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1 Disclaimer This Comprehensive Annual Financial Report (CAFR) of the Hennepin County Regional Railroad Authority (HCRRA) contained on the County's web pages is historical information as of December 31, The information in the CAFR has not been updated for developments subsequent to the date of the independent auditor s report. The County has taken reasonable security measures to protect the integrity of its website and information posted thereon. However, no web site can fully ensure against infiltration. Absent any unauthorized act that deletes, edits, or somehow manipulates the words or data, this publication represents the presentation of the HCRRA s CAFR dated December 31, This online document has been formatted for two-sided printing.

2 HENNEPIN COUNTY REGIONAL RAILROAD AUTHORITY Comprehensive Annual Financial Report Year Ended December 31, 2010

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4 Introductory Section

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6 Hennepin County Regional Railroad Authority 2010 Comprehensive Annual Financial Report Table of Contents INTRODUCTORY SECTION Page Letter of Transmittal... 1 Principal Officials... 9 FINANCIAL SECTION Independent Auditors Report Management's Discussion and Analysis Basic Financial Statements Governmental Fund Balance Sheets and Statement of Net Assets Statements of Governmental Fund Revenues, Expenditures, and Changes in Fund Balances and Statement of Activities Notes to the Basic Financial Statements Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual - General Fund Notes to Required Supplementary Information Supplementary Information Balance Sheet - General Fund Balance Sheet - Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual - Debt Service Fund STATISTICAL SECTION... 37

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8 HENNEPIN COUNTY REGIONAL RAILROAD AUTHORITY 417 North Fifth Street, Suite 320, Minneapolis, MN (612) FAX: (612) July 28, 2011 The Honorable Members of the Hennepin County Regional Railroad Authority Board: Minnesota Statutes require all governmental agencies to issue an annual report on its financial position and activity prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants or the state auditor. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the Hennepin County Regional Railroad Authority (HCRRA) for the fiscal year ended December 31, Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. McGladrey & Pullen, LLP, Certified Public Accountants, has issued an unqualified ( clean ) opinion on HCRRA financial statements for the year ended December 31, The independent auditor s report is located at the front of the financial section of this report. Management s discussion and analysis (MD&A) immediately follows the independent auditor s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with the letter. Profile of the Government The HCRRA was established in 1980 as a political subdivision and local government unit of Minnesota. It was established for the purpose of preservation, improvement, and implementation of local rail service in accordance with the powers and authorities granted in Laws of Minnesota Chapter 616. The HCRRA advises and participates with the Metropolitan Council Metro Transit Division, the Minnesota Department of Transportation, and the Counties Transit Improvement Board (CTIB) in the development of rail transit in Hennepin County. Together, Hennepin, Anoka, Dakota, Ramsey, and Washington counties comprise the Counties Transit Improvement Board (CTIB). The Minnesota Legislature authorized this joint powers board to impose a one-quarter percent sales and use tax, and an excise tax on sales of motor vehicles. The taxes are used to provide grants to fund improvements and some operating costs of the transit system. Since CTIB was formed, the HCRRA no longer pays for operations of the Hiawatha and Northstar corridors. BOARD OF COMMISSIONERS Peter McLaughlin Gail Dorfman Mark Stenglein Jan Callison Mike Opat Randy Johnson Jeff Johnson Chair Vice Chair Secretary Treasurer 1

9 Although a legally separate entity, the HCRRA is in substance part of the operations of Hennepin County. Therefore, the HCRRA s activity is combined with financial information of Hennepin County and reported as a special revenue fund within the County s Comprehensive Annual Financial Report. The HCRRA Board, which includes the seven members of the Hennepin County Board of Commissioners, is responsible, among other things, for adopting the annual budget. Budgets are adopted on a basis consistent with GAAP. Beginning in approximately August of each year a budget is prepared and includes information on the past year, current year estimates, and requested appropriations. The Board legally enacts the budget by passage of a resolution no later than December 31. A budget to actual comparison for the general fund is presented in the Required Supplementary Information section of this report. Existing Hiawatha Light Rail Transit Corridor The 19-station Hiawatha Light Rail Line runs 12 miles between the Mall of America in Bloomington and Target Field in downtown Minneapolis. The line is served by three park and ride lots that provide more than 2,800 parking spaces to commuters. Ridership in 2010 totaled 10.5 million, and the route had an average weekday ridership of 31,381. In 2010, platform extension work at 10 Hiawatha stations was completed, enabling all stations to accommodate three-car trains. The work was completed in time for the April opening of Target Field, the new home of the Minnesota Twins. The Target Field Station provides a direct connection to the Northstar Commuter Rail Line. Three-car trains are used for weekday morning and afternoon peak periods, as well as for Twins and Vikings games. Metro Transit operates the light rail, commuter rail, and most of the buses in the Twin Cities. It is estimated that the Hiawatha line accounts for about 13.5 percent of Metro Transit s total ridership. In August 2010, the Metropolitan Council ordered 41 additional light rail vehicles, of which 10 were for the Hiawatha Line, and 31 were for the Central Corridor LRT project. 2

10 Existing Northstar Commuter Rail Line Northstar Commuter Rail service between Big Lake and downtown Minneapolis is on a 40-mile segment of Burlington Northern Santa Fe railroad tracks along Highways 10 and 47. The Northstar stations are located in Big Lake, Elk River, Anoka, Coon Rapids, Fridley, and in downtown Minneapolis where Target Field Station provides a direct connection to the Hiawatha Light Rail Line. Northstar rail service has five peak-direction trips on weekdays, with one reverse-commute trip. Three round trips are scheduled for Saturday and for Sunday. Additional trips are sometimes scheduled for Twins baseball games. For 2010, the Northstar Line carried 710,400 passengers, with an average weekday ridership of 2,220. While there are future plans to extend the Northstar Line from Big Lake to St. Cloud in order to serve the fast-growing Minneapolis-St. Cloud corridor, Phase II planning work has been suspended for now. 3

11 Central Corridor Light Rail Transit Project The Central Corridor project plan includes 11 miles of exclusive right-of-way between downtown St. Paul and downtown Minneapolis. The Line will have a total of 18 new stations, plus five stations shared with the Hiawatha Line. It will link five major centers of activity in the Twin Cities region downtown Minneapolis, the University of Minnesota, the Midway area, the State Capitol complex and downtown St. Paul. It will connect to the existing Hiawatha Line at the Metrodome Station, and will terminate at the planned Minneapolis Transportation Interchange that also serves the new Northstar Line. It is expected that following final design, the line will be built in and open in Weekday ridership on the Central Corridor Line is projected to be 32,400 in the opening year of 2014 and 40,900 by A section of the planned Central Corridor The Metropolitan Council is managing the Central Corridor project with funding from the HCRRA, Ramsey County Regional Railroad Authority, CTIB, the State of Minnesota, and the Federal Transit Administration. The Central Corridor Management Committee, which is made up of policy-makers representing Hennepin County, Ramsey County, Minneapolis, St. Paul and the University of Minnesota along with the Minnesota Department of Transportation and the Metropolitan Council, provides policy direction for the project. The Metropolitan Council is responsible for the design, construction and operations of LRT in the Central Corridor. In December 2010, the HCRRA entered into a Central Corridor Light Rail Transit Project Cooperative Funding Agreement for construction along with the Ramsey County Regional Railroad Authority and the Metropolitan Council. The Central Corridor Project has an estimated total cost of approximately $956.9 million, with the HCRRA share at $28.3 million or 3 percent of the cost, of which $6,378,456 has been paid as of December 31,

12 The Interchange Project The Interchange Project involves development of a site adjacent to the downtown Minneapolis Target Field Station to provide connections between bus routes, the Cedar Lake Bike Trail, and the existing and future light rail and commuter rail lines. The site for this regional multimodal hub is adjacent to Target Field, which is near Nicollet Mall, the Minneapolis Farmers Market, and the Warehouse District, home of the Hennepin Theatre District and dozens of restaurants. The Interchange Project will initially focus on light rail transit enhancements, then expansion of commuter and passenger rail service, with a goal to complete light rail transit enhancements prior to the opening of the Central Corridor in The Interchange site with proposed future connections 5

