 ♦• Saint Paul (612)337-9300 telephone Graven (612)337-9310 fax St.Cloud www.kennedy-graven.com CHARTER ED AffumativeAction,Equal Opportunity Employer Electric Revenue Bonds, Series 2018A City of Elk River Elk River Municipal Utilities Commission Sherburne County, Minnesota We have acted as bond counsel in connection with the issuance by the City of Elk River, Sherburne Cou ty, Minnesota, and the Elk River Municipal Utilities Commission (collectively, the "Issuer"), of Elec ric Revenue Bonds, Series 2018A, originally dated the date hereof, in the total principal amount of $ . For the purpose of rendering this opinion we have examined certified copies of certain proc-edings taken by the Issuer in the authorization, sale and issuance of the Bonds, including the form of the It onds, and certain other proceedings and documents furnished by the Issuer. From our examination of such proceedings and other documents, assuming the genuineness of the signatures thereon and the accuracy of t e facts stated therein and continuing compliance by the Issuer with its covenants to comply with the Inte al Revenue Code of 1986, as amended, and based upon laws, regulations, rulings and decisions in effect on the date hereof,it is our opinion that: 1. The Bonds are in due form, have been duly executed and delivered, and are valid and bind ng special revenue obligations of the Issuer, enforceable against the Issuer in accordance with their term., except as such enforcement may be limited by Minnesota or United States laws relating to b. ptcy,reorganization,moratorium or creditors' rights. 2. As provided in a resolution adopted by the Municipal Utilities Commission on August 29, 201:, and a concurring resolution of the City Council on July 16,2018,the Bonds constitute a first and prior pari i lien upon the net revenues of the electric utility plant and system in accordance with and subject to the prove sions of the resolutions. 3. Interest on the Bonds is excludable from gross income of the recipient for federal income tax purposes and, to the same extent, is excludable from taxable net income of individuals, trusts, and estaies for Minnesota income tax purposes, and is not a preference item for purposes of the computation of t e federal alternative minimum tax (although interest on the Bonds is included in adjusted current earn ngs in calculating corporate alternative minimum taxable income for taxable years that began prior to Jo uary 1, 2018), or the computation of the Minnesota alternative minimum tax imposed on indi iduals, trusts and estates. However, such interest is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. The opinion set forth in this para:raph is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Cod- of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that inte est thereon be, or continue to be, excludable from gross income for federal income tax purposes and fro taxable net income for Minnesota income tax purposes. The Issuer has covenanted to comply with all s ch requirements. Failure to comply with certain of such requirements may cause interest on the Bonos to be included in gross income for federal income tax purposes and taxable net income for Mi esota income tax purposes retroactively to the date of issuance of the Bonds. We express no opinion reg. ding tax consequences arising with respect to the Bonds other than as expressly set forth herein. I-1 44 4. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited b bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditor's rights g nerally and by equitable principles, whether considered at law or in equity. We have not been asked and have not undertaken to review the accuracy, completeness or s fficiency of the Official Statement or other offering material relating to the Bonds, and accordingly we e.press no opinion with respect thereto. This opinion is given as of the date hereof and we assume no obligation to update, revise, or s ipplement this opinion to reflect any facts or circumstances that may hereafter come to our attention o any changes in law that may hereafter occur. Dated at Minneapolis,Minnesota,August 29,2018. I-2 45 APPENDIX II CONTINUING DISCLOSURE UNDERTAKING $ Electric Revenue Bonds,Series 2018A City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota ,2018 This Continuing Disclosure Certificate(the"Disclosure Certificate")is executed and delivered by the City of Elk River, Minnesota (the "City") and the Elk River Municipal Utilities Commission (the " ommission") in connection with the issuance by the City of its $ Electric Revenue Bonds, S:ries 2018A (the "Bonds"). The Bonds are being issued under the terms of a resolution adopted by the Commission on July 10,2018(the"Authorizing Resolution"), a resolution adopted by the City Council of the C on July 16, 2018 (the "Approving Resolution"), and a resolution adopted by the Commission on A gust 29, 2018 (the "Award Resolution"). The Bonds are being delivered to (the "'urchaser") on the date hereof. Under the terms of the Award Resolution, the City and the Commission h. e covenanted and agreed to provide continuing disclosure of certain financial information and operating d. . and timely notices of the occurrence of certain events to provide for the public availability of such in ormation and to permit the Purchaser to comply with the continuing disclosure requirements of the Rule (d-fined herein). The City and the Commission hereby covenant and agree as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed . o delivered by the City and the Commission for the benefit of the Holders(as defined herein)of the Bonds in order to provide for the public availability of such information and assist the Participating Underwriter(s) (defined herein) in complying with the Rule (as defined herein). This Disclosure Certificate, together with th Resolutions, constitutes the written agreement or contract for the benefit of the Holders of the Bonds that is equired by the Rule. Section 2. Definitions. In