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5.1 ERMUSR 05-11-2021______________________________________________________________________________ Page 1 of 1 UTILITIES COMMISSION MEETING TO: ERMU Commission FROM: Melissa Karpinski – Finance Manager MEETING DATE: May 11, 2021 AGENDA ITEM NUMBER: 5.1 SUBJECT: Award of General Obligation Water Utility Revenue Bonds, Series 2021C ACTION REQUESTED: Adopt the Bid Tabulation and Resolution Awarding the Issuance and Sale of $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C. BACKGROUND: At the April 13 meeting, the Commission passed a resolution to proceed with issuance of $1,750,000 2021C bonds, and the City Council passed it at their April 19 meeting. At that time, it was identified that the award of the bonds by the Utilities Commission would come back and be on the May 11 agenda. DISCUSSION: S&P affirmed the city’s General Obligation AA+ stable rating and issued a rating report. Proposals for the sale were received until 10:30 a.m. CST on May 11. The issuance and awarding of the 2021C General Obligation Water Utility Revenue Bonds template resolution is attached for review. Terri Heaton from Baker Tilly will be attending our Commission meeting to present the May 11 market sale information results. FINANCIAL IMPACT: Bond payments will include interest and be due February 1 and August 1 of 2022 until 2041. ATTACHMENTS: • Preliminary Official Statement Dated April 30, 2021 • Template Resolution No. 21-12 Awarding the Issuance and Sale of $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C 100 * Preliminary; subject to change. The information contained in this Preliminary Official Statement is deemed by the City to be final as of the date hereof; however, the pricing and underwriting information is subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED APRIL 30, 2021 NEW ISSUE S&P Rating: Requested NOT BANK QUALIFIED In the opinion of Kennedy & Graven, Chartered, Bond Counsel for the Series 2021C Bonds, based on present federal and Minnesota laws, regulations, rulings and decisions (which excludes any pending legislation which may have a retroactive effect), and assuming compliance with certain covenants, interest to be paid on the Series 2021C Bonds is excluded from gross income for federal income tax purposes and, to the same extent, from taxable net income of individuals, estates and trusts for Minnesota income purposes, and is not a preference item for purposes of computing the federal alternative minimum tax or the Minnesota alternative minimum tax imposed on individuals, trusts, and estates. Such interest is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. No opinion will be expressed by Kennedy & Graven, Chartered regarding other state or federal tax consequences caused by the receipt or accrual of interest on the Series 2021C Bonds or arising with respect to ownership of the Series 2021C Bonds. The Series 2021C Bonds will not be designated as "qualified tax exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended, relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. See "TAX EXEMPTION" and "OTHER FEDERAL AND STATE TAX CONSIDERATIONS" herein. $1,750,000* City of Elk River, Minnesota General Obligation Water Utility Revenue Bonds, Series 2021C (Book Entry Only) Dated Date: Date of Delivery Interest Due: Each February 1 and August 1 commencing February 1, 2022 The Series 2021C Bonds (as defined herein) will mature August 1 in the years and amounts* as follows: 2022 $75,000 2023 $80,000 2024 $80,000 2025 $80,000 2026 $80,000 2027 $80,000 2028 $80,000 2029 $85,000 2030 $85,000 2031 $85,000 2032 $85,000 2033 $85,000 2034 $90,000 2035 $90,000 2036 $95,000 2037 $95,000 2038 $ 95,000 2039 $100,000 2040 $100,000 2041 $105,000 Proposals for the Series 2021C Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. The City may elect on August 1, 2030, and on any day thereafter, to redeem Series 2021C Bonds due on or after August 1, 2031 at a price of par plus accrued interest. The Series 2021C Bonds will be general obligations of the City for which the City will pledge its full faith and credit and power to levy direct general ad valorem taxes. In addition, the City will pledge the net revenues of the City's Water Utility Fund for repayment of the Series 2021C Bonds. The proceeds of the Series 2021C Bonds will be used to finance costs related to the construction of a field house facility to house service trucks, inventory and offices. Proposals shall be for not less than $1,729,000 plus accrued interest, if any, on the total principal amount of the Series 2021C Bonds. Proposals shall specify rates in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity as stated on the proposal must be 98.0% or greater. Following receipt of proposals, a good faith deposit will be required to be delivered to the City by the lowest bidder as described in the “Terms of Proposal” herein. Award of the Series 2021C Bonds will be made on the basis of True Interest Cost (TIC). The Series 2021C Bonds will be issued as fully registered bonds without coupons and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). DTC will act as securities depository for the Series 2021C Bonds. Individual purchases may be made in book entry form only, in the principal amount of $5,000 and integral multiples thereof. Investors will not receive physical certificates representing their interest in the Series 2021C Bonds purchased. (See “Book Entry System” herein.) U.S. Bank National Association, Saint Paul, Minnesota will serve as registrar (the “Registrar”) for the Series 2021C Bonds. The Series 2021C Bonds will be available for delivery at DTC on or about June 10, 2021. PROPOSALS RECEIVED: Tuesday, May 11, 2021 until 10:30 A.M., Central Time CONSIDERATION OF AWARD: Commission meeting commencing at 3:30 P.M., CT on Tuesday, May 11, 2021 Further information may be obtained from Baker Tilly Municipal Advisors, LLC, 380 Jackson Street, Suite 300, Saint Paul, Minnesota 55101-2887 (651) 223-3000. 101 Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. CITY OF ELK RIVER, MINNESOTA CITY COUNCIL John Dietz Mayor Garrett Christianson Council Member, Ward 1 Matthew Westgaard Council Member, Ward 2 Michael Beyer Council Member, Ward 3 Jennifer Wagner Council Member, Ward 4 CITY ADMINISTRATOR Calvin Portner FINANCE DIRECTOR Lori Ziemer MUNICIPAL ADVISOR Baker Tilly Municipal Advisors, LLC Saint Paul, Minnesota BOND COUNSEL Kennedy & Graven, Chartered Minneapolis, Minnesota 102 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as the same may be supplemented or corrected by the City from time to time, may be treated as a Preliminary Official Statement with respect to the Series 2021C Bonds described herein that is deemed final as of the date hereof (or of any such supplement or correction) by the City. By awarding the Series 2021C Bonds to any underwriter or underwriting syndicate submitting a Proposal therefor, the City agrees that, no more than seven business days after the date of such award, it shall provide without cost to the senior managing underwriter of the syndicate to which the Series 2021C Bonds are awarded copies of the Final Official Statement in the amount specified in the Terms of Proposal. No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations with respect to the Series 2021C Bonds, other than as contained in the Preliminary Official Statement or the Final Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City. Certain information contained in the Preliminary Official Statement or the Final Official Statement may have been obtained from sources other than records of the City and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EXPRESSIONS OF OPINION IN THE PRELIMINARY OFFICIAL STATEMENT AND THE FINAL OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE PRELIMINARY OFFICIAL STATEMENT NOR THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY SINCE THE RESPECTIVE DATE THEREOF. References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Preliminary Official Statement or the Final Official Statement, they will be furnished upon request. Any CUSIP numbers for the Series 2021C Bonds included in the Final Official Statement are provided for convenience of the owners and prospective investors. The CUSIP numbers for the Series 2021C Bonds are assigned by an organization unaffiliated with the City. The City is not responsible for the selection of the CUSIP numbers and makes no representation as to the accuracy thereof as printed on the Series 2021C Bonds or as set forth in the Final Official Statement. No assurance can be given by the City that the CUSIP numbers for the Series 2021C Bonds will remain the same after the delivery of the Final Official Statement or the date of issuance and delivery of the Series 2021C Bonds. 103 TABLE OF CONTENTS Page(s) Terms of Proposal ............................................................................................................................. i-v Introductory Statement ....................................................................................................................... 1 Continuing Disclosure ....................................................................................................................... 1 The Series 2021C Bonds .................................................................................................................... 2 Authority and Purpose ....................................................................................................................... 4 Sources and Uses of Funds ................................................................................................................ 5 Security and Financing ...................................................................................................................... 5 Future Financing ................................................................................................................................ 5 Litigation ............................................................................................................................................ 5 Legality .............................................................................................................................................. 5 Tax Exemption ................................................................................................................................... 6 Other Federal and State Tax Considerations ...................................................................................... 7 Not Bank-Qualified Tax-Exempt Obligations ................................................................................... 8 Rating ................................................................................................................................................. 8 Municipal Advisor ............................................................................................................................. 8 Certification ....................................................................................................................................... 9 City Property Values .......................................................................................................................... 10 City Indebtedness ............................................................................................................................... 11 City Tax Rates, Levies and Collections ............................................................................................. 16 Funds on Hand ................................................................................................................................... 17 Investments ........................................................................................................................................ 17 General Information Concerning the City ......................................................................................... 17 Governmental Organization and Services .......................................................................................... 23 Proposed Form of Legal Opinion............................................................................................. Appendix I Continuing Disclosure Undertaking ......................................................................................... Appendix II Summary of Tax Levies, Payment Provisions, and Minnesota Real Property Valuation ..................................................................................... Appendix III Excerpt of 2019 Comprehensive Annual Financial Report .................................................... Appendix IV 104 * Preliminary; subject to change. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. - i - THE CITY HAS AUTHORIZED BAKER TILLY MUNICIPAL ADVISORS, LLC TO NEGOTIATE THIS ISSUE ON ITS BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $1,750,000* CITY OF ELK RIVER, MINNESOTA GENERAL OBLIGATION WATER UTILITY REVENUE BONDS, SERIES 2021C (BOOK ENTRY ONLY) Proposals for the above-referenced obligations (the “Series 2021C Bonds”) will be received by the City of Elk River, Minnesota (the “City”) on Tuesday, May 11, 2021 (the “Sale Date”) until 10:30 A.M., Central Time (the “Sale Time”) at the offices of Baker Tilly Municipal Advisors, LLC (“Baker Tilly MA”), 380 Jackson Street, Suite 300, Saint Paul, Minnesota, 55101, after which time proposals will be opened and tabulated. Consideration for award of the Series 2021C Bonds will be by the Utilities Commission (the “Commission”) at its meeting commencing at 3:30 P.M., Central Time, of the same day. SUBMISSION OF PROPOSALS Baker Tilly MA will assume no liability for the inability of a bidder or its proposal to reach Baker Tilly MA prior to the Sale Time, and neither the City nor Baker Tilly MA shall be responsible for any failure, misdirection or error in the means of transmission selected by any bidder. All bidders are advised that each proposal shall be deemed to constitute a contract between the bidder and the City to purchase the Series 2021C Bonds regardless of the manner in which the proposal is submitted. (a) Sealed Bidding. Completed, signed proposals may be submitted to Baker Tilly MA by email to bondservice@bakertilly.com or by fax (651) 223-3046, and must be received prior to the Sale Time. OR (b) Electronic Bidding. Proposals may also be received via PARITY®. For purposes of the electronic bidding process, the time as maintained by PARITY® shall constitute the official time with respect to all proposals submitted to PARITY®. Each bidder shall be solely responsible for making necessary arrangements to access PARITY® for purposes of submitting its electronic proposal in a timely manner and in compliance with the requirements of the Terms of Proposal. Neither the City, its agents, nor PARITY® shall have any duty or obligation to undertake registration to bid for any prospective bidder or to provide or ensure electronic access to any qualified prospective bidder, and neither the City, its agents, nor PARITY® shall be responsible for a bidder’s failure to register to bid or for any failure in the proper operation of, or have any liability for any delays or interruptions of or any damages caused by the services of PARITY®. The City is using the services of PARITY® solely as a communication mechanism to conduct the electronic bidding for the Series 2021C Bonds, and PARITY® is not an agent of the City. If any provisions of this Terms of Proposal conflict with information provided by PARITY®, this Terms of Proposal shall control. Further information about PARITY®, including any fee charged, may be obtained from: PARITY®, 1359 Broadway, 2nd Floor, New York, New York 10018 Customer Support: (212) 849-5000 105 - ii - DETAILS OF THE SERIES 2021C BONDS The Series 2021C Bonds will be dated as of the date of delivery and will bear interest payable on February 1 and August 1 of each year, commencing February 1, 2022. Interest will be computed on the basis of a 360- day year of twelve 30-day months. The Series 2021C Bonds will mature August 1 in the years and amounts* as follows: 2022 $75,000 2023 $80,000 2024 $80,000 2025 $80,000 2026 $80,000 2027 $80,000 2028 $80,000 2029 $85,000 2030 $85,000 2031 $85,000 2032 $85,000 2033 $85,000 2034 $90,000 2035 $90,000 2036 $95,000 2037 $95,000 2038 $ 95,000 2039 $100,000 2040 $100,000 2041 $105,000 * The City reserves the right, after proposals are opened and prior to award, to increase or reduce the principal amount of the Series 2021C Bonds or the amount of any maturity or maturities in multiples of $5,000. In the event the amount of any maturity is modified, the aggregate purchase price will be adjusted to result in the same gross spread per $1,000 of Series 2021C Bonds as that of the original proposal. Gross spread for this purpose is the differential between the price paid to the City for the new issue and the prices at which the proposal indicates the securities will be initially offered to the investing public. Proposals for the Series 2021C Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. In order to designate term bonds, the proposal must specify “Years of Term Maturities” in the spaces provided on the proposal form. BOOK ENTRY SYSTEM The Series 2021C Bonds will be issued by means of a book entry system with no physical distribution of Series 2021C Bonds made to the public. The Series 2021C Bonds will be issued in fully registered form and one Series 2021C Bond, representing the aggregate principal amount of the Series 2021C Bonds maturing in each year, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”), New York, New York, which will act as securities depository for the Series 2021C Bonds. Individual purchases of the Series 2021C Bonds may be made in the principal amount of $5,000 or any multiple thereof of a single maturity through book entries made on the books and records of DTC and its participants. Principal and interest are payable by the registrar to DTC or its nominee as registered owner of the Series 2021C Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants will be the responsibility of such participants and other nominees of beneficial owners. The lowest bidder (the “Purchaser”), as a condition of delivery of the Series 2021C Bonds, will be required to deposit the Series 2021C Bonds with DTC. REGISTRAR U.S. Bank National Association will serve as registrar for the Series 2021C Bonds which shall be subject to applicable regulations of the Securities and Exchange Commission. The City will pay for the services of the registrar. OPTIONAL REDEMPTION The City may elect on August 1, 2030, and on any day thereafter, to redeem Series 2021C Bonds due on or after August 1, 2031. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all Series 2021C Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be redeemed. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All redemptions shall be at a price of par plus accrued interest. 106 - iii - SECURITY AND PURPOSE The Series 2021C Bonds will be general obligations of the City for which the City will pledge its full faith and credit and power to levy direct general ad valorem taxes. In addition, the City will pledge the net revenues of the City's Water Utility Fund for repayment of the Series 2021C Bonds. The proceeds of the Series 2021C Bonds will be used to finance costs related to the construction of a field house facility to house service trucks, inventory and offices. NOT BANK QUALIFIED TAX-EXEMPT OBLIGATIONS The City will not designate the Series 2021C Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. BIDDING PARAMETERS Proposals shall be for not less than $1,729,000 plus accrued interest, if any, on the total principal amount of the Series 2021C Bonds. No proposal can be withdrawn or amended after the time set for receiving proposals on the Sale Date unless the meeting of the City scheduled for award of the Series 2021C Bonds is adjourned, recessed, or continued to another date without award of the Series 2021C Bonds having been made. Rates shall be in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity as stated on the proposal must be 98.0% or greater. Series 2021C Bonds of the same maturity shall bear a single rate from the date of the Series 2021C Bonds to the date of maturity. No conditional proposals will be accepted. ESTABLISHMENT OF ISSUE PRICE In order to provide the City with information necessary for compliance with Section 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (collectively, the “Code”), the Purchaser will be required to assist the City in establishing the issue price of the Series 2021C Bonds and shall complete, execute, and deliver to the City prior to the closing date, a written certification in a form acceptable to the Purchaser, the City, and Bond Counsel (the “Issue Price Certificate”) containing the following for each maturity of the Series 2021C Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity): (i) the interest rate; (ii) the reasonably expected initial offering price to the “public” (as said term is defined in Treasury Regulation Section 1.148-1(f) (the “Regulation”)) or the sale price; and (iii) pricing wires or equivalent communications supporting such offering or sale price. Any action to be taken or documentation to be received by the City pursuant hereto may be taken or received on behalf of the City by Baker Tilly MA. The City intends that the sale of the Series 2021C Bonds pursuant to this Terms of Proposal shall constitute a “competitive sale” as defined in the Regulation based on the following: (i) the City shall cause this Terms of Proposal to be disseminated to potential bidders in a manner that is reasonably designed to reach potential bidders; (ii) all bidders shall have an equal opportunity to submit a bid; (iii) the City reasonably expects that it will receive bids from at least three bidders that have established industry reputations for underwriting municipal bonds such as the Series 2021C Bonds; and (iv) the City anticipates awarding the sale of the Series 2021C Bonds to the bidder who provides a proposal with the lowest true interest cost, as set forth in this Terms of Proposal (See “AWARD” herein). Any bid submitted pursuant to this Terms of Proposal shall be considered a firm offer for the purchase of the Series 2021C Bonds, as specified in the proposal. The Purchaser shall constitute an “underwriter” as said term is defined in the Regulation. By submitting its proposal, the Purchaser confirms that it shall require any agreement among underwriters, a selling group agreement, or other agreement to which it is a party relating to the initial sale of the Series 2021C Bonds, to include provisions requiring compliance with the provisions of the Code and the Regulation regarding the initial sale of the Series 2021C Bonds. 107 - iv - If all of the requirements of a “competitive sale” are not satisfied, the City shall advise the Purchaser of such fact prior to the time of award of the sale of the Series 2021C Bonds to the Purchaser. In such event, any proposal submitted will not be subject to cancellation or withdrawal. Within twenty-four (24) hours of the notice of award of the sale of the Series 2021C Bonds, the Purchaser shall advise the City and Baker Tilly MA if 10% of any maturity of the Series 2021C Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity) has been sold to the public and the price at which it was sold. The City will treat such sale price as the “issue price” for such maturity, applied on a maturity-by-maturity basis. The City will not require the Purchaser to comply with that portion of the Regulation commonly described as the “hold-the-offering-price” requirement for the remaining maturities, but the Purchaser may elect such option. If the Purchaser exercises such option, the City will apply the initial offering price to the public provided in the proposal as the issue price for such maturities. If the Purchaser does not exercise that option, it shall thereafter promptly provide the City and Baker Tilly MA the prices at which 10% of such maturities are sold to the public; provided such determination shall be made and the City and Baker Tilly MA notified of such prices whether or not the closing date has occurred, until the 10% test has been satisfied as to each maturity of the Series 2021C Bonds or until all of the Series 2021C Bonds of a maturity have been sold. GOOD FAITH DEPOSIT To have its proposal considered for award, the Purchaser is required to submit a good faith deposit via wire transfer to the City in the amount of $17,500 (the “Deposit”) no later than 1:30 P.M., Central Time on the Sale Date. The Purchaser shall be solely responsible for the timely delivery of its Deposit, and neither the City nor Baker Tilly MA have any liability for delays in the receipt of the Deposit. If the Deposit is not received by the specified time, the City may, at its sole discretion, reject the proposal of the lowest bidder, direct the second lowest bidder to submit a Deposit, and thereafter award the sale to such bidder. A Deposit will be considered timely delivered to the City upon submission of a federal wire reference number by the specified time. Wire transfer instructions will be available from Baker Tilly MA following the receipt and tabulation of proposals. The successful bidder must send an e-mail including the following information: (i) the federal reference number and time released; (ii) the amount of the wire transfer; and (iii) the issue to which it applies. Once an award has been made, the Deposit received from the Purchaser will be retained by the City and no interest will accrue to the Purchaser. The amount of the Deposit will be deducted at settlement from the purchase price. In the event the Purchaser fails to comply with the accepted proposal, said amount will be retained by the City. AWARD The Series 2021C Bonds will be awarded on the basis of the lowest interest rate to be determined on a true interest cost (TIC) basis calculated on the proposal prior to any adjustment made by the City. The City's computation of the interest rate of each proposal, in accordance with customary practice, will be controlling. The City will reserve the right to: (i) waive non-substantive informalities of any proposal or of matters relating to the receipt of proposals and award of the Series 2021C Bonds, (ii) reject all proposals without cause, and (iii) reject any proposal that the City determines to have failed to comply with the terms herein. BOND INSURANCE AT PURCHASER'S OPTION The City has not applied for or pre-approved a commitment for any policy of municipal bond insurance with respect to the Series 2021C Bonds. If the Series 2021C Bonds qualify for municipal bond insurance and a bidder desires to purchase a policy, such indication, the maturities to be insured, and the name of the desired insurer must be set forth on the bidder’s proposal. The City specifically reserves the right to reject any bid specifying municipal bond insurance, even though such bid may result in the lowest TIC to the City. All costs associated with the issuance and administration of such policy and associated ratings and expenses (other than any independent rating requested by the City) shall be paid by the successful bidder. Failure of the municipal bond insurer to issue the policy after the award of the Series 2021C Bonds shall 108 - v - not constitute cause for failure or refusal by the successful bidder to accept delivery of the Series 2021C Bonds. CUSIP NUMBERS If the Series 2021C Bonds qualify for the assignment of CUSIP numbers such numbers will be printed on the Series 2021C Bonds; however, neither the failure to print such numbers on any Series 2021C Bond nor any error with respect thereto will constitute cause for failure or refusal by the Purchaser to accept delivery of the Series 2021C Bonds. Baker Tilly MA will apply for CUSIP numbers pursuant to Rule G-34 implemented by the Municipal Securities Rulemaking Board. