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6.1. SR 06-06-2005 Item 6.1 . MEMORANDUM TO: Mayor and City Council FROM: Lori Johnson, Finance and Administrative Services Director DATE: June 6, 2005 SUBJECT: Presentation of City of Elk River's Comprehensive Annual Financial Report for the Period Ended December 31, 2004 Steve McDonald of Abdo, Eick, and Meyers and I will be present on Monday night to present the city's 2004 Comprehensive Annual Financial Report (CAFR). We will highlight the financial status of the general fund, active special revenue funds (such as park dedication, Library, Ice Arena) and the enterprise funds in detail and briefly overview the remaining funds (such as the debt service and capital projects funds.) We will highlight the areas we believe are of interest to the Council and will be open to any questions the Council may have on any other part of the Report. In addition we will give an overview of the 2004 Fire Relief audit. In reviewing the CAFR, summary information may be found in the transmittal letter starting on page 1 and management's discussion and analysis, which begins on page 10. Because both of those provide a considerable amount of easy to understand summary and detail information, it is not being repeated in this memo. Detailed revenue and expenditure information on the general fund may be found on page 24 and enterprise fund information can be found on pages 25-32. Detailed information on the special revenue funds begins on page 54. Information on capital projects funds begins on page 68. However for reporting purposes, many of the funds are combined so the detailed information is not available in this Report. The fmal section of the CAFR is the statistic section which begins on page 71. There are several new statistical tables included this year and changes have been made to the format and content of some of the tables previously included. This section gives ten year historical information on financial trends, demographic and economic information, operating statistics, and other information. Action Requested The Council is asked to accept the 2004 CAFR. S:\Council\Lori\2005\2004 CAFR Revised.doc -........... I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31,2004 Prepared by the Finance Department I I CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS DECEMBER 31,2004 I I 1. INTRODUCTORY SECTION Page No. I Letter of Transmittal Certificate of Achievement Organizational Chart Elected and Appointed Officials 1 5 6 7 I II. FINANCIAL SECTION I Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Fiduciary Net Assets - Developer Escrow Agency Fund 8 10 I 18 19 I 20 21 I 22 I 23 24 25 I 27 29 I 33 Notes to Financial Statements 34 I Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds 52 I 53 I Nonmajor Special Revenue Funds: Subcombining Balance Sheet - Nonmajor Special Revenue Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Funds 54 I 58 I I I CITY OF ELK RIVER, MINNESOTA TABLE OF CONTENTS DECEMBER 31,2004 I I Page No. I Special Revenue Funds: Schedules of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual: Library Maintenance Ice Arena Landfill Economic Development Authority 62 63 64 65 I Nonmajor Debt Service Funds: Subcombining Balance Sheet - Nonmajor Debt Service Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Funds 66 I I 67 Nonmajor Capital Projects Funds: Subcombining Balance Sheet - Nonmajor Capital Projects Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Capital Projects Funds 68 I 69 I I Statement of Changes in Assets and Liabilities - Developer Escrow Agency Fund 70 III. STATISTICAL SECTION (UNAUDITED) Net Assets by Component Changes in Net Assets Fund Balances of Governmental Funds Changes is Fund Balances of Governmental Funds Tax Capacity, Market Value and Estimated Actual Value of Taxable Property Property Tax Rates Principal Taxpayers Property Tax Levies and Collections Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Computation of Direct and Overlapping Debt Legal Debt Margin Information Pledged-Revenue Coverage Special Assessment Levies and Collections Demographic and Economic Statistics Principal Employers Full- Time Equivalent Employees by Function Operating Indicators by Function Capital Asset Statistics by Function 71 72 74 75 76 78 79 80 81 82 83 84 86 87 88 89 90 91 92 I I I I I I I I I I I I I I I I INTRODUCTORY SECTION I I I I I I I I I I I I I I I I I April 26, 2005 I Honorable Mayor Klinzing, Members of the City Council, and Citizens of Elk River: I The Comprehensive Annual Financial Report (CAFR) for the City of Elk River for the fiscal year ended December 31,2004, is hereby submitted. Minnesota State Statutes and the City's ordinance require an annual audit of the City's accounts by the State Auditor's office or by independent certified public accountants. The firm of Abdo, Eick, and Meyers was selected to perform the City's audit and their unqualified opinion has been included in this report. The independent auditor's report is included in the financial section of this report. I I This report was prepared by the City's Finance Department and responsibility for both the completeness and accuracy of this data, as well as the fairness of this presentation including all enclosures, rests with the City. To the best of my knowledge and belief, the enclosed data are accurate in all material respects and are recorded in a manner designed to present fairly the financial position and the results of operations of the various funds of the City. To provide a reasonable basis for making these representations, management ofthe City has established a comprehensive internal control framework that is designed to both protect the City's assets from loss, theft, or misuse, and to compile sufficient reliable information for the preparation of these financial statements in accordance with generally accepted accounting principles (GAAP). Internal accounting controls are designed to provide reasonable but not absolute assurance regarding the safeguarding of the City's assets against loss, theft, or misuse, and ensuring that adequate financial records are maintained for preparing financial statements, and maintaining accountability for assets. The development of an appropriate internal control system requires estimates and judgments by management to ensure that the costs do not exceed the benefits of the system. The City of Elk River's internal control structure is designed so that the estimated costs of control do not exceed the benefits. I I I I I The Comprehensive Annual Financial Report (CAFR) is presented in three sections: Introductory, Financial, and Statistical. The Introductory section includes this transmittal letter, the City's organizational chart, and a list of City officials. The Financial section includes the Independent Auditors' Report, Management's Discussion and Analysis (MD&A), government wide and fund financial statements, notes to the financial statements, and the combining statements and individual fund statements. The Statistical section includes selected financial, economic, and demographic information generally presented on a multi-year basis. I I I I Generally accepted accounting principles require that management provide a narrative introduction overview and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis. This letter of transmittal is designed to compliment the MD&A and should be I Factors Affecting Financial Condition I I I I read in conjunction with it. The City of Elk River's MD&A can be found immediately following the report of the independent auditors. I I Profile of the Government The City of Elk River was originally incorporated in 1880 and consolidated with Elk River Township in 1978 to form a City of 44 square miles. The current population is 20,240. The City of Elk River is located in Sherburne County and serves as the county seat. Elk River is located approximately halfway between the metropolitan areas of Minneapolis/St. Paul and Saint Cloud along the Mississippi River. The City of Elk River is still growing and full development is not anticipated in the near future. Urban services are available to approximately one-third of the City, and it is highly unlikely that the entire City will be served by municipal water and sewer in the foreseeable future. I I The City of Elk River operates under a statutory form of government consisting of a four member City Council and a Mayor who is also a voting member. Council members are elected by ward to a four year term with two Council seats up for election each even year. The Mayor is also elected to a four year term. The City Council is responsible for adopting the City's budget and tax levy, passing resolutions and ordinances, all hiring and firing decisions, policy making, development and growth planning, and overall direction of the City. I I I In addition to providing general government services, the City of Elk River provides a full range of other services including police and fire protection, building and other safety inspections, planning and zoning, economic development, environmental services, parks and recreation, library, street, snow removal, infrastructure maintenance and repair, and others. The City provides municipal water, sewer, garbage, and electric services and operates an off sale liquor store. I I The annual budget serves as the foundation for the City of Elk River's financial planning and control. Budget requests are submitted by all departments to the Finance Department each June. The Finance Department compiles these requests into a proposed budget. The Finance Department and City Administrator review the information and present a draft budget to the Council in August for consideration. Following Council discussion and public input, the final tax levy and budget are approved in December. The City's Financial Management Plan allows department heads to make administrative budget amendments (excluding personal service and capital outlay) throughout the year as long as the total department budget does not change and the amendment is approved by the City Administrator and Finance Director. The Council approves additional budget amendments in December of each year. Budget to actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund, this comparison is presented on page 24 as part of the basic financial statements for the governmental funds. For governmental funds, other than the general fund, with appropriated annual budgets, this comparison is presented in the governmental fund subsection of this report. I I I The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Elk River operates. Local economy. Building activity continued to be very strong last year. Building permits were issued in 2004 for a total of $120,729,413 of new construction. Of this total, new commercial, industrial, and institutional building totaled $22,342,242. This includes $15,900,000 for an addition to the county jail. I 2 I I I I I I I I I I I I I I I I I I I I I The additional taxable value of $6,442,242 is down slightly from 2003 when $7, I 00,808 of commercial and industrial property was added to the tax base. The new housing starts were up slightly to 301 new single family homes compared to 285 in 2003. Townhome, condominium, and twinhome units totaled 247, down from 265 in 2003. In 2004, two manufacturing companies started the process to move their facilities to Elk River. Both companies received City assistance to purchase land for construction of new buildings to house their operations; both of the companies will start production at their new facilities in 2005. The addition of these companies created new employment opportunities and as the companies grow, new jobs will be created. The Elk River Housing and Redevelopment Authority (HRA) has been working on a major downtown revitalization project for the last several years. The project approvals, development agreement, and other pre-construction requirements were substantially completed in 2004 and construction is anticipated to start this spring. The construction will consist of a combination of both for sale and rental housing and commercial units, some adjacent to river frontage. In addition, as part of the project, the City is reconstructing a public parking lot to improve parking in the downtown area. Long-term financial planning. The City recently completed a review of the Financial Management Plan to ensure that the City would be able to sustain current services for the next ten years and maintain a level tax rate at the same time. The study estimated both residential and commercial market valuation growth for ten years so that estimated tax base data could be calculated. Based on the estimated tax base, the cost of current services inflated over time, and projected capital expenditures, it was determined that the City could continue to offer existing services while keeping the tax rate stable with only minor fluctuations. The study concluded that the City is in a position to allow for expanded staff, services, and capital projects, without a major impact on the tax rate. As part of the study, a debt affordability policy was discussed. Staff is currently preparing a draft policy for Council consideration. The policy will offer guidance to the existing and future Councils on the amount of property tax supported debt that may be issued. In 2004 the Comprehensive Land Use and Transportation plans were adopted by the City Council. The Comprehensive Land Use plan projects the City's population at full build out to be 37,000. The Plan adds two new land use designations, old town and commercial reserve and phases out the agricultural use designation in favor of a more dense designation of rural residential. Once the Comprehensive Land Use Plan was adopted and the sewer capacity study was complete, an in-depth sewer system expansion plan was started. This study, along with a sewer rate study, will be presented to the Council this spring. The sewer study addresses plant expansion timing and financing requirements necessary to meet the anticipated growth as defined in the Comprehensive Land Use Plan. The sewer rate study reviews current financial information and projects future revenues so that changes to the rates and rate structure can be made if necessary to meet the future financial needs of the sewer system. The initial findings of the rate study indicate that future rate increases will be very modest. The plant expansion project will be done in phases with the first phase of construction expected to start in late 2005 or early 2006. The Council adopted the Capital Improvement Plan for the years 2005-2009 and reviewed capital projects and requests for 2010-2014. Adoption of a CIP helps ensure that planning takes place to ensure that projects and other capital needs can be funded and that the projects occur in a timely fashion. Cash management policies and practices. Cash temporarily idle during the year was invested in demand deposits, certificates of deposits, United Statedgovemment and agency securities, and 3 I commercial paper as authorized by the City's investment policy. All idle cash is maintained in an investment pool on a combined basis where all funds with a cash balance participate in the investment pool. The Economic Development Authority, water and electric funds do not participate in the investment pool. The water and electric funds are invested by the Elk River Municipal Utilities. The City's investment policy states that the safety and liquidity of the portfolio are more important than the return on investment. The City's policy closely follows all of the Minnesota State Statutes governing the investment of municipal funds. I I I Risk management. The City of Elk River strives to limit both its liability risk and insurance 'costs in all areas and has been successful in both limiting risk and keeping premium costs reasonable. This is done by continually evaluating safety programs, maintaining adequate deductibles, maintaining correct property and equipment schedules, and working with the City's insurance agent and underwriters to initiate programs to achieve those goals. The City maintains an emergency/insurance reserve fund for the purpose of funding insurance deductibles, promoting safety programs through our Safety Committee, and providing safety training to all employees. However, the City does not self insure and does not intend to self insure at any time in the future. The City's Safety Coordinator and the Safety Committee are responsible for training all employees in the City's safety policies to protect the City's employees from work related injuries and to help reduce work related insurance claims. The results of this can be seen through the relatively low experience modification factor applied to our worker's compensation msurance. I I I I Awards and Acknowledgements. I The Government Finance Officers Association of the United Stated and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Elk River for its comprehensive annual financial report (CAFR) for the fiscal year ended December 31,2003. This was the fifteenth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement the government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. I A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. I I I The preparation of this report is made possible by the dedicated efforts of the entire Finance Department staff particularly Assistant Finance Director Lori Ziemer. I would also like to recognize the Mayor and City Council for their willingness to support and their recognition of the importance of sound fmancial management and both short and long term financial planning. The Council's continued dedication to maintaining these high financial standards is to be commended. I Respectfully submitted, I ~~- ~ I I I Lori Johnson Finance and Administrative Services Director 4 I I I I I I I I I I I I I I I I I I I I Certificate of Achievement for Excellence in Financial Reporting Presented to City of Elk River, Minnesota For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2003 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. /l~;e:~ President ~/~ Executive Director 5 CITY OF ELK RIVER ORGANIZATIONAL CHART City Attorney Finance & Admin. Services Community Development Parks & Recreation Mayor & City Council City Administrator Police Fire Public Works 6 Boards & Commissions I I I I I I I I I I I I I I I I I I I APPOINTED PERSONNEL I I I I I I I I I I I I I I I I I I I CITY COUNCIL Stephanie Klinzing John Dietz Louise Kuester Paul Motin Dan Tveite Patrick Klaers Lori Johnson Jeff Beahen Bruce West Stephen Rohlf Michele McPherson Catherine Mehelich William Maertz Philip Hals Terry Maurer CITY OF ELK RIVER, MINNESOTA ELECTED AND APPOINTED OFFICIALS YEAR ENDED DECEMBER 31,2004 Term Expires December 3 L Mayor Council member Council member Council member Council member 2006 2006 2004 2006 2004 City Administrator Finance & Administrative Services Director Police Chief . Fire Chief BuildinglEnvironmental Administrator Planning Director Economic Development Director Parks & Recreation Director Street Superintendent City Engineer 7 This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I FINANCIAL SECTION I I I I I I I I I I I I I I I I I I I Grandview Square 5201 Eden Avenue Suite 370 Edina, MN .55436 INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Council City of Elk River, Minnesota We have audited the accompanying fmancial 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, Minnesota (the City), as of and for the year ended December 31,2004 which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these fInancial statements based on our audit. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signifIcant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of December 31, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America In accordance with Government Auditing Standards, we have also issued our report dated March 17, 2005, on our consideration of the City's internal control over financial reporting and out tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. 952.835.9090 . Fax 952.835.3261 8 www.aemcpas.com I r'. Page Two Our audit was performed for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining, individual fund financial statements, schedules and statistical information listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the general purpose financial statements of the City. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, except for the statistical data section marked ''unaudited'' on which we express no opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. March 17, 2005 Minneapolis, Minnesota ~J~~~JLL~ ABDO, EICK & MEYERS, LLP Certified Public Accountants 9 952.835.9090 . Fax 952.835.3261 www.aemcpas.com I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Management's Discussion and Analysis As management of the City of Elk River, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31,2004. We encourage readers to consider the information presented here in conjunction with the additional information that we have furnished in our letter of transmittal, which can be found on pages 1 - 4 of this report. Financial Highlights The assets of the City of Elk River exceeded its liabilities at the close of the most recent fiscal year by $162,532,500 (net assets). Of this amount, $34,910,022 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net assets increased by $16,189,860. As of the close of the current fiscal year, the City of Elk River's governmental funds reported combined ending fund balances of $25,535,690. General Special Revenue Total Debt Service Capital . Proiects Reserved Designated Undesignated $ 115,746 3,851,634 $ 5,690,200 2,979,789 1.617.406 $ 5,879,803 $ 5,683,687 (282.575) $ 11,685,749 12,515,110 1.334.831 $ 3.967 380 $ 10.287.395 $ 5 879 803 $ 5.401.112 $ 25.535.690 The City of Elk River's total long-term liabilities decreased by $3,753,317 during the current fiscal year, from $39,027,052 to $35,273,735. Beginning Ending Balance Additions Reductions Balance Governmental activities: Bonds payable $ 22,600,450 $ 331,000 $ (2,494,483) $ 20,436,967 Contract for deed 47,976 (47,976) Compensated absences 420.227 309.411 (264.004) 465.634 Total governmental activities 23.068.653 640.411 (2.806.463) 20.902.601 Business-type activities: Bonds payable 12,930,000 940,000 (2,445,000) 11,425,000 Notes payable 2,775,424 (112,279) 2,663,145 Compensated absences 252.975 53.532 (23.518) 282.989 Total business-type activities 15.958.399 993.952 (2.580.797) 14.371.134 Total City long-term liabilities $ 39.027.052 $ 1.633 943 $ (5.387.260) $ 35.273.735 Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Elk River's basic fmancial statements. The City's basic fmancial statements comprise three components: 1) government-wide fmancial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. 10 Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Elk River's finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City of Elk River's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Elk River is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Elk River that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Elk River include general government, public safety, public works, culture and recreation, and economic development. The business-type activities of the City of Elk River include municipal liquor, garbage, sewer, water, and electric. The government-wide financial statements include not only the City of Elk River itself (known as the primary government), but also a legally separate Housing & Redevelopment Authority (HRA) for which the City of Elk River is financially accountable. Financial information for the HRA is reported separately from the financial information presented for the primary government itself. The Elk River Municipal Utilities, although also legally separate, functions for all practical purposes as a department of the City of Elk River, and therefore has been included as an integral part of the primary government. The government-wide fmancial statements can be found on pages 18 - 19 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Elk River, like other state and local government, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Elk River can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide fmancial statements. However, unlike the government-wide fmancial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide fmancial statements. By doing so, readers may better understand the long-term impact by the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Elk River maintains five individual major governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, improvement bonds, capital projects, permanent improvement revolving and tax increment financing districts. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Elk River adopts an annual appropriated budget for its general fund and some special revenue funds. A budgetary comparison statement has been provided for those funds to demonstrate compliance with this budget. The basic governmental fund fmancial statements can be found on pages 20 - 24 of this report. Il I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Proprietary funds. When the City of Elk River charges customers for the services it provides - whether to outside customers or to other departments of the City - these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the statement of net assets and the statement of revenues, expenses, and changes in net assets. The enterprise funds are the same as the business-type activities reported in the government-wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. The City of Elk River uses enterprise funds to account for its municipal liquor, garbage, sewer, water, and electric operations. The basic proprietary fund tiIi.ancial statements can be found on pages 25 - 32 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Elk River's own program. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund fmancial statements can be found on page 33 of this report. Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 34 - 51 of this report. Other Information. The combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented immediately following the notes to financial statements. Combining and individual fund statements and schedules can be found on pages 52 - 70 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. . In the case of the City of Elk River, assets exceeded liabilities by $162,532,500 at the close of the most recent fiscal year. By far, the largest portion of the City of Elk River's net assets (73 percent) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment), less any related debt used to acquire those assets that is still outstanding. The City of Elk River uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Elk River's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Current and other assets Capital assets Net Assets Governmental Business-type Activities Activities Total 2004 2003 2004 2003 2004 2003 $ 33,345,931 $ 33,614,992 $ 14,701,975 $ 14,935,172 $ 48,047,906 $ 48,550,164 86.758.430 78.652.423 66.465.832 62.047.407 153.224.262 140.699.830 120.104.361 112.267.415 81.167.807 76.982.579 201.272.168 189.249.994 20,902,601 23,068,653 14,371,134 15,958,399 35,273,735 39,027,052 1. 724.828 2.369.287 1.741.105 1.511.015 3.465.933 3.880.302 22.627.429 25.437.940 16.1 12.239 17.469.414 38.739.668 42.907.354 Total assets Long-term liabilities outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of related debt Restricted Unrestricted 67,061,167 56,003,997 52,377,687 46,341,983 119,438,854 102,345,980 10,963,518 8,383,884 10,963,518 8,383,884 19.452.247 22.441.594 12.677.881 13.171.182 32.130.128 35.612.776 $ 97476932 $ 86 829 475 $ 65 055 568 $ 59 513 165 $162532500 $146342640 12 Total net assets I An additional portion of the City of Elk River's net assets (5 percent) represents resources that are subject to external I restrictions on how they may be used. The remaining balance of unrestricted net assets ($34,910,022) may be used to meet the City of Elk River's ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City of Elk River is able to report positive balances in all three categories of net I assets, both for the City as a whole, as well as for its separate governmental and business-type activities. I I I I I I I I I I I I I I I 13 I I I I I I I I I I I I I I I I I I I I Below are specific graphs which provide comparisons of the governmental activities revenues and expenditures. $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 Expenses and Program Revenue - Governmental Activities $- General government Public safety Public works Culture and recreation Economic development Interest on long-term debt I- Revenue_ Expense 1 Revenue Sources - Governmental Activities Gain on disposal of capital assets 0.03% Transfers 3.30% Charges for services 12.95% Property taxes 27.26% Operating grants and contributions 1.63% Unrestricted investment earnings 1.43% Grants and contributions not restricted to specific programs 8.15% Capital grants and contributions 45.24% 14 Business-type activities I I Business-type activities increased the City of Elk River's net assets by $5,542,403. Below are graphs showing the business-type activities revenue and expense comparisons. $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- I Expenses and Program Revenue - Business-type Activities I Municipal liquor Capital grants and contributions 10.98% Operating grants and contributions 0.03% I I Garbage I Sewer Water Electric . Revenue I . Expense I Revenue by Source - Business-type Activities I I I Charges for services 88.99% I I I I I I 15 I I I I I I I I I I I I I I I I I I I I Financial Analysis of the Government's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $25,535,690. Approximately 54% of this total amount ($13,849,941) constitutes unreserved fund balance, which is available for spending at the City's discretion. The remainder of fund balance ($11,685,749) is reserved to indicate that it is not available for new spending because it has already been committed to provide for 1) debt service ($6,329,803), 2) capital equipment/projects ($2,961,664), 3) landfill mitigation ($2,189,343), or 4) a variety of otherrestricted purposes ($204,939). The general fund is the chief operating fund of the City of Elk River. The general fund increased by $235,331 in 2004, which was primarily due to license and permit and charges for service revenues exceeding budget projections. The improvement bonds fund increased by $371,157, which is primarily due to the prepayment of assessments on improvement projects. The capital projects fund decreased by $51,123 due to transfers out to other funds for projects. The permanent improvement revolving fund decreased by $19,967 due to transfers to debt service funds. The tax increment financing districts fund decreased by $240,874 due to infrastructure improvement projects funded by tax increment. Proprietary funds. The City of Elk River's proprietary funds provide the same type of information found in the government-wide statements, but in more detail. Unrestricted net assets in the respective proprietary funds are municipal liquor - $2,521,275, garbage - $86,545, sewer- $5,110,855, water - $1,804,410, and electric - $3,154,796. All proprietary funds had increases in net assets. General Fund Budgetary Highlights Differences between the original budget and the fmal budget for the general fund amounted to $166,250. The revenue and expenditure budgets were amended to reflect increased revenues in the license and permits, and charges for services, decreased revenues in interest income, and expenditure increases in all categories due to increased activity and demand for services. Revenues exceeded budgetary estimates and expenditures exceeded budgetary projections, but revenues still exceeded expenditures and resulted in an increase in fund balance of$235,331. Capital Asset and Debt Administration Capital Assets. The City of Elk River's investment in capital assets for its governmental and business type activities as of December 31, 2004, amounts to $153,224,262 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, equipment and infrastructure. Capital Assets, Net of Depreciation Governmental Activities 2004 2003 Business-type Activities 2004 2003 Total 2004 2003 Land $ 29,033,685 $ 24,804,495 $ 1,442,669 $ 1,431,669 $ 30,476,354 $ 26,236,164 Construction in progress 2,221,500 1,030,122 16,072 1,030,122 2,237,572 Buildings 15,062,808 12,647,294 9,105,721 9,411,046 24,168,529 22,058,340 Other improvements 1,216,737 1,209,053 1,216,737 1,209,053 Equipment 2,485,867 2,416,061 372,216 430,907 2,858,083 2,846,968 Infrastructure 38.959.333 35.354.020 54.515.104 50.757.713 93.474.437 86.111.733 Total $ 86 758 430 $ 78 652 423 $ 66 465 832 $ 62 047407 $153224 262 $140699830 Additional information on the City's capital assets can be found in Note 3C on pages 42 - 43 of this report. 16 Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of$35,273,735, a decrease of $3,753,317 from 2003. Of the total outstanding, $12,900,000 general obligation revenue bonds were used to finance the construction of an ice arena, a liquor store, and sewer, water and electric systems. $9,285,000 lease revenue bonds were used to finance the construction of a public safety/city hall facility. $6,460,000 special assessment bonds financed improvement projects within the City and are assessed to the benefiting properties. $1,020,000 permanent improvement revolving bonds financed improvement projects within the City and are assessed to the benefiting properties. $1,116,000 tax increment bonds financed the City's economic development program. $1,080,967 certificates of indebtedness financed capital equipment purchases. City of Elk River Outstanding Debt Governmental Business-type Activities Activities Total 2004 2003 2004 2003 2004 2003 Bonds payable: General obligation revenue bonds $ 1,850,000 $ 2,045,000 $ 11,050,000 $ 12,430,000 $ 12,900,000 $ 14,475,000 Lease revenue bonds 9,285,000 9,765,000 9,285,000 9,765,000 Special assessment bonds 6,460,000 7,520,000 6,460,000 7,520,000 Permanent improvement revolving bonds 1,020,000 1,305,000 1,020,000 1,305,000 Tax increment bonds 1,116,000 1,352,500 1,116,000 1,352,500 Certificates of indebtedness 705.967 612.950 375.000 500.000 1.080.967 1.112.950 Total bonds payable 20,436,967 22,600,450 11,425,000 12,930,000 31,861,967 35,530,450 Contract for deed 47,976 47,976 Promissory note 2,663,145 2,775,424 2,663,145 2,775,424 Compensated absences 465.634 420.227 282.989 252.975 748.623 673.202 Total $ 20 902 601 $ 23068653 $ ]437] 134 $ ]5958399 $ 35 273 735 $ 39 027 052 The City maintained an A2 rating from Moody's for general obligation debt. State statutes limit the amount of general obligation debt a Minnesota city may issue to 2% of total Estimated Taxable Market Value. The current debt limitation for the City of Elk River is $26,212,519. $9,135,819 of the City's net outstanding debt is counted within the statutory limitation. Additional information on the City of Elk River's long-term debt can be found in Note 3E on pages 44 - 48 of this report. Economic Factors and Next Year's Budget The City of Elk River estimates that the demand for city services will continue to grow at a level similar to last year due to population growth. This was taken into consideration in preparation of the City's 2005 budget. The property tax levy is set annually and is adjusted as necessary to fund the additional cost of providing services related to the City's growth and the addition of new programs. Charges for services are evaluated each year and adjusted if warranted. The City expects to keep the tax rate consistent in upcoming years. I I I I I I I I I I I I I I I Requests for Information This financial report is designed to provide a general overview of the City of Elk River's fmances for all those with an I interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional fmancial information should be addressed to City of Elk River, Attn: Finance Director, 13065 Orono Pkwy, Elk River, Minnesota 55330 or by calling (763) 635-1000. I 17 I I I I I I I I I BASIC FINANCIAL STATEMENTS I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA I STATEMENT OF NET ASSETS DECEMBER 31, 2004 I Primary Government Governmental Business-type Component Activities Activities Total Unit - HRA I ASSETS Cash and investments $ 24,108,689 $ 11,769,765 $ 35,878,454 $ 117,916 Cash with fiscal agent 503,567 503,567 I Receivables (net): Interest 35,678 72,789 108,467 Taxes 360,056 360,056 8,868 I Accounts 394,981 1,434,197 1,829,178 Special assessments 6,251,412 6,251,412 Notes 582,615 582,615 I Due from other governments 551,165 551,165 Due from primary government 368,094 Internal balances 139,604 (139,604) Inventories 1,377,838 1,377,838 I Prepaid items 418,164 38,180 456,344 Deferred charges 148,810 148,810 Capital assets: I Nondepreciable 29,033,685 2,472,791 31,506,476 Depreciable (net) 57,724,745 63,993,041 121,717,786 I Total assets 120,104,361 81,167,807 201,272,168 494,878 LIABILITffiS Accounts payable 649,954 1,501,357 2,151,311 4,098 I Salaries payable 103,791 19,763 123,554 851 Due to other governments 243,958 20,560 264,518 Due to component unit 368,094 368,094 I Accrued interest payable 345,549 199,425 544,974 Unearned revenue 13,482 13,482 Non-current liabilities: I Due within one year 2,472,471 986,637 3,459,108 Due in more than one year 18,430,130 13,384,497 31,814,627 I Total liabilities 22,627,429 16,112,239 38,739,668 4,949 NET ASSETS Invested in capital assets, I net of related debt 67,061,167 52,377,687 119,438,854 Restricted for: Debt service 8,659,697 8,659,697 I Landfill mitigation 2,189,343 2,189,343 Capital equipment 114,478 114,478 Unrestricted 19,452,247 12,677,881 32,130,128 489,929 I Total net assets $ 97,476,932 $ 65,055,568 $ 162,532,500 $ 489,929 I The notes to the financial statements are an integral part of this statement. 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C :J '~ , ~~ ~ '" - o N \0 "<I" '" "<I" '" ~ .,., 00 '" o \0 .,., .,., - ~ ::l .... - N \0 ~ ! 00 o N - '" \0 "<I" ~ '" 0\ 00 N 00 .,., .... ~ .... a::: o E o 'ii - '" '" :s ...... o ~ Q. -a .... ~ o - .5 a ~ '" - a::: o E o E '" -a .u a::: <ll a::: l+= o ..c - o - '" ~ a::: o ..c E-< 00 o \0 N N '" "<I" ~ '" Q.l (.) a 0; or> '" C <E '" a '" ~ ~ 0; "0 r- CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS DECEMBER 31, 2004 FUND BALANCE - TOTAL GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of net assets are different because: 1. Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds: Governmental capital assets Less accumulated depreciation 2. Deferred revenue in governmental funds is susceptible to full accrual on the. government-wide statements. 3. Long-term liabilities are not payable with current financial resources and are therefore not reported in the governmental funds: Bonds payable Accrued interest payable Compensated absences NET ASSETS OF GOVERNMENTAL ACTIVITIES The notes to the financial statements are an integral part of this statement. 21 $ 112,693,490 (25,935,060) $ 25,535,690 86,758,430 6,430,962 (20,436,967) (345,549) (465,634) (21,248,150) $ 97,476,932 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I fI:l f;o;1 U Z <: ... ~ Q Z ;:l '"' Z .... "" fI:l <::> f;o;1 ~ <:" .... ...Ii": '" SJ~fI:l= f;o;1UQ[:l ZQIi":~ ~1i":;:lf;o;1 ~<:'"'U -<15' ~ f;o;1 =f;o;1...Q f;o;1=ZQ l::;:lf;o;1f;o;1 :~~~ ...Z=f;o;1 f;o;1f;o;1f;o;1= ,",~,,<: or:i8!:: ;... f;o;1 ...~ = U;:l ... Ii": = f;o;1 0 ~ '"' = '"' o ... Ii": f;o;1 ~ f;o;1 ... <: ... fI:l OJ i: sE~ o E S ...~... o " '$ c ... 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Ii": ...S'$] S .5 i5 '0 "5. 0 ~~~~~] ~c.2~OJc..-.o =",.,,,OE- "'o~~E-a E-E-","'" ~ I ~ ~ ~ ~ ~j ~ ~ ~ ~H ~ ~ ~j ~ , '" o M "l". ,., ;j ~ ,., ,., "," ..., N ., " <..> c '" OJ or> -0 C <2 .:: " bll C '" .c <..> ... " Z C:> '" ::l a ..., , ., " <..> c '" OJ or> -0 C ::l ... ~ 15 Il.l E Il.l E '" '" :s ""' o ~ Co < 8 1a Il.l a '" E Il.l E Il.l E '" < -0 C ::l ... CITY OF ELK RIVER, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2004 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of activities are different because: 1. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. Capital outlay Depreciation expense $ 1,225,515 $ 2,611,871 (3,760,149) (1,148,278) 2. The net effect of various miscellaneous transactions involving capital assets including donations and disposals, which increase net assets. Donations of capital assets 3. Revenues in the statement of activities that do not provide current fmancial resources are not reported as revenues in the governmental funds. 4. The issuance of long-term debt provides current fmancial resources to governrnental funds, while the repayment of the principal oflong-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long-term debt and related items. Issuance of long-term debt Repayment of principal of long-term debt (331,000) 2,542,459 5. Some expenses reported in the statement of activities do not require use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Accrued interest payable Compensated absences 29,467 (45,407) CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES The notes to the fmancial statements are an integral part of this statement. 