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6.3. SR 06-15-2020City of Qk*l River Request for Action To Item Number Mayor and City Council 6.3 Agenda Section Meeting Date Prepared by Presentations, Awards, June 15, 2020 Lori Ziemer, Finance Director and Recognition Item Description Reviewed by Comprehensive Annual Financial Report for the Cal Portner, City Administrator Year Ended December 31, 2019 Reviewed b Action Requested Accept, by motion, the Comprehensive Annual Financial Report for the City of Elk River for the year ended December 31, 2019. Background/Discussion The city is required to have an annual independent audit of its financial statements in which the audit firm issues an opinion on the financial statements. For fiscal year 2019, CliftonLarsonAllen LLP (CLA) conducted the city's audit and will present a summary of the 2019 Comprehensive Annual Financial Report and audit results. Financial Impact N/A Attachments ■ CLA Audit Presentation ■ Comprehensive Annual Financial Report for the year ended December 31, 2019 ■ Minnesota Legal Compliance Letter ■ Internal Control Letter ■ Governance Letter The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional,` 01 e service, and community engagement that encourages and inspires pi ospei ly INAWRE1 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor ©2019 CliftonLarsonAllen LLPAudit Presentation Year Ending December 31, 2019 Monday, June 15, 2020 City of Elk River, Minnesota ©2019 CliftonLarsonAllen LLPCreate Opportunities Required Communications •The City has an unmodified (clean) opinion for the December 31, 2019 financial statement audit. •See separate Governance Communication Letter. 2 ©2019 CliftonLarsonAllen LLPCreate Opportunities Internal Control Items Material Weaknesses –deficiencies in internal control such that there is a reasonable possibility that a material misstatement would not be prevented or detected and corrected on a timely basis. None Noted Significant Deficiencies -deficiencies in internal control that are less severe than material weaknesses, yet important enough to merit attention by those charged with governance. None Noted 3 ©2019 CliftonLarsonAllen LLPCreate Opportunities Minnesota Legal Compliance Auditors conducted applicable testing and completed a 25 page check list to verify that the City complied with the applicable Minnesota State Statutes. 1 Finding -Statute 471.425, Subdivision 2. We noted one instance where an invoice was not paid within 35 days of receiving the invoice and there was no further documentation to support that the payment terms had been determined and set with the vendor. Occurred during a period of management turnover at the liquor store. 4 ©2019 CliftonLarsonAllen LLPCreate Opportunities •All categories within 1% of the prior year breakout. •Overall increase in revenue of $990,766: –Property taxes increased $684k –Investment income increased $93k General Fund Financial Results -Revenues 5 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 2015 2016 2017 2018 2019 General Fund Revenue by Source Year Ended December 31, Taxes Licenses and Permits Intergovernmental Charges for Services All Other ©2019 CliftonLarsonAllen LLPCreate Opportunities •Over budget $199k (1.4%): –Charges for Services revenue under budget (-$56k) –Intergovernmental revenue over budget ($47k) –Other revenue over budget ($249k) General Fund Financial Results –Revenue Budget 6 $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 All Other Licenses and Permits Charges for Services Intergovernmental Taxes Millions General Fund Revenue Budget and Actual Budget Actual ©2019 CliftonLarsonAllen LLPCreate Opportunities •Total expenditures increased each year between 2.1% (2017) and 6.4% (2018) . •Overall increase of 21% from 2015 to 2019. •Proportions by function remained very similar in 2019 compared to 2018, all within 2%. Public safety (48%) and General Government (25%) are the largest. General Fund Financial Results -Expenditures 7 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 2015 2016 2017 2018 2019 General Fund Expenditures by Function Year Ended December 31, General Government Public Safety Public Works Culture and Recreation ©2019 CliftonLarsonAllen LLPCreate Opportunities •Under budget $399K (2.5%): –All functions were under budget –Public Safety under budget by $296k –Public Works under budget by $56k –General Government under budget by $21k –Culture and Recreation under budget by $26k General Fund Financial Results –Expenditure Budget 8 $- $1 $2 $3 $4 $5 $6 $7 Parks and Recreation Public Works Public Safety General Government Millions General Fund Expenditures Budget and Actual Budget Actual ©2019 CliftonLarsonAllen LLPCreate Opportunities •Fund Balance Policy: –Unassigned of 40%-46% of next year’s budget –2019 total fund balance is 46% of next year’s budgeted expenditures to allow for assignments General Fund Financial Results –Fund Balance 9 47%47% 48% 47% 46% 40% 45% 50% $(1,500,000) $500,000 $2,500,000 $4,500,000 $6,500,000 $8,500,000 $10,500,000 $12,500,000 $14,500,000 $16,500,000 2015 2016 2017 2018 2019 General Fund Financial Position Year Ended December 31, Unassigned Fund Balance Revenue Expenditures % of Total Fund Balance ©2019 CliftonLarsonAllen LLPCreate Opportunities •Covering approximately 44% of depreciation. –Increase from 39% in 2018 –Peak was 78% in 2015 •Operating revenues increased 6.1% from prior year (usage and rate increase). •Cash and investments provided by operations $858K in 2019. •Total cash and investments of $5.2M and operating expenses of $3.3M. Financial Results –Sewer Fund 10 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 2015 2016 2017 2018 2019MillionsSewer Fund Year Ended December 31, Operating Expense Depreciation Operating Revenue Income Before Depreciation ©2019 CliftonLarsonAllen LLPCreate Opportunities •No depreciation in Fund •Operating revenues 5.9% increase from prior year. •Operating expenses decreased 8.3% from prior year. •Cash and investments provided by operations 179K in 2019. •Total cash and investments of $343K and operating expenses of $1.46M. Financial Results –Garbage Fund 11 -$0.2 $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 2015 2016 2017 2018MillionsGarbage Fund Year Ended December 31, Operating Expense Depreciation Operating Revenue Income Before Depreciation ©2019 CliftonLarsonAllen LLPCreate Opportunities •Operating loss of $514k. •Operating revenues slight increase from prior year. •Operating expenses increased $391k from prior. •Cash and investments used by operations $85K in 2019. •Total cash and investments of $730K and operating expenses of $1.025M. Financial Results –Storm Water Fund 12 -$0.2 -$0.1 $0.0 $0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7 $0.8 $0.9 $1.0 $1.1 2015 2016 2017 2018 2019MillionsStorm Water Fund Year Ended December 31, Operating Expense Depreciation Operating Revenue Income Before Depreciation ©2019 CliftonLarsonAllen LLPCreate Opportunities •Gross profit percentage up slightly from prior year. •2018 gross profit %for the 7-County Metro area was 26.8%. •2019 gross profit %for the 7-County Metro area is unknown at this time. •Equal or higher than other Metro Cities –Anoka –24% –Savage –23.1% –Lexington –23.6% –Saint Anthony –26% Financial Results –Liquor 13 29.6%28.7% 29.1% 28.9%29.1% 27.9% 26.9% 27.0% 26.8% 25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 28.0% 28.5% 29.0% 29.5% 30.0% 2015 2016 2017 2018 2019 Gross Profit Percentage Gross Profit as a percentage of Sales Region 7W ©2019 CliftonLarsonAllen LLPCreate Opportunities Governmental Activities Bond Maturities 14 (500,000) 500,000 1,500,000 2,500,000 3,500,000 4,500,000 5,500,000 6,500,000 2010A G.O. Capital Improvement Bonds 2012A G.O. Capital Improvement Bonds 2013A EDA G.O. Refunding Bonds 2019A G.O. Sales Tax Revenue Bonds Governmental Activities Bonded Debt -Maturities 2019 2020 2021 2022 2023 2024 - 2028 2029 - 2033 ©2019 CliftonLarsonAllen LLPCreate Opportunities City Business-Type Activities Bond Maturities 15 - 500,000.00 1,000,000.00 1,500,000.00 2,000,000.00 2,500,000.00 3,000,000.00 2014B G.O. Sewer Revenue Bonds City Business-Type Activities Bonded Debt - Maturities 2019 2020 2021 2022 2023 2024 - 2028 2029 - 2033 2034 - 2038 ©2019 CliftonLarsonAllen LLPCreate Opportunities Conclusion •Meeting fund balance policy for General Fund •No internal control findings and one legal compliance finding •Liquor, Sewer, and Garbage funds provided cash flows from operations, Storm Water did not •Liquor fund transferred over $715k to other funds •Last year, for the 2018 CAFR audit, the City was awarded the GFOA Certificate for Excellence in Financial Reporting. –30 consecutive years! 16 ©2019 CliftonLarsonAllen LLPCreate Opportunities GASB Postponed the Effective Dates of Many Standards in May 2020 •Statement No. 84 –Fiduciary Activities –December 31, 2020 –City early implemented in 2019 •Statement No. 87 –Leases –December 31, 2022 Accounting Standards 17 ©2019 CliftonLarsonAllen LLPCLAconnect.com Thank you for allowing us to serve you! Michelle Hoffman, CPA 612-397-269 Michelle.Hoffman@claconnect.com Troy Gabler, CPA 612-397-3160 Troy.Gabler@claconnect.com City of I Elk River �vlinnesota � t r . s r ^Wo CITY OF ELK RIVER, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED DECEMBER 31, 2019 PREPARED BY THE FINANCE DEPARTMENT MEMBER OF GOVERNMENTAL FINANCE OFFICERS ASSOCIATION OF THE UNITED STATES AND CANADA CITY OF ELK RIVER TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2019 INTRODUCTORY SECTION LETTER OF TRANSMITTAL 1 ELECTED AND APPOINTED OFFICIALS 5 ORGANIZATIONAL CHART 6 CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING 7 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 8 MANAGEMENT'S DISCUSSION AND ANALYSIS 11 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 22 STATEMENT OF ACTIVITIES 23 BALANCE SHEET - GOVERNMENTAL FUNDS 24 RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION - GOVERNMENTAL ACTIVITIES 25 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS 26 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL ACTIVITIES 27 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GENERAL FUND - BUDGET TO ACTUAL (GAAP BASIS) 28 STATEMENT OF NET POSITION - PROPRIETARY FUNDS 29 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PROPRIETARY FUNDS 31 STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS 33 NOTES TO BASIC FINANCIAL STATEMENTS 37 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS - MUNICIPAL RETIREES HEALTH PLAN 82 SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS - UTILITIES RETIREES HEALTH PLAN 84 PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY 86 PERA SCHEDULE OF CITY CONTRIBUTIONS 91 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS - ELK RIVER FIRE RELIEF 92 SCHEDULE OF CITY CONTRIBUTIONS - ELK RIVER FIRE RELIEF 93 CITY OF ELK RIVER TABLE OF CONTENTS (CONTINUED) YEAR ENDED DECEMBER 31, 2019 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 95 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 96 NONMAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET 98 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 100 LIBRARY SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL 102 ICE ARENA SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL 103 ECONOMIC DEVELOPMENT AUTHORITY SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL 104 NONMAJOR DEBT SERVICE FUNDS COMBINING BALANCE SHEET 106 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 107 NONMAJOR CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET 109 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 111 COMPONENT UNIT FINANCIAL STATEMENTS HOUSING AND REDEVELOPMENT AUTHORITY BALANCE SHEET 114 RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION 115 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 116 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 117 CITY OF ELK RIVER TABLE OF CONTENTS (CONTINUED) YEAR ENDED DECEMBER 31, 2019 STATISTICAL SECTION (UNAUDITED) NET POSITION BY COMPONENT - LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) 119 CHANGES IN NET POSITION - LAST TEN FISCAL YEARS 120 FUND BALANCES, GOVERNMENTAL FUNDS - LAST TEN FISCAL YEARS 122 CHANGES IN FUND BALANCES OF GOVERNMENT FUNDS - LAST TEN FISCAL YEARS 123 ELECTRIC SALES - LAST TEN FISCAL YEARS 124 PRINCIPAL ELECTRIC CUSTOMERS - CURRENT YEAR AND NINE YEARS AGO 125 TAX CAPACITY, MARKET VALUE, AND ESTIMATED VALUE OF TAXABLE PROPERTY - LAST TEN FISCAL YEARS 126 PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS - LAST TEN FISCAL YEARS 128 PRINCIPAL TAXPAYERS - CURRENT YEAR AND NINE YEARS AGO 129 PROPERTY TAX LEVIES AND COLLECTIONS - LAST TEN FISCAL YEARS 130 RATIOS OF OUTSTANDING DEBT BY TYPE - LAST TEN FISCAL YEARS 131 RATIOS OF GENERAL BONDED DEBT OUTSTANDING - LAST TEN FISCAL YEARS 133 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT 134 LEGAL DEBT MARGIN INFORMATION - LAST TEN FISCAL YEARS 135 PLEDGED -REVENUE COVERAGE - LAST TEN FISCAL YEARS 137 DEMOGRAPHIC AND ECONOMIC STATISTICS - LAST TEN FISCAL YEARS 139 PRINCIPAL EMPLOYERS - CURRENT YEAR AND NINE YEARS AGO 140 FULL-TIME EQUIVALENT BY FUNCTION - LAST TEN FISCAL YEARS 141 OPERATING INDICATORS BY FUNCTION - LAST TEN FISCAL YEARS 142 CAPITAL ASSET STATISTICS BY FUNCTION - LAST TEN FISCAL YEARS 143 City E giver This page intentionally left blank City E Fiver INTRODUCTORY SECTION May 26, 2020 Honorable Mayor, Members of the City Council, and Citizens of Elk River: The Comprehensive Annual Financial Report (CAFR) for the City of Elk River for the fiscal year ended December 31, 2019, is hereby submitted. Minnesota State Statutes and the City's ordinance require an annual audit of the City's accounts by the State Auditor's Office or by independent certified public accountants. The firm of CliftonLarsonAllen, LLP was selected to perform the City's audit and their unmodified opinion has been included in this report. The independent auditors' report is included in the financial section of this report. This report was prepared by the City's Finance Department and responsibility for both the completeness and accuracy of this data, as well as the fairness of this presentation including all enclosures, rests with the City. To the best of my knowledge and belief, the enclosed data are accurate in all material respects and are recorded in a manner designed to present fairly the financial position and the results of operations of the various funds of the City. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed to both protect the City's assets from loss, theft, or misuse, and to compile sufficient reliable information for the preparation of these financial statements in accordance with generally accepted accounting principles (GAAP). Internal accounting controls are designed to provide reasonable but not absolute assurance regarding the safeguarding of the City's assets against loss, theft, or misuse, and ensuring that adequate financial records are maintained for preparing financial statements, and maintaining accountability for assets. The development of an appropriate internal control system requires estimates and judgments by management to ensure that the costs do not exceed the benefits of the system. The City of Elk River's internal control structure is designed so that the estimated costs of control do not exceed the benefits. Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of a Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Elk River's MD&A immediately follows the independent auditors' report and provides a narrative introduction, overview, and analysis of the basic financial statements. Profile of the Government The City of Elk River was originally incorporated in 1880 and consolidated with Elk River Township in 1978 to form a city of 44 square miles. The City of Elk River is located in Sherburne County and serves as the county seat. Elk River is located approximately halfway between the metropolitan areas of Minneapolis/St. Paul and Saint Cloud along the Mississippi River. The City of Elk River has been growing and will not reach full development in the near future. The current population is approximately 25,330. Urban services are available to about one-third of the land area in the City. B The City of Elk River operates under a statutory form of government consisting of a four member City Council and a Mayor who is also a voting member. Council members are elected by ward to a four-year term with two Council seats up for election each even year. The Mayor is also elected to a four-year term. The City Council is responsible for adopting the City's budget and tax levy, passing resolutions and ordinances, all hiring and firing decisions, policy making, development and growth planning, and overall direction of the City. In addition to providing general government services, the City of Elk River provides a full range of other services including police and fire protection, building safety inspections, planning and zoning, economic development, environmental services, parks and recreation, library, street maintenance, snow removal, infrastructure maintenance and repair, and others. The City also provides municipal water, sewer, storm water, garbage, and electric services and operates two off -sale liquor stores. The annual budget serves as the foundation for the City of Elk River's financial planning and control. Budget requests are submitted by all departments to the Finance Department each May. The Finance Department compiles these requests into a proposed budget. The Finance Department and City administrator review the information and present a draft budget to the Council in July for consideration. Following Council discussion and public input, the final tax levy and budget are approved in December. The City's Financial Management Policies allow department heads to make administrative budget amendments (excluding personal service and capital outlay) throughout the year as long as the total department budget does not change and the amendment is approved by the City administrator and finance director. The Council approves additional budget amendments in December of each year. Budget to actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund this comparison is presented on page 27 as part of the basic financial statements for the governmental funds. For other governmental funds with appropriated annual budgets this comparison is presented in the governmental fund subsection of this report. Local Economy The local economy has continued to grow as indicated by the building permits, with a construction value of $70,313,037, being issued in 2019. New constructions accounts for $59,164,918 and additions/remodels make up the $11,148,119 balance. In 2019, the city issued 118 new housing permits compared to 153 in 2018. The reduction in residential housing permits is due in large part to the availability of platted residential lots. Single family homes accounted for 117 of the new housing permits. The average value new home is about $251,000 compared to $245,000 in 2018. In addition, there was a housing permit for a multi -family apartment building. There has been continued interest in both affordable and market rate multi -family housing projects. Many of Elk River's largest employers reported stable or steady growth of employment levels between 2018 and 2019. This is largely due to a thriving manufacturing base and a successful, fast growing business community within the region. The commercial/industrial sector has experienced modest growth, expansion and reinvestment as well with several facility expansions in 2019. The outlook in this region looks promising with commercial industrial activity and the recent single-family residential development projects. (2) Long -Term Financial Planning As part of a yearly budget process, the City Council reviews the updated Financial Management Plan. The Financial Management Plan provides a long-range forecast that brings together future expenditures, revenues, and development of the City. The Council has been diligent in maintaining a level tax rate. This plan provides the information needed to develop in a manner that will sustain or expand City services while keeping the property taxes stable. Department heads take part in this process to estimate staff additions, service levels, and capital needs for the next ten years. In addition, the City Council continually reviews cash flow analysis and long-term planning as part of the comprehensive Capital Improvement Plan (CIP) process. The CIP is a five-year planning tool that forecasts the City's capital needs based on the City's long-range plans, goals, and policies. Relevant Financial Policies The City Council has adopted a comprehensive set of Financial Management Policies that provide the basic framework for the overall fiscal management of the City. The Financial Management Policies include: revenues, property taxes, investments, purchasing, financial reporting, reserves, fund balance, capital investment, and debt policies. The City's policy on fund balance states that the City will maintain an unassigned fund balance of not less than 40- 45% of budgeted general fund operating expenditures. The percentage of unassigned fund balance at December 31, 2019 is 45%. Since property tax payments are received by the City in two installments in July and December, the City needs adequate cash reserves for cash flow in order to avoid short-term borrowing to finance operations. Major Initiatives Through the state's Corridors of Commerce program, Highway 169, which runs north -south through Elk River, was selected for $157 million state transportation funding. The project will redesign and reconstruct three miles of Highway 169 to a new freeway by removing five stop lights through Elk River. During 2019, the `169 Redefine' project team consisting of MnDOT, the City of Elk River and Sherburne County began evaluating preliminary design concepts and hosted public information meetings with interested residents, business owners, and commuters. In early 2020, a construction management contractor and final design team will be hired for executing the three-year construction project that will begin by fall 2022. When complete, the estimated $157 million project will increase capacity, improve overall traffic flow, and improve accessibility and safety. During the 2019 state legislative session, the city worked closely with leaders at the state Legislature to get the proper approvals for the local option sales tax that was supported by city voters in 2018. The local option sales tax was implemented in October and will be used to finance $35,000,000 of community recreational improvements known as the Active Elk River projects. As part of the Active Elk River projects, the city broke ground on a new multipurpose recreation facility. The 150,000 square foot facility will provide year-round ice, a synthetic turf field house, community event/banquet rooms, and dedicated senior citizen programming space. Also underway were improvements to Lion John Weicht Park which include two lighted ballfields, modern restrooms, and a picnic/concession pavilion. Implementation of the second of three phases of the Wayfinding Master Plan continued in 2019. Entrance monuments for city gateways were installed, along with directional signs, and informational kiosks. The wayfinding program ensures consistency and continuity for all city signage throughout the city. (3) Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Elk River for its Comprehensive Annual Financial Report for the fiscal year ended December 31, 2018. This was the 30th consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The City received the GFOA Award for the Distinguished Budget Presentation for the City budget for the fiscal year beginning January 1, 2019. It was the 11th consecutive year the City received the award for the document. The preparation of this report is made possible by the efficient and dedicated services of the entire staff of the City Administrator's office and Finance Department. The Mayor and City Council are to be commended for their diligence and resolve in keeping the City in sound and stable financial condition. The City Council's commitment to continually plan for the City's future and dedication to maintain high financial standards has helped the City maintain its strong financial condition during a period of growth and market changes. Respectfully submitted, Lori Ziemer Finance Director (4) CITY OF ELK RIVER ELECTED AND APPOINTED OFFICIALS YEAR ENDED DECEMBER 31, 2019 CITY COUNCIL Term Expires December 31, John Dietz Mayor 2022 Garrett Christianson Council Member 2022 Nate Ovall Council Member 2020 Matthew Westgaard Council Member 2020 Jennifer Wagner Council Member 2022 APPOINTED PERSONNEL Calvin Portner City Administrator Lori Ziemer Finance Director Ron Nierenhausen Police Chief Mark Dickinson Fire Chief Michael Hecker Parks and Recreation Director Justin Femrite Public Works Director/Chief Engineer Suzanne Fischer Community Operations and Development Director (5) a) 0 F- N Q M � 2 UW J Z W W W LQD 00N0 rQ0 UAW O� Q W i a,waq u i a �# m CITY OF ELK RIVER CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING DECEMBER 31, 2019 1 9 � C'rovernment Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Ells liver Minnesota For its Comprehensive Annul Financial Deport for the Fiscal Year Ended December 31, 201 Executive DirecwrlCE0 (7) FINANCIAL SECTION CliftonLarson4en LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT Honorable Mayor and the City Council City of Elk River, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business - type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River, as of and for the year ended December 31, 2019, and the related notes to the financial statements, which collectively comprise the entity's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Electric and Water proprietary funds, which represent 64% of the assets and deferred outflows, 60% of the net position, and 76% of the revenues of the proprietary funds and business -type activities. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the proprietary funds and business -type activities, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. N �A member of exia International (8) Honorable Mayor and the City Council City of Elk River, Minnesota Auditors' Responsibility (Continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River as of December 31, 2019, and the respective changes in financial position and, where applicable, cash flows thereof and the respective the budgetary comparison for the General fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter During fiscal year ended December 31, 2019, the City of Elk River adopted GASB Statement No. 84, Fiduciary Activities. As a result of the implementation of this standard, activity which was previously reported as the Developer Fee Escrow agency fund is now being reported as a capital projects fund and activity which was previously reported as the FSA Plans agency fund is now being reported as part of the General Fund, though there was no impact on beginning fund balance or net position. Our auditors' opinion was not modified with respect to these matters. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedules of proportionate share of net pension liability, schedules of City's pension contributions, schedule of changes in the net pension liability and related ratios - fire relief, schedule of city contributions - fire relief, and the schedule of changes in the total OPEB liability and related ratios, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Elk River's basic financial statements. The introductory section, combining and individual fund statements and schedules, and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. N Honorable Mayor and the City Council City of Elk River, Minnesota Other Matters (Continued) Other Information (Continued) The combining and individual fund statements and schedules are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 26, 2020, on our consideration of the City of Elk River's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the effectiveness of City of Elk River's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Elk River's internal control over financial reporting and compliance. zz-,�, CliftonLarsonAllen LLP Minneapolis, Minnesota May 26, 2020 (10) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 As management of the City of Elk River (the City), 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, 2019. 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 and deferred outflows of resources of the City of Elk River exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by $215,099,199 (net position). Of this amount, $47,686,085 (unrestricted net position) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net position increased by $5,410,886, including an increase of $2,840,254 in governmental activities, primarily attributable to general revenue grants and contributions and investment earnings, and an increase in business -type activities of $2,570,632, which is primarily attributable to revenues in excess of expenses of $2.6 million in the Electric fund due to a decrease in purchased power expenses. As of the close of the current fiscal year, the City of Elk River's governmental funds reported combined ending fund balances of $57,018,186. Special Capital General Revenue Debt Service Projects Total Nonspendable $ 187,305 $ 61,785 $ - $ 232 $ 249,322 Restricted - 1,400,965 2,206,522 24,941,193 28,548,680 Committed 5,928,741 - 4,253,959 10,182,700 Assigned - 1,570,549 11,607,028 13,177,577 Unassigned 7,684,153 - - (2,824,246) 4,859,907 Total Net Position $ 7,871,458 $ 8,962,040 $ 2,206,522 $ 37,978,166 $ 57,018,186 The City of Elk River's total long-term liabilities increased $32,700,436 during the current fiscal year, from $52,447,374 to $85,147,810. This was primarily due to the issuance of the 2019A G.O. Sales Tax Revenue Bonds in governmental activities in the amount of $32,715,000, issued to finance the acquisition and betterment of certain recreational facility improvements, park improvements, trail improvements, and the dredging of Lake Orono. GOVERNMENTAL ACTIVITIES Bonds Payable Compensated Absences Tota I BUSINESS -TYPE ACTIVITIES Bonds Payable Notes Payable Compensated Absences Total Beginning Ending Balance Additions Reductions Balance $ 17,632,016 1,579,967 $ 19,211,983 Beginning Balance $ 31,910,336 820,608 504,447 $ 33,235,391 $ 35,949,515 645,048 $ 36,594,563 Additions 234,099 $ 234,099 $ (1,390,418) (617,411) $ (2,007,829) Reductions $ (1,672,300) (200,916) (247,181) $ (2,120,397) $ 52,191,113 1,607,604 $ 53,798,717 Ending Balance $ 30,238,036 619,692 491,365 $ 31,349,093 CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Elk River's basic financial statements. The City's basic financial statements comprise three components: 1) government - wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City of Elk River's finances, in a manner similar to a private -sector business. The statement of position presents information on all of the City of Elk River's assets and deferred outflows of resources, and liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Elk River is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the City of Elk River that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City of Elk River include general government, public safety, public works, culture and recreation, economic development and interest on long-term debt. The business -type activities of the City of Elk River include municipal liquor, garbage, sewer, storm water, water, and electric. The government -wide financial statements include not only the City of Elk River itself (known as the primary government), but also a legally separate Housing & Redevelopment Authority (HRA) for which the City of Elk River is financially accountable. Financial information for the HRA is reported separately from the financial information presented for the primary government itself. The Elk River Municipal Utilities, although also legally separate, functions for all practical purposes as a department of the City of Elk River and, therefore, has been included as an integral part of the primary government. The government -wide financial statements can be found starting on pages 22-23 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Elk River, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All of the funds of the City of Elk River can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. (12) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact by the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Elk River maintains three individual major governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General, Active ER Projects, and Pavement Management funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor funds is provided in the form of combining statements elsewhere in this report. The City of Elk River adopts an annual budget for its General Fund and some special revenue funds. A budgetary comparison statement has been provided for those funds to demonstrate compliance with this budget. The basic governmental fund financial statements can be found starting on page 24 of this report. Proprietary funds. When the City of Elk River charges customers for the services it provides — whether to outside customers or to other departments of the City — these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the statement of net position and the statement of revenues, expenses, and changes in net position. The enterprise funds are the same as the business -type activities reported in the government - wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. The City of Elk River uses enterprise funds to account for its municipal liquor, garbage, sewer, storm water, water, and electric operations. The basic proprietary fund financial statements can be found starting on page 29 of this report. Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. The notes to the financial statements can be found starting on page 37 of this report. (13) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Elk River's share of net pension liabilities (assets) for defined benefits plans, schedules of contributions, and progress in funding its obligation to provide pension and other postemployment benefits to its employees. Required supplementary information can be found starting on page 83 of this report. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found starting on page 95 of this report. Government -wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City of Elk River, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $215,099,199 at the close of the most recent fiscal year. By far, the largest portion of the City of Elk River's net position (76%) 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. Governmental Activities Business -Type Activities Total 2019 2018 2019 2018 2019 2018 Current and Other Assets $ 65,755,084 $ 35,189,365 $ 39,855,455 $ 35,963,873 $ 105,610,539 $ 71,153,238 Capital Assets 105,835,140 94,574,550 115,158,305 117,800,871 220,993,445 212,375,421 Total Assets 171,590,224 129,763,915 155,013,760 153,764,744 326,603,984 283,528,659 Deferred Outflows of Resources 4,757,778 6,294,084 411,293 828,823 5,169,071 7,122,907 Noncurrent Liabilities Outstanding 59,536,643 27,502,045 33,202,304 37,166,952 92,738,947 64,668,997 Other Liabilities 8,743,380 1,758,155 8,157,881 5,689,316 16,901,261 7,447,471 Total Liabilities 68,280,023 29,260,200 41,360,185 42,856,268 109,640,208 72,116,468 Deferred Inflows of Resources 6,214,166 7,784,239 819,482 1,062,545 7,033,648 8,846,784 Net Position: Net Investment in Capital Assets 78,288,782 77,092,055 84,327,032 85,104,737 162,615,814 162,196,792 Restricted 3,741,368 4,236,048 1,261,359 1,261,359 5,002,727 5,497,407 Unrestricted 19,823,663 17,685,456 27,656,995 24,308,658 47,480,658 41,994,114 Total Net Position $ 101,853,813 $ 99,013,559 $ 113,245,386 $ 110,674,754 $ 215,099,199 $ 209,688,313 An additional portion of the City of Elk River's net position (2.2%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($47,686,085) may be used to meet the City of Elk River's ongoing obligations to citizens and creditors. (14) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 At the end of the current fiscal year, the City of Elk River is able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its separate governmental and business -type activities. REVENUES Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Taxes Other Taxes Unrestricted Investment Earnings Grants and Contributions Not Restricted Gain on Sale of Capital Assets Total Revenues EXPENSES General Government Public Safety Public Works Culture and Recreation Economic Development Interest on Long -Term Debt Municipal Liquor Sewer Garbage Storm Water Electric Water Total Expenses CHANGE IN NET POSITION BEFORE TRANSFERS Governmental Activities 2019 2018 Business -Type Activities 2019 2018 Total 2019 2018 $ 2,995,949 $ 3,143,111 $ 53,372,888 $ 53,452,010 $ 56,368,837 $ 56,595,121 1,396,313 1,381,151 1,200 - 1,397,513 1,381,151 1,509,650 1,721,638 1,277,596 2,295,004 2,787,246 4,016,642 13,022,991 12,192,911 - - 13,022,991 12,192,911 2,288,998 1,591,663 - - 2,288,998 1,591,663 1,420,677 430,642 704,099 467,294 2,124,776 897,936 2,588,461 1,754,373 - - 2,588,461 1,754,373 41,698 - 8,280 2,462 49,978 2,462 25,264,737 22,215,489 55,364,063 56,216,770 80,628,800 78,432,259 3,786,257 3,981,134 - - 3,786,257 3,981,134 9,188,562 7,398,041 9,188,562 7,398,041 5,920,022 5,619,836 5,920,022 5,619,836 4,094,690 4,474,619 4,094,690 4,474,619 540,497 969,443 540,497 969,443 979,755 486,630 - - 979,755 486,630 - - 6,772,414 6,233,700 6,772,414 6,233,700 3,550,622 3,504,489 3,550,622 3,504,489 1,456,482 1,588,956 1,456,482 1,588,956 1,024,928 634,073 1,024,928 634,073 35,200,295 35,680,220 35,200,295 35,680,220 - - 2,703,390 2,666,149 2,703,390 2,666,149 24,509,783 22,929,703 50,708,131 50,307,587 75,217,914 73,237,290 754,954 (714,214) 4,655,932 5,909,183 5,410,886 5,194,969 Transfers and Contributions 2,085,300 2,063,638 (2,085,300) (2,063,638) CHANGE IN NET POSITION 2,840,254 1,349,424 2,570,632 3,845,545 5,410,886 5,194,969 Net Position - Beginning of Year 99,013,559 97,664,135 110,674,754 106,829,209 209,688,313 204,493,344 NET POSITION - END OF YEAR $ 101,853,813 $ 99,013,559 $ 113,245,386 $ 110,674,754 $ 215,099,199 $ 209,688,313 Governmental activities. Governmental activities account for 47% of the City of Elk River's net position. Governmental activities increased the City's net position by $2,840,254. Key elements of the relevant changes are as follows: • $697,335 increase in other taxes related to the implementation of a local sales tax in 2019 to fund park and recreation improvements. • $830,080 increase in property taxes related to the increase in the tax levy. • $990,035 increase in unrestricted investment earning due to 2019 being a better investing year than 2018 for the types of investment held by the City. • $834,088 increase in grants and contributions not restricted related to increased landfill fees resulting from the closure of the garbage burning facility. (15) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Expenses and Program Revenues -Governmental Activities $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 General Public Safety Public Works Culture and Economic Interest and Fiscal Government Recreation Development Charges ® Revenues ■ Expenses Revenues by Source - Governmental Activities Grants and Gain on Sale of Capital Contributions Not �Ass ets,0.16% ,..Charges for Services, � Restricted, 10.25%., fs 11.86% Unrestricted Investrr Earnings, 5.62% Other Taxes,9.06% ngGrants and )utions, 5.53% pital Grants and itributions, 5.98% y Taxes, 51.55% (16) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Business -type activities. Business -type activities increased the City of Elk River's net position by $2,570,632 in 2019 as compared to an increase in net position of $3,845,545 in 2018. Key elements of this decrease in net income are as follows: • Capital grants and contributions decreased $1,017,408 due to utility connection fees related to building activity in 2019. • Investment earnings increased $236,805 due to 2019 being a better investing year than 2018 for the types of investment held by the City. • Liquor fund operating expenses increased $538,714 due to inventory purchases related to increased liquor sales. • Garbage fund operating expenses decreased $132,474 due to a reduction in waste disposal fees. • Stormwater fund operating expenses increased $390,855 due to storm water pond maintenance projects conducted every other year. • Electric fund operating expenses decreased $479,925 due to purchased power expenses decreased 7%. Expenses and Program Revenues - Business -Type Activities $40,000,000 $35,000,000 $3 0, 00 0, 00 0 $25,000,000 $2 0, 00 0, 00 0 $15, 00 0, 00 0 $10,000,000 $5,000,000 $0 • Municipal Liquor Sewer Garbage Revenues Storm Water Electric Water ■ Expenses (17) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Revenues by Source- Business -Type Activities U n restricted Investment Earnings, Capita IGrants and 1.28% Con tri butions, 2.31% for Services, 96.41 Financial Analvsis of the Government's Funds Governmental funds. The focus of the City's governmental funds is to provide information on near - term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $57,018,186. Approximately 9% of this total amount ($4,859,907) constitutes unassigned fund balance. The remainder of fund balance ($52,158,279) is not available for new spending because it is either 1) nonspendable ($249,322), 2) restricted ($28,548,680), 3) committed ($10,182,700) or 4) assigned ($13,177,577) for other purposes. The General fund is the chief operating fund of the City of Elk River. The total fund balance of the General fund increased $210,041 during the current year, resulting primarily from budgeted transfers in. The Active ER Projects fund increased $24,554,769 due to the issuance of the 2019A G.O. Sales Tax Revenue Bonds in the amount of $32,715,000, issued to finance the acquisition and betterment of certain recreational facility improvements, park improvements, trail improvements, and the dredging of Lake Orono, which was partially offset by expenditures incurred on the related projects. The Pavement Management fund decreased $535,789 due to current year expenditures exceeding the collection of franchise fees and intergovernmental revenues. In CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Proprietary funds. The City of Elk River's proprietary funds provide the same type of information found in the government -wide statements, but in more detail. Unrestricted net position in the respective proprietary funds are Municipal Liquor — $4,732,801, Sewer — $5,261,879, Garbage — $348,539, Storm Water — $691,640, Electric — $9,617,103, and Water — $7,005,033. The Sewer fund net position decreased $360,871 due to budgeted transfers for administrative expenses and pension related adjustments and the Storm Water fund net position decreased $489,401 due mainly to storm water maintenance projects completed every other year. All other proprietary funds had increases in net position. General Fund Budgetary Highlights There was no difference between the original budget and the final budget for the General fund. Key factors are as follows: • Total revenue collections were 101% of budget. Intergovernmental revenues were $46,988 over budget, investment earnings were $123,481 over budget, refund and reimbursements were $94,635 over budget, and miscellaneous revenues were $49,439 over budget. These were partially offset by charges for services ending the year $56,403 under budget. • Expenditures were under budget by $398,697. Public safety expenditures were $296,120 under budget mainly due to employee wages and benefits under budget as a result of personnel vacancies. Public works expenditure were $56,158 under budget primarily due to savings related to contractual services for street maintenance and utilities expenditures ending the year lower than budgeted. 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, 2019, amounts to $220,993,445 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, equipment and infrastructure. The total increase in the City of Elk River's investment in capital assets for the current year was $8,618,024 or 4%. Major capital asset events during the current fiscal year included the following: • $11.7 million in additions to construction in progress related to the multi -purpose facility. • $907,000 in additions to construction in progress for the YAC 2019 project. • $349,000 in public safety equipment. • $577,000 in public works equipment. • Completion of the $2.3 million 2019 street project. • Depreciation expense totaling $11,393,320. MR Land Construction in Progress Intangible Assets Buildings Other Improvements Infrastructure Equipment Total Capital Assets Less: Accumulated Depreciation Total Capital Assets, Net CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Governmental Activities 2019 2018 $ 40,946,181 $ 40,927,633 12,883,985 - 44,997,927 45,048,097 6,557,771 6,557,771 71,116,985 70,437,858 14,298,469 13,849,140 190,801,318 176,820,499 Business -Type Activities 2019 2018 $ 1,843,977 $ 1,843,977 1,011,708 467,470 24,114,139 23,279,955 27,372,648 27,345,582 130, 506,501 129,022,079 11,625,356 11,338,300 Total 2019 2018 $ 42,790,158 $ 42,771,610 13,895,693 467,470 24,114,139 23,279,955 72,370,575 72,393,679 6,557,771 6,557,771 201,623,486 199,459,937 25,923,825 25,187,440 196,474,329 193,297,363 387,275,647 370,117,862 (84,966,178) (82,245,949) (81,316,024) (75,496,492) (166,282,202) (157,742,441) $ 105,835,140 $ 94,574,550 $ 115,158,305 $ 117,800,871 $ 220,993,445 $ 212,375,421 Long-term debt. At the end of the current fiscal year, the City had total long-term debt outstanding of $97,558,123, an increase of $32,889,126 from 2018. General obligation improvement bonds ($15,965,000) were issued to finance the construction of a library, a recreation facility, a public safety/city hall facility, a public works facility, and improvement projects within the City. General obligation revenue bonds ($42,310,000) were used to finance certain recreational facility improvements, park improvements, trail improvements, dredging of Lake Orono, and sewer and water systems. Revenue bonds ($19,825,000) were used to finance electric system improvements. Governmental Activities Business -Type Activities Total 2019 2018 2019 2018 2019 2018 General Obligation Bonds $ 15,965,000 $ 17,280,000 $ - $ - $ 15,965,000 $ 17,280,000 General Obligation Revenue Bonds 32,715,000 - 9,595,000 10,355,000 42,310,000 10,355,000 Revenue Bonds - - 19,825,000 20,685,000 19,825,000 20,685,000 Issuance Premium 3,511,113 352,016 818,036 870,336 4,329,149 1,222,352 Total Bonds Payable, Net 52,191,113 17,632,016 30,238,036 31,910,336 82,429,149 49,542,352 Notes Payable - - 619,692 820,608 619,692 820,608 Compensated Absences 1,607,604 1,579,967 491,365 504,447 2,098,969 2,084,414 Net Pension Liability 7,541,740 7,477,029 3,816,162 3,727,513 11,357,902 11,204,542 Other Postemployment Benefits 740,405 813,033 312,006 204,048 1,052,411 1,017,081 Total Outstanding Debt $ 62,080,862 $ 27,502,045 $ 35,477,261 $ 37,166,952 $ 97,558,123 $ 64,668,997 Additional long-term debt in the amount of $619,692 is for notes payable, $2,098,969 is for compensated absences, $11,357,902 is for the City's net pension liability, and $1,052,411 is for the City's total other postemployment benefits liability. The City maintains a bond rating of AA+ from Standard & Poor's for general obligation debt. State statutes limit the amount of general obligation debt a Minnesota City may issue to 3% of total Estimated Taxable Market Value. The current debt limitation for the City of Elk River is $71,232,177. $11,548,268 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 7 starting on page 54 of this report. (20) CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Economic Factors and Next Year's Budaet The City of Elk River estimates that the demand for City services will continue at stable growth levels due to the economic environment and the outlook of recent building activity. This was taken into consideration in preparation of the City's 2020 budget. The property tax levy is set annually and is adjusted as necessary to fund the cost of providing services to our citizens and customers. Charges for services are evaluated each year and adjusted if warranted. The City expects to keep the tax levy consistent in upcoming years. Requests for Information This financial report is designed to provide a general overview of the City of Elk River's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to City of Elk River, Attn: Finance Director, 13065 Orono Pkwy, Elk River, Minnesota 55330 or by calling 763-635-1000. (21) BASIC FINANCIAL STATEMENTS CITY OF ELK RIVER STATEMENT OF NET POSITION DECEMBER 31, 2019 Primary Government Governmental Business -Type Component Unit Activities Activities Total HRA ASSETS Cash and Investments $ 58,653,196 Restricted Cash and Investments - Receivables: Accrued Interest 155,703 Taxes 866,807 Special Assessments 306,891 Other Accounts Receivable 547,818 Notes Receivable, Net 1,798,366 Due from Other Governments 2,543,860 Due from Primary Government - Due from Component Unit 17,020 Internal Balances 235,674 Prepaid Items 249,322 Inventories - Land Held for Resale 175,000 Pension Asset 205,427 Capital Assets: Nondepreciable: Land 40,946,181 Construction in Progress 12,883,985 Depreciable: Buildings and Building Improvements 44,997,927 Improvements Other than Buildings 6,557,771 Infrastructure 71,116,985 Distribution/Collection Systems - Intangible Assets - Equipment and Furniture 14,298,469 Total Capital Assets 190,801,318 Less: Accumulated Depreciation (84,966,178) Total Capital Assets, Net 105,835,140 Total Assets 171,590,224 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows - Pensions 4,598,580 Deferred Outflows - OPEB 45,942 Deferred Charge on Debt Refunding 113,256 Total Deferred Outflows of Resources 41757,778 LIABILITIES Accounts and Contracts Payable 4,525,709 Accrued Salaries Payable 297,567 Due to Other Governments 44,126 Due to Primary Government - Due to Component Unit 196,105 Customer Deposits Payable - Unearned Revenue 645,014 Accrued Interest Payable 490,640 Compensated Absences - Due Within One Year 644,219 Notes Payable - Due Within One Year - Bonds Payable - Due Within One Year 1,900,000 Noncurrent Liabilities: Other Postemployment Benefits 740,405 Net Pension Liability 7,541,740 Compensated Absences - Due in More Than One Year 963,385 Notes Payable - Due in More Than One Year - Bonds Payable - Due in More Than One Year 50,291,113 Total Liabilities 68,280,023 DEFERRED INFLOWS OF RESOURCES Deferred Inflows - Pensions 6,126,484 Deferred Inflows - OPEB 87,682 Total Deferred Inflows of Resources 6,214,166 NET POSITION Net Investment in Capital Assets 78,288,782 Restricted for: Debt Service 1,722,960 Parks and Recreation Improvements 409,694 Landfill Mitigation 47,334 Economic Development 1,321,585 Law Enforcement 34,368 Net Pension Asset 205,427 Housing and Redevelopment - Unrestricted 19,823,663 Total Net Position $ 101,853,813 $ 33,543,264 $ 92,196,460 $ 831,014 1,261,359 1,261,359 - 60,000 215,703 9,745 - 866,807 - - 306,891 - 2,835,347 3,383,165 3,258 - 1,798,366 620,681 - 2,543,860 - - 196,105 17,020 - (235,674) - - 177,243 426,565 - 2,213,916 2,213,916 - - 175,000 234,900 - 205,427 - 1,843,977 42,790,158 257,100 1,011,708 13,895,693 - 27,372,648 72,370,575 - - 6,557,771 174,290 - 71,116,985 - 130,506,501 130,506,501 - 24,114,139 24,114,139 - 11,625,356 25,923,825 196,474,329 387,275,647 431,390 (81,316,024) (166,282,202) (82,302) 115,158,305 220,993,445 349,088 155,013,760 326,603,984 2,244,791 378,990 4,977,570 5,533 5,848 51,790 - 26,455 139,711 411,293 5,169,071 5,533 3,900,539 8,426,248 20,258 199,863 497,430 2,187 242,564 286,690 - - - 17,020 - 196,105 - 1,035,524 1,035,524 - 107,373 752,387 - 397,061 887,701 - 446,005 1,090,224 - 203,952 203,952 - 1,625,000 3,525,000 - 312,006 1,052,411 - 3,816,162 11,357,902 55,520 45,360 1,008,745 - 415,740 415,740 - 28,613,036 78,904,149 41,360,185 109,640,208 94,985 808,322 6,934,806 11,759 11,160 98,842 819,482 7,033,648 11,759 84,327,032 162,615,814 349,088 1,261,359 2,984,319 - - 409,694 47,334 - 1,321,585 - 34,368 205,427 - - - 1,794,492 27,656,995 47,480,658 $ 113,245,386 $ 215,099,199 $ 2,143,580 See accompanying Notes to Basic Financial Statements. 