13 Additional Projects The HCRRA also participates in the planning and design of other rail projects, including: Southwest Corridor The HCRRA has been acquiring property for the Southwest Corridor, a planned 15-mile light-rail line running between Minneapolis and Eden Prairie. In 2010, the HCRRA submitted a Draft Environmental Impact Statement (DEIS) to the Federal Transit Administration (FTA). In August 2010, the Metropolitan Council submitted a New Starts Application to the FTA to enter preliminary engineering. The FTA is expected to respond to both submissions in Bottineau Corridor The Bottineau Corridor is a transitway corridor extending from downtown Minneapolis through North Minneapolis, the developed communities of Robbinsdale, Crystal, Osseo, Brooklyn Park and Maple Grove. The HCRRA-funded Alternatives Analysis study was completed at the end of The next planning phase, the Draft Environmental Impact Statement, will start in early Red Rock Corridor The Red Rock Corridor transit proposals focus on a 30-mile corridor from Hastings through St. Paul, and then to Minneapolis. In 2010, revised concept plans were presented to the public during community open houses. The Red Rock Corridor Commission also conducted a study to finalize locations and designs of the four proposed transit stations in the corridor. The location of three of the four transit stations was finalized in 2010 Hastings, Newport, and St. Paul. Northern Lights Express (Minneapolis to Duluth/Superior Passenger Rail) The HCRRA, in partnership with the regional railroad authorities for St. Louis and Lake County, Anoka County, Isanti County, Pine County; and the Mille Lacs Band of Ojibwe, and the cities of Duluth and Minneapolis, contracted for the completion of a comprehensive feasibility study and business plan for intercity passenger rail service between Minneapolis and Duluth/Superior. In 2010, the Minnesota Department of Transportation approved $3 million to support environmental and engineering work in the Northern Lights Express project. Cedar Avenue Corridor Bus Rapid Transit (BRT) The Cedar Avenue Corridor is a proposed expanded transit service along Cedar Avenue, which is a main connection between the southern suburbs and both downtown Minneapolis and St. Paul. The corridor will be enhanced by bus rapid transit, which has the speed and reliability of light rail at a lower cost. Dakota County is coordinating the Cedar Avenue BRT study with the Urban Partnership Agreement. In September 2010, relocation of private utilities began. The construction contract will be awarded in early 2011 with plans for the majority of construction to be completed in 2011 and The project is expected to be completed in the summer of

14 Interim Use of Properties Acquired for Future Projects The HCRRA currently owns 55 miles of rail corridor; 11 sites suitable for future park and ride lots or stations; and 2 railroad depots; for a total of 83 acres. Although acquired for future transportation needs, recreational trails have been constructed on these corridors as an interim use. Economic and Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the HCRRA operates. Local economy. Hennepin County, the geographic area in which the HCRRA is established, has longstanding characteristics of strength and diversity in comparison to outstate, regional and even the national economy as shown in measurements of income and employment. Healthcare, medical device manufacturing, retail sales, financial services and insurance, high tech, and food processing are significant economic sectors providing a strong employment and wage base in the County. Many large international companies maintain their headquarters in Hennepin County. In 2010, employment in Hennepin County showed an increase. The 2010 average unemployment rate at 6.6 percent was lower than the previous year s average of 7.5 percent. The 2010 rate remained lower than the State rate of 7.3 percent and the national rate of 9.7 percent. Cash management policies and practices. With the exception of a small percentage of funds held in trust in US Treasuries or money market funds, cash held by the County for the HCRRA is invested in AAA-rated obligations of U.S. government-sponsored enterprises and repurchase agreements with primary dealers. The County manages its exposure to fair value losses arising from market conditions by limiting its effective duration to six years or less, and by ensuring that it could hold investments to maturity if necessary. On December 31, 2010, the County s investment portfolio had an effective duration of 1.34 years and a 12-month cash yield of 1.76 percent. To manage credit risk, the County s general investment policy is to apply the prudent-investor rule: investments are made as a prudent investor would be expected to act. Debt management. The HCRRA has $41,865,000 of outstanding limited tax levy supported debt. This debt is currently rated Aaa by Moody s Investor Service, AAA by Standard & Poor s Corporation and AAA from Fitch IBCA. The State of Minnesota Statute 398A.04 limits taxing authority for this debt to percent of the taxable market value within Hennepin County. This taxing authority could generate approximately $62.7 million per year at the current estimated market value of taxable properties. In 2010, the HCRRA levied $15 million in taxes and anticipates a tax levy of $18 million in This taxing authority is deemed to be adequate for repaying the bondholders. 7

15 Risk management. The HCRRA has a comprehensive risk management program, which includes risk retention, transfer, and control techniques. Purchased insurance primarily covers certain property loss exposures. Tort liability claims are self-financed. Additional information is available in Note 6 to the basic financial statements. The preparation of this report could not have been accomplished without the efficient and dedicated services of the entire financial staff of Hennepin County. We would like to express our appreciation to all staff who assisted and contributed to the preparation of this report. Credit also must be given to the HCRRA Board for their support for maintaining the highest standards of professionalism in the management of HCRRA finances. Respectfully submitted, Richard P. Johnson Executive Director 8

16 Hennepin County Regional Railroad Authority Principal Officials 2010 Board of Commissioners: Peter McLaughlin, Chair Gail Dorfman, Vice Chair Mark Stenglein, Secretary Jan Callison, Treasurer Mike Opat Randy Johnson Jeff Johnson Executive Director: Richard P. Johnson 9

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18 Financial Section 11

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20 Independent Auditor s Report Hennepin County Regional Railroad Authority Hennepin County, Minnesota We have audited the accompanying financial statements of the governmental activities and the major funds of Hennepin County Regional Railroad Authority (HCRRA), a component unit of Hennepin County, Minnesota, as of and for the year ended December 31, 2010, as listed in the table of contents. These financial statements are the responsibility of HCRRA s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial positions of the governmental activities and the major funds of HCRRA as of December 31, 2010, and the respective changes in their financial positions for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis and budgetary comparison information are not required parts of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise HCRRA s basic financial statements. The introductory section, supplementary information, and the statistical section are presented for purposes of additional analysis and are not required parts of the basic financial statements. The 2010 supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements for the year ended December 31, 2010, taken as a whole. We have also previously audited, in accordance with auditing standards generally accepted in the United States of America, HCRRA s basic financial statements for the year ended December 31, 2009, which are not presented with the accompanying financial statements. In our report dated August 6, 2010, we expressed unqualified opinions on the respective financial statements of the governmental activities and the major funds. In our opinion, the 2009 supplementary information is fairly stated in all material respects in relation to the basic financial statements for the year ended December 31, 2009, taken as a whole. The introductory section and statistical section as listed in the accompanying table of contents have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on them. Minneapolis, Minnesota July 28,

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22 Hennepin County Regional Railroad Authority Management s Discussion and Analysis This discussion and analysis is intended to provide financial statement readers with a financial overview and narrative analysis of the financial position and activities of the Hennepin County Regional Railroad Authority (HCRRA), a component unit of Hennepin County for the year ended December 31, This information should be considered in conjunction with the information contained in the financial statements, which follow this section. FINANCIAL HIGHLIGHTS Government-Wide At December 31, 2010, the assets of the HCRRA exceeded its liabilities by $23,644,000. Of the total net assets, $37,094,176 was invested in capital assets and $345,647 was restricted for debt service. The remainder consisted of negative unrestricted net assets of $13,795,823. Negative unrestricted net assets exist because the HCRRA has $41,350,554 of debt outstanding relating to bond proceeds that were contributed to the Metropolitan Council in 2002 for the Hiawatha Avenue Light Rail Transit project. Future property tax revenues are expected to be sufficient to offset long-term liabilities as they come due. HCRRA total net assets, as reported in the Statement of Activities, increased by $2,368,233 during This increase of net assets is related to less than anticipated HCRRA spending on the Southwest Corridor, Bottineau Corridor, and Interchange projects. Fund Level At the end of the fiscal year, the HCRRA s governmental funds reported total ending fund balances of $27,748,609, an increase of $928,117 from the prior year balance of $26,820,492. Again, the increase in fund balance was due to less than anticipated spending on the Southwest Corridor, Bottineau Corridor, and Interchange projects. Unreserved fund balance for the General Fund was $27,057,797, which is more than two times the total general fund expenditures for the year ended December 31, Long-Term Debt The HCRRA s total long term debt decreased $1,361,965 in 2010 due to principal repayments and a refunding transaction. OVERVIEW OF THE FINANCIAL STATEMENTS Management s discussion and analysis is intended to serve as an introduction to the HCRRA basic financial statements, which are comprised of two components: 1) combined government-wide and fund financial statements, and 2) notes to the basic financial statements. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of HCRRA finances, in a manner similar to a private-sector business. The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information about the 15