addition to the defined terms set forth in the Resolutions, which ap ly to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the fo lowing capitalized terms shall have the following meanings: "Annual Report"means any annual report provided by the City and Commission pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Audited Financial Statements" means annual financial statements of the City and the Commission, pr-pared in accordance with GAAP as prescribed by GASB. "Bonds" means the Electric Revenue Bonds, Series 2018A, issued by the City in the original am.regate principal amount of$ "City" means the City of Elk River, Minnesota, which is the obligated person with respect to the B o nds. "Commission" means the Elk River Municipal Utilities Commission created by the City to exercise e iclusive jurisdiction, control, and management of the municipal light, power, and electric operations of the C . "Disclosure Certificate"means this Continuing Disclosure Certificate. II-1 46 "Disclosure Covenants"means the continuing disclosure obligations of the City and the Commission under this Continuing Disclosure Certificate. "Disclosure Information" means the financial information and operating data referred to in Section 3(a)of this Continuing Disclosure Certificate. "EMMA" means the Electronic Municipal Market Access system operated by the MSRB and designated as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. "Final Official Statement" means the deemed Final Official Statement dated , 2018, which constitutes the final official statement delivered in connection with the Bonds, which is available from the MSRB. "Fiscal Year"means the fiscal year of the Commission. "GAAP" means generally accepted accounting principles for governmental units as prescribed by GASB. "GASB"means the Governmental Accounting Standards Board. "Holder"means the person in whose name a Bond is registered or a beneficial owner of such a Bond. "Material Event"means any of the events listed in Section 5(a)of this Disclosure Certificate. "MSRB" means the Municipal Securities Rulemaking Board located at 1300 I Street NW, Suite 1000, Washington,DC 20005. "Participating Underwriter" means any of the original underwriter(s) of the Bonds (including the Purchaser)required to comply with the Rule in connection with the offering of the Bonds. "Purchaser"means "Repository"means EMMA,or any successor thereto designated by the SEC. "Rule" means SEC Rule 15c2-12(b)(5) promulgated by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time, and including written interpretations thereof by the S:C. "SEC"means Securities and Exchange Commission,and any successor thereto. Section 3. Provision of Annual Financial Information and Audited Financial Statements. (a) Not later than 12 months after the end of each Fiscal Year of the Commission, commencing with the Fiscal Year ending December 31, 2018, the Commission shall provide to the Repository, on behalf of itself and the City,the following financial information and operating data(the"Disclosure Information"): (i) The Audited Financial Statements of the Commission for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance and Office Manager of the Commission(the"Finance and Office Manager"); II-2 47 (ii) The Audited Financial Statements of the City for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance Director of the City (the "Finance Director"); (iii) To the extent not included in the financial statements referred to in clauses (i) and (ii), information of the type set forth in Section 4 below, which information may be unaudited, but is to be certified as to accuracy and completeness in all material respects, with respect to information relating to the Commission, by the Finance and Office Manager of the Commission to the knowledge of the Finance and Office Manager and, with respect to information relating to the City, by the Finance Director of the City to the knowledge of the Finance Director, which certifications may be based on the reliability of information ob .'fled from governmental or other third party sources. The Annual Report and Disclosure Information may be submitted as a single document or as se;borate documents comprising a package, and may cross-reference other information as provided in Section 4 if this Certificate; provided that the Audited Financial Statements of the Commission and the Audited Fii ancial Statements of the City may be submitted separately from the balance of the Annual Report and will be submitted as soon as available. Any or all of the Disclosure Information may be incorporated, if it is updated as required by the Di.closure Covenants, by reference from other documents, including official statements of debt issues of the Ci ,the Commission, or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement, it must also be available from the MSRB. T e Commission shall clearly identify each such other document so incorporated by reference. (b) If any part of the Disclosure Information can no longer be generated because the op-rations of the City or the Commission have materially changed or have been discontinued, such Di.closure Information need no longer be provided if the Commission includes in the Disclosure Information a .tatement to such effect; provided, however, if such operations have been replaced by other City or C.mmission operations in respect of which data is not included in the Disclosure Information and the Commission determines that certain specified data regarding such replacement operations would be material, th•n, from and after such determination, the Disclosure Information shall include such additional specified da a regarding the replacement operations. If the Disclosure Information is changed or the Disclosure C.venants are amended as permitted by this Certificate, then the Commission is to include in the next Di.closure Information to be delivered under the Disclosure Covenants, to the extent necessary, an ex.lanation of the reasons for the amendment and the effect of any change in the type of financial i formation or operating data provided. (c) If the Commission is unable or fails to provide to the Repository an Annual Report an. Disclosure Information by the date required in subsection(a),the Commission shall send a notice of that fa't to the Repository. (d) The Commission shall determine each year prior to the date for providing the A ual Report and Disclosure Information the name and address of the Repository. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by re Terence the following sections of the Final Official Statement: 1. Elk River Municipal Utilities 2. The Electric System 3. Utility Financial Statements 4. Debt Service and Coverage Calculation 5. Utility Revenue Debt 1I-3 48 In addition to the items listed above, the Annual Report shall include Audited Financial Statements submitted in accordance with Section 3 of this Disclosure Certificate. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Commission or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official st.tement, it must also be available from the MSRB. The Commission shall clearly identify each such other do ument so incorporated by reference. Section 5. Reporting of Material Events. (a) This Section 5 shall govern the giving of notice of the occurrence of any of the following ev•nts("Material Events")with respect to the Bonds: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701—TEB), or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; 7. Modifications to rights of security holders, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the securities, if material; 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the obligated person; 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) The Commission shall file a notice of any Material Event with the Repository or with the M.RB within ten(10)business days of the occurrence of the Material Event. I1-4 49 (c) The Commission shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i) the amendment or supplementing of the Disclosure Covenants in accordance with the terms of this Certificate, together with a copy of such amendment or supplement and any explanation provided by the Commission under the Disclosure Covenants; (ii) the termination of the obligations of the City and/or the Commission under the Disclosure Covenants in accordance with the terms of this Certificate; (iii)any change in the accounting principles under the terms of which the Audited Financial Statements of the City or the Commission constituting a portion of the Disclosure Information are prepared; and (iv) any change in the Fiscal Year of the City or the Commission. (d) Unless otherwise required by law and subject to technical and economic feasibility, the Commission shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of such information. (e) The City shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i) any amendment or supplement of the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate, together with a copy of su h amendment or supplement and any explanation provided by the City under the Disclosure Covenants; (ii) the termination of the obligations of the City under the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate; (iii) any change in the accounting principles under the terms of which the Audited Financial Statements constituting a portion of the Disclosure Information are prepared; d(iv)any change in the Fiscal Year of the City. (f) Unless otherwise required by law and subject to technical and economic feasibility, the City shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of the City's information. Section 6. EMMA. The SEC has designated EMMA as a nationally recognized municipal se unities information repository and the exclusive portal for complying with the continuing disclosure re•uirements of the Rule. Until the EMMA system is amended or altered by the MSRB and the SEC, the Clmmission shall make all filings required under this Disclosure Certificate solely with EMMA. Section 7. Termination of Reporting Obligation. The Commission's obligations under the Resolutions and this Disclosure Certificate shall terminate upon the redemption in full of all Bonds or payment in full of all Bonds. Section 8. Agent. The Commission may, from time to time, appoint or engage a dissemination a_ent to assist it in carrying out its obligations under the Resolutions and this Disclosure Certificate, and may discharge any such agent,with or without appointing a successor dissemination agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of the Resolutions or t s Disclosure Certificate,the Commission may amend this Disclosure Certificate, and any provision of this D sclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of nationally re ognized bond counsel to the effect that such amendment or waiver would not, in and of itself, cause a vi lation of the Rule. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule a d this Disclosure Certificate, or any provision hereof, shall be null and void in the event that the Commission delivers to the Repository an opinion of nationally recognized bond counsel to the effect that these portions of the Rule which impose the continuing disclosure requirements of the Resolutions and the e ecution and delivery of this Disclosure Certificate are invalid,have been repealed retroactively or otherwise dig not apply to the Bonds. The provisions of the Resolutions requiring continuing disclosure pursuant to the R le and this Disclosure Certificate may be amended without the consent of the Holders of the Bonds, but o ply upon the delivery by the Commission to the Repository of the proposed amendment and an opinion of I1-5 50 nationally recognized bond counsel to the effect that such amendment, and giving effect thereto, will not adversely affect the compliance with the Rule. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to pr:vent the Commission from disseminating any other information, using the means of dissemination set fo h in this Disclosure Certificate or any other means of communication, or including any other information in. y Annual Report or notice of occurrence of a Material Event, in addition to that which is required by this Di.closure Certificate. If the Commission chooses to include any information in any Annual Report or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure C:rtificate, the Commission shall have no obligation under this Disclosure Certificate to update such i iormation or include it in any future Annual Report or notice of occurrence of a Material Event. Section 11. Default. In the event of a failure of the Commission to comply with any provision of this Disclosure Certificate any Holder of the Bonds may take such actions as may be necessary and ap ropriate,including seeking mandamus or specific performance by court order,to cause the Commission to comply with its obligations under the Resolutions and this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default with respect to the Bonds and the sole remedy un.er this Disclosure Certificate in the event of any failure of the Commission to comply with this Disclosure C41 ificate shall be an action to compel performance. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the C.mmission,the Participating Underwriters, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. [The remainder of this page is intentionally left blank.] 11-6 51 IN WITNESS WHEREOF, we have executed this Disclosure Certificate in our official capacities effective as of the date and year first written above. CITY OF ELK RIVER,MINNESOTA Mayor City Clerk ELK RIVER MUNICIPAL UTILITIES COMMISSION President Secretary II-7 52 APPENDIX III EXCERPT OF THE CITY'S 2017 COMPREHENSIVE ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the City's Comprehensive Annual Financial Report ("CAFR") for fiscal year ended December 31, 2017. The reader should be aware that the complete fi ancial statements may contain additional information which may interpret, explain or modify the data pr:sented here. T e City's CAFR for the year ending 2016 was awarded the Certificate of Achievement for Excellence in Fi ancial Reporting by the Government Finance Officers Association of the United States and Canada (GI OA). This was the 28th consecutive year that the City has received this award. The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial re porting. The City has submitted its CAFR for the 2017 fiscal year to GFOA. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable anc efficiently organized CAFR,whose contents conform to program standards. Such CAFR must satisfy bo h generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. III-1 53 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. 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. 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. 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E"' v U vie E- v e- y'v O O ... .. a 9 N °.6 4 W 4 Q LLB m E m g ' , 2 Q w F Ag III-7 59 CITY OF ELK RIVER,MINNESOTA STATEMENT OF NET POSITION DECEMBER 31,2017 Primary Government 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 - ']axes 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 - Dde 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 L BILITIES 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 - D to component unit 200,498 - 200,498 - Ac rued interest payable 201,755 266,564 468,319 - Cu tomer deposits payable - 978,076 978,076 - U arned revenue 607,361 95,515 702,876 - N -current liabilities: et 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 Ne-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 - Ebonomic 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 The noes to the financial statements are an integral part of this statement. 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F U g III-9 61 CITY OF ELK RIVER,MINNESOTA GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31,2017 Other Total General YMCA Pavement Governmental Governmental Fund Bonds Management Funds Funds ASSETS Cash and'nvestments $ 7,226,873 $ 521,874 $ 2,764,788 $ 16,833,083 $ 27,346,618 Receivab s: Interest 35,414 - 12,560 76,333 124,307 Taxes 235,481 11,464 - 23,196 270,141 Accoun 31,905 - 140,812 418,220 590,937 Special- sessments - - - 726,038 726,038 Notes, et - - - 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 it-ms 88,038 - - - 88,038 Property eld for resale - - - 175,000 175,000 Total sets $ 7,854,212 $ 533,338 $ 3,437,121 $ 21,927,464 $ 33,752,135 LIABILI IES Accounts ayable $ 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 DEFE' D INFLOWS OF RESOURCES Unavaila.le revenue-taxes 84,652 4,103 - 8,929 97,684 Unavaila.le revenue-special assessments - - - 720,687 720,687 Unavaila.le revenue-other - - 167,091 - 167,091 Total deferred inflows of resources 84,652 4,103 167,091 729,616 985,462 FUND B LANCES Nonspen.able 88,038 - - - 88,038 Restricte.'� - 529,235 - 2,574,961 3,104,196 Committ-. - - 3,138,557 7,216,091 10,354,648 Assigned 356,174 - - 10,984,072 11,340,246 Unassign•. 6,853,298 - - (2,627,513) 4,225,785 To. fund balances 7,297,510 529,235 3,138,557 18,147,611 29,112,913 To. liabilities,deferred inflows of resources,and fund balances $ 7,854,212 $ 533,338 $ 3,437,121 $ 21,927,464 $ 33,752,135 The notes to the financial statements are an integral part of this statement. III-10 62 CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31,2017 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. U available revenue in governmental funds is susceptible to full accrual on the government-wide statements. 