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R o U a a U W C w C O (4 `o a) >N U) U fn W> H H w O in O- E U m O O 2 a U M N CITY OF ELK RIVER BALANCE SHEET -GOVERNMENTAL FUNDS DECEMBER 31, 2019 ASSETS Cash and Investments Receivables: Accrued Interest Delinquent Taxes Special Assessments Other Accounts Receivable Notes Receivable, Net Due from Other Governments Due from Other Funds Due from Component Unit Prepaids Land Held for Resale Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable Accrued Salaries Payable Due to Other Governments Due to Other Funds Due to Component Unit Unearned Revenue Total Liabilities DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes Unavailable Revenue - Special Assessments Unavailable Revenue - Other Total Deferred Inflows of Resources FUND BALANCE Nonspendable Restricted Committed Assigned Unassigned Total Fund Balance Total Liabilities, Deferred Inflows of Resources, and Fund Balance General Active ER Pavement Fund Projects Management $ 7,511,623 $ 27,825,056 $ 3,958,681 Other Governmental Funds Totals $ 19,357,836 $ 58,653,196 34,773 23,270 18,545 79,115 155,703 344,281 - - 522,526 866,807 - - 306,891 306,891 17,742 139,928 390,148 547,818 - - 1,798,366 1,798,366 84,762 2,430,015 29,083 2,543,860 269,625 276,727 1,755,524 2,301,876 17,020 - - 17,020 187,305 62,017 249,322 - - - 175,000 175,000 $ 8,467,131 $ 27,848,326 $ 6,823,896 $ 24,476,506 $ 67,615,859 $ 211,825 $ 3,293,557 $ 139,922 $ 880,405 $ 4,525,709 284,924 - - 12,643 297,567 23,488 20,638 44,126 - 2,066,202 2,066,202 196,105 196,105 - - - 645,014 645,014 520,237 3,293,557 139,922 3,821,007 7,774,723 75,436 11,471 86,907 - - 306,028 306,028 2,430,015 - 2,430,015 75,436 2,430,015 317,499 2,822,950 187,305 - 62,017 249,322 - 24,554,769 - 3,993,911 28,548,680 - 4,253,959 5,928,741 10,182,700 - - 13,177,577 13,177,577 7,684,153 - (2,824,246) 4,859,907 7,871,458 24,554,769 4,253,959 20,338,000 57,018,186 $ 8,467,131 $ 27,848,326 $ 6,823,896 $ 24,476,506 $ 67,615,859 See accompanying Notes to Basic Financial Statements. (24 ) CITY OF ELK RIVER RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION - GOVERNMENTAL ACTIVITIES DECEMBER 31, 2019 Total Fund Balances for Governmental Funds Total net position reported for governmental activities in the statement of net position is different because: Capital assets used in governmental funds are not financial resources and, therefore, are not reported in the funds. Those assets consist of: Land Construction in Progress Buildings Other Improvements Streets and Infrastructure Equipment and Furniture Total Capital Assets Less: Accumulated Depreciation Long-term assets for pensions reported in governmental activities are not financial resources and, therefore, are not reported as assets in the funds. Some of the City's receivables (including property taxes, special assessments and other long-term receivables) will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as deferred inflows of resources in the governmental funds. The City's net pension liability and related deferred inflows and deferred outflows are recorded only on the statement of net position. Balances at year-end are: Net Pension Liability Deferred Inflows of Resources - Pensions Deferred Outflows of Resources - Pensions The City's OPEB liability and related deferred inflows and deferred outflows are recorded only on the statement of net position. Balances at year-end are: OPEB Liability Deferred Inflows of Resources - OPEB Deferred Outflows of Resources - OPEB Long-term liabilities that pertain to governmental funds, including bonds payable, are not due and payable in the current period and, therefore, are not reported as fund liabilities. All liabilities - both current and long term - are reported in the statement of net position. Bonds Payable Unamortized Premiums Deferred Charge on Refunding Accrued Interest Payable Compensated Absence Payable Total Net Position of Governmental Activities 57, 018,186 $ 40,946,181 12,883,985 44,997,927 6,557,771 71,116,985 14,298,469 190,801,318 (84,966,178) 105,835,140 205,427 2,822,950 (7,541,740) (6,126,484) 4,598,580 (9,069,644) (740,405) (87,682) 45,942 (48,680,000) (3,511,113) 113,256 (490,640) (1,607,604) (782,145) (54,176,101) $ 101,853,813 See accompanying Notes to Basic Financial Statements. (25) CITY OF ELK RIVER STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2019 Other General Active ER Pavement Governmental Fund Projects Management Funds Totals REVENUE Property Taxes $ 11,171,848 $ $ $ 1,840,129 $ 13,011,977 Sales Tax Revenue - 652,665 652,665 Other Taxes 158,232 1,478,101 - 1,636,333 Special Assessments - - 58,416 58,416 Licenses and Permits 822,899 - - 822,899 Intergovernmental Revenue 618,488 389,407 388,811 1,396,706 Charges for Services 944,297 - 778,794 1,723,091 Fines and Forfeitures 134,493 32,294 166,787 Other Revenue: Landfill Expansion Fee - - 2,081,124 2,081,124 Investment Earnings 223,481 189,286 229,428 778,482 1,420,677 Refunds and Reimbursements 224,635 - - 52,588 277,223 Contributions 25,000 685,534 710,534 Miscellaneous Revenue 55,939 - 77,681 133,620 Total Revenue 14,379,312 189,286 2,096,936 7,426,518 24,092,052 EXPENDITURES Current: General Government 3,857,489 - - 147,428 4,004,917 Public Safety 7,422,080 198,917 7,620,997 Public Works 2,103,742 113,908 2,217,650 Culture and Recreation 2,107,192 861,655 2,968,847 Economic Development - 540,763 540,763 Capital Outlay: General Government 58,735 58,735 Public Safety 365,811 365,811 Public Works - 2,632,725 917,004 3,549,729 Culture and Recreation 11,341,197 - 1,316,481 12,657,678 Debt Service: Principal Retirement - 1,315,000 1,315,000 Interest and Fiscal Charges - 242,835 - 470,188 713,023 Total Expenditures 15,490,503 11,584,032 2,632,725 6,305,890 36,013,150 EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES (1,111,191) (11,394,746) (535,789) 1,120,628 (11,921,098) OTHER FINANCE SOURCES (USES) - Transfers In 1,891,045 1,397,893 3,288,938 Transfers Out (569,813) - (633,825) (1,203,638) Issuance of Bonds Payable 32,715,000 32,715,000 Premium on Bonds Payable 3,234,515 - 3,234,515 Proceeds from Sale of Capital Assets - - 127,190 127,190 Total Other Finance Sources 1,321,232 35,949,515 891,258 38,162,005 NET CHANGE IN FUND BALANCES 210,041 24,554,769 (535,789) 2,011,886 26,240,907 FUND BALANCES Beginning of Year 7,661,417 - 4,789,748 18,326,114 30,777,279 End ofYear $ 7,871,458 $ 24,554,769 $ 4,253,959 $ 20,338,000 $ 57,018,186 See accompanying Notes to Basic Financial Statements. (26) CITY OF ELK RIVER RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL ACTIVITIES YEAR ENDED DECEMBER 31, 2019 Net Change in Fund Balances -Total Governmental Funds $ 26,240,907 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures and proceeds from the sale of capital assets as revenues. However, in the statement of activities, assets are capitalized and the cost 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 Outlays $ 16,510,773 Gain on Disposal of Capital Assets 41,698 Proceeds from the Sale of Capital Assets (127,190) Depreciation Expense (5,164,691) 11,260,590 The governmental funds report bond proceeds as financing sources, while repayment of bond principal is reported as an expenditure. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activities and repayment of principal reduces the liability. Interest is recognized as an expenditure in the governmental funds when it is due. In the statement of activities, however, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: Repayment of Principal on Long -Term Debt 1,315,000 Proceeds from Issuance of Bonds (32,715,000) Premium on Bonds Issued (3,234,515) Amortization of Bond Premium 75,418 Amortization of Deferred Charge on Refunding (36,265) Change in Accrued Interest Payable (305,885) (34,901,247) Delinquent and certain other property taxes, special assessments, and intergovernmental receivables will be collected subsequent to year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as deferred inflows of resources and excluded from revenues in the governmental funds. Deferred Inflows of Resources - December 31, 2018 1,691,963 Deferred Inflows of Resources - December 31, 2019 2,822,950 1,130,987 In the statement of activities, compensated absences and other postemployment benefits are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). (32,817) Pension expenditures in the governmental funds are measured by current year employee contributions. Pension expenses on the statement of activities are measured by the change in net pension liability and the related deferred inflows and outflows of resources. (858,166) Change in Net Position of Governmental Activities $ 2,840,254 See accompanying Notes to Basic Financial Statements. (27) CITY OF ELK RIVER STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GENERAL FUND - BUDGET TO ACTUAL (GAAP BASIS) YEAR ENDED DECEMBER 31, 2019 REVENUE Taxes: Property Taxes Other Taxes Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeits Other Revenue: Investment Earnings Refunds and Reimbursements Contributions Miscellaneous Revenue Total Revenue EXPENDITURES General Government Public Safety Public Works Culture and Recreation Total Expenditures EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCE SOURCES (USES) Transfers In Transfers Out Total Other Finance Sources (Uses) NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Budgeted Amounts Original Final Actual Over (Under) Final Budget $ 11,187,400 $ 11,187,400 $ 11,171,848 $ (15,552) 150,000 150,000 158,232 8,232 857,000 857,000 822,899 (34,101) 571,500 571,500 618,488 46,988 1,000,700 1,000,700 944,297 (56,403) 154,500 154,500 134,493 (20,007) 100,000 100,000 223,481 123,481 130,000 130,000 224,635 94,635 23,000 23,000 25,000 2,000 6,500 6,500 55,939 49,439 14,180,600 14,180,600 14,379, 312 198,712 4,019,050 3,878,100 3,857,489 (20,611) 7,616,250 7,718,200 7,422,080 (296,120) 2,133,400 2,159,900 2,103,742 (56,158) 2,120,500 2,133, 000 2,107,192 (25,808) 15,889,200 15,889,200 15,490,503 (398,697) (1,708,600) (1,708,600) (1,111,191) 597,409 2,040,600 2,040,600 1,891,045 (149,555) (332,000) (332,000) (569,813) (237,813) 1,708,600 1,708,600 1,321,232 (387,368) $ $ - 210,041 $ 210,041 7,661,417 $ 7,871,458 See accompanying Notes to Basic Financial Statements. (28) CITY OF ELK RIVER STATEMENT OF NET POSITION - PROPRIETARY FUNDS DECEMBER 31, 2019 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS Cash and Cash Equivalents Cash and Investments Held by Trustee Receivables: Accounts Receivable (Net) Accrued Interest Due from Other Funds Inventory Prepaid Items Total Current Assets NONCURRENT ASSETS Capital Assets: Nondepreciable Depreciable Total Less: Accumulated Depreciation Net Capital Assets DEFERRED OUTFLOWS OF RESOURCES Pension Related OPEB Related Deferred Charge on Debt Refunding Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION CURRENT LIABILITIES Accounts and Contracts Payable Accrued Salaries Payable Due to Other Governments Due to Other Funds Unearned Revenue Accrued Interest Payable Customer Deposits Payable Compensated Absences Payable Notes Payable Bonds Payable Total Current Liabilities NONCURRENT LIABILITIES Compensated Absences Payable Other Postemployment Benefits Net Pension Liability Notes Payable Bonds Payable Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Pension Related OPEB Related NET POSITION Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities, Deferred Inflows of Resources, and Net Position Municipal Liquor c--, Garbage Storm Water Electric $ 4,649,254 $ 5,245,861 $ 343,379 $ 730,463 $ 14,881,922 - - - - 1,261,359 - 291,665 3,266 432 2,390,982 21,780 24,575 1,609 3,422 6,891 - 352,205 138,531 43,013 3,007 1,222,310 - - - 981,962 - - - - 154,832 5,893,344 5,914,306 486,785 777,330 19,680,955 753,961 411,095 - - 1,196,620 3,050,084 52,868,180 18,187,777 82,024,495 3,804,045 53,279,275 18,187,777 83,221,115 (2,230,214) (20,857,239) (9,022,929) (30,444,533) 1,573,831 32,422,036 9,164,848 52,776,582 50,587 35,417 1,739 6,052 244,246 2,924 2,506 - 418 - - - - - 21,164 53,511 37,923 1,739 6,470 265,410 $ 7,520,686 $ 38,374,265 $ 488,524 $ 9,948,648 $ 72,722,947 $ 387,943 $ 60,566 $ 116,590 $ 543 $ 3,205,838 22,096 14,330 686 2,370 138,648 80,920 - - - 159,286 - 538 1,563 906 862,318 3,421 - - - 3,000 - 101,502 282,496 - - - 884,299 28,149 20,601 2,527 358,161 - - - 203,952 - 430,000 - - 924,000 522,529 627,537 118,839 6,346 7,021,998 23,691 16,976 - 4,693 - 47,117 40,386 - 6,731 174,950 507,623 355,395 17,450 60,730 2,456,809 - - - - 415,740 - 7,930,000 - - 20,080,411 578,431 8,342,757 17,450 72,154 23,127,910 1,100,960 8,970,294 136,289 78,500 30,149,908 107,514 75,273 3,696 12,863 520,934 5,580 4,783 - 797 - 113,094 80,056 3,696 13,660 520,934 1,573,831 24,062,036 - 9,164,848 31,173,643 - - - - 1,261,359 4,732,801 5,261,879 348,539 691,640 9,617,103 6,306,632 29,323,915 348,539 9,856,488 42,052,105 $ 7,520,686 $ 38,374,265 $ 488,524 $ 9,948,648 $ 72,722,947 See accompanying Notes to Basic Financial Statements. (29) Water Total $ 7,692,385 $ 33,543,264 - 1,261,359 149,002 2,835,347 1,723 60,000 128,850 665,606 9,644 2,213,916 22,411 177,243 8,004,015 40,756,735 494,009 2,855,685 37,488,108 193,618,644 37,982,117 196,474, 329 (18,761,109) (81,316,024) 19,221, 008 115,158, 305 40,949 378,990 - 5,848 5,291 26,455 46,240 411,293 $ 27,271,263 $ 156,326,333 $ 129,059 $ 3,900,539 21,733 199,863 2,358 242,564 35,955 901,280 100,952 107,373 13,063 397,061 151,225 1,035,524 36,567 446,005 - 203,952 271,000 1,625,000 761,912 9,059,161 - 45,360 42,822 312,006 418,155 3,816,162 - 415,740 602,625 28,613,036 1,063,602 33,202,304 1,825,514 42,261,465 88,042 808,322 - 11,160 88,042 819,482 18,352,674 84,327,032 - 1,261,359 7,005,033 27,656,995 25,357,707 113, 245, 386 $ 27,271,263 $ 156,326,333 (30) CITY OF ELK RIVER STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2019 SALES AND COST OF SALES Sales Cost of Sales Gross Profit OPERATING REVENUE User Charges Delinquent Collections Other Total Operating Revenue OPERATING EXPENSES Personnel Services Supplies Purchased Power Other Service Charges Depreciation Total Operating Expenses OPERATING INCOME (LOSS) NONOPERATING REVENUE (EXPENSES) Connection and Other Fees Investment Earnings Interest Expense Intergovernmental Grants Gain (Loss) on Disposal of Capital Asset Miscellaneous Revenue Total Nonoperating Revenue (Expenses) INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS Capital Grants and Contributions Transfers Out Total Contributions and Transfers CHANGE IN NET POSITION NET POSITION Beginning of Year End of Year Municipal Liquor $ 7,614,986 $ (5,399,897) _ 2,215,089 Sewer Garbage Storm Water Electric 2,188,671 - 1,079 2,804 193,446 2.804 2.383.196 1,643,598 1,517 1,645,115 510,598 37,640,985 291 254,553 - 199,095 510,889 38,094,633 899,750 637,909 29,377 101,695 3,199,774 41,527 213,686 19,152 1,523 131,546 - - - - 24,851,301 307,954 809,763 1,407,953 464,233 3,516,207 123,286 1,644,459 - 457,477 2,856,258 1,372,517 3,305,817 1,456,482 1,024,928 34,555,086 845,376 (922,621) 188,633 (514,039) 3,539,547 - 713,170 - - - 221,617 235,105 10,628 39,638 159,014 - (244,805) - - (643,159) - 1,200 8,280 - (2,050) - - - - 568,635 221,617 711,750 11,828 39,638 82,440 1,066,993 (210,871) 200,461 (474,401) 3,621,987 - - 135,764 (714,855) (150,000) (48,000) (15,000) (1,157,445) (714,855) (150,000) (48,000) (15,000) (1,021,681) 352,138 (360,871) 152,461 (489,401) 2,600,306 5,954,494 29,684,786 196,078 10,345,889 39,451,799 $ 6,306,632 $ 29,323,915 $ 348,539 $ 9,856,488 $ 42,052,105 See accompanying Notes to Basic Financial Statements. (31) Water Totals $ $ 7,614,986 (5,399,897) 2,215,089 2,235,222 44,219,074 17,865 275,305 50,583 445,928 2,303,670 44,940,307 682,215 5,550,720 279,751 687,185 - 24,851,301 561,336 7,067,446 1,147,149 6,228,629 2,670,451 44,385,281 (366,781) 2,770,115 - 713,170 38,097 704,099 (32,939) (920,903) 1,200 - 6,230 248,960 817,595 254,118 1,321,391 (112,663) 4,091,506 428,662 564,426 - (2,085,300) 428,662 (1,520,874) 315,999 2,570,632 25,041,708 110,674,754 $ 25,357,707 $ 113,245,386 (32) CITY OF ELK RIVER STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2019 CASH FLOWS FROM OPERATING ACTIVITIES Cash Receipts from Customers Cash Paid to Suppliers Cash Paid to Employees Other Receipts Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Connection Fees Received Principal Payments on Bonds Interest Payments on Bonds Principal Payments on Promissory Note Acquisition of Capital Assets Proceeds from Sale of Capital Assets Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest Received on Investments CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Other Revenue Transfers Out Repayment Received on Advances to Other Funds Receipts from Borrowings from Othe Funds Net Cash Provided (Used) by Noncapital Financing Activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of the Year CASH AND CASH EQUIVALENTS - END OF THE YEAR Municipal Liquor Sewer Garbage Storm Water $ 7,618,227 $ 2,455,025 $ 1,638,122 $ 508,876 (5,747,059) (997,567) (1,432,616) (502,979) (838,427) (599,400) (26,403) (91,337) 1,032,741 858,058 179,103 (85,440) - 713,170 - (420,000) (248,305) (38,883) (130,855) 8,280 (38,883) (77,710) - - 219,776 231,636 9,770 39,017 1,200 (714,855) (150,000) (48,000) (15,000) (714,855) (150,000) (46,800) (15,000) 498,779 861,984 142,073 (61,423) 4,150,475 4,383,877 201,306 791,886 $ 4,649,254 $ 5,245,861 $ 343,379 $ 730,463 See accompanying Notes to Basic Financial Statements. (33) Electric Water Total $ 37,495,498 $ 2,379,526 $ 52,095,274 (29,007,568) (853,238) (38,541,027) (2,618,202) (629,176) (4,802,945) 515,237 246,901 762,138 6,384,965 1,144,013 9,513,440 428,662 1,141,832 (940,000) (260,000) (1,620,000) (640,370) (35,830) (924,505) (200,916) (200,916) (2,824,703) (352,031) (3,346,472) 15,000 23,280 (4,590,989) (219,199) (4,926,781) 153,140 36,624 689,963 - 1,200 (1,157,445) - (2,085,300) 5,990 439 6,429 68,173 12,357 80,530 (1,083,282) 12,796 (1,997,141) 863,834 974,234 3,279,481 15,279,447 6,718,151 31,525,142 $ 16,143,281 $ 7,692,385 $ 34,804,623 (34 ) CITY OF ELK RIVER STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS (CONTINUED) YEAR ENDED DECEMBER 31, 2019 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income (Loss) Adjustments to Operating Income (Loss): Other Revenue Related to Operations Noncash Expenses Included in Net Income: Depreciation Change in Assets, Deferred Outflows, Liabilities, and Deferred Inflows: (Increase) Decrease in: Accounts Receivable Prepaid Items Inventory Due from Other Funds Deferred Outflows Related to Pensions Deferred Outflows Related to OPEB Increase (Decrease) in: Accounts Payable Accrued Salaries Payable Due to Other Funds Due to Other Governments Deposits Payable Unearned Revenue Compensated Absences Payable Other Postemployment Benefits Net Pension Liability Deferred Inflows Related to Pensions Net Cash Provided (Used) by Operating Activities Municipal Liquor Sewer Garbage Storm Water $ 845,376 $ (922,621) $ 188,633 $ (514,039) 123,286 1,644,459 457,477 71,829 1,499 138 (30,052) - (6,862) (8,492) (2,151) 37,031 29,959 1,230 4,507 (87) 451 - (232) 21,433 32,729 (5,549) (28,861) 5,545 1,705 139 478 - 15 38 (8,362) 10,938 - - 437 - - (20,496) 5,259 1,378 (4,621) (3,961) - (660) 64,187 24,525 2,426 7,294 (20,236) (19,429) (821) (2,407) $ 1,032,741 $ 858,058 $ 179,103 $ (85,440) See accompanying Notes to Basic Financial Statements. (35) Electric Water Total $ 3,539,547 $ (366,781) $ 2,770,115 580,463 248,960 829,423 2,856,258 1,147,149 6,228,629 (593,372) 28,964 (490,942) 19,453 2,221 21,674 (177,027) 5,471 (201,608) - - (17,505) 279,368 56,948 409,043 - - 132 (66,123) 42,461 (3,910) 21,898 450 30,215 - - (8,309) 9,479 (505) 19,912 (62,161) 40,950 (21,211) 3,000 3,883 7,320 15,955 (15,178) (13,082) 92,537 24,663 107,958 26,450 (36,233) 88,649 (160,760) (39,410) (243,063) $ 6,384,965 $ 1,144,013 $ 9,513,440 (36) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization The City of Elk River, Minnesota (the City) operates under the "Optional Plan A" form of government as defined in Minnesota Statutes. Under this plan, the City Council, composed of an elected mayor and four elected Council Members. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The financial statements and the accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. B. Reporting Entity As required by accounting principles generally accepted in the United States of America, the financial statements of the reporting entity include those of the City of Elk River (the primary government) and its component units. The Elk River Municipal Utilities is considered to be part of the primary government. The Elk River Municipal Utilities was established and statutory authority is provided in accordance with Chapter 412.321 of the Minnesota Statutes and is considered to be part of the City. The Utilities Commission has five council approved members who serve overlapping three-year terms. The statutes provide the City Council all the discretionary authority necessary to operate the utilities, except as its powers 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, Minnesota, 55330. The City has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. Based upon the application of these criteria, the City has the following component units: Blended Component Unit The Economic Development Authority (EDA) was created to carry out economic and industrial development and redevelopment within the City in accordance with policies established by the City Council. The seven member board consists of three Council Members, the Mayor and three other council approved members. The criteria that result in the EDA being reported as a blended component unit include the fact that the EDA may not exercise any of its authorized powers without prior approval of the City Council and the City having operational responsibility. The EDA is reported as a special revenue fund and does not issue separate financial statements. (37) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Reporting Entity (Continued) Discretely Presented Component Unit The Housing and Redevelopment Authority (HRA) is a legally separate entity created to carry out community development consistent with policies established by the City Council. The HRA is governed by five council appointed members, one of which is a Council Member; however, the City does not have a financial benefit or burden relationship and does not have operational responsibility. The criteria that results in the HRA being reported as a discretely presented component unit include 1) the five council appointed member board and 2) the ability of the City to impose its will on the HRA by significantly influencing the programs, projects, activities or level of service performed by the HRA by approving the HRA's budget. The HRA does not issue separate financial statements and are included in the financial section of this report. C. Government -Wide Financial Statements The government -wide financial statements (statement of net position and statement of activities) display information about the reporting government as a whole. These statements include all of the financial activities of the City. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on sales, fees, and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other internally directed revenues are reported as general revenues. The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes and special assessments are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. (38) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Government -Wide Financial Statements (Continued) As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. However, charges between the City's enterprise funds and other functions are not eliminated, as that would distort the direct costs and program revenues reported in those functions. The City applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available. Depreciation expense can be specifically identified by function (see Note 5). Interest on long-term debt is considered an indirect expense and is reported separately on the statement of activities. D. Fund Financial Statement Presentation The fund financial statements provide information about the City's funds, including fiduciary funds and blended component units. Separate statements for each fund category — governmental, and proprietary— are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following major governmental funds: The General fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Active ER Projects fund is used to account for the accumulation of resources and bonds proceeds issued to fund expenditures for the City of Elk River's related capital projects. The Pavement Management fund is used to account for franchise taxes collected to fund expenditures for the ongoing maintenance and repair of the City streets. The government reports the following major enterprise funds: The Municipal Liquor fund accounts for the operations of the City's off -sale liquor stores. The Sewer fund accounts for the activities of the sanitary sewer treatment system. The Garbage fund accounts for the activities of the garbage and recycling collection programs. The Storm Water fund accounts for the activities of the storm water collection system. The Electric fund accounts for the activities of the electric distribution system. The Water fund accounts for the activities of the water distribution system. (39) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Fund Financial Statement Presentation (Continued) Proprietary fund financial statements are reported using the economic resources measurement focus and accrual basis of accounting, similar to the government -wide financial statements. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. The operating expenses for the enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. E. Budgetary Information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are legally adopted for the General fund and the Library, Ice Arena, and Economic Development Authority special revenue funds. Project -length financial plans are adopted for all capital projects funds. All annual appropriations lapse at fiscal yearend. On or before July 1 of each year, all departments and agencies of the City submit requests for appropriation to the City's administrator so that a budget may be prepared. Before September 30, the proposed budget is presented to the City Council for review and approval. The City Council holds public hearings and may add to, subtract from, or change appropriations. Any changes in the budget must be within the revenue and reserves estimated as available or the revenue estimates must be changed by an affirmative vote by a majority of the City Council. The budget is prepared by fund, function, and activity and includes information on the past year, current year estimates, and requested appropriations for the next fiscal year. Expenditures may not legally exceed budgeted appropriations at the fund level without Council approval. Spending control is established by the amount of expenditures budgeted for the fund, but management control is exercised at the department level. Reported budget amounts are as originally adopted or as amended by Council approved supplemental appropriations and budget transfers. F. Cash and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash balances from all funds are combined and invested to the extent available in authorized investments. Earnings from such investments are allocated to the respective funds on the basis of applicable cash balance participation of each fund. Investments are generally reported at fair value. The Minnesota Municipal Money Market (4M) Fund is an external investment pool regulated by Minnesota Statutes that is not registered with the Securities and Exchange Commission (SEC). The City's investment in this fund is measured based on the amortized cost method that approximates fair value. (40) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Cash and Investments (Continued) Cash and investments held by trustee reflect balances held in segregated accounts for specific purposes. Interest earned on these investments is allocated directly to those accounts. G. Accounts Receivable Accounts receivable include amounts billed for services provided before year-end. It is the City's policy to charge uncollectibles directly to operations as accounts become worthless. The Utilities has established a reserve for uncollectible accounts which is adjusted annually based on the receivable activity. No substantial losses from present receivable balances are anticipated. A summary of the Utilities' uncollectible account balances at December 31, 2019 is as follows: Electric Water Total H. Property Taxes $ 25,355 250 $ 25,605 The City Council annually adopts a tax levy and certifies it to the county in December each year for collection the following year. The county is responsible for collecting all property taxes for the City. Property tax levies are based on property values assessed on January 2 of the preceding year. The county spreads all levies over all taxable property. These taxes attach an enforceable lien on taxable property as of January 1 and are payable by the property owner in May and October each year. The taxes are collected by the County Treasurer and tax settlements are made to the city three times a year, in January, July, and December. In the fund financial statements, taxes that remain unpaid at December 31 are classified as delinquent taxes and are offset by a deferred inflow of resources for delinquent taxes not received within 60 days after year-end. Deferred inflow of resources for taxes in governmental activities is susceptible to full accrual on the government -wide statements. I. 