23 9,254,285 (879,584) 2,211,459 (15,940) $10,647,457 I I I I I I I I I I I I I I I I I I I -----,----.--- - I I CITY OF ELK RIVER, MINNESOTA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, I AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2004 I Variance with Final Budget - Budget Positive I Original Final Actual (Negative) REVENUES General property taxes $ 4,807,750 $ 4,807,750 $ 4,823,786 $ 16,036 Licenses and permits 716,000 1,166,000 1,249,844 83,844 I Intergovernmental revenue 875,150 875,150 933,639 58,489 Charges for services 633,850 813,850 925,390 111,540 Fines 170,000 170,000 153,276 (16,724) Interest income 75,000 45,000 55,593 10,593 I Miscellaneous revenue 10,200 15,400 18,892 3,492 Total revenues 7,287,950 7,893,150 8,160,420 267,270 I EXPENDITURES Current: General government 1,862,800 1,997,250 1,934,402 62,848 Public safety 3,708,100 3,829,300 4,001,754 (172,454) I Public works 1,265,000 1,288,000 1,231,042 56,958 Culture and recreation 947,900 956,500 1,047,724 (91,224) Capital outlay: I Public safety 24,500 24,476 24 Total expenditures 7,783,800 8,095,550 8,239,398 (143,848) I Revenues over (under) expenditures (495,850) (202,400) (78,978) 123,422 OTHER FINANCING SOURCES (USES) I Transfers in 470,450 418,250 420,169 1,919 Transfers out (91,600) (166,600) (105,860) 60,740 Total other financing sources (uses) 378,850 251,650 314,309 62,659 I Net increase in fund balance (117,000) 49,250 235,331 186,081 Fund balance - January 1 3,732,049 3,732,049 3,732,049 I Fund balance - December 31 $ 3,615,049 $ 3,781,299 $ 3,967,380 $ 186,081 I I I I The notes to the [manciaI statements are an integral part of this statement. I 24 I I I I Water Electric Total $ 1,739,439 $ 2,361,856 $ 11,769,765 I 34,119 28,269 72,789 125,262 1,298,618 1,434,197 I 182,913 27,808 864,625 1,377,838 6,792 27,311 38,180 1,933,420 4,580,679 14,875,682 I 102,771 23,501 148,810 I 199,633 216,514 2,472,791 26,921,674 34,275,059 90,329,710 (4,521,546) (12,361,088) (26,336,669) I 22,599,761 22,130,485 66,465,832 22,702,532 22,153,986 66,614,642 24,635,952 26,734,665 81,490,324 I I 65,706 881,992 1,501,357 2,040 8,026 19,763 20,560 20,560 6,118 316,399 322,517 I 98,653 44,616 199,425 5,611 16,832 26,718 124,919 124,919 I 388,750 166,250 835,000 566,878 1,579,594 3,050,259 I 53,653 160,959 256,271 2,538,226 2,538,226 6,146,250 2,378,750 10,590,000 6,199,903 5,077,935 13,384,497 I 6,766,781 6,657,529 16,434,756 I 16,064,761 16,922,340 52,377,687 1,804,410 3,154,796 12,677,881 I $ 17,869,171 $ 20,077,136 $ 65,055,568 I I 26 I CITY OF ELK RIVER, MINNESOTA I STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2004 I Municipal I Liquor Garbage Sewer Sales and cost of sales: Sales $ 4,341,147 $ $ I Cost of sales (3,160,094) Gross profit 1,181,053 Operating revenues: I User charges 967,528 1,141,437 Delinquency collections 5,648 I Other 4,555 8,615 1,725 Total operating revenues 4,555 981,791 1,143,162 Operating expenses: I Personal services 368,724 8,528 280,619 Supplies 8,875 85 39,546 Purchased power I Other service charges 127,080 944,819 304,432 Depreciation 64,083 724,112 Total operating expenses 568,762 953,432 1,348,709 I Operating income (loss) 616,846 28,359 (205,547) Nonoperating revenues (expenses): I Connection charges 1,222,100 Interest income 30,974 613 64,903 Interest expense (31,300) (108,677) I Amortization of bond discount (7,023) Total nonoperating revenues (expenses) (326) 613 1,171,303 I Income before contributions and transfers 616,520 28,972 965,756 Capital contributions 1,532,501 I Transfers in (out) (465,568) 6,688 (33,475) Change in net assets 150,952 35,660 2,464,782 I Total net assets - January 1 3,630,918 50,885 20,776,064 Total net assets - December 31 $ 3,781,870 $ 86,545 $ 23,240,846 I I The notes to the fmancial statements are an integral part of this statement. I 27 I I I I I Water Electric Total I $ $ $ 4,341,147 (3,160,094) 1,181,053 I 1,167,955 13,761,716 17,038,636 I 7,897 118,910 132,455 4,003 267,533 286,431 1,179,855 14,148,159 17,457,522 I 258,300 1,058,769 1,974,940 196,905 133,407 378,818 I 8,705,081 8,705,081 351,626 1,926,687 3,654,644 720,044 1,427,091 2,935,330 I 1,526,875 13,251,035 17,648,813 (347,020) 897,124 989,762 I 915,163 617,320 2,754,583 I 31,024 25,704 153,218 (256,207) (87,545) (483,729) (26,046) (33,069) 663,934 555,479 2,391,003 I 316,914 1,452,603 3,380,765 I 1,495,953 3,028,454 (33,897) (340,564 ) (866,816) I 1,778,970 1,112,039 5,542,403 16,090,201 18,965,097 59,513,165 I $ 17,869,171 $ 20,077,136 $ 65,055,568 I I I 28 I CITY OF ELK RIVER, MINNESOTA I STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2004 I Municipal I Liquor Garbage Sewer CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 4,342,422 $ 965,057 $ 2,353,461 Other operating cash receipts 4,555 8,615 1,725 I Payments to suppliers (3,182,916) (937,614) (249,756) Payments to employees (372,747) (8,619) (286,394) Net cash provided by operating activities 791,314 27,439 1,819,036 I CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES I Transfers from other funds 6,688 Transfers to other funds (465,568) (33,475) Increase (decrease) in due to other funds I Increase in due to other governments Net cash provided (used) by noncapital fmancing activities (465,568) 6,688 (33,475) I CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (84,707) (737,082) I Principal paid on capital debt (155,000) (770,000) Proceeds of revenue bonds Interest paid on capital debt (35,401) (126,317) I Principal paid on promissory note Net cash provided (used) by capital and related financing activities (275,108) (1,633,399) I CASH FLOWS FROM INVESTING ACTIVITIES Interest received 36,358 671 76,767 Net increase (decrease) in cash and cash equivalents 86,996 34,798 228,929 I Cash and cash equivalents, January 1 2,350,361 42,436 4,924,950 I Cash and cash equivalents, December 31 $ 2,437,357 $ 77,234 $ 5,153,879 I I I The notes to the financial statements are an integral part of this statement. I 29 I I I Continued I I Water Electric Total I $ 2,074,859 $ 14,505,381 $ 24,241,180 4,003 267,533 286,431 (666,247) (10,765,238) (15,801,771) (255,516) (1,086,462) (2,009,738) I 1,157,099 2,921,214 6,716,102 I 6,688 (33,897) (340,564) (873,504) I (143,967) 100,423 (43,544) 14,296 14,296 I (177,864) (225,845) (896,064) I (864,802) (2,638,709) (4,325,300) (1,353,750) (166,250) (2,445,000) 916,499 916,499 I (276,381) (75,779) (513,878) (112,279) (112,279) I (2,494,933) (2,076,518) (6,479,958) 21,663 22,193 157,652 I (1,494,035) 641,044 (502,268) I 3,233,474 1,720,812 12,272,033 $ 1,739,439 $ 2,361,856 $ 11,769,765 I I I I I 30 I CITY OF ELK RIVER, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2004 Municipal Liquor Garbage Sewer Reconciliation of operating income to net cash provided (used) by operating activities: Operating income (loss) $ 616,846 $ 28,359 $ (205,547) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Other revenue related to operations 1,222,100 Depreciation expense 64,083 724,112 (Increase) decrease in assets: Accounts receivable (409) (1,066) (862) Due from other governments 1,684 Due from other funds (7,053) (9,214) Inventories (47,004) Prepaid items 28 Increase (decrease) in: Accounts payable 160,109 7,290 94,222 Salaries payable (9,350) (91) (5,775) Compensated absences 5,327 Net cash provided by operating activities $ 791,314 $ 27,439 $ 1,819,036 Noncash capital and related financing activities: Amortization of bond discount $ $ $ 7,023 Discount on bonds issued Disposal of capital assets Contribution of capital assets from developers 1,532,501 I I I I I I I I I I I I I I I I 31 I I The notes to the fmancial statements are an integral part of this statement. I I I I Water Electric Total I $ (347,020) $ 897,124 $ 989,762 I 915,163 617,320 2,754,583 720,044 1,427,091 2,935,330 I (16,156) (129,878) (148,371) 137,313 138,997 (16,267) I 6,678 (158,301) (198,627) (2,089) (13,201) (15,262) I (122,305) 171,439 310,755 (3,388) (46,208) (64,812) 6,172 18,515 30,014 I $ 1,157,099 $ 2,921,214 $ 6,716,102 I $ 26,046 $ $ 33,069 22,500 22,500 I 1,848 99,612 101,460 1,495,953 3,028,454 I I I I I I I 32 The notes to the financial statements are an integral part of this statement. ASSETS Cash Accounts receivable Total assets LIABILITY Accounts payable Refundable deposits payable Total liabilities CITY OF ELK RIVER, MINNESOTA STATEMENT OF FIDUCIARY NET ASSETS DEVELOPER ESCROW AGENCY FUND DECEMBER 31,2004 I I I I I I I I I I I I I I I I I I I Agency Fund $ 250,838 89,600 $ 340,438 $ 51,304 289,134 $ 340,438 33 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Elk River operates under the "Optional Plan A" form of government as defined in the State of Minnesota Statutes. Under this plan, the government of the City is directed by a Council composed of an elected Mayor and four elected Council Members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Elk River (the primary government) and its component units. The Elk River Municipal Utilities is considered to be part of the primary government. The Elk River Public Utilities was established and statutory authority is provided in accordance with Chapter 412.321 of the Minnesota Statutes and is considered to be part of the City. The Utilities Commission has three council approved members who serve overlapping three year terms. The statutes provide the City Council all the discretionary authority necessary to operate the utilities except as its powers have been delegated to the Commission. The Utility funds are included with the enterprise funds of this report. Separate financial statements for the Utilities may be obtained at the Elk River Municipal Utilities, 13069 Orono Pkwy, Elk River. The City has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining fmancial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific fmancial burdens on the primary government. The City has the following component units: Blended Component Unit The Economic Development Authority (EDA) was created to carry out economic and industrial development and redevelopment within the City in accordance with policies established by the City Council. The seven member board consists of three Council Members, the Mayor and three other council approved members. The EDA may not exercise any of its authorized powers without prior approval of the City Council. The activities of the EDA are blended and reported as a special revenue fund. Discretely Presented Component Unit The Housing and Redevelopment Authority (HRA) is a separate legal entity created for the purpose of providing redevelopment within the government's jurisdiction. The board consists of five council appointed members, one of which is a Council Member. The City Council has the ability to approve the HRA's budget. The HRA is presented as a governmental fund type. Separate fmancial statements for the HRA may be obtained at the City of Elk River, 13065 Orono Pkwy, Elk River. B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. 34 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. The government reports the following major governmental funds: The general fund is the government's primary operating fund. It accounts for an fmancial resources of the general government, except those required to be accounted for in another fund. The improvement bonds debt service fund accounts for the resources accumulated and payments made for principal and interest on long-term general obligation special assessment debt. The proceeds were used to fmance various street, water, sewer and storm sewer improvements. The capital projects fund is used to account for various improvement projects that are fmanced by the City. The permanent improvement revolving capital projects fund is used to account for bond proceeds used to finance public improvements and to account for special assessment collections levied for the improvements. The tax increment financing districts capital projects fund is used to account for administrative and development costs associated with the various tax increment fmancing projects. 35 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The government reports the following major proprietary funds: The municipal liquor fund accounts for the operations of the City's off-sale liquor store. The garbage fund accounts for the activities of the City's garbage collection and recycling program. The sewer fund accounts for the activities of the City's sanitary sewer treatment system. The water fund accounts for the activities of the City's water distribution system. The electric fund accounts for the activities of the City's electric distribution system Additionally, the government reports the following fund types: The developer escrow agency fund is used to account for resources received from developers for the payment of expenses incurred by the City for private development projects. The Developer Escrow Agency Fund is omitted from the government-wide financial statements, and is included separately within the statement of fiduciary net assets. Private-sector standards of accounting and fmancial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from government-wide financial statements. Exceptions to this general rule are charges between the City's sewer, water and electric functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contribution, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities, and Net Assets or Equity 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. 36 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Cash balances from all funds are combined and invested to the extent available in authorized investments. Earnings from such investments are allocated to the respective funds on the basis of applicable cash balance participation of each fund. Investments are reported at fair value, based upon quoted market prices. 2. Receivables and Payables Due To/From Other Funds During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds" on the balance sheets of the fund financial statements. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide fmancial statements as "internal balances." PropertY Taxes The City Council annually adopts a tax levy and certifies it to the County in December each year for collection the following year. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property as of January 1 and are payable by the property owner in May and October each year. The taxes are collected by the County Treasurer and tax settlements are made to the City three times a year, in January, July and December. In the fund financial statements, taxes that remain unpaid at December 31 are classified as delinquent taxes receivable and are fully offset by deferred revenue, because they are not known to be available to finance current expenditures. Deferred revenue in governmental activities is susceptible to full accrual on the government-wide statements. Special Assessments Special assessments receivable include the following components: · Delinquent - includes amounts billed to property owners but not paid. · Deferred - includes assessment installments that will be billed to property owners in future years. Special assessments in the fund fmancial statements are recognized as receivable and deferred revenue when the levy against the benefited property is adopted by the City Council and certified to the County for collection. Deferred revenue for governmental activities is susceptible to full accrual on the government-wide statements. Notes Receivable The City received grant proceeds from the State of Minnesota to fund economic development projects. These funds have been loaned to several businesses and the terms of repayment vary with each loan. Under terms of the grant agreement, a portion of the original grant will be returned to the State of Minnesota and is reported as a due to other governments liability. The portion of the notes receivable loaned to businesses is offset by deferred revenue. Deferred revenue in governmental activities is susceptible to full accrual on the government-wide statements. 3. Inventories and Prepaid Items For proprietary funds, inventories are valued at cost, which approximates market, based on physical counts. Inventories are recorded as an expense when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 37 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RNER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES _ CONTINUED 4. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government- wide fmancial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, net of interest earned on the invested proceeds over the same period. Property, plant, and equipment of the City, as well as the component units, are depreciated using the straight line method over the following estimated useful lives: Assets Buildings and improvements Other PlU"k improvements Machinery and equipment Public domain infrastructure System infrastructure Years 10 - 40 10 - 20 3 - 20 15 - 50 4 - 50 5. Compensated Absences It is the government's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Unused vacation can be accrued by the employees up to a maximum of 192 hours, the limit of which is determined by years of service. All vacation pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Employees can also accrue an unlimited amount of unused sick leave. Employees with five or more years of service are entitled to receive severance pay equal to a percentage of unused sick pay ranging from 15-20 percent based on years of service, up to a maximum of 192 hours. The liability for severance pay is accounted for the same as accrued vacation pay. 6. Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund fmancial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, bUSiness-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method, which approximates the effective interest method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other fmancing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 38 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 7. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Note 2: STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are legally adopted for the general and some special revenue funds. Project-length fmancial plans are adopted for all capital projects funds. All annual appropriations lapse at fiscal year end. On or before July I of each year, all departments and agencies of the City submit requests for appropriation to the City's administrator so that a budget may be prepared. Before September 15, the proposed budget is presented to the City Council for review and approval. The City Council holds public hearings and may add to, subtract from, or change appropriations. Any changes in the budget must be within the revenue and reserves estimated as available or the revenue estimates must be changed by an affirmative vote by a majority of the City Council. The budget is prepared by fund, function, and activity and includes information on the past year, current year estimates, and requested appropriations for the next fiscal year. Expenditures may not legally exceed budgeted appropriations at the fund level without Council approval. Spending control is established by the amount of expenditures budgeted for the fund, but management control is exercised at the department level. Reported budget amounts are as originally adopted or as amended by Council approved supplemental appropriations and budget transfers. Supplemental budgetary appropriations increased $166,250 due mainly to increased collections of license and permit revenues. B. Excess of Expenditures Over Appropriations For the year ended December 31, 2004, expenditures exceeded appropriations in the general fund by $143,848, the library fund by $221,427, the ice arena fund by $443,401 and the landfill fund by $92,753. These over expenditures were funded by greater than anticipated revenues, available fund balances and future revenues. C. Deficit Fund Equity The tax increment financing districts fund had a deficit fund balance of$282,575. The fund deficit is expected to be covered with future fund revenues. Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Deposits In accordance with Minnesota statutes, the City maintains deposits at the depository banks authorized by the City Council, all of which are members of the Federal Reserve System. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 11 0% of the deposits not covered by insurance or bonds (140% in the case of mortgage notes pledged). 