985,462 4. Lo g-term liabilities are not due and payable in the current period and th= efore 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 P•SITION OF GOVERNMENTAL ACTIVITIES $ 97,905,834 The notes to the financial statements are an integral part of this statement. III-11 63 CITY OF ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2017 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 Contrib ions 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 EXPEN ITURES Current: General overnment 3,355,858 - - 168,776 3,524,634 Public fety 6,723,602 - - 68,136 6,791,738 Public rks 1,866,693 - - 107,402 1,974,095 Cultured recreation 1,913,809 - 1,023,524 2,937,333 Econom'c development - - - 1,108,233 1,108,233 Capital o tlay: General government - - - 117,912 117,912 Public safety - - - 442,518 442,518 Public .rks - - 4,361,164 1,373,231 5,734,395 Culture.nd recreation - - - 762,661 762,661 Econom'c development - - - 107,800 107,800 Debt serv'ce: Principa - 9,620,000 - 1,055,000 10,675,000 Interest. d 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(d ficiency)of revenues over exp ditures (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 ut (597,347) (1,707,200) (2,304,547) Sale of ca ital assets - - - 116,012 116,012 Total ther financing sources(uses) 1,274,703 - - 812,559 2,087,262 Net chan in fund balances 539,433 (9,246,547) (673,231) 158,628 (9,221,717) Fund balaices-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 The not s to the financial statements are an integral part of this statement. III-12 64 CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2017 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 hich 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. 'evenues in the statement of activities that do not provide current financial r,sources are not reported as revenues in the governmental funds. Property taxes 2,550 Special assessments (204,885) Other revenue (167,092) (369,427) 3. e issuance of long-term debt provides current financial resources to g•vernmental funds,while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither filli transaction,however,has any effect on net position. Also,governmental ds report the effect of premiums,discounts and similar items when debt i first issued,whereas these amounts are deferred and amortized in the statement of activities. The amounts below are the effects of these differences 4 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. S•me expenses reported in the statement of activities do not require use of c ent financial resources and,therefore,are not reported as expenditures i governmental funds. Compensated absences (60,608) Net OPEB obligation (41,399) (102,007) 5. •ng-term pension activity is not reported in governmental funds. (70,433) C • GE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 1,211,188 The not-s to the financial statements are an integral part of this statement. III-13 65 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 Budget Variance with Original Final Actual Final Budget REVS S Taxes: Prope taxes $ 9,969,250 $ 9,969,250 $ 9,943,268 $ (25,982) Other axes 140,000 140,000 144,132 4,132 Licens and permits 714,950 714,950 1,007,543 292,593 Intergo ernmental revenue 293,500 509,500 546,362 36,862 Charge forservices 916,150 916,150 1,033,053 116,903 Fines aid 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 Deficieicy of revenues under expenditures (1,682,600) (1,682,600) (735,270) 947,330 OTHEItt FINANCING SOURCES(USES) Transfers in 1,972,050 1,972,050 1,872,050 (100,000) Transfe s out (289,450) (289,450) (597,347) (307,897) Total ther financing sources(uses) 1,682,600 1,682,600 1,274,703 (407,897) Net ch ge 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 The no yes to the financial statements are an integral part of this statement. 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N O b �.. $ GS E C i M m N w r.) al CO' ,O <Ua ri 0.1'0i Q " " Fao e np�4p\' a e e e O 'C O O O 9 O O O zW W W g A O O O q g 0 0 0 ZFcii r a v. a w -0.N o '4.9 t A d ry O m -Ooo— Waa E v tC°�' nM�O 'x c mv� �rn"o '� y ,C U o�Ooaa H +' vev 0£ MI a 6 <1 d ¢<m W ' W To " C " Wix u o, a" I ,4 p. • C7Q = �CCB- n4- .VgZ �vm ..a J UA morn 5i 22 vee V' << `5 " <<m '.z . :- a 5o,S ? �o23 o h ?may a a a U 11 v C�� •a g CCS N O^Q 0 0 0 i I Q 0 0 <v j o 0 0 <j 0 0 0 III-55 107 CITY OF ELK RIVER,MINNESOTA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY-PERA DECEMBER 31,2017 Prima Government: General Employees Retirement Fund 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 Fi .al Proportion of Share of Liability City's Percentage as a Percentage Y-: the Net Pension the Net Pension Associated Total Covered of Covered of the Total End n: 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% 06/31/15 0.1429% 7,405,511 - 7,405,511 8,657,146 85.5% 78.2% 06/31/14 0.1577% 7,407,964 - 7,407,964 8,279,769 89.5% 78.7% Public Employees Police and Fire Fund 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 Fis.al Proportion of Share of Liability City's Percentage as a Percentage Ye: the Net Pension the Net Pension Associated Total Covered of Covered of the Total End n• Liability Liability(a) with the City(b) (a+b) Payroll(c) Payroll((a+b)/c) Pension Liability 06/31/17 0.3140% $ 4,239,374 $ 43,337 $ 4,282,711 $ 3,211,726 133.3% 85.4% 06/31/16 0.3060% 12,280,312 53,870 12,334,182 2,952,673 417.7% 63.9% 06/31/15 0.3040% 3,454,151 - 3,454,151 2,788,952 123.9% 86.6% 06/31/14 0.2990% 3,229,323 - 3,229,323 2,440,932 132.3% 87.1% Component Unit: General Employees Retirement Fund 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 Fis al 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 06/3 /17 0.0010% $ 60,586 $ 1,170 $ 61,756 $ 61,433 100.4% 75.9% 06/3 /16 0.0009% 73,404 959 74,363 56,083 132.6% 68.9% 06/3 /15 0.0009% 46,951 - 46,951 54,886 85.5% 78.2% 06/3 /14 0.0010% 46,966 - 46,966 52,493 89.5% 78.7% Ten years of data will eventually be presented when available. III-56 108 APPENDIX IV EXCERPT OF THE UTILITY'S 2017 ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the Utility's Annual Financial Report for fiscal year ended December 31, 2017. The reader should be aware that the complete financial statements may contain additional information which may interpret, explain or modify the data presented here. IV-1 109 INDEPENDENT AUDITOR'S REPORT Public Utilities