Minnesota Comprehensive Annual Financial Report for the Year Ended December 31, 2014

Transcription

1 Minnesota Comprehensive Annual Financial Report for the Year Ended December 31, 2014

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3 CITY OF ST. MICHAEL WRIGHT COUNTY, MINNESOTA Comprehensive Annual Financial Report for Year Ended December 31, 2014 Prepared by Finance Department

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5 CITY OF ST. MICHAEL WRIGHT COUNTY, MINNESOTA Table of Contents Page INTRODUCTORY SECTION CITY COUNCIL AND CITY OFFICIALS ORGANIZATION CHART LETTER OF TRANSMITTAL CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING i ii iii vi vii FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT 1 3 MANAGEMENT S DISCUSSION AND ANALYSIS 4 12 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 13 Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet 16 Reconciliation of the Balance Sheet to the Statement of Net Position 17 Statement of Revenue, Expenditures, and Changes in Fund Balances 18 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities 19 Statement of Revenue, Expenditures, and Changes in Fund Balances General Fund Budget and Actual Proprietary Funds Statement of Net Position 22 Statement of Revenue, Expenses, and Changes in Fund Net Position 23 Statement of Cash Flows 24 Agency Fund Statement of Fiduciary Net Position 25 Notes to Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION St. Michael Firemen s Relief Association Schedule of Funding Progress 48 SUPPLEMENTAL INFORMATION Combining and Individual Fund Statements and Schedules Nonmajor Governmental Funds 49 Combining Balance Sheet 50 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 51 Nonmajor Debt Service Funds Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 52 53

6 CITY OF ST. MICHAEL WRIGHT COUNTY, MINNESOTA Table of Contents (continued) Page SUPPLEMENTAL INFORMATION (CONTINUED) Combining and Individual Fund Statements and Schedules (continued) Nonmajor Capital Projects Funds Combining Balance Sheet 54 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 55 Park Dedication Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 56 Agency Fund Statement of Changes in Assets and Liabilities 57 Discretely Presented Component Unit Economic Development Authority 58 Combining Balance Sheet Combining Statement of Revenue, Expenditures, and Changes in Fund Balances Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual Economic Development Authority General Fund 63 Business Center TIF District Special Revenue Fund 64 Downtown TIF District Special Revenue Fund 65 Oakwood Parkway TIF District Special Revenue Fund 66 Industrial Park TIF District Special Revenue Fund 67 Cornerstone TIF District Special Revenue Fund 68 Kwik Trip Signal TIF District Special Revenue Fund 69 Other City Information Schedule of Bonds Payable STATISTICAL SECTION (UNAUDITED) Net Position by Component Changes in Net Position Governmental Activities Tax Revenues by Source 78 Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds General Governmental Tax Revenues by Source 83 Assessed Value (Tax Capacity) and Estimated Actual Value of Taxable Property Property Tax Rates Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections 90 Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding 93 Direct and Overlapping Governmental Activities Debt 94 Legal Debt Margin Information Pledged Revenue Coverage Demographic and Economic Statistics 99 Principal Employers 100 Full-Time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function

7 INTRODUCTORY SECTION

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9 CITY OF ST. MICHAEL WRIGHT COUNTY, MINNESOTA City Council and City Officials Year Ended December 31, 2014 CITY COUNCIL Term Expires Position Jerry Zachman 2015 Mayor Kevin Kasel 2015 Councilmember Joseph Marx 2017 Councilmember Nadine Schoen 2015 Councilmember Christopher Schumm 2017 Councilmember CITY OFFICIALS Steven Bot Diana Berning Susan Ferbuyt City Administrator/Public Works Director City Clerk Assistant Finance Director -i-

10 CITY OF ST. MICHAEL, MINNESOTA ORGANIZATION CHART December 31, 2014 The Citizens of St. Michael Mayor and City Council Economic Development Planning City City Authority Commission Administrator Attorney Community Assessing Administration Fire Finance Inspections Public Development Works Code Street Park Planning Enforcement Engineering Utilities Maintenance Maintenance -ii-