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the Purchaser. SETTLEMENT On or about June 10, 2021, the Series 2021C Bonds will be delivered without cost to the Purchaser through DTC in New York, New York. Delivery will be subject to receipt by the Purchaser of an approving legal opinion of Kennedy & Graven, Chartered of Minneapolis, Minnesota, and of customary closing papers, including a no-litigation certificate. On the date of settlement, payment for the Series 2021C Bonds shall be made in federal, or equivalent, funds that shall be received at the offices of the City or its designee not later than 12:00 Noon, Central Time. Unless compliance with the terms of payment for the Series 2021C Bonds has been made impossible by action of the City, or its agents, the Purchaser shall be liable to the City for any loss suffered by the City by reason of the Purchaser's non-compliance with said terms for payment. CONTINUING DISCLOSURE In accordance with SEC Rule 15c2-12(b)(5), the City will undertake, pursuant to the resolution awarding sale of the Series 2021C Bonds, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Official Statement. The purchaser's obligation to purchase the Series 2021C Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Series 2021C Bonds. OFFICIAL STATEMENT The City has authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Series 2021C Bonds, and said Preliminary Official Statement has been deemed final by the City as of the date thereof within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. For an electronic copy of the Preliminary Official Statement or for any additional information prior to sale, any prospective purchaser is referred to the Municipal Advisor to the City, Baker Tilly Municipal Advisors, LLC, by telephone (651) 223-3000, or by email bondservice@bakertilly.com. The Preliminary Official Statement will also be made available at https://connect.bakertilly.com/bond-sales- calendar. A Final Official Statement (as that term is defined in Rule 15c2-12) will be prepared, specifying the maturity dates, principal amounts, and interest rates of the Series 2021C Bonds, together with any other information required by law. By awarding the Series 2021C Bonds to the Purchaser, the City agrees that, no more than seven business days after the date of such award, it shall provide to the Purchaser an electronic copy of the Final Official Statement. The City designates the Purchaser as its agent for purposes of distributing the Final Official Statement to each syndicate member, if applicable. The Purchaser agrees that if its proposal is accepted by the City, (i) it shall accept designation and (ii) it shall enter into a contractual relationship with its syndicate members for purposes of assuring the receipt of the Final Official Statement by each such syndicate member. Dated April 13, 2021 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/ Melissa Karpinski Finance Manager 109 ____________________________ * Preliminary; subject to change. - 1 - OFFICIAL STATEMENT $1,750,000* CITY OF ELK RIVER, MINNESOTA GENERAL OBLIGATION WATER UTILITY REVENUE BONDS, SERIES 2021C (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT General This Official Statement contains certain information relating to the City of Elk River, Minnesota (the “City”) and its issuance of $1,750,000* General Obligation Water Utility Revenue Bonds, Series 2021C (the “Series 2021C Bonds”). The Series 2021C 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 the net revenues of the City's Water Utility Fund. Inquiries may be directed to Ms. Lori Ziemer, Finance Director, City of Elk River, 13065 Orono Parkway, Elk River, Minnesota 55330-0490, by telephoning (763) 635-1022, or by emailing lziemer@elkrivermn.gov. Inquiries may also be made to Baker Tilly Municipal Advisors, LLC, 380 Jackson Street, Suite 300, Saint Paul, Minnesota 55101-2887, by telephoning (651) 223-3000, or by emailing bondservice@bakertilly.com. Potential Impacts Resulting from Coronavirus (COVID-19) On March 11, 2020, the World Health Organization proclaimed the Coronavirus (COVID-19) to be a pandemic. In an effort to lessen the risk of transmission of COVID-19, the United States government, state governments, local governments and private industries have taken measures to limit social interactions in an effort to limit the spread of COVID-19, affecting business activities and impacting global, state and local commerce and financial markets. The emergence of COVID-19 and the spread thereof is an emerging and evolving issue. As the federal, state, and local governments, including the City, continue efforts to contain and limit the spread COVID-19 disease, future tax and other revenue collections may deviate from historical or anticipated collections and may have an adverse impact on the financial position and operations of the City and its ability to fund debt obligations, including the Series 2021C Bonds in accordance with its terms. The City is not able to predict and makes no representations as to the economic impact of the COVID-19 pandemic on the City or its financial position. CONTINUING DISCLOSURE In order to assist the Underwriter in complying with SEC Rule 15c2-12 (the “Rule”), pursuant to the Award Resolutions and Continuing Disclosure Certificate to be executed on behalf of the City on or before closing, the City has and will covenant (the “Undertaking”) for the benefit of holders or beneficial owners of the Series 2021C Bonds to provide certain financial information and operating data relating to the City to the Municipal Securities Rulemaking Board annually, and to provide notices of the occurrence of certain events enumerated in the Rule to the Municipal Securities Rulemaking Board and to any state information depository. The specific nature of the Undertaking, as well as the information to be contained in the annual report or the notices of material events, is set forth in the Undertaking in substantially the form attached hereto as Appendix II, subject to such modifications thereof or additions thereto as: (i) consistent with requirements under the Rule, (ii) required by the purchaser of the Series 2021C Bonds from the City, and (iii) acceptable to the Mayor and City Clerk of the City. 110 - 2 - Except to the following deficiencies are deemed to be material, the City believes it has complied for the past five years in all material respects in accordance with the terms of its previous continuing disclosure undertakings entered into pursuant to the Rule. In reviewing its past disclosure practices, the City notes the following: • Prior continuing disclosure undertakings entered into by the City included language stating that the City’s audited financial statements would be filed “as soon as available.” Although the City did not always file “as soon as available,” the audited financial statements were timely filed within the required twelve (12) month timeframe as provided for in each undertaking except as noted above. A failure by the City to comply with the Undertaking will not constitute an event of default on the Series 2021C Bonds (although holders or other beneficial owners of the Series 2021C Bonds will have the sole remedy of bringing an action for specific performance). Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2021C Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2021C Bonds and their market price. THE SERIES 2021C BONDS General Description The Series 2021C Bonds are dated as of the date of delivery and will mature annually on August 1 as set forth on the front cover of this Official Statement. The Series 2021C Bonds are issued in book entry form. Interest on the Series 2021C Bonds is payable on February 1 and August 1 of each year, commencing February 1, 2022. Interest will be payable to the holder (initially Cede & Co.) registered on the books of the Registrar as of the fifteenth day of the calendar month next preceding such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal of and interest on the Series 2021C Bonds will be paid as described in the section herein entitled “Book Entry System.” U.S. Bank National Association, Saint Paul, Minnesota will serve as Registrar for the Series 2021C Bonds, and the City will pay for registrar services. Redemption Provisions Thirty days’ written notice of redemption shall be given to the registered owner of the Series 2021C Bonds. Failure to give such written notice to any registered owner of the Series 2021C Bonds or any defect therein shall not affect the validity of any proceedings for the redemption of the Series 2021C Bonds. All Series 2021C Bonds or portions thereof called for redemption will cease to bear interest after the specified redemption date, provided funds for their redemption are on deposit at the place of payment. Optional Redemption The City may elect on August 1, 2030, and on any day thereafter, to redeem the Series 2021C Bonds due on or after August 1, 2031. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all the Series 2021C Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be redeemed. DTC will determine by lot the amount of each participant’s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All redemptions shall be at a price of par plus accrued interest. 111 - 3 - Book Entry System The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2021C Bonds. The Series 2021C Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Series 2021C Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly- owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Series 2021C Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2021C Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2021C Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2021C Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2021C Bonds, except in the event that use of the book-entry system for the Series 2021C Bonds is discontinued. To facilitate subsequent transfers, all Series 2021C Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2021C Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2021C Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2021C Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2021C Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2021C Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2021C Bond documents. For example, Beneficial Owners of the Series 2021C Bonds may wish to ascertain that the nominee holding the 112 - 4 - Series 2021C Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2021C Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2021C Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2021C Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2021C Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or its agent on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or its agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2021C Bonds at any time by giving reasonable notice to City or its agent. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. AUTHORITY AND PURPOSE The Series 2021C Bonds are being issued pursuant to Minnesota Statutes, Chapters 444 and 475. The proceeds of the Series 2021C Bonds will be used to finance costs related to the construction of a field house facility to house service trucks, inventory and offices. 113 - 5 - SOURCES AND USES OF FUNDS The composition of the Series 2021C Bonds is estimated to be as follows: Sources of Funds: Principal Amount $1,750,000 Total Sources of Funds $1,750,000 Uses of Funds: Deposit to Project Fund $1,687,500 Costs of Issuance 41,500 Allowance for Discount Bidding 21,000 Total Uses of Funds $1,750,000 SECURITY AND FINANCING The Series 2021C Bonds will be general obligations of the City for which the City will pledge its full faith and credit and power to levy direct general ad valorem taxes; however, the City does not anticipate the need to levy taxes for repayment of the Series 2021C Bonds. Pursuant to Minnesota Statutes, Chapter 444, and the resolution awarding the sale of the Series 2021C Bonds, the Commission, on behalf of the City, will covenant to impose and collect charges for the service, use, availability and connection to the Water Utility to produce net revenues in amounts sufficient to support the operation of the Water Utility to pay 105% of the debt service due on obligations to which it has pledged its Water Utility Fund revenues, including the Series 2021C Bonds. The City is required to annually review the budget of the Water Utility to determine whether current rates and charges are sufficient and to adjust such rates and charges as necessary. FUTURE FINANCING The City does not anticipate issuing any additional long-term general obligation debt within the next 90 days. LITIGATION The City is not aware of any threatened or pending litigation affecting the validity of the Series 2021C Bonds or the City's ability to meet its financial obligations. LEGALITY The Series 2021C Bonds are subject to approval as to certain matters by Kennedy & Graven, Chartered, of Minneapolis, Minnesota, as Bond Counsel. Bond Counsel has not participated in the preparation of this 114 - 6 - Official Statement and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify any of the financial or statistical statements or data contained in this Official Statement and will express no opinion with respect thereto. A legal opinion in substantially the form set out in Appendix I herein will be delivered at closing. TAX EXEMPTION At closing Kennedy & Graven, Chartered, Minneapolis, Minnesota, Bond Counsel for the Series 2021C Bonds, will render an opinion that, at the time of their issuance and delivery to the original purchaser, under present federal and State of Minnesota laws, regulations, rulings and decisions (which excludes any pending legislation which may have a retroactive effect), the interest on the Series 2021C Bonds is excluded from gross income for purposes of United States income tax and is excluded, to the same extent, from taxable net income of individuals, estates and trusts for Minnesota income purposes, and is not a preference item for purposes of computing the federal alternative minimum tax or the Minnesota alternative minimum tax imposed on individuals, trusts, and estates. Such interest is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. No opinion will be expressed by Kennedy & Graven regarding other federal or state tax consequences caused by the receipt or accrual of interest on the Series 2021C Bonds or arising with respect to ownership of the Series 2021C Bonds. Preservation of the exclusion of interest on the Series 2021C Bonds from federal gross income and state gross and taxable net income, however, depends upon compliance by the City with all requirements of the Internal Revenue Code of 1986, as amended, (the “Code”) that must be satisfied subsequent to the issuance of the Series 2021C Bonds in order that interest thereon be (or continue to be) excluded from federal gross income and state gross and taxable net income. The City will covenant to comply with requirements necessary under the Code to establish and maintain the Series 2021C Bonds as tax-exempt under Section 103 thereof, including without limitation, requirements relating to temporary periods for investments and limitations on amounts invested at a yield greater than the yield on the Series 2021C Bonds. Original Issue Premium Certain maturities of the Series 2021C Bonds (the “Premium Bonds”) may be sold to the public at an amount in excess of their stated redemption price at maturity. Such excess of the purchase price of such Premium Bonds over the stated redemption price at maturity constitutes original issue premium with respect to such Premium Bonds. A purchaser of a Premium Bond must amortize any original issue premium over the term of such Premium Bond using constant yield principles, based on the purchaser’s yield to maturity. As original issue premium is amortized, the purchaser’s basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or a decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser’s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Premium Bonds at a premium, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Premium Bonds. Original Issue Discount Certain maturities of the Series 2021C Bonds (the “Discount Bonds”) may be sold at a discount from the principal amount payable on such Discount Bonds at maturity. The difference between the price at which a substantial amount of the Discount Bonds of a given maturity is first sold to the public (the “Issue Price”) and the principal amount payable at maturity constitutes “original issue discount” under the Code. The amount 115 - 7 - of original issue discount that accrues to a holder of a Discount Bond under section 1288 of the Code is excluded from federal gross income to the same extent that stated interest on such Discount Bond would be so excluded. The amount of the original issue discount that accrues with respect to a Discount Bond under section 1288 is added to the owner’s federal tax basis in determining gain or loss upon disposition of such Discount Bond (whether by sale, exchange, redemption or payment at maturity). Interest in the form of original issue discount accrues under section 1288 pursuant to a constant yield method that reflects semiannual compounding on dates that are determined by reference to the maturity date of the Discount Bond. The amount of original issue discount that accrues for any particular semiannual accrual period generally is equal to the excess of (1) the product of (a) one-half of the yield on such Bonds (adjusted as necessary for an initial short period) and (b) the adjusted issue price of such Bonds, over (2) the amount of stated interest actually payable. For purposes of the preceding sentence, the adjusted issue price is determined by adding to the Issue Price for such Bonds the original issue discount that is treated as having accrued during all prior semiannual accrual periods. If a Discount Bond is sold or otherwise disposed of between semiannual compounding dates, then the original issue discount that would have accrued for that semiannual accrual period for federal income tax purposes is allocated ratably to the days in such accrual period. If a Discount Bond is purchased at a price that exceeds the sum of the Issue Price plus accrued interest and accrued original issue discount, the amount of original issue discount that is deemed to accrue thereafter to the purchaser is reduced by an amount that reflects amortization of such excess over the remaining term of such Bond. No opinion is expressed as to state and local income tax treatment of original issue discount. It is possible under certain state and local income tax laws that original issue discount on a Discount Bond may be taxable in the year of accrual, and may be deemed to accrue differently than under federal law. Holders of Discount Bonds should consult their tax advisors with respect to the computation and accrual of original issue discount for federal income tax purposes and with respect to the state and local tax consequences of owning such Discount Bonds. OTHER FEDERAL AND STATE TAX CONSIDERATIONS Property and Casualty Insurance Companies Property and casualty insurance companies are required to reduce the amount of their loss reserve deduction by the applicable percentage of the amount of tax-exempt interest received or accrued during the taxable year on certain obligations, including interest on the Series 2021C Bonds. Foreign Insurance Companies Foreign companies carrying on an insurance business in the United States are subject to a tax on income which is effectively connected with their conduct of any trade or business in the United States, including “net investment income.” Net investment income includes tax-exempt interest such as interest on the Series 2021C Bonds. Branch Profits Tax A foreign corporation is subject to a branch profits tax imposed by Section 884 of the Code. A branch's earnings and profits may include tax-exempt municipal bond interest, such as interest on the Series 2021C Bonds. 116 - 8 - Passive Investment Income of S Corporations Passive investment income, including interest on the Series 2021C Bonds, may be subject to federal income taxation under Section 1375 of the Code for an S corporation that has Subchapter C earnings and profits at the close of the taxable year if more than a certain percentage of the gross receipts of such S corporation is passive investment income. General The preceding is not a comprehensive list of all federal or State tax consequences which may arise from the receipt or accrual of interest on the Series 2021C Bonds. The receipt or accrual of interest on the Series 2021C Bonds may otherwise affect the federal income tax (or Minnesota income tax or franchise tax) liability of the recipient based on the particular taxes to which the recipient is subject and the particular tax status of other items of income or deductions. All prospective purchasers of the Series 2021C Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Series 2021C Bonds. NOT BANK-QUALIFIED TAX-EXEMPT OBLIGATIONS The Series 2021C Bonds will not be designated as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. Financial institutions are not generally entitled to a deduction for interest expenses allocable to the owners of tax-exempt obligations purchased after August 7, 1986. RATING Application for a rating of the Series 2021C Bonds has been made to S&P Global Ratings (“S&P”), 55 Water Street, New York, New York. If a rating is assigned, they will reflect only the opinion of S&P. Any explanation of the significance of the ratings may be obtained only from S&P. There is no assurance that a rating, if assigned, will continue for any given period of time, or that such rating will not be revised, suspended or withdrawn, if, in the judgment of S&P, circumstances so warrant. A revision, suspension or withdrawal of a rating may have an adverse effect on the market price of the Series 2021C Bonds. MUNICIPAL ADVISOR The City has retained Baker Tilly Municipal Advisors, LLC as municipal advisor in connection with certain aspects of the issuance of the Series 2021C Bonds (the “Municipal Advisor” or “BTMA”). BTMA is a registered municipal advisor and a wholly-owned subsidiary of Baker Tilly US, LLP (“BTUS”), an accounting firm and has been retained by the City to provide certain financial advisory services including, among other things, preparation of the deemed “nearly final” Preliminary Official Statement and the Final Official Statement (the “Official Statements”). The information contained in the Official Statements has been compiled from records and other materials provided by City officials and other sources deemed to be reliable. The Municipal Advisor has not and will not independently verify the completeness and accuracy of 117 - 9 - the information contained in the Official Statements. The Municipal Advisor’s duties, responsibilities and fees arise solely as Municipal Advisor to the City and they have no secondary obligations or other responsibility. Municipal Advisor Registration: BTMA is a Municipal Advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board. As such, BTMA is providing certain specific municipal advisory services to the City, but is neither a placement agent to the City nor a broker/dealer and cannot participate in the underwriting of the Series 2021C Bonds. The offer and sale of the Series 2021C Bonds shall be made by the City, in the sole discretion of the City, and under its control and supervision. The City has agreed that BTMA does not undertake to sell or attempt to sell the Series 2021C Bonds, and will take no part in the sale thereof. Other Financial Industry Activities and Affiliations: BTUS is an advisory, tax and assurance firm headquartered in Chicago, Illinois. BTUS and its affiliated entities, have operations in North America, South America, Europe, Asia and Australia. BTUS is an independent member of Baker Tilly International, a worldwide network of independent accounting and business advisory firms in 47 territories, with 33,600 professionals. Baker Tilly Investment Services, LLC (“BTIS”) is registered as an investment adviser with the Securities and Exchange Commission (“SEC”) under the Federal Investment Advisers Act of 1940. BTIS provides discretionary and non-discretionary investment management services to government and municipal entities. BTIS may provide advisory services to the clients of BTMA. Baker Tilly Capital, LLC (“BTC”), a wholly owned subsidiary of BTUS, is a limited purpose broker/dealer registered with the SEC and member of the Financial Industry Regulatory Authority (“FINRA”). BTC provides merger & acquisition, capital sourcing and corporate finance advisory services. BTC may provide transaction advisory services to clients of BTMA. Baker Tilly Financial, LLC (“BTF”), a wholly owned subsidiary of BTUS, is an investment adviser registered with the SEC. BTF provides both discretionary and non-discretionary portfolio management, , consulting and retirement plan management services to individuals and retirement plans. BTF may provide advisory services to the clients of BTMA. BTMA has no other activities or arrangements that are material to its advisory business or its clients with a related person who is a broker-dealer, investment company, other investment adviser or financial planner, bank, law firm or other financial entity. CERTIFICATION The City has authorized the distribution of the Preliminary Official Statement for use in connection with the initial sale of the Series 2021C Bonds and a Final Official Statement following award of the Series 2021C Bonds. The Purchaser will be furnished with a certificate signed by the appropriate officers of the City stating that the City examined each document and that, as of the respective date of each document and the date of such certificate, each document did not and does not contain any untrue statement of material fact or omit to state a material fact necessary, in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 118 - 10 - CITY PROPERTY VALUES Trend of Values Assessment/ Assessor’s Market Value Adjusted Collection Estimated Sales Economic Homestead Taxable Taxable Net Year Market Value Ratio(a) Market Value(b) Exclusion Market Value Tax Capacity 2019/20 $ 2,547,475,200 94.7% $2,693,153,256 $ 99,432,584 $2,413,493,846 $27,826,868 2018/19 2,374,405,900 92.4 2,575,300,087 106,450,305 2,239,636,472 26,006,616 2017/18 2,184,397,000 91.2 2,391,453,705 115,921,988 2,045,513,575 24,046,382 2016/17 2,071,949,400 94.5 2,193,023,667 120,881,186 1,929,048,470 22,868,723 2015/16 1,989,809,400 93.1 2,135,463,610 123,575,100 1,846,328,700 22,031,258 (a) Sales Ratio Study for the year of assessment as posted by the Minnesota Department of Revenue, http://www.revenue.state.mn.us/propertytax/Pages/statistics-emv.aspx and https://www.revenue.state.mn.us/economic-market-values-reports. (b) Economic market values for the year of assessment as posted by the Minnesota Department of Revenue, http://www.revenue.state.mn.us/propertytax/Pages/statistics-emv.aspx and https://www.revenue.state.mn.us/economic-market-values-reports. Source: Sherburne County, Minnesota, October 2020, except as otherwise noted. 2019/20 Adjusted Taxable Net Tax Capacity: $27,826,868 Real Estate: Residential Homestead $17,177,911 61.3% Commercial/Industrial, Railroad and Public Utility 7,602,832 27.1 Residential Non-Homestead 2,522,085 9.0 Agricultural, Seasonal Recreational and Other 359,774 1.3 Personal Property 375,332 1.3 2019/20 Net Tax Capacity $28,037,934 100.0% Less: Captured Tax Increment (211,066) 2019/20 Adjusted Taxable Net Tax Capacity $27,826,868 119 - 11 - Ten of the Largest Taxpayers in the City 2019/20 Net Taxpayer Type of Property Tax Capacity Great River Energy Utility $ 999,203 JPM Capital Corporation Commercial 371,282 Target Corporation Commercial 255,248 Bre Retail Residual Owner 5 LLC Commercial 233,986 Minnegasco Property Accounting Utility 204,584 Wal Mart Stores, Inc. Commercial 196,186 Menards, Inc. Commercial 139,400 Broadstone STI Minnesota LLC Commercial 137,578 Home Depot USA Inc Commercial 110,342 Meritex Elk River LLC Commercial 105,946 Total $2,753,755* * Great River Energy represents 3.6% of the City's 2019/20 adjusted taxable net tax capacity. The remaining nine taxpayers represent 6.3% of the City's 2019/20 adjusted taxable net tax capacity. CITY INDEBTEDNESS Legal Debt Limit and Debt Margin* Legal Debt Limit (3% of 2019/20 Estimated Market Value) $76,424,256 Less: Outstanding Debt Subject to Limit (24,646,669) Legal Debt Margin as of May 20, 2021 $51,777,587 * The legal debt margin is referred to statutorily as the “Net Debt Limit” and may be increased by debt service funds and current revenues which are applicable to the payment of debt in the current fiscal year. NOTE: Certain types of debt are not subject to the legal debt limit. See Appendix III – Debt Limitations. General Obligation Debt Supported Solely by Taxes* Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 6-10-21 12-29-20 9,435,000 Capital Improvements 2-1-2042 $ 9,435,000 12-29-20 5,340,000 Capital Improvements 2-1-2033 5,340,000 5-20-21 4,805,000 Capital Improvements 2-1-2042 4,805,000 Total $19,580,000 * These issues are subject to the legal debt limit. 120 - 12 - General Obligation Utility Revenue Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 6-10-21 2-20-08 $ 3,085,000 Water Revenue Refunding 2-1-2022 $ 270,000 8-21-14 10,000,000 Sewer Revenue 2-1-2022 450,000 12-29-20 7,200,000 Sewer Revenue Refunding 2-1-2035 7,200,000 6-10-21 1,750,000 Water Revenue (the Series 2021C Bonds) 2-1-2041 1,750,000 Total $9,670,000 General Obligation Sales Tax Revenue Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 6-10-21 9-19-19 $32,715,000 Improvements 12-1-2044 $32,165,000 Utility Revenue Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 6-10-21 7-14-16 $ 9,755,000 Electric Revenue 2-1-2036 $ 8,465,000 7-14-16 1,370,000 Electric Revenue Refunding 2-1-2022 240,000 9-26-18 10,000,000 Electric Revenue 8-1-2048 9,600,000 5-13-21 11,810,000 Electric Revenue 8-1-2051 11,810,000 Total $30,115,000 121 - 13 - Estimated Calendar Year Debt Service Payments Including the Series 2021C Bonds G.O. Debt Supported G.O. Utility Solely by Taxes Revenue Debt Principal Principal Year Principal & Interest Principal & Interest(a) 2021 (at 6-10) (Paid) $ 257,590 (Paid) $ 62,448 2022 $ 870,000 1,450,112 $ 795,000 924,942 2023 1,510,000 2,003,523 600,000 713,870 2024 895,000 1,328,398 600,000 708,350 2025 940,000 1,327,523 610,000 712,700 2026 985,000 1,325,773 615,000 711,855 2027 1,025,000 1,318,298 615,000 705,905 2028 1,075,000 1,324,048 625,000 709,785 2029 1,115,000 1,323,248 630,000 708,086 2030 1,155,000 1,326,648 640,000 710,464 2031 1,190,000 1,334,223 650,000 712,034 2032 1,075,000 1,201,915 655,000 707,855 2033 1,080,000 1,195,030 670,000 712,786 2034 695,000 799,390 680,000 711,898 2035 705,000 800,145 695,000 715,133 2036 715,000 799,758 95,000 108,145 2037 725,000 798,203 95,000 106,150 2038 740,000 801,045 95,000 104,108 2039 755,000 803,368 100,000 107,018 2040 765,000 800,201 100,000 104,768 2041 775,000 796,588 105,000 107,468 2042 790,000 797,335 Total $19,580,000(b) $23,912,362 $9,670,000(c) $10,865,768 (a) Includes estimated debt service on the Series 2021C Bonds. (b) 55.0% of this debt will be retired within ten years. (c) 66.0% of this debt will be retired within ten years. 