23 OVERVIEW OF THE FINANCIAL STATEMENTS CONTINUED HCRRA as a whole using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus results in the reporting of all inflows, outflows, and balances affecting or reflecting HCRRA net assets. Under 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. There are two government-wide statements. The Statement of Net Assets presents information on all HCRRA assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as an indicator of whether the financial position of the HCRRA is improving or deteriorating. The Statement of Activities presents information showing how the HCRRA net assets changed during the year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. In both statements, HCRRA activities are reported as governmental activities, which are defined as functions that are principally supported by taxes and intergovernmental revenues. Fund Financial Statements The fund financial statements provide detailed information about the HCRRA major funds. 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. HCRRA activity is reported in two major governmental funds, the General Fund and the Debt Service Fund. 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. This approach is known as using the flow of current financial resources measurement focus and the modified accrual basis of accounting. The fund statements provide a detailed short-term view of HCRRA finances that assists in determining whether there will be adequate financial resources available to meet current needs. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the HCRRA s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The reconciliations are presented in the adjustments column in each of the basic financial statements. Notes to the Financial Statements The Notes provide additional information that is essential to a full understanding of the data provided in the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as an indicator of a government's financial position. In the case of the HCRRA, assets exceeded liabilities by $23,644,000 at December 31, The Statement of Net Assets presents all of the HCRRA s assets and liabilities, with the difference between the two reported as net assets. 16

24 GOVERNMENT-WIDE FINANCIAL ANALYSIS CONTINUED Summary of Net Assets Current and other assets $ 29,378,471 $ 30,190,181 Capital assets 37,094,176 37,265,994 Total assets 66,472,647 67,456,175 Long-term liabilities outstanding 39,990,554 41,617,519 Other liabilities 2,838,093 4,562,889 Total liabilities 42,828,647 46,180,408 Total net assets $ 23,644,000 $ 21,275,767 Invested in capital assets net of related debt $ 37,094,176 $ 37,265,994 Restricted 345, ,533 Unrestricted (13,795,823) (16,162,760) Total net assets $ 23,644,000 $ 21,275,767 The largest portion of HCRRA net assets, $37,094,176, reflects its investment in capital assets (primarily land and rail corridor), less any related debt used to acquire those assets that is still outstanding. (No such related debt exists.) The HCRRA uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. An additional portion of the HCRRA s net assets, $345,647, represents resources that are subject to external restrictions on how they may be used. The remainder consisted of negative unrestricted net assets of $13,795,823. Negative unrestricted assets exist because the HCRRA has $41,350,554 of debt outstanding relating to bond proceeds that were contributed to the Metropolitan Council in 2002 for the Hiawatha Avenue Light Rail Transit project. Future property tax revenues are expected to be sufficient to offset long-term liabilities as they come due. HCRRA net assets increased by $2,368,233 during This increase of net assets is related to less than anticipated spending on the Southwest Corridor, Bottineau Corridor, and Interchange projects. Changes in Net Assets Governmental Activities Revenues: Program revenues: Intergovernmental $ 814,086 $ 196,576 Charges for services 824, ,862 Other 61,749 76,201 General revenues: Property taxes 14,410,241 6,886,542 Investment earnings 190, ,822 Total revenues 16,301,457 8,120,003 Expenses: HCRRA 12,506,371 8,436,570 Interest on long-term debt 1,426,853 2,084,043 Total expenses 13,933,224 10,520,613 Change in net assets 2,368,233 (2,400,610) Net assets - beginning 21,275,767 23,676,376 Net assets - ending $ 23,644,000 $ 21,275,767 17

25 FUND FINANCIAL ANALYSIS Changes in Fund Balance The focus of the governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing HCRRA financing requirements. In particular, unreserved fund balance may serve as a useful measure of net resources available for spending at the end of the fiscal year. At the end of the fiscal year, the HCRRA s governmental funds reported total ending fund balances of $27,748,609, an increase of $928,117 from the prior year. The increase in fund balance was due to less than anticipated spending on the Southwest Corridor, Bottineau Corridor, and Interchange projects. Nearly all of ending fund balance, or $27,057,797, constitutes General Fund unreserved fund balance, which may be used to meet the HCRRA s ongoing obligations in accordance with contractual agreements, fund designations, and fiscal policies. The remainder of fund balance is committed for the payment of debt service. Budgetary Highlights At year-end, actual General Fund expenditures of $12,468,700 were significantly lower than the final $23,541,191 budget. The final budget allowed $1.5 million for land acquisition and improvements, but only $276,475 was spent in The final budget also allowed $17.7 million for local corridor match and consulting costs, but actual expenditures were only $8.4 million due to projects not proceeding as quickly as originally planned. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets HCRRA investment in capital assets as of December 31, 2010, amounts to $37,094,176 (net of accumulated depreciation). This investment in capital assets consists of land (including rail corridor) and buildings. Due to depreciation, the HCRRA s investment in capital assets decreased $171,818 from the prior year s balance. Additional information on HCRRA capital assets can be found in Note 4 on page 27 of this report. Debt administration At the end of the current fiscal year, the HCRRA had total long-term levy supported bonds outstanding of $41,350,554 (including unamortized premium and deferred loss on refunding). HCRRA total long-term debt decreased by $1,361,965 (approximately 2.0 percent) during the current fiscal year due to principal repayments and the refunding transaction. HCRRA outstanding bonds are rated as follows: Moody s Investors Service, Inc. Standard and Poor s Corporation Fitch IBCA, Inc. Aaa AAA AAA Additional information on HCRRA long-term debt can be found in Note 5 on page 28 of this report. 18

26 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The 2011 General Fund budget is $35,176,194 higher than the 2010 budget. In 2011, work will continue on several high priority projects. For example, an estimated $5 million will be contributed to the Central Corridor project, $9 million to Southwest Corridor, $2 million to Bottineau Corridor, and $1.5 million to the Interchange project. REQUESTS FOR INFORMATION This financial report is designed to provide an overview for those interested in the HCRRA s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Hennepin County Regional Railroad Authority, A-2301 Government Center, Minneapolis, MN

27 Hennepin County Regional Railroad Authority Governmental Fund Balance Sheets and Statement of Net Assets December 31, 2010 General Debt Service Adjustments Statement of Fund Fund Total (Note 1) Net Assets ASSETS Current assets: Interest in Hennepin County investment pool $ 27,804,163 $ 469,222 $ 28,273,385 $ - $ 28,273,385 Taxes receivable (net) 220, , ,670 Due from other governmental agencies 185, , ,195 Other receivables 423, , ,877 Total current assets 28,633, ,222 29,103,127-29,103,127 Noncurrent assets: Deferred issuance costs , ,344 Capital assets: Land and rail corridor ,197,290 36,197,290 Buildings ,371,256 2,371, ,568,546 38,568,546 Less accumulated depreciation (1,474,370) (1,474,370) Net capital assets ,094,176 37,094,176 Total noncurrent assets ,369,520 37,369,520 Total assets $ 28,633,905 $ 469,222 $ 29,103,127 $ 37,369,520 $ 66,472,647 LIABILITIES Current liabilities: Accounts and contracts payable $ 1,172,245 $ - $ 1,172,245 $ - $ 1,172,245 Accrued liabilities , ,575 Unearned revenue 182, , ,273 Current portion of long-term debt ,360,000 1,360,000 Total current liabilities 1,354,518-1,354,518 1,483,575 2,838,093 Noncurrent liabilities: Noncurrent portion of long-term debt ,990,554 39,990,554 Total liabilities 1,354,518-1,354,518 41,474,129 42,828,647 FUND BALANCES/NET ASSETS Fund balances: Reserved for encumbrances 221, ,590 (221,590) - Unreserved: Designated for: Subsequent years' expenditures 12,881,875-12,881,875 (12,881,875) - Special purposes 100, ,000 (100,000) - Undesignated 14,075, ,222 14,545,144 (14,545,144) - Total fund balances 27,279, ,222 27,748,609 (27,748,609) - Total liabilities and fund balances $ 28,633,905 $ 469,222 $ 29,103,127 Net assets: Invested in capital assets, net of related debt 37,094,176 37,094,176 Restricted for debt service 345, ,647 Unrestricted (deficit) (13,795,823) (13,795,823) Total net assets $ 23,644,000 $ 23,644,000 The notes to the financial statements are an integral part of these statements. 20

