9.0. SR 05-25-1993
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ITEM 9.
FROM:
MAYOR & CITY COUNCIL
PAT KLAERS, CITY AD~\
MAY 20, 1993 \J .Y
TO:
DATE:
SUBJECT: 1992 CITY AUDIT
Mr. Gary Groen, of Abdo, Abdo, Eick, will be attending this
City Council meeting to make a presentation on the 1992 City
Audit. Additionally, Finance Director, Lori Johnson, and I
will be present to discuss the status of City funds. Attached
for your review is the 1992 City Audit and, within this
document, a letter from the Finance Director to the City
Council regarding the status of City finances.
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As reviewed in the previous City audits, it is a goal of the
City to have a fund balance, for cash flow purposes, of
approximately 35-40% of the total General Fund Budget. These
monies are necessary in order to finance the operation of the
City until the State funds and tax revenues become available in
July of each year. The City did add to the cash flow fund
balance in 1992, but this fund is still below the level
necessary to finance City expenditures until State funds become
available. The City annually has to borrow funds internally to
meet cash flow needs. The City was very fortunate to add
monies to the cash flow fund balance in 1992, when taking into
consideration the court determination on the tax status of the
UPA improvements.
An adequate fund balance is necessary not only for cash flow
reserves, but also for emergency reserves. Some individuals
may believe that the fund balance should not be as high as what
the City of Elk River has, but comparisons to other growing
communities show that we are behind in having an appropriate
level of reserves. It should be noted that if all of the City
cash flow reserve was put into the general operating budget in
one year, the total tax bill for everyone in the City would
only decrease about ten percent. This is an incredibly small
reward for what would offset years and years of hard work.
Regarding the topic of City fund balances, attached for your
information is an article from the 5/14/93 League of
Cities-Cities Bulletin.
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Most of our attention is placed on the general fund which
finances the day to day operation of the City. However,
another major concern of the City is the funding of capital
improvements. In this regard, everyone is well aware of the
fact that there are insufficient funds available to finance all
of the projects that are desired within the next few years.
Accordingly, projects must be prioritized and additional
reserves accumulated for the most highly ranked projects.
P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425
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An area of growing financial concern relates to sewer and water
public improvement projects. The City is growing in four
different directions at the same time. In order to facilitate
growth, the City is sometimes extending sewer and water through
nondevelopable property, vacant property where the owner does
not desire to develop, or existing developed property. When
this happens, the City has to "hold" some of the costs of the
sewer and water extension until either the property owners
desire to develop, or the existing homeowners hook up to the
municipal system. There is only so much money available for
holding expenses and we must be careful that the City does not
get over extended.
Overall, the City Council should take a great deal of pride in
the improved status of the City finances. A significant amount
of credit must go to the City Council for this improved
financial picture. Guidance of the City Council has allowed
the City to achieve a more sound financial status in the early
1990's, than what was experienced ten years ago. Additionally,
a great deal of credit goes to the City Finance Department for
the management of City funds. For the third year in a row, the
City has received the Certificate of Achievement for Excellence
in Financial Reporting. This is the highest award presented in
the nation for financial reporting. The organization of the
City finances is essential in order to have good City
management.
There are a lot of good things to be said about the 1992 City
Audit. However, the City Council must keep everything in
perspective and know that many uncertainties lie ahead,
especially with the State Legislature controlling the majority
of City funds. The City must take a great deal of caution in
authorizing additional new projects and it is appropriate to
follow a conservative, yet realistic, budget on an annual basis.
State auditor reports on local
-fund balances
~)
Cities fund balances decline, counties increase between 1990 and 1991
Sarah Hacke/(
Although individual situations
varied greatly among cities, those
above 2,500 population reduced their
fund balance total by9.2 percent
between 1990 and 1991. The report,
released by the Office of the State
Auditor, notes, however, that over half
of these 181 cities reported increases
in their fund balances, and that large
decreases in the fund balances of the
largest cities influenced the' decrease
in the total percentage change.
Encouraging to cities is a state-
ment in the auditor's report that
defends existing fund balance levels.
"W11ile the overall size of city and
county general fund balances may
appear large, many cities and counties
e will experience serious cash flow
,-
problems if the fund balances were to
be reduced below their current levels."
The report also notes that although
"the total size of ... fund balances may
appear large, the cash flow situation of
counties and cities requires substantial
fund balances to avoid the need for
short-term borrowing." The report
explains factors which contribute to
cities' need for adequate fund bal-
ances-the timing of state aid and
property tax payments, and the
dependence on these revenues for most
of their funding compared to the
state's ability to use multiple tax and
revenue sources it collects more
evenly through the year.
Just how much any particular city
or county may need for an adequate
fund balance though, depends on
State auditor's bill passes Senate
.
Joel Jamnik
On Tuesday, the Senate gave
final approval to S.F.580
(Reichgou, DFL-New Hope), the
state auditor's proposal to increase
the department's oversight role and
to limit or modify several local
government practices. The Senate
adopted an amendment to sever-
ance payments to highly compen-
sated employees. The amendment
would exempt some public manag-
ers and administrators who have
worked for some jurisdictions for
more than 10 years. Only a handful
of city employees are likely to
benefit from the amendment, which
the school lobby promoted.
Page 6
fY1 />.1 IL/j J 1'13
Ironically, later on Tuesday the
Minneapolis School Board reached a
severance settlement with Superin-
tendent Robert Ferrara worth
$187,000. The school board's
attorneys estimated that the school
could have lost almost $400,000,
exclusive of attorney's fees and
costs, had the severance agreement
not been reached. Because the
settlement with Superintendent
Ferrara included a $95,000 payment
to release any civil claims, even if
the state auditor's bill were in effect,
the total settlement would only have
decreased to $169,000 or $18,000
less. 0
several factors, according to tJ1C staLe
auditor. Certain cities will require
fund balances of 40 percent of their
total current expenditures, while others
with more revenues from fees, service
charges, or intergovernmental grants
would need lower fund balances--
perhaps 10 percent. (The report does
not comment on those cities or
counties with unreserved fund bal-
ances of 60, 70, or even 100 percent of
their current expenditures.) There is
some discussion of the opportunity for
cities to "delay certain payments" until
they receive their aid and tax pay-
ments as a means of keeping down tJ1C
need for large fund balances.
Some otherhighlightsJrom the
report:
. In 1991, unreserved fund balances
for cities over 2,500 population
represented approximately 18.4
percent of their total current
operating expenditures;
. Metro area counties and larger
counties reported significant
increases in their fund balances; a
total of 52 counties increased their
unreserved fund balance;
. Thirteen cities reported no
unreserved fund balance for
calendar year 1991;
. Cities have approximately $170.7,
million in unreserved special
revenue fund balances; counties
had fundbalanccs of approxi-
mately $372 million in their road
and bridge, and welfare funds;
. Two cities reported negative fund
balances; seven cities reported
elimination (or more) of their
1990 fund balances by 1991;
. Nearly all counties in the north-
west area of the state reported that
their fund balances had been
reduced by more than 10 percent
(1990 to 1991). 0
.)
*'
LMC Cities Bulletin