122 - 14 - Estimated Calendar Year Debt Service Payments Including the Series 2021C Bonds (continued) G.O. Sales Tax Utility Revenue Debt Revenue Debt Principal Principal Year Principal & Interest Principal & Interest 2021 (at 6-10) $ 805,000 $ 1,360,919 $ 185,000 $ 490,091 2022 845,000 1,916,588 1,055,000 2,049,201 2023 890,000 1,919,338 915,000 1,800,756 2024 935,000 1,919,838 955,000 1,804,381 2025 1,000,000 1,938,088 990,000 1,801,306 2026 1,030,000 1,918,088 1,035,000 1,809,406 2027 1,080,000 1,916,588 1,075,000 1,813,256 2028 1,135,000 1,917,588 1,105,000 1,805,606 2029 1,195,000 1,920,838 1,140,000 1,803,606 2030 1,240,000 1,918,038 1,190,000 1,814,488 2031 1,290,000 1,918,438 1,225,000 1,807,756 2032 1,340,000 1,916,838 1,265,000 1,803,844 2033 1,385,000 1,921,638 1,310,000 1,809,938 2034 1,425,000 1,920,088 1,340,000 1,801,831 2035 1,465,000 1,917,338 1,385,000 1,806,931 2036 1,510,000 1,918,388 1,430,000 1,810,481 2037 1,555,000 1,918,088 775,000 1,123,281 2038 1,595,000 1,921,156 800,000 1,125,481 2039 1,630,000 1,918,275 820,000 1,121,881 2040 1,670,000 1,917,525 845,000 1,124,556 2041 1,715,000 1,920,775 870,000 1,126,506 2042 1,755,000 1,917,900 890,000 1,122,731 2043 1,810,000 1,920,250 915,000 1,123,331 2044 1,865,000 1,920,950 940,000 1,122,631 2045 965,000 1,120,606 2046 995,000 1,122,225 2047 1,030,000 1,127,899 2048 1,055,000 1,122,500 2049 525,000 561,338 2050 540,000 564,525 2051 550,000 562,375 Total $32,165,000(a) $45,513,558 $30,115,000(b) $43,004,744 (a) 31.6% of this debt will be retired within ten years. (b) 32.0% of this debt will be retired within ten years. 123 - 15 - Elk River Economic Development Authority General Obligation Debt Supported by Taxes* Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 6-10-21 2-12-13 $9,685,000 Refunding 2-1-2033 $7,600,000 * This issue was issued by the Elk River Economic Development Authority (the “Authority”), but is secured by the City’s full faith and credit and taxing powers. Two-thirds of the debt is paid by taxes and is subject to the City’s legal debt limit. The remaining one-third of the debt is paid by The Young Men's Christian Association of Metropolitan Minneapolis (“YMCA”) and is not subject to the legal debt limit. The total aggregate principal amount subject to the debt limit as of May 20, 2021 is $5,066,669. Elk River Economic Development Authority Estimated Calendar Year Debt Service Payments G.O. Debt Supported by Taxes Principal Year Principal & Interest 2021 (at 6-10) (Paid) $ 91,969 2022 $ 550,000 728,438 2023 565,000 732,288 2024 575,000 730,888 2025 590,000 734,238 2026 605,000 737,288 2027 615,000 734,318 2028 630,000 734,919 2029 650,000 739,313 2030 675,000 746,906 2031 690,000 743,138 2032 715,000 747,925 2033 740,000 751,100 Total $7,600,000* $8,952,728 * 80.9% of this debt will be retired within ten years. Overlapping Debt 2019/20 Debt Applicable to Adjusted Taxable Est. G.O. Debt Tax Capacity in City Taxing Unit(a) Net Tax Capacity As of 6-10-21(b) Percent Amount Sherburne County $106,729,866 $ 41,125,000 26.1% $ 10,733,625 I.S.D. No. 728 (Elk River) 93,894,622 309,508,241 29.6 91,614,439 Total $102,348,064 (a) Only those units with outstanding general obligation debt are shown here. (b) Excludes general obligation tax and aid anticipation certificates and revenue-supported debt. Includes certificates of participation and lease obligations. 124 - 16 - Debt Ratios* G.O. G.O. Direct & Direct Debt Overlapping Debt To 2019/20 Estimated Market Value ($2,547,475,200) 0.97% 4.99% Per Capita - (25,213 – 2019 U.S. Census Bureau Estimate) $978 $5,037 * Excludes general obligation revenue debt, general obligation sales tax revenue debt, and utility revenue debt. Includes the portion of the Elk River Economic Development Authority’s general obligation debt that is subject to the legal debt limit. CITY TAX RATES, LEVIES AND COLLECTIONS Tax Capacity Rates for a Resident in the City 2019/20 For 2015/16 2016/17 2017/18 2018/19 Total Debt Only Sherburne County 50.478% 50.460% 49.356% 47.928% 47.426% 2.606% City of Elk River(a) 46.170 46.193 46.011 45.907 46.241 2.228 I.S.D. No. 728 (Elk River)(b) 39.268 36.659 36.137 32.865 34.371 28.425 Special Districts(c) 4.778 4.509 4.269 2.496 2.533 -0- Total 140.694% 137.821% 135.773% 129.196% 130.571% 33.259% (a) In addition, the City has a 2019/20 market value tax rate of 0.32040% spread across the market value of property in support of debt service. (b) In addition, Independent School District No. 728 (Elk River) has a 2019/20 market value tax rate of 0.29961% spread across the market value of property in support of an excess operating levy. (c) Special districts include the City of Elk River Housing and Redevelopment Authority and the City of Elk River Economic Development Authority. NOTE: This table includes only net tax capacity-based rates. Certain other tax rates are based on market value. See Appendix III. Tax Levies and Collections Collected During Collected and/or Abated Net Collection Year as of 6-30-20 Levy/Collect Levy* Amount Percent Amount Percent 2019/20 $12,865,770 (In Process of Collection) 2018/19 11,932,714 $11,867,614 99.5% $11,904,272 99.8% 2017/18 11,058,188 11,015,765 99.6 11,053,181 99.9 2016/17 10,558,011 10,495,523 99.4 10,554,401 99.9 2015/16 10,166,095 10,097,125 99.3 10,165,894 99.9 * The net levy excludes state aid for property tax relief and fiscal disparities, if applicable. The net levy is the basis for computing tax capacity rates. See Appendix III. 125 - 17 - FUNDS ON HAND As of January 31, 2021 General Fund $ 8,129,009 Special Revenue Funds 4,152,449 Debt Service Funds 8,450,856 Capital Project Funds 33,335,370 Enterprise Fund 13,061,145 Agency Funds ___519,745 Total Cash and Investments $67,648,574 INVESTMENTS The City has a formal investment policy and all investments are made in accordance with Minnesota Statutes. The primary objectives of the City’s investment policy, in priority order, include safety, liquidity, return on investment, and maintaining the public’s trust. Permitted investments include repurchase agreements, United States securities (excluding high-risk mortgage-backed securities), the Minnesota Joint Powers Investment Trust, State and local securities, commercial paper, and time deposits. Guaranteed investment contracts and reverse repurchase agreements have specifically been excluded from the City’s investment policy. As per the City's investment policy, the Finance Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. As of January 31, 2021, the City had investments totaling $67,231,022 (includes money market funds). GENERAL INFORMATION CONCERNING THE CITY General Information The City is the Sherburne County seat and is located approximately 30 miles northwest of the Minneapolis/Saint Paul metropolitan area. The City encompasses an area of approximately 43.75 square miles (28,000 acres). Population The City’s population trend is shown below. Percent Population Change 2019 U.S. Census Estimate 25,213 9.7% 2010 U.S. Census 22,974 39.7 2000 U.S. Census 16,447 47.6 1990 U.S. Census 11,143 64.2 1980 U.S. Census 6,785 -- Sources: United States Census Bureau, http://www.census.gov/. 126 - 18 - The City’s approximate population by age group for the past five years is as follows: Data Year/ Report Year 0-17 18-34 35-64 65 and Over 2020/21 6,613 5,229 10,274 3,258 2019/20 6,581 5,197 10,233 3,154 2018/19 6,531 5,213 10,094 3,083 2017/18 6,500 5,194 10,145 3,011 2016/17 6,367 5,111 9,845 2,860 Sources: Environics Analytics, Claritas, Inc. and The Nielsen Company. Transportation U.S. Highways 10 and 169, State Highway 101, and Interstate 94 run through and/or adjacent to the City. City residents are served by the Anoka County/Blaine Airport, St. Cloud Regional Airport, and the Minneapolis/Saint Paul Regional Airport. Rail service is provided by Burlington Northern Santa Fe Railroad and the Northstar Commuter Rail, which has a station located in the City and provides a convenient connection to downtown Minneapolis and other communities throughout the region. Bus services are provided to City residents by Northstar Link Commuter Bus, Speco Charter Services, Vision of Elk River, and TriCAP. The Sherburne County Veteran’s Office also coordinates a transportation program, Sherburne County VA Medical Center Transportation, which provides veterans transportation to the Minneapolis and St. Cloud VA Medical Centers free of charge. Major Employers Approximate Number Employer Product/Service of Employees Independent School District No. 728 (Elk River) Education 2,100 Sherburne County County government 697 Guardian Angels Care Center Skilled nursing facility 374 Wal-Mart Stores, Inc. Retail store 354 Coborn’s (Elk River/Big Lake/Princeton) Grocery store 265 Great River Energy Electric power distributor 210 Cornerstone Auto Group Automobile Dealership 200 Sportech, Inc. Thermoformed plastic products 185 Menards Retail home improvement 173 Emerson Processing Management (Tescom Corporation) Pressure control devices/industrial valves 170 City of Elk River City government 149 First National Financial Services Financial services 142 Morrell Companies Freight trucking 112 Avalon Home Care Home health 110 E&O Tools & Plastics, Inc. Plastic injection molding manufacturer 110 Cretex, Inc Precast concrete products 109 The Bank of Elk River Financial services 107 Metal Craft Surgical & medical instruments 105 Cub Foods Grocery store 100 Home Depot Lumber and home improvement 100 Alltool Pinnacle Design & Manufacturing Metal stampings 99 Source: This does not purport to be a comprehensive list and is based on a November 2020 telephone survey of individual employers and Sherburne County, https://www.co.sherburne.mn.us/246/Major-Industries- Employers. Some employers do not respond to inquiries. 127 - 19 - Labor Force Data Annual Average March 2017 2018 2019 2020 2021 Labor Force: Sherburne County 51,363 51,700 52,364 51,780 51,512 State of Minnesota 3,057,358 3,071,433 3,109,647 3,094,701 3,003,073 Unemployment Rate: Sherburne County 3.7% 3.2% 3.6% 5.8% 4.9% State of Minnesota 3.4 2.9 3.2 6.2 4.5 Source: Minnesota Department of Employment and Economic Development, https://apps.deed.state.mn.us/lmi/laus/. 2021 data are preliminary. Retail Sales and Effective Buying Income (EBI) City of Elk River Data Year/ Total Retail Total Median Report Year Sales ($000) EBI ($000) Household EBI 2020/21 $508,576 $725,138 $72,858 2019/20 559,875 782,088 78.326 2018/19 515,409 743,125 75,458 2017/18 494,983 691,908 70,030 2016/17 637,893 697,764 68,376 Sherburne County Data Year/ Total Retail Total Median Report Year Sales ($000) EBI ($000) Household EBI 2020/21 $1,144,821 $2,691,916 $70,612 2019/20 1,242,464 2,955,197 75,680 2018/19 1,188,828 2,748,858 82,687 2017/18 1,063,365 2,519,649 67,255 2016/17 1,101,277 2,502,175 66,377 The 2020/21 Median Household EBI for the State of Minnesota was $62,120. The 2020/21 Median Household EBI for the United States was $56,093. Sources: Environics Analytics, Claritas, Inc. and The Nielsen Company. 128 - 20 - Building Permits New Single New Total Value Family Residential Commercial/Industrial (All Permits) Year Number Value Number Value 2021 (to 1-31) 5 $ 1,282,687 0 $ - 0- $13,272,340 2020 116 24,771,221 1 2,098,800 67,780,871 2019 117 29,667,252 5 28,650,994 70,313,307 2018 152 37,723,512 5 7,545,450 66,048,488 2017 113 23,851,938 8 53,925,200 106,982,873 2016 73 15,808,688 4 667,171 51,368,317 2015 74 15,941,551 8 16,299,690 57,694,602 2014 68 13,792,869 7 6,988,939 49,037,206 2013 82 15,182,066 2 4,225,000 38,440,129 2012 36 6,588,264 3 1,936,650 25,585,264 2011 11 2,264,011 0 -0- 20,719,402 Source: City of Elk River. Recent Development Recent development in 2020 has consisted mainly of residential development: • Mulvaney Point Townhomes are nearly complete. The development includes four duplex townhomes and will be rented as market rate units. • Infrastructure construction of Riverplace Second Addition, a 40 parcel single-family residential subdivision on Lake Orono, was completed in 2020 and home construction has begun. • The sixth addition of Miske Meadows finished construction during the summer of 2020. The 45- parcel subdivision was the latest addition to the City’s largest subdivision, which is nearing completion of the 280+ approved preliminary plat. Most of the lots are under contract with national builders. • The Seventh Addition of Miske Meadows will begin construction this spring. The subdivision includes 44 single-family lots and finished homes are expected to sell for $350k to $450k. • Elk Ridge Estates, a 23-lot single-family subdivision, has been approved and will begin construction this spring. • Prestigious Woodland Hills Fifth Addition has been platted and the 31-lot single-family subdivision will begin construction this spring. • CommonBond Communities started construction of their 60-unit affordable housing project located in the Elk Ridge Center retail development along Highway 169. • Tall Pines Second Addition will begin construction of their 28-unit detached townhome development later this spring. Two model homes are currently under construction. 129 - 21 - Commercial/Industrial development: • Copart of Connecticut constructed phase one of their damaged vehicle sale/auction operation in the southeast corner of the City. Phase one is 20 acres and began with four employees. The second phase, which has been approved by the City Council allows for full buildout at nearly 45 acres and 14 full- time employees. • Shoot Steel began construction of a 20,000 square foot light manufacturing facility on a vacant city- owned lot in our business park. • Planet fitness completed their remodel of a 23,000 square foot retail space to establish a new fitness facility in the Elk Park Center retail development. • Aegir Brewing is remodeling an existing office building to facilitate an expansion of their brewing/taproom operation. • Sportech, a leading manufacturer of cab components for utility task vehicles, has submitted an application for a 91,000 square foot expansion to their existing facility which is expected to add 55 new jobs. Financial Institutions* The following full service banks are located in the City: Deposits as of December 31, 2020 The Bank of Elk River $583,201,000 First Bank Elk River 361,412,000 Total $944,613,000 In addition, branch offices of Boundary Waters Bank, Frandsen Bank & Trust, MidwestOne Bank; New Market Bank, Pine River State Bank; TCF National Bank; U.S. Bank National Association; and Wells Fargo Bank, National Association are located throughout the City. * This does not purport to be a comprehensive list. Source: Federal Deposit Insurance Corporation, https://www.fdic.gov/. Health Care Services The following is a summary of health care facilities located in the City: Facility Location No. of Beds Guardian Angels Care Center (Nursing Home) City of Elk River 120 Source: Minnesota Department of Health, http://www.health.state.mn.us/. 130 - 22 - Education Public Education The following district serves the residents of the City: 2020/21 District Location Grades Enrollment I.S.D. No. 728 (Elk River) City of Elk River K-12 13,464 Spectrum High School (Charter) City of Elk River 6-12 812 Source: Minnesota Department of Education, http://education.state.mn.us/mde/index.html. Non-Public Education City residents are also served by the following private schools: 2020/21 School Location Grades Enrollment St. Andrew’s Catholic School City of Elk River K-5 116 St. John’s Lutheran City of Elk River K-8 104 Mary Queen of Peace Catholic School City of Elk River K-5 74 Solid Rock Christian Academy City of Elk River K-12 17 Source: The City and Minnesota Department of Education, http://education.state.mn.us/mde/index.html. Post-Secondary Education City residents have access to various colleges and universities located throughout the Minneapolis/Saint Paul metropolitan area approximately 30 miles southeast of the City. In addition, higher education opportunities are available at Saint Cloud Technical and Community College and Saint Cloud State University in the City of Saint Cloud, Minnesota, located approximately 40 miles northwest of the City. 131 - 23 - GOVERNMENTAL ORGANIZATION AND SERVICES Organization The City of Elk River was organized as a municipality in 1977 and is a statutory city. The City’s governing body is the City Council, comprised of the Mayor and four Council members. The Mayor serves a four-year term of office; Council members are elected by ward to serve overlapping four-year terms. The following individuals comprise the current City Council: Expiration of Term John Dietz Mayor December 31, 2022 Garrett Christianson Council Member, Ward 1 December 31, 2022 Matthew Westgaard Council Member, Ward 2 December 31, 2024 Michael Beyer Council Member, Ward 3 December 31, 2024 Jennifer Wagner Council Member, Ward 4 December 31, 2022 The daily administration of City operations is the responsibility of the City Administrator, Calvin Portner, who has served in this position since October 2011. Ms. Lori Ziemer is the City’s Finance Director and has served in this position since May 2016. The City has 149 employees. Services In addition to providing general governmental services, the City provides a full range of other services, including (but not limited to) police and fire protection, building and other safety inspections, planning and zoning, economic development, environmental services, parks and recreation, library, street, snow removal, and infrastructure maintenance and repair. The City recently completed construction on a community event center that consists of two ice sheets, a turf fieldhouse, the senior activity center, event and meeting space, and a café. The City also provides municipal water, sewer, storm water, garbage, and electric services, and operates two off-sale liquor stores. Labor Contracts The status of labor contracts in City is as follows: No. of Expiration Date Bargaining Unit Employees of Current Contract LELS, Local 231 (Police) 24 December 31, 2022 LELS, Local 271 (Police Sergeants) 7 December 31, 2021 IUOE, Local 49* 22 December 31, 2021 Subtotal 53 Non-unionized employees 96 Total employees 149 * Labor contract for street, park, and building maintenance employees. 132 - 24 - Employee Pensions All full-time employees and certain part-time employees of the City are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF),which are cost-sharing multiple-employer retirement plans. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Security and Basic members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by PEPFF. PERA provides retirement and disability benefits to its members, and to survivors upon death of eligible members. Benefits are established by State statute; vest after three years of service; and are based on a member’s highest average salary for any five successive years of allowable service, age, and a formula multiplier based on years of credit at termination of service. The City’s contributions to TRA and GERF are represented in the District’s Comprehensive Annual Financial Reports. Three Council members of the City are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by PERA. The PEDCP is a tax- qualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until the time of withdrawal. Plan benefits depend solely on the amounts contributed to the plan plus investment earnings less administrative expenses. An eligible elected official who chooses to participate in the plan contributes 5% of their salary, which is matched by the elected official’s employer. For salaried employees, employer contributions are determined by the employer and must be a fixed percentage of salary. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. PERA receives 2% of employer contributions and 0.25% of the assets in each member’s account annually for administering the plan. The City’s contributions to PEDCP are represented in the District’s Comprehensive Annual Financial Reports. The Elk River Fire Relief Association (the “Association”) is the administrator of a single employer public employee defined benefit retirement system established to provide benefits for members of the Elk River Fire Department (the “Fire Department”). The Association maintains a separate special fund to accumulate assets to fund the retirement benefits earned by the Fire Department’s membership. Funding for the Association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). Funds are also derived from investment income. The financial requirements of the special fund are determined in accordance with Minnesota Statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The Association is comprised of volunteers and, therefore, members do not have any contribution requirements, but the City has voluntarily contributed $30,000 for the past five years in addition to contributions made by the State of Minnesota. For more information regarding the liability of the City with respect to its employees, please reference “Note 9, Defined Pension Plans – State-Wide,” “Note 10, Defined Contribution Plan,” “Note 11, Defined Benefit Pension Plans – Fire Relief Association,” and “Required Supplementary Information” of the City’s Comprehensive Annual Financial Report for fiscal year ended December 31, 2019, an excerpt of which is included as Appendix IV of this Official Statement. (The City’s Comprehensive Annual Financial Report for the fiscal year ended December 31, 2020 is not yet available.) GASB 68 The Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) and related GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date-an amendment to GASB 68, which revised existing standards for measuring and reporting pension liabilities for pension plans provided to City employees and require recognition of a liability equal to the City’s proportionate share of net pension liability, which is measured as the total pension liability less the amount of the pension plan's fiduciary net position. The City’s proportionate 133 - 25 - shares of the pension costs and the District’s net pension liability for GERF and TRA are represented in the City’s Comprehensive Annual Financial Report. For more information regarding GASB 68 with respect to the City, please reference please reference “Note 9, Defined Pension Plans – State-Wide” and “Required Supplementary Information” of the City’s Comprehensive Annual Financial Report for fiscal year ended December 31, 2019, an excerpt of which is included as Appendix IV of this Official Statement. (The City’s Comprehensive Annual Financial Report for the fiscal year ended December 31, 2020 is not yet available.) Additional and detailed information about GERF’s net position is available in a separately-issued PERA financial report, which may be obtained at www.mnpera.org; by writing to PERA at 60 Empire Drive #200, Saint Paul, Minnesota, 55103-2088; or by calling 1-800-652-9026. Sources: City’s Comprehensive Annual Financial Reports. Other Postemployment Benefits The Government Accounting Standards Board (GASB) has issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB 75), establishing new accounting and financial reporting requirements related to post-employment healthcare and other non-pension benefits (referred to as Other Postemployment Benefits or “OPEB”). The City provides other postemployment health insurance benefits for retired employees through two defined benefit plans: Municipal Retirees Health Plan (MRHP), a single-employer plan, and Utilities Retirees Health Plan (URHP), a multi- employer plan. Each plan provides benefits for eligible retirees and their dependents through the City’s group health insurance plans, which cover both active and retired members. Since the premium is a blended rate determined on the active and retiree population, the retirees are receiving an implicit rate subsidy. The MRHP and URHP do not issue publicly available financial reports. The following employees were covered by the benefit terms as of December 31, 2019: MRHP URHP Active plan members 124 39 Active Plan Members Waiving Coverage 29 9 Inactive members receiving benefits 11 0 Inactive members waiving benefits 0 0 Total plan members 164 48 The City’s (MRHP) total OPEB liability was measured as of January 1, 2019, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of January 1, 2019. The Utilities (URHP) total OPEB liability was measured as of December 31, 2019, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of January 1, 2019. Components of the City’s OPEB liability and related ratios are represented in the District’s Comprehensive Annual Financial Report. For more information regarding GASB 75 with respect to the City and the Utilities, please reference “Note 12, Post Employment Benefits Other Than Pensions” “and “Required Supplementary Information” of the City’s Comprehensive Annual Financial Report for fiscal year ended December 31, 2019, an excerpt of which is included as Appendix IV of this Official Statement. (The City’s Comprehensive Annual Financial Report for the fiscal year ended December 31, 2020 is not yet available.) Sources: City’s Comprehensive Annual Financial Reports. 134 - 26 - General Fund Budget Summary 2019 Amended Budget 2019 Actual 2020 Budget Revenues & Other Sources Taxes $11,337,400 $11,330,080 $12,078,300 Intergovernmental Revenues 571,500 618,488 611,500 Charges for Services 1,000,700 944,297 980,200 Fines & Forfeitures 154,500 134,493 140,000 Licenses & Permits 857,000 822,899 798,500 Other Revenue 259,500 529,055 276,500 Transfers In 2,040,600 1,891,045 2,134,600 Total $16,221,200 $16,270,357 $17,019,600 Expenditures and Other Uses General Government $ 3,878,100 $ 3,857,489 $ 4,249,150 Public Safety 7,718,200 7,422,080 8,265,500 Public Works 2,159,900 2,103,742 2,309,300 Culture & Recreation 2,133,000 2,107,192 2,195,650 Other- Transfers Out 332,000 569,813 _________0 Total $16,221,200 $16,060,316 $17,019,600 Change in Fund Balance -0- $ 210,041 -0- Sources: The City, the City’s Comprehensive Annual Financial Reports and 2020 Budget. Major General Fund Revenue Sources Revenue 2015 2016 2017 2018 2019 Taxes $9,648,215 $9,745,220 $10,087,400 $10,646,232 $11,171,848 Transfers in 1,684,650 1,769,750 1,872,050 2,028,314 1,891,045 Charges for services 867,211 922,478 1,033,053 960,294 944,297 Licenses and permits 639,791 655,607 1,007,543 790,831 822,899 Intergovernmental revenue 297,669 517,177 546,362 578,324 618,488 Sources: City’s Comprehensive Annual Financial Reports. 135 APPENDIX I * Preliminary; subject to change. I-1 PROPOSED FORM OF LEGAL OPINION $1,750,000* General Obligation Water Utility Revenue Bonds Series 2021C City of Elk River Elk River Municipal Utilities Commission We have acted as bond counsel in connection with the issuance by the City of Elk River, Minnesota, and the Elk River Municipal Utilities Commission (collectively, the “Issuer”), of General Obligation Water Utility Revenue Bonds, Series 2021B (the “Bonds”), originally dated the date hereof, and issued in the original aggregate principal amount of $1,750,000. In such capacity and for the purpose of rendering this opinion we have examined certified copies of certain proceedings, certifications and other documents, and applicable laws as we have deemed necessary. Regarding questions of fact material to this opinion, we have relied on certified proceedings and other certifications of public officials and other documents furnished to us without undertaking to verify the same by independent investigation. Under existing laws, regulations, rulings and decisions in effect on the date hereof, and based on the foregoing we are of the opinion that: 1. The Bonds have been duly authorized and executed, and are valid and binding general obligations of the Issuer, enforceable against the Issuer in accordance with their terms. 2. The principal of and interest on the Bonds are payable primarily from revenues of the water system of the Issuer, but if necessary for the payment thereof ad valorem taxes are required by law to be levied on all taxable property of the Issuer, which taxes are not subject to any limitation as to rate or amount. 3. Interest on the Bonds is excludable from gross income of the recipient for federal income tax purposes and, to the same extent, is excludable from taxable net income of individuals, trusts, and estates for Minnesota income tax purposes, and is not a preference item for purposes of the computation of the federal alternative minimum tax, or the computation of the Minnesota alternative minimum tax imposed on individuals, trusts and estates. However, such interest is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. The opinion set forth in this paragraph is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes and from taxable net income for Minnesota income tax purposes. The Issuer has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes and taxable net income for Minnesota income tax purposes retroactively to the date of issuance of the Bonds. We express no opinion regarding tax consequences arising with respect to the Bonds other than as expressly set forth herein. 4. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors’ rights generally and by equitable principles, whether considered at law or in equity. Offices in Minneapolis Saint Paul St. Cloud 150 South Fifth Street Minneapolis, MN 55402 (612) 337-9300 telephone (612) 337-9310 fax www.kennedy-graven.com Affirmative Action, Equal Opportunity Employer 136 I-2 We have not been asked and have not undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds, and accordingly we express no opinion with respect thereto. This opinion is given as of the date hereof and we assume no obligation to update, revise, or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Dated June __, 2021 at Minneapolis, Minnesota. 