28 Hennepin County Regional Railroad Authority Statements of Governmental Fund Revenues, Expenditures, and Changes in Fund Balances and Statement of Activities For the Year ended December 31, 2010 Debt Service Adjustments Statement General Fund Fund Total (Note 1) of Activities PROGRAM REVENUES Intergovernmental $ 814,086 $ - $ 814,086 $ - $ 814,086 Charges for services 824, , ,724 Other 61,749-61,749-61,749 Total program revenues 1,700,559-1,700,559-1,700,559 GENERAL REVENUES Property taxes $ 11,378,966 $ 3,031,275 $ 14,410,241 $ - $ 14,410,241 Investment earnings 190, , ,657 Total general revenues 11,569,623 3,031,275 14,600,898-14,600,898 EXPENDITURES/EXPENSES Regional Railroad: Current: Commodities 42,154-42,154-42,154 Contractual services 12,034,211-12,034,211-12,034,211 Depreciation , ,818 Other 115, , , ,188 Capital outlay 276, ,475 (276,475) - Debt service: Principal retirement - 1,825,000 1,825,000 (1,825,000) - Interest and fiscal charges - 1,385,991 1,385,991 40,862 1,426,853 Total expenditures/expenses 12,468,700 3,210,991 15,679,691 (1,746,467) 13,933,224 Excess (deficiency) of revenues over expenditures/expenses 801,482 (179,716) 621,766 1,746,467 - OTHER FINANCING SOURCES Issuance of debt - 42,595,000 42,595,000 (42,595,000) - Payment to refunded bond escrow agent - (43,682,001) (43,682,001) 43,682,001 - Debt premiums - 1,393,352 1,393,352 (1,393,352) - Total other financing sources - 306, ,351 (306,351) - Net change in fund balances 801, , ,117 (928,117) - Change in net assets ,368,233 2,368,233 FUND BALANCES/NET ASSETS Beginning 26,477, ,587 26,820,492 (5,544,725) 21,275,767 Ending $ 27,279,387 $ 469,222 $ 27,748,609 $ (4,104,609) $ 23,644,000 The notes to the financial statements are an integral part of these statements. 21

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30 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Financial Reporting Entity The Hennepin County Regional Railroad Authority (HCRRA) was established in 1980 for the purpose of the preservation, improvement, and implementation of local rail service in accordance with the powers and authorities granted in Laws of Minnesota Chapter 616. In the course of light rail transit development, the HCRRA purchases rail corridors, park/ride sites, and maintenance facilities. The HCRRA is a blended component unit of Hennepin County, Minnesota. A blended component unit, although a legally separate entity, is in substance part of the County s operations and so data from this unit is combined with financial information of the primary government and reported as a special revenue fund in Hennepin County s Comprehensive Annual Financial Report, which can be obtained from the County. Hennepin County was established in 1852 as an organized county having powers, duties, and privileges granted counties by Minnesota Statutes. The County is governed by a seven-member board of commissioners elected from districts within the County. The County Commissioners comprise the entire HCRRA board and exercise financial accountability. Employees of Hennepin County staff the projects of the HCRRA. The HCRRA has no employees. The financial statements of the HCRRA are prepared in accordance with accounting principles generally accepted in the United States of America as established for governmental entities. Measurement Focus, Basis of Accounting and Basis of Presentation The annual financial report includes two separate sets of statements, the government-wide financial statements and the fund financial statements. The measurement focus, basis of accounting and basis of presentation differs between the government-wide financial statements and the fund financial statements. These differences, along with an explanation of the differing purposes and information provided by these separate financial statements, are described in the sections below. As a special-purpose government engaged in a single governmental program, the government-wide statements and the fund financial statements have been combined in one statement. An adjustments column reflects the following differences between the two types of statements: Governmental funds report capital outlays as expenditures. Capital assets are reported in the Statement of Net Assets at historical cost and in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Long-term liabilities are reported in the statement of Net Assets and related transactions are reported in the Statement of Activities. Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the fund financial statements. 23

31 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Government-wide Financial Statements The government-wide financial statements report information on all of the nonfiduciary activities of the government entity using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus results in the reporting of all inflows, outflows, and balances affecting or reflecting the HCRRA s net assets. Under 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 are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The structure of the two government-wide financial statements (the statement of net assets and the statement of activities) is described in the following two paragraphs. Statement of Net Assets This statement is designed to display the financial position of the HCRRA. The HCRRA reports all capital assets and long-term liabilities, such as long-term debt. The net assets of the HCRRA are broken down into three categories: 1) invested in capital assets, net of related debt; 2) restricted; and 3) unrestricted. Restrictions reported are those imposed by parties outside the HCRRA, such as creditors, grantors, contributors, laws and regulations of other governments. When both restricted and unrestricted resources are available for use, it is the government s policy to use restricted resources first, and then unrestricted resources as they are needed. Statement of Activities This statement demonstrates the degree to which expenses of a given function are offset by program revenues. 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 and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported as general revenues. Just as the statement of net assets includes all capital assets, the Statement of Activities includes depreciation expense. Fund Financial Statements The accounts of the HCRRA are organized on the basis of funds. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds is maintained consistent with legal and managerial requirements. All individual funds are considered major and are reported as separate columns in the fund financial statements. Governmental Funds are used to account for the HCRRA s activities. Governmental fund types use the financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they are measurable and available ). Measurable means the amount of the transaction can be determined. Property taxes are considered measurable when levied for and intergovernmental revenues are considered measurable when applicable eligibility requirements have been met. Available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The HCRRA considers revenues to be available if they are collected within 60 days after year-end. Changes in the fair value of investments are recognized in interest revenues at the end of each year. Expenditures are recorded when the related fund liability is incurred, except for unmatured principal and interest on general long-term debt, which is recognized when due. 24

32 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED The HCRRA reports the following major governmental funds: The general fund is the HCRRA 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 debt service fund accounts for the servicing of general long-term debt. Cash and Investments The HCRRA s cash is deposited in pooled accounts of the Hennepin County Investment Pool (the Pool), an internal investment pool. Cash surpluses in these accounts are invested by the County, and investment earnings, including gains and losses on sales of securities, are allocated to the HCRRA on the basis of average monthly cash balances. Investments are stated at fair value. The fair value of investments is determined annually and is based on quoted market prices. State law authorizes the County to invest in the following instruments: United States Treasury obligations Federal agency issues Repurchase agreements Reverse repurchase agreements Certificates of deposit General obligations of state, local, and housing finance agencies that are rated "A" or better by a national bond rating service Revenue obligations of any state or local government that are rated "AA" or better by a national bond rating service Bankers acceptances Commercial paper Futures contracts Guaranteed investment contracts Options Shares of certain investment companies Capital Assets Capital assets are reported in the government-wide financial statements at historical cost. Capital assets used in governmental activities are not financial resources and therefore net capital assets are not reported in the fund financial statements. Capital assets are depreciated or amortized in the statement of activities for governmental activities using the straight-line method. Buildings are depreciated over their year estimated useful lives. For fund financial statement reporting purposes, capital assets that are purchased or constructed are reported as expenditures as the resources are expended in the statement of revenues, expenditures and changes in fund balances. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized and are reported as expenses in the governmental activities and as expenditures in the fund financial statements. The net capital asset activity in the current period relates to depreciation that is recognized in the government activities statement of activities. 25