Commission Elk River Municipal Utilities Elk River,Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the Elk River Municipal Utilities(the Utilities)of the City of Elk River,Minnesota(the City),as of and for the year ended December 31,2017,and the related notes to the financial statements,as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the Utilities 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 Utilities 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 opinion. Opinion In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Utilities as of December 31,2017,and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 16,the financial statements present only the Electric and Water enterprise funds and do not purport to,and do not present fairly the financial position of the City as of December 31,2017,the changes in its financial position,its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis Page 15 and the Schedule of Employer's Share of the Net Pension Liability,the Schedule of Employer's Contributions and the Schedule of Funding Progress for Other Post-Employment Benefit Plan starting on page 50 be presented to supplement the basic financial statements.Such information,although not a part of the financial statements, is required by the Government Accounting Standards Board,who considers it to be an essential part of financial reporting for placing the 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 Utilities'financial statements as a whole.The introductory section and supplemental information listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the financial statements of the Utilities.The supplemental information,except for the portion marked"unaudited"on which we express no opinion,has been subjected to the auditing procedures applied in the audits of the financial statements and,in our opinion,is fairly stated in all material respects in relation to the financial statements taken as a whole.The introductory section and the supplemental Information marked"unaudited"have not been subjected to the auditing procedures applied in the audit of the financial statements and,accordingly,we do not express an opinion or provide any assurance on them. 0146 4" Lif ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota March 28,2018 IV-2 110 0 it W C momr ;-c. o1ao CO CO - N 2• c`mdw ¢c m ^ e -v, . rnWom vi � on mocmact ,c mm0 roor o NmoMm m oN o1«2a=5mQC mWOO I0 vme n vv 01O2 5trn0m - 0 N � C.JaCL0L Fm 19 p- c; c o c y«L i$ag$m -22 w 222 22 m 224; 2 222 oo rn>> tmyoc cE Lor-aa nvV o mom Q Cooat 00 m °camm .cdocc mrom cN On 5waNmiWan o M-V m nh V Nmm t'mpw3>m M3 N nmN mOim M 0- NNNO -N V - a j,..°Cl t w 3 C E 0 0-it H c3 N w O«C 0 C`t 6L o U c N O N r O f7 t,) m o m E`o 3 3 5�. a en m- n N m o m n o m n '-C"' w M Omm m ... m v.- .52,01i-Te 0 C r N O N en V a° m ,,-;,:ac N L'N N a0 C Z - ONm 0 N.N. 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K oa-0i o 9 762 °> r 0 E v E I- tWm`w�o 'A' Eo a apa E9m2meo to- m @ 2 c`rm O15a mo�i 33 F oa 0 0 m E -IE3mmSU F Q JN 0 0mDm IV-5 113 Elk River Municipal Utilities Elk River,Minnesota Statement of Net Position December 31,2017 Electric Water Total Assets Current Assets Cash and temporary investments $ 12,806,032 $ 5,335,070 $ 18,141,102 Receivables Accrued interest 6,668 1,667 8,335 Accounts,net of allowance 3,259,576 109,579 3,369,155 Special assessments 2,982 67,618 70,600 Other receivables 68,732 15,596 84,328 Due from other City funds 10,875 129,349 140,224 Inventories 949,694 16,276 965,970 Prepaid expenses 192,083 32,575 224,658 Total Current Assets 17,296,642 5,707,730 23,004,372 Capital Assets Land 519,090 159,831 678,921 Intangible 10,375,677 - 10,375,677 Land improvements 23,389 - 23,389 Buildings 2,999,362 850,241 3,849,603 Equipment and machinery 3,265,761 457,148 3,722,909 Infrastructure 47,487,089 35,655,825 83,142,914 Construction in progress 672,161 64,711 736,872 Capital Assets,Cost 65,342,529 37,187,756 102,530,285 Less Accumulated Depreciation (25,640,860) (16,438,545) (42,079,405) Total Capital Assets,Net 39,701,669 20,749,211 60,450,880 Other Assets Restricted cash 997,660 - 997,660 Total Assets 57,995,971 26,456,941 84,452,912 Deferred Outflows of Resources Deferred charges on refunding 34,532 8,633 43,165 Deferred pension resources 881,867 169,845 1,051,712 Total Deferred Outflows of Resources 916,399 178,478 1,094,877 Current Liabilities Accounts payable $ 3,098,700 $ 47,026 $ 3,145,726 Salaries and benefits payable 101,571 14,563 116,134 Accrued interest payable 137,744 20,360 158,104 Due to other City funds 790,458 27,164 817,622 Due to other governments 163,029 2,002 165,031 Customer deposits payable 869,401 108,675 978,076 Unearned revenue - 93,336 93,336 Compensated absences-current portion 150,335 26,204 176,539 Notes payable-current portion 198,252 - 198,252 Bonds payable-current portion 720,000 255,000 975,000 Total Current Liabilities 6,229,490 594,330 6,823,820 Non-current Liabilities Net other postemployment benefits liability 77,143 1,394 78,537 Compensated absences-less current portion 142,346 21,162 163,508 Notes payable-less current portion 820,608 - 820,608 Bonds payable,net-less current portion 11,609,422 1,135,284 12,744,706 Pension liability 2,890,601 556,723 3,447,324 Total Non-current Liabilities 15,540,120 1,714,563 17,254,683 Total Liabilities 21,769,610 2,308,893 24,078,503 Deferred Inflows of Resources Deferred pension resources 651,486 125,475 776,961 Net Position Net investment in capital assets 26,387,919 19,367,560 45,755,479 Restricted for debt service 997,660 - 997,660 Unrestricted 9,105,695 4,833,491 13,939,186 Total Net Position $ 36,491,274 $ 24,201,051 $ 60,692,325 The notes to the financial statements are an integral part of this statement. IV-6 114 Elk River Municipal Utilities Elk River, Minnesota Statement of Revenues, Expenses and Changes in Net Position For the Year Ended December 31, 2017 Electric Water Total Operating Revenues Charges for services $ 35,373,472 $ 2,252,751 $ 