11 May 21, 2015 To the Honorable Mayor, City Council Members, and Citizens City of St. Michael, Minnesota The comprehensive annual financial report (CAFR) of the City of St. Michael, Minnesota (the City) for the fiscal year ended December 31, 2014 is hereby submitted. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate, in all material respects, and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. All disclosures necessary to enable the reader to gain an understanding of the City s financial activities have been included. This report includes all funds of the City (the primary government). In addition to the primary government s activities, the report includes the legally separate St. Michael Economic Development Authority (EDA) reported as a discretely presented component unit of the City. The 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. The MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE The City covers 37 square miles and is located northwest of the Minneapolis/St. Paul metropolitan area, along the Interstate 94 (I-94) corridor in Wright County. The City experienced rapid growth from 1998 to 2005, but growth has slowed since then. The City operates under the council-administrator form of government. Policy-making and legislative authority are vested in the City Council, consisting of a Mayor and four Councilmembers. The City Council is responsible for passing ordinances, adopting budgets, appointing committees, hiring staff, appointing consultants, and other formal and informal duties. The City Administrator is responsible for carrying out policies, ordinances, and other directives of the City Council and overseeing day-to-day operations of the City. The Mayor is elected at-large and serves a two-year term. Councilmembers are also elected at-large and serve four-year terms, with two members up for election every two years. The City provides a full range of services, including fire protection, police, public works, building inspection, planning and code enforcement, parks/trail improvement and maintenance, assessing, and other general activities. The City contracts with the Wright County Sheriff s Department for 32-hour-per-day police protection. In addition, the City offers the following services to residents: water, sewer, storm water drainage, and recycling, which are operated as enterprises. The annual budget serves as the foundation for the City s financial planning and control. Budgets are adopted annually by the City Council in December, after several months of analysis and review. Citizens have an opportunity for input at the Truth-in-Taxation public hearing. Budgeting controls in the General Fund are maintained at the fund level. Appropriations not expended at the end of the fiscal year lapse. Significant budget increases require City Council approval. -iii- -iii-

12 ECONOMIC CONDITION AND OUTLOOK Economy and Housing While the number of permits for single family housing decreased from 56 in 2013 to 38 in 2014, the City saw 3 new commercial/industrial permits. The City maintains a cautious and conservative budgeting approach. Other key financial factors affecting the City s financial outlook are: In 2014, the City again had the lowest tax rate of any city in Wright County. The City s bond rating has increased four times since 2002, and is currently AA-. The average value of a single family home increased from $209,800 in 2013 to $235,500 in The City Assessor reports that residential values have increased 6.47 percent, percent, and 4.10 percent for taxes payable in 2013, 2014, and 2015, respectively. Commercial, Industrial, and Institutional It is a priority of the City to stimulate new commercial and industrial (C&I) development and to retain and expand existing businesses. The following details recent efforts to stimulate C&I expansion: Goodyear began construction on a new site in 2014 and opened in May of Marksman Metals, a manufacturing and fabrication company, constructed a new 34,645 square foot facility. Superior Storage constructed three 3,750 square foot buildings on a former propane business site. The Legacy of St. Michael completed an expansion of 24 memory care units in Crossfit STMA opened in 2013 in the J&B industrial area. North Country Recycling opened in 2013 in the Quam industrial area. Lucky Pets opened in 2013 in the former Builders Carpet building along Highway 241. A new Kwik Trip Travel Center (fuel station, convenience store, and car wash) opened in the fall of A compressed natural gas facility was added in Cornerstone Clinic located on Highway 241 opened in Town Center is 200 acres of mixed residential and commercial development north of Highway 241 and east of downtown. MAJOR INFRASTRUCTURE INITIATIVES AND LONG-TERM PLANS The City is part of a coalition working to expand I-94 to 6 lanes from Rogers to St. Cloud. In 2014, this effort was rewarded with the state of Minnesota adding a lane each direction on I-94 from Rogers to Highway 241 in the City, which included replacing a bridge over the Crow River. This project is funded with state and federal funds. The City believes this project is important for traffic flow for our residents and to allow businesses to transport their products. The City recognizes that keeping infrastructure in good shape is a necessity and prevents further costs down the road. In 2014, work began on the NE Downtown reconstruction project replacing water and sewer pipes, storm drainage system, and streets. Future planned reconstruction projects consist of Quam Avenue Northeast, Frankfort Hills, and Lake View Estates neighborhoods. Funding will come from municipal state aid, assessments, business-type funds, and city funds. Parks and trails are also important to maintain quality of life. In 2014, construction was completed on the Beebe Lake Trail in cooperation with the City of Hanover, the Department of Natural Resources (DNR), and the Minnesota Department of Transportation (MnDot). The trail connects County Road 19 to Beebe Lake and was paid primarily through grants from the DNR and MnDot. Construction also continued on a trail along County Road 119 from Janson to Jamison. This trail runs from downtown out to the high school and is paid by a grant and city funds. -iv-