137 APPENDIX II * Preliminary; subject to change. II-1 CONTINUING DISCLOSURE UNDERTAKING $1,750,000* General Obligation Water Utility Revenue Bonds, Series 2021C City of Elk River Elk River Municipal Utilities Commission Sherburne County, Minnesota June __, 2021 This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Elk River, Minnesota (the “City”) and the Elk River Municipal Utilities Commission (the “Commission”) in connection with the issuance by the City of its General Obligation Water Utility Revenue Bonds, Series 2021C (the “Bonds”), in the original aggregate principal amount of $1,750,000*. The Bonds are being issued under the terms of a resolution adopted by the Commission on April 13, 2021 (the “Authorizing Resolution”), a resolution adopted by the City Council of the City on April 19, 2021 (the “Approving Resolution”), and a resolution adopted by the Commission on May 11, 2021 (the “Award Resolution”). The Bonds are being delivered to ____________, _______________ (the “Purchaser”) on the date hereof. Pursuant to the Award Resolution, the City and the Commission have covenanted and agreed to provide continuing disclosure of certain financial information and operating data and timely notices of the occurrence of certain events. The City and the Commission hereby covenant and agree as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City and the Commission for the benefit of the Holders (as defined herein) of the Bonds in order to provide for the public availability of such information and assist the Participating Underwriter(s) (defined herein) in complying with the Rule (defined herein). This Disclosure Certificate, together with the Resolutions, constitutes the written agreement or contract for the benefit of the Holders of the Bonds that is required by the Rule. Section 2. Definitions. In addition to the defined terms set forth in the Resolutions, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” means any annual report provided by the City and Commission pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Audited Financial Statements” means annual financial statements of the City and the Commission, prepared in accordance with GAAP as prescribed by GASB. “Bonds” means the General Obligation Water Utility Revenue Bonds, Series 2021C, issued by the City in the original aggregate principal amount of $1,750,000. “City” means the City of Elk River, Minnesota, which is the obligated person with respect to the Bonds. “Commission” means the Elk River Municipal Utilities Commission created by the City to exercise exclusive jurisdiction, control, and management of the municipal light, power, water and electric operations of the City. “Disclosure Certificate” means this Continuing Disclosure Certificate. 138 II-2 “Disclosure Covenants” means the continuing disclosure obligations of the City and the Commission under this Continuing Disclosure Certificate. “Disclosure Information” means the financial information and operating data referred to in Section 3(a) of this Continuing Disclosure Certificate. “EMMA” means the Electronic Municipal Market Access system operated by the MSRB and designated as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. “Final Official Statement” means the deemed Final Official Statement dated _________________, 2021, which constitutes the final official statement delivered in connection with the Bonds, which is available from the MSRB. “Financial Obligation” means a (a) debt obligation; (b) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of a Financial Obligation as described in clause (a) or (b). The term “Financial Obligation” shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. “Fiscal Year” means the fiscal year of the Commission. “GAAP” means generally accepted accounting principles for governmental units as prescribed by GASB. “GASB” means the Governmental Accounting Standards Board. “Holder” means the person in whose name a Bond is registered or a beneficial owner of such a Bond. “Material Event” means any of the events listed in Section 5(a) of this Disclosure Certificate. “MSRB” means the Municipal Securities Rulemaking Board located at 1300 I Street NW, Suite 1000, Washington, DC 20005. “Participating Underwriter” means any of the original underwriter(s) of the Bonds (including the Purchaser) required to comply with the Rule in connection with the offering of the Bonds. “Purchaser” means ___________, __________________. “Repository” means EMMA, or any successor thereto designated by the SEC. “Rule” means SEC Rule 15c2-12(b)(5) promulgated by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time, and including written interpretations thereof by the SEC. “SEC” means Securities and Exchange Commission, and any successor thereto. 139 II-3 Section 3. Provision of Annual Financial Information and Audited Financial Statements. (a) Not later than 12 months after the end of the Fiscal Year of the Commission, commencing with the Fiscal Year ending December 31, 2020, the Commission shall provide to the Repository, on behalf of itself and the City, the following financial information and operating data (the “Disclosure Information”): (i) The Audited Financial Statements of the Commission for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance Manager of the Commission (the “Finance Manager”); (ii) The Audited Financial Statements of the City for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance Director of the City (the “Finance Director”); (iii) To the extent not included in the financial statements referred to in clauses (i) and (ii), information of the type set forth in Section 4 below, which information may be unaudited, but is to be certified as to accuracy and completeness in all material respects, with respect to information relating to the Commission, by the Finance Manager of the Commission to the knowledge of the Finance Manager and, with respect to information relating to the City, by the Finance Director of the City to the knowledge of the Finance Director, which certifications may be based on the reliability of information obtained from governmental or other third party sources. The Annual Report and Disclosure Information may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Certificate; provided that the Audited Financial Statements of the Commission and the Audited Financial Statements of the City may be submitted separately from the balance of the Annual Report and will be submitted as soon as available. Any or all of the Disclosure Information may be incorporated, if it is updated as required by the Disclosure Covenants, by reference from other documents, including official statements of debt issues of the City, the Commission, or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement, it must also be available from the MSRB. The Commission shall clearly identify each such other document so incorporated by reference. (b) If any part of the Disclosure Information can no longer be generated because the operations of the City or the Commission have materially changed or have been discontinued, such Disclosure Information need no longer be provided if the Commission includes in the Disclosure Information a statement to such effect; provided, however, if such operations have been replaced by other City or Commission operations in respect of which data is not included in the Disclosure Information and the Commission determines that certain specified data regarding such replacement operations would be material, then, from and after such determination, the Disclosure Information shall include such additional specified data regarding the replacement operations. If the Disclosure Information is changed or the Disclosure Covenants are amended as permitted by this Certificate, then the Commission is to include in the next Disclosure Information to be delivered under the Disclosure Covenants, to the extent necessary, an explanation of the reasons for the amendment and the effect of any change in the type of financial information or operating data provided. (c) If the Commission is unable or fails to provide to the Repository an Annual Report and Disclosure Information by the date required in subsection (a), the Commission shall send a notice of that fact to the Repository and MSRB. (d) The Commission shall determine each year prior to the date for providing the Annual Report and Disclosure Information the name and address of each Repository. 140 II-4 Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following sections of the Final Official Statement: 1. City Property Values 2. City Indebtedness 3. City Tax Rates, Levies and Collections In addition to the items listed above, the Annual Report shall include Audited Financial Statements submitted in accordance with Section 3 of this Disclosure Certificate. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Commission or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement, it must also be available from the MSRB. The Commission shall clearly identify each such other document so incorporated by reference. Section 5. Reporting of Material Events. (a) This Section 5 shall govern the giving of notice of the occurrence of any of the following events (“Material Events”) with respect to the Bonds: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB), or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; 7. Modifications to rights of security holders, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the securities, if material; 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the obligated person; 141 II-5 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material; 15. Incurrence of a Financial Obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders, if material; and 16. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties. (b) The Commission shall file a notice of such occurrence with the Repository or with the MSRB within 10 business days of the occurrence of the Material Event. (c) The Commission shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i) the amendment or supplementing of the Disclosure Covenants in accordance with the terms of this Certificate, together with a copy of such amendment or supplement and any explanation provided by the Commission under the Disclosure Covenants; (ii) the termination of the obligations of the City and/or the Commission under the Disclosure Covenants in accordance with the terms of this Certificate; (iii) any change in the accounting principles under the terms of which the Audited Financial Statements of the City or the Commission constituting a portion of the Disclosure Information are prepared; and (iv) any change in the Fiscal Year of the City or the Commission. (d) Unless otherwise required by law and subject to technical and economic feasibility, the Commission shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of such information. (e) The City shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i) any amendment or supplement of the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate, together with a copy of such amendment or supplement and any explanation provided by the City under the Disclosure Covenants; (ii) the termination of the obligations of the City under the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate; (iii) any change in the accounting principles under the terms of which the Audited Financial Statements constituting a portion of the Disclosure Information are prepared; and (iv) any change in the Fiscal Year of the City. (f) Unless otherwise required by law and subject to technical and economic feasibility, the City shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of the City's information. Section 6. EMMA. The SEC has designated EMMA as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. Until the EMMA system is amended or altered by the MSRB and the SEC, the Commission shall make all filings required under this Disclosure Certificate solely with EMMA. 142 II-6 Section 7. Termination of Reporting Obligation. The Commission’s obligations under the Resolutions and this Disclosure Certificate shall terminate upon the redemption in full of all Bonds or payment in full of all Bonds. Section 8. Agent. The Commission may, from time to time, appoint or engage a dissemination agent to assist it in carrying out its obligations under the Resolutions and this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor dissemination agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of the Resolutions or this Disclosure Certificate, the Commission may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of nationally recognized bond counsel to the effect that such amendment or waiver would not, in and of itself, cause a violation of the Rule. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate, or any provision hereof, shall be null and void in the event that the Commission delivers to the Repository an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which impose the continuing disclosure requirements of the Resolutions and the execution and delivery of this Disclosure Certificate are invalid, have been repealed retroactively or otherwise do not apply to the Bonds. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate may be amended without the consent of the Holders of the Bonds, but only upon the delivery by the Commission to the Repository of the proposed amendment and an opinion of nationally recognized bond counsel to the effect that such amendment, and giving effect thereto, will not adversely affect the compliance with the Rule. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Commission from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Material Event, in addition to that which is required by this Disclosure Certificate. If the Commission chooses to include any information in any Annual Report or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Certificate, the Commission shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Material Event. Section 11. Default. In the event of a failure of the Commission to comply with any provision of this Disclosure Certificate any Holder of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Commission to comply with its obligations under the Resolutions and this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default with respect to the Bonds and the sole remedy under this Disclosure Certificate in the event of any failure of the Commission to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Commission, the Participating Underwriters, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. 143 II-7 IN WITNESS WHEREOF, we have executed this Disclosure Certificate in our official capacities effective as of the date and year first written above. CITY OF ELK RIVER, MINNESOTA Mayor City Clerk ELK RIVER MUNICIPAL UTILITIES COMMISSION President Secretary 144 APPENDIX III III-1 SUMMARY OF TAX LEVIES, PAYMENT PROVISIONS, AND MINNESOTA REAL PROPERTY VALUATION Following is a summary of certain statutory provisions relative to tax levy procedures, tax payment and credit procedures, and the mechanics of real property valuation. The summary does not purport to be inclusive of all such provisions or of the specific provisions discussed, and is qualified by reference to the complete text of applicable statutes, rules and regulations of the State of Minnesota. Property Valuations (Chapter 273, Minnesota Statutes) Assessor's Estimated Market Value. Each parcel of real property subject to taxation must, by statute, be appraised at least once every five years as of January 2 of the year of appraisal. With certain exceptions, all property is valued at its market value, which is the value the assessor determines to be the price the property to be fairly worth, and which is referred to as the “Estimated Market Value.” The 2013 Minnesota Legislature established the Estimated Market Value as the value used to calculate a municipality’s legal debt limit. Economic Market Value. The Economic Market Value is the value of locally assessed real property (Assessor’s Estimated Market Value) divided by the sales ratio as provided by the State of Minnesota Department of Revenue plus the estimated market value of personal property, utilities, railroad, and minerals. Taxable Market Value. The Taxable Market Value is the value that Net Tax Capacity is based on, after all reductions, limitations, exemptions and deferrals. Net Tax Capacity. The Net Tax Capacity is the value upon which net taxes are levied, extended and collected. The Net Tax Capacity is computed by applying the class rate percentages specific to each type of property classification against the Taxable Market Value. Class rate percentages vary depending on the type of property as shown on the last page of this Appendix. The formulas and class rates for converting Taxable Market Value to Net Tax Capacity represent a basic element of the State's property tax relief system and are subject to annual revisions by the State Legislature. Property taxes are the sum of the amounts determined by (i) multiplying the Net Tax Capacity by the tax capacity rate, and (ii) multiplying the referendum market value by the market value rate. Market Value Homestead Exclusion. In 2011, the Market Value Homestead Exclusion Program (MVHE) was implemented to offset the elimination of the Market Value Homestead Credit Program that provided relief to certain homesteads. The MVHE reduces the taxable market value of a homestead with an Assessor’s Estimated Market Value up to $413,800 in an attempt to result in a property tax similar to the effective property tax prior to the elimination of the homestead credit. The MVHE applies to property classified as Class 1a or 1b and Class 2a, and causes a decrease in the Issuer’s aggregate Taxable Market Value, even if the Assessor’s Estimated Market Value on the same properties did not decline. Property Tax Payments and Delinquencies (Chapters 275, 276, 277, 279-282 and 549, Minnesota Statutes) Ad valorem property taxes levied by local governments in Minnesota are extended and collected by the various counties within the State. Each taxing jurisdiction is required to certify the annual tax levy to the county auditor within five (5) working days after December 20 of the year preceding the collection year. A listing of property taxes due is prepared by the county auditor and turned over to the county treasurer on or before the first business day in March. 145 III-2 The county treasurer is responsible for collecting all property taxes within the county. Real estate and personal property tax statements are mailed out by March 31. One-half (1/2) of the taxes on real property is due on or before May 15. The remainder is due on or before October 15. Real property taxes not paid by their due date are assessed a penalty on homestead property of 2% until May 31 and increased to 4% on June 1. The penalty on nonhomestead property is assessed at a rate of 4% until May 31 and increased to 8% on June 1. Thereafter, an additional 1% penalty shall accrue each month through October 1 of the collection year for unpaid real property taxes. In the case of the second installment of real property taxes due October 15, a penalty of 2% on homestead property and 4% on nonhomestead property is assessed. The penalty for homestead property increases to 6% on November 1 and again to 8% on December 1. The penalty for nonhomestead property increases to 8% on November 1 and again to 12% on December 1. Personal property taxes remaining unpaid on May 16 are deemed to be delinquent and a penalty of 8% attaches to the unpaid tax. However, personal property that is owned by a tax-exempt entity, but is treated as taxable by virtue of a lease agreement, is subject to the same delinquent property tax penalties as real property. On the first business day of January of the year following collection all delinquencies are subject to an additional 2% penalty, and those delinquencies outstanding as of February 15 are filed for a tax lien judgment with the district court. By March 20 the county auditor files a publication of legal action and a mailing of notice of action to delinquent parties. Those property interests not responding to this notice have judgment entered for the amount of the delinquency and associated penalties. The amount of the judgment is subject to a variable interest determined annually by the Department of Revenue, and equal to the adjusted prime rate charged by banks but in no event is the rate less than 10% or more than 14%. Property owners subject to a tax lien judgment generally have three years (3) to redeem the property. After expiration of the redemption period, unredeemed properties are declared tax forfeit with title held in trust by the State of Minnesota for the respective taxing districts. The county auditor, or equivalent thereof, then sells those properties not claimed for a public purpose at auction. The net proceeds of the sale are first dedicated to the satisfaction of outstanding special assessments on the parcel, with any remaining balance in most cases being divided on the following basis: county - 40%; town or city - 20%; and school district - 40%. Property Tax Credits (Chapter 273, Minnesota Statutes) In addition to adjusting the taxable value for various property types, primary elements of Minnesota's property tax relief system are: property tax levy reduction aids; the homestead credit refund and the renter’s property tax refund, which relate property taxes to income and provide relief on a sliding income scale; and targeted tax relief, which is aimed primarily at easing the effect of significant tax increases. The homestead credit refund, the renter’s property tax refund, and targeted credits are reimbursed to the taxpayer upon application by the taxpayer. Property tax levy reduction aid includes educational aids, local governmental aid, equalization aid, county program aid and disparity reduction aid. Debt Limitations All Minnesota municipalities (counties, cities, towns and school districts) are subject to statutory “net debt” limitations under the provisions of Minnesota Statutes, Section 475.53. Net debt is defined as the amount remaining after deducting from gross debt the amount of current revenues that are applicable within the current fiscal year to the payment of any debt and the aggregate of the principal of the following: 1. Obligations issued for improvements which are payable wholly or partly from the proceeds of special assessments levied upon property specially benefited thereby, including those which are general obligations of the municipality issuing them, if the municipality is entitled to reimbursement in whole or in part from the proceeds of the special assessments. 146 III-3 2. Warrants or orders having no definite or fixed maturity. 3. Obligations payable wholly from the income from revenue producing conveniences. 4. Obligations issued to create or maintain a permanent improvement revolving fund. 5. Obligations issued for the acquisition, and betterment of public waterworks systems, and public lighting, heating or power systems, and of any combination thereof or for any other public convenience from which a revenue is or may be derived. 6. Debt service loans and capital loans made to a school district under the provisions of Minnesota Statutes, Sections 126C.68 and 126C.69. 7. Amount of all money and the face value of all securities held as a debt service fund for the extinguishment of obligations other than those deductible under this subdivision. 8. Obligations to repay loans made under Minnesota Statutes, Section 216C.37. 9. Obligations to repay loans made from money received from litigation or settlement of alleged violations of federal petroleum pricing regulations. 10. Obligations issued to pay pension fund or other postemployment benefit liabilities under Minnesota Statutes, Section 475.52, subdivision 6, or any charter authority. 11. Obligations issued to pay judgments against the municipality under Minnesota Statutes, Section 475.52, subdivision 6, or any charter authority. 12. All other obligations which under the provisions of law authorizing their issuance are not to be included in computing the net debt of the municipality. Levies for General Obligation Debt (Sections 475.61 and 475.74, Minnesota Statutes) Any municipality that issues general obligation debt must, at the time of issuance, certify levies to the county auditor of the county(ies) within which the municipality is situated. Such levies shall be in an amount that if collected in full will, together with estimates of other revenues pledged for payment of the obligations, produce at least five percent in excess of the amount needed to pay principal and interest when due. Notwithstanding any other limitations upon the ability of a taxing unit to levy taxes, its ability to levy taxes for a deficiency in prior levies for payment of general obligation indebtedness is without limitation as to rate or amount. Metropolitan Revenue Distribution (Chapter 473F, Minnesota Statutes) “Fiscal Disparities Law” The Charles R. Weaver Metropolitan Revenue Distribution Act, more commonly known as “Fiscal Disparities,” was first implemented for taxes payable in 1975. Forty percent of the increase in commercial- industrial (including public utility and railroad) net tax capacity valuation since 1971 in each assessment district in the Minneapolis/Saint Paul seven-county metropolitan area (Anoka, Carver, Dakota, excluding the City of Northfield, Hennepin, Ramsey, Scott, excluding the City of New Prague, and Washington Counties) is contributed to an area-wide tax base. A distribution index, based on the factors of population and real property market value per capita, is employed in determining what proportion of the net tax capacity value in the area-wide tax base shall be distributed back to each assessment district. 147 III-4 STATUTORY FORMULAE: CONVERSION OF TAXABLE MARKET VALUE (TMV) TO NET TAX CAPACITY FOR MAJOR PROPERTY CLASSIFICATIONS Local Tax Payable Property Type 2016-2020 Residential Homestead (1a) Up to $500,000 1.00% Over $500,000 1.25% Residential Non-homestead Single Unit (4bb) Up to $500,000 1.00% Over $500,000 1.25% 2-3 unit and undeveloped land (4b1) 1.25% Market Rate Apartments Regular (4a) 1.25% Low-Income (4d) Up to $150,000(c) 0.75% Over $150,000(c) 0.25% Commercial/Industrial/Public Utility (3a) Up to $150,000 1.50%(a) Over $150,000 2.00%(a) Electric Generation Machinery 2.00% Commercial Seasonal Residential Homestead Resorts (1c) Up to $600,000 0.50% $600,000 - $2,300,000 1.00% Over $2,300,000 1.25%(a) Seasonal Resorts (4c) Up to $500,000 1.00%(a) Over $500,000 1.25%(a) Non-Commercial (4c12) Up to $500,000 1.00%(a)(b) Over $500,000 1.25%(a)(b) Disabled Homestead (1b) Up to $50,000 0.45% Agricultural Land & Buildings Homestead (2a) Up to $500,000 1.00% Over $500,000 1.25% Remainder of Farm Up to $1,880,000(d) 0.50%(b) Over $1,880,000(d) 1.00%(b) Non-homestead (2b) 1.00%(b) (a) State tax is applicable to these classifications. (b) Exempt from referendum market value based taxes. (c) Legislative increases, payable 2020. Historical valuations are: Payable 2019 - $139,000; Payable 2018 - $121,000; Payable 2017 - $115,000; and Payable 2016 - $106,000. (d) Legislative increases, payable 2020. Historical valuations are: Payable 2019 - $1,900,000; Payable 2018 - $1,940,000; Payable 2017 - $2,050,000; and Payable 2016 - $2,140,000. NOTE: For purposes of the State general property tax only, the net tax capacity of non-commercial class 4c(1) seasonal residential recreational property has the following class rate structure: First $76,000 – 0.40%; $76,000 to $500,000 – 1.00%; and over $500,000 – 1.25%. In addition to the State tax base exemptions referenced by property classification, airport property exempt from city and school district property taxes under M.S. 473.625 is exempt from the State general property tax (MSP International Airport and Holman Field in Saint Paul are exempt under this provision). 148 APPENDIX IV IV-1 EXCERPT OF 2019 COMPREHENSIVE ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the City’s Comprehensive Annual Financial Report for fiscal year ended December 31, 2019. (The City’s Comprehensive Annual Financial Report for fiscal year ended December 31, 2020 is not yet available.) The reader should be aware that the complete financial statements may contain additional information which may interpret, explain or modify the data presented here. The City’s Comprehensive Annual Financial Report for the year ending 2019 was awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of the United States and Canada (GFOA). This was the 31th consecutive year that the City has received this award. The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial reporting. The City plans to submit its Comprehensive Annual Financial Report for the 2020 fiscal year to GFOA. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such Comprehensive Annual Financial 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. 149 IV-2 INDEPENDENT AUDITORS' REPORT Honorable Mayor and the City Council City of Elk River, Minnesota Report on the Flnanclal 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 U,e aggregate remaining fund information of the City of Elk River, as of and for tt,e 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. /llanagemenl's Reaponslblltty forlhe Flnanchll- 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' Responaiblltty Our responsibility Is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Eiecb'ic 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 lnciuded 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 Uie audit to obtain reasonable assurance about whether the financial statements are free from material mlsstatement An audit Involves performing procedures to obtain audit evidence about the amounts and dlsciosures 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. Auditors' Raaponslblltty (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 busine&&-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 U,e year then ended in accordance with accounting principles generally accepted in the United States of America. Emphashl of Matter During flscal year ended December 31, 2019, the City of Elk River adopted GASB Statement No. 84, Fiduciary Activities. As a result of U,e implementation of this standard, actMty 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 lnfonnatton 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 llablllty 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. Other Maffe,s (Continued) Other lnfonnatlon (Conttnued) 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 undertying 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. Olhar R-rtlng Required by Go..,,,ment Auditing Standants 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. ~LL:? Cllflonl.arsonAllen LLP Minneapolis, Minnesota May 26, 2020 150 IV-3CITY 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 T°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 $ 8,982,040 $ 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.0. 