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. (41) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Special Assessments (Continued) Special assessments represent the financing for public improvements paid for by benefiting property owners. These assessments are recorded as receivables upon certification to the county. In governmental fund financial statements, special assessments are recognized as revenue when they are received in cash or within 60 days after year-end. All governmental special assessments receivable not received within 60 days after year-end are offset by a deferred inflow of resources in the governmental fund financial statements. At December 31, 2019, the total delinquent special assessment receivable balance was $23,610. J. Notes Receivable Notes receivable consist primarily of loans made by the City to area businesses for development purposes. The terms and interest rates of the individual loans vary. K. Inventories and Prepaid Items For the proprietary funds, inventories are valued at cost, which approximates market, using the first -in, first -out (FIFO) method. Inventories are recorded as an expense when sold or consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. L. Property Held for Resale These assets are recorded at the lower of original cost or current net realizable value in the governmental fund which purchased them. M. Restricted Assets The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond issues. They will be used for future debt service. N. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Donated capital assets are recorded at acquisition value at the date of donation. (42) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) N. Capital Assets (Continued) With the initial capitalization of general infrastructure assets (i.e., those reported by governmental activities), the City chose to include all such items regardless of their acquisition date. The City was able to obtain historical costs for the initial reporting of these assets through public works project records. Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Property, plant, and equipment of the City, as well as the component units, are depreciated using the straight line method over the following estimated useful lives: Asset Buildings and Improvements 10 to 40 Years Other Park Improvements 10 to 20 Years Machinery and Equipment 3 to 20 Years Public Domain Infrastructure 15 to 50 Years System Infrastructure 4 to 50 Years O. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has three items that qualify for reporting in this category. A deferred charge on refunding is reported in the government -wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Deferred pension and OPEB resources are reported only in the statements of net position. These items result from actuarial calculations and current year pension and OPEB contributions made subsequent to the measurement date. In addition to liabilities, the statement of financial position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has one type of item which arises under a modified accrual basis of accounting that qualifies for reporting in this category. The governmental funds report unavailable revenues from three sources: property taxes, special assessments and other. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Furthermore, the City has two additional items which qualify for reporting in this category on the statements of net position. The items, deferred pension resources and deferred OPEB (43) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Deferred Outflows/Inflows of Resources (Continued) resources, are reported only in the statements of net position and results from actuarial calculations involving net differences between projected and actuarial earnings on plan investments, changes in proportions, changes in assumptions, and differences between expected and actual experience. P. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA's fiscal year is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. For purposes of measuring the net pension liability (asset), deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the defined benefit plan administered by Elk River Fire Relief Association and additions to and deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. Investments are reported at fair value. Q. Unearned Revenue Unearned revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue. At December 31, 2019, the balance reported in the governmental fund financial statements consists of $645,014 from unearned park dedication credits. R. Long -Term Liabilities In the government -wide and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, if material, are amortized over the life of the bonds using the straight-line method. Bond issuance costs are expensed as incurred. In the governmental fund financial statements, long-term debt and other long-term obligations are not reported as liabilities. The face amount of debt issued is reported as other financing sources. Premiums or discounts on debt issuances are reported as other financing sources or uses, respectively. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. (44 ) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) S. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Unused vacation can be accrued by the employees up to a maximum of 240 hours, the limit of which is determined by years of service. All vacation pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. In the event a liability is recorded in the governmental funds, the General fund would be used to liquidate the compensated absences payable. Employees can also accrue an unlimited amount of unused sick leave. Employees with two or more years of service are entitled to receive severance pay equal to 50% of unused sick leave, up to a maximum of 480 hours. The liability for severance pay is accounted for the same as accrued vacation pay. T. Postemployment Benefits The City of Elk River and its discretely presented component unit provide a single - employer defined benefit healthcare plan to eligible retirees and their spouses. The plan offers medical insurance benefits. The total OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB and OPEB expense were measured actuarially in accordance with GASB Statement No. 75, based on entry age normal cost method. U. Fund Balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of resources reported in governmental funds. These classifications are as follows: Nonspendable — consists of amounts that cannot be spent because it is not in spendable form, such as prepaid items. Restricted — consists of amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed — consists of amounts that are constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. (45) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) U. Fund Balance (Continued) Assigned — consists of amounts intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the General fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the General fund, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to City Council Resolution, the City's Finance Director and/or City Administrator is authorized to establish assignments of fund balance. Unassigned — is the residual classification for the General fund and also reflects negative residual amounts in other funds. The City uses restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City Council has formally adopted a fund balance policy for the General fund. The City's policy is to maintain a minimum unassigned fund balance of 40-45% of budgeted operating expenditures for cash -flow timing needs. V. Net Position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. Net position is displayed in three components: Net investment in capital assets - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. Restricted net position - Consists of net position balances restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws or regulations of other governments. Unrestricted net position - All other net position balances that does not meet the definition of "restricted" or "net investment in capital assets". When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. X. Interfund Receivables and Payables Activity between funds that is representative of lending or borrowing arrangements is reported as either "due to/from other funds" (current portion) or "advances to/from other funds." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." (46) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 STEWARDSHIP AND ACCOUNTABILITY A. Deficit Fund Balance The following funds had deficit fund balances at December 31, 2019: Fund Fund Balance Capital Projects Funds: Park Dedication $ (208,560) TIF Districts (2,229,030) NOTE 3 DEPOSITS AND INVESTMENTS A. Components of Cash and Investments Cash and investments are presented in the financial statements as follows: Primary Component Total Primary Government Unit - HRA Gov and CU Statement of Net Position Cash and Investments $ 92,196,460 $ - $ 92,196,460 Restricted Cash and Investments 1,261,359 - 1,261,359 Cash and Investments - Discrete CU - 831,014 831,014 Total $ 93,457,819 $ 831,014 $ 94,288,833 B. Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council, including checking accounts and certificates of deposit. The following is considered the most significant risk associated with deposits: Custodial Credit Risk — In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The fair value of collateral pledged must equal 110% of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated "A" or better; revenue obligations rated "AX or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. (47) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) B. Deposits (Continued) The City (including Elk River Municipal Utilities) has an investment policy in place to address custodial credit risk for deposits, stating all deposits and investments must be in compliance with Minnesota Statutes 118A, with collateral ization levels of 110% of the market value of the principal and accrued interest. At year-end, the carrying amount of the City's deposits was $21,407,619 while the balance on the bank records was $21,479,992. At December 31, 2019, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City's agent in the City's name. At year-end, the carrying amount of deposits for the HRA, a discretely presented component unit, was $831,014 and the bank balance was $831,014. At December 31, 2019, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City's agent in the City's name. C. Investments Minnesota Statutes and the City's investment policy authorize the City to invest in the following: a. Direct obligations or obligations guaranteed by the United States or its agencies. b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. c. General obligations of the state of Minnesota or any of its municipalities. d. Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and maturing in 270 days or less. (48) NOTE 3 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) The City has the following investments at year-end: Primary Government Investments Measured at Fair Value Fair Value Negotiable Certificates of Deposit $ 12,561,268 Federal Home Loan Bank 1,327,779 Federal National Mortgage Association 1,501,680 Federal Farm Credit Bank Bond 500,375 Municipal Bonds 19,205,047 Total Investments Measured at Fair Value $ 35,096,149 Investments Measured at Amortized Cost Amortized Cost UBS Select Prime Institutional Money Market $ 31,921,263 Minnesota Municipal Money Market (4M Fund) 4,999,942 Other Money Market Funds 32,846 Total Investments Measured at Amortized Cost $ 36,954,051 Interest Rate Risk — This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City's investment policy uses diversification of maturity dates as a means of managing exposure to fair value by stating that no more than 30% of the City's investments may extend beyond a five-year maturity. Credit Risk — This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City's investments in certain types of investments. The City's investment policy does not further limit the ratings of their investments. A schedule of the maturities and ratings of the City's investments as of December 31, 2019 is as follows: Maturity and Rating Breakdown of Investments: Investment Type Negotiable Certificates of Deposit Federal Home Loan Bank Federal National Mortgage Association Federal Farm Credit Bank Bond Municipal Bonds UBS Select Prime Institutional Money Market Minnesota Municipal Money Market (4M Fund) Other Money Market Funds Total Investments Maturity Duration in Years Total Less Than 1 1 to 5 More Than 5 No Maturity Rating $ 12,561,268 $ 3,640,493 $ 7,939,175 $ 981,600 $ - Not Rated 1,327,779 - - 1,327,779 - AA+/Aaa 1,501,680 501,500 1,000,180 - - AA+/Aaa 500,375 - 500,375 - - AA+/Aaa 19,205,047 1,537,004 15,525,359 2,142,684 - AA -to AAA 31,921,263 24,376,676 - - 7,544,587 Not Rated 4,999,942 - - - 4,999,942 Not Rated 32,846 32,846 - - - Not Rated $ 72,050,200 $ 30,088,519 $ 24,965,089 $ 4,452,063 $ 12,544,529 (49) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) Custodial Credit Risk — For an investment, the custodial credit risk is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker - dealer) the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. As of December 31, 2019 all investments were insured or registered, or securities were held by the City or its agent in the City's name. Concentration Risk — This is the risk associated with investing a significant portion of the City's investment (considered 5% or more) in the securities of a single issuer and no more than 50% of the City's total investment portfolio may be invested in certificates of deposit or commercial paper. At December 31, 2019, the following is a list of investments which individually comprise more than 5% of the City's total investments: Percent of Total Value Minnesota Municipal Money Market (4M Fund) $ 4,999,942 6.94% Fair Value Measurements The City uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The City follows an accounting standard which defines fair value, establishes framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, the City has categorized its investments, based on the priority of inputs to the valuation technique, into a three -level fair value hierarchy. The fair value hierarchy gives the highest priority to quotes and prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the combined statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 — Financial assets and liabilities are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets and liabilities. (50) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) Fair Value Measurements (Continued) Level 2 — Financial assets and liabilities are valued based on quoted prices for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 3 — Financial assets and liabilities are valued using pricing inputs which are unobservable for the asset, inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset. Investment Type Negotiable Certificates of Deposit Federal Home Loan Bank Federal National Mortgage Association Federal Farm Credit Bank Bond Municipal Bonds Total Investments Measured at Fair Value Investments Measured at Amortized Cost Total Investments NOTE 4 NOTES RECEIVABLE Level Level Level Total $ $ 12,561,268 $ $ 12,561,268 1,327,779 1,327,779 1,501,680 1,501,680 500,375 500,375 19,205,047 19,205,047 $ $ 35,096,149 $ 35,096,149 36,954,051 $ 72,050,200 The City has made several business subsidy loans to local businesses, some of which were funded with grant proceeds received from the state and federal governments. The terms of repayment vary with each loan and will be repaid over a period of 10 years. Under the terms of the grant agreement, the City retains the grant repayments. Notes receivable of $375,378 in the Revolving Loan fund and $414,034 in the State DEED fund are outstanding at December 31, 2019. In 2015, the City issued a $1,288,589 long-term note receivable related to the sale of property to a developer under an abatement agreement. The note shall be payable in semiannual installments as tax abatement revenues are received, commencing on August 1, 2017, and maturing February 1, 2037. A note receivable of $1,008,954 in the Development Fund is outstanding at December 31, 2019. In 2006, the HRA issued a loan to a developer to assist in the financing of a housing development for the benefit of low and moderate income residents which was funded with state grant proceeds. Repayment of the loan is deferred for 30 years, payable in one lump sum at an interest rate of 1 %. Notes receivable of $400,000 in the HRA is outstanding at December 31, 2019. (51) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 4 NOTES RECEIVABLE (CONTINUED) In 2015, the HRA issued loans to applicants under the rehabilitation loan program. The terms of each loan vary and are payable over five to 15 years with rates from 1.25% to 3.25%. Notes receivable of $220,681 in the HRA are outstanding at December 31, 2019. NOTE 5 CAPITAL ASSETS Capital asset activity for the year ended December 31, 2019 was as follows: Beginning Ending PRIMARY GOVERNMENT Balance Additions Deletions Balance Governmental Activities: Capital Assets, Not Being Depreciated: Land $ 40,927,633 $ 18,548 $ $ 40,946,181 Construction in Progress - 12,883,985 12,883,985 Total Capital Assets, Not Being Depreciated 40,927,633 12,902,533 53,830,166 Capital Assets, Being Depreciated: Buildings 45,048,097 42,054 (92,224) 44,997,927 Other Improvements 6,557,771 - 6,557,771 Equipment 13,849,140 993,972 (544,643) 14,298,469 Infrastructure 70,437,858 2,572,214 (1,893,087) 71,116,985 Total Capital Assets, Being Depreciated 135,892,866 3,608,240 (2,529,954) 136,971,152 Accumulated Depreciation for: Buildings (22,034,934) (1,380,197) 92,224 (23,322,907) Other Improvements (4,248,020) (244,331) - (4,492,351) Equipment (9,365,326) (843,224) 513,382 (9,695,168) Infrastructure (46,597,669) (2,696,939) 1,838,856 (47,455,752) Total Accumulated Depreciation (82,245,949) (5,164,691) 2,444,462 (84,966,178) Total Capital Assets, Being Depreciated, Net 53,646,917 (1,556,451) (85,492) 52,004,974 Governmental Activities Capital Assets, Net $ 94,574,550 $ 11,346,082 $ (85,492) $ 105,835,140 Beginning Ending PRIMARY GOVERNMENT Balance Increases Decreases Balance Business -Type Activities: Capital Assets, Not Being Depreciated: Land $ 1,843,977 $ - $ - $ 1,843,977 Construction in Progress 467,470 2,058,365 (1,514,127) 1,011,708 Total Capital Assets, Not Being Depreciated 2,311,447 2,058,365 (1,514,127) 2,855,685 Capital Assets, Being Depreciated: Buildings and Improvements 27,345,582 27,066 27,372,648 Equipment 11,338,300 545,547 (258,491) 11,625,356 Intangible Assets 23,279,955 834,184 24,114,139 Collection and Distribution 129,022,079 1,686,064 (201,642) 130,506,501 Total Capital Assets, Being Depreciated 190,985,916 3,092,861 (460,133) 193,618,644 Accumulated Depreciation for: Buildings and Improvements (9,323,328) (904,807) - (10,228,135) Equipment (3,614,497) (716,531) 221,919 (4,109,109) Intangible Assets (165,883) (668,134) - (834,017) Collection and Distribution (62,392,784) (3,939,157) 187,178 (66,144,763) Total Accumulated Depreciation (75,496,492) (6,228,629) 409,097 (81,316,024) Total Capital Assets, Being Depreciated, Net 115,489,424 (3,135,768) (51,036) 112,302,620 Business -Type Activities Capital Assets, Net $ 117,800,871 $ (1,077,403) $ (1,565,163) $ 115,158,305 (52) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 5 CAPITAL ASSETS (CONTINUED) Beginning Ending COMPONENT UNIT Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ 257,100 $ $ $ 257,100 Capital Assets, Being Depreciated: Other Improvements 174,290 174,290 Accumulated Depreciation for: Other Improvements (70,683) (11,619) (82,302) Total Capital Assets, Being Depreciated, Net 103,607 (11,619) 91,988 Component Unit Capital Assets, Net $ 360,707 $ (11,619) $ $ 349,088 Depreciation expense was charged to functions/programs of the primary government and component unit as follows: Governmental Activities: General Government $ 154,687 Public Safety 640,384 Public Works 3,326,685 Culture and Recreation 1,042,935 Total Depreciation Expense, Governmental Activities $ 5,164,691 Business -Type Activities: Electric $ 2,856,258 Water 1,147,149 Sewer 1,644,459 Storm Water 457,477 Liquor 123,286 Total Depreciation Expense, Business -Type Activities $ 6,228,629 Component Unit: Housing and Redevelopment Authority $ 11,619 (53) NOTE 6 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The composition of interfund balances as of December 31, 2019 is as follows: Due To/From Other Funds Receivable Fund General General General Pavement Management Nonmajor Governmental Funds Nonmajor Governmental Funds Sewer Sewer Garbage Storm Water Electric Electric Electric Water Payable Fund Amount Nonmajor Governmental Funds $ 11,674 Electric 221,996 Water 35,955 Electric 276,727 Nonmajor Governmental Funds 1,753,878 Electric 1,646 Nonmajor Governmental Funds 171,800 Electric 180,405 Electric 138,531 Electric 43,013 Sewer 538 Garbage 1,563 Storm Water 906 Nonmajor Governmental Funds 128,850 $ 2,967,482 The interfund receivable/payable balances result from the distribution of utility collections and the lending/borrowing between funds for operating or capital purposes. Due To/From Component Unit Receivable Entity Payable Entity Amount Primary Government - General Fund Component Unit - HRA $ 17,020 Component Unit - HRA Nonmajor Governmental Funds 196,105 $ 213,125 The outstanding balance between the primary government and the component unit represents the transfer for administrative services and the lending/borrowing arrangement to finance construction costs. The $196,105 payable to the HRA will be paid with the collection of tax increment revenue and will not be repaid within one year. Interfund Transfers Fund Governmental Funds: General Fund Nonmajor Governmental Funds Tota I Transfer In $ 1,891,045 1,397,893 $ 3,288,938 Transfer Out $ 569,813 633,825 $ 1,203,638 (54) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 6 INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS (CONTINUED) Interfund Transfers (Continued) Fund Transfer In Transfer Out Proprietary Funds: Municipal Liquor Sewer Garbage Storm Water Electric Total $ 714,855 150,000 48,000 15,000 1,157,445 $ 2,085,300 Interfund transfers are used to provide additional capital funding or to move revenues from the fund with collection authorization to debt service funds as principal and interest payments come due. In addition, interfund transfers are occasionally authorized to allow redistribution of resources between funds for the most efficient use of funds. NOTE 7 LONG-TERM DEBT A. Components of Long -Term Debt The City had the following long-term liabilities outstanding at December 31, 2019: PRIMARY GOVERNMENT Governmental Activities: General Obligation Bonds Payable: G.O. Capital Improvement Bonds 2010A G.O. Capital Improvement Bonds 2012A EDA G.O. Refunding Bonds 2013A G.O. Sales Tax Revenue Bonds, Series 2019A Total General Obligation Bonds Unamortized Bond Premiums Compensated Absences Total Governmental Activities Final Maturity Balance - Issue Date Date Original Issue Interest Rate End of Year 04/21/10 02/01/23 $ 6,105,000 2.00-4.00% $ 2,140,000 03/15/12 02/01/33 6,975,000 1.00-2.50% 5,160,000 02/12/13 02/01/33 9,685,000 2.00-3.00% 8,665,000 09/19/19 12/01/44 32,715,000 2.50-5.00% 32,715,000 48,680,000 3,511,113 1,607,604 $ 53,798,717 (55) NOTE 7 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 LONG-TERM DEBT (CONTINUED) A. Components of Long -Term Debt (Continued) Business -Type Activities: General Obligation Revenue Bonds: G.O. Water Revenue Refunding Bonds 2008A G.O. Capital Improvement Bonds 2010A G.O. Sewer Revenue Bonds 2014B Total General Obligation Revenue Bonds Revenue Bonds Electric Revenue Bonds, Series 2016A Electric Revenue Refunding Bonds 2016B Electric Revenue Bonds, Series 2018A Total Revenue Bonds Total Bonds Unamortized Bond Premiums Notes Payable Compensated Absences Total Business -Type Activities Final Maturity Balance - Issue Date Date Original Issue Interest Rate End of Year 02/20/08 02/01/22 $ 3,085,000 2.75-3.65% $ 780,000 04/21/10 08/01/23 1,265,000 2.00-4.00% 455,000 08/21/14 02/01/35 2,620,000 2.00-3.00% 8,360,000 9,595,000 07/14/16 02/01/36 9,755,000 2.00-4.00% 9,345,000 07/14/16 02/01/22 1,370,000 2.00-4.00% 705,000 09/26/18 08/01/48 10,000,000 3.50-5.00% 9,775,000 19,825,000 29,420,000 818,036 619,692 491,365 $ 31,349,093 For the governmental activities, bonds payable can be summarized in the following categories: The general obligation bonds were used to construct a recreation facility, a public safety facility, and a public works facility. The recreation facility is leased to the YMCA, which has pledged to pay one-third of the bonds outstanding. The bonds are general obligations of the City and are backed by its full faith and credit. In 2019, the City issued $32,715,000 G.O. Sales Tax Revenue Bonds, Series 2019A. The bonds are general obligations of the City for which it pledges its full faith and credit and power to levy direct general ad valorem taxes. In addition, the City will pledge a sales and use tax of 0.50% for repayment of the Bonds. The bonds bear coupon rates ranging from 2.5% to 5.0% and will