39 I I I I I I I I I I I I I I I I I I I - I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Authorized collateral includes the legal investments described below, as well as certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City Treasurer or in a financial institution other than that furnishing the collateral. At year end, the City's carrying amount of deposits was $4,863,469 and the bank balance was $5,539,438. The bank balance was covered by federal depository insurance totaling $500,000 and securities held by the pledging [mancial institution's agent in the City's name totaling $5,029,438. The remaining $10,000 was not collateralized. The carrying amount of deposits for the HRA, a discretely presented component unit, was $117,916 and the bank balance was $117,595. The bank balance was covered by federal depository insurance. Investments Minnesota Statutes authorize the City to invest in the following: a. Direct obligations or obligations guaranteed by the United States or its agencies. b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. c. General obligations of the State of Minnesota or any of its municipalities. d. Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and maturing in 270 days or less. f. Repurchase or reverse repurchase agreements with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York or certain Minnesota securities broker-dealers. The City's investments are categorized to give an indication of the level of custodial credit risk assumed at year-end. Category I includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty or by its trust department or agent but not in the City's name. The City's investment in the Minnesota Municipal Money Market Fund is valued at fair value and is the same as the value of the pool shares. 40 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED At year end, the City's investment balances were as follows: Category 2 3 Reported Amount! Fair Value $ 11,876,263 $ 1,697,220 16.181.581 $ 29.755.064 $ - $ 11,876,263 1,697,220 16.181.581 29,755,064 Investments not subject to categorization: Minnesota municipal investment pool 1.259.921 Total investments 31,014,985 Deposits 4.863.469 Total cash and investments $ 35 878.454 B. Deferred Revenue Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: Unavailable Unearned Delinquent property taxes receivable: General fund $ 109,532 $ Improvement bonds 2,682 Capital projects 4,078 Nonmajor funds 27,535 Delinquent special assessments: Improvement bonds 21,102 Capital projects 137,468 Permanent improvement revolving 29,802 Special assessments not yet due: Improvement bonds 3,081,803 Capital projects 1,605,197 Permanent improvement revolving 1,234,856 Notes receivable not yet due: Nonmajor funds 176,907 Unearned miscellaneous fees: Nonmajor funds 13.482 Total deferred/unearned revenue for governmental funds $ 6.430.962 $ 13 .482 41 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED C. Capital Assets In accordance with GASB Statement No. 34, the City has reported ail capital assets including infrastructure in the government-wide statement of net assets. Capital asset activity for the year ended December 31, 2004 was as follows: Primary Government Governmental activities: Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Balance Additions $ 24,804,495 $ 4,229,190 2.221.500 27.025.995 4.229.190 15,351,955 3,173,257 1,807,809 115,368 5,593,170 900,760 5 1.1 12.927 5.989.329 73.865.861 10.178.714 2,704,661 757,743 598,756 107,684 3,177,109 510,706 15.758.907 2.384.016 22.239.433 3.760.149 51.626.428 6.418.565 $78 652 423 $10 647 755 Capital assets being depreciated: Buildings Other improvements Equipment Infrastructure Total capital assets being depreciated Less accumulated depreciation for: Buildings Other improvements Equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Governmental activities capital assets, net Business-type activities: Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated $ 1,431,669 $ 11,000 16.072 1.014.050 1.447.741 1.025.050 13,481,613 90,665 647,904 69.972.938 6.238.040 84.102.455 6.328.705 4,070,567 395,990 216,997 58,691 19.215.225 2.480.649 23.502.789 2.935.330 60.599.666 3.393.375 $62 047 407 $ 4418425 42 Capital assets being depreciated: Buildings Equipment Collection and distribution Total capital assets being depreciated Less accumulated depreciation for: Buildings Equipment Collection and distribution Total accumulated depreciation Total capital assets being depreciated, net Business-type activities capital assets, net Deletions $ (2.221.500) (2.221.500) (384,770) (384.770) (64,522) (64.522) (320.248) $(2541 748) $ (10 1.450) (101.450) (101.450) (101.450) $ Balance $29,033,685 29.033.685 18,525,212 1,923,177 6,109,160 57.1 02.256 83.659.805 3,462,404 706,440 3,623,293 18.142.923 25.935.060 57.724.745 $86 758 430 $ 1,442,669 1.030.122 2.472.791 13,572,278 647,904 76.109.528 90.329.710 4,466,557 275,688 21.594.424 26.336.669 63.993.041 $66 465 832 CITY OF ELKRNER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government Public safety Public works Culture and recreation $ 270,879 630,268 2,501,610 357.392 Total depreciation expense - governmental activities $ 3 760 149 Business-type activities: Municipal Liquor Sewer Water Electric $ 64,083 724,112 720,044 1.427.091 Total depreciation expense - business-type activities $ 2 935 330 Construction commitments I I I I I I I I At December 31, 2004, the City had a construction project contract in progress. The commitment related to the remaining contract balance is being financed with available resources of the sewer fund and is summarized as follows: Proiect Spent-to- date Wastewater treatment facility $505,896 D. Interfund Receivables, Payables, and Transfers The composition of interfund balances as of December 31, 2004 is as follows: Due to/from other funds: Receivable Fund Payable Fund General Capital projects Garbage Sewer Nonmajor governmental funds Electric Nonmajor governmental funds Electric Electric Tax increment financing districts Water Electric Nonmajor governmental fund Total I Remaining commitment I $135,353 I I Amount I $ 24,470 479,839 83,949 98,964 510,095 6,118 109,016 10.336 $ 1.322.787 I I I The interfund receivable and payable balances result mainly from the distribution of utility collections and the lendinglborrowing arrangements to cover deficit cash balances at the end of the year. 43 I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Interfund transfers: Transfer In Governmental funds: Major funds: General fund Improvement bonds Capital projects Permanent improvement revolving Tax increment financing districts Nonmajor funds $ 420,169 240,681 23,300 3.982.431 Total governmental funds 4.666.581 Proprietary funds: Municipal Liquor Garbage Sewer Water Electric 6,688 Total proprietary funds 6.688 Total $ 4.673.269 Transfer Out $ 105,860 586,862 629,998 137,232 246,756 2.093.057 3.799.765 465,568 33,475 33,897 340.564 873.504 $ 4.673.269 Interfund transfers are used to I) allocate resources to the funds that received benefit from services provided by another fund, 2) move revenues from the fund with collection authorization to debt service funds as principal and interest payments come due, 3) close completed bond and project funds. E. Long-term Debt The City issues general obligation bonds and equipment certificates to provide funds for the acquisition and construction ofmajor capital facilities. The reporting entity's long-term debt is segregated between the amounts to be repaid from governmental activities and amounts to be repaid from business-type activities. Issue Date Maturity Date Interest Rate GOVERNMENTAL ACTIVITIES: General Obligation Revenue Bonds: 1994C G.O. Storm Sewer Revenue Bonds 1996C G.O. Ice Arena Bonds 6/1/1994 8/1/1996 12/1/2009 12/1/2013 5.40-5.80% 5.70% Total general obligation revenue bonds Lease Revenue Bonds: 1997 City Hall and Law Enforcement Facility Revenue Refunding Bonds 2002A Public Safety Building Lease Revenue Bonds 12/1/1997 2/1/2011 4.75-5.00% 9/1/2002 2/1/2023 2.00-4.85% Total lease revenue bonds 44 Original Issue $ 1,080,000 2.100.000 3.180.000 2,295,000 8.000.000 10.295.000 Payable 12/31/04 $ 470,000 1.380.000 1.850.000 1,570,000 7.715.000 9.285.000 CITY OF ELK RIVER, MINNESOTA I NOTES TO FINANCIAL STATEMENTS I DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I Issue Maturity Interest Original Payable Date Date Rate Issue 12/31/04 Special Assessment Bonds: I 1997 A G.O. Improvement Bonds 8/1/1997 2/1/2013 4.375-5.00% $ 1,165,000 $ 360,000 1998A G.O. Improvement Bonds 12/1/1998 2/1/2009 3.55-4.30% 1,375,000 375,000 1999A G.O. Improvement Bonds 7/1/1999 2/1/2015 4.10-5.00% 5,725,000 3,965,000 I 2000C G.O. Improvement Refunding Bonds 11/1/2000 2/1/2008 4.40-4.70% 900,000 505,000 2003A G.O. Improvement Bonds 12/9/2003 2/1/2014 2.00-4.00% 1.255.000 1.255.000 Total special assessment bonds 10.420.000 6.460.000 I Permanent Improvement Revolving Bonds: 2000B G.O. Improvement Bonds 11/1/2000 2/1/2016 4.40-5.40% 1.275.000 1.020.000 Tax Increment Bonds: I 1992D G.O. Tax Increment Bonds 11/10/1992 2/1/2007 7.90% 160,000 56,000 2000A G.O. Tax Increment Bonds 11/1/2000 2/1/2015 4.45-5.30% 800,000 725,000 2000D G.O. Tax Increment Refunding Bonds 11/1/2000 2/1/2007 6.70- 7 .40% 510.000 335.000 I Total tax increment bonds 1.470.000 1.116.000 Certificates of Indebtedness: I 2000 G.O. Equipment Certificates 11/1/2000 2/1/2005 6.00% 198,200 35,900 2001 G.O. Fire Equipment Certificate 12/1/2001 2/1/2006 3.75% 202,000 101,000 2003 G.O. Equipment Certificates 2/28/2003 2/1/2006 2.25% 357,100 238,067 2004 G.O. Equipment Certificates 6/1/2004 2/1/2007 2.50% 331.000 331.000 I Total equipment certificates 1.088.300 705.967 Total bonded indebtedness 27,728,300 20,436,967 I Compensated absences payable 465.634 Total governmental activities indebtedness $ 27 728 300 $ 20 902 601 I BUSlNESS- TYPE ACTIVITIES: General Obligation Revenue Bonds: I 1996A G.O. Sewer Revenue Bonds 7/1/1996 2/1/2016 5.00-5.80% $ 2,655,000 $ 1,865,000 1997 Liquor Revenue Bonds 7/1/1997 2/1/2007 6.35% 1,245,000 480,000 1997B G.O. Water Revenue Bonds 8/1/1997 2/1/2007 4.00-4.90% 335,000 115,000 1998B G.O. Water Revenue Bonds 12/1/1998 2/1/2014 4.10-5.00% 820,000 605,000 I 2001A G.O. Water Revenue Bonds 10/1/2001 2/1/2022 2.50-4.90% 3,590,000 3,410,000 2002B City Hall Expansion Revenue Bonds 9/1/2002 2/1/2023 3.00-5.00% 1,695,000 1,640,000 2003B G.O. Water Revenue Bonds 12/9/2003 2/1/2014 2.00-3.70% 1,995,000 1,995,000 2004A Electric Revenue Bonds 8/1/2004 2/1/2015 3.00-4.25% 940.000 940.000 I Total general obligation revenue bonds 13.275.000 11.050.000 Certificates of Indebtedness: I 2002 G.O. Electric Equipment Certificate 6/17/2002 2/1/2007 4.90% 500.000 375.000 Total bonded indebtedness 13,775,000 11,425,000 I Promissory note 3/19/2002 12/31/2022 -% 2,860,000 2,663,145 Compensated absences payable 282.989 Total business-type activities indebtedness 19.110.000 14.371.134 I Total City indebtedness $ 50 870 050 $ 35 273 735 45 I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Annual debt service requirements to maturity for general obligation bonds are as follows: Governmental Activities G.O. Revenue Bonds Lease Revenue Bonds Special Assessment Bonds Principal Interest Principal Interest Principal Interest 2005 $ 205,000 $ 105,035 $ 500,000 $ 381,515 $ 925,000 $ 262,755 2006 215,000 93,605 520,000 363,854 960,000 225,487 2007 230,000 81,520 535,000 344,825 935,000 187,577 2008 245,000 68,505 560,000 323,815 620,000 154,967 2009 255,000 54,540 585,000 300,744 475,000 130,880 2010-2014 700,000 102,600 2,220,000 1,193,174 1,880,000 383,574 2015-2019 2,210,000 766,476 665,000 16,625 2020-2023 - 2.155.000 212.360 Total $ 1 850 000 $~ $ 9 285 000 $ 3 886 763 $ 6 460 000 $ 1 361 865 Governmental Activities Tax Increment PIR Bonds Bonds Principal Interest Princinal Interest 2005 $ 85,000 $ 48,386 $ 143,500 $ 59,475 2006 85,000 44,498 145,000 50,495 2007 85,000 40,545 152,500 41,166 2008 85,000 36,529 95,000 33,657 2009 85,000 32,470 105,000 27,953 2010-2014 425,000 99,535 395,000 70,126 2015-2019 170.000 9.138 80.000 2.120 Total $ 1 020 000 $ IDJ,Ql $]116000 $~ Certificates of Indebtedness Principal Interest $ 315,767 279,867 1] 0,333 $ 16,210 6,424 1,379 $~ $~ Business- Tvne Activities G.O. Revenue Bonds Certificates of Indebtedness Notes Pavable Principal Interest Principal Interest Principal Interest 2005 $ 710,000 $ 471,374 $ 125,000 $ 15,312 $ 122,484 $ 2006 825,000 440,330 125,000 9,188 127,274 2007 8]5,000 407,045 125,000 3,063 129,554 2008 655,000 377,983 131,945 2009 695,000 351,875 ] 34,255 2010-20]4 3,985,000 1,283,123 705,318 2015-2019 2,080,000 537,956 760,848 2020-2024 1.285.000 ] 10.903 - - 551.467 - - Total $ II 050 000 $ 3 980 589 $~ $~ $2663145 $ -----= 46 CITY OF ELK RNER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Long-term liability activity for the year ended December 31, 2004 was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Bonds payable: G.O. revenue bonds $ 2,045,000 $ - $ (195,000) $ 1,850,000 $ 205,000 Lease revenue bonds 9,765,000 (480,000) 9,285,000 500,000 Special assessment bonds 7,520,000 (1,060,000) 6,460,000 925,000 PIR bonds 1,305,000 (285,000) 1,020,000 85,000 Tax increment bonds 1,352,500 (236,500) 1,116,000 143,500 Certificates of indebtedness 612.950 331.000 (237.983) 705.967 315.766 Total bonds payable 22,600,450 331,000 (2,494,483) 20,436,967 2,174,266 Contract for deed 47,976 (47,976) Compensated absences 420.227 309.411 (264.004) 465.634 298.205 Governmental activity long-term liabilities $ 23 068 653 $ 640411 $ (2806463) $ 20902601 $ 2472 471 Business-type activities: Bonds payable: G.O. revenue bonds $ 12,430,000 $ 940,000 $ (2,320,000) $ 11,050,000 $ 710,000 Certificates of indebtedness 500.000 (125.000) 375.000 125.000 Total bonds payable 12,930,000 940,000 (2,445,000) 11,425,000 835,000 Notes payable 2,775,424 (112,279) 2,663,145 124,919 Compensated absences 252.975 53.532 (23.518) 282.989 26.718 Business-type activity long-term liabilities $ 15958399 $ 993 532 $ (2 580 797) $ 14 371 134 $ 986 637 For the governmental activities, bonds payable can be summarized in the following categories: The general obligation revenue bonds were used for the construction of various drainage projects and expansion of an indoor ice arena. The bonds are payable from revenues but are backed by the full faith and credit of the City. The lease revenue bonds were used for the construction of city hall and a public safety building and the expansion of city hall. The bonds are payable from annual lease payments received by the EDA from the City. The special assessment bonds are used to finance assessable improvements within the City. The bonds are payable primarily from special assessments levied against properties benefited by the improvements. In addition, the bonds are general obligations of the City and are backed by its full faith and credit. The permanent improvement revolving bonds are used to fmance assessable improvements within the City. The bonds are payable primarily from special assessments levied against properties benefited by the improvements. In addition, the bonds are general obligations of the City and are backed by its full faith and credit. The tax increment bonds are used to finance land acquisition and other public costs to facilitate development within the tax increment district. The bonds are payable from tax increment revenues generated by existing and 'new development within the district. In addition, the bonds are general obligation of the City and are backed by its full faith and credit. The certificates of indebtedness are used to finance the purchase of capital equipment. The certificates are general obligations backed by the full faith and credit of the City. 47 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RNER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED The contract for deed was entered into to finance the purchase of property For the governmental activities, compensated absences are generally liquidated through the General Fund. For the business-type activities, the general obligation revenue bonds are used to finance the acquisition and construction of major capital facilities and the certificates of indebtedness are used to finance the purchase of equipment. The bonds and certificates are payable from net revenues of the benefiting enterprise fund but are backed by the full faith and credit of the City. The City also issued a promissory note to provide for the construction of a landfill gas generator. The note is to be paid from revenue of the system and is secured by the facility. Note 4. OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts; theft of damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance. The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT) which is a risk sharing pool with approximately 800 other governmental units. The City pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. B. Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial. The government is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the government's counsel the resolution of these matters will not have a material adverse effect on the financial condition of the government. c. Territorial Acquisition Agreement The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to customers in certain areas currently receiving electric service from Connexus Energy. The cost of property purchased from Connexus Energy will be net book value. The Utilities will also pay for loss of revenue for each area acquired based on a formula outlined in the agreement. In addition, the Utilities will compensate Connexus Energy for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from Connexus Energy for a period of ten years from the date of sale of each individual area. 48 CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 Note 4. OTHER INFORMATION - CONTINUED During 2004 and 2003, the Utilities paid $333,787 and $94,160, respectively, under this agreement, including $185,933 and $94,160 in 2004 and 2003, respectively, for loss of revenues. All amounts paid are included in property and equipment. D. Pension Plans 1. Public Employees Retirement Association a. Plan Description All full-time and certain part-time employees of the City of Elk River are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Food (pERF) and the Public Employees Police and Fire Fund (PEPFF) which are cost-sharing, multiple-employer retirement plans. These plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by the PEPFF. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by State Statute, and vest after three years of credited service. The defmed retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERF's Coordinated and Basic Plan members. The retiring member receives the higher of step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the frrst 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For PEPFF members, the annuity accrual rate is 3.0 percent for each year of service. For all PEPFF and PERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 55 for PEPFF members and 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated members hired on or after Julyl, 1989. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single-life annuity is a lifetime annuity that ceases upon the death of the retiree-no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. 49 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2004 Note 4. OTHER INFORMATION - CONTINUED PERA issues a publicly available fmancial report that includes financial statements and required supplementary information for PERF and PEPFF. That report may be obtained on the web at mnpera.org, by writing to PERA, 60 Empire Drive #200, St. Paul, Minnesota, 55103-1855 or by calling (651) 296-7460 or 1-800-652-9026. b. Funding Policy Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the state legislature. The City makes annual contributions to the pension plans equal to the amount required by state statutes. PERF Basic Plan members and Coordinated Plan members are required to contribute 9.10% and 5.10%, respectively, of their annual covered salary. PEPFF members are required to contribute 6.20% of their annual covered salary. The City of Elk River is required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan PERF members, 5.53% for Coordinated Plan PERF members, and 9.30% for PEPFF members. The City's contributions to the Public Employees Retirement Fund for the years ending December 31, 2004, 2003 and 2002 were $314,861, $265,698 and $245,550, respectively. The City's contributions to the Public Employees Police & Fire Fund for the years ending December 31, 2004, 2003 and 2002 were $169,689, $149,658 and $146,567, respectively. The City's contributions were equal to the contractually required contributions for each year as set by state statute. 