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. Beginning Ending GOVERNMENTAL ACTIVITIES Balance Additions Reductions Balance Bonds Payable $ 17,632,016 $ 35,949,515 $ (1,390,418) $ 52,191,113 Compensated Absences 1,579,967 645,048 (617,411) 1,607,604 Total $ 191211,983 $ 36,594,563 $ (210071829) $ 53;798;717 Beginning Ending BUSINESS-TYPE ACTIVITIES Balance Additions Reductions Balance Bonds Payable $ 31,910,336 $ $ (1,672,300) $ 30,238,036 Notes Payable 820,608 (200,916) 619,692 Compensated Absences 504,447 234,099 (247,181) 491,365 Total $ _ 33,235,391 $ 234,099 $ (2,120,397) $ 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. 151 IV-4CITY 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 presentetl 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. 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-!XE!! 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 c_,_ 105,835,140 94.574.550 115,1158,305 117,800,871 220,993,445 212,375,421 TotalAseelB 171,590,224 129,763,915 155,013,760 153,784,744 328,803,964 283.528.659 Deferred Outflowl of Resources 4,757,778 6,294.084 411,293 828,823 5.189,071 7.122.907 Noncurrent Uabllltles Outstanding 59,536.643 27.502.045 33,202.304 37,188,952 92.736.947 64,888,997 Otherliablllties 8.743,380 1,758,155 8,157,881 5,689,316 16.901,281 7447471 Total Liabilities 68,280,023 29,260,200 41,360,185 42.8158,288 109,640,208 72,116,488 Deferred Inflows of Resources 6,214,188 7,764,238 819,482 1,082,545 7,033,646 8,646,784 Net Position: NetlnwunenlinCapllalAseelB 78,286,782 77,092,055 64,327,032 85,104,737 162,815,814 162,196,792 --3,741,388 4,238,046 1,261.359 1,261,369 5,002,727 5,497,407 Unresbicted 19,823,883 17,885,456 27,8158,995 24,308,658 47,460,6158 41,994,114 Total Net Position $ 101,853,813 $ 99,013,559 $ 113,245.388 $110,674.754 $ 215,099,199 $ 209,888,313 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. 152 IV-5CITY 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. Governmental Acttvilles BUllneu-Tn!!;Actlvltles Tolal 2019 2018 ______!!!1! 2018 2019 2018 REVENUES Progran Revenues: ChargnforServioes $ 2,995,949 $ 3,143,111 s 53,372,888 s 53,452,010 $ 56,368,837 s 58,595,121 Operating Grants and Contributions 1,396,313 1,381,151 uoo 1,397,513 1,381,161 capital Grants and Contributions 1,609,860 1,721,838 1,277,598 2,295,004 2,787,248 4,018,642 General Revenun: Property Taxes 13,022,991 12,192,911 13,022,991 12,192,911 Other Taxes 2,288,998 1,591,863 2,288,998 1,691,663 Unreatrloted Investment Eamlnga 1,420,677 430,642 704,099 487,294 2,124,778 897,938 Grants and Contributions Not Reatricled 2,688,461 1,754,373 2,588,461 1,754,373 Gain on Sale of Capital Anets 41,698 8,280 2.482 49978 2482 TolalRevenuH 25,264,737 22,215,489 55,384,063 56.216,770 80,828,800 78,432,259 EXPENSES General Government 3,786,257 3,881,134 3,786,257 3,981,134 Public Safely 9,188,562 7,398,041 9,188,562 7,398,041 Public Works 5,920,022 5,819,836 5,920,022 5,619,836 CulluraandR8Cf811tion '4,094,690 4,474,619 4,094,690 4,474,619 Economic Development 540,497 969,-443 540,497 989.443 Interest: on Long-Tenn Debt 979,755 486.630 979,755 486.630 MunlclpalLlquor e.m,,414 6,233,700 e,m,,41,4 6,233,700 Sawer 3,560,622 3,504,489 3,550,622 3,504,469 Garbage 1,456,,482 1,586,956 1,456,,482 1,588,956 ._,._ 1,024,928 63"4,073 1,024,926 834.073 Electric 35.200,295 35,680,220 35,200,296 35.680.220 -2,703,390 2,666,149 2,703,390 21688149 TotalE,cpenseB 2-4,509,763 22,929,703 60,708,131 50,307,587 75,217,914 ~290. CHANGE IN NET POSITION BEFORE TRANSFERS 754,954 (714,214) "4,666,932 5,909,163 5,410,686 6,194,969 Tranefers and Conblbullona 2,065,300 2,063,636 (2,086,3002 e.oe3.e36> CHANGE IN NET POSITION 2,840,25,4 1,349,424 2,570,632 3,845,545 5,410,688 5,194,969 Net PosHlon-Beglnnlng of Year 99,013,558 97,664,135 110,67-4,754 106,629,209 209,686,313 20,4,493134"4 NET POSITION -END OF YEAR $ 101,653,613 $ 99,013,558 $ 113,2"46,386 $ 110,6741754 $ 215,099,199 $ 209:668,31 ~ 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. $10,000.000 $9.000,000 $8,000,000 $7.000,000 $6,000,000 $5,000,000 $4,000,000 $3.000,000 $2,000,000 $1.000,000 $0 CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Expenses and Program Revenues -Governmental Activities .I I General Public Safety Govemment I Public Works .I Culture and Reaeatlon • Revenues • Elcpenses -• I Economic Interest and Fiscal Development Charges Revenues by Source -Governmental Activities Grants and Contributions Not Restricted, 10.25% Unrestricted Investment, ~ Gain on Sale of Capltal Charges for Services, 11.86% Earnings, 5.62% Capital Grants and Other Taxes, 9.06% =------PropertyTaxes,51.55% 153 IV-6CITY 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%. $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Expenses and Program Revenues-Business-Type Activities II •• ----•• Municipal Liquor Sewer Garbage StonnW-Electric w-"Raveruea •Expenses CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Revenues by Source-Business-Type Activities ca pita I Grants and Contributions, 2.31%._ ------... Unrestricted Investment Earnings, 1.28% Financial Analysls of the Government's Funds -·---·ChargesforServlces, 96.41% 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. 154 IV-7CITY 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 Capita! 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. Land Construction in Progress ln1angible-Buildings Other lmprovementa Infrastructure Equipment Total Capital A-Lau: Accumulated Depredation Total Capital-. Net CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Governmental Activities Business-Te Activitiee 2019 2018 2019 2018 $ 40,948,181 $ 40,927,833 $ 1,843,9n $ 1,843,m 12,883,985 1,011,708 487,470 24,114,139 23,279,955 44,997,927 45,048,097 27,372,848 27,345,592 B,551,n1 8,551,n1 71,116,985 70,437,858 130,508,501 129,022,079 14,298,489 13,849,140 11,825,358 11.~300 190,801,318 176,820,499 198,474,329 193,297,363 (84,986,178) !82,245,9491 !81,318.0241 (75,498,4921 $ 105,835,140 $ 94,574,550 $ 115,156,308 $ 117,800,871 Total 2019 ~ $ 42,790,158 $ 42,771,810 13,895,893 487,470 24,114,139 23,279,955 72,370,575 72,393,879 8,551.n1 8,557,771 201,823,488 199,459,937 25,923,825 25,187,440 387,275,847 370, 117,862 !186,282,202) !157,742.441) $ 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 Buslness-Tll?! Activities Total 2019 2016 2019 2018 2019 2018 General Obligation Bonds $ 15,985,000 $ 17,280,000 $ $ $ 15,985,000 ~.ooo 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 3,511,113 352,018 818,038 870,338 4,329,149 1,222,352 Total Bonds Payable, Net 52,191,113 17,832,018 30,238,038 31,910,338 82,429,149 49,542,352 Notes Payable 619,692 820,808 619,692 820,608 Compensated Abaences 1,807,804 1,579,987 491,365 504,447 2,098,989 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 Beneffls 740,405 813,033 312,008 204,048 1,052,411 1,017,081 Total Outstanding Debt $ 62,080,862 $ 27,502,045 $ 35,477,261 $ 37,186,952 $ 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. 155 IV-8 CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Economic Factors and Next Year's Budget 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. 156 IV-9 ASSETS Cash and Investments Restricted Cash and Investments Receivables: Accrued Interest Taxes Special Assessments Other Accounts Receivable Notes Receivable, Net Due from Other Governments Due from Primary Government Due from Component Unit Internal Balances Prepaid Items Inventories Land Held for Resale Pension Asset Capital Assets: Nondep~iable: Land Construction in Progress Depreciable: Buildings and Building Improvements Improvements Other than Buildings Infrastructure Distribution/Collection Systems Intangible Assets Equipment and Furniture Total Capital Assets Less: Accumulated Depreciation Total Capital Assets, Net Total Assets DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows -Pensions Deferred Outflows -OPEB Deferred Charge on Debt Refunding Total Deferred Outflows of Resources LIABILITIES Accounts and Contracts Payable Accrued Salaries Payable Due to Other Governments Due to Primary Government Due to Component Unit Customer Deposits Payable Unearned Revenue Accrued Interest Payable Compensated Absences -Due Within One Year Notes Payable -Due Within One Year Bonds Payable -Due Within One Year Noncurrent Liabilities: Other Postemployment Benefits Net Pension Liability Compensated Absences -Due in More Than One Year Notes Payable -Due in More Than One Year Bonds Payable -Due in More Than One Year Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Inflows -Pensions Deferred Inflows -OPEB Total Deferred Inflows of Resources NET POSITION Net Investment in Capital Assets Restricted for: Debt Service Parks and Recreation Improvements Landfill Mitigation Economic Development Law Enforcement Net Pension Asset Housing and Redevelopment Unrestricted Total Net Position CITY OF ELK RIVER STATEMENT OF NET POSITION DECEMBER 31, 2019 Prima~ Government Governmental Business-Type Activities Activities $ 58,653,196 $ 33,543,264 1,261,359 155,703 60,000 866,807 306,891 547,818 2,835,347 1,798,366 2,543,860 17,020 235,674 (235,674) 249,322 177,243 2,213,916 175,000 205,427 40,946,181 1,843,977 12,883,985 1,011,708 44,997,927 27,372,648 6,557,771 71,116,985 130,506,501 24,114,139 14,298,469 11,625,356 190,801,318 196,474,329 (84,966, 178) (81,316,024) 105,835,140 115, 158,305 171,590,224 155,013,760 4,598,580 378,990 45,942 5,848 113,256 26,455 4,757,778 411,293 4,525,709 3,900,539 297,567 199,863 44,126 242,564 196,105 1,035,524 645,014 107,373 490,640 397,061 644,219 446,005 203,952 1,900,000 1,625,000 740,405 312,006 7,541,740 3,816,162 963,385 45,360 415,740 50,291,113 28,613,036 68,280,023 41,360,185 6,126,484 808,322 87,682 11,160 6,214,166 819,482 78,288,782 84,327,032 1,722,960 1,261,359 409,694 47,334 1,321,585 34,368 205,427 19,823,663 27,656,995 $ 101,853,813 $ 113,245,386 See accompanying Notes to Basic Financial Statements. Component Unit Total HRA $ 92,196,460 $ 831,014 1,261,359 215,703 9,745 866,807 306,891 3,383,165 3,258 1,798,366 620,681 2,543,860 196,105 17,020 426,565 2,213,916 175,000 234,900 205,427 42,790,158 257,100 13,895,693 72,370,575 6,557,771 174,290 71,116,985 130,506,501 24,114,139 25,923,825 387,275,647 431,390 (166,282,202) (82,302) 220,993,445 349,088 326,603,984 2,244,791 4,977,570 5,533 51,790 139,711 5,169,071 5,533 8,426,248 20,258 497,430 2,187 286,690 17,020 196,105 1,035,524 752,387 887,701 1,090,224 203,952 3,525,000 1,052,411 11,357,902 55,520 1,008,745 415,740 78,904,149 109,640,208 94,985 6,934,806 11,759 98,842 7,033,648 11,759 162,615,814 349,088 2,984,319 409,694 47,334 1,321,585 34,368 205,427 1,794,492 47,480,658 $ 215,099,199 $ 2,143,580 157 IV-10Functions/Programs Expenses Primary Government: Governmental Activities: General Government $ 3,786,257 Public Safety 9,188,562 Public Works 5,920,022 Culture and Recreation 4,094,690 Economic Development 540,497 Interest and Fiscal Charges 979,755 Total Governmental Activities 24,509,783 Business-Type Activities: Municipal Liquor 6,772,414 Sewer 3,550,622 Garbage 1,456,482 Storm Water 1,024,928 Electric 35,200,295 Water 2,703,390 Total Business-Type Activities 50,708,131 Total Primary Government $ 75,217,914 Component Unit: Housing and Redevelopment Authority $ 346,904 See accompanying Notes to Basic Financial Statements. CITY OF ELK RIVER STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2019 Program Revenues Charges for Operating Grants Capital Grants Services and Contributions and Contributions $ 765,646 $ $ 1,267,920 625,796 94,832 444,667 1,410,049 810,476 297,780 99,601 57,075 28,070 2,995,949 1,396,313 1,509,650 7,617,790 2,383,196 713,170 1,645,115 1,200 510,889 38,663,268 135,764 2,552,630 428,662 53,372,888 1,200 1,277,596 ---$ 56,368,837 $ 1,397,513 $ 2,787,246 $ 624 $ 163 $ General Revenues: Property Taxes Other Taxes Grants and Contributions Not Restricted Unrestricted Investment Earnings Gain on Sale of Capital Assets Transfers and Contributions Total General Revenues and Transfers Change in Net Position Net Position -Beginning of Year Net Position -End of Year Net (Expense) Revenue and Changes in Net Position Primary Government Component Unit Governmental Business-Type Activities Activities Total HRA $ (3,020,611) $ $ (3,020,611) $ (7,294,846) (7,294,846) (3,970,474) (3,970,474) (2,886,833) (2,886,833) (455,352) (455,352) (979,755) (979,755) (18,607,871) (18,607,871) 845,376 845,376 (454,256) (454,256) 189,833 189,833 (514,039) (514,039) 3,598,737 3,598,737 277,902 277,902 3,943,553_ 3,943,553 (18,607,871) 3,943,553 (14,664,318) (346,117) 13,022,991 13,022,991 315,608 2,288,998 2,288,998 2,588,461 2,588,461 1,420,677 704,099 2,124,776 11,608 41,698 8,280 49,978 2,085,300 (2,085,300) 21,448,125 (1,372,921) 20,075,204 327,216 2,840,254 2,570,632 5,410,886 (18,901) 99,013,559 110,674,754 209,688,313 2,162,481 -$ 101,853,813 $ 113,245,386 $ 215,099,199 $ 2,143,580 158 IV-11 CITY OF ELK RIVER BALANCE SHEET-GOVERNMENTAL FUNDS DECEMBER 31, 2019 General Active ER Pavement ASSETS Fund Projects Management Cash and Investments $ 7,511,623 $ 27,825,056 $ 3,958,681 Receivables: Accrued Interest 34,773 23,270 18,545 Delinquent Taxes 344,281 Special Assessments other Accounts Receivable 17,742 139,928 Notes Receivable, Net Due from Other Governments 84,762 2,430,015 Due from Other Funds 269,625 276,727 Due from Component Unit 17,020 Prepaids 187,305 Land Held for Resale Total Assets $ 8,467,131 $ 27,848,326 $ 6,823,896 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE LIABILITIES Accounts and Contracts Payable $ 211,825 $ 3,293,557 $ 139,922 Accrued Salaries Payable 284,924 Due to Other Governments 23,488 Due to Other Funds Due to Component Unit Unearned Revenue Total Liabilities 520,237 3,293,557 139,922 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue -Taxes 75,436 Unavailable Revenue -Special Assessments Unavailable Revenue -Other 2,430,015 Total Deferred Inflows of Resources 75,436 2,430,015 FUND BALANCE Nonspendable 187,305 Restricted 24,554,769 Committed 4,253,959 Assigned Unassigned 7,684,153 Total Fund Balance 7,871,458 24,554,769 4,253,959 Total Liabilities, Deferred Inflows of Resources, and Fund Balance $ 8,467,131 $ 27,848,326 $ 6,823,896 See accompanying Notes to Basic Financial Statements. other Governmental Funds Totals $ 19,357,836 $ 58,653,196 79,115 155,703 522,526 866,807 306,891 306,891 390,148 547,818 1,798,366 1,798,366 29,083 2,543,860 1,755,524 2,301,876 17,020 62,017 249,322 175,000 175,000 $ 24,476,506 $ 67,615,859 $ 880,405 $ 4,525,709 12,643 297,567 20,638 44,126 2,066,202 2,066,202 196,105 196,105 645,014 645,014 3,821,007 7,774,723 11,471 86,907 306,028 306,028 2,430,015 317,499 2,822,950 62,017 249,322 3,993,911 28,548,680 5,928,741 10,182,700 13,177,577 13,177,577 (2,824,246) 4,859,907 20,338,000 57,018,186 $ 24,476,506 $ 67,615,859 159 IV-12 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 $ 40,946,181 Construction in Progress 12,883,985 Buildings 44,997,927 Other Improvements 6,557,771 Streets and Infrastructure 71,116,985 Equipment and Furniture 14,298,469 Total Capital Assets 190,801,318 Less: Accumulated Depreciation (84,966,178) 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 (7,541,740) Deferred Inflows of Resources -Pensions (6,126,484) Deferred Outflows of Resources -Pensions 4,598,580 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 (740,405) Deferred Inflows of Resources -OPEB (87,682) Deferred Outflows of Resources -OPEB 45,942 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 (48,680,000) Unamortized Premiums (3,511,113) Deferred Charge on Refunding 113,256 Accrued Interest Payable (490,640) Compensated Absence Payable (1,607,604) Total Net Position of Governmental Activities See accompanying Notes to Basic Financial Statements. $ 57,018,186 105,835,140 205,427 2,822,950 (9,069,644) (782,145) (54,176,101) $ 101,853,813 160 IV-13 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 REVENUE Property Taxes $ 11,171,848 $ $ $ 1,840,129 Sales Tax Revenue 652,665 Other Taxes 158,232 1,478,101 Special Assessments 58,416 Licenses and Permits 822,899 Intergovernmental Revenue 618,488 389,407 388,811 Charges for Services 944,297 778,794 Fines and Forfeitures 134,493 32,294 Other Revenue: Landfill Expansion Fee 2,081,124 Investment Earnings 223,481 189,286 229,428 778,482 Refunds and Reimbursements 224,635 52,588 Contributions 25,000 685,534 Miscellaneous Revenue 55,939 77,681 Total Revenue 14,379,312 189,286 2,096,936 7,426,518 EXPENDITURES Current: General Government 3,857,489 147,428 Public Safety 7,422,080 198,917 Public Works 2,103,742 113,908 Culture and Recreation 2,107,192 861,655 Economic Development 540,763 Capital Outlay: General Government 58,735 Public Safety 365,811 Public Works 2,632,725 917,004 Culture and Recreation 11,341,197 1,316,481 Debt Service: Principal Retirement 1,315,000 Interest and Fiscal Charges 242,835 470,188 Total Expenditures 15,490,503 11,584,032 2,632,725 6,305,890 EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES (1,111,191) (11,394,746) (535,789) 1,120,628 OTHER FINANCE SOURCES (USES) Transfers In 1,891,045 1,397,893 Transfers Out (569,813) (633,825) Issuance of Bonds Payable 32,715,000 Premium on Bonds Payable 3,234,515 Proceeds from Sale of Capital Assets 127,190 Total Other Finance Sources 1,321,232 35,949,515 891,258 NET CHANGE IN FUND BALANCES 210,041 24,554,769 (535,789) 2,011,886 FUND BALANCES Beginning of Year 7,661,417 4,789,748 18,326,114 End of Year $ 7,871,458 $ 24,554,769 $ 4,253,959 $ 20,338,000 See accompanying Notes to Basic Financial Statements. Totals $ 13,011,977 652,665 1,636,333 58,416 822,899 1,396,706 1,723,091 166,787 2,081,124 1,420,677 277,223 710,534 133,620 24,092,052 4,004,917 7,620,997 2,217,650 2,968,847 540,763 58,735 365,811 3,549,729 12,657,678 1,315,000 713,023 36,013,150 (11,921,098) 3,288,938 (1,203,638) 32,715,000 3,234,515 127,190 38,162,005 26,240,907 30,777,279 $ 57,018,186 161 IV-14 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 Gain on Disposal of Capital Assets Proceeds from the Sale of Capital Assets Depreciation Expense 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 Proceeds from Issuance of Bonds Premium on Bonds Issued Amortization of Bond Premium Amortization of Deferred Charge on Refunding Change in Accrued Interest Payable 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 Deferred Inflows of Resources -December 31, 2019 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). 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 of Governmental Activities See accompanying Notes to Basic Financial Statements. $ 16,510,773 41,698 (127,190) (5,164,691) 1,315,000 (32,715,000) (3,234,515) 75,418 (36,265) (305,885) 1,691,963 2,822,950 $ 11,260,590 (34,901,247) 1,130,987 (32,817) (858,166) 2,840,254 162 IV-15 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 Budgeted Amounts Over (Under) Original Final Actual Final Budget REVENUE Taxes: Property Taxes $ 11,187,400 $ 11,187,400 $ 11,171,848 $ (15,552) Other Taxes 150,000 150,000 158,232 8,232 Licenses and Permits 857,000 857,000 822,899 (34,101) Intergovernmental Revenue 571,500 571,500 618,488 46,988 Charges for Services 1,000,700 1,000,700 944,297 (56,403) Fines and Forfeits 154,500 154,500 134,493 (20,007) Other Revenue: Investment Earnings 100,000 100,000 223,481 123,481 Refunds and Reimbursements 130,000 130,000 224,635 94,635 Contributions 23,000 23,000 25,000 2,000 Miscellaneous Revenue 6,500 6,500 55,939 49,439 Total Revenue 14,180,600 14,180,600 14,379,312 198,712 EXPENDITURES General Government 4,019,050 3,878,100 3,857,489 (20,611) Public Safety 7,616,250 7,718,200 7,422,080 (296,120) Public Works 2,133,400 2,159,900 2,103,742 (56,158) Culture and Recreation 2,120,500 2,133,000 2,107,192 (25,808) Total Expenditures 15,889,200 15,889,200 15,490,503 (398,697) EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES (1,708,600) (1,708,600) (1,111,191) 597,409 OTHER FINANCE SOURCES (USES) Transfers In 2,040,600 2,040,600 1,891,045 (149,555) Transfers Out (332,000) (332,000) (569,813) (237,813) Total Other Finance Sources (Uses) 1,708,600 1,708,600 1,321,232 (387,368) NET CHANGE IN FUND BALANCES $ $ 210,041 $ 210,041 FUND BALANCES Beginning of Year 7,661,417 End of Year $ 7,871,458 See accompanying Notes to Basic Financial Statements. 163 IV-16 CITY OF ELK RIVER STATEMENT OF NET POSITION -PROPRIETARY FUNDS DECEMBER 31, 2019 Municipal Water Total ASSETS AND DEFERRED OUTFLOWS Liguor -G!!!!!!i!!! Stonn Water Electric OF RESOURCES CURRENT ASSETS $ 7,692,385 $ 33,543,264 cash and cash Equivalent& $ 4,649,254 $ 5,245,861 $ 343,379 $ 730,483 $ 14,861,922 1,281,359 Cash and Investments Held by Trustae 1,261,359 Receivables: 149,002 2,835,347 Accounts Receivable (Net) 291,865 3,286 432 2,390,982 1,723 80,000 Accrued Interest 21,780 24,575 1,609 3,422 6,891 128,850 885,808 Due from Other Funds 352,205 138,531 43,013 3,007 9,644 2,213,916 Inventory 1,222,310 981,962 22,411 177,243 Prepaid Items 154,832 8,004,015 40,758,735 TotalCum,ntAsaets 5,893,344 5,914,308 486,785 777,330 19,680,955 NONCURRENT ASSETS Capital-: 494,009 2,855,885 Nondepraciable 753,961 411,095 1,196,620 Depreciable 3,050,064 52,868,180 18,187,m 82,024,495 37,486,108 193,618,644 Total 3,804,045 53,279,275 18,181,m 83,221,115 37,982,117 196,474,329 Lesa: Accumulated Depreciation !2,230,214! (20,857,239! !9,022,929! !30,444,533! (18,761,109) !81,316,024! NetCapitalAsaets 1,573,831 32,422,036 9,164,648 52,776,582 19,221,008 115,158,305 DEFERRED OUTFLOWS OF RESOURCES Pension Related · 50,587 35,417 1,739 6,052 244,248 40,949 378,990 OPEB Related 2,924 2,506 418 5,648 Deferred Charge on Debt Refunding 21,164 5,291 26,455 Total Deferred Outflows of Resources 53,s11 37,923 l,7!§ Mil! ~!.4115 48,240 ~n1.,n! Total Assets and Defam,d Outflows of Resources $ 7,520,686 $ 38,374,265 $ 486,524 $ 9,948,648 $ 72,722,947 $ 27,271,263 $ 158,326,333 UABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION CURRENT UABILITIES Accounts and Contracts Payable $ 387,943 60,586 $ 116,590 $ 543 $ 3,205,838 $ 129,059 $ 3,900,539 Accrued Salarloo Payable 22,096 14,330 686 2,370 138,648 21,733 199,863 Due to Other Governments 80,920 159,286 2,358 242,564 Due to Other Funds 538 1,583 906 682,318 35,955 901,280 Unearned Revenue 3,421 3,000 100,952 107,373 Accrued Interest Payable 101,502 282,496 13,063 397,081 Customer Deposits Payable 684,299 151,225 1,035,524 Compensated Absences Payable 28,149 20,601 2,527 358,161 36,587 448,005 Notes Payable 203,852 203,952 Bonds Payable 430,000 924,000 Total Current Liabilities 522,529 627,537 118,839 6,346 7,021,998 271,000 1,625,000 761,912 9,059,161 NONeURRENT LIABILITIES Compensated Absences Payable 23,691 16,976 4,693 45,360 Olher Poatemploymont Banefits 47,117 40,366 6,731 174,950 Net Pension Liability 507,623 355,395 17,450 60,730 2,458,809 42,822 312,006 Notes Payable 415,740 418,155 3,816,162 Bonda Payable 7,930,000 20,080,411 415,740 Total Noncurrent Liabilities 578,431 8,342,757 17,450 72,154 23,127,910 602,625 28,613,036 Total Liabilities 1,100,960 8,970,294 136,289 78,500 30,149,908 1,063,602 33,202,304 DEFERRED INFLOWS OF RESOURCES 1,625,514 42,261,485 Pension Related 107,514 75,273 3,696 12,863 520,934 OPEB Related 5,580 4,783 797 88,042 808,322 113,094 80,058 3,696 13,660 520,934 11,160 NET POSITION 88,042 819,482 Net Investment in Capital Aaaats 1,573,831 24,062,036 9,164,648 31,173,643 Reatricted 1,261,359 18,352,674 84,327,032 Unresbicted 4,732,801 5,261,879 346,539 691,640 9,617,103 1,261,359 Total Net Position 6,308,632 29,323,915 348,539 9,858,486 42,052,105 7,005,033 27,656,995 Total Liabilities, Deferred Inflows of 25,357,707 113,245,366 Reaources, and Net Position $ 7,520,666 36,374,265 $ 486,524 9,948,648 $ 72,722,947 $ 27,271,263 $ 156,326,333 See accompanying Notes to Basic Financial Statements. 164 IV-17 CITY OF ELK RIVER STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION -PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2019 Municipal Liquor Sewer Garbage Storm water Elecbic Water Totals SALES AND COST OF SALES Sales $ 7,614,986 $ $ $ $ $ $ 7,614,986 Cost of Sales (5,399,897) !5,399,8971 Gross Profit 2,215,089 2,215,089 OPERATING REVENUE User Charges 2,188,671 1,643,598 510,598 37,640,985 2,235,222 44,219,074 Delinquent Collections 1,079 1,517 291 254,553 17,865 275,305 Other 2,804 193,446 199,095 50,583 445,928 Total Operating Revenue 2,804 2,383,196 1,645,115 510,889 38,094,633 2,303,670 44,940,307 OPERATING EXPENSES Personnel Services 899,750 637,909 29,377 101,695 3,199,774 682,215 5,550,720 Supplies 41,527 213,686 19,152 1,523 131,546 279,751 687,185 Purchased Power 24,851,301 24,851,301 Other Service Charges 307,954 809,763 1,407,953 464,233 3,516,207 561,336 7,067,446 Depreciation 123,286 1,644,459 457,477 2,856,258 1,147,149 6,228,629 Total Operating Expenses 1,372,517 3,305,817 1,456,462 1,024,928 34,555,086 2,670,451 44,365,281 OPERATING INCOME (LOSS) 845,376 (922,621) 188,633 (514,039) 3,539,547 (366,781) 2,770,115 NONOPERATING REVENUE (EXPENSES) Connection and Other Fees 713,170 713,170 Investment Earnings 221,617 235,105 10,628 39,636 159,014 38,097 704,099 Interest Expense (244,805) (643,159) (32,939) (920,903) Intergovernmental Grants 1,200 1,200 Gain (Loss) on Disposal of Capital Asset 8,280 (2,050) 6,230 Miscellaneous Revenue 568,635 248,960 817,595 Total Nonoperating Revenue (Expenses) 221,617 711,750 11,828 39,638 82,440 254,118 1,321,391 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS 1,066,993 (210,871) 200,461 (474,401) 3,621,987 (112,663) 4,091,506 Capital Grants and Contributions 135,764 428,662 564,426 Transfers Out !714,8551 !150,0001 !46,0001 !15,0001 !1,157,4451 (2,085,300) Total Contributions and Transfers (714,855) (150,000) !48,0001 (15,000) (1,021,681) 428,662 (1,520,874) CHANGE IN NET POSITION 352,138 (360,871) 152,461 (489,401) 2,600,306 315,999 2,570,632 NET POSITION Beginning of Year 5,954,494 29,684,786 196,078 10,345,889 39,451,799 25,041,708 110,674,754 End of Year $ 6,306,632 $ 29,323,915 $ 348,539 $ 9,856,488 $ 42,052,105 $ 25,357,707 $ 113,245,366 See accompanying Notes to Basic Financial Statements. 165 IV-18 CITY OF ELK RIVER STATEMENT OF CASH FLOWS -PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2019 Municipal Li9uor Sewer Ga!!!!l!e CASH FLOWS FROM OPERATING ACTIVITIES Cash Receipts from Customers $ 7,618,227 $ 2,455,025 $ 1,638,122 Cesh Paid to Suppliers (5,747,059) (997,567) (1,432,616) Cash Paid to Employees (838,427) (599,400) (26,403) Other Receipts Net Cash Provided (Used) by Operating Activities 1,032,741 858,058 179,103 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTMTIES Connection Fees Received 713,170 Principal Payments on Bonds (420,000) Interest Payments on Bonds (248,305) Principal Payments on Promissory Note Acquisition of Capital Assets (38,883) (130,855) Proceeds from Sale of Capital Assets 8,280 Net Cash Provided (Used) by Capital and Related Financing Activities (38,883) (77,710) CASH FLOWS FROM INVESTING ACTMTIES Interest Received on Investments 210,ne 231,836 9,770 CASH FLOWS FROM NONCAPITAL FINANCING ACTMTIES Other Revenue 1,200 Transfers Out (714,855) (150,000) (46,000) Repayment Received on Advances to Other Funds Receipts from Borrowings from Othe Funds Net Cash Provided (Used) by Noncapltal Financing Activities (714,855) (150,000) (46,800) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 498,779 861,964 142,073 Cesh and Cesh Equivalents -Beginning of the Year 4,150,475 4,383,en 201,306 CASH AND CASH EQUIVALENTS -END OF THE YEAR $4,649,254 $ 5,245,861 $ 343,379 See accompanying Notes to Basic Financial Statements. StonnWater Electric Water Total $ 508,876 $ 37,495,498 $ 2,379,526 $ 52,095,274 (502,979) (29,007,568) (853,238) (38,541,027) (91,337) (2,618,202) (629,176) (4,802,945) 515,237 246,901 762,138 (85,440) 6,384,965 1,144,013 9,513,440 428,662 1,141,832 (940,000) (280,000) (1,820,000) (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) 39,017 153,140 36,624 689,983 1,200 (15,000) (1,157,445) (2,085,300) 5,990 439 6,429 68,173 12,357 80,530 (15,000) (1,083,282) 12,796 (1,997,141) (61,423) 883,834 974,234 3,279,481 791,886 15,279,447 6,718,151 31,525,142 $ 730,463 $ 16,143,281 $ 7,692,385 $ 34,804,623 166 IV-19 CITY OF ELK RIVER STATEMENT OF CASH FLOWS -PROPRIETARY FUNDS (CONTINUED) YEAR ENDED DECEMBER 31, 2019 Municipal Li9uor Sewer Garbage RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income (Loss) $ 845,376 $ (922,621) $ 188,633 Adjustments to Operating Income (Loss): Other Revenue Related to Operations Noncash Expenses Included in Net Income: Depreciation 123,286 1,644,459 Change in Assets, Deferred Outflows, Liabilities, and Deferred Inflows: (Increase) Decrease in: Accounts Receivable 71,829 1,499 Prepaid Items Inventory (30,052) Due from Other Funds (6,862) (8,492) Deferred Outflows Related to Pensions 37,031 29,959 1,230 Deferred Outflows Releted to OPEB (87) 451 Increase (Decraase) In: Accounts Payable 21,433 32,729 (5,549) Accrued Salaries Payable 5,545 1,705 139 Due to Other Funds 15 38 Due to Other Governments 10,938 Deposits Payable Unearned Revenue 437 Compensated Absences Payable (20,496) 5,259 Other Postemployment Benefits (4,621) (3,961) Net Pension Liability 64,187 24,525 2,426 Deferred Inflows Releted to Pensions (20,236) !19,429) (821) Net cash Provided (Used) by Operating Activities $ 1,032,741 $ 858,058 $ 179,103 See accompanying Notes to Basic Financial Statements. Storm Water Electric Water Total $ (514,039) $ 3,539,547 $ (366,781) $ 2,770,115 580,463 248,960 829,423 457,477 2,856,258 1,147,149 6,228,629 138 (593,372) 28,964 (490,942) 19,453 2,221 21,674 (177,027) 5,471 (201,608) (2,151) (17,505) 4,507 279,368 56,948 409,043 (232) 132 (28,861) (86,123) 42,461 (3,910) 478 21,898 450 30,215 (8,362) (8,309) 9,479 (505) 19,912 (62,161) 40,950 (21,211) 3,000 3,663 7,320 1,378 15,955 (15,178) (13,082) (660) 92,537 24,663 107,958 7,294 26,450 (36,233) 66,649 (2,407) !160,760) (39,410) (243,063) $ (85,440) $ 6,384,965 $ 1,144,013 $ 9,513,440 167 IV-20CITY 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. 