be used to finance the acquisition and betterment of certain recreational facility improvements, park improvements, trail improvements, and dredging of Lake Orono. For the business -type activities, the general obligation revenue bonds were issued to finance capital improvements. The bonds are payable from future revenues pledged from the Sewer and Water funds and are backed by the full faith and credit of the City. Annual principal and interest payments on the bonds are expected to require about 28% and 13% of revenues from the Sewer and Water funds, respectively. The revenue bonds were issued to finance the acquisition and construction of major capital facilities and are to be repaid from future revenues pledged from the Electric fund. Annual principal and interest payment on the bonds required about 4% of revenues from the Electric fund. (56) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 7 LONG-TERM DEBT (CONTINUED) A. Components of Long -Term Debt (Continued) Revenues Pledged: Landfill Generator Note: 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. The City's outstanding note from direct borrowings related to governmental activities contain provisions that in an event of default, the note may be come due in full immediately. B. Changes in Long -Term Debt Long-term liability activity for the year ended December 31, 2019 was as follows: PRIMARY GOVERNMENT Governmental Activities: General Obligation Bonds General Obligation Sales Tax Revenue Bonds Unamortized Bond Premiums Total Bonds Payable Compensated Absences Total Governmental Activities Business -Type Activities: General Obligation Revenue Bonds Revenue Bonds Unamortized Bond Premiums Total Bonds Payable Note from Direct Borrowing - Generator Note Compensated Absences Total Business -Type Activities Total Primary Government Beginning End of Due Within of Year Additions Retirements Year One Year $ 17,280,000 $ - $ (1,315,000) $ 15,965,000 $ 1,350,000 - 32,715,000 - 32,715,000 550,000 352,016 3,234,515 (75,418) 3,511,113 - 17,632,016 35,949,515 (1,390,418) 52,191,113 1,900,000 1,579,967 645,048 (617,411) 1,607,604 644,219 19,211,983 36,594,563 (2,007,829) 53,798,717 2,544,219 10,355,000 - (760,000) 9,595,000 785,000 20,685,000 (860,000) 19,825,000 840,000 870,336 (52,300) 818,036 - 31,910,336 (1,672,300) 30,238,036 1,625,000 820,608 (200,916) 619,692 203,952 504,447 234,099 (247,181) 491,365 446,005 33,235,391 234,099 (2,120,397) 31,349,093 2,274,957 $ 52,447,374 $ 36,828,662 $ (4,128,226) $ 85,147,810 $ 4,819,176 C. Future Minimum Debt Payments Annual debt service requirements to maturity for long-term obligations are as follows: Primary Government - Governmental Activities G.O. Bonds G.O. Sales Tax Revenue Bonds Year Ending December 31, Principal Interest Principal Interest 2020 $ 1,350,000 $ 388,863 $ 550,000 $ 1,367,205 2021 1,390,000 351,163 805,000 1,111,837 2022 1,430,000 312,262 845,000 1,071,588 2023 1,470,000 272,162 890,000 1,029,337 2024 925,000 242,563 935,000 984,838 2025-2029 4,940,000 906,488 5,440,000 4,171,187 2030-2034 4,460,000 252,319 6,680,000 2,915,038 2035-2039 - - 7,755,000 1,838,244 2040-2044 - - 8,815,000 782,400 Total $ 15,965,000 $ 2,725,820 $ 32,715,000 $ 15,271,674 (57) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 7 LONG-TERM DEBT (CONTINUED) C. Future Minimum Debt Payments (Continued) Year Ending December 31, 2020 2021 2022 2023 2024 2025-2029 2030-2034 2035-2039 2040-2044 2045-2049 Total NOTE 8 FUND BALANCES Primary Government - Business -Type Activities G.O. Revenue Bonds Revenue Bonds Notes Payable Principal Interest Principal Interest Principal Interest $ 785,000 $ 278,803 $ 840,000 $ 652,431 $ 203,952 $ 810,000 256,875 865,000 621,431 206,616 835,000 233,933 900,000 589,081 209,124 580,000 214,016 680,000 560,531 - 465,000 200,018 705,000 535,906 2,520,000 801,013 3,905,000 2,320,556 2,945,000 371,337 4,515,000 1,711,981 655,000 11,463 3,160,000 1,016,081 - - 2,200,000 611,656 - 2,055,000 189,589 $ 9,595,000 $ 2,367,458 $ 19,825,000 $ 8,809,243 $ 619,692 $ At December 31, 2019, a summary of the governmental fund balance classifications is as follows: Nonspendable Prepaid Items Restricted for: Debt Service Park and Recreation Improvements Landfill Mitigation Economic Development Law Enforcement Total Restricted Committed for: Library Operations Ice Arena Economic Development Insurance Reserve Street Improvements Total Committed Assigned for: Landfill Mitigation Law Enforcement Economic Development Capital Equipment Building Construction/Improvements Street Improvements Other Improvement Projects Park Improvements Total Assigned Other Active ER Pavement Governmental General Fund Projects Management Funds Total $ 187,305 $ $ $ 62,017 $ 249,322 $ - $ $ $ 2,206,522 $ 2,206,522 24,554,769 386,424 24,941,193 - 47,334 47,334 1,319,263 1,319,263 - 34,368 34,368 $ $ 24,554,769 $ $ 3,993,911 $ 28,548,680 $ $ - $ $ 420,691 $ 420,691 584,881 584,881 4,876,393 4,876,393 46,776 46,776 4,253,959 - 4,253,959 $ $ $ 4,253,959 $ 5,928,741 $ 10,182,700 $ $ $ - $ 947,217 $ 947,217 3,687 3,687 619,645 619,645 1,582,971 1,582,971 2,695,583 2,695,583 787,544 787,544 6,398,880 6,398,880 142,050 142,050 $ $ $ $ 13,177,577 $ 13,177,577 (58) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE A. Plan Description The City of Elk River participates in the following cost -sharing multiple -employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA's defined -benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERA's defined -benefit pension plans are tax qualified plans under Section 401(a) of the Internal Revenue Code. 1. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City of Elk River are covered by the General Employees Plan. General Employees Plan members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. 2. Public Employees Police and Fire Fund (PEPFF) The Police and Fire Plan, originally established for police officers and firefighters not covered by a local relief association, now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the Police and Fire Plan also covers police officers and firefighters belonging to local relief associations that elected to merge with and transfer assets and administration to PERA. B. Benefits Provided PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state Legislature. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. 1. GERF Benefits General Employees Plan benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated members is 1.2% of average salary for each of the first 10 years of service and 1.7 % of average salary for each additional year. Under Method 2, the accrual rate for Coordinated members is 1.7% of average salary for all years of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. (59) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) B. Benefits Provided (Continued) 1. GERF Benefits (Continued) Annuities, disability benefits, and survivor benefits are increased effective every January 1. Beginning January 1, 2019, the postretirement increase will be equal to 50.0% of the cost -of -living adjustment (COLA) announced by the SSA, with a minimum increase of at least 1.0% and a maximum of 1.5%. Recipients that have been receiving the annuity or benefit for at least a full year as of the June 30 before the effective date of the increase will receive the full increase. For recipients receiving the annuity or benefit for at least one month but less than a full year as of the June 30 before the effective date of the increase will receive a reduced prorated increase. For members retiring on January 1, 2024, or later, the increase will be delayed until normal retirement age (age 65 if hired prior to July 1, 1989, or age 66 for individuals hired on or after July 1, 1989). Members retiring under Rule of 90 are exempt from the delay to normal retirement. 2. PEPFF Benefits Benefits for Police and Fire Plan members first hired after June 30, 2010, but before July 1, 2014, vest on a prorated basis from 50.0% after five years up to 100.0% after 10 years of credited service. Benefits for Police and Fire Plan members first hired after June 30, 2014, vest on a prorated basis from 50.0% after 10 years up to 100.0% after 20 years of credited service. The annuity accrual rate is 3.0% of average salary for each year of service. A full, unreduced pension is earned when members are age 55 and vested, or for members who were first hired prior to July 1, 1989, when age plus years of service equal at least 90. Annuities, disability benefits, and survivor benefits are increased effective every January 1. Beginning January 1, 2019, the postretirement increase will be fixed at 1.0%. Recipients that have been receiving the annuity or benefit for at least 36 months as of the June 30 before the effective date of the increase will receive the full increase. For recipients receiving the annuity or benefit for at least 25 months but less than 36 months as of the June 30 before the effective date of the increase will receive a reduced prorated increase. C. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state legislature. 1. GERF Contributions Coordinated Plan members were required to contribute 6.50% of their annual covered salary in fiscal year 2019 and the City was required to contribute 7.50% for Coordinated Plan members. The City and HRA contributions to the General Employees Fund for the year ended December 31, 2019, were $753,933 and $5,040, respectively. Both the City and HRA contributions were equal to the required contributions as set by state statute. W CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) C. Contributions (Continued) 2. PEPFF Contributions Police and Fire member's contribution rates increased from 10.8% of pay to 11.3% and employer rates increased from 16.2% to 16.95% on January 1, 2019. The City's contributions to the Police and Fire Fund for the year ended December 31, 2019, were $631,494. The City's contributions were equal to the required contributions as set by state statute. D. Pension Costs 1. GERF Pension Costs At December 31, 2019, the City and HRA reported liabilities of $7,977,792 and $55,520, respectively, for their proportionate shares of the GERF's net pension liability. The City and HRA net pension liabilities reflected a reduction due to the state of Minnesota's contribution of $16 million to the fund during PERA's fiscal year ending June 30, 2019. The state of Minnesota is considered a nonemployer contributing entity and the state's contribution meets the definition of a special funding situation. The state of Minnesota's proportionate share of the net pension liability associated with the City and HRA totaled $247,930 and $1,725, respectively. The net pension liability was measured as of June 30, 2019 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City and HRA proportion of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2018 through June 30, 2019 relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2019 the City and HRA's combined proportion share was 0.1453%, which was the same as its combined proportion measured as of June 30, 2018. Description City's Proportionate Share of the GERF Net Pension Liability HRA's Proportionate Share of the GERF Net Pension Liability State's Proportionate Share of the GERF Net Pension Liability Associated with the City and HRA Total Amount $ 7,977,792 55,520 249,655 $ 8,282,967 For the year ended December 31, 2019, the City and HRA recognized pension expense of $997,895 and $6,381, respectively, for their proportionate shares of the GERF's pension expense. In addition, the City and HRA recognized an additional $18,568 and $129, respectively, as pension expense (and grant revenue) for their proportionate share of the state of Minnesota's contribution of $16 million to the General Employees Fund during the City's fiscal year ended December 31, 2019. HE NOTE 9 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) D. Pension Costs (Continued) 1. GERF Pension Costs (Continued) At December 31, 2019, the City reported its proportionate share of the GERF's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Description Differences Between Expected and Actual Economic Experience Changes in Actuarial Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments Changes in Proportion and Differences Between City Contributions and Proportionate Share of Contributions City Contributions Subsequent to the Measurement Date Total Deferred Deferred Outflows of Inflows of Resources Resources $ 231,839 $ 1,403 4,266 638,392 - 823,096 162,714 226,862 394,900 - $ 793,719 $ 1,689,753 A total of $394,900 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2020. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Endina December 31 2020 2021 2022 2023 Pension Expense Amount $ (407,197) (750,741) (145,860) 12,864 (62) NOTE 9 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) D. Pension Costs (Continued) 1. GERF Pension Costs (Continued) At December 31, 2019, the HRA reported its proportionate share of the GERF's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Description Differences Between Expected and Actual Economic Experience Changes in Actuarial Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments Changes in Proportion and Differences Between City Contributions and Proportionate Share of Contributions HRA Contributions Subsequent to the Measurement Date Total Deferred Deferred Outflows of Inflows of Resources Resources $ 1,538 $ - - 4,363 - 5,626 1,241 1,770 2,754 - $ 5,533 $ 11,759 A total of $2,754 reported as deferred outflows of resources related to pensions resulting from HRA contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending December 31, 2020. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Year Endinq December 31, Amount 2020 $ (2,907) 2021 (5,201) 2022 (960) 2023 88 2. PEPFF Pension Costs At December 31, 2019, the City reported a liability of $3,380,110 for its proportionate share of the Police and Fire Fund's net pension liability. The net pension liability was measured as of June 30, 2019 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City's proportion of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2018 through June 30, 2019 relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2019, the City's proportion was 0.3175% which was an increase of 0.0130% to its proportion measured as of June 30, 2018. The City also recognized $42,862 for the year ended December 31, (63) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) D. Pension Costs (Continued) 2. PEPFF Pension Costs (Continued) 2019 as revenue and an offsetting reduction of net pension liability for its proportionate share of the state of Minnesota's on -behalf contributions to the Police and Fire Fund. Legislation passed in 2013 required the state of Minnesota to begin contributing $9 million to the Police and Fire Fund each year until the plan is 90% funded or until the State Patrol Plan (administered by the Minnesota State Retirement System) is 90% funded, whichever occurs later. In addition, the state will pay $4.5 million on October 1, 2018 and October 1, 2019 in direct state aid. Thereafter, by October 1 of each year, the state will pay $9 million until full funding is reached or July 1, 2048, whichever is earlier. For the year ended December 31, 2019, the City recognized pension expense of $802,612 for its proportionate share of the Police and Fire Plan's pension expense. At December 31, 2019, the City reported its proportionate share of the PEPFF's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Description Differences Between Expected and Actual Economic Experience Changes in Actuarial Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments Changes in Proportion and Differences Between City Contributions and Proportionate Share of Contributions City Contributions Subsequent to the Measurement Date Total Deferred Deferred Outflows of Inflows of Resources Resources 143,516 2,804,954 478,419 312,468 $ 3,739,357 $ 514,489 3,794,824 703,997 116,281 $ 5,129,591 A total of $312,468 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2020. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Year Endinq December 31, Amount 2020 $ (82,109) 2021 (344,552) 2022 (1,314,793) 2023 4,837 2024 33,915 (64) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS— STATE-WIDE (CONTINUED) D. Pension Costs (Continued) 3. Total Pension Expense For year ended December 31, 2019, the City and HRA recognized total pension expenses of $2,641,823 and $6,510, respectively, for their proportionate shares of the pension expense for all of the plans in which they participate. E. Actuarial Assumptions The total pension liability in the June 30, 2019, actuarial valuation was determined using an individual entry -age normal actuarial cost method and the following actuarial assumptions: Inflation 2.50% per year Active Member Payroll Growth 3.25% per year Investment Rate of Return 7.50% Salary increases were based on a service -related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP 2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit PERA's experience. Cost of living benefit increases after retirement for retirees are assumed to be 1.25% per year for the General Employees Plan and 1.0% per year for the Police and Fire Plan. Actuarial assumptions used in the June 30, 2019 valuation were based on the results of actuarial experience studies. The most recent six -year experience study in the General Employees Plan was completed in 2019. The most recent four-year experience study for Police and Fire Plan was completed in 2016. The following changes in actuarial assumptions and plan provisions occurred in 2019: General Employees Fund Changes in Actuarial Assumptions: The mortality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions: The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0 million per year. The state's special funding contribution was changed prospectively, requiring $16.0 million due per year through 2031. Police and Fire Fund Changes in Actuarial Assumptions: The mortality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions: There have been no changes since the prior valuation. (65) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) E. Actuarial Assumptions (Continued) The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Long -Term Target Expected Real Allocation Rate of Return Domestic Equity 35.5 % 5.10 % International Equity 17.5 5.90 Fixed Income 20.0 0.75 Private Markets 25.0 5.90 Cash Equivalents 2.0 - Tota 1 100 % F. Discount Rate The discount rate used to measure the total pension liability in 2019 was 7.50%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the General Employees Fund and the Police and Fire Fund was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension Liability Sensitivity The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: GERF PENSION LIABILITY Description City's Proportionate Share of the GERF Net Pension Liability HRA's Proportionate Share of the GERF Net Pension Liability One Percent One Percent Decrease in Current Increase in Discount Rate Discount Rate Discount Rate (6.50%) (7.50%) (8.50%) $ 13,115,086 $ 7,977,792 $ 3,735,963 $ 91,245 $ 55,520 $ 25,992 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) G. Pension Liability Sensitivity (Continued) PEPFF PENSION LIABILITY Description City's Proportionate Share of the PEPFF Net Pension Liability H. Pension Plan Fiduciary Net Position One Percent One Percent Decrease in Current Increase in Discount Rate Discount Rate Discount Rate (6.50%) (7.50%) (8.50%) $ 7,388,289 $ 3,380,110 $ 65 Detailed information about each pension plan's fiduciary net position is available in a separately issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. NOTE 10 DEFINED CONTRIBUTION PLAN Three council members of the City of Elk River are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple -employer deferred compensation plan administered by the Public Employees Retirement Association of Minnesota (PERA). The PEDCP is a tax qualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan provisions, including the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5% of salary which is matched by the elected official's employer. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. Employer and employee contributions are combined and used to purchase shares in one or more of the seven accounts of the Minnesota Supplemental Investment Fund. For administering the plan, PERA receives 2% of employer contributions and twenty-five hundredths of 1 % (0.25%) of the assets in each member's account annually. Total contributions made by the City of Elk River during fiscal year 2019 were: Contribution Amount Employee Employer $ 1,380 $ 1,380 Percentage of Covered Payroll Employee Employer 5.0% 5.0% Required Rates 5.0% (67) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 DEFINED BENEFIT PENSION PLANS —FIRE RELIEF ASSOCIATION A. Plan Description All members of the Elk River Fire Department (the Department) are covered by a defined benefit plan administered by the Elk River Fire Department Relief Association (the Association). As of December 31, 2018, the plan covered 43 active fire fighters and 6 vested terminated firefighters whose pension benefits are deferred. The plan is a single employer retirement plan and is established and administered in accordance with Minnesota Statute, Chapter 69. The Association maintains a separate Special fund to accumulate assets to fund the retirement benefits earned by the Department's membership. Funding for the Association is derived from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (chapter 261 as amended by chapter 509 of Minnesota statutes 1980). Funds are also derived from investment income. B. Benefits Provided Twenty -Year Service Pension Each member who is at least 50 years of age; has retired from the Fire Department of the City of Elk River; has served at least 20 years of active service with such department before retirement; and, has been a member of the Association in good standing for at least five years prior to such retirement; shall be entitled to a lump sum service pension in the amount of $7,120 for each year of service. Less Than Twenty -Year Service Pension The bylaws of the Association also provide for an early vested service pension for a retiring member who has completed fewer than 20 years of service. The reduced pension, available to members with a minimum of five years of service, shall be equal to 40% of the pension as prescribed by the bylaws. This percentage increases 4% per year so that at 20 years of service, the full amount prescribed is paid. Members who retire with less than 20 years of service and have reached the age of 50 years and have completed at least five years of active membership are entitled to a reduced service pension not to exceed the amount calculated by multiplying the member's service pension for the completed years of service times the applicable nonforfeitable percentage of pension. C. Contributions Minnesota Statutes, Chapters 424 and 424A authorize pension benefits for volunteer fire relief associations. The plan is funded by fire state aid, investment earnings and, if necessary, employer contributions as specified in Minnesota Statutes and voluntary City contributions (if applicable).The state of Minnesota contributed $189,502 in fire state aid to the plan on behalf of the City Fire Department for the year ended December 31, 2019, which was recorded as a revenue. Required employer contributions are calculated annually based on statutory provisions. The City's statutorily -required contribution to the plan for the year ended December 31, 2019 was $-0- but the City voluntarily contributed $30,000. in CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 DEFINED BENEFIT PENSION PLANS —FIRE RELIEF ASSOCIATION (CONTINUED) D. Pension Costs At December 31, 2019, the City reported a net pension asset of $205,427 for the plan. The net pension liability (asset) was measured as of December 31, 2018. The total pension liability used to calculate the net pension liability (asset) in accordance with GASB 68 was determined by an actuary applying an actuarial formula to specific census data certified by the Department as of December 31, 2018. For the year ended December 31, 2019, the City recognized pension expense of $822,748. At December 31, 2019, the City reported deferred outflows of resources, including its contributions subsequent to the measurement date, related to pension from the following sources: Description Changes in Actuarial Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments Differences Between Expected and Actual Economic Experience City Contributions Subsequent to the Measurement Date Tota I Deferred Deferred Outflows of Inflows of Resources Resources 186,060 $ 228,434 - - 115,462 30,000 $ 444,494 $ 115,462 Deferred outflows of resources totaling $30,000 related to pensions resulting from the City's contributions to the plan subsequent to the measurement date will be recognized as a reduction of the total pension liability in the year ended December 31, 2020. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in pension expense as follows: Year Endina December 31. 