33 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Long-Term Obligations In the government-wide financial statements, long-term debt is reported as a liability. Bonds payable are reported net of the applicable bond premium or discount. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. Long-term obligations are not due and payable in the current period and therefore are not reported in the fund financial statements. Governmental funds recognize bond premiums and discounts, as well as bond issuance costs, in the period issued. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources and discounts on debt issuances are reported as other financing uses. Issuance costs, even if withheld from the actual net proceeds received, are reported as expenditures. Bond principal payments and interest are reported as expenditures in the period in which the related payments are made. Fund Balance and Net Assets In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a special purpose. Designations of fund balance represent tentative management plans that are subject to change. On the statement of net assets, the portion of net assets that is invested in capital assets net of related debt is reported separately. Restricted net assets are reported for amounts that are legally restricted by outside parties to be used for a specific purpose. Comparative Data/Reclassifications Comparative totals data for the prior year have been presented in the selected sections of the accompanying financial statements and footnotes in order to provide an understanding of the changes in the HCRRA s financial position and operations. Also, certain amounts presented in the prior year data may have been reclassified in order to be consistent with the current year s presentation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from these estimates. 26

34 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, INTEREST IN HENNEPIN COUNTY INVESTMENT POOL The County s Office of Budget and Finance is responsible for the treasury function of all of the County s deposits and investments held by its funds and blended component units. Cash from all funds is pooled for deposit and investment purposes. At December 31, the HCRRA comprised $28,273,385 or 3.9 percent of the County s total cash and investments. As of December 31, 2010, the County had 80 percent of investments invested in U.S. government agency securities, 18 percent in repurchase agreements, and 2 percent invested in money market funds. Detailed information about the County s deposits with financial institutions, repurchase agreements, interest rate risk, credit risk, concentration of credit risk, and custodial credit risk can be obtained directly from the County s 2010 financial statements. Investment earnings are allocated based on average monthly cash balances. The realized and unrealized components of the 2010 HCRRA investment earnings are presented below Investment income and realized gains and losses $ 492,548 Net decrease in the fair value of investments (301,891) Total Investment Earnings $ 190, RECEIVABLES The HCRRA is a special taxing district with the authority to levy property taxes. Property taxes are a lien on property from the year in which the property is assessed. The lien attaches on the first Monday of the following year. Tax levies are certified to the county auditor five business days after December 20 of the year the property is assessed. The taxes levied are payable in the following year in two equal installments. The amounts and due dates for taxes on real property are half on or before May 15 and the balance on or before October 15. Personal property taxes are due in one installment on May 15. The amount of the allowance for uncollectible delinquent taxes is an estimate based on historical collection experience. Estimated uncollectible delinquent taxes total $109,740 at December 31, The portion of property taxes not included in the allowance and not collected within 60 days is offset by deferred revenue. Other miscellaneous receivables consist of building and land rental. 4. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2010 was as follows: Balance Balance January 1, 2010 Additions Deletions December 31, 2010 Capital assets not being depreciated: Land (including rail corridor) $ 36,197,290 $ - $ - $ 36,197,290 Capital assets being depreciated: Buildings 2,371, ,371,256 Less accumulated depreciation 1,302, ,818-1,474,370 Total capital assets being depreciated, net 1,068,704 (171,818) - 896,886 Capital Assets, Net $ 37,265,994 $ (171,818) $ - $ 37,094,176 27

35 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, LONG-TERM OBLIGATIONS Limited Tax Levy Debt During 2010, HCRRA limited tax obligation debt was issued to refund the $41,755,000 outstanding HCRRA debt of the same type. The reacquisition price exceeded the net carrying amount of the old debt by $1,927,001. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is the same as the life of the new debt issued. This advance refunding resulted in a total reduction of HCRRA debt service payments of $6,435,653 over the next 21 years and a total economic gain of $4,531,722. Remaining interest rates range from 2.0% to 4.0% and the due dates extend through Debt Service Requirements Balance, January 1, 2010 $ 42,850,000 Additions 42,595,000 Reductions (43,580,000) Balance, December 31, ,865,000 Unamortized premium 1,343,212 Less deferred amount on refunding (1,857,658) Less amount due within one year $ (1,360,000) 39,990,554 Principal Interest Total 2011 $ 1,360,000 $ 1,482,900 $ 2,842, ,395,000 1,455,700 2,850, ,435,000 1,427,800 2,862, ,470,000 1,399,100 2,869, ,510,000 1,369,700 2,879, ,370,000 6,197,200 14,567, ,385,000 4,471,000 14,856, ,975,000 2,196,400 15,171, ,965, ,600 3,083,600 $ 41,865,000 $ 20,118,400 $ 61,983,400 Cash Available At December 31, 2010, there was cash available of $469,222 in the Debt Service Fund to service debt. There are no significant limitations and restrictions contained in the debt indentures. 28

36 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, RISK MANAGEMENT The HCRRA is exposed to various risks of loss related to general and professional liability torts; and theft of, damage to, and destruction of assets. The HCRRA has chosen to retain the risk of torts. Commercial property insurance is purchased by the County on behalf of the HCRRA to cover the HCRRA s buildings, money, and securities, subject to deductible amounts. Settled claims from insured losses for the County and HCRRA have not exceeded commercial insurance coverage for the past three years. Because commercial liability insurance is not purchased to provide for funding any future claims, $100,000 has been designated for tort liability risk retention. 7. RESTRICTED NET ASSETS The use of restricted net assets is subject to constraints that are externally imposed by creditors, grantors, contributors, laws, or regulations. Restrictions indicate that the net assets may only be used for a specific purpose that is narrower than the purpose of the reporting unit. Restricted net assets are reduced by liabilities related to those assets. Restricted net assets that are reported in the Statement of Net Assets differ from reserved fund balance shown in the Governmental Funds Balance Sheet. The restriction for debt service is shown at the government-wide level, but is not reserved at the fund level due to the different reporting perspective. Government-wide restricted net assets at December 31 total $345, COMMITMENTS In 2010, the HCRRA Board resolved to expend up to $2.5 million relating to Central Corridor Light Rail Transit advanced construction activities, upon project approval by the Federal Transit Administration. Such costs will be considered as a contribution to the County s total financial obligation for the Central Corridor project. The total HCRRA share of this project is currently estimated at $28.3 million. 9. NEW ACCOUNTING PRONOUNCEMENTS Accounting Standards Not Yet Adopted GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, will be effective for the HCRRA beginning the year ending December 31, This statement provides clearer fund balance classifications and clarifies existing governmental fund type definitions. GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, will be effective for the HCRRA beginning the year ending December 31, This statement addresses issues related to service concession arrangements (SCAs), which are a type of public-private or publicpublic partnership. The standard addresses SCAs in which there is an arrangement between a transferor (a government) and an operator (governmental or nongovernmental entity) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a facility ) in exchange for significant consideration and (2) the 29

37 Hennepin County Regional Railroad Authority Notes to the Basic Financial Statements December 31, NEW ACCOUNTING PRONOUNCEMENTS CONTINUED operator collects and is compensated by fees from third parties. The statement also includes required disclosures about the SCAs. GASB Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34, will be effective for the HCRRA beginning the year ending December 31, This statement modifies certain requirements for inclusion of component units, amends criteria for blending, and clarifies the reporting of equity interests in legally separate entities. Management has not yet determined the effect these GASB statements will have on the financial statements. 30

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39 Hennepin County Regional Railroad Authority Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund For the Year Ended December 31, 2010 With Comparative Actual Amounts for the Year Ended December 31, Budgeted Amounts Variance with 2009 Original Final Actual Final Budget Actual REVENUES Property taxes $ 9,518,116 $ 11,476,044 $ 11,378,966 $ (97,078) $ 3,815,705 Intergovernmental - 393, , , ,576 Investment earnings 500, , ,657 (309,343) 618,822 Charges for services 641, , , , ,862 Other 2,500 2,500 61,749 59,249 76,201 Total revenues 10,661,616 13,012,550 13,270, ,632 5,049,166 EXPENDITURES Current: Commodities 3,150 1,433 42,154 (40,721) 1,504 Contractual services 10,534,828 10,472,063 12,034,211 (1,562,148) 6,622,669 Other 11,314,803 11,164, ,860 11,048,943 1,630,745 Capital outlay 1,905,000 1,902, ,475 1,626,417 - Total expenditures 23,757,781 23,541,191 12,468,700 11,072,491 8,254,918 Excess (deficiency) of revenues over expenditures (13,096,165) (10,528,641) 801,482 11,330,123 (3,205,752) OTHER FINANCING SOURCES Issuance of debt Net change in fund balances (13,096,165) (10,528,641) 801,482 $ 11,330,123 (3,205,752) Fund Balances - Beginning 26,477,905 26,477,905 26,477,905 29,683,657 Fund Balances - Ending $ 13,381,740 $ 15,949,264 $ 27,279,387 $ 26,477,905 See notes to required supplementary information 32