2. Volunteer Fire Department Relief Association a. Plan Description The Elk River Fire Relief Association is the administrator of a single employer public employee defined benefit retirement system (PERS) established to provide benefits for members of the Elk River Fire Department. The Fire Relief Association maintains a separate Special Fund to accumulate assets to fund the retirement benefits earned by the Fire Department's membership. Funding for the relief association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). The Fire Relief Association issues a publicly available financial report that includes fmancial statements and required supplementary information. The report may be obtained by writing to the Elk River Fire Department Relief Association, 13073 Orono Parkway, Elk River, MN 55330. b. Funding Policy The financial requirements of the Special Fund are determined in accordance with Section 69.772 of the Minnesota Statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The Association is comprised of volunteers and therefore members have no contribution requirements. The following summarizes the City's annual pension cost and other related information for the current year: Annual pension cost $147,589 Contributions made: City (voluntary) State aid $24,800 $112,146 Actuarial valuation date 12/31/04 Actuarial cost method Entry age normal Amortization method Level dollar closed 50 I CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 I I Note 4. OTHER INFORMATION - CONTINUED Remaining amortization period: Normal cost Prior service cost Asset valuation method I 20 years 5 years Market I Actuarial assumptions: Investment rate of return Projected salary increases Inflation rate Cost of living adjustment 5% N/A N/A None I I Three-Year Trend Information Annual Percentage Net Year Pension of APC Pension Ending Cost ( APC) Contributed Obligation 12/31/02 $ 88,790 126% $ 0 12/31/03 112,146 123% 0 12/31/04 147,589 117% 0 I I I Required Supplementary Information - Schedule of Funding Progress I Assets in Excess of Pension Actuarial Actuarial Actuarial (Unfunded) Benefit Valuation Value of Accrued Percentage Accrued Per Year Date Assets Liabilities Funded Liability of Service 12/31/02 $ 1,037,180 $ 1,267,510 81.8% $ (230,330) $ 3,575 12/31/03 1,354,326 1,378,916 98.2 (24,590) 3,575 12/31/04 1,646,533 1,664,129 98.9 (17,596) 4,000 E. Segment Information I I The City maintains five enterprise funds that account for the municipal liquor operations, garbage collections, and sewer, I water and electric utilities. The City considers each of its enterprise funds to be a segment. Since the required segment information is already included in the City's proprietary funds' balance sheet and statement of revenues, expenses, and changes in net assets balance, this information has not been repeated in the notes to the basic fmancial statements. I F. Conduit Debt Obligations From time to time, the City has issued industrial revenue bonds to provide financial assistance to private-sector entities I for the acquisition and construction of industrial and commercial facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payment received from the benefited entity. Neither the City, the State, nor any political subdivision thereof is obligated in any manner for repayment of the bonds. I Accordingly, the bonds are not reported as liabilities in the accompanying fmancial statements. As of December 31, 2004, there were five series of industrial revenue bonds outstanding, with an aggregate principal I amount payable of$18,800,000. 51 I I I I I I I I I I I I I I I I I I I I NonMajor Governmental Funds Special Revenue Special revenue funds are used to account for the proceeds of proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. They are usually required by statute or local ordinance to finance particular functions or activities of government. Debt Service Debt service funds account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and other related costs. Capital Projects Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those finances by proprietary funds. I CITY OF ELK RIVER, MINNESOTA I COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2004 I Special Debt Capital Total Nonmajor I Revenue Service Projects Governmental Funds Funds Funds Funds ASSETS Cash and investments $ 9,563,065 $ 865,631 $ 2,186,345 $ 12,615,041 I Cash with fiscal agent 503,567 503,567 Receivables: Interest 13,807 1,049 2,968 17,824 I Taxes 16,994 52,676 432 70,102 Accounts 364,518 8,725 373,243 Notes 582,615 582,615 I Due from other governments 32,765 312,767 345,532 Due from other funds 400,604 1,000 233,961 635,565 Prepaid items 41,921 374,975 416,896 I Total assets $ 11,016,289 $ 1,423,923 $ 3,120,173 $ 15,560,385 LIABILITIES AND FUND BALANCES I Liabilities: Accounts payable $ 215,074 $ 1,570 $ 157,457 $ 374,101 Salaries payable 5,328 5,328 I Due to other governments 243,958 243,958 Due to other funds 66,764 423,411 490,175 Deferred revenue 197,770 19,856 298 217,924 I Total liabilities 728,894 21,426 581,166 1,331,486 Fund balances: I Reserved for: Debt service 450,000 1,402,497 1,852,497 Capital projects 2,847,186 2,847,186 I Landfill mitigation 2,189,343 2,189,343 Notes 161,750 161,750 Prepaid items 41,921 41,921 I Unreserved: Designated for: Subsequent years expenditures 2,979,789 2,979,789 I Capital projects 2,539,007 2,539,007 Undesignated 1,617,406 1,617,406 Total fund balances 10,287,395 1,402,497 2,539,007 14,228,899 I Total liabilities and fund balances $ 11,016,289 $ 1,423,923 $ 3,120,173 $ 15,560,385 I I 52 I I I CITY OF ELK RIVER, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES I NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31,2004 I Special Debt Capital Total Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds I REVENUES General property taxes $ 289,690 $ 1,069,515 $ 1,692 $ 1,360,897 Intergovernmental revenue 148,273 65,573 223,134 436,980 I Charges for services 1,250,746 1,250,746 Fines and forfeits 11,524 11,524 Special assessments 147,730 147,730 Interest income 174,816 12,577 26,903 214,296 I Miscellaneous revenue Landfill host fee 961,062 161,600 1,122,662 Other 614,121 44,061 658,182 I Total revenues 3,450,232 1,147,665 605,120 5,203,017 EXPENDITURES I Current: General government 42,431 184,523 226,954 Public safety 112,598 48,993 161,591 I Public works 167,186 221,882 389,068 Culture and recreation 607,574 607,574 Economic development 297,913 297,913 Debt service: I Principal 1,434,483 1,434,483 Interest and service charges 668,144 668,144 Capital outlay: I General government 15,750 518,306 534,056 Public safety 87,585 243,458 331,043 Public works 193,998 193,998 I Culture and recreation 999.,979 999,979 Infrastructure/development projects 656,777 656,777 Total expenditures 2,331,016 2,102,627 2,067,937 6,501,580 I Revenues over (under) expenditures 1,119,216 (954,962) (1,462,817) (1,298,563) I OTHER FINANCING SOURCES (USES) Transfers in 822,336 730,506 2,429,589 3,982,431 Transfers out (1,899,511) (23,300) (170,246) (2,093,057) Proceeds oflong-term debt 331,000 331,000 I Sale of capital assets 9,180 9,180 Total other financing sources (uses) (1,067,995) 707,206 2,590,343 2,229,554 I Net change in fund balances 51,221 (247,756) 1,127,526 930,991 I Fund balances - January 1 10,236,174 1,650,253 1,411,481 13,297,908 Fund balances - December 31 $ 10,287,395 $ 1,402,497 $ 2,539,007 $ 14,228,899 I 53 This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I NONMAJOR SPECIAL REVENUE FUNDS Library Maintenance - This fund accounts for any library maintenance costs which are not paid by the Great River Regional Library System. Ice Arena - This fund accounts for the operation and maintenance of the ice arena which is funded by user fees. Senior Citizen Special Account - This fund is used to account for Senior Citizen program costs funded by revenues generated from Senior Citizen activities. Park Dedication - This fund accounts for park dedication fees from developers and expenditures for park land acquisitions and park capital improvements. Landfill - This fund was established to segregate solid waste surcharge revenues to be used for landfill abatement and other environmental issues. Landfill Construction Debris - This fund was established to account for the tax collected on construction debris deposited in the landfill and is to be used for related environmental issues. Revolving Loan - This fund was established to account for the City's portion of state economic development grant repayments which are used to fund other economic development projects. DTED GrantILoan - This fund was established to account for the Department of Trade and Economic Development grant repayments which are used to fund economic development projects. Development Fund - This fund was established to attract businesses to develop within the City's business park. Capital Outlay Reserve - This fund was established to help build reserves for the purchase of capital equipment. The major source of revenue is from defeased bond issues and related special assessments. Emergency/Insurance Reserve - This fund was opened to account for insurance deductibles and litigation costs not covered by insurance. The major source of revenue is from insurance premium refunds. Government Buildings Reserve - This fund was established to account for the revenues and expenditures of preliminary studies of the construction of a new City Hall. Drug Forfeiture Reserve - This fund was established to account for revenues received as a result of drug related crimes. These funds must be used for drug education and prevention. Severance Pay Reserve - This fund was established to account for resources earmarked for severance pay expenditures. NSPIRDF Reserve - This fund was established to account for revenues received from the license agreement between the City and Northern States Power. Economic Development Authority - This fund was established to account for a special tax levy authorized to help encourage development in the City. EDA DTED Loan - This fund was established to account for the Department of Trade and Economic Development grant repayments of the Economic Development Authority (BOA) which are used to fund economic development projects. I CITY OF ELK RIVER, MINNESOTA I SUBCOMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS I YEAR ENDED DECEMBER 31,2004 Senior I Library Citizen Park Maintenance Ice Arena Account Dedication I REVENUES General property taxes $ 64,411 $ $ $ Intergovernmental revenue 4,258 I Charges for services 3,400 588,544 9,141 640,661 Fines and forfeits Interest income 4,439 166 18,817 I Miscellaneous Landfill host fee 107,734 Other 500 49,468 940 2,000 I Total revenues 184,742 638,012 10,247 661,478 EXPENDITURES Current: I General government Public safety I Public works Culture and recreation 54,897 475,371 8,523 62,530 Economic development Capital outlay: I General government Public safety Culture and recreation 224,530 447,630 216,522 I Total expenditures 279,427 923,001 8,523 279,052 Revenues over (under) expenditures (94,685) (284,989) 1,724 382,426 I OTHER FINANCING SOURCES (USES) Transfers in 503,796 I Transfers out (110,033) (200,215) Sale of capital assets Total other financing sources (uses) (110,033) 303,581 I Net change in fund balances (204,718) 18,592 1,724 382,426 Fund balances (deficit) - January 1 532,130 (18,592) 10,904 1,160,638 I Fund balances - December 31 $ 327,412 $ $ 12,628 $ 1,543,064 I I 58 I I CITY OF ELK RIVER, MINNESOTA I SUBCOMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS I YEAR ENDED DECEMBER 31, 2004 Emergency/ Government Drug Severance I Insurance Buildings Forfeiture Pay Reserve Reserve Reserve Reserve I REVENUES General property taxes $ $ $ $ Intergovernmental revenue I Charges for services Fines and forfeits 11,524 Interest 7,206 27,156 151 2,348 I Miscellaneous Landfill host fee 538,668 Other 30,353 68,417 I Total revenues 37,559 634,241 11,675 2,348 EXPENDITURES I Current: General government 38,373 Public safety 3,067 I Public works Culture and recreation Economic development I Capital outlay: General government Public safety Culture and recreation I Total expenditures 38,373 3,067 Revenues over (under) expenditures (814) 634,241 8,608 2,348 I OTHER FINANCING SOURCES (USES) Transfers in I Transfers out (1,186,178) (6,919) Sale of capital assets Total other financing sources (uses) (1,186,178) (6,919) I Net change in fund balances (814) (551,937) 1,689 2,348 Fund balances - January I 592,842 1,793,041 9,114 179,203 I Fund balances - December 31 $ 592,028 $ 1,241,104 $ 10,803 $ 181,551 I I 60 I I I I I Economic Total Nonmajor NSPIRDF Development EDA DTED Special Revenue I Reserve Authority Loan Funds $ $ 221,566 $ $ 289,690 I 10,463 148,273 1,250,746 11,524 I 8,007 2,608 3,529 174,816 961,062 I 261,748 20,414 614,121 269,755 255,051 3,529 3,450,232 I 42,431 I 112,598 167,186 607,574 186,801 297,913 I 15,750 87,585 I 999,979 186,801 2,331,016 I 269,755 68,250 3,529 1,119,216 I 10,336 822,336 (271,768) (15,750) (1,899,511) 9,180 I (271,768) (5,414) (1,067,995) (2,013) 62,836 3,529 51,221 I 526,085 187,850 201,630 10,236,174 I $ 524,072 $ 250,686 $ 205,159 $ 10,287,395 I I 61 62 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LmRARY MAINTENANCE FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2004 Variance with Final Budget - Budget Positive Original Final Actual (Negative) REVENUES General property taxes $ 64,700 $ 64,700 $ 64,411 $ (289) Intergovernmental revenue 4,300 4,300 4,258 (42) Charges for services 3,400 3,400 Interest income 5,000 5,000 4,439 (561) Miscellaneous revenue Landfill host fee 50,000 50,000 107,734 57,734 Other 500 500 Total revenues 124,000 124,000 184,742 60,742 EXPENDITURES Culture and recreation: Current 58,000 58,000 54,897 3,103 Capital outlay 224,530 (224,530) Total expenditures 58,000 58,000 279,427 (221,427) Revenues over (under) expenditures 66,000 66,000 (94,685) 282,169 OTHER FINANCING SOURCES (USES) Tranfers out (11,000) (11,000) (11 0,033) (99,033) Net increase (decrease) in fund balance $ 55,000 $ 55,000 (204,718) $ 183,136 Fund balance - January 1 532,130 Fund balance - December 31 $ 327,412 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ICE ARENA FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31,2004 Variance with Final Budget - Budget Positive Original Final Actual (Negative) REVENUES Charges for services $ 600,300 $ 600,300 $ 588,544 $ (11,756) Miscellaneous revenue Vending machines 34,500 34,500 29,370 (5,130) Other 20,098 20,098 Total revenues 634,800 634,800 638,012 3,212 EXPENDITURES Culture and recreation: Current 479,600 479,600 475,371 4,229 Capital outlay 447,630 (447,630) Total expenditures 479,600 479,600 923,001 (443,401) Revenues over (under) expenditures 155,200 155,200 (284,989) 446,613 OTHER FINANCING SOURCES (USES) Transfers in 25,000 100,000 503,796 403,796 Transfers out (200,250) (200,250) (200,215) 35 Total other fmancing sources (uses) (175,250) (100,250) 303,581 403,831 Net increase (decrease) in fund balance $ (20,050) $ 54,950 18,592 $ 850,444 Fund balance (deficit)- January 1 (18,592) Fund balance - December 31 $ 63 64 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - LANDFILL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31,2004 Variance with Final Budget - Budget Positive Original Final Actual (Negative) REVENUES Intergovernmental revenue $ $ $ 5,354 $ 5,354 Interest 20,000 20,000 24,170 4,170 Total revenues 20,000 20,000 29,524 9,524 EXPENDITURES Current: Public works 28,900 28,900 121,653 (92,753) Revenues over (under) expenditures (8,900) (8,900) (92,129) 102,277 OTHER FINANCING SOURCES (USES) Transfers out (39,000) (39,000) (36,688) 2,312 Net increase (decrease) in fund balance $ (47,900) $ (47,900) (128,817) $ 104,589 Fund balance - January 1 1,905,629 Fund balance - December 31 $ 1,776,812 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA SPECIAL REVENUE FUND - ECONOMIC DEVELOPMENT AUTHORITY FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31,2004 Variance with Final Budget- Budget Positive Original Final Actual (Negative) REVENUES General property taxes $ 219,850 $ 219,850 $ 221,566 $ 1,716 Intergovernmental revenue 10,500 10,500 10,463 (37) Interest 2,000 2,000 2,608 608 Miscellaneous 18,500 18,500 20,414 1,914 Total revenues 250,850 250,850 255,051 4,201 EXPENDITURES Current: Economic development 210,500 210,500 186,801 23,699 Revenues over expenditures 40,350 40,350 68,250 27,900 OTHER FINANCING SOURCES (USES) Transfers in 16,300 16,300 10,336 (5,964) Transfers out (15,750) (15,750) (15,750) Total other financing sources (uses) 550 550 (5,414) (5,964) Net increase in fund balance $ 40,900 $ 40,900 62,836 $ 21 ,936 Fund balance - January 1 187,850 Fund balance - December 31 $ 250,686 65 This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I NONMAJOR DEBT SERVICE FUNDS I Government Building Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of a City Hall and Public Safety facility. I Equipment Certificates - This fund is used to account for the accumulation of resources and payment of principal and interest to finance the purchase of public safety and street and other equipment as authorized by Minnesota Statutes. I PIR Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance public improvements. I Tax Increment Financing Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to fmance administrative and development costs within the various TIF districts. I Storm Sewer Revenue Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance repair and construction of various storm drainage projects. I Ice Arena Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to fmance the construction of the ice arena. 