2020 2021 2022 2023 2024 Thereafter Expense Amount $ 113,003 49,438 61,169 101,380 (11,372) (14,586) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 DEFINED BENEFIT PENSION PLANS —FIRE RELIEF ASSOCIATION (CONTINUED) E. Actuarial Assumptions The total pension liability at December 31, 2018 was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Retirement Eligibility Age 50 or After 20 Years of Service If both age 50, and minimum 10 year of service but not 20 years, pension reduced 4% for each year less than 20 years. Discount Rate 5.25 % Expected Long-term Investment Return 5.25 % 20-Year Municipal Bond Yield 3.71 % Projected Salary Increases N/A Includes Inflation at 2.50 % Cost -of -Living Adjustment None Age of Service Retirement 50 The demographic assumption of mortality is based on the rates use in the July 1, 2018 Minnesota PERA Police & Fire Plan actuarial valuation as described below. Healthy Pre -retirement: RP-2014 employee generational mortality table projected with mortality improvement scale MP-2017, from a base year of 2006. Healthy Post -retirement: RP-2014 annuitant generational mortality table projected with mortality improvement scale MP-2017, from a base year of 2006. Male rates are adjusted by a factor of 0.96. Disabled: RP-2014 annuitant generational mortality table projected with mortality improvement scale MP-2017, from a base year of 2006. Male rates are adjusted by a factor of 0.96. The 5.25% long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimates for expected future real rates of return (expected returns, net of inflation) were developed for each asset class using the plan's target investment allocation along with long-term return expectations by asset class. Inflation expectations were applied to derive the nominal rate of return for the portfolio. (70) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 DEFINED BENEFIT PENSION PLANS— FIRE RELIEF ASSOCIATION (CONTINUED) E. Actuarial Assumptions (Continued) The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: A -,-Pt CIaSS Domestic Equity International Equity Fixed Income Real Estate and Alternatives Cash and Equivalents Total F. Discount Rate Allocation at Long -Term Measurement Expected Real Date Rate of Return 43.00 % 4.95 % 9.00 5.24 26.00 1.99 4.00 4.19 18.00 0.58 100.00 % The discount rate used to measure the total pension liability was 5.25%. The projection of cash flows used to determine the discount rate assumed that contributions to the plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension Liability Sensitivity The following presents the City's net pension liability (asset) for the plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: One Percent One Percent Decrease in Current Increase in Discount Rate Discount Rate Discount Rate Description (4.25%) (5.25%) (6.25%) Defined Benefit Plan $ (127,291) $ (205,427) $ (281,626) (71) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 H. Pension Plan Fiduciary Net Position The Association issues a publicly available financial report. The report may be obtained by writing to the Elk River Fire Department Relief Association, 13073 Orono Parkway, Elk River, Minnesota 55330. Information about the changes in the plan's net pension liability (asset) is as follows: 2019 Total Pension Liability Service Cost $ 107,610 Interest 146,432 Assumption Changes 39,541 Plan Changes 645,281 Differences Between Expected and Actual Experience (14,808) Gain or Loss Benefit Payments (334,581) Other Changes - Net Change in Total Pension Liability 589,475 Total Pension Liability - Beginning 2,606,316 Total Pension Liability - Ending (a) $ 3,195,791 Fiduciary Net Position Municipal Contributions $ 30,000 State Contributions 189,502 Net Investment Income 62,812 Net Gain or Loss on Investments (287,692) Benefit Payments (334,581) Administrative Expenses (11,861) Other Changes Net Change in Fiduciary Net Position (351,820) Fiduciary Net Position - Beginning 3,753,038 Fiduciary Net Position - Ending (b) $ 3,401,218 Association's Net Position Liability/ (Asset) - Ending (a) - (b) $ (205,427) (72) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS A. Plan Description The City provides other postemployment health insurance benefits for retired employees through two defined benefit plans: Municipal Retirees Health Plan (MRHP), a single - employer plan, and Utilities Retirees Health Plan (URHP), a multiemployer plan. Each plan provides benefits for eligible retirees and their dependents through the City's group health insurance plans, which cover both active and retired members. Since the premium is a blended rate determined on the active and retiree population, the retirees are receiving an implicit rate subsidy. The MRHP and the URHP do not issue publicly available financial reports. At December 31, 2019, the following employees were covered by the benefit terms: Municipal Utility Retiree Retiree Health Plan Health Plan Active Plan Members 124 39 Active Plan Members Waiving Coverage 29 9 Inactive Members or Beneficiaries Receiving Benefits 11 - Inactive Members Waiving Benefits Total Plan Members B. Funding Policy 164 48 Contribution requirements are reviewed at the time changes are made to the plans. Benefit provisions for MRHP are established and amended by the City. The Utilities has been delegated authority to establish and amend benefit provisions for URHP. Eligible retirees receiving benefits are required to pay 100% of the total premium. (73) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) C. Total OPEB Liability The City's (MRHP) total OPEB liability was measured as of January 1, 2019, and the Utilities total OPEB liability was measured as of December 31, 2019. The total OPEB liability in the January 1, 2019 actuarial valuations of the City and the Utilities were determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Valuation Date: Measurement Date: Methods and Assumptions Used to Determine the Contibution Rates: Actuarial Cost Method Amortization Method Amortization Period Inflation Healthcare cost trend rate Salary increases Discount rate Mortality City of Elk River Elk River Municipal Utilities January 1, 2019 January 1, 2019 January 1, 2019 December 31, 2019 Entry Age Level Percentage of Payroll, Closed Average of expected remaining service on a closed basis for differences between expected and actual experience and assumption changes. 2.50% 6.50% as of January 1, 2019 grading to 5.00% over 6 years. 3.00% 3.80% RP-2014 White Collar Mortality Tables with MP-2018 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel) Entry Age Level Percentage of Payroll, Closed Average of expected remaining service on a closed basis for differences between expected and actual experience and assumption changes. 2.50% 6.40% for 2019, grading to 4.00% in 2076 and later years . Salary scale updated to the rates used in the July 1, 2018 PERAof Minnesota Retirement Plan actuarial valuation to reflect recently -published tables. 3.71 % RP-2014 Mortality Tables with projected mortality improvements based on scale MP-2017, and other adjustments. The discount rates used to measure the total OPEB liability of the City and Utilities were 3.80% and 3.71 %, respectively. The actuarial assumption used in the January 1, 2019 valuations were based on input from a variety of published sources of historical and projected future financial data. Each assumption was reviewed for reasonableness with the source information as well as for consistency with the other economic assumptions. No assets were placed in a trust for the payment of OPEB. (74) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) D. Changes in the Total OPEB Liability Balance - December 31, 2018 Changes for the Year: Service Cost Interest Differences Between Expected and Actual Experience Contributions - Employer Net Investment Income Benefit Payments Changes in Assumptions Net Changes Balance - December 31, 2019 Municipal Utility Retiree Retiree Health Plan Health Plan $ 916,510 $ 100,572 44,470 12,750 31,024 3,751 (87,455) (3,832) (42,048) (27,862) (81,871) $ 834,639 104,531 117,200 $ 217,772 The following changes in assumptions and plan provisions occurred between the current and prior valuations: City - MRHP • The discount rate was changed from 3.30% to 3.80%. • The health care trend rates were changed to better anticipate short term and long term medical increases. • The mortality tables were updated from the RP-2014 White Collar Mortality Tables with MP-2016 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel) to the RP-2014 White Collar Mortality Tables with MP-2018 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel). • The retirement and withdrawal tables for Police and Fire Personnel were updated. Utility - URHP • The discount rate was changed from 3.31 % to 3.71 %. • Mortality, withdrawal and salary scale updated to the rates used in the July 1, 2018 PERA of Minnesota Retirement Plan actuarial valuation to reflect recently - published tables. • Medical per capital claims costs were updated to reflect recent experience. • The assumed retirement age was updated from 60 to 57 to reflect recent experience. • The inflation assumption was changed from 2.75% to 2.50% based on an updated historical analysis of inflation rates and forward -looking market expectations. • Health care trend rates were reset to reflect updated cost increase expectations, including an adjustment to reflect the impact of the Affordable Care Act's Excise Tax on high -cost health insurance plans. (75) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) E. Sensitivity of Total OPEB Liability The following presents the total OPEB liability, as well as what the net OPEB liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: City Total Opeb Liability (Asset) Utility Total OPEB Liability (Asset) One Percent Decrease (2.80%) $ 895,616 One Percent Decrease (2.71 %) $ 237,862 Discount Rate (3.80%) $ 834,639 Discount Rate (3.71 %) $ 217,772 One Percent Increase (4.80%) $ 777,882 One Percent Increase (4.71 %) $ 199,558 The following presents the net OPEB liability, as well as what the net OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage point lower or one percentage point higher than the current healthcare cost trend rates: City Total OPEB Liability (Asset) One Percent Decrease (5.50% Decreasing to 4.00%) $ 758,823 One Percent Decrease (5.40% Decreasing to 3.00%) Healthcare Cost Trend Rates (6.50% Decreasing to 5.00%) $ 834,639 Healthcare Cost Trend Rates (6.40% Decreasing to 4.00%) Utility Total OPEB Liability (Asset) $ 194,867 $ 217,772 One Percent Increase (7.50% Decreasing to 6.00%) $ 922,753 One Percent Increase (7.40% Decreasing to 5.00%) $ 244,554 (76) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) F. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended December 31, 2019, the City and Utilities recognized total OPEB expense of $176,219. At December 31, 2019, the Utilities did not report any deferred outflow of resources and deferred inflows of resources related to OPEB. At December 31, 2019, the City reported deferred outflow of resources and deferred inflows of resources related to OPEB from the following sources: Changes in Assumptions $ Gain or Loss Contributions Subsequent Measurement Date City of Elk River Deferred Deferred Outflows of Inflows of Resources Resources 51,790 23,881 74,961 Total $ 51,790 $ 98,842 A total of $51,790 reported as deferred outflows or resources related to OPEB resulting from city contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability in the year ended December 31, 2020. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in OPEB expense as follows: Year Endina December 31 NOTE 13 OTHER INFORMATION A. Risk Management OPEB Expense Amount 2020 $ (16,475) 2021 (16,475) 2022 (16,475) 2023 (16,475) 2024 (16,474) Thereafter (16,468) Total $ (98,842) 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. (77) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 13 OTHER INFORMATION (CONTINUED) A. Risk Management (Continued) Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. B. Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial. The City's tax increment districts are subject to review by the state of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. The City's management is not aware of any instances of noncompliance which would have a material effect on the financial statements. C. Territorial Acquisition Agreement In 1991, the Utilities entered into a 20-year agreement to transfer ownership of electric plant and electric service to customers in certain areas receiving electric service from Anoka Electric Cooperative, Inc. (AEC). In 2010 the Utility completed the final purchase under this agreement. The agreed cost of property purchased from AEC is net book value. The Utilities also pays AEC for loss of revenue for each area acquired based on a formula outlined in the agreement. In addition, the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from AEC for a period of 10 years from the date of sale of each individual area. The Utilities paid $-0- in 2019 for loss of revenues under this agreement. All amounts paid are included in property and equipment. In 2015, the Utilities entered into an agreement to transfer ownership of electric plant and electric service to customers in eight designated areas receiving service from Connexus Energy. Specific payment terms have been negotiated for five years, and if any of the eight areas are not acquired within this timeframe, the payment terms may be renegotiated. In 2019, the Utilities acquired the final service areas. The agreed cost of property purchased from Connexus Energy is net book value, integration expenses, and a loss of revenue payment. The loss of revenue payment for each area acquired is based on a formula outlined in the agreement, payable for the subsequent ten years after initial purchase. (78) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 13 OTHER INFORMATION (CONTINUED) C. Territorial Acquisition Agreement (Continued) The Utilities acquired designated service area one in 2015 for $877,807, service area two in 2016 for $663,586, service areas three and four in 2017 for $276,776, service areas five and six in 2018 for $298,736 and service areas seven and eight in 2019 for $78,457. The loss of revenue payments made were $411,157 in 2017, $570,725 in 2018, $751,860 in 2019, and $834,185 in 2020. All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets. D. Conduit Debt Obligations From time -to -time, the City has issued revenue bonds to provide financial assistance to private -sector entities for the acquisition and construction of industrial and commercial, multi -family and educational facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payment received from the benefited entity. Neither the City, the state, nor any political subdivision thereof is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of December 31, 2019, there were two series of revenue bonds outstanding, with an aggregate principal payable amount of $5,045,000. E. Commitments The Utilities entered into an agreement in 2007 with Central Minnesota Municipal Power Agency (CMMPA) to acquire an interest in the CAPX Initiative Brookings Project, a power transmission line in Minnesota. The project is a 250-mile, 345 kV AC transmission line with a rating of 2,300 MW, between Brookings, South Dakota, and the Southeast Twin Cities. In 2011 there was increased opportunity for investment, and subsequent agreements provide the Utilities with an ownership share of $5.6 million or 18.89%. The return on this investment through CMMPA is designed to provide approximately $124,000 annually over the 40-year project life. To ensure bond payment obligations, cash distributions for 2019 were curtailed. In 2018, the principal bond payment increased approximately by $700K. This increase remains in effect through 2020. In 2021, the bond payment drops nearly $1 M. A contributing factor in participant cash distributions in 2019 is under recovery. The projected under recovery in 2019 is estimated to be $203K. The bond obligations are satisfied first, distribution to participants is directly affected by under recovery. The under recovery is rolled forward under the true up. However, the under recovery in 2019 (approximately $203K) would be included in the revenue requirements in 2021.The transmission payments for 2019 were $46,021, all of which was a receivable at December 31, 2019. (79) CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 13 OTHER INFORMATION (CONTINUED) F. Joint Ventures The City has agreements with government and other entities which provide reduced costs, better service and additional benefits to the participants. In 2007, the City and neighboring municipalities formed the Sherburne/Wright Cable Communications Commission (the Commission). The purpose of the organization is to monitor the operation and activities of cable communications of the member municipalities. The Commission also provides coordination, administration and enforcement of the franchises for the cable communication system. Financial statements for the Commission can be obtained by writing to: Sherburne/Wright Cable Communications Commission at 444 Cedar Street, Suite 950, St. Paul, Minnesota 55101. G. Segment Information The City maintains six enterprise funds that account for the municipal liquor operations, garbage collections, sewer, storm water, water and electric utilities. The City considers each of its enterprise funds to be a segment. Since the required segment information is already included in the City's proprietary funds' balance sheet and statement of revenues, expenses, and changes in net position balance, this information has not been repeated in the notes to the basic financial statements. NOTE 14 TAX ABATEMENTS The City of Elk River has established a tax abatement program pursuant to Minnesota Statutes, Sections 469.1812 through 469.1815. As part of the City's program the City enters into agreements through the use of tax increment financing districts under Minnesota Statutes Section 469.174 to 469.179 (the Tax Increment Act). Under these statutes the City annually abates taxes collected above the district's base tax capacity which is established during adoption of the tax increment district. These agreements are established to foster economic development and redevelopment through creating jobs, removing blight and providing affordable housing. For fiscal year ending December 31, 2019, the City has two agreements established under Minnesota Statutes Section 469.174 to 469.179 which resulted in property taxes totaling $250,266 being abated. Individual abatement payments which constituted more than 1% of the City's 2019 tax levy include: • A pay-as-you-go note resulting in an abatement amount of $142,544, for a financial institution. • A pay-as-you-go note resulting in an abatement amount of $107,722 for an industrial developer. As part of the City's tax abatement program, the City also enters into agreements with local businesses in the form of business subsidy agreements established under Minnesota Statutes Section 116J.993 through 116J.995. These agreements must meet a public purpose which may include, but may not be limited to, increasing the tax base. ®' CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 14 TAX ABATEMENTS (CONTINUED) In 2019 the City of Elk River had eight business subsidy agreements in place which resulted in property taxes totaling $160,265 being abated. Individual agreements which result in taxes abated in excess of 1 % of the City's total tax levy would be disclosed individually. There were no such payments made in 2019 in excess of this amount. NOTE 15 SUBSEQUENT EVENT Subsequent to year-end, the World Health Organization declared the spread of Coronavirus Disease (COVID-19) a worldwide pandemic. The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the City, COVID-19 may impact various parts of its 2020 operations and financial results including, but not limited to, costs for emergency preparedness, shortages of personnel. Management believes the City is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events occurred subsequent to year-end and are still developing. HE REQUIRED SUPPLEMENTARY INFORMATION CITY OF ELK RIVER SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS — MUNICIPAL RETIREES HEALTH PLAN DECEMBER 31, 2019 2019 2018 Total OPEB Liability: Service Cost $ 44,470 $ 58,939 I me rest 31,024 30,051 Changes in Benefit Terms - - Changes in Assumptions (27,862) - Differences Between Expected and Actual Experience (87,455) - Benefit Payments (42,048) (47,958) Net Change in Total OPEB Liability (81,871) 41,032 Total OPEB Liability - Beginning 916,510 875,478 Total OPEB Liability - Ending $ 834,639 $ 916,510 Total OPEB Liability $ 834,639 $ 916,510 Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 0.00% 0.00% Covered Employee Payroll $ 9,076,855 $ 8,658,239 City's Total OPEB Liability as a Percentage of the 9.20% 10.59% Covered Employee Payroll Note: The City implemented GASB Statement No. 75 in fiscal year 2018. The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2018 and is intended to show a ten-year trend. Additional years will be reported as they become available. Valuation Date: Measurement Date: January 1, 2019 January 1, 2019 Methods and Assumptions Used to Determine the Contibution Rates: Actuarial Cost Method Entry Age Amortization Method Level Percentage of Payroll, Closed Amortization Period Average of expected remaining service on a closed basis for differences between expected and actual experience and assumption changes. I nflation: 2.50% Healthcare cost trend rate 6.50% as of January 1, 2019 grading to 5.00% over 6 years. Salary increases 3.00% Discount rate 3.80% Mortality RP-2014 White Collar Mortality Tables with MP- 2018 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel) • No assets were placed in a trust for the payment of OPEB. (82) CITY OF ELK RIVER SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS — MUNICIPAL RETIREES HEALTH PLAN (CONTINUED) DECEMBER 31, 2019 Changes in Benefits and Assumptions 2019: 2018: Changes in Benefit Terms: • There were no significant changes in benefit terms. Changes in Assumptions • The discount rate was changed from 3.30% to 3.80%. • The health care trend rates were changed to better anticipate short term and long term medical increases. • The mortality tables were updated from the RP-2014 White Collar Mortality Tables with MP- 2016 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel) to the RP-2014 White Collar Mortality Tables with MP-2018 Generational Improvement Scale (with Blue Collar adjustment for Police and Fire Personnel). • The retirement and withdrawal tables for Police and Fire Personnel were updated. Changes in Benefit Terms: • There were no significant changes in benefit terms. Changes in Assumptions • The discount rate was changed from 3.50% to 3.30%. (83) CITY OF ELK RIVER SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS — UTILITIES RETIREES HEALTH PLAN DECEMBER 31, 2019 Total OPEB Liability: Service Cost Interest Changes in Assumptions Differences Between Expected and Actual Experience Net Change in Total OPEB Liability Total OPEB Liability - Beginning Total OPEB Liability - Ending Total OPEB Liability Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability Covered Employee Payroll City's Total OPEB Liability as a Percentage of the Covered Employee Payroll 2019 $ 12,750 3,751 104,531 (3,832) 117,200 100,572 $ 217,772 2018 $ 11,084 3,526 4,509 19,119 81,453 $ 100,572 $ 217,772 $ 100,572 0.00% 0.00% $ 3,547,495 $ 3,584,096 6.14% 2.81 % Note: The Utilities implemented GASB Statement No. 75 in fiscal year 2018. The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2018 and is intended to show a ten-year trend. Additional years will be reported as they become available. Valuation Date: Measurement Date: January 1, 2019 December 31, 2019 Methods and Assumptions Used to Determine the Contibution Rates: Actuarial Cost Method Entry Age Amortization Method Level Percentage of Payroll, Closed Amortization Period Average of expected remaining service on a closed basis for differences between expected and actual experience and assumption changes. I nflation: 2.50% 6.40% as of January 1, 2019, gradually decreasing Healthcare cost trend rate over several decades to an ulitmate rate of 4.00% in 2076 and later years. Mortality, withdrawal and salary scale updated to the rates used in the July 1, 2018 PERA of Minnesota Salary increases and Mortality Retirement Plan actuarial valuation to reflect recently -published tables. Discount rate 3.71% • No assets were placed in a trust for the payment of OPEB. (84) CITY OF ELK RIVER SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS — UTILITIES RETIREES HEALTH PLAN (CONTINUED) DECEMBER 31, 2019 Changes in Benefits and Assumptions 2019: 2018: Changes in Benefit Terms: • There were no significant changes in benefit terms. Changes in Assumptions • The discount rate was changed from 3.31 % to 3.71 %. • Mortality, withdrawal and salary scale updated to the rates used in the July 1, 2018 PERA of Minnesota Retirement Plan actuarial valuation to reflect recently -published tables. • Medical per capital claims costs were updated to reflect recent experience. • The assumed retirement age was updated from 60 to 57 to reflect recent experience. • The inflation assumption was changed from 2.75% to 2.50% based on an updated historical analysis of inflation rates and forward -looking market expectations. • Health care trend rates were reset to reflect updated cost increase expectations, including an adjustment to reflect the impact of the Affordable Care Act's Excise Tax on high -cost health insurance plans. Changes in Benefit Terms: • There were no significant changes in benefit terms. Changes in Assumptions • The discount rate was changed from 3.81 % to 3.31 %. 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O N 00 I (n (O O N O (h N O 00 I� o (h O V 00 00 I- O O O 00 00 (O N V N (`") (O V 00 (f) N (n V r- O (f) 00 (n O O - - N _ V V I� (O V (7) (C) V (3� (O (C) O O) V V C (n Ti O O V- CO V (h (O 00 (n O O (O - (h 00 N (`") (n - N (1) `-' (h (n O I- V O N O - Q Q O N N (h (h (h Z Z 61� 61� U) c a� O a x U)) o w Q a) m c c 0) n3 M o U Q c -O -0 = E `� O N J a) o C g J N S O w c-0 a) U) Q N E-0 c a) m W r N Z U) N C m W O r cC a) w 1 d u) o E a) � c .T I I c c Z N O— Q N Y N a+ V) O U a) -O O O .O .O O C a N J N j a) O N N J J Z- 0 C c x w -0 N J Z c - C a) W N N U) C i C a) �_ w O O 0 .