40 Hennepin County Regional Railroad Authority Notes to Required Supplementary Information December 31, 2010 Legal Compliance Budgets Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are adopted for the general and debt service funds based on the modified accrual basis of accounting. All annual appropriations lapse at year-end to the extent that they have not been expended or encumbered. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation is utilized in the general fund. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. The encumbrances are reappropriated as part of the following year s budget. The HCRRA Board must adopt a proposed maximum property tax levy by September 15. The Board holds public hearings, makes modifications to the budget, and legally enacts the budget by passage of a resolution no later than December 31. Any changes in the budget must be within the revenues and reserves estimated or the revenue estimates must be changed by a vote of the Board. Expenditures may not legally exceed budgeted appropriations. 33

41 Hennepin County Regional Railroad Authority Balance Sheet General Fund December 31, 2010 and December 31, ASSETS Interest in Hennepin County investment pool $ 27,804,163 $ 29,318,824 Delinquent taxes receivable, net 220, ,764 Due from other governmental agencies 185,195 - Other receivables 423, ,152 Total assets $ 28,633,905 $ 29,775,740 LIABILITIES AND FUND BALANCES Liabilities: Accounts and contracts payable $ 1,172,245 $ 3,102,870 Accrued liabilities - - Deferred revenue 182, ,965 Total liabilities 1,354,518 3,297,835 Fund balances: Reserved for encumbrances 221,590 63,502 Unreserved: Designated for: Subsequent years' expenditures 12,881,875 10,750,231 Special purposes 100, ,000 Unrealized gain on investments - 223,330 Undesignated 14,075,922 15,340,842 Total fund balances 27,279,387 26,477,905 Total liabilities and fund balances $ 28,633,905 $ 29,775,740 34

42 Hennepin County Regional Railroad Authority Balance Sheet Debt Service Fund December 31, 2010 and December 31, ASSETS Interest in Hennepin County investment pool $ 469,222 $ 342,587 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ - $ - Fund balances: Unreserved 469, ,587 Total liabilities and fund balances $ 469,222 $ 342,587 35

43 Hennepin County Regional Railroad Authority Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Debt Service Fund For the Year Ended December 31, 2010 With Comparative Actual Amounts for the Year Ended December 31, Budgeted Amounts Variance with Original Final Actual Final Budget Actual REVENUES Property taxes $ 3,135,650 $ 3,135,650 $ 3,031,275 $ (104,375) $ 3,070,837 EXPENDITURES Debt service: Principal retirement 1,095,000 1,095,000 1,825,000 (730,000) 1,045,000 Interest and fiscal charges 2,040,650 2,040,650 1,385, ,659 2,081,144 Total expenditures 3,135,650 3,135,650 3,210,991 (75,341) 3,126,144 Deficiency of Revenues Over Expenditures - - (179,716) (179,716) (55,307) OTHER FINANCING SOURCES Issuance of debt - 40,000,000 42,595,000 2,595,000 - Payment to refunded bond escrow agent - (40,000,000) (43,682,001) (3,682,001) - Debt premiums - - 1,393,352 1,393,352 - Total Other Financing Sources , ,351 - Net Change in Fund Balance ,635 $ 126,635 (55,307) Fund Balance - Beginning 342, , , ,894 Fund Balance - Ending $ 342,587 $ 342,587 $ 469,222 $ 342,587 36

44 Statistical Section 37

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46 Hennepin County Regional Railroad Authority Statistical Section Contents Table No. Category and Title Page Financial Trends This section provides information that shows how the HCRRA s financial position has changed over time. 1 Government-wide Net Assets Government-wide Change in Net Assets Fund Balances - Governmental Funds Change in Fund Balances - Governmental Funds Revenue Capacity This section provides information that shows factors affecting the HCRRA's ability to generate its own-source revenues. 5 Property Estimated Market Value Property Tax Rates - Direct and Overlapping Governments Principal Taxpayers Property Tax Levies and Collections Net Tax Capacity and Estimated Market Value of Taxable Property Debt Capacity This section provides information regarding the HCRRA s current level of outstanding debt and its ability to issue additional debt. 10 Ratios of Outstanding Debt by Type Direct and Overlapping General Obligation Debt Legal Debt Margin Information Ratio of Debt Service Expenditures for General Obligation Debt to Total Governmental Fund Expenditures Demographic and Economic Information This section provides information regarding the HCRRA's socioeconomic environment and facilitates comparisons over time and among governments. 14 Demographic and Economic Statistics Labor Force Size and Unemployment Rate Employment Information by Industry Principal Employers

47 Hennepin County Regional Railroad Authority Government-wide Net Assets Last Eight Years Table 1 Governmental Activities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total 2003 $ 34,682,871 $ 442,706 $ (17,466,654) $ 17,658, ,500, ,881 (18,660,134) 18,104, ,522, ,600 (18,948,172) 17,841, ,478, ,953 (19,628,940) 18,149, ,609, ,353 (17,445,218) 20,320, ,437, ,465 (13,985,901) 23,676, ,265, ,533 (16,162,760) 21,275, ,094, ,647 (13,795,823) 23,644,000 Unaudited 40

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49 Hennepin County Regional Railroad Authority Government-wide Change in Net Assets Last Eight Years Governmental Activities: Expenses General Government $ 2,232,349 $ 4,914,809 $ 6,919,198 $ 9,803,985 $ 11,414,301 Debt Service 2,267,242 2,241,981 2,215,768 2,186,585 2,156,064 Total expenses 4,499,591 7,156,790 9,134,966 11,990,570 13,570,365 Program Revenues Intergovernmental 612, , , ,834 1,639,436 Charges for services Other 1,898, , ,775 3,591, ,400 Total program revenues 2,510,537 1,023,218 1,242,183 3,942,948 2,342,836 Net expense (1,989,054) (6,133,572) (7,892,783) (8,047,622) (11,227,529) General Revenues Property taxes 4,425,119 6,075,846 7,209,812 7,255,996 12,064,484 Investment earnings 646, , ,052 1,099,693 1,334,042 Total general revenues 5,071,459 6,579,269 7,629,864 8,355,689 13,398,526 Change in net assets $ 3,082,405 $ 445,697 $ (262,919) $ 308,067 $ 2,170,997 Unaudited 42

50 Table $ 12,491,547 $ 8,436,570 $ 12,506,371 2,121,963 2,084,043 1,426,853 14,613,510 10,520,613 13,933, , , , , , ,209 76,201 61,749 1,247, ,639 1,700,559 (13,366,123) (9,905,974) (12,232,665) 15,093,624 6,886,542 14,410,241 1,628, , ,657 16,721,735 7,505,364 14,600,898 $ 3,355,612 $ (2,400,610) $ 2,368,233 43

51 Hennepin County Regional Railroad Authority Fund Balances - Governmental Funds Last Eight Years Table 3 General Fund Debt Service Fund Year Reserved Unreserved Total Unreserved 2003 $ 159,471 $ 30,848,722 $ 31,008,193 $ 442, ,111,576 27,845,527 28,957, , ,424 27,177,768 27,781, , ,177,456 26,177, , ,356 27,144,989 27,226, , ,548 29,529,109 29,683, , ,502 26,414,403 26,477, , ,590 27,057,797 27,279, ,222 Unaudited 44