37,626,223 LFG project 1,084,589 - 1,084,589 Generation credit (814,341) - (814,341) Connection maintenance 234,365 54,231 288,596 Customer penalties 242,739 19,263 262,002 Total Operating Revenues 36,120,824 2,326,245 38,447,069 Operating Expenses Purchased power 25,402,576 - 25,402,576 Production 873,651 500,390 1,374,041 Distribution 1,511,612 154,675 1,666,287 Depreciation 2,046,935 1,191,894 3,238,829 Customer accounts 469,412 62,690 532,102 General and administrative 3,090,285 896,340 3,986,625 Total Operating Expenses 33,394,471 2,805,989 36,200,460 Operating Income (Loss) 2,726,353 (479,744) 2,246,609 Nonoperating Revenues (Expenses) Interest income 79,543 31,314 110,857 Miscellaneous revenue 344,558 227,406 571,964 Interest expense and other (294,219) (50,354) (344,573) Gain on sale of capital assets 15,152 2,348 17,500 Total Nonoperating Revenues (Expenses) 145,034 210,714 355,748 Income (Loss) before Contributions and Transfers 2,871,387 (269,030) 2,602,357 Capital Contributions- Connection Fees - 799,223 799,223 Grants 40,000 - 40,000 Contribution of Assets from City 169,051 - 169,051 Transfers to Other City Funds (1,113,264) - (1,113,264) Total Contributions and Transfers (904,213) 799,223 (104,990) Change in Net Position 1,967,174 530,193 2,497,367 Net Position, January 1 34,524,100 23,670,858 58,194,958 Net Position, December 31 $ 36,491,274 $ 24,201,051 $ 60,692,325 The notes to the financial statements are an integral part of this statement. IV-7 115 Elk River Municipal Utilities Elk River, Minnesota Statement of Cash Flows For the Year Ended December 31, 2017 Electric Water Total Cash Flows from Operating Activities Receipts from customers and users $ 35,680,481 $ 2,325,049 $ 38,005,530 Other operating cash receipts 332,851 219,519 552,370 Payments to suppliers (28,749,027) (884,758) (29,633,785) Payments to employees (2,473,566) (547,498) (3,021,064) Net Cash Provided by Operating Activities 4,790,739 1,112,312 5,903,051 Cash Flows from Noncapital Financing Activities Transfers to City (1,113,264) - (1,113,264) (Increase) decrease in due from other City funds (459) 299,940 299,481 Increase in due to other City funds 34,919 3,568 38,487 Net Cash Provided (Used) by Noncapital Financing Activities (1,078,804) 303,508 (775,296) Cash Flows from Capital and Related Financing Activities Acquisition of capital assets (3,423,737) (877,420) (4,301,157) Proceeds from sale of capital assets 15,152 7,448 22,600 Proceeds from connection fees - 799,223 799,223 Principal payments on revenue bonds (706,000) (244,000) (950,000) Interest paid on revenue bonds (356,558) (52,750) (409,308) Principal payments on promissory note (195,216) - (195,216) Net Cash Used by Capital and Related Financing Activities (4,666,359) (367,499) (5,033,858) Cash Flows from Investing Activities Interest on investments 77,425 30,785 108,210 Net Increase (Decrease) in Cash and Cash Equivalents (876,999) 1,079,106 202,107 Cash and Cash Equivalents, January 1 14,680,691 4,255,964 18,936,655 Cash and Cash Equivalents, December 31 $ 13,803,692 $ 5,335,070 $ 19,138,762 Reconciliation of Cash and Cash Equivalents to the Statement of Net Position Cash and temporary investments $ 12,806,032 $ 5,335,070 $ 18,141,102 Restricted cash 997,660 - 997,660 Total Cash and Cash Equivalents $ 13,803,692 $ 5,335,070 $ 19,138,762 The notes to the financial statements are an integral part of this statement. IV-8 116 Elk River Municipal Utilities Elk River, Minnesota Statement of Cash Flows (Continued) For the Year Ended December 31, 2017 Electric Water Total Reconciliation of Operating Income (Loss)to Net Cash Provided by Operating Activities Operating income (loss) $ 2,726,353 $ (479,744) $ 2,246,609 Adjustments to reconcile operating income(loss) to net cash provided by operating activities Other revenue related to operations 344,558 227,406 571,964 Bad debt expense (2,280) 366 (1,914) Depreciation 2,046,935 1,191,894 3,238,829 (Increase) decrease in assets/deferred outflows: Accounts receivable (582,741) (16,656) (599,397) Other receivables (11,707) (7,887) (19,594) Special assessments receivable (1,358) 12,881 11,523 Inventories (156,314) (3,272) (159,586) Prepaid expenses 5,356 (4,594) 762 Deferred pension resources 603,156 (21,207) 581,949 Increase (decrease) in liabilities/deferred inflows: Accounts payable 256,717 (60,303) 196,414 Salaries and benefits payable 927 (920) 7 Net other postemployment benefits liability 6,598 1,394 7,992 Unearned revenue (875) 3,590 2,715 Compensated absences payable (16,326) 5,174 (11,152) Due to other governments 49,951 (123) 49,828 Customer deposits payable 144,631 (1,011) 143,620 Net pension liability (858,822) 181,438 (677,384) Deferred pension resources 235,980 83,886 319,866 Net Cash Provided by Operating Activities $ 4,790,739 $ 1,112,312 $ 5,903,051 Noncash Capital and Related Financing Activities Amortization of Bond Premium $ 50,796 $ 829 $ 51,625 Amortization of Deferred Charges on Refunding $ 6,684 $ 1,671 $ 8,355 Disposal of Capital Assets $ 45,880 $ 30,452 $ 76,332 Capital Assets Purchased on Account $ 570,725 $ - $ 570,725 Contribution of Capital Assets $ 209,051 $ - $ 209,051 The notes to the financial statements are an integral part of this statement. 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Wm om: ~ m Q. $y ' wE -m 2ty W mcz .9wd_ E ° c Eo E a N w Ce" m2 m mu cc22 26 o . o.cac1 m ..F,..„:- 2 m -2 camcg c 70 . .o« �.o a� ac ay - 0 O -=.9.- .ii 9.itj 8's;7, 6 Emg aj cE3 mat z mc t co oy3 E m � aE = O• tm2« aHmm Cmc mo E ' wta? m t' y a =m mm13m Z ZngEm r �E dmmo Jo -m4 m'oN 2 38 O m¢ m ;m❑ N-19 127 Elk River Municipal Utilities Elk River, Minnesota Required Supplementary Information (Continued) For the Year Ended December 31, 2017 Notes to the Required Supplementary Information -General Employee Retirement Fund Changes in Actuarial Assumptions 2017-The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent for vested and non-vested deferred members.The revised CSA loads are now 0.0 percent for active member liability, 15.0 percent for vested deferred member liability and 3.0 percent for non-vested deferred member liability. The assumed post- retirement benefit increase rate was changed from 1.0 percent per year for all years to 1.0 percent per year through 2044 and 2.5 percent per year thereafter. 