� m Q m E 0) o 0 0 0 .3 o E> a) a) N O a) O O O O N U) C) N O Z Z U a) aw C aNi aNi m a�i a�i o a o aNi w U) m O w o U N a) a) 0) 0� Cj w w iL U c tf .E n3 n3 m a) a) m m c °) C) m— c E a) C) O c o H in U U m O z �� a z m Q z Q a~ U cn LL LL N O) CITY OF ELK RIVER SCHEDULE OF CITY CONTRIBUTIONS - ELK RIVER FIRE RELIEF - LAST SEVEN YEARS DECEMBER 31, 2019 Year Ending 12/31 /2019 12/31 /2018 12/31 /2017 12/31 /2016 12/31 /2015 12/31 /2014 12/31 /2013 Actuarial Determined Contribution (a) $ 198,424 189,502 182,297 179,192 174,826 164,825 167,103 Actual Contributions Paid (b) $ 228,424 219,502 212,297 209,192 204,826 194,825 197,103 Contribution Deficiency (Excess)(a-b) $ (30,000) (30,000) (30,000) (30,000) (30,000) (30,000) (30,000) *Ten Years of Data Will Eventually Be Presented When Available (93) COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS Special Revenue — Special revenue funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. They are usually required by statute or local ordinance to finance particular functions or activities of government. Debt Service — Debt service funds account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and other related costs. Capital Projects — Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds. (94) CITY OF ELK RIVER COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2019 ASSETS Cash and Investments Receivables: Accrued Interest Delinquent Taxes Special Assessments Other Accounts Receivable Notes Receivable, Net Due from Other Governments Due from Other Funds Prepaid Items Land Held for Resale Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable Accrued Salaries Payable Due to Other Governments Due to Other Funds Unearned Revenue Total Liabilities DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes Unavailable Revenue - Special Assessments Total Deferred Inflows of Resources FUND BALANCE Nonspendable Restricted Committed Assigned Unassigned Total Fund Balance Total Liabilities, Deferred Inflows of Resources, and Fund Balance Special Debt Capital Revenue Service Projects Totals $ 5,117,665 $ 1,705,549 $ 12,534,622 $ 19,357,836 18,260 5,262 55,593 79,115 17,368 503,389 1,769 522,526 - - 306,891 306,891 77,445 - 312,703 390,148 1,798,366 - - 1,798,366 14 - 29,069 29,083 1,755,524 - - 1,755,524 61,785 - 232 62,017 175,000 - - 175,000 $ 9,021,427 $ 2,214,200 $ 13,240,879 $ 24,476,506 $ 29,452 $ 600 $ 850,353 $ 880,405 12,643 - - 12,643 1,680 - 18,958 20,638 11,675 - 2,054,527 2,066,202 - - 645,014 645,014 55,450 600 3,764,957 3,821,007 3,937 7,078 456 11,471 - - 306,028 306,028 3,937 7,078 306,484 317,499 61,785 - 232 62,017 1,400,965 2,206,522 386,424 3,993,911 5,928,741 - - 5,928,741 1,570,549 - 11,607,028 13,177,577 - - (2,824,246) (2,824,246) 8,962,040 2,206,522 9,169,438 20,338,000 $ 9,021,427 $ 2,214,200 $ 13,240,879 $ 24,476,506 (95) CITY OF ELK RIVER COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2019 REVENUE Property Taxes Sales Tax Revenue Special Assessments Intergovernmental Revenue Charges for Services Fines and Forfeits Other Revenue: Landfill Expansion Fee Investment Earnings Refunds and Reimbursements Contributions Miscellaneous Revenue Total Revenue EXPENDITURES Current: General Government Public Safety Public Works Culture and Recreation Economic Development Capital Outlay: General Government Public Safety Public Works Culture and Recreation Debt Service: Principal Retirement Interest and Fiscal Charges Total Expenditures EXCESS OF REVENUE OVER EXPENDITURES OTHER FINANCE SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Total Other Finance Sources (Uses) NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Special Debt Capital Revenue Service Projects Totals $ 556,980 $ 978,266 $ 304,883 $ 1,840,129 - 652,665 - 652,665 - - 58,416 58,416 25,816 - 362,995 388,811 659,213 - 119,581 778,794 32,294 - - 32,294 - - 2,081,124 2,081,124 192,421 18,202 567,859 778,482 52,588 - - 52,588 2,927 241,796 440,811 685,534 37,224 - 40,457 77,681 1,559,463 1,890,929 3,976,126 7,426,518 86,737 - 60,691 147,428 18,668 - 180,249 198,917 51,052 - 62,856 113,908 782,132 - 79,523 861,655 371,093 - 169,670 540,763 - - 58,735 58,735 - - 365,811 365,811 - - 917,004 917,004 19,767 - 1,296,714 1,316,481 - 1,315,000 - 1,315,000 - 427,862 42,326 470,188 1,329,449 1,742,862 3,233,579 6,305,890 230,014 148,067 742,547 1,120,628 28,000 585,225 784,668 1,397,893 (48,600) - (585,225) (633,825) - - 127,190 127,190 (20,600) 585,225 326,633 891,258 209,414 733,292 1,069,180 2,011,886 8,752,626 1,473,230 8,100,258 18,326,114 $ 8,962,040 $ 2,206,522 $ 9,169,438 $ 20,338,000 Ea NONMAJOR SPECIAL REVENUE FUNDS Library — This fund accounts for any library maintenance costs which are not paid by the Great River Regional Library System. Ice Arena — This fund accounts for the operation and maintenance of the ice arena which is funded by user fees. Pinewood Golf Couse — This fund was established to account for the operation and maintenance of the municipal -owned nine -hole golf course which is funded by user fees. Landfill — This fund was established to segregate solid waste surcharge revenues to be used for landfill abatement and other environmental issues. Revolving Loan — This fund was established to account for the City's portion of state economic development grant repayments which are used to fund other economic development projects. State DEED — This fund was established to account for the state share of Department of Employment and Economic Development grant repayments which are used to fund economic development projects. Development Fund — This fund was established to attract businesses to develop within the City's business park. Insurance Reserve — This fund was opened to account for insurance deductibles and litigation costs not covered by insurance. The major source of revenue is from insurance premium refunds. Drug Forfeiture Reserve — This fund was established to account for revenues received as a result of drug related crimes. These funds must be used for drug education and prevention. Economic Development Authority — This fund was established to account for a special tax levy authorized to help encourage development in the City. (97) City E giver This page intentionally left blank CITY OF ELK RIVER COMBINING BALANCE SHEET - NONMAJOR SPECIAL REVENUE FUNDS DECEMBER 31, 2019 Pinewood Revolving Library Ice Arena Golf Course Landfill Loan ASSETS Cash and Investments $ 418,735 $ 536,814 $ $ 987,114 $ 872,115 Receivables Accrued Interest 1,957 2,503 4,624 4,086 Delinquent Taxes 2,056 - - - Other Accounts Receivable - 70,616 5,480 - Notes Receivable, Net - - 375,378 Due from Other Governments - Due from Other Funds Prepaid Items Land Held for Resale - - - - Total Assets $ 422,748 $ 609,933 $ $ 997,218 $ 1,251,579 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable $ 1,586 $ 14,010 $ $ 2,667 $ 2,000 Accrued Salaries Payable - 9,362 - - Due to Other Governments 1,680 Due to Other Funds - - - - Total Liabilities 1,586 25,052 2,667 2,000 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes 471 - - - FUND BALANCE Nonspendable - - Restricted - - 47,334 - Committed 420,691 584,881 - 1,249,579 Assigned - - 947,217 - Total Fund Balance 420,691 584,881 994,551 1,249,579 Total Liabilities, Deferred Inflows of Resources, and Fund Balance $ 422,748 $ 609,933 $ $ 997,218 $ 1,251,579 W Development Insurance Drug State DEED Fund Reserve Forfeiture EDA Totals $ 104,850 $ 856,123 $ 45,534 $ 37,939 $ 1,258,441 $ 5,117,665 491 4,011 411 177 - 18,260 - 4,992 - - 10,320 17,368 - - 1,349 - 77,445 414,034 1,008,954 - - 1,798,366 - - 14 - 14 1,753,878 - - 1,646 1,755,524 - 61,785 - 61,785 - - - - 175,000 175,000 $ 519,375 $ 3,627,958 $ 109,079 $ 38,130 $ 1,445,407 $ 9,021,427 $ $ $ 518 $ 75 $ 8,596 $ 29,452 - - 3,281 12,643 - 1,680 - - 11,675 11,675 518 75 23,552 55,450 1,144 - - 2,322 3,937 - 61,785 - - 61,785 519,375 - - 34,368 799,888 1,400,965 - 3,626,814 46,776 - - 5,928,741 - - - 3,687 619,645 1,570,549 519,375 3,626,814 108,561 38,055 1,419,533 8,962,040 $ 519,375 $ 3,627,958 $ 109,079 $ 38,130 $ 1,445,407 $ 9,021,427 CITY OF ELK RIVER COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR SPECIAL REVENUE FUNDS YEAR ENDED DECEMBER 31, 2019 REVENUE Property Taxes Intergovernmental Revenue Charges for Services Fines and Forfeits Other Revenue: Investment Earnings Refunds and Reimbursements Contributions Miscellaneous Revenue Total Revenue EXPENDITURES Current: General Government Public Safety Public Works Culture and Recreation Economic Development Capital Outlay: Culture and Recreation Total Expenditures EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCE SOURCES (USES) Transfers In Transfers Out Total Other Finance Sources (Uses) NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Pinewood Library Ice Arena Golf Course $ 65,789 $ $ $ 627,514 8,225 12,583 2,927 - 17,894 _ 74,014 660,918 102,463 679,282 9,333 10,434 111,796 689,716 (37,782) (28,798) Revolving Landfill Loan 21,490 26,199 2,000 51,057 43,332 - 8,649 98,746 53,981 - 51,052 387 - - - 2,323 387 51,052 2,323 (387) 47,694 51,658 28,000 28,000 - - - (9,782) (28,798) (387) 47,694 51,658 430,473 613,679 387 946,857 1,197,921 $ 420,691 $ 584,881 $ - $ 994,551 $ 1,249,579 (100) Development Insurance Drug State DEED Fund Reserve Forfeiture EDA Totals $ $ 159,610 $ - $ $ 331,581 $ 556,980 - 4,155 171 25,816 - 3,500 659,213 - - 32,294 - 32,294 3,220 52,893 3,793 806 16,512 192,421 - 28,070 24,518 - - 52,588 - - - 2,927 10,681 - - - 37,224 13,901 240,573 32,466 33,100 351,764 1,559,463 86,737 - 86,737 - 18,668 18,668 - 51,052 - - 782,132 119,234 249,536 371,093 - - - - 19,767 119,234 86,737 18,668 249,536 1,329,449 13,901 121,339 (54,271) 14,432 102,228 230,014 (10,600) (10,600) 13,901 110,739 (54,271) 28,000 (38,000) (48,600) - (38,000) (20,600) 14,432 64,228 209,414 505,474 3,516,075 162,832 23,623 1,355,305 8,752,626 $ 519,375 $ 3,626,814 $ 108,561 $ 38,055 $ 1,419,533 $ 8,962,040 (101) CITY OF ELK RIVER SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - LIBRARY SPECIAL REVENUE FUND YEAR ENDED DECEMBER 31, 2019 REVENUE Property Taxes Investment Earnings Total Revenue EXPENDITURES Current: Culture and Recreation: Capital Outlay: Culture and Recreation: Total Expenditures EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCE SOURCES Transfers In NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Budgeted Amounts Over (Under) Original Final Actual Final Budget $ 66,000 $ 66,000 $ 65,789 $ (211) 7,500 7,500 8,225 725 73,500 73,500 74,014 514 101,500 101,500 102,463 963 14,500 14,500 9,333 (5,167) 116,000 116,000 111,796 (4,204) (42,500) (42,500) (37,782) 4,718 28,000 28,000 28,000 - $ (14,500) $ (14,500) (9,782) $ 4,718 430,473 $ 420,691 (102) CITY OF ELK RIVER SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - ICE ARENA SPECIAL REVENUE FUND YEAR ENDED DECEMBER 31, 2019 REVENUE Charges for Services Investment Earnings Contributions Miscellaneous Revenue Total Revenue EXPENDITURES Current: Culture and Recreation: Capital Outlay: Culture and Recreation: Total Expenditures NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Budgeted Amounts Over (Under) Original Final Actual Final Budget $ 806,300 $ 806,300 $ 627,514 $ (178,786) 8,000 8,000 12,583 4,583 6,100 6,100 2,927 (3,173) 21,300 21,300 17,894 (3,406) 841,700 841,700 660,918 (180,782) 773,950 773,950 679,282 (94,668) 10,000 10,000 10,434 434 783,950 783,950 689,716 (94,234) $ 57,750 $ 57,750 (28,798) $ (86,548) 613,679 $ 584,881 (103) CITY OF ELK RIVER SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL ECONOMIC DEVELOPMENT AUTHORITY SPECIAL REVENUE FUND YEAR ENDED DECEMBER 31, 2019 Budgeted Amounts Over (Under) Original Final Actual Final Budget REVENUE Property Taxes $ 325,100 $ 325,100 $ 331,581 $ 6,481 Intergovernmental Revenue - - 171 171 Charges for Services 3,500 3,500 3,500 Investment Earnings 4,000 4,000 16,512 12,512 Total Revenue 332,600 332,600 351,764 19,164 EXPENDITURES Current: Economic Development 294,600 294,600 249,536 (45,064) EXCESS OF REVENUE OVER EXPENDITURES 38,000 38,000 102,228 64,228 OTHER FINANCE SOURCES (USES) Transfers Out (38,000) (38,000) (38,000) - NET CHANGE IN FUND BALANCES $ - $ - 64,228 $ 64,228 FUND BALANCES Beginning of Year 1,355,305 End of Year $ 1,419,533 (104) NONMAJOR DEBT SERVICE FUNDS Government Building Bonds — This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of City facilities. Sales Tax Bonds — This fund is used to account for the accumulation of resources and payment of principal and interest on long-term general obligation sales tax revenue debt used to finance the acquisition and betterment of certain recreational facility improvements, park improvements, trail improvements, and dredging of Lake Orono. YMCA Bonds - This fund is used to account for the accumulation of resources and payment of principal and interest to finance the construction of the YMCA facilities. (105) CITY OF ELK RIVER COMBINING BALANCE SHEET - NONMAJOR DEBT SERVICE FUNDS DECEMBER 31, 2019 ASSETS Cash and Investments Receivables: Accrued Interest Delinquent Taxes Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes FUND BALANCE Restricted Total Liabilities, Deferred Inflows of Resources, and Fund Balance Government Building Sales Tax Bonds Bonds YMCA Bonds Totals $ 948,279 $ 177,150 $ 580,120 $ 1,705,549 4,434 828 - 5,262 14,363 474,665 14,361 503,389 $ 967,076 $ 652,643 $ 594,481 $ 2,214,200 $ 600 $ - $ - $ 600 3,074 - 4,004 7,078 963,402 652,643 590,477 2,206,522 $ 967,076 $ 652,643 $ 594,481 $ 2,214,200 (106) CITY OF ELK RIVER COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR DEBT SERVICE FUNDS YEAR ENDED DECEMBER 31, 2019 REVENUE Property Taxes Sales Tax Revenue Other Revenue: Investment Earnings Contributions Total Revenue EXPENDITURES Debt Service: Principal Retirement Interest and Fiscal Charges Total Expenditures EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCE SOURCES Transfers In NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Government Building Sales Tax Bonds Bonds YMCA Bonds Totals $ 468,335 $ - $ 509,931 $ 978,266 - 652,665 - 652,665 11,655 828 5,719 18,202 - - 241,796 241,796 479,990 653,493 757,446 1,890,929 800,000 216,624 1,016,624 (536,634) - 515,000 1,315,000 850 210,388 427,862 850 725,388 1,742,862 652,643 32,058 148,067 585,225 - - 585,225 48,591 652,643 32,058 733,292 914,811 - 558,419 1,473,230 $ 963,402 $ 652,643 $ 590,477 $ 2,206,522 (107) NONMAJOR CAPITAL PROJECTS FUNDS Park Dedication — This fund accounts for park dedication fees from developers and expenditures for park land acquisitions and park capital improvements. Capital Outlay Reserve — This fund was established to help build reserves for the purchase of capital equipment. Government Buildings — This fund is used to account for resources and expenditures related to City facilities projects. The major source of revenue is from landfill expansion fees. GRE Reserve — This fund was established to account for revenues received from the license agreement between the City and Great River Energy. Street Improvements — This fund is used to account for the construction of street improvement projects throughout the City. Improvement Projects — This fund is used to account for the construction of various improvements within the City. Equipment Replacement — This fund is used to account for the purchase of capital equipment. Park Improvements — This fund was established to account for the replacement and maintenance of park equipment and for the beautification of City parks. Developer Deposits — This fund is used to account for resources received from developers for the payment of expenses incurred by the City for private development projects. TIF Districts — This fund is used to account for administrative and development costs associated with the various tax increment financing projects. (108) City E giver This page intentionally left blank CITY OF ELK RIVER COMBINING BALANCE SHEET- NONMAJOR CAPITAL PROJECT FUNDS DECEMBER 31, 2019 ASSETS Cash and Investments Receivables: Accrued Interest Delinquent Taxes Special Assessments Other Accounts Receivable Due from Other Governments Prepaid Items Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable Due to Other Governments Due to Other Funds Due to Component Unit Unearned Revenue Total Liabiltiies DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes Unavailable Revenue - Special Assessments Total Deferred Inflows of Resources FUND BALANCE Nonspendable Restricted Assigned Unassigned Total Fund Balance Total Liabilities, Deferred Inflows of Resources, and Fund Balance Park Dedication Capital Outlay Government Reserve Buildings GRE $ 434,423 $ 1,226,432 $ 2,455,331 $ 2,070,031 2,031 5,744 11,502 9,697 - - 1,604 - - 620 - - - - 277,623 - - 29,069 - - $ 436,454 $ 1,261,865 $ 2,746,060 $ 2,079,728 $ - $ 47,461 $ 50,186 $ - 645,014 - - - 645,014 47,461 50,186 - - - 291 - - 620 - - 620 291 - 386,424 - - - - 1,213,784 2,695,583 2,079,728 (594,984) - - - (208,560) 1,213,784 2,695,583 2,079,728 $ 436,454 $ 1,261,865 $ 2,746,060 $ 2,079,728 (109) Street Improvement Equipment Park Developer Improvements Projects Replacement Improvements Deposits TIF Districts Totals $ 782,926 $ 4,299,012 $ 440,301 $ 141,389 $ 679,297 $ 5,480 $ 12,534,622 3,756 20,139 2,063 661 - - 55,593 165 - - - - - 1,769 118,374 187,897 - - - - 306,891 18,958 - - - - 16,122 312,703 - - - - - - 29,069 - - - - 232 - 232 $ 924,179 $ 4,507,048 $ 442,364 $ 142,050 $ 679,529 $ 21,602 $ 13,240,879 $ - $ - $ 73,177 $ - $ 679,529 $ - $ 850,353 18,958 - - - - - 18,958 - - - - - 2,054,527 2,054,527 - - - - - 196,105 196,105 - - - - - - 645,014 18,958 - 73,177 - 679,529 2,250,632 3,764,957 165 - - - - - 456 117,512 187,896 - - - - 306,028 117,677 187,896 - - - - 306,484 - - - - 232 - 232 - - - - - - 386,424 787,544 4,319,152 369,187 142,050 - - 11,607,028 - - - - (232) (2,229,030) (2,824,246) 787,544 4,319,152 369,187 142,050 - (2,229,030) 9,169,438 $ 924,179 $ 4,507,048 $ 442,364 $ 142,050 $ 679,529 $ 21,602 $ 13,240,879 (110) CITY OF ELK RIVER COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR CAPITAL FUNDS YEAR ENDED DECEMBER 31, 2019 Park Capital Outlay Government GRE Dedication Reserve Buildings Reserve REVENUE Property Taxes $ - $ - $ 54,537 $ - Special Assessments - 219 - - Intergovernmental Revenue - 33,770 - - Charges for Services 99,601 19,980 - - Other Revenue: Landfill Expansion Fee - - 2,081,124 - Investment Earnings 8,080 48,277 115,412 109,499 Contributions - 181,094 - 231,660 Miscellaneous Revenue - 330 - - Total Revenue 107,681 283,670 2,251,073 341,159 EXPENDITURES Current: General Government - 18,637 42,054 - Public Safety - 109,041 71,208 - Public Works - 33,767 - 29,089 Culture and Recreation - - 1,854 - Economic Development - - - - Capital Outlay: General Government - 54,723 - - Public Safety - - - - Public Works - - - 324,004 Culture and Recreation - - 1,251,552 - Debt Service: Interest and Fiscal Charges 31,906 - - - Total Expenditures 31,906 216,168 1,366,668 353,093 EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES 75,775 67,502 884,405 (11,934) OTHER FINANCE SOURCES (USES) Transfers In - 237,813 - - Transfers Out - - (585,225) - Proceeds from Sale of Capital Assets - - - - Total Other Finance Sources (Uses) - 237,813 (585,225) - NET CHANGE IN FUND BALANCE 75,775 305,315 299,180 (11,934) FUND BALANCES Beginning of Year (284,335) 908,469 2,396,403 2,091,662 End of Year $ (208,560) $ 1,213,784 $ 2,695,583 $ 2,079,728 Street Improvement Equipment Park Developer Improvements Projects Replacement Improvement Deposits TIF Districts Totals $ 57 $ - $ 23 $ - $ - $ 250,266 $ 304,883 57,032 1,165 - - - - 58,416 - - 329,225 - - - 362,995 - - - - - - 119,581 - - - - - - 2,081,124 37,928 216,005 30,195 2,463 - - 567,859 - - - 28,057 - - 440,811 7,700 - 182 - - 32,245 40,457 102,717 217,170 359,625 30,520 - 282,511 3,976,126 77,669 - - 4,012 - - - 365,811 - 32,819 - 560,181 - - - - 45,162 32,819 - 930,004 122,831 69,898 217,170 (570,379) (92,311) - 60,691 - 180,249 - 62,856 - 79,523 169,670 169,670 - 58,735 - 365,811 - 917,004 - 1,296,714 - 10,420 42,326 180,090 3,233,579 - 102,421 742,547 - - 332,000 214,855 - - 784,668 - - - - - - (585,225) - - 127,190 - - - 127,190 - - 459,190 214,855 - - 326,633 69,898 217,170 (111,189) 122,544 - 102,421 1,069,180 717,646 4,101,982 480,376 19,506 - (2,331,451) 8,100,258 $ 787,544 $ 4,319,152 $ 369,187 $ 142,050 $ - $ (2,229,030) $ 9,169,438 (112) COMPONENT UNIT FINANCIAL STATEMENTS The Housing and Redevelopment Authority of Elk River is a component unit of the City. Its operations are presented as a separate column on the combined financial statements. Governmental Fund Housing and Redevelopment Authority Fund — This fund is used to account for housing and redevelopment activities. Revenues are derived from the HRA property tax levy. (113) CITY OF ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY BALANCE SHEET —GOVERNMENTAL FUND DECEMBER 31, 2019 Cash and Investments Receivables: Taxes Notes Other Accounts Receivable Due from Primary Government Land Held for Redevelopment Total Assets ASSETS LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts Payable Accrued Salaries Payable Due to Primary Government Total Liabilities DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Taxes FUND BALANCE Nonspendable Restricted for Housing and Redevelopment Total Fund Balance Total Liabilities, Deferred Inflows of Resources, and Fund Balance Housing and Redevelopment Authority $ 831,014 9,745 620,681 3,258 196,105 234,900 $ 1,895,703 $ 20,258 2,187 17,020 39,465 2,141 620,681 1,233,416 1,854,097 $ 1,895,703 (114) CITY OF ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2019 Total Fund Balance - Housing and Redevelopment Authority Total net position reported for governmental activities in the statement of net position is different because: Capital assets used in governmental funds are not financial resources and, therefore, are not reported in the funds. Those assets consist of: Land $ 257,100 Other Improvements 174,290 Total Capital Assets 431,390 Less: Accumulated Depreciation (82,302) Some of the receivables (including property taxes and other long-term receivables) will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as deferred inflows of resources in the governmental funds. The net pension liability and related deferred inflows and deferred outflows are recorded only on the statement of net position. Balances at year-end are: Net Pension Liability (55,520) Deferred Inflows of Resources - Pensions (11,759) Deferred Outflows of Resources - Pensions 5,533 Total Net Position - Housing and Redevelopment Authority $ 1,854,097 349,088 2,141 (61,746) $ 2,143,580 (115) CITY OF ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES —GOVERNMENTAL FUND YEAR ENDED DECEMBER 31, 2019 REVENUE Property Taxes Intergovernmental Revenue Charges for Services Other Revenue: Investment Earnings Total Revenue EXPENDITURES Current: Economic Development Capital Outlay: Economic Development Total Ependitures NET CHANGE IN FUND BALANCES FUND BALANCES Beginning of Year End of Year Housing and Redevelopment Authority $ 315,352 163 624 11,608 327,747 174,217 156,501 330,718 (2,971) 1,857,068 $ 1,854,097 (116) CITY OF ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2019 Net Change in Fund Balances - Housing and Redevelopment Authority Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures and proceeds from the sale of capital assets as revenues. However, in the statement of activities, assets are capitalized and the cost 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. Depreciation Expense Delinquent and certain other property taxes receivable will be collected subsequent to year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as deferred inflows of resources and excluded from revenues in the governmental funds. Unavailable Revenue - Property Taxes Pension expenditures in the governmental funds are measured by current year employee contributions. Pension expenses on the statement of activities are measured by the change in net pension liability and the related deferred inflows and outflows of resources. Change in Net Position - Housing and Redevelopment Authority $ (2,971) (11,619) 256 (4,567) $ (18,901) (117) City E giver This page intentionally left blank STATISTICAL SECTION (UNAUDITED) This part of the City of Elk River's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. Contents Page Financial Trends 119 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 124 These schedules contain information to help the reader assess the City's most significant local revenue sources; electric sales and property taxes. Debt Capacity 131 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information 139 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 141 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. 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LL 0 W r H Z D Q 0 W (n LL >00 Zf'_n^ Y � in W Q m LL � J r WW C U \Z V /0 W V Cn 0 Z J Q m 0 Z n LL Ln i i i M O O W o O (0 N Efl V C0 OV � o CO LO CO V I— O) N C0 O) p N N N I- 69 CO V CO O N W LD Lm O Cl) CO N (p (fl V ' ' (O N Cl)O d) W N (0 O N O p N V N (D ea (O O M 0) (D O N O co I-- r O M N (p ea N N V LL I` d) d) N N O N Cl) N CO N LD (fl W r ' Lo N Cl) N (D d) I - co V d p N N (fl O W O N N V O (O N N O O ((0 p N N I— N LD (fl �I O N 0 0 N d M M LO M O 0 M N O .O0 O N N L(i (fl N 1) O O V N LO V LO O N r d N W O I� C LL a O O r O CO O I� V O (O I— 0 N N CO N I— V 0 V CO �: N W CNO O C0 N � � (fl 0) I— O O 0 V O CO (O V �p 00 C0 � I- d) (O CO N C0 d (D O LO V V V N O m N M O O N (fl 0 m V CO V (D O N N CO LO O N O O V LO M (O N N (O (O N 0) N N 69 N O O N V N 0R 0 O M N 0) m .0O O R r m N O LO V C0 CO LO N (fl O C0 O d) C0 O d) O O N (D O 0) M I— O N N CO N 0) CO CO LO O 0 W r 0 1- .0 (DO 0 m O M LO V m O m 0 N CO M V M V V LO N (fl N N O O V 0) c0 0 d) V O O LO CO (O V N M I- N 0) Efl 69 1 N N W O N (fl 0) U O U N (6 U (6 C N _T U U 0 U) O m fA m m fA fA r m v r m u� o m m o m m rn m co m o m r r N N m � � rn v co co � fA LL N m r m co u� m m m rn rn o co o N co co u� rn o m N ro o u� o m m N N v m m o N N LL O � O m (O m m m rn o m � N N N m r m V A v rn M r v Z N U3 U3 LW r m m O m O N O O m of (D V m Q LL� LL� m LL� LL� zz A 00 �_ LL� of ON � of m o r ro rn r m o_ co v v m o r m o N N N 0 Z Y W A V/ O N O o O O M O O m N N O O O N of O (O O N O O r m m O O O m N N O o rn m o m v m m m o r o N o m v m v n n o r N m N W M zYJ m m N co N co co co rn u� rn o u� u� v rn m m co m v m u� rn r o LL 0 W Q `r} O w A A r^ U `/ m N m � N m LL ''^^ Cn U M Qo y r u� co D o m u� v o co o v v C Q co m m r r v m rn co m u� rn u� m r r u� rn co v m co o m co v N m m m co � o fA fA Z m (O (O O (O V m 0 m (O V of V N m O M of IZ W N M O LL in co r co r r m m r v O v o o N o m r r o m o rn co m o co rn rn r m v i m 0 m 0 v O v m m 0 co r m N N of m m m Z p LL O O m N O O W N N O O O W V W LL O O o N m o N W fA fA Z Q U o 0 o W m o oo o om m °' n E o T n 0 o a N' a m m A LL' = U ll oo W O LL' -o m LL m .. o Y -6 D Y U A W o x U W (O m fg C� N o o N o O U m m m U A w r F F o m m E m o o o '-' _ m (n o E m m o O (n C N p U y m_ E `m m Z Z Q o 0I - V F Q o =� °� m L °� U U j� F Q Q �—�' o n s a .. y .