52 45

53 Hennepin County Regional Railroad Authority Change in Fund Balances - Governmental Funds Last Eight Years Revenues Property taxes $ 4,424,240 $ 6,075,846 $ 7,209,812 $ 7,255,996 Intergovernmental 605, , , ,834 Investment earnings 646, , ,052 1,099,693 Charges for services Other 691, , ,775 1,079,682 Total revenues 6,367,736 7,602,487 8,872,047 9,787,205 Expenditures General government 2,225,932 4,806,715 6,721,067 7,656,942 Capital outlay 993,846 2,092, ,253 3,100,247 Debt service: Principal 840, , , ,000 Interest 2,263,069 2,237,869 2,211,919 2,182,831 Total expenditures 6,322,847 10,002,377 10,044,239 13,870,020 Excess (deficiency) of revenues over expenditures 44,889 (2,399,890) (1,172,192) (4,082,815) Other Financing Sources (Uses) Issuance of debt Payment to refunded bond escrow agent Transfers in Sale of capital assets 2,354, ,975-2,511,432 Debt premiums Total other financing sources (uses) 2,355, ,975-2,511,432 Net change in fund balances $ 2,400,125 $ (2,229,915) $ (1,172,192) $ (1,571,383) Debt service as a percentage of noncapital expenditures 58.2% 39.2% 31.6% 28.9% Unaudited 46

54 Table $ 12,064,484 $ 15,093,624 $ 6,886,542 $ 14,410,241 1,639, , , ,086 1,334,042 1,628, , , , , , ,209 76,201 61,749 15,741,362 17,969,122 8,120,003 16,301,457 8,075,344 12,323,007 8,254,918 12,192,225 3,491, , ,000 1,005,000 1,045,000 1,825,000 2,152,606 2,118,831 2,081,144 1,385,991 14,684,429 15,446,838 11,381,062 15,679,691 1,056,933 2,522,284 (3,261,059) 621, ,595, (43,682,001.00) , ,393, , ,351 $ 1,081,858 $ 2,522,284 $ (3,261,059) $ 928, % 20.2% 27.5% 20.8% 47

55 Hennepin County Regional Railroad Authority Property Estimated Market Value (000s omitted) 1 Last Ten Years Real Estate Residential Multiple Commercial Public Utilities Property Dwelling & Industrial Agricultural & Miscellaneous 2001 $ 60,571,223 5,704,822 19,509, ,176 25, % $ 69,909,403 6,499,918 20,264, ,497 34, % $ 78,678,876 7,321,272 20,165, ,926 37, % $ 87,082,509 7,805,970 20,541, ,861 26, % $ 96,564,547 8,130,642 22,365, ,315 28, % $ 104,903,604 8,236,029 25,052, ,554 33, % $ 109,251,869 8,562,454 28,186, ,835 84, % $ 107,145,474 8,628,267 29,764, ,041 68, % $ 102,430,703 8,628,975 28,723, ,764 58, % $ 95,810,842 8,126,550 26,455, ,687 50, % Property estimated market value is for the assessment year indicated. Applicable taxes are collectible in the subsequent year. Source: Hennepin County Property Information System. Unaudited 48

56 Table 5 Total Taxable and Total Taxable Total Personal Exempt Estimated Estimated Total Direct Exempt Real Estate Property Property Value Property Value Tax Rate 10,035,711 96,268, ,814 $ 97,266,804 $ 87,231, % % 10,035, ,198,290 1,024,891 $ 108,223,181 $ 98,187, % % 10,035, ,730,255 1,064,528 $ 117,794,783 $ 107,759, % % 18,965, ,977,067 1,102,615 $ 136,079,682 $ 117,114, % % 18,965, ,784,300 1,165,961 $ 147,950,261 $ 128,984, % % 18,965, ,030,935 1,232,185 $ 159,263,120 $ 140,297, % % 18,965, ,940,398 1,217,773 $ 167,158,171 $ 148,192, % % 18,965, ,436,884 1,234,923 $ 166,671,807 $ 147,706, % % 18,965, ,580,623 1,238,596 $ 160,819,219 $ 141,853, % % 21,249, ,379,459 1,295,495 $ 153,674,954 $ 132,425, % % 49

57 Hennepin County Regional Railroad Authority Property Tax Rates and Levies - Direct and Overlapping Governments 1 Last Ten Years HCRRA Direct Taxes Hennepin County Tax Payable Year Tax Rates Tax Levies Tax Rates Tax Levies % $ 4,679, % $ 1,893,370, ,682, ,694,901, ,684, ,798,087, ,407, ,839,119, ,544, ,929,968, ,534, ,073,863, ,521, ,218,680, ,529, ,353,094, ,000, ,535,570, ,000, ,544,559,665 1 The Metropolitan Airport Commission, an overlapping government, receives all of its revenue from sources other than property taxes. Unaudited 50

58 Table 6 Metropolitan Transit Metropolitan Mosquito Commission Tax Metropolitan Council Tax Control District Tax Tax Rates Tax Levies Tax Rates Tax Levies Tax Rates Tax Levies % $ 50,137, % $ 9,861, % $ 3,931, ,510, ,618, ,692, ,702, ,536, ,542, ,701, ,224, ,058, ,412, ,576, ,726, ,691, ,929, ,852, ,509, ,973, ,395, ,283, ,092, ,801, ,455, ,156, ,874, ,612, ,720, ,417,379 51

59 Table 7 Hennepin County Regional Railroad Authority Principal Taxpayers 1 Current Year and Nine Years Ago Percentage Percentage of Total of Total Taxpayer Tax Capacity Rank Tax Capacity Tax Capacity Rank Tax Capacity MOA Mall Holdings LLC $ 10,856, % $ 16,916, % MB Minneapolis 8th St LLC 3,563, Minneapolis 225 Holdings LLC 3,433, NWC Limited Partnership 3,313, ,907, Wells REIT 2,749, Xcel Energy (NSP) 2,751, US Bank N.A. 2,747, Best Buy Co Inc 2,369, Ridgedale Joint Venture 2,299, ,355, Eden Prairie Mall LLC 2,239, Second Ave Ltd Partnership 5,506, First Minneapolis-Hines Co 5,176, RREEF Funds/IDS 4,775, City Center Associates 4,544, Byte Investment Partnership 1 3,624, CPP 800 Nillolet Mall LLC 3,460, Concordia Properties 3,306, Total $ 36,322, $ 56,575, Xcel Energy includes both real and personal property tax capacity. All others are based on the tax capacity of individual parcels. Source: Hennepin County Property Information System. Unaudited 52

60 Hennepin County Regional Railroad Authority Property Tax Levies and Collections Last Ten Years Table 8 Collected in the Year Levied Total Collections to Date Subsequent Year Tax Collections Percentage Collections Tax Collections Percentage Year Taxes Levied 1 Net of Refunds of Levy Net of Refunds 2 Net of Refunds 2 of Levy $ 4,679,958 $ 4,635, % $ 8,405 $ 4,644, % ,682,436 4,645, ,760 4,651, ,684,560 4,645, ,264 4,663, ,407,280 6,333, ,608 6,341, ,544,112 7,452, ,755 7,484, ,534,074 7,424, ,488 7,476, ,521,979 12,315, ,083 12,386, ,529,575 15,241, ,465 15,387, ,000,000 6,889, ,829 7,080, ,000,000 14,716, ,228 14,818, Including current year adjustments (i.e., abatements, cancellations, and increases to the current year levy). 2 Subsequent year collections are shown in the year they are collected, rather than for the levy year relating to the collection. As a result, collections during a year may exceed the total levy for that year. Unaudited 53

61 Hennepin County Regional Railroad Authority Net Tax Capacity and Estimated Market Value of Taxable Property Last Ten Years Property Outside the City of Minneapolis Minneapolis Net Estimated Net Estimated Assessment Tax Market Tax Market Year Capacity Value Capacity Value 2001 $ 679,644,971 $ 64,096,397,460 $ 240,566,900 $ 23,134,698, ,733,176 72,315,485, ,694,160 25,871,984, ,641,255 79,234,702, ,042,122 28,524,370, ,456,710 86,023,891, ,462,012 31,090,167, ,443,572 94,192,785, ,041,511 34,791,850, ,105,871, ,200,930, ,841,727 37,096,565, ,192,261, ,551,270, ,535,647 38,641,276, ,198,620, ,594,398, ,935,332 38,111,782, ,161,337, ,796,090, ,141,541 37,057,503, ,082,056,515 97,469,684, ,912,341 34,955,675,900 Unaudited 54