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. 168 IV-21CITY 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 Genera/ 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 Stonn 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. 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. 169 IV-22CITY 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 $ 1 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. 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. 170 IV-23CITY 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 iterns 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: Buildings and Improvements Other Park Improvements Machinery and Equipment Public Domain Infrastructure System Infrastructure Asset O. Deferred Outflows/Inflows of Resources 10 to 40 Years 10 to 20 Years 3 to20Years 15 to 50 Years 4 to 50Years 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 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 0. 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-Tann 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. 171 IV-24CITY 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, granters 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. 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 lastiy 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, granters, 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. lnterfund 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." 172 IV-25CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 STEWARDSHIP AND ACCOUNTABILITY NOTE3 A. Deficit Fund Balance The following funds had deficit fund balances at December 31, 2019: Capital Projects Funds: Park Dedication TIF Districts Fund DEPOSITS AND INVESTMENTS A. Components of Cash and Investments Fund Balance $ (208.560) (2,229,030) Cash and investments are presented in the financial statements as follows: Statement of Net Position: Cash and Investments Restricted Cash and Investments Cash and Investments -Discrete CU Total B. Deposits Primary Government $ 92,196,460 1,261,359 i 93457 812 Component Total Primary Unit-HRA ....Q2_vandCU $ $ 92, 196,460 1,261,359 831,014 831,014 ! 8311014 ! 94 288,833 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 "AA" 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. 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 collateralization levels of 110% of the market value of the principal and accrued interest. At year-end, the carrying amount of the City's deposits was $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. 173 IV-26CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) The City has the following investments at year-end: Investments Measured at Fair Value 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 UBS Select Prime Institutional Money Market Minnesota Municipal Money Market (4M Fund) other Money Market Funds Total Investments Measured at Amortized Cost Primary Government Fair Value $ 12.561,268 1,327,779 1,501,680 500,375 19,205,047 $ 35;oes, 149 Amortized Cost $ 31,921,263 4,999,942 32,846 $ 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 lnvealmentll: -Nagotiable Certlllcatel of Depoall: Fedelal Homa Loan Bank Fedenll National Mortgage Aeeociation Federal Farm Credit Bank Bond Municlpll1Bondll UBS Select Pl'ffle lnltllutlonal Money Market Minneaota Municipal Money Market (4M Fund) Other Money Market Funds Totall111181tments Mab.I~ Duration In Yea111 ____!2!!!..._ ~ __ ,_.,_._ ~ ~ ~ S 12,561,268 S 3,840,493 S 7,939,175 S 981,800 $ Nat:Raled 1,327,779 1,327,779 AA+/Aaa 1,501,680 500,37!5 19,205,047 501,500 1,537,004 31,921,283 24,378,878 1,000,180 500,375 15,525,359 2,142,684 7,544,587 4,999,942 4,999,942 ~ ~ ---------· ----· $ 72,080,200 $ 30,088,519 $ 24,985,089 $ 4,452,063 $ 12,544,529 ==== ===---= ====-AA+/,.._ AA+/-AA-"AAA ........ ........ NotRnd CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) Custodia! 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: Minnesota Municipal Money Market (4M Fund) Fair Value Measurements $ 4,999,942 Percent of Total Value 6.94% 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. 174 IV-27CITY 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 Certlllcate• of Oeposit 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 1 ! Lavel2 ~288 1,327,779 1.501,880 500,375 19.205,047 s a5i0e5i14e~ Level 3 Total $ 12.581,268 1,327,779 1,501,680 500,375 19,205,047 35,098,149 38,954,051 $ 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 ~ %. Notes receivable of $400,000 in the HRA is outstanding at December 31, 2019. 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 PRIMARY GOVERNMENT ~ Governmental Activities: Cspital ABsn, Not Being Oeorecialed: Land s 40,927,633 Construction in Progress Total Capital Assets, Not Being Depreciated 40,927,633 Capital Assets, Being Depreciated: Buildings 45,048,097 Other Improvements s.ss1.m Equipment 13,849,140 1-.. 70,437,858 Total capital Allets, Being Depreciated 135,892,888 Accumulated Depreciation for: Buildings (22,034,934) other lmproyements (4,248,020) Equipment (9,385,328) lnfraetructure (48,597,889) Total Accumulated Depreciation (82,245,949) Total Capital Assets, Being Depreciated, Net 53,648,917 Governmental Activities Capital Assets, Net $ 94,574,550 Beginning PRIMARY GOVERNMENT Balance BusineM-Type Activttlea: Cspital -. Not Balng Oepioclaled: Land $ 1,843,en Construction in Progress 487,470 Total Cspital ABsn, Not Being -aled 2,311,447 Cspital ABsn, Being Depreciated: Buildings and Improvements 27,345,582 Equipment 11,338,300 Intangible A888l8 23,279,955 Collection and Dlsbtbution 129,022,079 T olal Capital Aaaets, Being Depreciated 190,985,916 Accumulated Depreciation for: Buildings and Improvements (9,323,326) Equipment (3,814,487) Intangible Assets (165,883) Collection and Disbibution (82,392,784) Total Accumulated Depreciation (75,-,492) Total Capital Assats, Being Oepraclalad, Net 115,489,424 Buaineu-Type Activities capital AaHts, Net $ 117,800,871 Additions $ 18,548 12,883,985 12,902,533 42,054 993,972 2,572,214 3,608,240 (1,380.197) (244,331) (843,224) !2,898,939) !"· 184,691 ! (1,558,451) $ 11,346,082 ~reasas 2,058,385 2,058,385 27,086 545,547 834,184 1,686,064 3,092,861 (904,807) (718,531) (888,134) (3,939,157) (8,228,829! !3,135,768) s c1.on.403) Deletions (92,224) (544,843) (1,693,087) (2,529,954) 92,224 513,382 1,838,858 2,444,462 (65,492) (65,492) DecreBses ~ (1,514,127) (258,491) (201,842) (480,133) 221,919 187,178 409!097 (51,038! (1,565,163} Ending Balance 40,948,181 12,883,985 53,830,188 44,997,927 e,ss1,n1 14,298,489 71,116,985 136,971,152 (23,322,907) (4,492,351) (9,895.188) (47,455,752) (84,988.178) 52,004,974 ~ Ending Balance 1,843,en 1,011,708 2,855,885 27,372,648 11,625,356 24,114,139 130,506,501 ~ (10,228.135) (4,109,109) (834,017) (BB, 144,783) (81,318,024) 112,302,620 ~ 175 IV-28NOTES CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 CAPITAL ASSETS (CONTINUED) Beginning COMPONENT UNIT Balance ,,,_ Capital Aasets, Not Being Oepreci-: I.and $ 257,100 $ Capital Aasets, Being Oepreci-: Other Improvements 174,290 Accumulated Depreciation for: other Improvements (70,683) (11,619) Total Capital Assets, Being Depreciated, Net 103,807 !11,619) Component Unit Capital Aaeela. Nat $ 360,707 $ (11,619) Ending -~ $ $ 257,100 174,290 (62,302) 91,988 $ ~068 Depreciation expense was charged to functions/programs of the primary government and component unit as follows: Governmental Activities: General Government Public Safety Public Works Culture and Recreation Total Depreciation Expense, Governmental Activities Business-Type Activities: Electric Water Sewer Storm Water Liquor Total Depreciation Expense, Business-Type Activities Component Unit: Housing and Redevelopment Authority $ 154,687 640,384 3,326,685 1,042,935 $ 5,164,691 $ 2,856,258 1,147,149 1,644,459 457,477 123,286 $ 6,228,629 $ 11,619 NOTE6 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 General General General Receivable Fund Pavement Management Nonmajor Governmental Funds Nonmajor Governmental Funds Sewer Sewer Garbage Storm Water Electric Electric Electric Water Pa}'.!!_ble Fund Nonmajor Governmental Funds Electric Water Electric Nonmajor Governmental Funds Electric Nonmajor Governmental Funds Electric Electric Electric Sewer Garbage Storm Water Nonmajor Governmental Funds Amount $ 11,674 221,996 35,955 276,727 1,753,878 1,646 171,800 180,405 138,531 43,013 538 1,563 906 128,850 $ 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 En~ Primary Government -General Fund Component Unit -HRA Payable Entity Component Unit -HRA Nonmajor Governmental Funds Amount $ 17,020 196,105 $ 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. lnterfund Transfers Fund Governmental Funds: General Fund Nonmajor Governmental Funds Total Transfer In Transfer Out $ 1,891,045 $ 569,813 1,397,893 633,825 $-3,288,938 $ 1,203,638 176 IV-29CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 6 INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS (CONTINUED) lnterfund Transfers (Continued} Proprietary Funds: Municipal Liquor Sewer Garbage Storm Water Electric Total Fund Transfer In $ I Transfer Out $ 714,855 150,000 48,000 15,000 1,157,445 $ 2,085,300 lnterfund 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 Activitiee: General Obfigation Bonda Payable: G.O. Capital Improvement Bonds 2010A G.O. Capita! Improvement Bonds 2012A EDAG.O. Refunding Bonds2013A G.O. Sales Tax Revenue Bonds, Series2019A Total General Obligation Bonds Unamortized Bond Premiums Compensated Absenoas Total Governmental Activitiee Final M ... rity ~____E!!!_ 04/21/10 02/01/23 03/15112 02/01/33 02/12/13 02/01/33 09/19119 12/01/44 Original lsaue ~ $ 6,105,000 2.Q0..4.00% 6,975,000 1.00-2.50% 9,685,000 2.Q0-3.00% 32,715,000 2.50-6.00% $ $ Balance-EndofYear 2,140,000 5,160,000 6,666,000 32,715,000 48,680,000 3,511,113 1,607,604 53~798,717 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) Final Maturity ~____E!!!_ ~ lntereetRate Business-Type Activities: General Obligation Ravanue Bonda: G.0. Water Revenue Refunding Bands2006A G.O. Capital Improvement: Bonds 2010A G.O. Sawer Revenue Bonda 20148 Total General Obligation Revenue Banda Revenue Bonda Electric Revenue Bonde, Series 2016A Electric Revenue Refunding Bonds 20168 Electric Revenue Bonda, Series 2018A Total Revenue Bonds Total Bonds Unamortized Bond Premiums Notes Payable Compensated Absences Total Buainese-Type Activitiee 02/20/06 02/01122 $ 3,085,000 2.75-3.65% 04/21/10 06/01123 1,285,000 2.00-4.00% 08/21/14 02/01135 2,620,000 2.00-3.00% 07/14116 02/01136 9,755,000 2.Q0..4.00% 07/14116 02/01122 1,370,000 2.Q0..4.00% 09/26/18 06/01148 10,000,000 3.50-6.00% $ $ Balance-End of Year 760,000 455,000 8,360,000 9,595,000 9,345,000 705,000 e,ns,ooo ~ 29,420,000 816,036 619,692 491,365 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. 177 IV-30CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 7 LONG-TERM DEBT (CONTINUED) A. Components of Long-Tenn 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-Tenn Debt Long-term liability activity for the year ended December 31, 2019 was as follows: PRIMARY GOVERNMENT Governmental Aclivllln: General Obligation Bond1 General Obligation Sales Tax ............. Unamortized Bond Premiums Tota1Bonda Payable Compen--Total Governmental Adlvltlea Buelneee-Type Actlvtles: General Obllgatlon Revenue Bonds Revenue Bonds Unamortlad Bond Premiums Talal Bonda Payable Note from Direct Borrowing • Generator Nole Compenaaled Abaencea TotalBustnea.-TypeActivllle8 Total Prmary Govemment Beginning End of Due Within ~~~~~ $ 17,280,000 $ (1,315,000) $ 15,985,000 $ 1,350,000 32,716,000 32,715,000 560,000 ~~~~-----17,832,016 35,148,615 (1,390,418) 62,191,113 1,900,000 ~~~~~ 19,211,983 38,594,583 (2,007,829) 53,798,717 2,544,219 10,355,000 (780,000) 9,595,000 786,000 20,685,000 (880,000) 19,825,000 840,000 __S!!!... ----· ~ ~ -----31,910,336 (1,672,300) 30,238,036 1,625,000 820,608 (200,916) 819,692 203,952 ~~~~~ ~~~~~ ~ ~ $ (4,128,226) $ 85,147,810 ~ C. Future Minimum Debt Payments Annual debt service requirements to maturity for long-term obligations are as follows: Prima!} Government -Governmental Activities G.O. Bonds G.O. Sakts Tax Revenue Bonda Yy[ l;mtiag ggam!l!t 31 Principal Interest Prlncil?!I Interest 2020 $ 1,350,000 $ 388,883 $ 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 1.470,000 272.182 890,000 1,029,337 2024 925,000 242,563 935.000 984,838 202SC2D29 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 1.836.244 2040-2044 8,815,000 782,400 Total $_ 15,965,000 $ 2,725,820 $ 32,715,000 $ 15,271.674 CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 7 LONG-TERM DEBT (CONTINUED) NOTES C. Future Minimum Debt Payments (Continued) Yaar Eodine Ptcmabec 31 2020 2021 2022 2023 2024 2026-2029 2030-2034 2035-2039 204().2044 2045-2049 Total FUND BALANCES Primary Government -Buslnees-Type Activities G.O. Revenue Bonde Revenue Bonds Notes Payable Principal lntereat Prtnclpal Interest Principal Interest $ 785,000 ~ $ 840,000 $652,431 ~ -.---810,000 258,875 885.000 621,431 208,818 835.000 233,933 900.000 589.081 209.124 580,000 214,016 680.000 560.531 485,000 200,018 705,000 535,906 2,520,000 801,013 3,905,000 2,320.556 2,945.000 371,337 4,515,000 1.711.981 855,000 11.483 3,160,000 1,016,081 2,200,000 611,656 2,055,000 ~--------$ 9.595,000 $ 2,367.458 $ 19.825.000 ~ $ 619,692 $ At December 31, 2019, a summary of the governmental fund balance classifications is as follows: Other Active ER Pavement Governmental General Fund Pr2i!!!!! Ma~ment Funds ---I!!!!! Nonspendabla Prepaidllafns $ 167,305 $ $ $ 82.017 ~322 Reetrlctedfor: Debt Service $ $ $ $ 2.206,522 $ 2.206,522 Park and Recreation Improvements 24.554,769 388,424 24,941,193 Landfill Mitigation 47,334 47,334 Economic Development 1,319.263 1,319,263 Law Enforcement 34,368 34,368 TotalRestriclad $ i 241554i769 $ $ 319931911 $ 28,548,680 Committed for: Library Operations $ $ $ $ 420,691 $ 420.691 Ice Arena 584,881 584,881 Economic Development 4,876,393 4,876,393 Insurance Reserve 46.ns 46,ns Street Improvements 4,253,959 4,253,959 Total Committed $ $ $ 4,253,959 $ 5.928.741 $ 10,1a2i700 Assigned for: LandfillMitlgaoon $ $ $ $ 947,217 $ 947,217 Law Enforcement 3,687 3,887 Economic Development 619,845 619,645 Capital Equipment 1,582,971 1,582,971 Building Construction/Improvements 2,695,583 2,695.583 street Improvements 787,544 787.544 Other Improvement Projects 6.398,880 6,398,880 Park Improvements 142,050 142,050 Total Assigned $ ii $ i 1311111sn s 13,1n1sn 178 IV-31CITY 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 1 O 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. 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 redu~d 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. 179 IV-32CITY 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. 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) 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: Deferred Deferred Outflows of Inflows of ~ Resources Resources Differences Between Expected and Actual Economic Experience $ 231,839 $ 1.403 Changes in Actuarial Assumptions 4,266 638,392 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 823,096 Changes In Proportion and Differences Between City Contributions and Proportionate Share of Contributions 162,714 226,862 City Contributions Subsequent to the Measurement Date 394,900 Totel $ 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 Ending December 31. 2020 2021 2022 2023 Pension Expense Amount $ (407,197) (750,741) (145,860) 12,884 180 IV-33CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 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: Deferred Deferred Outflows of Inflows of Description Resources Resources -Differences Between Expected and Actual Economic Experience $ 1,538 $ Changes In Actuarial Assumptions 4,363 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 5,626 Changes in Proportion and Differences Between City Contributions and Proportionete Share of Contributions 1,241 1,770 HRA Contributions Subsequent to the Measurement Date 2,754 Total $ 5,533 ""i_ ___ 1_1,759 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: Year Ending December 31 2020 2021 2022 2023 2. PEPFF Pension Costs Pension Expense Amount $ (2,907) (5,201) (960) 88 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, 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: Deferred Deferred Outflows of Inflows of Description Resources Resources Differences Between Expected and Actual Economic Experience $ 143,516 $ 514,489 Changes in Actuarial Assumptions 2,804,954 3,794,824 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 703,997 Changes in Proportion and Differences Between City Contributions and Proportionate Share of Contributions 478,419 116,281 City Contributions Subsequent to the Measurement Date 312,468 Total l 3,739,357 $ 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: Year Ending December 31 2020 2021 2022 2023 2024 Pension Expense Amount $ (82,109) (344,552) (1,314,793) 4,837 33,915 181 IV-34CITY 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 Active Member Payroll Growth Investment Rate of Return 2.50% per year 3.25% per year 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. 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: Domestic Equity International Equity Fixed Income Private Markets Cash Equivalents Total F. Discount Rate Asset Class Target Allocation 35.5% 17.5 20.0 25.0 2.0 100% Long-Term Expected Real Rate of Return 5.10% 5.90 0.75 5.90 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 Llablllty 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: One Percent One Percent GERF PENSION LIABILITY Decrease in Current Increase in Discount Rate Discount Rate Discount Rate Description (6.50%! !7.50%! (8.50%! City's Proportionate Share of the GERF Net Pension Liability $ 13,115,086 $ 7,977,792 $ 3,735,963 HRA's Proportionate Share of the GERF Net Pension Liability $ 91,245 $ 55,520 ~992 182 IV-35CITY 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 ~ City"s Proportionate Share of the PEPFF Net Pension Liability H. Pension Plan Fiduciary Net Position One Percent Decrease in Discount Rate (6.50%) $ 7,388,289 Current Discount Rate (7.50%) $ 3,380,110 One Percent Increase in Discount Rate (8.50%) ! 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 Percentage of Covered Payroll Employee Employer Employee Employer $ 1,380 $ 1,380 5.0% 5.0% Required Rates 5.0% 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. 183 IV-36CITY 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 Total $ i Deferred Outflows of Resources 186,060 228,434 30,000 444,494 Deferred Inflows of Resources $ 115,462 I 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 Ending 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 Aller 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-tenn 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. 184 IV-37CITY 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: Domestic Equity International Equity Fixed Income Asset Class Real Estate and Alternatives Cash and Equivalents Total F. Discount Rate Allocation at Measurement Date 43.00 % 9.00 26.00 4.00 18.00 100.00 % Long-Term Expected Real Rate of Return 4.95% 5.24 1.99 4.19 0.58 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: Description Defined Benefit Plan One Percent Decrease in Discount Rate (4.25%) $ (127.291) Current Discount Rate (5.25%) $ (205.427) One Percent Increase in Discount Rate (6.25%) $ (281.626) 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 P-lon Llablllty Service Cost Interest Assumption Changes Plan Changes Differences Between Expected and Actual Experience Gainor loss Benefit Payments Other Changes Nat Change In Total Pension Llablllty Total '-Ion Llablllty-Beginning Total Pension Llablllty -Ending (a) Fiduciary Nat Poaltlon Municipal Contributions S-Contributions Nat Investment Income Net Gain or Loss on lnvestmenlB Benefit PaymenlB Administrative Expenses Other Changes Nat Changa In Fiduciary Nat Position Fiduciary Nat Position -Beginning Fiduciary Nat Poaltion -Ending (b) Association's Nat Poaltion Llablllty/ (Asset) -Ending (a) -(b) $ 107,610 146,432 39,541 645,281 (14,808) (334,581) 589,475 2,606,316 $3,195,791 $ 30,000 189,502 62,812 (287,692) (334,581) (11,861) (351,820) 3,753,038 $3,401,218 $ (205,427) 185 IV-38CITY 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: Active Plan Members Active Plan Members Waiving Coverage Inactive Members or Beneficiaries Receiving Benefits Inactive Members Waiving Benefits Total Plan Members B. Funding Policy Municipal Retiree HealU, Plan 124 29 11 164 Utility Retiree HealUi Plan 39 9 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. CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) C. Total OPEB Liabillty 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 Dale: Measurement Date· Method• and Assumptions Used to Detarmina the Contibytion Batas· Actuarial Cost Method Amortization Method Amortization Period Inflation Healthcare cost trend rate Salary increases Discount rate Mortality C!\l QI Elk River January 1, 2019 January 1, 2019 Entry Age Level Pen:entage of Payroll, Closed Average of expected remaining service on a cloaed basis for diflerances 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% 3.60% RP-2014 White Collar Mortality Tables with MP-2018 Generational Improvement Scale (with Blue Collar edjustment for Police and Fire Personnel) Elk River Mi.mi_~!l!!!.!:!!ilttles January 1, 2019 Oecember 31, 2019 Entry Age Level Percentage of Payroll, Clceed Average of expected remaining service on a dosed basis for dlfferencea 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 ral9s used In the July 1, 2018 PERA of Minnesota Retirement Plan actuarial valuation to reflect recently-published tables. 3.71% RP-2014 Mortality Tablea wtth projected mortality improvements be!l8d on scale MP-2017, and olher 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. 186 IV-39CITY 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 Retiree Health Plan 916,510 $ 44,470 31,024 (87,455) (42,048) (27,862) (81,871) 834,639 $ Utility Retiree Health Plan 100,572 12,750 3,751 (3,832) 104531 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. 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: One Percent One Percent Decrease Discount Rate Increase (2.80%) (3.80%) (4.80%) City Total Opeb Liability (Asset) $ 895,616 $ 8341639 $ 777882 One Percent One Percent Decrease Discount Rete Increase (2.71%) (3.71%) (4.71%) Utility Total OPEB Liability (Asset) $ 237,862 $ 217,772 $ 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: One Percent Healthcare Cost One Percent Decrease Trend Rates Increase (5.50% (6.50% (7.50% Decreasing Decreasing to Decreasing to4.00%) 5.00%) to6.00%) City Total OPEB Liability (Asset) $ 758,823 $ 834,639 $ 922,753 One Percent Healthcare Cost One Percent Decrease Trend Retes Increase (5.40% (6.40% (7.40% Decreasing Decreasing to Decreasing to3.00%) 4.00%) toS.00%) $ 194,867 $ 217,772 $ 244,554 Utility Total OPEB Liability (Asset) 187 IV-40CITY 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 Total $ 1 Ci~ of Elk River Deferred Deferred Outflows of Inflows of Resources Resources $ 23,881 74,961 51,790 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 Ending December 31 2020 NOTE 13 OTHER INFORMATION A. Risk Management 2021 2022 2023 2024 Thereafter Total OPEB Expense Amount $ (16,475) (16,475) (16,475) (16,475) (16,474) (16,468) $ (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. 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. 188 IV-41CITY 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. 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. 189 IV-42CITY 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. CITY OF ELK RIVER SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS -MUNICIPAL RETIREES HEALTH PLAN DECEMBER 31, 2019 Total OPEB Liability: SarviceCost Interest Changes in Benefit Terms Changes in Assumptions Differences Between Expected and Actual Experience Benefit Payments Net Change in Total OPEB Liability Total OPEB Liability -Beginning Total OPEB Liablllty -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 $ $ $ $ 201_9 __ 44,470 $ 31,024 (27,862) (87,455) (42,048) (81.871) 916,510 834,639 $ 834,639 $ 0.00% 9,076,855 $ 9.20% 2018 58,939 30,051 (47,958) 41,032 875,478 916,510 916,510 0.00% 8,658,239 10.59% Nata: 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. Addltional 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 Inflation: Healthcare cost trend rate Salary increases Discount rate Mortality 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) • No assets were placed in a trust for the payment of OPEB. 190 IV-43CITY 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%. 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) 2018 11,084 3,526 4,509 117,200 19,119 100,572 81,453 ~ $ 100,572 217,772 $ 0.00% 3,547,495 $ 6.14% 100,572 0.00% 3,584,096 2.81% Note: The Utillties 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 Oecember 31, 2019 Methods and Assumptions Used to Detennine the Contibution Rates: Actuarial Cost Method Entry Age Amortization Method Level Percentage of Payroll, Closed Amortization Period Inflation: Healthcare cost trend rate Salary increases and Mortality Discount rate Average of expected remaining service on a closed basis for differences between expected and actual experience and assumption changes. 2.50% 6.40% as of January 1, 2019, gradually decreasing 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 Retirement Plan actuarial valuation to reflect recentiy-published tables. 3.71% • No assets were placed in a trust for the payment of OPEB. 191 IV-44CITY 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%. CITY OF ELK RIVER PERA SCHEDULE OF THE CllY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Primary Government: GERF 8cllldule ofa. Cllf9 Proportlondl st.N oftha Nit Pen.Ion Llablllly Ult:Sb:FINldY_., DECEMBER 31, 2019 --~ ~~~ Cly'sProportionof .. NetPenllonLiablllly Clty'1Proporllona18SIIIWoflheNl!ltPenalonu.bllly sta19'9ProporllonatlShareoflheNIIIP«llklnl.lllbllltv'AAodlltedwllhthaClty TotalNatPa'lllonLillllllyA'90dlted'MlhlheClly Clly'1Cove!8dPayroH Cly'sProportlorullllS1"'9oflheNIIIPenllonLllbllly••Pereenllilgaoflla c--PllnFklldalyNIIIPoailionnaPtin:antageofU.TolalPenllonLllblllty ·T11aAmountaPl9MlllldforEllchfllcalY .. -.Detemin8d•ofet30. PEPFFac........oftMClly'9Pf'OpOrtlclnat98tlM9oftfMllttPe .. 1onl.Jabllty l.Ntlk...._lY-• 0.1443'11, 7,971,792 ~ 8,2215,722 $ 10,216,960 "·""' "·'°" ~ City's Pn,portion of the Net Pension Liability 0.3175'11, ctly'sProportionaleSharaofthaNatf'enllorllillblllty $ 3,380,110 Slale'aP.roportlonDShanloftheNll:Penllonllllbay1181oehd9dwilhthllCNy -TabllNal:PalllDnl.JabilllyAlloclaladwilhthaClly ~ Cily'9CovenldPayroll S 3,352,444 Clly'sPn;,portionateS,,.,.oflheNetPenllDnUll:llllly•1Pert:enlllgeoflla CcwredP-,roll 100.SW PlanflduclaryNetP08111onnaP8Welllager:llheTotalPenllonl.labllty 89.30% *TheAmouraPreMllladforEachFlll:IIIYear-.iDatllrmin9dMof8130. 0.1444'11, S 8,oeo,6411 ~ 8.321,652 9,702,980 83.1ml, ,..,.,. 8/30/2018 ,.,...,. 3,245,656 -= 3.220,233 100.7ft. "·"" 0.115115% 9,811,(175 ,,. .... ~ 9,895,118 98.13% "·"" 0.143511. $ 11,651,488 ~ 11.803.681 8,902,000 130.lml, "·"" "-"""'""' ~~ $ 4.239,374 ~ 4,282,711 3,211,726 132.00'llt ""'"' '·""" $ 12,280,312 ~ 12,334,182 2,952,673 415.1111% 63.90'11, ~ --813M014 0.1438% 15.8700% 7,452,482 $ 7,454,830 --~ 7,.464,930 8,712,032 $ 8,332,282 815.54% 88.47% 78.20% 78.70'H, _ 8/30l'Z015 0.3040% 3,454,151 ~ 2.788.952 123.85% ""-"" ~ D.2990% 3,228,323 ~ 2,440,932 "'-""' 87.10'11, 192 IV-45Component Unit CITY OF ELK RIVER PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY (CONTINUED) DECEMBER 31, 2019 GERF Sc:hedule of the HRA'• Proportionate Share of the Net P-lon LJablllty LHtS11lFl9Cfl1Y .. rs" ~~~~ 813Wi6f5 ~ HRA's Proportion of the Net Pern1lon Llabllity HRA's Propodionate Share of the Net Pension Liability state's Pl"()portlonate Share of Iha Nel Pension Liability AsBOCiated with the HRA Total Nat Pen9Kl!l Liability Associated with Iha HRA HRA's Covered Payroll HRA's Proportionate Share ofthu Not Parraion Liability as a PBr08ntage of It$ Covered Payroll Plan FiducialyNetPosltlon ae a Percentage of the Total Pension Llablltty * The Amo1mt$ Presented tor Each Flscat Year were Determined as of 6/30. 0.0010% 55,520 1,725 ~ 66,193 83.68% 80.20% 0.0009% 51,835 1,696 ~ 62,692 82.42% 79.50% 0.0010% 0.0009% 0.0009% 60,586 $ 73,404 $ 46,951 1,170 959 ~~~ 61,433 S 56,083 $ 54,886 98.62% 130.88% 85.54% 75.90% 68.90% 78.20% 0.0010% 46,066 ~ 52,493 89.47% 78.70% CITY OF ELK RIVER NOTES TO PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY DECEMBER 31, 2019 NOTES TO PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY The following changes in plan provisions and actuarial assumptions 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. The following changes in actuarial assumptions occurred in 2018: General Employees Fund • The mortality projection scale was changed from MP-2015 to MP-2017. • The assumed benefit increase was changed from 1.00% per year through 2044 and 2.50% per year thereafter to 1.25% per year. Police and Fire Fund • The mortality projection scale was changed from MP-2016 to MP-2017. 