�... w "6 E E C C m =� m m U o a in S- U iL cn - w a a U w U o W 0 O m a a in F F o Z Fiscal Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CITY OF ELK RIVER ELECTRIC SALES - LAST TEN FISCAL YEARS Number of Customers KWh's Sold 9,207 9,227 9,285 9,358 9,449 10,499 10,816 11,448 11,983 12,244 Source: Elk River Municipal Utilities 250,711,834 261,235,297 273,455,846 273,945,354 274,546,059 282,265,268 305,337,641 313,952,561 331,124,011 325, 981,176 Total Billings $ 26,060,301 27,894,341 30,070,045 30,983,220 31,517,888 32,704,279 34,569,098 36,458,061 39,039,573 37,640,985 (124) Customer Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10 TOTAL CITY OF ELK RIVER PRINCIPAL ELECTRIC CUSTOMERS - CURRENT YEAR AND NINE YEARS AGO 2019 Percentage Total kWh Total of Total Sold Billings Billings 56,625,600 $ 4,734,037 12.58% 27,244,800 2,319,316 6.16% 8,649,000 865,147 2.30% 4,644,000 416,094 1.11 % 4,573,200 450,306 1.20% 4,275,240 376,146 1.00% 3,463,500 335,067 0.89% 2,814,750 264,574 0.70% 2,723,000 254,729 0.68% 2,485,760 228,619 0.61 % 117,498,850 $ 10,244,036 27.22% 2010 Percentage Total kWh Total of Total Sold Billings Billings 38,393,885 $ 2,823,341 10.83% 14,136,120 1,145,194 4.39% - - 0.00% 5,410,305 421,062 1.62% 5,044,880 401,420 1.54% 4,853,927 369,113 1.42% 5,144,548 428,556 1.64% 3,085,596 238,997 0.92% 3,657,650 302,447 1.16% 3,356,640 290,005 1.11% 83,083,551 $ 6,420,135 24.64% Source: Elk River Municipal Utilities Minnesota Statute 13.685 considers data on customers of municipal electric utilities as private data and will no longer be disclosing customer names. (125) CITY OF ELK RIVER TAX CAPACITY, MARKET VALUE, AND ESTIMATED VALUE OF TAXABLE PROPERTY - LAST TEN FISCAL YEARS Tax capacity Real property Personal property Total tax capacity Tax increment Taxable net tax capacity Total tax capacity rate Taxable market value Real property Personal property Taxable market value Estimated actual market value of taxable property Taxable market value as a percentage of estimated actual market value 2010 $ 25,611,065 $ 310,180 2011 2012 24,736,999 $ 21,946,865 $ 350,946 344,032 2013 19, 969, 977 353,390 25,921,245 25,087,945 22,290,897 20,323,367 (888,285) (784,101) (698,130) (122,648) $ 25,032,960 $ 24,303,844 $ 21,592,767 $ 20,200,719 44.560% 45.723% 47.588% 50.373% $ 2,121,774,900 $ 2,035,543,052 $ 1,775,334,600 $ 1,599,513,500 15,764,700 17,758,600 17,412,900 18,055,900 $ 2,137,539,600 $ 2,053,301,652 $ 1,792,747,500 $ 1,617,569,400 $ 2,191,955,185 $ 2,403,906,238 $ 1,907,992,306 $ 1,758,428,600 97.52% 85.42% 93.96% 91.99% Source: Sherburne County Assessor Note: Property in the county is reassessed annually. The county assessor's market value of property is approximately 94 percent of actual value for all types of real and personal property. (126) 2014 2015 2016 2017 2018 2019 $ 20,047,632 $ 21,060,822 $ 21,850,219 $ 22,672,085 $ 23,858,008 $ 25,796,978 367,641 366,113 385,056 381,355 384,540 408,699 20,415,273 21,426,935 22,235,275 23,053,440 24,242,548 26,205,677 (116,513) (198,997) (204,017) (184,717) (196,166) (199,061) $ 20,298,760 $ 21,227,938 $ 22,031,258 $ 22,868,723 $ 24,046,382 $ 26,006,616 48.544% 47.190% 46.170% 46.193% 46.011% 45.907% $ 1,622,624,100 $ 1,735,898,300 $ 1,826,858,800 $ 1,909,814,070 $ 2,026,119,675 $ 2,219,031,172 18,736,600 18,585,200 19,469,900 19,234,400 19,393,900 20,605,300 $ 1,641,360,700 $ 1,754,483,500 $ 1,846,328,700 $ 1,929,048,470 $ 2,045,513,575 $ 2,239,636,472 $ 1,796,401,800 $ 1,900,894,800 $ 1,978,763,900 $ 2,060,082,600 $ 2,178,621,000 $ 2,374,405,900 91.37% 92.30% 93.31 % 93.64% 93.89% 94.32% (127) CITY OF ELK RIVER PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS - LAST TEN FISCAL YEARS City of Elk River Overlapping Rates Total School District Direct & Fiscal Debt Referendum Special Overlapping Year Operating Service Total County Operating Mkt. Value Districts Rates 2010 40.940 3.620 44.560 44.519 40.050 0.183 4.703 134.015 2011 42.449 3.274 45.723 46.342 43.489 0.188 4.956 140.698 2012 44.925 2.663 47.588 52.014 45.548 0.187 5.296 150.633 2013 47.222 3.151 50.373 54.420 50.058 0.190 5.260 160.301 2014 46.740 1.804 48.544 54.861 51.286 0.156 4.987 159.834 2015 45.433 1.757 47.190 51.979 42.483 0.209 4.779 146.640 2016 44.507 1.663 46.170 50.478 39.268 0.215 4.778 140.909 2017 44.584 1.609 46.193 50.460 36.659 0.219 4.509 138.040 2018 44.474 1.537 46.011 49.356 36.137 0.218 4.269 135.991 2019 44.099 1.808 45.907 47.928 32.865 0.216 2.496 129.412 Source: Sherburne County Auditor/Treasurer Overlapping rates are those of local and county governments that apply to property owners within the City of Elk River. Not all overlapping rates apply to all City of Elk River property owners (e.g., the rates for special districts apply only to the proportion of the city's property owners whose property is located within the geographic boundaries of the special district. (128) CITY OF ELK RIVER PRINCIPAL TAXPAYERS - CURRENT YEAR AND NINE YEARS AGO 2019 2010 Percentage Percentage Net Tax of Total Net Net Tax of Total Net Taxpayer Capacity Rank Tax Capacity Capacity Rank Tax Capacity Great River Energy $ 850,795 1 3.27% $ 887,734 1 3.55% JPM Capital Corporation 364,100 2 1.40% 530,664 2 2.12 Target Corp. 252,326 3 0.97% 405,240 3 1.62 BRE Retail Residual Owner, LLC 235,078 4 0.90% - - - Minnegasco 222,964 5 0.86% - - - Walmart Stores 199,136 6 0.77% 295,786 5 1.18 Broadstone STI Minnesota, LLC 135,018 7 0.52% - - - Menards,Inc 132,604 8 0.51% 191,466 7 0.76 Home Depot 110,342 9 0.42% 145,284 10 0.58 Meritex Elk River, LLC 106,244 10 0.41% - - - Resource Recovery Technology - - - 312,078 4 1.25 Bradley Operating LP 193,916 6 0.77 Minn West Bank 162,560 8 0.65 Phoenix Enterprises - - 160,847 9 0.64 TOTAL $ 2,608,607 10.03% $ 3,285,575 13.12% Source: Sherburne County Assessor (129) City E giver This page intentionally left blank Q W J Q U LL z W H Q J � I z 220 JU w w LL J OJ O �U Uz Q \w w J x H N�N LJ� W a a (1) (r) O 0 0 I- 0 O 01- 0) T rn rn rn 0 rn rn Oo Oo rn > rn rn rn rn rn rn w w rn rn a) rn rn rn rn rn rn rn rn rn rn O J U w � O d 'IT mN N N r- 00 O) (O N (h O) (h O V l!i (!i O O I� 00 m N O m 00 O m (O (O 0 m m c� (ram) ONo r°)i rn O O O O O O N E Q va C C (!i N (!i (h V O) N V 00 N 7 N (h O O) (O N N N a N N O (1) N U Q > (1)3 o� U va 0) � � J O (14 O) 00 (O (O N M M I- > 00 O) 0) 0) 00 I� 00 (f) C 0) NN 0)0)0)0)0)� N 0) 0) J i O O d tl) C `m o } E Q V 00 0) 000 0000 N N (h V (h (h O V O (O (f) (h 0- 0 N N 'IT 0 7 M N 0 0 N LO 0) I- O V (O 0) O 0) O LO LO of LO 00 of 00 I- 61) N 00 N no2 O) (NO N 00 00N (f) N (O N r- (fl 0) 0) 0) > > (VO (VO O 00 N V (NO N N Olt O I� (C (h N 00 V 0) I� (6 H ER U N O 7 N (h V l!i (O � 00 O) tl) O O O O O O O O O O O Fiscal Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CITY OF ELK RIVER RATIOS OF OUTSTANDING DEBT BY TYPE - LAST TEN FISCAL YEARS General Obligation $ 22,002,000 $ 20,897,939 26,579,666 35,223,141 34,023,916 32,789,690 29,365,466 18,951,241 17,632,016 16,277,791 Governmental Activities General Obligation Special T Revenue Assessment Incr 540,000 $ 3,460,000 $ - 2,955,000 4,035,306 1,633,459 1,246,612 924,765 607,918 296,071 35,913,322 Governmental Activities e ax Certificates of ment Indebtedness Other 375,000 $ 87,400 $ 1,499,746 305,000 - 1,410,000 - 1,410, 000 1,410, 000 1,410, 000 1,410, 000 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 See the Schedule of Demographic and Economic Statistics for personal income and population data. (131) Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 1 See the Schedule of Demographic and Economic Statistics for personal income and population data. (131) Business -Type Activities General Obligation Revenue Notes Revenue Bonds Payable $ 6,180,000 $ 6,940,000 $ 2,345,318 5,520,656 6,310,000 2,162,882 4,791,567 5,085,000 1,975,812 4,027,478 4,340,000 1,789,224 12,868,388 3,634,845 1,599,876 12,564,299 3,020,935 1,408,368 11,858,552 12,462,779 1,214,076 11,132,723 11, 781, 983 1,018, 860 10,381,894 21,528,442 820,608 9,233,625 21,004,411 619,692 Total Percentage Primary of Personal Per Government Income' Capital $ 43,429,464 6.32% $ 1,890 39,561,477 5.81% 1,713 43,877,351 6.30% 1,890 48,423,302 7.00% 2,072 54,783,637 7.14% 2,316 52,118,057 6.69% 2,183 55,508,791 6.81 % 2,294 43,180,878 5.19% 1,758 50,362,960 5.89% 2,023 83,048,841 9.45% 3,279 (132) CITY OF ELK RIVER RATIOS OF GENERAL BONDED DEBT OUTSTANDING - LAST TEN FISCAL YEARS Less Amounts Less Percentage Net General Restricted Cash with Net of Net Bonded Bonded Fiscal Bonded for Debt Fiscal Bonded Debt to Tax Debt per Year Debt' Service Agent Debt Capacity2 Capita 2010 $ 18,040,733 $ 3,787,324 $ $ 14,253,409 56.94% $ 620 2011 17,120,000 3,234,939 13,885,061 57.13% 601 2012 23,286,667 3,044,599 - 20,242,068 93.74% 875 2013 32,141,667 2,329,723 9,712,875 20,099,069 99.50% 860 2014 31,001,667 1,599,852 9,580,144 19,821,671 97.65% 838 2015 28,986,667 1,154,728 9,423,440 18,408,499 86.72% 771 2016 25,728,333 1,556,232 9,284,303 14,887,798 67.58% 611 2017 15,331,667 1,608,880 - 13,722,787 60.01% 559 2018 14,220,000 1,473,230 12,746,770 53.01% 512 2019 13,076,667 1,553,877 11,522,790 44.31% 455 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. ' Only includes debt supported by tax levy. 2 See the Schedule of Tax Capacity, Market Value and Estimated Actual Value of Taxable Property for property value data. 3 Population data can be found in the Schedule of Demographic and Economic Statistics. (133) CITY OF ELK RIVER DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT DECEMBER 31, 2019 Percent of Debt City's Outstanding Applicable Share Debt to City' of Debt Direct Debt: City of Elk River` $ 52,191,113 100.00% $ 52,191,113 Overlapping Debt: Sherburne County 43,200,000 25.84% 11,163,056 School District#728 207,155,000 30.10% 62,353,655 Total overlapping debt 250,355,000 73,516,711 Total direct and overlapping debt $ 302,546,113 $ 125,707,824 Debt Ratios: Ratio of debt per capita (25,330 population) Ratios of debt to taxable market value of $2,239,636,472 Source: Sherburne County and School District #728 $4,963 5.61 % ' The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's and school district's taxable market value that is within the city's boundaries and dividing it by the county's and school district's total taxable market value. Excludes debt payable from enterprise revenue. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is 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. (134) CITY OF ELK RIVER LEGAL DEBT MARGIN INFORMATION - LAST TEN FISCAL YEARS Debt limit Bonds Reserves Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit 2010 2011 2012 2013 $ 64,126,188 $ 61,599,050 $ 58,316,472 $ 52,752,858 18,040,733 17,120,000 23,286,667 32,141,667 1,164, 060 1,030,418 1,202, 093 10,819, 006 16,876,673 16,089,582 22,084,574 21,322,661 $ 47,249,515 $ 45,509,468 $ 36,231,898 $ 31,430,197 26.32% 26.12% 37.87% 40.42% Note: Under state law, the City of Elk River's outstanding general obligation debt should not exceed 3 percent of the market value of taxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. Only 2/3 of the $9,180,000 GO EDA Refunding Bonds, Series 2013A are subject to the debt limit. The remaining 1/3 will be paid by the YMCA. (135) 2014 2015 2016 2017 2018 2019 $ 53,892,054 $ 57,026,844 $ 59,362,917 $ 61,802,478 $ 65,358,630 $ 71,232,177 30,071,667 28,986,667 25,706,667 15,331,667 14,220,000 13,076,667 10, 743,409 10,673,852 10, 560,614 1,377,746 1,457,117 1,528,399 19,328,258 18,312,815 15,146,053 13,953,921 12,762,883 11,548,268 $ 34,563,796 $ 38,714,029 $ 44,216,864 $ 47,848,557 $ 52,595,747 $ 59,683,909 35.86% 32.11 % 25.51 % 22.58% 19.53% 16.21 % Legal Debt Margin Calculation for Fiscal Year 2019 Estimated taxable market value Debt limit (3% of market value) Debt applicable to limit: G.O. capital improvement bonds G.O. EDA bonds' Less: Cash and investments in related debt service funds Total net debt applicable to limit Legal debt margin $ 2,374,405,900 $ 71,232,177 7,300,000 5,776,667 (1,528,399) 11,548,268 $ 59,683,909 (136) CITY OF ELK RIVER PLEDGED -REVENUE COVERAGE - LAST TEN FISCAL YEARS Revenue Bonds' Net Fiscal Gross Operating Revenue Debt Service Year Revenue 2 Expenses3 Available Principal Interest Coverage 2010 $ 31,869,940 $ 25,849,033 $ 6,020,907 $ 3,785,000 $ 564,105 1.38 2011 33,672,393 27,326,836 6,345,557 1,335,000 458,888 3.54 2012 35,944,367 28,444,321 7,500,046 1,950,000 410,320 3.18 2013 34,737,779 28,629,356 6,108,423 1,505,000 341,419 3.31 2014 35,249,153 29,806,010 5,443,143 3,940,000 282,209 1.29 2015 36,586,235 30,281,264 6,286,971 900,000 464,938 4.61 2016 38,559,107 32,376,907 6,182,200 2,860,000 183,634 2.03 2017 40,563,969 34,509,407 6,054,562 1,355,000 673,662 2.98 2018 43,542,520 35,946,427 7,596,093 1,390,000 627,528 3.77 2019 42,779,016 34,245,577 8,533,439 1,620,000 924,005 3.35 Note: Details regarding the government's outstanding debt can be found in the notes to the financial statements. ' Includes Liquor, Sewer, Water and Electric revenue bonds 2 Gross revenue excludes interest income, connection fees and miscellaneous revenues 3 Expenses exclude depreciation, interest on bonds and miscellaneous expenses 4 Excludes $1,540,000 refunded principal paid through cash with fiscal agent. (137) Special Assessment Bonds Special Assessment Debt Service Collections Principal Interest Coverage $ 368,936 $ 510,000 $ 148,276 0.56 327,975 505,000 124,185 0.52 287,759 505,000 122,209 0.46 202,457 850,000 4 87,268 0.22 182,191 375,000 29,000 0.45 162,519 310,000 21,550 0.49 135,447 305,000 15,400 0.42 106,349 300,000 8,900 0.34 - 295,000 2,950 0.00 - - 0.00 (138) CITY OF ELK RIVER DEMOGRAPHIC AND ECONOMIC STATISTICS - LAST TEN FISCAL YEARS Personal Fiscal Income Per Capita Median School Unemployment Year Population' (in thousands) Income` Age' Enrollment' Rate' 2010 22,974 3 $ 687,129 $ 29,909 33 13,036 8.1% 2011 23,101 681,179 29,487 34 13,117 7.3% 2012 23,147 696,794 30,103 34 13,255 6.4% 2013 23,370 691,962 29,609 35 13,367 5.5% 2014 23,730 767,666 32,350 36 13,627 4.1% 2015 23,987 782,528 32,623 35 13,751 4.0% 2016 24,368 815,597 33,470 36 14,077 3.4% 2017 24,567 832,784 33,899 36 14,294 4.0% 2018 24,891 854,433 34,327 36 14,448 3.8% 2019 25,330 878,470 34,681 36 14,623 3.9% Data Sources: State Demographer ` Bureau of Economic Analysis 3 US Census Bureau " School District ' Minnesota Department of Employment and Economic Development (139) CITY OF ELK RIVER PRINCIPAL EMPLOYERS - CURRENT YEAR AND NINE YEARS AGO 2019 Percentage of Total City Employer Employees Rank Employment Independent School District 728 2,005 1 16.19% Sherburne County 675 2 5.45% Guardian Angels of Elk River 386 3 3.12% Walmart 354 4 2.86% Great River Energy 210 5 1.70% Sportech, Inc. 185 6 1.49% Menards 173 7 1.40% Tescom Corporation 170 8 1.37% City of Elk River 148 9 1.19% First National Financial Services 142 10 1.15% Coborn's Elk River Ford Total 4,448 35.92% Total Employment' 12,385 11 Total District 2 Minnesota Department of Employment and Economic Development 2010 Percentage of Total City Employees Rank Employment 1,547 1 14.36% 615 2 5.71% 323 4 3.00% 487 3 4.52% 216 5 2.00% 153 8 1.42% 171 7 1.59% 203 6 1.88% 134 9 1.24% 118 10 1.10% 3,967 36.82% 10,774 (140) (h 00 O O O O (0 0 N 0 0 0 O V d) V d) to to [- M 00 N M 0-0 0 0 � O N N (h 00 O O O O (h O O O O O O 0 0 V d) M to 0 to 00 N M 0-0 V 00 � O N N (h O O O O O O 00 O O O O O O d) N d) M V 0 to N M 0-0 V (h n N (h V M N � O N N (h O O O O O O Lo O O O O O O 00 d) M 0 N M 0-0 NC/) (O N V 0 � N Q N w J Q U o? d) 00 N d) 0000(r)000000 M V 0 to N M M- 00 V co N U) La N (h V M N LL CD N z w (h 00 r- O O O l!) 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Our report includes a reference to other auditors who audited the financial statements of the City of Elk River Municipal Utilities, as described in our report on the City of Elk River's financial statements. This report does not include the results of the other auditors' testing of compliance with the provisions of Minnesota Legal Compliance Audit Guide for Cities. The Minnesota Legal Compliance Audit Guide for Cities promulgated by the State Auditor pursuant to Minnesota Statute § 6.65 contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories. In connection with our audit, nothing came to our attention that caused us to believe that the City of Elk River, Minnesota failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities, except as described in the schedule of findings and responses as item 2019-001. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City of Elk River, Minnesota's noncompliance with the above -referenced provisions, insofar as they relate to accounting matters. The City of Elk River's written response to the legal compliance finding identified in our audit is described in the Schedule of Findings and Recommendations. The City's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. '")A member of Nexia International Honorable Mayor and Members of the City Council City of Elk River The purpose of this report is solely to describe the scope of our testing of compliance relating to the provisions of the Minnesota Legal Compliance Audit Guide for Cities and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. zz--, W-7, Clifton LarsonAllen LLP Minneapolis, Minnesota May 26, 2020 CITY OF ELK RIVER SCHEDULE OF FINDINGS AND RECOMMENDATIONS YEAR ENDED DECEMBER 31, 2019 FINDING: 2019-001 PROMPT PAYMENT OF BILLS Type of Finding: Minnesota Legal Compliance Finding Criteria: Minnesota Statute §471.425, requires municipalities and governmental entities to pay each vendor obligation according to the terms of the contract, or if no contract terms apply, within the standard payment period, which is defined as within 35 days from the date of receipt for municipalities which have regularly scheduled board meetings at least once a month. Condition/Context: We noted one disbursement which was not paid within the standard payment period. Effect: The City was not in compliance with state statutes related to payment of local government bills. Cause: The invoice, for the City's liquor operations, was received during a period of staff turnover at the liquor stores and was not properly processed within the 35 day time period. Recommendation: We recommend the City ensure it has procedures in place so that all invoices are paid within the required time period, even during times of change or staff turnover. Views of Management: Management agrees with the finding and recommendation and will continue to review the process of paying invoices and bills CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and City Council City of Elk River Elk River, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River, as of and for the year ended December 31, 2019, and the related notes to the financial statements, which collectively comprise the City of Elk River's basic financial statements, and have issued our report thereon dated May 26, 2020. Our report includes a reference to other auditors who audited the financial statements of the City of Elk River Municipal Utilities, as described in our report on the City of Elk River's financial statements. This report does not include the results of the other auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of Elk River Municipal Utilities were not audited in accordance with Government Auditing Standards. Internal control over financial reporting In planning and performing our audit of the financial statements, we considered the City of Elk River's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Elk River's internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Elk River's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. �A member of Nexia International Honorable Mayor and City Council City of Elk River Compliance and other matters As part of obtaining reasonable assurance about whether the City of Elk River's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. zz� Clifton LarsonAllen LLP Minneapolis, Minnesota May 26, 2020 CliftonLarsonAllen LLP CLAconnect.com Honorable Mayor and City Council City of Elk River Elk River, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Elk River (the City) as of and for the year ended December 31, 2019, and have issued our report thereon dated May 26, 2020. We have previously communicated to you information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. Professional standards also require that we communicate to you the following information related to our audit. Significant audit findings Qualitative aspects of accounting practices Accounting policies Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. In 2019, the City of Elk River adopted Governmental Accounting Standards Board Statement No. 84, Fiduciary Activities. As a result, the developer escrow activity is now being reported as a capital projects fund and the FSA plans activity is now being included within the City's general fund. Both were reported in the City's agency funds in the prior year. The implementation of this standard did not have an impact on beginning fund balances or net position. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: • Management's estimate of the valuation of investments is based on published market values as of December 31, 2019. We evaluated the key factors and assumptions used to develop the value of investments in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of the depreciation expense on capital assets is based on management's estimated useful lives of those assets. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. A member of N. exia International Honorable Mayor and City Council City of Elk River Page 2 • Management's estimate of the valuation of land held for resale is based on the lower of the cost of the land or the current market value. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of City's liability for other postemployment benefits is based on an actuarial determined liability which is based on various assumptions, including investment rates of return, health care trend rates, mortality rates, etc. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of the City's liability for compensated absences is based on employee wage information and the City's policies of earning vacation and sick pay. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of the City's proportionate share of PERA's GERF, and PEPFF net pension liabilities as well as the related deferred inflows and outflows is based on guidance from GASB Statement No. 68 and the plans' allocation tables. The plans' allocation tables allocate a portion of the plans' net pension liabilities based on the City's contributions during the plans' fiscal years as a percentage of total contributions received for the related fiscal year by the plans. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole. Management's estimate of the City's net pension asset and related deferred inflows and outflows related to the City's Fire Relief Association are based on an actuarially determined liability. This liability is based on various assumptions including the investments rate of return, projected salary increases, and mortality rates. We evaluated the key factors and assumptions used to develop the liability in determining that it is reasonable in relation to the financial statements taken as a whole. Financial statement disclosures Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the City's financial statements was: • The disclosures surrounding GASB 68 pension accounting for the City's participation in the Minnesota Public Employees Retirement Plan and the Fire Relief Association. The financial statement disclosures are neutral, consistent, and clear. Difficulties encountered in performing the audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Uncorrected misstatements Professional standards require us to accumulate all misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has determined that the effect of uncorrected misstatement is immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Honorable Mayor and City Council City of Elk River Page 3 Uncorrected misstatements (Continued) The following summarizes the uncorrected misstatement of the financial statements: A fire relief pension related deferred inflow of resources in the amount of $117,478 was not recorded in the City's previous year's financial statements. As this is immaterial to governmental activities, the City is booking the net deferred inflow of resources in 2019 and running the adjustment through current year pension expense instead of restating beginning net position for the immaterial prior period amount. Corrected misstatements None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. No such disagreements arose during our audit. Management representations We have requested certain representations from management that are included in the management representation letter dated May 26, 2020. Management consultations with other independent accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Significant issues discussed with management prior to engagement We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to engagement as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our engagement. Other audit findings or issues We have provided a separate letter to you dated May 26, 2020, communicating internal control related matters identified during the audit. Audits of group financial statements We noted no matters related to the group audit that we consider to be significant to the responsibilities of those charged with governance of the group. Quality of component auditor's work There were no instances in which our evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor's work. Limitations on the group audit There were no restrictions on our access to information of components or other limitations on the group audit. Honorable Mayor and City Council City of Elk River Page 4 Other information in documents containing audited financial statements With respect to the required supplementary information (RSI) accompanying the financial statements, we made certain inquiries of management about the methods of preparing the RSI, including whether the RSI has been measured and presented in accordance with prescribed guidelines, whether the methods of measurement and preparation have been changed from the prior period and the reasons for any such changes, and whether there were any significant assumptions or interpretations underlying the measurement or presentation of the RSI. We compared the RSI for consistency with management's responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained during the audit of the basic financial statements. Because these limited procedures do not provide sufficient evidence, we did not express an opinion or provide any assurance on the RSI. With respect to the combining and individual fund financial statements and component unit financial statements (collectively, the supplementary information) accompanying the financial statements, on which we were engaged to report in relation to the financial statements as a whole, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period or the reasons for such changes, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We have issued our report thereon dated May 26, 2020. The introductory and statistical accompanying the financial statements, which is the responsibility of management, was prepared for purposes of additional analysis, and is not a required part of the financial statements. Such information was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we did not express an opinion or provide any assurance on it. Other information is being included in documents containing the audited financial statements and the auditors' report thereon. Our responsibility for such other information does not extend beyond the financial information identified in our auditors' report. We have no responsibility for determining whether such other information is properly stated and do not have an obligation to perform any procedures to corroborate other information contained in such documents. As required by professional standards, we read the introductory and statistical sections (the other information) in order to identify material inconsistencies between the audited financial statements and the other information. We did not identify any material inconsistencies between the other information and the audited financial statements. Our auditors' opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a document you prepare, such as an annual report, should be done only with our prior approval and review of the document. This communication is intended solely for the information and use of the City council and management of the City of Elk River, and is not intended to be, and should not be, used by anyone other than these specified parties. 6 LLB Clifton LarsonAllen LLP Minneapolis, Minnesota May 26, 2020