13 The City has a 10-year equipment replacement, capital project, and capital building plans to ensure these funds and any related debt service were being considered into the foreseeable future from an annual budgetary standpoint. The City Council reviews long-term debt and anticipated funding needs annually. The City Council has been willing to increase the levy as needed to meet debt obligations. RELEVANT FINANCIAL POLICIES The City has a policy that the General Fund year-end fund balance be 50 percent of current expenditures. The year-end fund balance in 2014 was $3,438,933, which is 65.5 percent of total General Fund expenditures of $5,250,520. In 2013, the General Fund balance was 58.7 percent of expenditures, signaling financial stability. The City utilizes interest-bearing checking accounts, money market accounts, saving accounts, government securities, and certificates of deposit to maximize interest earnings on all funds. The type of account used is dependent upon forecasted cash flow. Cash is invested only as authorized by Minnesota Statutes, Chapter 118. The City s investment policy limits maturities beyond five years to no more than 40 percent of the cash and investment portfolio and no maturities are allowed to extend beyond 10 years. Cash balances for all funds of the City are maintained on a combined basis and invested to the greatest extent possible. Earnings from securities are allocated to the various funds in proportion to their relative cash book balances. The City s total interest earnings on investments for 2014 was $144,153. The adjustment to bring investments to market value was $192,367. Capital financing for major municipal improvements is provided through improvement bonds, general obligation bonds, tax increment bonds, or revenue bonds. Depending upon the project, special assessments may be levied upon properties to share in the cost of the improvement project. The special assessments are collected over a period of time and are used to help satisfy the improvement bond debt. Occasionally, the City will finance projects internally through temporary loans or advances from other funds. The City Council sets the terms and conditions of the interfund loan or advance, including the rate of interest to be charged. Currently, there are loans and an advance from each of the tax increment financing districts to the Capital Projects Fund and the EDA for expenditures relating to each district. The City Council has adopted a comprehensive set of internal control procedures. Management of the City is responsible for establishing and maintaining internal control designed to ensure that the assets of the government are protected from loss, theft, or fraud, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America. Internal control is designed to provide reasonable, but not absolute assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the General Fund and special revenue funds are included in the annual appropriated budget. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established at the fund level. The City Council is given monthly financial reports for the General Fund and business-type funds. Quarterly reports are given for all other funds. The City Council then approves all reports. -v-

14 The City annually reviews and updates insurance coverage for city-owned property and workers compensation and liability coverage. The City has coverage through the League of Minnesota Cities Insurance Trust, who praised the City for its low claims history. Periodically, risk assessments are done by the insurer in an attempt to assist the City in minimizing its risk. The City voluntarily underwent an Occupational Safety and Health Administration (OSHA) Compliance Analysis of its Public Works facility. The City received high marks from OSHA. Additionally, the City has a safety committee and participates in regular safety training and planning. The City s workers compensation provider has informed the City that it has a relatively low incidence of workers compensation claims. INDEPENDENT AUDIT The financial statements were audited by Malloy, Montague, Karnowski, Radosevich & Co., P.A. (MMKR), Certified Public Accountants, and their opinion has been included in this report. The scope of the audit included the basic financial statements of the City for the year ended December 31, Their audit was made in accordance with auditing standards generally accepted in the United States of America. The scope of the audit was sufficient to satisfy state and federal requirements. The independent auditor s report indicates that the auditor s examination provided a reasonable basis to conclude that the City s basic financial statements are fairly stated in all material respects. CERTIFICATE OF ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its CAFR for the fiscal year ended December 31, This is the eleventh consecutive year the City has received this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR, whose contents conform to program standards. Such reports must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. ACKNOWLEDGEMENTS I would like to commend the City s staff for their hard work and dedication. I would also like to recognize the firm of MMKR for their professional assistance. Finally, I would like to thank the Mayor and City Council for their continued interest and support in planning and conducting the financial operations of the City in a very responsible and professional manner. Respectfully submitted, Steven Bot City Administrator -vi-