193 IV-46CITY OF ELK RIVER NOTES TO PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY DECEMBER 31, 2019 The following changes in plan provisions and actuarial assumptions occurred in 2017: General Employees Fund • The State's special funding contribution increased from $6 million to $16 million. • The Combined Service Annuity (CSA) loads were changed from 0.80% for active members and 60.00% for vested and nonvested deferred members. The revised CSA loads are now 0.00% for active member liability, 15.00% for vested deferred member liability, and 3.00% for nonvested deferred member liability. • The assumed postretirement benefit increase rate was changed from 1.00% per year for all years to 1.00% per year through 2044 and 2.50% per year thereafter. Police and Fire Fund Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34% lower than the previous rates. • Assumed rates of retirement were changed, resulting in fewer retirements. The Combined Service Annuity (CSA) load was 30% for vested and nonvested deferred members. The CSA has been changed to 33% for vested members and 2% for nonvested members. The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees. • Assumed termination rates were decreased to 3.0% for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall. Assumed percentage of married female members was decreased from 65% to 60%. Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two years older than females. The assumed percentage of female members electing Joint and Survivor annuities was increased. CITY OF ELK RIVER NOTES TO PERA SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY DECEMBER 31, 2019 • The assumed postretirement benefit increase rate was changed from 1.00% for all years to 1.00% per year through 2064 and 2.50% thereafter. The Single Discount Rate was changed from 5.60% per annum to 7.50% per annum. The following changes in actuarial assumptions occurred in 2016: General Employees Fund • The assumed post-retirement benefit increase rate was changed from 1.00% per year through 2035 and 2.50% per year thereafter to 1.00% per year for all years. • The assumed investment return was changed from 7.90% to 7.50%. The single discount rate was changed from 7.90% to 7.50%. • Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, and inflation were decreased by 0.25% to 3.25% for payroll growth and 2.50% for inflation. 194 IV-47CITY OF ELK RIVER PERA SCHEDULE OF CITY CONTRIBUTIONS DECEMBER 31, 2019 Primary Government: GERF SChedu .. tit City Contrtbllllon, L.-tllxFl9calY..,. _______!21!.... --"'-'-'---"'-'-'---"'-"----"'-'-'-______!!!li.... statulori!rRflqulNNICClrmllullon • 7153,933 • 736,804 • 71)8,711 • eao.s11 • ....... • 8115,331 Contrllullons In Relallon to Ille Sllltularlly Requlrsl Conbibution i (75393~' (738~1$ (70611:1, 1eao.a1:1~i 1e15.33:1 Conb'Wlon Daficlancy ,~, Clty'8CoveladPay,oll • 10,052,440 • 9,824,053 • 9,422,813 • 9,210,813 • 8,915,107 • 8,487,324 COrtlrlNJllonl&II PeRl,ntagarACowr.d Peyro~ '·"" , .... '·""' , ..... '·""' '·"" •n,eAmoLnBPr...iedforEachFllcalYearwereDetermlnedaad12131. PEPFF Bchedule of C"1 ConbtbutiDM L.ptSb:FlacalYNnt" --"'-"----"-"----""-'--__ ,_,,, __ --""-'----"'-"--SlalutorllyRequndCOllll'INdlon • 631.494 • "'·"' • &08,774 • ,4911,478 • 478,192 • 418,280 Conlr1bullDnllnRelltlontotheSlalutorlyRequlredConlrtbullon $ (631,~) I (&33~) S (II087T~) $ ("491547! $ (4781~) $ (418~ ContrtbutlonDllflclllncyte-1 Clly'1COV81adPayroll • 3,725,828 • 3,291,951 • 3,140,580 • 3,058,508 • 2,961,802 • 2,581,975 COl'llrlbullonl&11Peroenbl119ofCo'o'811111Payroll ...... ,...,. ,.,.,. 18.20% """" """' "Th1Amounts"'-lledlorEa:hFilcalYear-DMlnninedncl12131. Component Unit: GERF Schedull of NRA Contl'lbutioM l.atSIIIFllcalYNN --"'-'-'---"'-"--__ .. _,_, ---"'-"--__ .,_,_. -__ ,._ .. __ stalullMiyRequndContrlbullon • .... • 4,810 ' 4,<114 • 4,302 • 4.212 • am Conlrllulona In Relation to the SlnilDflly Required Contrtbutlon s rn.o<01 s 1• "~I I 14'°? I 14 ~I s '"''.I I 1¥7'.1 COnlrllullonOelk:leney(Elloasa) HRA'I Cownd Paymll • .,.,.. • 64,133 • ...... • 58,027 ' 118,180 ' 113,476 Con1rRJu11grma1aPwclntllgllrACover9CIP.yroll , .... '·""' ,.. ... '·""' , .... 7.25% *TheAmountsP.-itedforEIICIIFlacalY .. _DelenM!ed&1ol12131. CITY OF ELK RIVER SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS DECEMBER 31, 2019 2019 2018 2017 2018 Total Pansk>n Liability Service Cost $ 107,610 $ 101,600 $ 107,095 $ 99,459 , ...... , 146,432 146,894 142,222 127,413 Differences Between Expected and Actual Experience (14,808) (147,992) Changes of Assumptions 39,541 11,196 297,706 Changes of Benefit Terms 645,281 55,532 Benefit Payments, Including Member Contribution Refunds (334,581) (147,015) (423,780) other Changes Net Change In Total Pension lie~il:y 589,475 259,690 9,842 100,816 Total Pension Uablllty-Beginning 21606,316 213461828 21338,784 2~1968 Total Pension Liablllty-Ending (a) 3,195,791 2,606,316 2,346,626 2,336,784 Plan Fiduciary Net Poa:Hion Municipal Contributions 30,000 30,000 30,000 30,000 StateConb1butlons 189,502 182,297 179,192 177,828 Net Investment Income (224,880) 457,331 229,424 (143,580) Benefit Payments (334,581) (147,015) (423,780) Administrative Expenses '11,963) ,12,907) ,12,884) ,13,863) Net Change in Fiduciary Net Position (351,922) 656,721 278,717 (373,177) Fiduciary Net Position -Beginning 3,753,140 3,096,419 21817,702 3,190,879 Fiduciary Net Position -Ending (b) 3,401,218 3,753,140 3,098,419 2,817,702 Aasociation's Ending Net Pension llabilil:y/(Alset) (a-b) $ ~05,427l $ !1,146,824~ $ ~49,793l $ ,480,918l Plan Fiduciary Net Posillon as a Percentage of Total Pension liability{b/a) 106.43% 144.00% 131.95% 120.58% Covered Payroll NIA NIA NIA NIA Net Pension Llabllllyl(Aaset) ae a Percentage of Covered Payroll NIA NIA NIA NIA *Ten Years of Data WIii Eventually Be Presented When Available ~ $ 93,312 126,522 62,318 282,152 1,953,814 2,235,966 30,000 164,825 124,109 l!,634! 310,300 2,880,579 3,190,879 s '254,913J 142.71% NIA NIA 195 IV-48 CITY OF ELK RIVER SCHEDULE OF CITY CONTRIBUTIONS -ELK RIVER FIRE RELIEF -LAST SEVEN YEARS DECEMBER 31, 2019 Actuarial Actual Contribution Year Determined Contributions Deficiency Endin!;! Contribution ~a} Paid (b) (Excess) (a-b) 12/31/2019 $ 198,424 $ 228,424 $ (30,000) 12/31/2018 189,502 219,502 (30,000) 12/31/2017 182,297 212,297 (30,000) 12/31/2016 179,192 209,192 (30,000) 12/31/2015 174,826 204,826 (30,000) 12/31/2014 164,825 194,825 (30,000) 12/31/2013 167,103 197,103 (30,000) *Ten Years of Data Will Eventually Be Presented When Available 196 PROPOSAL SALE DATE: May 11, 2021 ________________________________ Phone: 651-223-3000 * Preliminary; subject to change. Fax: 651-223-3046 Email: bondservice@bakertilly.com City of Elk River, Minnesota $1,750,000* General Obligation Water Utility Revenue Bonds, Series 2021C For the Series 2021C Bonds of this Issue which shall mature and bear interest at the respective annual rates, as follow, we offer a price of $_________________ (which may not be less than $1,729,000) plus accrued interest, if any, to the date of delivery. Year Interest Rate (%) Yield (%) Dollar Price Year Interest Rate (%) Yield (%) Dollar Price 2022 % % % 2032 % % % 2023 % % % 2033 % % % 2024 % % % 2034 % % % 205 % % % 2035 % % % 2026 % % % 2036 % % % 2027 % % % 2037 % % % 2028 % % % 2038 % % % 2029 % % % 2039 % % % 2030 % % % 2040 % % % 2031 % % % 2041 % % % Designation of Term Maturities Years of Term Maturities In making this offer on the sale date of May 11, 2021 we accept all of the terms and conditions of the Terms of Proposal published in the Preliminary Official Statement dated April 30, 2021 including the City’s right to modify the principal amount of the Series 2021C Bonds. (See “Terms of Proposal” herein.) In the event of failure to deliver these Series 2021C Bonds in accordance with said Terms of Proposal, we reserve the right to withdraw our offer, whereupon the deposit accompanying it will be immediately returned. All blank spaces of this offer are intentional and are not to be construed as an omission. By submitting this proposal, we confirm that we have an established industry reputation for underwriting municipal bonds such as the Series 2021C Bonds. Not as a part of our offer, the above quoted prices being controlling, but only as an aid for the verification of the offer, we have made the following computations: NET INTEREST COST: $____________________________ TRUE INTEREST RATE: ______________ % The Bidder  will not  will purchase municipal bond insurance from . Account Members ______________________________ Account Manager By: ___________________________ Phone: ________________________ ........................................................................................................................................................................................................................... The foregoing proposal has been accepted by the City. Attest: _______________________________ Date: ________________________________ ........................................................................................................................................................................................................................... 197 EL185-69-713323.v1 EXTRACT OF MINUTES OF MEETING OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION Pursuant to due call and notice thereof, a regular meeting of the Elk River Municipal Utilities Commission, was duly held in the Elk River Fire Station EOC Conference Room, 13073 Orono Parkway in said City on the 11th day of May, 2021, at 3:30 P.M., for the purpose, in part, of awarding the sale of $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C. The following members were present: and the following were absent: *** *** *** The President announced that the next order of business was consideration of the proposals which had been received for the purchase of the City’s $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C. The Finance Manager presented a tabulation of the proposals that had been received in the manner specified in the Terms of Proposal for the Bonds. The proposals were as set forth in Exhibit A attached hereto. After due consideration of the proposals, Member ___________________ then introduced the following resolution and moved its adoption. 198 EL185-69-713323.v1 2 Resolution No. 21-12 AWARDING THE SALE OF $1,750,000 GENERAL OBLIGATION WATER UTILITY REVENUE BONDS, SERIES 2021C FIXING THEIR FORM AND SPECIFICATIONS; DIRECTING THEIR EXECUTION AND DELIVERY; AND PROVIDING FOR THEIR PAYMENT. BE IT RESOLVED By the Elk River Municipal Utilities Commission (the “Commission”): Section 1. Background. 1.01 The City of Elk River, Minnesota (the “City”) is authorized by Minnesota Statutes, Chapters 444 and 475, as amended (the “Act”), to finance the construction of a field house facility to house service trucks, inventory, and offices of the Elk River Municipal Utilities (the “Utility Improvements”) by the issuance of General Obligation Water Utility Revenue Bonds of the City payable from the net revenues of the water utility system of the Commission. 1.02 The City is authorized by law to borrow money necessary to finance the Utility Improvements and to pay the related financing costs. It is necessary and expedient for the City forthwith to issue its General Obligation Water Utility Revenue Bonds, Series 2021C, in the principal amount of $1,750,000 (the “Bonds”). All costs of the Utility Improvements in excess of the proceeds of the Bonds available for payment of such costs shall be paid from any other funds legally available to the Commission for such purpose. 1.03 The City and the Commission have retained Baker Tilly Municipal Advisors, LLC (“Baker Tilly”), as its independent municipal advisor for the sale of the Bonds and are therefore authorized to sell the Bonds by private negotiation in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9) and proposals to purchase the Bonds have been solicited by Baker Tilly. Section 2. Sale of Bonds. 2.01 Authorization. It is hereby determined that it is necessary to provide financing for the Utility Improvements and to finance those Utility Improvements through the issuance of the Bonds. 2.02. Award to the Purchaser and Interest Rates. The proposal of _____________________, __________, __________ (the “Purchaser”) to purchase the Bonds is hereby found and determined to be a reasonable offer and is hereby accepted, the proposal being to purchase the Bonds at a price of $__________ (par amount of $1,750,000, plus original issue premium of $__________, less underwriter’s discount of $__________), plus accrued interest to date of delivery, if any, for Bonds bearing interest as follows: 199 EL185-69-713323.v1 3 Year of Maturity Interest Rate Year of Maturity Interest Rate 2022 % 2032 % 2023 2033 2024 2034 2025 2035 2026 2036 2027 2037 2028 2038 2029 2039 2030 2040 2031 2041 2.03. Purchase Contract. Any amount paid by the Purchaser over the minimum purchase price shall be credited to the Debt Service Fund hereinafter created, or deposited in the Construction Fund hereinafter created, as determined by the Finance Manager in consultation with Baker Tilly. The Finance Manager is directed to retain the good faith check of the Purchaser, pending completion of the sale of the Bonds. The President and Secretary are authorized to execute a contract with the Purchaser on behalf of the City and the Commission, if requested by the Purchaser. 2.04. Terms and Principal Amounts of the Bonds. The City and the Commission will forthwith issue and sell the Bonds pursuant to the Act, in the total principal amount of $1,750,000, originally dated as of the date of delivery in fully registered form and issued in denominations of $5,000 each or any integral multiple thereof, numbered No. R-1 and upward, bearing interest as above set forth, and maturing on August 1 in the years and amounts as follows: Year Amount Year Amount 2022 $75,000 2032 $ 85,000 2023 80,000 2033 85,000 2024 80,000 2034 90,000 2025 80,000 2035 90,000 2026 80,000 2036 95,000 2027 80,000 2037 95,000 2028 80,000 2038 95,000 2029 85,000 2039 100,000 2030 85,000 2040 100,000 2031 85,000 2041 105,000 As may be requested by the Purchaser, one or more term Bonds may be issued having mandatory sinking fund redemption and final maturity amounts conforming to the foregoing principal repayment schedule, and corresponding additions may be made to the provisions of the applicable Bond(s). 200 EL185-69-713323.v1 4 2.05. Optional Redemption. The City may elect on August 1, 2030, and on any day thereafter to prepay Bonds maturing on or after August 1, 2031. Redemption may be in whole or in part and if in part, at the option of the City and in such manner as the City will determine. If less than all Bonds of a maturity are called for redemption, the City will notify DTC (as defined in Section 7 hereof) of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant’s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. Prepayments will be at a price of par plus accrued interest. Section 3. Form; Registration. 3.01. Registered Form. The Bonds will be issued only in fully registered form. The interest thereon and, upon surrender of each Bond, the principal amount thereof is payable by check or draft issued by the Registrar described herein. 3.02. Dates; Interest Payment Dates. Each Bond will be dated as of the last interest payment date preceding the date of authentication to which interest on the Bond has been paid or made available for payment, unless (i) the date of authentication is an interest payment date to which interest has been paid or made available for payment, in which case the Bond will be dated as of the date of authentication, or (ii) the date of authentication is prior to the first interest payment date, in which case the Bond will be dated as of the date of original issue. The interest on the Bonds is payable on February 1 and August 1 of each year, commencing February 1, 2022, to the registered owners thereof of record as of the close of business on the 15th day of the immediately preceding month, whether or not that day is a business day. 3.03. Registration. The City, by the Commission, will appoint and will maintain, a bond registrar, transfer agent, authenticating agent and paying agent (the “Registrar”). The effect of registration and the rights and duties of the City and the Registrar with respect thereto are as follows: (a) Register. The Registrar will keep at its principal corporate trust office a bond register in which the Registrar provides for the registration of ownership of Bonds and the registration of transfers and exchanges of Bonds entitled to be registered, transferred or exchanged. (b) Transfer of Bonds. Upon surrender for transfer of any Bond duly endorsed by the registered owner thereof or accompanied by a written instrument of transfer, in form satisfactory to the Registrar, duly executed by the registered owner thereof or by an attorney duly authorized by the registered owner in writing, the Registrar will authenticate and deliver, in the name of the designated transferee or transferees, one or more new Bonds of a like aggregate principal amount and maturity, as requested by the transferor. The Registrar may, however, close the books for registration of any transfer after the 15th day of the month preceding each interest payment date and until that interest payment date. 201 EL185-69-713323.v1 5 (c) Exchange of Bonds. Whenever any Bonds are surrendered by the registered owner for exchange the Registrar will authenticate and deliver one or more new Bonds of a like aggregate principal amount and maturity as requested by the registered owner or the owner’s attorney in writing. (d) Cancellation. All Bonds surrendered upon any transfer or exchange will be promptly cancelled by the Registrar and thereafter disposed of as directed by the City. (e) Improper or Unauthorized Transfer. When a Bond is presented to the Registrar for transfer, the Registrar may refuse to transfer the Bond until the Registrar is satisfied that the endorsement on the Bond or separate instrument of transfer is valid and genuine and that the requested transfer is legally authorized. The Registrar will incur no liability for the refusal, in good faith, to make transfers which it, in its judgment, deems improper or unauthorized. (f) Persons Deemed Owners. The City and the Registrar may treat the person in whose name a Bond is at any time registered, as of the applicable record date, in the bond register as the absolute owner of such Bond, whether the Bond is overdue or not, for the purpose of receiving payment of, or on account of, the principal of and interest on the Bond and for all other purposes, and payments so made to a registered owner or upon the owner’s order will be valid and effectual to satisfy and discharge the liability upon the Bond to the extent of the sum or sums so paid. (g) Taxes, Fees and Charges. The Registrar may impose a charge upon the owner thereof for a transfer or exchange of Bonds, sufficient to reimburse the Registrar for any tax, fee or other governmental charge required to be paid with respect to the transfer or exchange. (h) Mutilated, Lost, Stolen or Destroyed Bonds. If a Bond becomes mutilated or is destroyed, stolen or lost, the Registrar will deliver a new Bond of like amount, number, maturity date and tenor in exchange and substitution for and upon cancellation of the mutilated Bond or in lieu of and in substitution for any Bond destroyed, stolen or lost, upon the payment of the reasonable expenses and charges of the Registrar in connection therewith; and, in the case of a Bond destroyed, stolen or lost, upon filing with the Registrar of evidence satisfactory to the Registrar that the Bond was destroyed, stolen or lost, and of the ownership thereof, and upon furnishing to the Registrar an appropriate bond or indemnity in form, substance and amount satisfactory to the Registrar Fand as provided by law, in which both the City, the Commission, and the Registrar must be named as obligees. Bonds so surrendered to the Registrar will be cancelled by the Registrar and evidence of such cancellation must be given to the Commission. If the mutilated, destroyed, stolen or lost Bond has already matured or been called for redemption in accordance with its terms it will not be necessary to issue a new Bond prior to payment. (i) Redemption. In the event any of the Bonds are called for redemption, written notice thereof identifying the Bonds to be redeemed will be given by the Registrar 202 EL185-69-713323.v1 6 by mailing a copy of the redemption notice by first class mail (postage prepaid) not less than 30 days prior to the date of redemption to the registered owner of each Bond to be redeemed at the address shown on the registration books kept by the Registrar and by publishing the notice if required by law. Failure to give notice by publication or by mail to any registered owner, or any defect therein, will not affect the validity of the proceedings for the redemption of Bonds. Bonds so called for redemption will cease to bear interest after the specified redemption date, provided that the funds for the redemption are on deposit with the place of payment at that time. 3.04. Appointment of Initial Registrar. The City appoints U.S. Bank National Association, St. Paul, Minnesota, as the initial Registrar. The President and Secretary are authorized to execute and deliver, on behalf of the City, a contract with the Registrar. Upon merger or consolidation of the Registrar with another corporation, if the resulting corporation is a bank or trust company authorized by law to conduct such business, the resulting corporation is authorized to act as successor Registrar. The City agrees to pay the reasonable and customary charges of the Registrar for the services performed. The City reserves the right to remove the Registrar upon 30 days’ notice and upon the appointment of a successor Registrar, in which event the predecessor Registrar must deliver all cash and Bonds in its possession to the successor Registrar and deliver the bond register to the successor Registrar. On or before each principal or interest due date, without further order of this Commission, there shall be transmitted to the Registrar, from amounts on hand in the Debt Service Account available therefore, an amount sufficient to pay all principal and interest then due on the Bonds. 3.05. Execution, Authentication and Delivery. The Bonds will be prepared under the direction of the Finance Manager and executed on behalf of the City by the signatures of the President and the Secretary and the Commission by the signatures of the Mayor and the Clerk, provided that those signatures may be printed, engraved or lithographed facsimiles of the originals. If an officer whose signature or a facsimile of whose signature appears on the Bonds ceases to be such officer before the delivery of any Bond, that signature or facsimile will nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. Notwithstanding such execution, a Bond will not be valid or obligatory for any purpose or entitled to any security or benefit under this Resolution unless and until a certificate of authentication on a Bond has been duly executed by the manual signature of an authorized representative of the Registrar. Certificates of authentication on different Bonds need not be signed by the same representative. The executed certificate of authentication on a Bond is conclusive evidence that it has been authenticated and delivered under this Resolution. When the Bonds have been so prepared, executed and authenticated, the Finance Manager will deliver the same to the Purchaser thereof upon payment of the purchase price in accordance with the contract of sale heretofore made and executed, and the Purchaser will not be obligated to see to the application of the purchase price. 3.06. Form of Bond. The Bonds will be printed or typewritten in substantially the form set forth in Exhibit B attached hereto. 3.07. Approving Legal Opinion. The Finance Manager is authorized and directed to obtain a copy of the proposed approving legal opinion of Kennedy & Graven, Chartered, 203 EL185-69-713323.v1 7 Minneapolis, Minnesota, which will be complete except as to dating thereof and will cause the opinion to be printed on or accompany each Bond. Section 4. Funds and Accounts; Security; Payment. 4.01. Debt Service Fund. For the convenience and proper administration of the moneys to be borrowed and repaid on the Bonds, and to provide adequate and specific security for the Purchaser and holders from time to time of the Bonds, there is hereby created a special fund to be designated the General Obligation Water Utility Revenue Bonds, Series 2021C Debt Service Fund (the “Debt Service Fund”). The Debt Service Fund shall be administered and maintained by the Finance Manager as a bookkeeping account separate and apart from all other funds maintained in the official financial records of the Commission. The Debt Service Fund will be maintained in the manner herein specified until all of the Bonds and the interest thereon have been fully paid. The Commission will continue to maintain and operate its Water Utility Fund, to which will be credited all gross revenues of the water utility system (the “Utility System”), and out of which will be paid all normal and reasonable expenses of current operations of such Utility System. Any balances therein are deemed net revenues (the “Net Revenues”) and will be transferred, from time to time, to the Debt Service Fund hereby created, which fund will be used only to pay principal of and interest on the Bonds, and any other bonds similarly authorized. There will be deposited in the Debt Service Fund from time to time sufficient amounts to pay principal of and interest on the Bonds when due, and the Finance Manager must report any current or anticipated deficiency in the Debt Service Fund to the City Council. If a payment of principal or interest on the Bonds becomes due when there is not sufficient money in the Debt Service Fund to pay the same, the Finance Manager is directed to pay such principal or interest from the general fund of the City, and the general fund will be reimbursed for the advances out of the proceeds of Net Revenues of the Water Utility Fund and taxes when collected. There is also appropriated to the Debt Service Fund (i) capitalized interest financed from the Bond proceeds, if any; (ii) any amount over the minimum purchase price of the Bonds paid by the Purchaser, to the extent designated for deposit in the Debt Service Fund in accordance with Section 2.03; and (iii) the accrued interest paid by the Purchaser upon closing and delivery of the Bonds, if any; (iv) all investment earnings on amounts in the Debt Service Fund; and (v) any other funds appropriated for the payment of principal or interest on the Bonds. 4.02. Construction Fund. The Commission hereby creates the General Obligation Water Utility Revenue Bonds, Series 2021C Construction Fund (the “Construction Fund”) to be administered and maintained by the Finance Manager as a bookkeeping account separate and apart from all other funds maintained in the official financial records of the City and the Commission. Proceeds of the Bonds, less the appropriations made in Section 4.01 hereof, together with any other funds appropriated during the construction of the Utility Improvements financed by the Bonds will be deposited in the Construction Fund to be used solely to defray expenses of the Utility Improvements. Any balance remaining in the Construction Fund, after the Utility Improvements are completed and the cost thereof have been paid, may be used as provided in Minnesota Statutes, section 475.65, under the direction of the City Council. Thereafter, the Construction Fund is to be closed and any balance remaining therein is to be deposited in the Debt Service Fund. 204 EL185-69-713323.v1 8 4.03. Commission Covenants. The Commission covenants and agrees with the holders of the Bonds that so long as any of the Bonds remain outstanding and unpaid, it will keep and enforce the following covenants and agreements: (a) The Commission will continue to maintain and efficiently operate the Utility System as public utilities and conveniences free from competition of other like municipal utilities and will cause all revenues therefrom to be deposited in bank accounts and credited to the Utility System accounts as hereinabove provided, and will make no expenditures from those accounts except for a duly authorized purpose and in accordance with this resolution. (b) The Commission will also maintain the Debt Service Fund as a separate account and will cause money to be credited thereto from time to time, out of Net Revenues from the Utility System in sums sufficient to pay principal of and interest on the Bonds when due. (c) The Commission will keep and maintain proper and adequate books of records and accounts separate from all other records of the Commission in which will be complete and correct entries as to all transactions relating to the Utility System and which will be open to inspection and copying by any bondholder, or the bondholder's agent or attorney, at any reasonable time, and it will furnish certified transcripts therefrom upon request and upon payment of a reasonable fee therefor, and said account will be audited at least annually by a qualified public accountant and statements of such audit and report will be furnished to all bondholders upon request. (d) The Commission will cause persons handling revenues of the Utility System to be bonded in reasonable amounts for the protection of the Commission and the bondholders and will cause the funds collected on account of the operations of the Utility System to be deposited in a bank whose deposits are guaranteed under the Federal Deposit Insurance Law. (e) The Commission will keep the Utility System insured at all times against loss by fire, tornado and other risks customarily insured against with an insurer or insurers in good standing, in such amounts as are customary for like plants, to protect the holders, from time to time, of the Bonds and the Commission from any loss due to any such casualty and will apply the proceeds of such insurance to make good any such loss. (f) The Commission and each and all of its officers will punctually perform all duties with reference to the Utility System as required by law. (g) The Commission will impose and collect charges of the nature authorized by Minnesota Statutes, Section 444.075 at the times and in the amounts required to produce Net Revenues adequate to pay all principal and interest when due on the Bonds , and any other bonds similarly authorized, and to create and maintain such reserves securing said payments as may be provided in this resolution. 