62 Table 9 Total Percentage of Total Net Estimated Net Tax Capacity HCRRA Net Tax Capacity Tax Market to Estimated Outside Capacity Value Market Value Minneapolis Minneapolis $ 920,211,871 $ 87,231,095, % 73.9 % 26.1 % 987,427,336 98,187,470, ,070,683, ,759,072, ,193,918, ,114,059, ,334,485, ,984,636, ,480,713, ,297,495, ,602,797, ,192,546, ,612,555, ,706,180, ,600,479, ,853,594, ,476,968, ,425,360,

63 Hennepin County Regional Railroad Authority Ratios of Outstanding Debt by Type Last Ten Years Table 10 Net Limited Tax Net Limited Tax Net Limited Net Limited Tax General Obligation Debt 1 General Obligation General Obligation Tax General Less Amount Debt as a Percentage Debt as a Obligation Available for of Property Estimated Percentage of Debt Per Year Total Debt Service Net Market Value 2 Personal Income 3 Capita $ - $ - $ % 0.00% $ ,395, ,872 48,739, % 0.10% ,555, ,706 48,112, % 0.10% ,690, ,881 47,426, % 0.09% ,795, ,600 46,527, % 0.08% ,865, ,953 45,565, % 0.08% ,900, ,143 44,552, % 0.07% ,895, ,488 43,486, % 0.07% ,850, ,587 42,507, % 0.07% ,865, ,222 41,395, % N/A HCRRA debt has historically consisted solely of limited tax general obligation bonds, which are by definition secured in whole or part by the authority to levy taxes on real estate. Per M.S , the net limited tax general obligation debt is determined by deducting from the total limited tax general obligation debt the cash available for servicing the debt and debt intended to be financed primarily by means other than a real estate tax levy. 2 See Table 5 for taxable estimated market value data. 3 See Table 14 for personal income and population data. 4 Data not available at the time of publication. Unaudited 56

64 Hennepin County Regional Railroad Authority Direct and Overlapping General Obligation Debt December 31, 2010 Table 11 Percent Amount Debt 1 Applicable Applicable Governmental Unit Total Net To HCRRA 2 to HCRRA Direct - Hennepin County Regional Railroad $ 41,865,000 $ 41,395, % $ 41,395,778 Total Direct Debt 41,865,000 41,395,778 41,395,778 Overlapping: Hennepin County 828,835, ,752, ,752,625 Metropolitan Council 3 1,283,405, ,078, ,433,405 Metropolitan Airport Commission 1,777,120, Total Overlapping Debt 3,889,360, ,831, ,186,030 Total $ 3,931,225,536 $ 932,227,306 $ 827,581,808 1 Debt that is secured in whole or part by the authority to levy taxes on real estate. Per M.S , net general obligation debt is determined by deducting from the total general obligation debt the cash available for servicing the debt and debt that is intended to be financed primarily by means other than a real estate tax levy. 2 The percentages reflect the portion of the general obligation debt which is secured by taxable real estate located within the County. 3 Includes Metropolitan Council Transit Operations debt. Unaudited 57

65 Hennepin County Regional Railroad Authority Legal Debt Margin Information Last Ten Years Table 12 The HCRRA is subject to the legal debt limit of Hennepin County as a whole, which is described below: Debt Limit 1 Total Net Debt Applicable to Limit Legal Debt Margin Net Debt Applicable to Limit as a Percentage of Debt Limit 2001 $ 1,744,621,900 $ 321,783,649 $ 1,422,838, % ,963,749, ,778,915 1,594,970, ,155,181, ,099,737 1,767,081, ,342,281, ,929,687 1,945,351, ,579,692, ,123,804 2,162,568, ,805,949, ,724,175 2,366,225, ,963,850, ,344,086 2,493,506, ,954,123, ,343,193 2,393,780, ,837,071, ,521,805 2,179,550, ,972,760, ,148,403 3,221,612, Computation of 2010 Legal Debt Margin 2010 property estimated market value $ 132,425,360,100 Debt limit, 3% of market value $ 3,972,760,803 Amount of levy supported debt $ 758,405,000 Less amount available for debt service 7,256, ,148,403 Legal Debt Margin $ 3,221,612,400 1 The debt limit was 2% of market value until 2010, when it became 3% of market value. Unaudited 58

66 Hennepin County Regional Railroad Authority Ratio of Debt Service Expenditures for General Obligation Debt to Total Governmental Fund Expenditures Last Ten Years Table 13 Debt Service Debt Service Expenditures Expenditures Interest and Total to Total Year Principal Fiscal Charges Total Expenditures Expenditures 2001 $ - $ - $ - $ 17,914,140 - % ,000 2,281,219 2,886,219 52,409, ,000 2,263,069 3,103,069 6,322, ,000 2,237,869 3,102,869 10,002, ,000 2,211,919 3,106,919 10,044, ,000 2,182,831 3,112,831 13,870, ,000 2,152,606 3,117,606 14,684, ,005,000 2,118,831 3,123,831 15,446, ,045,000 2,081,144 3,126,144 11,381, ,825,000 1,385,991 3,210,991 15,679, Unaudited 59

67 Hennepin County Regional Railroad Authority Demographic and Economic Statistics Last Ten Years Table 14 Persons 25 years Per and older who K - 12 Capita Total Median are high school School Unemploy- Year Population 1 Income 2 Income Age 3 graduates 3 Enrollment 4 ment Rate ,114,977 $ 43,452 $ 48,447,980, % 158, % ,122,259 43,732 49,078,630, , ,121,035 45,141 50,604,640, , ,120,897 48,041 53,849,012, , ,119,364 50,412 56,429,377, , ,122,093 52,905 59,364,330, , ,136,599 56,280 63,967,791, , ,140,988 56,564 64,538,845, , ,156,212 54,008 62,444,697, , ,152,425 N/A 5 N/A 5 N/A 5 N/A 5 157, Sources: 1 Office of the State Demographer and U.S. Census Bureau 2 U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts Annual Average 3 U.S. Census Bureau, U.S. Community Survey 3-Year Estimates 4 Fall registration for public schools - Minnesota State Department of Education 5 Information not available at time of publication Unaudited 60

68 Table 15 Hennepin County Regional Railroad Authority Labor Force Size and Unemployment Rate 2 Last Ten Years Hennepin County Metropolitan Area 1 State National Labor Unemployment Labor Unemployment Labor Unemployment Labor Unemployment Force Rate Force Rate Force Rate Force Rate , % 1,771, % 2,814, % 141,774, % , ,880, ,851, ,508, , ,833, ,923, ,510, , ,832, ,951, ,401, , ,850, ,947, ,320, , ,844, ,939, ,428, , ,848, ,930, ,124, , ,837, ,933, ,287, , ,855, ,967, ,015, , ,860, ,963, ,889, Source: Minnesota Department of Jobs and Training 1 Labor statistics for the metropolitan area include Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, St. Croix, Washington and Wright counties. 2 Annual averages Unaudited 61

69 Hennepin County Regional Railroad Authority Employment Information by Industry Last Nine Years Table 16 Hennepin County Industry Ranking Industry Health care and social assistance Professional and technical services Government and government enterprises Finance and insurance Retail trade Manufacturing Accomodation and food services Administrative and waste services Wholesale trade Other services, except public administration Real estate Management of companies and enterprises Transportation and warehousing Construction Arts, entertainment, and recreation Educational services Information Utilities Forestry, fishing, mining, other Farm Note: 2010 information is not yet available. Source: United States Department of Commerce, Bureau of Economic Analysis Unaudited 62

70 Hennepin County Regional Railroad Authority Principal Employers Current Year and Five Years Ago Table 17 Employer Employees (rounded to nearest 100) Rank Percentage of Total County Employment Employees (rounded to nearest 100) Rank Percentage of Total County Employment University of Minnesota 17, % 25, % Tyco Electronics 9, % Fairview University Medical Center 8, % 8, % Methodist Hospital 8, % 7, % Hennepin County Offices 7, % 12, % Ameriprise Financial 7, % Best Buy Co Inc. 6, % Park Nicollet Health Services 6, % 6, % Abbott Northwestern Hospital 5, % 5, % Fairview Southdale Hospital 5, % 5, % United Parcel Service of America, Inc. 5, % Cardiac Rhythm Management 5, % Medtronic Tachyarrhythmia Management 4, % 79, % 82, % Sources: ACINET.ORG and Hennepin County Office of Budget and Finance 1 Data not available prior to Unaudited 63

71 64