2016-The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035 and 2.5 percent per year thereafter to 1.0 percent per year for all future years. The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent. Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. 2015-The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030 and 2.5 percent per year thereafter to 1.0 percent per year through 2035 and 2.5 percent per year thereafter. Changes in Plan Provisions 2015 -On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by$1.1 billion and increased the fiduciary plan net position by$892 million. Upon consolidation, state and employer contributions were revised. Schedule of Funding Progress for the Other Postemployment Benefit Plan Unfunded Actuarial UAAL as a Actuarial Actuarial Actuarial Accrued Percentage Valuation Value of Accrued Liability Funded Covered of Covered Date Assets Liability (UAAL) Ratio Payroll Payroll 1/1/2017 $ - $ 48,766 $ 48,766 - % $ 3,362,758 1.50 % 1/1/2014 - 68,948 68,948 - 2,810,413 2.50 1/1/2011 - 42,681 42,681 - 2,286,547 1.87 1/1/2008 - 56,892 56,892 - 2,300,000 2.47 IV-20 128 PROPOSAL SALE DATE:August 29, 2018 City of Elk River, Minnesota $10,000,000* Electric Revenue Bonds, Series 2018A For the Bonds of this Issue which shall mature and bear interest at the respective annual rates, as follow, we offer a price of $ (which may not be less than$9,850,000)plus accrued interest, if any,to the date of delivery. Interest Dollar Interest Dollar Yea: Rate(%) Yield(%) Price Year Rate(%) Yield(%) Price 2019 % % % 2034 % % % 2020 % % % 2035 % % % 202 % % % 2036 % % % 2022 % % % 2037 % % % 2023 % % % 2038 % % % 2024 % % % 2039 % % % 2025 % % % 2040 % % % 2026 % % % 2041 % % % 2027 % % % 2042 % 2028 % % % 2043 2029 % % % 2044 % % % 2030 % % % 2045 % % % 2031 % % % 2046 % % % 2032 % % % 2047 % % 2033 % % % 2048 % % % Designation of Term Maturities Years of Term Maturities In making this offer on the sale date of August 29, 2018 we accept all of the terms and conditions of the Terms of Proposal published in the Preliminary Official Statement dated August 9, 2018, including the City's right to modify the principal amount of the Bonds. (See "Terms of Proposal" herein.) In the event of failure to deliver these Bonds in accordance with said Terms of Proposal, we reserve the right to withd aw our offer, whereupon the deposit accompanying it will be immediately returned. All blank spaces of this offer are intentional and are not to be construed as an omission. By submitting this proposal, we confirm that we have an established industry reputation for underwriting municipal bonds such as the Bonds. Not as a part of our offer,the above quoted prices being controlling,but only as an aid for the verification of the offer,we have made the following computations: NET INTEREST COST: $ TRUE INTEREST RATE: % The Bidder 0 Iwill not 0 will purchase municipal bond insurance from . Account Members Account Manager By: I Phone: The foregoing proposal has been accepted by the Commission. Attest: Date: Phone: 651-223-3000 * Prelimina ;subject to change. Fax: 651-223-3046 Email: bond_services@,springsted.com Sp r i n g s t e d Website: www.springsted.com Public Sector Advisors 129 HANDOUT PROVIDED AT MEETING- BID TAB 11;Springsted $io,000,000(& CITY OF ELK RIVER,MINNESOTA ELECTRIC REVENUE BONDS,SERIES 2018A (BOOK ENTRY ONLY) AWARD: ROBERT W.BAIRD&CO.,INCORPORATED &SYNDICATE SALE: August 29,2018 Moody's Rating: Aa3 Interest Net Interest True Interest Bidder Rates Price Cost Rate ROBERT W BAIRD&CO.,INCORPORATED 5.00% 2019-2027 $10,351,370.700) $6,388,441.970) 3.5284%(l) C.L.KING&ASSOCIATES,INC. 4.00% 2028-2038 DOUGHERTY&COMPANY LLC 3.50% 2039-2043 EDWARD JONES 3.625% 2044-2048 FIDELITY CAPITAL MARKETS ROSS, SINCLAIRE&ASSOCIATES,LLC SAMCO CAPITAL MARKETS,INC. CREWS&ASSOCIATES,INC. DAVENPORT&COMPANY LLC LOOP CAPITAL MARKETS,LLC OPPENHEIMER&CO.INC. R. SEELAU$&CO.,INC. VINING SPARKS IBG,LP IFS SECURITIES,INC. COUNTRY CLUB BANK SIERRA PACIFIC SECURITIES,LLC BNY MELLON CAPITAL MARKETS,LLC ISAAK BOND INVESTMENTS WINTRUST',INVESTMENTS,LLC SUMRIDGE PARTNERS,LLC ALAMO CAPITAL FIRST EMPIRE SECURITIES UMB BANK,N.A. MIDLAND SECURITIES LIMITED FMS BONDS,INC. FIRST KENTUCKY SECURITIES CORPORATION MULTI-BANK SECURITIES,INC. FIRST SOUTHERN SECURITIES,LLC WEDBUSH SECURITIES,INC. (a) Subsequent to bid opening,the total issue size was not changed;however, certain individual maturity amounts have changed. (b) Subsequent to bid opening, the price, net interest cost, and true interest rate have changed to $10,338,289.20, $6,508,214.71, and 3.5357%, respectively. Public Sector Advisors Interest Net Interest True Interest Bidder Rates Price Cost Rate HUTCHINSON,SHOCKEY,ERLEY&CO. 5.00% 2019-2029 $10,244,047.30 $6,361,181.78 3.5342% 4.00% 2030 3.125% 2031 3.25% 2032 3.75% 2033-2034 3.25% 2035 3.50% 2036-2040 3.625% 2041-2048 PIPER JAFFRAY&CO. 4.00% 2019-2043 $10,376,836.30 $6,495,734.36 3.5627% 3.625% 2044-2048 THE BAKER GROUP 4.00% 2019-2027 $10,388,095.30 $6,583,494.28 3.5799% 3.00% 2028-2032 4.00% 2033-2048 NORTHLAND SECURITIES,INC. 4.00% 2019-2028 $10,433,666.05 $6,640,497.84 3.6085% D.A.DAVIDSON&CO. 3.00% 2029-2030 J.J.B.HILLIARD,W.L.LYONS,LLC 4.00% 2031-2048 STIFEL,NICOLAUS&COMPANY, 3.00% 2019-2030 $9,886,765.20 $6,507,484.19 3.6498% INCORPORATED 3.125% 2031 3.25% 2032-2034 3.50% 2035-2038 3.75% 2039-2048 REOFFERING SCHEDULE OF THE PURCHASER Rate Year Yield 5.00% 2019 1.60% 5.00% 2020 1.70% 5.00% 2021 1.85% 5.00% 2022 2.00% 5.00% 2023 2.15% 5.00% 2024 2.30% 5.00% 2025 2.45% 5.00% 2026 2.55% 5.00% 2027 2.65% 4.00% 2031 2.86% 4.00% 2035 3.07% 4.00% 2038 3.20% 3.50% 2043 3.623% 3.625% 2048 3.70% BBI: 3.94% Average Maturity: 17.839 Years