205 EL185-69-713323.v1 9 (h) The Council has covenanted to levy general ad valorem taxes on all taxable property in the City, when required to meet any deficiency in pledged Net Revenues. (i) The Commission hereby determines that the estimated collection of Net Revenues herein pledged for the payment of principal and interest on the Bonds will produce at least 5% in excess of the amount needed to meet, when due, the principal and interest payments on the Bonds. 4.04. County Auditors’ Certificates as to Registration. The Finance Manager is authorized and directed to file a certified copy of this resolution with the County Auditor of Sherburne County and to obtain the certificate required by Minnesota Statutes, Section 475.63. 4.05. General Obligation Pledge. For the prompt and full payment of the principal of and interest on the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City will be and are hereby irrevocably pledged. If the balance in the Debt Service Fund is ever insufficient to pay all principal and interest then due on the Bonds and any other bonds payable therefrom, the deficiency will be promptly paid out of monies in the general fund of the City which are available for such purpose, and such general fund may be reimbursed with or without interest from the Debt Service Fund when a sufficient balance is available therein. Section 5. Authentication of Transcript; Execution of Related Documents. 5.01. Commission Proceedings and Records. The officers of the Commission are authorized and directed to prepare and furnish to the Purchaser and to the attorneys approving the Bonds, certified copies of proceedings and records of the Commission relating to the Bonds and to the financial condition and affairs of the Commission, and such other certificates, affidavits and transcripts as may be required to show the facts within their knowledge or as shown by the books and records in their custody and under their control, relating to the validity and marketability of the Bonds and such instruments, including any heretofore furnished, may be deemed representations of the Commission as to the facts stated therein. 5.02. Certification as to Official Statement. The President, Secretary and Finance Manager, or any of them, are hereby authorized and directed to certify that they have examined the Official Statement, prepared and circulated in connection with the issuance and sale of the Bonds and that to the best of their knowledge and belief the Official Statement is, as of the date thereof, a complete and accurate representation of the facts and representations made therein as of the date of the Official Statement, as it relates to the City, the Commission and the Bonds. 5.03. Other Certificates. The President, Secretary and Finance Manager or any of them, are hereby authorized and directed to furnish to the Purchaser at the closing such certificates as are required as a condition of sale. Unless litigation shall have been commenced and be pending questioning the Bonds or the organization of the City or incumbency of its officers, at the closing the President, Secretary and Finance Manager, on behalf of the Commission, and the Mayor and City Clerk, on behalf of the City, shall also execute and deliver to the Purchaser a suitable 206 EL185-69-713323.v1 10 certificate as to absence of material litigation, and the Finance Manager shall also execute and deliver a certificate as to payment for and delivery of the Bonds. 5.04 Electronic Signatures. The electronic signature of the President, Secretary and Finance Manager, on behalf of the Commission, and the Mayor and City Clerk, on behalf of the City, to this resolution and to any certificate authorized to be executed hereunder shall be as valid as an original signature of such party and shall be effective to bind the Commission and the City, as applicable, thereto. For purposes hereof, (i) “electronic signature” means (a) a manually signed original signature that is then transmitted by electronic means or (b) a signature obtained through DocuSign or Adobe or a similarly digitally auditable signature gathering process; and (ii) “transmitted by electronic means” means sent in the form of a facsimile or sent via the internet as a portable document format (“pdf”) or other replicating image attached to an electronic mail or internet message. Section 6. Tax Covenants. 6.01 Tax-Exempt Bonds. The Commission and the City covenant and agree with the holders from time to time of the Bonds that it will not take or permit to be taken by any of its officers, employees, or agents any action which would cause the interest on the Bonds to become subject to taxation under the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder, in effect at the time of such actions, and that it will take or cause its officers, employees or agents to take, all affirmative action within its power that may be necessary to ensure that such interest will not become subject to taxation under the Code and applicable Treasury Regulations, as presently existing or as hereafter amended and made applicable to the Bonds. To that end, the Commission and the City will comply with all requirements necessary under the Code to establish and maintain the exclusion from gross income of the interest on the Bonds under Section 103 of the Code, including without limitation requirements relating to temporary periods for investments and limitations on amounts invested at a yield greater than the yield on the Bonds 6.02. Rebate Required. The Commission and the City shall comply with requirements necessary under the Code to establish and maintain the exclusion from gross income of the interest on the Bonds under Section 103 of the Code, including without limitation (1) requirements relating to temporary periods for investments, (2) limitations on amounts invested at a yield greater than the yield on the Bonds, and (3) the rebate of excess investment earnings to the United States unless the Bonds qualify for an exception to the rebate requirement under the Code and related Treasury Regulations. 6.03. Not Private Activity Bonds. The Commission City further covenants not to use the proceeds of the Bonds or to cause or permit them or any of them to be used, in such a manner as to cause the Bonds to be “private activity bonds” within the meaning of Sections 103 and 141 through 150 of the Code. 6.04. No Designation of Qualified Tax-Exempt Obligations. The Bonds have not been designated as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Code. 207 EL185-69-713323.v1 11 6.05. Procedural Requirements. The Commission and the City will use their best efforts to comply with any federal procedural requirements which may apply in order to effectuate the designations made by this section. Section 7. Book-Entry System; Limited Obligation of City. 7.01. DTC. The Bonds will be initially issued in the form of a separate single typewritten or printed fully registered Bond for each of the maturities set forth in Section 2.04 hereof. Upon initial issuance, the ownership of each Bond will be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York, and its successors and assigns (“DTC”). Except as provided in this section, all of the outstanding Bonds will be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC. 7.02. Participants. With respect to Bonds registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC, the City, the Registrar and the Paying Agent will have no responsibility or obligation to any broker dealers, banks and other financial institutions from time to time for which DTC holds Bonds as securities depository (the “Participants”) or to any other person on behalf of which a Participant holds an interest in the Bonds, including but not limited to any responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person (other than a registered owner of Bonds, as shown by the registration books kept by the Registrar) of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than a registered owner of Bonds, of an y amount with respect to principal of, premium, if any, or interest on the Bonds. The City, the Registrar and the Paying Agent may treat and consider the person in whose name each Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Bond for the purpose of payment of principal, premium and interest with respect to such Bond, for the purpose of registering transfers with respect to such Bonds, and for all other purposes. The Paying Agent will pay all principal of, premium, if any, and interest on the Bonds only to or on the order of the respective registered owners, as shown in the registration books kept by the Registrar, and all such payments will be valid and effectual to fully satisfy and discharge the City’s obligations with respect to payment of principal of, premium, if any, or interest on the Bonds to the extent of the sum or sums so paid. No person other than a registered owner of Bonds, as shown in the registration books kept by the Registrar, will receive a certificated Bond evidencing the obligation of this resolution. Upon delivery by DTC to the Finance Manager of a written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the words “Cede & Co.,” will refer to such new nominee of DTC; and upon receipt of such a notice, the Finance Manager will promptly deliver a copy of the same to the Registrar and Paying Agent. 7.03. Representation Letter. The City has heretofore executed and delivered to DTC a Blanket Issuer Letter of Representations (the “Representation Letter”) which will govern payment of principal of, premium, if any, and interest on the Bonds and notices with respect to 208 EL185-69-713323.v1 12 the Bonds. Any Paying Agent or Registrar subsequently appointed by the City with respect to the Bonds will agree to take all action necessary for all representations of the City in the Representation Letter with respect to the Registrar and Paying Agent, respectively, to be complied with at all times. 7.04. Transfers Outside Book-Entry System. In the event the City, by resolution of the Commission, determines that it is in the best interests of the persons having beneficial interests in the Bonds that they be able to obtain Bond certificates, the City will notify DTC, wh ereupon DTC will notify the Participants, of the availability through DTC of Bond certificates. In such event the City will issue, transfer and exchange Bond certificates as requested by DTC and any other registered owners in accordance with the provisions of this Resolution. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving notice to the City and discharging its responsibilities with respect thereto under applicable law. In such event, if no successor securities depository is appointed, the City will issue and the Registrar will authenticate Bond certificates in accordance with this resolution and the provisions hereof will apply to the transfer, exchange and method of payment thereof. 7.05. Payments to Cede & Co. Notwithstanding any other provision of this Resolution to the contrary, so long as a Bond is registered in the name of Cede & Co., as nominee of DTC, payments with respect to principal of, premium, if any, and interest on the Bond and notices with respect to the Bond will be made and given, respectively in the manner provided in DTC’s Operational Arrangements, as set forth in the Representation Letter. Section 8. Continuing Disclosure. With respect to the continuing disclosure requirements under Rule 15c2-12(b)(5) (the “Rule”) of the Securities and Exchange Commission, on the date of actual issuance and delivery of the Bonds, the Commission and the City will execute and deliver a Continuing Disclosure Certificate (the “Undertaking”) whereunder the Commission and the City will covenant to provide certain information specified in the Undertaking. The proposed form of the Undertaking which has been submitted to the Commission for its consideration is hereby approved, and the President and Secretary of the Commission and the Mayor and Clerk of the City, or any other officer of the Commission or the City authorized to act in their place (the “Officers”) are hereby authorized to execute and deliver that Undertaking in the proposed form or in such final form thereof reflecting such modifications thereof as are consistent with the Rule, requested by the Purchasers of the Bonds and acceptable to the Officers who shall execute the Undertaking (which consent shall be conclusively evidenced by their execution and delivery thereof). The Undertaking, as so executed and delivered by the Officers, shall be as much a part of this Resolution as if set forth in full herein and shall be for the benefit of the owners from time to time of the Bonds. Section 9. Defeasance. When the Bonds and all interest thereon, have been discharged as provided in this section, all pledges, covenants and other rights granted by this resolution to the holders of the Bonds will cease, except that the pledge of the full faith and credit of the City for the prompt and full payment of the principal of and interest on the Bonds will remain in full force and effect. The City may discharge Bonds which are due on any date by depositing with the Registrar on or before that date a sum sufficient for the payment thereof in full or by depositing irrevocably in escrow, with a suitable institution qualified by law as an escrow agent 209 EL185-69-713323.v1 13 for this purpose, cash or securities which are backed by the full faith and credit of the United States of America, or any other security authorized under Minnesota law for such purpose, bearing interest payable at such times and at such rates and maturing on such dates and in such amounts as shall be required and sufficient, subject to sale and/or reinvestment in like securities, to pay said obligation(s), which may include any interest payment on such Bond and/or principal amount due thereon at a stated maturity (or if irrevocable provision shall have been made for permitted prior redemption of such principal amount, at such earlier redemption date). If any Bond should not be paid when due, it may nevertheless be discharged by depositing with the Registrar a sum sufficient for the payment thereof in full with interest accrued to the date of such deposit. The motion for the adoption of the foregoing resolution was duly seconded by Member ____________, and upon vote being taken thereon, the following voted in favor thereof: and the following voted against the same: whereupon said resolution was declared duly passed and adopted. 210 EL185-69-713323.v1 14 STATE OF MINNESOTA ) ) COUNTY OF SHERBURNE ) ) SS. CITY OF ELK RIVER ) I, the undersigned, being the duly qualified and acting Secretary of the Elk River Municipal Utilities Commission of the City of Elk River, Minnesota, DO HEREBY CERTIFY that I have carefully compared the attached and foregoing extract of minutes of a meeting of the Board of Commissioners, held on the date therein indicated, with the original thereof on file and of record in my office and that the same is a full, true and complete transcript insofar as the same relates to the $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C. WITNESS My hand on ______________, 2021. Secretary Elk River Municipal Utilities Commission 211 A-1 EL185-69-713323.v1 EXHIBIT A PROPOSALS 212 B-1 EL185-69-713323.v1 EXHIBIT B FORM OF BOND No. R-_____ UNITED STATES OF AMERICA $__________ STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER GENERAL OBLIGATION WATER REVENUE BOND, SERIES 2021C Rate Maturity Date Date of Original Issue CUSIP August 1, 20____ ____________, 2021 Registered Owner: Cede & Co. The City of Elk River, Minnesota, a duly organized and existing municipal corporation in Sherburne County, Minnesota (the “City”), acknowledges itself to be indebted and for value received hereby promises to pay to the Registered Owner specified above or registered assigns, the principal sum set forth above on the Maturity Date specified above, unless called for earlier redemption with interest thereon from the date hereof at the annual Rate specified above (calculated on the basis of a 360 day year of twelve 30 day months), payable February 1 and August 1 in each year, commencing February 1, 2022, to the person in whose name this Bond is registered at the close of business on the 15th day (whether or not a business day) of the immediately preceding month. The interest hereon and, upon presentation and surrender hereof, the principal hereof are payable in lawful money of the United States of America by check or draft by U.S. Bank National Association, St. Paul, Minnesota, as Registrar, Paying Agent, Transfer Agent and Authenticating Agent, or its designated successor under the Resolution described herein. For the prompt and full payment of such principal and interest as the sam e respectively become due, the full faith and credit and taxing powers of the City have been and are hereby irrevocably pledged. This Bond is one of an issue in the aggregate principal amount of $1,750,000, all of like original issue date and tenor, except as to number, maturity date, denomination, redemption privilege, and interest rate, issued pursuant to a resolution adopted by the Elk River Municipal Utilities Commission (the “Commission”) on May 11, 2021 and the City Council of the City on April 19, 2021 (collectively, the “Resolution”), for the purpose of financing costs related to the construction of a field house facility to house service trucks, inventory and offices and pursuant to and in full conformity with the Constitution, and the laws of the State of Minnesota, including Minnesota Statutes, Chapter 475, as amended and Minnesota Statutes, Section 444.075. The principal hereof and interest hereon are payable primarily from the net revenues of the water system of the City in a special debt service fund of the City, as set forth in the Resolution to which 213 B-2 EL185-69-713323.v1 reference is made for a full statement of rights and powers thereby conferred. The full faith and credit of the City are irrevocably pledged for payment of this Bond and the City Council has obligated itself to levy ad valorem taxes on all taxable property in the City in the event of any deficiency in net revenues, taxes may be levied without limitation as to rate or amount. The Bonds of this series are issued only as fully registered Bonds in denominations of $5,000 or any integral multiple thereof of single maturities. The City may elect on August 1, 2030, and on any date thereafter to prepay Bonds maturing on or after August 1, 2031. Redemption may be in whole or in part and if in part, at the option of the City and in such manner as the City will determine. If less than all Bonds of a maturity are called for redemption, the City will notify The Depository Trust Company (“DTC”) of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant’s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. Prepayments will be at a price of par plus accrued interest. As provided in the Resolution and subject to certain limitations set forth therein, this Bond is transferable upon the books of the City and the Commission at the principal office of the Registrar, by the registered owner hereof in person or by the owner’s attorney duly authorized in writing upon surrender hereof together with a written instrument of transfer satisfactory to the Registrar, duly executed by the registered owner or the owner’s attorney; and may also be surrendered in exchange for Bonds of other authorized denominations. Upon such transfer or exchange the City and the Commission will cause a new Bond or Bonds to be issued in the name of the transferee or registered owner, of the same aggregate principal amount, bearing interest at the same rate and maturing on the same date, subject to reimbursement for any tax, fee or governmental charge required to be paid with respect to such transfer or exchange. The City, the Commission and the Registrar may deem and treat the person in whose name this Bond is registered as the absolute owner hereof, whether this Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and neither the City , the Commission nor the Registrar will be affected by any notice to the contrary. The City Council has not designated the issue of Bonds of which this Bond forms a part as “qualified tax exempt obligations” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). IT IS HEREBY CERTIFIED AND RECITED that in and by the Resolution, the City, through the Commission, has covenanted and agreed that it will continue to own and operate the water system free from competition by other like municipal utilities; that adequate insurance on said systems and suitable fidelity bonds on employees will be carried; that proper and adequate books of account will be kept showing all receipts and disbursements relating to the Water Utility Fund, into which it will pay all of the gross revenues from the water system; that it will also create and maintain the General Obligation Water Utility Revenue Bonds, Series 2021C Debt Service Fund, into which it will pay, out of the net revenues from the water system sums sufficient to pay principal of the Bonds and interest on the Bonds when due; and that it will 214 B-3 EL185-69-713323.v1 provide, by ad valorem tax levies, for any deficiency in required net revenues of the water system. IT IS HEREBY CERTIFIED AND RECITED that all acts, conditions and things required by the Constitution and laws of the State of Minnesota to be done, to happen and to be performed preliminary to and in the issuance of this Bond in order to make it a valid and binding general obligation of the City in accordance with the terms, have been done, have happened and have been performed in regular and due form, time and manner, that prior to the issuance of this bond the City Council of the City has provided funds for the payment of principal and interest on the bonds of this issue as the same become due, but the full faith and credit of the City is pledged for their payment and taxes will be levied, if required for such purpose, without limitation as to the rate of amount; and that this bond, together with all other indebtedness of the City outstanding on the date of its issuance, does not exceed any constitutional or statutory limitation thereon. This Bond is not valid or obligatory for any purpose or entitled to any security or benefit under the Resolution until the Certificate of Authentication hereon has been executed by the Registrar by manual signature of one of its authorized representatives. (The remainder of this page is intentionally left blank.) 215 B-4 EL185-69-713323.v1 IN WITNESS WHEREOF, the City of Elk River, Sherburne County, Minnesota, by the Commission, has caused this Bond to be executed on its behalf by the facsimile or manual signatures of the President and Secretary of the Commission and the Mayor and Clerk and has caused this Bond to be dated as of the date set forth below. Date of Registration: BOND REGISTRAR’S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the Resolution mentioned within. U.S. Bank National Association, in St. Paul, Minnesota Bond Registrar By: Authorized Signature Registrable by: U.S. BANK NATIONAL ASSOCIATION Payable at: U.S. BANK NATIONAL ASSOCIATION CITY OF ELK RIVER, SHERBURNE COUNTY, MINNESOTA /s/ Facsimile Mayor /s/ Facsimile Clerk ELK RIVER MUNICIPAL UTILITIES COMMISSION, SHERBURNE COUNTY, MINNESOTA /s/ Facsimile President /s/ Facsimile Secretary 216 B-5 EL185-69-713323.v1 ________________________ The following abbreviations, when used in the inscription of the face of this Bond, will be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants UNIF GIFT MINN ACT _____ Custodian _______ in common (Cust) (Minor) TEN ENT -- as tenants under Uniform Gift or Transfer to by entireties Minors JT TEN -- as joint tenants with right of Act…………………….. survivorship and (State) not as tenants in common Additional abbreviations may also be used though not in the above list. _______________________ ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto _______________________________________ the within Bond and all rights thereunder, and does hereby irrevocably constitute and appoint ____________________ attorney to transfer the said Bond on the books kept for registration of the within Bond, with full power of substitution in the premises. Dated: Notice: The assignor’s signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatever. Signature Guaranteed: 217 B-6 EL185-69-713323.v1 NOTICE: Signature(s) must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program (“STAMP”), the Stock Exchange Medallion Program (“SEMP”), the New York Stock Exchange, Inc. Medallion Signatures Program (“MSP”) or other such “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended. The Registrar will not effect transfer of this Bond unless the information concerning the assignee requested below is provided. Name and Address: (Include information for all joint owners if this Bond is held by joint account) Please insert social security or other identifying number of assignee __________________ 218 B-7 EL185-69-713323.v1 PROVISIONS AS TO REGISTRATION The ownership of the principal of and interest on the within Bond has been registered on the books of the Registrar in the name of the person last noted below. Date of Registration Registered Owner Signature of Registrar __________, 2021 Cede & Co. Federal ID #13-2555119 219 EL185-69-713323.v1 STATE OF MINNESOTA COUNTY AUDITOR’S CERTIFICATE AS TO COUNTY OF SHERBURNE REGISTRATION WITH NO AD VALOREM TAX LEVY I, the undersigned County Auditor of Sherburne County, Minnesota, hereby certify that a certified copy of a resolution adopted by the Elk River Municipal Utilities Commission, on May 11, 2021 and the resolution of the City Council of the City of Elk River adopted on April 19, 2021 (collectively, the “Resolution”), relating to the City’s $1,750,000 General Obligation Water Utility Revenue Bonds, Series 2021C, dated June 10, 2021, has been filed in my office and said obligations have been registered on the register of obligations in my office. WITNESS My hand and official seal this _____ day of _________________, 2021. County Auditor Sherburne County, Minnesota (SEAL) By Deputy 220 * $1,750,000 City of Elk River, Minnesota GeneralObligation Water Utility Revenue Bonds,Series 2021C S&PRating:AA+ Sale Date: May 11, 2021BBI:2.25% Average Maturity: 11.156Years BidderTIC Robert W. Baird & Co., Incorporated1.7986% Bernardi Securities, Inc.1.8501% Northland Securities, Inc.1.9220% InterestReofferingReoffering Winning BidderInformationMaturityRateYieldPrice ROBERT W. BAIRD & CO.,8/1/20224.00% 0.20% 104.331% INCORPORATED8/1/20234.00%0.22%108.071% C.L. King & Associates, Inc.8/1/20244.00%0.30%111.560% Colliers Securties LLC8/1/20254.00%0.42%114.683% Fidelity Capital Markets8/1/20264.00%0.55%117.466% Davenport & Company LLC8/1/20274.00%0.65%120.136% Loop Capital Markets, LLC8/1/20284.00%0.80%122.168% Country Club Bank8/1/20294.00%0.95%123.840% Crews & Associates, Inc.8/1/20304.00%1.05%125.648% Sierra Pacific Securities, LLC8/1/20314.00%1.15%124.662% Isaak Bond Investments8/1/20342.00%1.60%103.388% Wintrust Investments, LLC8/1/20372.00%1.85%101.255% SumRidge Partners, LLC8/1/20412.00%2.05%99.177% Midland Securities Limited FMS Bonds, Inc. * Multi-Bank Securities, Inc.Purchase Price: $1,871,386.25 * First Southern Securities, LLCNet Interest Cost: $361,967.08 * Dinosaur Securities, LLCTIC: 1.7986% Mountainside Securities LLC Valdés & Moreno Other Bidders and Syndicate Members BERNARDI SECURITIES, INC. (No Syndicate Members) NORTHLAND SECURITIES, INC. (No Syndicate Members) *Subsequent to bid opening, the par amountdecreasedto $1,615,000; and the price, net interest cost, and true interest cost have changed to $1,721,636.76, $352,279.91and 1.8195%, respectively. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlledsubsidiary ofBaker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP,trading as Baker Tilly,is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.© 2021Baker Tilly Municipal Advisors, LLC Page 1 |1 Robert W. Baird & Co., Inc. -Milwaukee, WI's Bid City of Elk River, Minnesota $1,750,000$1,615,000General Obligation Water Utility Revenue Bonds, Series 2021C For the aggregate principal amount of $1,750,000.00$1,615,000.00, we will pay you $1,871,386.25 $1,721,636.76, plus accrued interest from the date of issue to the date of delivery. The Bonds are to bear interest at the following rate(s): Maturity DateAmount $Coupon %Yield %Dollar PriceBond Insurance 08/01/202275M50M4.0000 0.2000 104.331 08/01/202380M60M4.0000 0.2200 108.071 08/01/202480M60M4.0000 0.3000 111.560 08/01/202580M65M4.0000 0.4200 114.683 08/01/202680M70M4.0000 0.5500 117.466 08/01/202780M70M4.0000 0.6500 120.136 08/01/202880M75M4.0000 0.8000 122.168 08/01/202985M75M4.0000 0.9500 123.840 08/01/203085M80M4.0000 1.0500 125.648 08/01/203185M80M4.0000 1.1500 124.662 08/01/2032 08/01/2033 08/01/2034260M260M2.0000 1.6000 103.388 08/01/2035 08/01/2036 08/01/2037280M275M2.0000 1.8500 101.255 08/01/2038 08/01/2039 08/01/2040 08/01/2041400M395M2.0000 2.0500 99.177 Total Interest Cost:$483,353.33$458,916.67 Premium:$121,386.25$106,636.76 Net Interest Cost:$361,967.08$352,279.91 TIC:1.798600 1.819569 Total Insurance Premium:$0.00 Time Last Bid Received On:05/11/2021 10:13:39 CDST This proposal is made subject to all of the terms and conditions of the Official Bid Form, the Official Notice of Sale, and the Preliminary Official Statement, all of which are made a part hereof. Bidder:Robert W. Baird & Co., Inc., Milwaukee, WI Contact:Peter Anderson Title: Telephone:414-765-7331 Fax: Issuer Name:City of Elk River, MinnesotaCompany Name:Robert W. Baird & Co., Inc. Accepted By:___________________________Accepted By:___________________________ Date:May 11, 2021Date:May 11, 2021