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Cl) ~ S Cl) u Cl) o I '" Cl) u a ;; ~ "'0 ::: ::s .... This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I NONMAJOR CAPITAL PROJECTS FUNDS I Street Improvement - This fund is funded by solid waste surcharge revenues which are set aside to repair road damage caused by large garbage trucks. I Equipment Certificates - This fund was established to account for equipment certificate proceeds used to fund capital equipment purchases as authorized by Minnesota Statutes. I Improvement Proiects - This fund is used to account for the construction of various street and utility improvements within the City. I Public Safety/City Hall EJWansion - This fund is used to account for the construction of a new public safety facility and the addition to city hall. I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 68 I I I I CITY OF ELK RIVER, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS I YEAR ENDED DECEMBER 31, 2004 I Public Safety/ Total Nonmajor Street Equipment Improvement City Hall Capital Projects Improvement Certificates Projects Expansion Funds REVENUES I General property taxes $ 1,692 $ $ $ $ 1,692 Intergovernmental revenue 223,134 223,134 Special assessments 147,730 147,730 I Interest income 25,726 1,177 26,903 Miscellaneous revenue Landfill host fee 161,600 161,600 Other 44,061 44,061 I Total revenues 233,079 370,864 1,177 605,120 I EXPENDITURES Current: General government 184,523 184,523 I Public safety 48,993 48,993 Public works 128,122 1,000 92,760 221,882 Capital outlay: General government 518,306 518,306 I Public safety 84,976 158,482 243,458 Public works 193,998 193,998 Infrastructure/development projects 102,013 554,764 656,777 I Total expenditures 230,135 279,974 647,524 910,304 2,067,937 I Revenues over (under) expenditures 2,944 (279,974) (276,660) (909,127) (1,462,817) OTHER FINANCING SOURCES (USES) Transfers in 586,862 656,549 1,186,178 2,429,589 I Transfers out (103,644) (66,602) (170,246) Proceeds of long-term debt 331,000 331,000 I Total other financing sources (uses) 483,218 264,398 656,549 1,186,178 2,590,343 Net change in fund balances 486,162 (15,576) 379,889 277,051 1,127,526 I Fund balances (deficit) - January 1 1,881,726 15,576 (208,770) (277,051) 1,411,481 Fund balances - December 31 $ 2,367,888 $ $ 171,119 $ $ 2,539,007 I I I I 69 This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I AGENCY FUNDS I Agency Funds are used to account for assets held by the City as an agent for individuals, private organizations and/or other governmental units. The City of Elk River had the following Agency Fund during the year: I Developer Fee Escrow - This fund is used to account for the collection and distribution of funds relating to private development projects. I I I I I I I I I I I I I I I LIABILITIES Accounts payable Refundable deposits payable $ 26,444 278,540 $ 745,288 867,081 $ 720,428 856,487 $ 51,304 289,134 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA STATEMENT OF CHANGES IN ASSETS AND LIABILITIES DEVELOPER ESCROW AGENCY FUND YEAR ENDED DECEMBER 31, 2004 Beginning Ending Balance Additions Deductions Balance ASSETS Cash $ 288,326 $ 687,428 $ 724,916 $ 250,838 Accounts receivable 16,658 316,943 244,001 89,600 Total assets $ 304,984 $ 1,004,371 $ 968,917 $ 340,438 Total liabilities $ 304,984 $ 1,612,369 $1,576,915 $ 340,438 70 I I STATISTICAL SECTION (UNAUDITED) I I This part of the City of Elk River's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. I I I I I I Contents Page Financial Trends 71 These schedules contain trend information to help the reader understand how the city's financial performance and well-being have changed over time. Revenue Capacity 76 These schedules contain information to help the reader assess the city's most significant local revenue source, the property tax. Debt Capacity 81 These schedules present information to help the reader assess the affordability of the city's current levels of outstanding debt and the city's ability to issue additional debt in the future. I I I I I I Demographic and Economic Information 88 These schedules offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place. Operating Information 91 These schedules contain service and infrastructure data to help the reader understand how the information in the city's financial report relates to the services the city provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. I I I This page has been left blank intentionally I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA NET ASSETS BY COMPONENT LAST TWO FISCAL YEARS (accrual basis ofaccounting) Fiscal Year 2003 2004 Governmental activities Invested in capital assets, net of related debt $ 56,003,997 $ 67,061,167 Restricted 8,383,884 10,963,518 Unrestricted 22,441,594 19,452,247 Total governmental activities net assets $ 86,829,475 $ 97,476,932 Business-type activities Invested in capital assets, net of related debt $ 46,341,983 $ 52,377,687 Unrestricted 13,171,182 12,677,881 Total business-type activities net assets $ 59,513,165 $ 65,055,568 Primary government Invested in capital assets, net of related debt $ 102,345,980 $ 119,438,854 Restricted 8,383,884 10,963,518 Unrestricted 35,612,776 32,130,128 Total primary government net assets $ 146,342,640 $ 162,532,500 Note: Net assets are not available for years prior to 2003. 71 CITY OF ELK RIVER, MINNESOTA CHANGES IN NET ASSETS LAST TWO FISCAL YEARS (accrual basis of accounting) Expenses Governmental activities: General government Public safety Public works Culture and recreation Economic development Interest on long-term debt Total governmental activities expenses Business-type activities: Municipal Liquor Garbage Sewer Water Electric Total business-type activities expenses Total primary government expenses Program Revenues Governmental activities: Charges for services: General government Public safety Public works Culture and recreation Economic development . Operating grants and contributions Capital grants and contributions Total governmental activities program revenues Business-type activities: Charges for services: Municipal Liquor Garbage Sewer Water Electric Operating grants and contributions Capital grants and contributions Total business-type activities program revenues Total primary government program revenues 72 Fiscal Year 2003 2004 $ 194,246 $ 308,781 1,897,883 1,956,967 148,904 226,907 729,932 812,401 71,379 96,396 487,560 427,513 6,064,491 11,879,536 9,594,395 15,708,501 $ 3,290,711 4,229,109 3,737,678 1,747,322 549,149 1,050,823 14,604,792 3,621,087 884,532 1,406,713 1,713,217 11,929,596 19,555,145 $ 34,159,937 4,156,276 820,278 1,808,817 1,807,334 13,774,777 10,530 1,053,994 23,432,006 $33,026,401 $ 2,440,200 4,988,424 4,277,071 2,058,882 912,698 936,515 15,613,790 I I I I I I I I I I I I I I I I I I I 3,760,156 953,432 1,464,409 1,809,128 13,338,580 21,325,705 $ 36,939,495 4,345,702 973,176 2,365,262 2,095,018 14,765,479 8,615 3,028,454 27,581,706 $ 43,290,207 I I I Fiscal Year 2003 2004 Net (expense)/revenue Governmental activities $ (5,010,397) $ 94,711 Business-type activities 3,876,861 6,256,001 Total primary government net expense $ (1,133,536) $ 6,350,712 General Revenues and Other Changes in Net Assets Governmental activities: Property taxes $ 6,513,323 $ 7,160,048 Unrestricted grants and contributions 2,237,750 2,141,152 Investment earnings 304,237 375,550 Miscellaneous 9,180 Transfers 639,924 866,816 Total governmental activities 9,695,234 10,552,746 Business-type activities Investment earnings 155,802 153,218 Transfers (639,924) (866,816) Total business-type activities (484,122) (713,598) Total primary government $ 9,211,112 $ 9,839,148 Change in Net Assets Governmental activities $ 4,684,837 $ 10,647,457 Business-type activities 3,392,739 5,542,403 Total primary government $ 8,077,576 $16,189,860 I I I I I I I I I I Note: Changes in net assets are not available for years prior to 2003. 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" c.> 'E 1A .<5 " Cl 76 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS 1995 1996 1997 1998 Tax capacity Real property Residential $ 4,779,184 $ 5,236,458 $ 5,628,875 $ 6,051,171 Commercial 4,815,866 5,483,053 6,303,180 6,298,739 Personal property 300,686 309,013 319,854 294,552 Total tax capacity 9,895,736 11,028,524 12,251,909 12,644,462 Tax increment (571,376) (333,668) (326,877) (261,339) Taxable tax capacity $ 9,324,360 $ 10,694,856 $ 11,925,032 $ 12,383,123 Total tax capacity rate 23.958% 24.033% 24.683% 26.255% Taxable market value Real property Residential $ 326,087,584 $ 356,195,399 $ 381,313,906 $ 435,456,320 Commercial 141,028,244 156,016,100 177,082,907 202,911,850 Personal property 6,679,500 6,894,200 7,130,200 7,548,300 Taxable market value $ 473,795,328 $ 519,105,699 $ 565,527,013 $ 645,916,470 Estimated actual value of taxable property $ 542,720,880 $ 594,622,794 $ 631,169,657 $ 732,331,599 Taxable market value as a percentage of estimated actual value 87.30% 87.30% 89.60% 88.20% Source: Sherburne County Assessor Note: Property in the county is reassessed annually. The county assesses property at approximately 87 percent of actual value for all types of real and personal property. I I I I I I I I I I I I I I I I I I I 1999 2000 2001 2002 2003 2004 $ 6,339,482 $ 6,878,156 $ 7,981,635 $ 7,339,736 $ 8,476,233 $ 9,978,963 5,996,754 6,210,730 6,669,140 4,622,229 5,258,501 5,408,829 269,243 261,248 255,557 203,919 258,501 215,581 12,605,479 13,350,134 14,906,332 12,165,884 13,993,235 15,603,373 (229,853) (141,898) (338,069) (426,854) (588,732) (608,609) $ 12,375,626 $ 13,208,236 $ 14,568,263 $ 11,739,030 $ 13,404,503 $ 14,994,764 29.324% 30.248% 30.596% 43.600% 24.033% 43.782% $ 486,267,580 $ 530,109,100 $ 602,632,678 $ 711,908,700 $ 832,141,600 $ 981,551,900 218,125,510 239,438,499 256,929,400 274,651,700 309,775,400 318,140,038 7,878,100 7,870,100 7,628,000 10,347,400 13,112,800 10,934,000 $ 712,271,190 $ 777,417,699 $ 867,190,078 $ 996,907,800 $ 1,155,029,800 $ 1,310,625,938 $ 804,826,203 $ 883,478,872 $ 985,576,523 $ 1,145,691,994 $ 1,382,785,926 $ 1,567,581,017 88.50% 88.00% 87.99% 87.01% 83.53% 83.61% 77 00 E-< Z r-l -< ~ E-< ~ ~ r-loo r-l~>~ z-o-< ~~~~ ~ ~- ,...., ~ ~...;l ~~~~ r-lE-<=--oo >;;...~"" ;E-<~~ :::(~~z ...;lr-lr-lr-l r-l=-->E-< ~OoE-< O~Q~ =--Z...;l ~ - ~ ..;.: ~ ..... o u cIcl 'ii- _ u o e E-<a bIl = 's.. en c...u cc ~ ]~ > o ...... en cc - .u .~ u b ~.~ OOQ ~ ~ "O'ii 1G 5 > ~ 1:) '- . ~.;:: ~ ~ t;;~::;E .5 a '0 cc 0 ;::..s:: u u >00 o .~= ~ e \Ci u <n o m ~ 'ii - o E-- ...... co 0\ N ..,; o ...... co 0\ "1 <n o o co <n ~ ('<) N N CO ...... 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Medical Facilities Minnegasco Scherer L TD Partnership CHW Properties, Inc. I Elk River Shopping Center I I I I I I I I I I Tescom Corporation Anoka Electric Cooperative Alltool Manufacturing Iowa Public Service TOTAL Source: Sherburne County Assessor CITY OF ELK RIVER, MINNESOTA PRINCIPAL TAXPAYERS DECEMBER 31, 2004 2004 Percentage Net Tax of Total Net Capacity Rank Tax Capacity $ 564,062 3.62% 263,296 2 1.69 255,424 3 1.64 163,494 4 1.05 123,548 5 0.79 121,734 6 0.78 107,104 7 0.69 103,308 8 0.66 100,050 9 0.64 81,752 10 0.52 $ 1,883,772 12.08% 79 1995 Percentage Net Tax of Total Net Capacity Rank Tax Capacity $ 1,076,401 11.54% 579,638 2 6.22 79,920 10 0.86 124,652 3 1.34 124,055 4 1.33 109,412 5 1.17 107,503 6 1.15 104,021 7 1.12 98,464 8 1.06 88,487 9 0.95 $ 2,492,553 26.73% CITY OF ELK RIVER, MINNESOTA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected within the Fiscal Year of the Levy Collections in Total Collections to Date Fiscal Total Year's Percentage Subsequent Percentage Year Tax Levy Amount of Levy Years Amount of Levy 1995 $ 2,223,347 $ 2,197,033 98.82% $ 26,086 $ 2,223,119 99.99% 1996 2,570,439 2,541,953 98.89 28,063 2,570,016 99.98 1997 2,943,309 2,900,122 98.53 40,657 2,940,779 99.91 1998 3,251,109 3,188,831 98.08 60,060 3,248,891 99.93 1999 3,629,214 3,577,934 98.59 32,230 3,610,164 99.48 2000 3,995,469 3,922,043 98.16 70,985 3,993,028 99.94 2001 4,457,247 4,402,150 98.76 53,781 4,455,931 99.97 2002 5,118,288 5,064,376 98.95 52,244 5,116,620 99.97 2003 5,980,161 5,916,422 98.93 55,473 5,971,895 99.86 2004 6,564,803 6,460,878 98.42 6,460,878 98.42 80 I I I I I I I I I I I I I I I I I I I I I I I I I I I rol ~ ~ <!-< !-<~ O=r:I.l ~!-<== z=< Zrolrol -Q~ :;~... lii5Cj rolQr:I.l >z_ -<'" ==!-<Z ~r:I.lrol ...!-<!-< rol~!-< ",Or:l.l 0"'< ~O... !-<r:I.l -0 u_ !-< ~ I I I I I I I I I I I = j:>" S al a Cl E E E-;E~ ~ ~ ~ .. < .. . .. ~ = = .. ~ ~ -= ~ < = .. = - ~ E ._ S t:'CI lY.:: 5 E e ~ =: ~~ l:i - .. 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Cl.,g .. .. .l!l " 0'" z_ 81 82 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Less Amount Percentage Net General in Debt Net of Net Bonded Bonded Fiscal Bonded Service Bonded Debt to Tax Debt per Year Debtl Funds Debt Capacitl C . 3 aplta 1995 $ 639,400 $ 247,866 $ 391,534 4.20% $ 29.47 1996 568,825 189,144 379,681 3.55 27.08 1997 748,750 189,274 559,476 4.69 38.15 1998 700,675 241,900 458,775 3.70 29.20 1999 645,425 282,300 363,125 2.93 21.95 2000 612,450 282,300 330,150 2.50 20.07 2001 559,925 199,967 359,958 2.47 20.71 2002 8,661,650 584,853 8,076,797 66.39 446.68 2003 8,612,950 704,885 7,908,065 56.51 421.58 2004 8,420,967 791,375 7,629,592 48.90 376.96 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 Only includes debt supported by tax levy. 2 See the Schedule of Tax Capacity, Market Value and Estimated Actual Value of Taxable Property on page 76-77 for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics on page 88. I I CITY OF ELK RIVER, MINNESOTA COMPUTATION OF DIRECT AND OVERLAPPING DEBT DECEMBER 31, 2004 I I I Percent of Debt City's Outstanding Applicable Share Debt to City! of Debt Direct Debt: City of Elk River $ 35,530,450 100.00% $ 35,530,450 Overlapping Debt: Sherburne County 28,375,000 24.45 6,936,382 School District #728 213,707,052 37.64 80,433,137 Total overlapping debt 242,082,052 87,369,519 Total direct and overlapping debt $ 277,612,502 $ 122,899,969 I I I I Debt Ratios: Ratio of debt per capita (20,240 population) Ratios of debt to estimated taxable market value of$I,31O,625,938 $6,072 9.38% I I Source: Sherburne County and School District #728 I I I Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and business of the City of Elk River. This process recognizes that, when considering the city's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. I ! The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's and school district's taxable market value that is within the city's boundaries and dividing it by the county's and school district's total taxable market value. I I I I 83 84 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS 1995 1996 1997 1998 Debt limit $ 9,475,907 $ 10,382,114 $ 11,311,798 $ 12,918,329 Bonds 639,400 568,825 748,750 700,675 Reserves 247,866 189,144 189,274 241,900 Total net debt applicable to limit 391,534 379,681 559,476 458,775 Legal debt margin $ 9,084,373 $ 10,002,433 $ 10,752,322 $ 12,459,554 Total net debt applicable to the limit as a percentage of debt limit 4.13% 3.66% 4.95% 3.55% Note: Under state law, the City of Elk River's outstanding general obligation debt should not exceed 2 percent of the market value oftaxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. I I I I I I I I I I I I I I I I I I I 1999 2000 2001 2002 2003 $ 14,245,424 $ 15,548,354 $ 17,343,802 $ 19,938,156 $ 23,100,596 645,425 612,450 559,925 10,356,650 10,307,950 282,300 328,605 199,967 717,180 837,754 363,125 283,845 359,958 9,639,470 9,470,196 $ 13,882,299 $ 15,264,509 $ 16,983,844 $ 10,298,686 $ 13,630,400 2.55% 1.83% 2.08% 48.35% 41.00% 2004 $ 26,212,519 10,060,967 925,148 9,135,819 $ 17,076,700 34.85% Legal Debt Margin Calculation for Fiscal Year 2004 Estimated taxable market value $ 1,310,625,938 Debt limit (2% of market value) $ 26,212,519 Debt applicable to limit: G.O. equipment certificates 705,967 2002 lease revenue bonds 9,355,000 Less: Cash and investments in related debt service funds (925,148) Total net debt applicable to limit 9,135,819 Legal debt margin $ 17,076,700 85 ~~ ~ ~~rI:l ~~cz=: z>'< zo~ ::;u~ ~~ '< CZ=:;;;'U ~Zrl:l >~... E2>'" :.(~~ ...l I Eo< ~=Eo< ...~rI:l o~'< ....=...l Eo<~ ......l u!:l.. ~ ~ '" -g o o::i C cu e '" '" a> '" < d '0 CU v:l .... 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I I ""'" o o '" I I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA SPECIAL ASSESSMENT LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Percentage Collection Percentage Collections of Total Total of Current of Levy in Subsequent Total Collections Year Levy Year's Levy Collected Years Collections To Levy 1995 $ 1,226,036 $ 1,114,094 90.87% $ 111,942 $ 1,226,036 100.00% 1996 1,345,870 1,237,131 91.92 108,370 1,345,501 99.97 1997 1,044,927 994,552 95.18 50,375 1,044,927 100.00 1998 1,248,370 1,176,468 94.24 71,902 1,248,370 100.00 1999 1,205,017 1,158,992 96.18 46,025 1,205,017 100.00 2000 1,628,510 1,590,930 97.69 37,580 1,628,510 100.00 2001 1,545,974 1,531,686 99.08 14,288 1,545,974 100.00 2002 1,506,889 1,422,575 94.40 83,123 1,505,698 99.92 2003 1,547,973 1,344,806 86.88 64,292 1,409,098 91.03 2004 1,255,080 1,205,284 96.03 1,205,284 96.03 87 88 I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA DEMOGRAPIDC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Fiscal Per Capita Median School Unemployment Year Population I Income2 Age3 Enrollment4 RateS 1995 13,286 $ 19,935 29 8,675 3.9% 1996 14,019 21,371 29 8,820 4.1% 1997 14,667 22,306 29 9,115 3.3% 1998 15,714 24,286 29 9,377 2.5% 1999 16,542 24,507 29 9,687 2.7% 2000 16,447 25,597 32 10,002 3.2% 2001 17,380 26,276 32 10,587 3.9% 2002 18,082 25,998 . 32 11,100 5.1% 2003 18,758 na 32 11,257 5.8% 2004 20,240 na 32 11,749 5.0% Data Sources I State Demographer 2 Bureau of Economic Analysis 3 US Census Bureau 4 School District 5 MN Dept. of Employment and Economic Development na - not available I I I I I I I I I I I I I I I I I I I CITY OF ELK RIVER, MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2004 1995 EmDlover EmDlovees Rank Employees Rank Independent School District 728 1,300 1 600 1 Sherburne County 504 2 265 3 Great River Energy 398 3 431 2 Guardian Angels of Elk River 368 4 230 5 Walmart 362 5 Tescom Corporation 213 6 248 4 Cub Foods 200 7 Menards 179 8 Coboms 161 9 Home Depot 150 10 Alltool Manufacturing 175 6 Cretex Companies 100 7 Elk River Machine Company 90 8 Resource Recovery Facility 66 9 City of Elk River 65 10 Source: Minnesota Department of Employment and Economic Development 89 z o .... 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'" ~ .0; ~ tlO .5 'l;j .~ .... ,!::l ll) () ::: ll) ll) Ul" I I I I I I I I I I ::: .51 ts ::: ..a '5 ~ o tlO ta ~ tlO ll) .;; .... <S ll) .~ .1<1 ~ ll) '" 8 i:i '" ll) .... ;: ~ i .~ c:>."O .g .5 0<; "5 ~ gjta o .t= .ia i' > () o <riZ 8 5 B o 0 <nZ I I I I I I I I I to.1. rolt.p (os;- March 15, 2005 Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 Board of Trustees and Plan Participants Elk River Fire Department Relief Association Elk River, Minnesota We have audited the combined financial statements of the Elk Riv~r Fire Department Relief Association (the Association) for the year ended December 31,2004 and have issued our report thereOI~ dated March 15,2005. Professional standards require that we provide you with the following information related to our audit. ! Our Responsibility Under Auditing Standards Generally Accepted in the United States of America As stated in our engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial sta,tements are free of material misstatement and are fairly presented in accordance with accounting principles generally accepted in the United States of America. Because of the concept of reasonable assurance and because we did not perform a detaile4 examination of all transactions, there is a risk that material errors, fraud, or other illegal acts may exist and not be detected by! us. As part of our audit, we considered the internal control of the AssQciation. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. However, we noted certain matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable cqnditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofintemal control that, in our judgment, could adversely affect the Association's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which the design pr operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors or irregularities in a amounts that would be material in relation to the financial statements being audited may occur and not be detected tithin a timely period by employees in the normal course of performing their assigned functions. Our consideration of internal control would not necessarily disclos~ all matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all rep~rtable conditions that are also considered to be a material weakness, as defined above. However, we noted the following repprtable condition that we believe is not a material weakness. Segregation of Duties Our study and evaluation disclosed that because of the linllted size of your office staff, the Association has limited segregation of duties. Good internal control contemplate~ an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that the Association is not large enough to permit an adequate segregation of duties in all respects, it lis important that you be aware of this condition. As part of obtaining reasonable assurance about whether the financ~al statements are free of material misstatement, we performed tests of compliance with certain provisions of Minnesota laws, regqlations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance. i I Elk River Fire Department Relief Association March 15,2005 Page Two Significant Accounting Policies , I Management has the responsibility for selection and use of appro~riate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropri.teness of accounting policies and their application. The significant accounting policies used by the Association are descn~ed in Note 2 to the financial statements. As described in Note 2 to the financial statements, the Association implemented Government Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Government." We noted no transactions entered into by the Association during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactipns for which there is a lack of authoritative guidance or consensus. Accounting Estimates i Accounting estimates are an integral part of the combined financi~l statements prepared by management and are based on management's knowledge and experience about past and current ekrents and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance tol the financial statements and because of the possibility that future events affecting them may differ significantly from those e,q,ected. Audit Adjustments For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the combined financial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment mayor may not indicate matters that could have a significant effect on the! Association's financial reporting process (that is, cause future financial statements to be materially misstated). We noted no uncorrected misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagre~ment with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the financial statements or the auditor's report. Weare pleased to report that no such disa$I'eements arose during the course of our audit. Consultations with Other Independent Accountants In some cases, management may decide to consult with other accoimtants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principal to the Association's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to ch~ck with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters, including the applicatiom of accounting principles and auditing standards, with management each year prior to retention as the Association's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing our audit. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Elk River Fire Department Relief Association March 15, 2005 Page Tbree * * * * * i This report is intended solely for the information and use ofmanaigem.ent, Board of Trustees and Plan Participants and the Minnesota Office of the State Auditor and is not intended to be arid should not be used by anyone other than these specified parties. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. The comments and recommendations in! the report are purely constructive in nature, and should be read in this context. . If you have any questions or wish to discuss any of the items con~ined in this letter, please feel free to contact us at your convenience. We wish to thank you for the opportunity to be of strvice and for the courtesy and cooperation extended to us by your staff. . March 15,2005 Minneapolis, Minnesota , f1 II. t ~ ~ l'\\n. JilL-. tL'P ~J ~,.~~} ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 . Fax 952.835.3261 www.aemcpas.com i I i ~ I , i I ELK RIVER F~ DEPARTMENT RELIEF A~SOCIA TION ELK RIVER, I MINNESOTA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEARS ENDED DECEMBER 31', 2004 AND 2003 ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER. MINNESOTA TABLE OF CONTENTS DECEMBiER 31,2004 Page No. INTRODUCTORY SECTION Organization I FINANCIAL SECTION Independent Auditor's Report Management's Discussion and Analysis (Unaudited) Indi~d~FwdSmre~n~ i Smremen~ of Fiduciary Net Asse~ - Fiduciary Fwd - Spec+al Pension Trust Fwd Smtemen~ of Changes in Fiduciary Net Asse~ - Fiduciary fwd - Special Pension Trust Fwd Nores to Financial Statemen~ II ill-VII 1 2 3-7 SUPPLEMENTARY INFORMATION Required Supplemenmry Information Schedule ofFwding Progress Schedule of Employer Contribution Notes to Required Supplemenmry Information 8 8 8 COMPLIANCE SECTION Report on Minnesom Legal Compliance 9 INTRODUCTIORY SECTION ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVE~ MINNESOTA YEAR ENDED DECEMBER 3], 2004 AND 2003 ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER., MINNESOTA ORGANIZATION DECEMBER 31, 2004 Elected Members Board of Trustees ! Robert Dreissig Cliff Skogstad Robert Pearson Rich Niemala Dennis Anderson Keith Thorson Ex Officio Members Stephanie Klinzing Lori Johnson Bruce West -1- Title President Vice President Secretary Treasurer Trustee Trustee Mayor Finance Director Fire Chief ! FINANCIAL SECTION ELK RNER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER; MINNESOTA YEAR ENDED DECEMBER 3 ~, 2004 AND 2003 Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 INDEPENDENT AUDITOR'S REPORT Board of Trustees Elk River Fire Relief Association Elk River, Minnesota We have audited the accompanying financial statements of the fiduciary activities of the Elk River Fire Relief Association (the Association) as of and for the years December 31,2004 and 2003" which collectively comprise the Association's basic financial statements as listed in the table of contents. These financial stateJJ!1ents are the responsibility of the Association's management. Our responsibility is to express an opinion on the financial statements l1>ased on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable a$surance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evide*e supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. W e believ~ that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Association as of December 31, 2004 and 2003, and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 7, the Association has implemented GASB Statement No. 34, Basic Financial Statements - and Management ts Discussion and Analysis - for State and Local Governments, as of December 31,2004. The management's discussion and analysis on pages ill through vir is not a required part of the basic fmancial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquirie~ of management regarding the methods of measurement and presentation of the supplementary information. However we did nQt audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that comprise the Association's basic fmancial statements. The supplementary information listed in the table of contents is presented for the purposes of additional analysis but is a required part of the basic financial statements. Such infonpation has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly!stated in all material respects in relation to the basic financial statements taken as a whole. March 15, 2005 Minneapolis, Minnesota 1 ~U~~)LLf ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Management's DiscJssion and Analysis The discussion and analysis of the Elk River Fire Relief Association's (the Association) financial performance provides an overview of the fmancial activities and funding conditions for the fiscal years ended December 31,2004 and 2003. Using the Annual Report I The financial statements, which reflect the activities of the Special Pension Trust (the Plan), are reported in the Statements of Fiduciary Net Assets (see page 1) and the Statements of Changes ~ Fiduciary Net Assets (see page 2). These statements are presented on a full accrual basis and reflect all trust activities as inpurred. Financial Highlights . The Plan's net assets increased by $292,207 as a result o~the fiscal year's activities. . The required contributions from City and State increased by $35,143. . Net investment income decreased by $60,519 from fiscal iyear 2003. . Accrued pension liability decreased by $1,000 from fiscal year 2003. Plan Highlights The Plan's investment income was not as high as last year; howev~r, contributions from the State and City increased. As a result, the Plan's funding level increased from 98.2 percent to 98.9 perce~t. The fund remains in a reasonably well funded financial condition. Plan Net' Assets Total restricted net assets December 31, 2004 2003 $ 48,850 $ 46,656 1,597,683 1,307,670 $ 1,646,533 $ 1,354,326 Cash and cash equivalents Investments For the current fiscal year 2004 there is a net increase of $292,207 'from the previous fiscal year 2003. The previous fiscal year 2003 had an increase of $317,146 from fiscal year 2002. -III~ Elk River Fire Department Relief Association March 15, 2005 Changes in P~an Net Assets , The following comparative summary of the changes in net assets reflects the activities of the Plan: December 31 2004 2003 Revenues Contributions $ 173,389 $ 138,246 Investment income (net) 122,030 182,549 Other 39 285 Total revenues 295,458 321,080 Expenditures Pension benefits 1,000 Administrative expenses 3,251 2,934 Total expenditures 3,251 3,934 Change in net assets 292,207 317,146 Net assets - January 1, 1,354,326 1,037,180 Net assets - December 31, $ 1,646,533 $ 1,354,326 The Association's funding policy provided for contributions frOml the State of Minnesota (the State) and the City of Elk River in amounts sufficient to accumulate sufficient assets to pay benefits :when due. The annual contributions are the sum of the normal cost, the State contribution payment and the provision for administrative expenses. Plan Membership The following table reflects the Association's Plan membership as of the beginning and ending of the year: December 31, 2004 2003 Change Active participants Vested Non-vested Retirees and beneficiaries 28 11 4 23 11 4 5 Total Membership 43 38 5 -IV- Elk River Fire Department Relief Association March 15, 2005 Funding Status The amount of the total accrued pension liability is based on a staJjldardized measurement established by the Governmental Accounting Standards Board (GASB) that, with some exceptions, !must be used by the relief associations for financial statement presentations. This standardized measurement is based on Minnespta statute 69.772. This pension valuation method reflects the present value of estimated pension benefits that will be paid in future years as a result of service years performed by the members of the Association. A standardized measure of the accrued pensioIt liability was adopted by GASB to enable the readers of relief association financial statements to (a) assess the reliefassociation1s funding status on a going-concern basis, (b) assess progress being made in accumulating sufficient assets to pay benefits wheDj due, and (c) make comparisons among relief associations. Because the standardized measure is used only for disclosure purposes by the Association, the measurement is independent of an actuarial computation made to determine contributions to the Assqciation. The following represents the percentage funded trend for the last six years. Year Assets Liabilities $ 1,309,219 $ 1,134,930 1,273,996 1,305,344 1,093,828 1,223,881 1,037,180 1,267,510 1,354,326 1,378,916 1,646,533 1,664,129 Funding Percentage 1999 2000 2001 2002 2003 2004 115.4 % 97.6 89.4 81.8 98.2 98.9 Prior Six Years Funding Progress $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- 1999 2000 2001 2002 2003 2004 1- Assets .............Liabilities I Elk River Fire Department Relief Association March 15, 2005 Asset Allocation The following table and graph indicates the asset allocation for D~cember 31, 2004 and 2003. For the Years Ended December 31, 2004 2003 Deposits $ 48,8$0 3.0 % $ 46,656 3.4 % State Board of Investments Bond market 399,409 24.3 298,718 22.0 Common stock index 217,875 13.2 194,575 14.4 Growth share 173,OP 10.5 154,224 11.4 Income share 798,385 48.5 651,300 48.1 Money market 8,9~)7 0.5 8,853 0.7 Total cash and investments $ 1,646,533 100.0 % $ 1,354,326 100.0 % Money market 0.5% Income share 48.5% Growth share 10.5% -VI~ Elk River Fire Department Relief Association March 15,2005 Investment Activities The primary function of the Plan is to (a) appropriately award anq pay benefits and (b) manage investments. Investment growth and income is vital to the Plan's current and continued financial stability. Therefore, the Board of Trustees has a fiduciary responsibility to act prudently and with diligence when making Plan investment decisions. Contacting the Plan's Financial Management The financial report is designed to provide citizens, taxpayers, pl~ participants and the marketplace's credit analysis with an overview of the Plan's finances and the prudent exercise of the B~ard'soversight. If you have any questions regarding this report or need additional financial information, please contact the Elk ~ver Fire Relief Association, 13065 Orono Parkway, Elk River, Minnesota 55330. ' -VI[- , FINANCIAL !STATEMENTS ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA YEARS ENDED DECEMBER 31,2004 AND 2003 ASSETS Cash and cash equivalents Investments TOTAL ASSETS NET ASSETS Unreserved ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION STATEMENTS OF FIDUCIARY NET ASSETS FIDUCIARY FUND DECEMBER 31,2004 AND 2003 The notes to the financial statements are an integral part of this statement. -1- Special Pension Trust Fund 2004 2003 $ 48,850 1,597,683 $ 1,646.533 $ 1,646.533 ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION STATEMENTS OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUND YEARS ENDED DECEMBER 31, 2004 AND 2003 Special Pension Trust Fund 2004 2003 REVENUES ContrIbutions State of Minnesota $ 147,589 $ 112,146 10% supplemental reimbursement 1,000 2,000 City of Elk River 24,800 24,100 Investment income 122,030 182,549 Other income 39 285 TOTAL REVENUES 295,458 321,080 EXPENDITURES Pension benefits 1,000 Salaries 2,065 1,985 Professional fees 600 415 Bond 298 409 Miscellaneous 288 125 TOTAL EXPENDITURES 3,251 3,934 CHANGE IN NET ASSETS 292,207 317,146 NET ASSETS, JANUARY 1 1,354,326 1,037,180 NET ASSETS, DECEMBER 31 $ 1.646.533 $ 1.354.326 The notes to the financial statements are an integral part of this statemeIj.t. -2- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2004 AND 2003 Note 1: PLAN DESCRIPTION A. The Financial Reporting Entity Firefighters of the City of Elk River (the City) are members of the Elk River Fire Relief Association (the Association). The Association is the administrator of a single-employer defined benefit pension plan (the Plan) available to firefighters. The Plan was estalplished in 1922 under the provisions of Minnesota Laws 1965, chapter 446 as amended and Minnesota statute, chapters 69 and 424. It is governed by a Board of Trustees made up ofsn members elected by the members of the As~ociation for three year terms, and the Mayor, Finance Director and F' Chief, who serve as ex-officio nonvoting members of the Board of Trustees. I ! For financial reporting purposes, the Assoc~ation's financial statements are not included with the City financial statements because the Association is not a component unit of the City. The Association does not have any component units. B. Membership Information As of December 31, 2004 and 2003, membership data related to the Association were: 2004 2003 Retirees and beneficiaries currently recj;:iving benefits and terminated employees entitled to benefits but ~ot yet receiving them Active plan participants Vested Non-vested 4 4 28 Jl 23 .J.l Total 43 ....18 -3- ELK. RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2004 AND 2003 Note 1: PLAN DESCRIPTION - CONTINUED C. Pension Benefits The Association operates under a defined benefit plan. The pension liability is calculated by the number of active service years multiplied by a set benefit level. Th~ Association's current level is at $4,000 per active year. According to the bylaws of the Association and Pursuant to Minnesota statute 424A.02, subdivisions 2 and 4, members who retire with less than 20 years of s~ce and have reached the age of 50 years and have completed at least five years of active membership are entitled tp a reduced service pension not to exceed the amount calculated by multiplying the member's service pension for tlie completed years of service times the applicable non-forfeitable percentage of pension as follows: i Completed years of service Non-forfeitable percentage of pension amount ! I t [i. r 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 and thereafter 40% 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 I I ~. If a member of the Association shall become totally and permanently disabled, with a service related disability (injured in the line of duty) to the extent that a physician or surgeon acceptable to the Board shall certify that such disability will permanently prevent said member from performing said member's duties in the Department, the Association shall pay to such member the credited sum of said member's pension. If a member who has received such a disability pension should subsequently recover and return to active duty in the Department, any amount paid to said member as a disability pension shall be deducted from said member's service pension. Upon the death of any member of the Association who is in good standing at the time of said member's death, the Association shall pay to the surviving spouse, if any, and if there is no surviving spouse, to child or children, if any, and if no child or children survive, to the estate of such deceased member, the credited sum of said member's pension. -4- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO FmANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS A. Measurement Focus, Basis of Accounting and Basis of Presentation The fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are r~corded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related qash flows. Grants and similar items are recognized as revenue as so as all eligibility requirements imposed by th~ provider have been met. The preparation of financial statements in coPformity with accounting principles generally accepted in the United States of America requires management to t$ke estimates and assumptions that affect the reported amounts of and liabilities and disclosure of contingent a~sets and liabilities at the date of the financial statements. Estimates affect the reported amounts of revenue and e:lcpense during the reporting period. Actual results could differ from those estimates. B. Description of Fund The resources of the Association are accounted for in one fund. Each fund is accounted for as an independent e . Descriptions of the funds included in this report are: The Fiduciary fund accounts for assets held by the Association in a trustee capacity for its members. The fiduciary fund is a special pension trust fund for the accumulation of resources to be used for retirement, dependency and disability annuity payments of appropriate amounts and at appropriate times in the future. Reso are contributed by the City at amounts deternirined by law (taxes), and from the two-percent insurance premium tax and amortization aid from the State of Minnesota (the State). C. Comparative Data Comparative data for the prior year have been presented in the accompanying financial statements to provide an understanding of changes in the Association's financial position and operations. Note 3: DETAILED NOTES ON ACCOUNTS Deposits and Investments Deposits Minnesota statute, section 118.005 authorizes the ASsociation to deposit cash and to invest in certificates of deposit in financial institutions designated by the Board of Trustees. At December 31, 2004, the Association's bank deposits total $48,850, of which $3,936 was cash deposits and $#,914 was invested in certificates of deposit. Minnesota statutes require that all Association deposits be covered by deposit insurance, surety bond, or pledged collateral. Following is a summary of the deposits covered by insurance or collateral at December 31,2004 and 2003: Book and Bank 2004 2003 Covered Deposits Insured, or collateralized with securities held by the Association or its agent in the Association's name $ 48.850 $ 46.656 -5- ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED Investments Minnesota statute, sections 69.77 and 11A.24 authorize and define the types of securities available to the Association for investment. Accounting principles generally accepted in the United States of America have determined three categories of credit risk for inves1ments: 1. Inves1ments that are insured or registered, or for 11 hich the investments are held by the Association or its agent in the Association's name; , 2. Inves1ments that are uninsured and unregistered and are held by the counterparty's trust department or agent in the Association's name; and ' 3. Inves1ments that are uninsured and unregistered a:Q.d are held by the counterparty, or by its trust department or agent, but not in the Association's name. Following is a summary of the carrying values of the Association's securities, categorized into aforementioned levels of risk, along with the cost of the securities, at December 3 2004 and 2003: Fair Value 2004 2003 Inves1ments not subject to categorization: Minnesota State Board ofInves1ments Mutual Funds Bond market Common stock index Growth share Income share Money market Total Inves1ments 399,409 298,718 217,875 194,575 173,017 154,224 798,385 651,300 8,997 8,853 $ 1.597.683 $ 1.307.670 All inves1ments are reported at fair value using published market quotes. Interest is recognized as revenue when earned; dividends are recorded when received. Note 4: FUNDING STATUS AND PROGRESS The amount of the total accrued pension liability is based ~n a standardized measurement established by the Governmental Accounting Standards Board (GASB) that, with some exceptions, must be used by the relief associations for financial statement presentation. This standardized measurement is based on Minnesota statute 69.772. This pension valuation method reflects the present value of estimated pension benefits that will be paid in future years as a result of service years performed by the members of the Association. A standard,ized measure of the accrued pension liability was adopted by GASB to enable the readers of relief association financial statements to ( a) assess the relief association's funding status on a going-concern basis, (b) assess progress being made in apcumulating sufficient assets to pay benefits when due, and (c) make comparisons among relief associations. Because the standardized measure is used only for disclosure purposes by the Association, the measurement is independent of an actuarial computation made to determine contrIbutions to the Association. -6- Note 5: Note 6: Note 7: ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION ELK R.IVER, MINNESOTA NOTESTOFIN~CIALSTATEMENTS DECEMBER 31,2004 AND 2003 CO~UTIONSREQumffiDANDCON~UTIONSMADE The Association's funding policy provided for contributions from the State and the City in amounts sufficient to accumulate sufficient assets to pay benefits when due. The annual contnbution is the sum of the normal cost, the State contribution payment and the provision for admi.nistrative expenses. The Association is comprised of volunteers; therefore, there are no payroll expenditures or covered payroll percentage calculations. I Required contributions of$148,589 including $l,QOO ofsupp1ementalreimbursement and 112,146 including $2,000 of supplemental reimbursement were made by the St*e in accordance with Minnesota statute requirements for the years ended December 31,2004 and 2003, respectively.' Contributions of $24,800 and $24,100 were made by the City for the years ended December 31, 2004 and 2003, respectively. RISK MANAGEMENT The Association is exposed to various risks of loss related to theft of assets for which the Association carried commerci insurance policies. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any part of the past three fi$ca1 years. The Association invests in mutual funds that are subject to market value fluctuations. CHANGES IN ACCOUNTING PRINCIPLE For the year ended December 31,2004, the Association has implemented Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, GASB Statement No. 34 created new basic financial statements for reporting on the Association's financial activities. The implementation of GASB Statement No. 34 caused no change to the opening fund balance at December 31, 2004 to be restated in terms of ''net assets." -7- i SUPPLEMENTARt INFORMATION ELK RNER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RlVER, MINNESOTA YEAR ENDED DECEMBER 31,2004 AND 2003 ELK RIVER FIRE DEPARTMENT RELIEF ASSOClA TION ELK RIVER, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION DECEMBER ~ 1, 2004 AND 2003 2004 2003 2002 2001 2000 1999 1998 1997 C. Notes to Supplementary Information Valuation date Actuarial cost method Amortization method Remaining amortization period Normal cost Prior service cost Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Inflation rate Cost of living adjustments -8- Annual Required Percent Contribution Contributed $ 147,589 112,146 88,790 75,947 64,092 61,600 59,352 55,308 117% 123 126 131 139 135 134 163 12/31/04 Level dollar closed Entry age normal 20 years 5 years Market 5% N/A N/A None COMPLIANCE SECTION ELK RNER FIRE DEPARTMENT RELIEF ASSOCIATION ELK RNERJ, MINNESOTA YEAR ENDED DECEMBER 31,2004 AND 2003 Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 Suite 370 Edina, MN 55436 REPORT ON MINNESOTA LEGAL COMPLIANCE Board of Trustees Elk River Fire Relief Association Elk River, Minnesota We have audited the financial statements of the Elk River Fire Rehef Association (the Association) as of and for the years ended December 31,2004 and 2003, and have issued our report thereon dated, March 15, 2005. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the State Auditor pursuant to Minnesota statute 6.65. Accordingly, the audits included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers three main categories of compliance to be tested in audits of relief associations: deposits and investments, conflicts of interest, and public relief associations. Our study included all of the listed categories. This report is intended solely for the information and use of the Board of Trustees, City of Elk River, members, and the Minnesota Office of the State Auditor, and is not intended to be and should not be used by anyone other than these specified parties. March 15, 2005 Minneapolis, Minnesota QJ.Jlk{UA ~~JLL"f ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 . Fax 952.835.3261 www.aemcpas.com +JardcnJ- 4?C Lo/0/0S- Certified Public Accountants & Consultants March 17, 2005 Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 Honorable Mayor and Council City of Elk River Elk River, Minnesota We have audited the [mancial statements of the City of Elk River, Minnesota (the City) for the year ended December 31,2004 and have issued our report thereon dated March 17, 2005. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under Auditing Standards Generally Accepted in the United States of America and Government Auditing Standards As stated in our engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance about whether the [mancial statements are free of material misstatement and are fairly presented in accordance with accounting standards generally accepted in the United States of America. Because an audit is designed to provide reasonable, but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. As part of obtaining reasonable assurance about whether the [mancial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions oflaws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted the following instance of noncompliance with Minnesota statutes: Collateral Coverage In accordance with Minnesota statutes, section 118a.03, the Elk River Public Utilities Commission (the Commission) is required to have pledged collateral equal to 110 percent of the deposits not covered with insurance. At December 31, 2004, the Commission was under collateralized. Significant Accounting Policies Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the [mancial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2004. We noted no transactions entered into by the City during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Two Accounting Estimates Accounting estimates are an integral part of the combined fmancial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the general purpose fmancial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most significant estimates affecting the financial statements were depreciation and historical cost basis on capital assets. Management's estimate of depreciation is based on estimated useful lives of the assets. The estimate of historical cost was based on deflated replacement costs and engineer estimates. We evaluated the key factors and assumptions used to develop this estimate in determining that it is reasonable in relation to the fmancial statements taken as a whole. Audit Adjustments For purposes ofthis letter, professional standards defme an audit adjustment as a proposed correction of the fmancial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment mayor may not indicate matters that could have a significant effect on the City's financial reporting process (that is, cause future fmancial statements to be materially misstated). In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the City, either individually in the aggregate, indicate matters that could have a significant effect on the City's fmancial reporting process. We noted no uncorrected misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a fmancial accounting, reporting or auditing matter that could be significant to the general-purpose financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's general purpose fmancial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Three The following are areas that came to our attention during the audit that we feel should be reviewed: Financial Position and Results of Operations Governmental Funds GASB Statement No. 34 focuses on major funds in the fund statements of the City. Major funds are determined by whether the funds assets, liabilities, revenue or expenditures exceed 10 percent of the total for each category in the governmental view and 5 percent of the total for each category on an entity basis.. The City also has the option of specifying a fund as major and the General fund is always considered major. The following graph gives an indication of the fund balance for the major funds and the non-major funds by fund type: Governmental Fund Balances (Deficits) 2003 and 2004 (percent of total) 100% 0% 80% 60% 40% 20% -20% . Nonmajor capital projects . Nonmajor debt service . Nonmajor special revenue Ii! Tax Increment Finanacing o Permanent Improvement . Capital projects 1\1 Improvement Bonds . General 2003 $1,411,481 $1,650,253 $10,236,174 $(41,701) $382,703 $2,833,067 $4,106,149 $3,732,049 2004 $2,539,007 $1,402,497 $10,287,395 $(282,575) $362,736 $2,781,944 $4,477,306 $3,967,380 . Although the non-major special revenue funds make up nearly 40 percent of the total fund balance, this balance is comprised of seventeen individual special revenue funds. The largest fund balance within this total is the Landfill fund which has a fund balance of approximately $1.8 million. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Four A more detailed discussion on the General fund follows: General Fund The General fund is used to account for resources traditionally associated with government, which are not required legally or by sound principal management to be accounted for in another fund. Total revenue excluding transfers of$8,160,420 was 103 percent of the fInal budget which totaled $7,893,150. A summary of its revenue and operating transfers in compared with budget follows: $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 . Actual 2004 Revenue Compared to Budget $- www.aemcpas.com 952.835.9090 . Fax 952.835.3261 City of Elk River March 17, 2005 Page Five Total expenditures and operating transfers out in the General fund were $8,345,258 and this was 99 percent of the budget which totaled $8,262,150. A graph of expenditures and operating transfers out compared to budget follows: 2004 General Fund Expenditures Compared with Budget $4,500,000 $4,000,000 $500,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $0 General government Public safety Public works Culture and recreation Transfers out . Actual . Budget $1,934,402 $1,997,250 $4,026,230 $3,853,800 $1,231,042 $1,288,000 $1,047,724 $956,500 $105,860 $166,600 The General fund balance increased $235,331 from 2003. The total fund balance is $3,967,380 and the unreserved portion of fund balance is $3,851,634 which is 43 percent of the 2005 budgeted expenditures. We recommend the fund balance be maintained at a level sufficient to fund operations until the major revenue sources are received in June. We feel a reserve of approximately 40 to 50 percent of planned expenditures and transfers out is adequate to meet working capital and small emergency needs. At the current level, the fund balance is within the range of what is generally recommended as a minimum. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Six The Minnesota Office of the State Auditor has classified cities' unreserved fund balance levels relative to expenditures as follows: Extremely low Low Acceptable Moderately high High Very high Extremely high Under 20% 21 - 34 35 - 50 51 - 64 65 - 100 101 - 150 Above 150 The State Auditor does group all General and special revenue funds of the City when making this calculation where our calculation is based only on the General fund. If we use expenditures and transfers in these funds as a basis for calculation the City would have a reserve in both General and special revenue funds of approximately 120 percent. Although there is no legislation regulating fund balance, it is a good policy to designate intended use of fund balance. This helps address citizen concerns as to the use of fund balance and tax levels. Fund balance should be maintained for the following reasons: Purposes and Benefits . Expenditures are incurred somewhat evenly throughout the year. However, currently, property tax and state aid revenues are not received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the General fund expenditures until these revenue sources are received. . The City is vulnerable to legislative actions at the State and Federal level. The State eliminated HACA aid with the 200 I legislative session and has since in the 2003 legislative session imposed reductions of market value credit aid and local government aid for some cities. Levy limits have also been implemented for municipalities in past legislative sessions. An adequate fund balance will provide a temporary buffer against those aid adjustments and levy limits. . Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These would include capital outlay replacement, lawsuits and other items. An adequate fund balance will provide the fmancing needed for such expenditures. . A strong fund balance will assist the City in obtaining, maintaining or improving its bond rating. The result will be better interest rates in future bond sales. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Seven A table summarizing the General fund balance in relation to budget follows: Percent Fund General of Fund Balance Budget Fund Balance to Year December 31 Year Budget Budget 1999 $ 2,312,880 2000 $ 5,862,500 39 % 2000 2,695,612 2001 6,470,000 42 2001 3,062,175 2002 7,515,500 42 2002 3,190,589 2003 7,687,900 42 2003 3,732,049 2004 7,875,400 47 2004 3,967,380 2005 9,284,100 43 $12,000,000 $9,284,100 $10,000,000 $7,875,400 $7,515,500 $7,687,900 $8,000,000 $6,000,000 $4,000,000 47% 43% 42% $2,000,000 39% 42% 42% $- 1999 2000 2001 2002 2003 2004 2005 ~ Actual Fund Balances -Budget 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Eight Enterprise Funds The activities of the Enterprise funds include the municipal liquor, garbage, sewer, water and electric. The electric and water operations, under the direction of the Utilities Commission, are included in the fmancial statements since Council has the ultimate oversight responsibility for their operations. Municipal Liquor Fund A comparison of the past four year's municipal liquor fun.d operations is as follows: Municipal Liquor Fund Summary , , $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 ..... ..... $2,000,000 ~ ~ $1,500,000 ~ 25.6% 26.4% 26.8% 24.9% '1/ ,1/ , ,,/ $1,000,000 /" , / $500,000 .'" ,':':':':"':':"':':':':':':"""""""':': """"'.'""",,, ",:,:"".:.,.,. """";:':""""":":. """""'.'''''''' ":",,.:.:.:.:.:::::::::::::':':.:.:.:.:.,.' """",'. 13.1% 13.1% 13.2% 13.5% $- 2001 2002 2003 2004 I I Sales $3,981,509 $4,072,018 $4,152,235 $4,341,147 * Gross profit $1,018,542 $1,074,171 $1,111,949 $1,181,053 """"",,'.' """", Income before transfer $519,370 $534,279 $559,421 $616,520 . Cash and cash equivalents $1,805,708 $2,039,051 $2,350,361 $2,437,357 $5 000 000 Sales have increased annually about 3 percent (4.5 percent in 2004), the gross profit percentage has increased each year and the income before transfers has remained consistent for the four years presented. At the end of 2004, $480,000 in bonds remains to be paid. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Garbage Fund A comparison of the past four year's garbage fund operations is as follows: $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- $(200,000) ......Operating revenues -Operating expenses ..... Income (loss) from operations ....... Cash and cash equivalents Garbage Fund Summary 2001 $706,626 $807,572 $(100,946) $175,759 2002 $746,392 $847,380 $(100,988) $98,962 2003 $830,808 $884,532 $(53,724) $42,436 City of Elk River March 17, 2005 Page Nine 2004 $981,791 $953,432 $28,359 $77,234 The expenses of this fund are mainly contracted services that are generally fixed in amount and relate to the number of users. As a result, it is not necessary to carry a large cash reserve. The current level appears adequate. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Ten Sewer Fund A comparison of the past four year's sewer fund operations is as follows: Sewer Fund Summary $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2001 2002 2003 2004 . Operating revenues $962,902 $1,026,879 $1,066,202 $1,143,162 . Operating expenses $786,197 $930,751 $1,255,434 $1,348,709 _g".V1VMNonoperating revenues $377,375 $244,280 $654,795 $1,171,303 "- Income before transfers $554,080 $340,408 $465,563 $965,756 )I( Cash and cash $3,805,246 $4,262,952 $4,924,950 $5,153,879 equivalents The cash balance remains strong relative to operations. The non-operating revenue is made up mainly of connection fees. This has been a large factor in the increase in cash over the last several years. The bonds outstanding at year end total $1,865,000. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Water Fund City of Elk River March 17, 2005 Page Eleven A comparison of the past four year's water fund operations is as follows: $1,600,000 $1,500,000 $1,400,000 $1,300,000 $1,200,000 $1,100,000 $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $- -+-Operating revenues _Operating expenses .......Nonoperating revenues ~Income before transfers ~Transfers to City Water Fund Summary 2001 $844,982 $715,638 $582,259 $711,603 $19,206 2002 $834,562 $853,598 $328,876 $309,840 $23,893 2003 $1,056,900 $1,435,031 $495,184 $117,053 $106,926 2004 $1,179,855 $1,526,875 $663,934 $316,914 $33,897 The following table gives an indication of the sources and uses of cash for the past five years: Cash Provided (Used) By Beginning Non-capital Capital Ending Cash Operating Financing Financing Investing Cash Year Balance Activities Activities Activities Activities Balance 2004 $ 1,720,812 $ 2,921,214 $ (225,845) $(2,494,931 ) $ 21,663 $ 1,739,439 2003 1,918,160 1,128,351 (28,866) 210,930 4,899 3,233,474 2002 4,410,154 587,506 682,855 (3,869,731) 107,376 1,918,160 2001 1,320,951 1,126,834 (145,625) 2,012,488 95,506 4,410,154 2000 1,390,072 827,542 (150,184) (826,454) 79,975 1,320,951 The Water fund cash from operations has been consistently high but has not been sufficient to cover the significant amount of capital activities over the last four years. As a result the bonds payable have increased to the current amount outstanding of $6,535,000. The Utilities does monitor rqsults of operations and future cash flow needs closely. This is a good practice to ensure that rates are sufficient to meet the needs of the operations. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Twelve Electric Fund A comparison of the past four year's electric fund operations is as follows: Nectric Fund Summary $15,000,000 $14,000,000 $13,000,000 $12,000,000 $11,000,000 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- -+- Operating revenues --- Operating expenses - Nonoperating revenues ~ Income before transfers ........... Transfer to Gty 2001 $9,972,183 $9,016,406 $790,147 $1,745,924 $252,497 2002 2003 2004 $11,171,286 $13,193,672 $14,148,159 $10,202,526 $11,881,943 $13,251,035 $917,373 $588,159 $555,479 $1,841,211 $1,899,888 $1,452,603 $289,264 $317,918 $340,564 Other balances at December 31, 2004 and 2003 are listed below: 2004 2003 Cash and temporary investments $ 1,080,948 $ 569,904 Restricted cash and investments Remaining restriction from paid bond 95,000 85,000 By Commission for construction 1,185,908 1,065,908 Total cash and investments $ 2,361,856 $ 1,720,812 Notes payable $ 2,663,145 $ 2,775,424 Bonds payable $ 2,545,000 $ 1,794,751 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Elk River March 17, 2005 Page Thirteen The following table gives an indication of the sources and uses of cash for the past five years: Cash Provided (Used) By Beginning Non-capital Capital Ending Cash Operating Financing Financing Investing Cash Year Balance Activities Activities Activities Activities Balance 2004 $ 1,720,813 $ 2,917,129 $ (221,761) $(2,076,518) $ 22,193 $ 2,361,856 2003 2,250,971 2,486,997 (277,407) (2,777,275) 37,527 1,720,813 2002 1,708,447 2,761,579 703,979 (3,029,277) 106,243 2,250,971 2001 1,407,906 2,795,337 (382,380) (2,207,544) 95,128 1,708,447 2000 1,315,004 2,226,373 (382,249) (1,846,478) 95,256 1,407,906 The cash provided by operating activities has remained relatively strong. The summary above highlights the significant amount of cash needed each year for the capital activities of the Utilities. The operations have been able to fmance the capital activities for most of the last four years. * * * * * This report is intended solely for the information and use of management and Council. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation extended to us by your staff. ()Lb~ ~.JUf March 17, 2005 Minneapolis, Minnesota ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 . Fax 952.835.3261 www.aemcpas.com