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17 FINANCIAL SECTION

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19 INDEPENDENT AUDITOR S REPORT To the City Council and Management City of St. Michael, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of St. Michael, Minnesota (the City) as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. MANAGEMENT S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s 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 City 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 City 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -1- (continued)

20 OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of December 31, 2014, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparisons for the General Fund for the year then ended, in accordance with accounting principles generally accepted in the United States of America. OTHER MATTERS Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis, and the Schedule of Funding Progress for the St. Michael Firemen s Relief Association, 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 s basic financial statements. The introductory section, supplemental information, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The supplemental information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental information is 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. -2- (continued)

21 Prior Year Comparative Information We have previously audited the City s 2013 financial statements, and we expressed unmodified audit opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information in our report dated May 15, In our opinion, the partial comparative information presented herein as of and for the year ended December 31, 2013 is consistent, in all material respects, with the audited financial statements from which it has been derived. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated May 21, 2015 on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 the City s internal control over financial reporting and compliance. Minneapolis, Minnesota May 21,

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23 MANAGEMENT S DISCUSSION AND ANALYSIS

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25 CITY OF ST. MICHAEL Management s Discussion and Analysis Year Ended December 31, 2014 As management of the City of St. Michael, Minnesota (the City) we have provided readers of the City s financial statements with this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, located previously in this report. FINANCIAL HIGHLIGHTS The assets of the City exceeded its liabilities by $43,906,495 (net position) as of December 31, Of this amount, $17,124,343 is unrestricted. The City s total net position increased $1,239,928 during the 2014 fiscal year. The City s governmental funds reported combined ending fund balances of $12,832,203 as of December 31, Of this amount, approximately 26.3 percent is unassigned. As of December 31, 2014, total fund balance for the General Fund was $3,438,933, which represents 65.5 percent of General Fund expenditures for OVERVIEW OF THE FINANCIAL STATEMENTS The Management s Discussion and Analysis (MD&A) is intended to serve as an introduction to the City s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-Wide Financial Statements The government-wide financial statements consist of the Statement of Net Position and the Statement of Activities and are designed to provide readers with a broad overview of the City s finances, in a manner similar to private sector businesses. Both of the government-wide financial statements distinguish functions of the City that are principally supported by property 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 include general government, public safety, public works, culture and recreation, and community development. The business-type activities of the City include water, sewer, storm water, and recycling activities. The government-wide financial statements include not only the City itself (known as the primary government), but also the St. Michael Economic Development Authority (EDA). The EDA is a legally separate entity for which the City is financially accountable, which provides community redevelopment assistance through the administration of various programs. Financial information for this component unit is presented discretely, separate from the financial information presented for the primary government itself. -4-

26 REPORTING THE CITY AS A WHOLE The analysis of the City as a whole begins with the Statement of Net Position and the Statement of Activities. One of the most important questions asked about the City s finances is, is the City as a whole better or worse off as a result of this year s activities? The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private sector companies. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These statements report the City s net position and changes in them. The City s net position can be used as a way of measuring the City s financial health or financial position. Over time, increases or decreases in the City s net position are indicators of whether its financial health is improving or deteriorating. You will need to consider other non-financial factors, however, such as changes in the City s tax base or the condition of the City s infrastructure, to assess the overall health of the City. REPORTING THE CITY S MOST SIGNIFICANT FUNDS The fund financial statements provide detailed information about the most significant funds, not the City as a whole. Some funds are required to be established by state law or by bond covenants. However, the City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other revenues. The City s three types of funds each use different accounting approaches. Governmental Funds Most of the City s basic services are reported in governmental funds, which focus on how money flows into and out of these funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual, which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or less financial resources that can be spent in the near future to finance city programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and Statement of Activities) and governmental funds in reconciliation to each of the fund financial statements. Proprietary Funds When the City charges customers for the services it provides, whether to outside customers or units of the City, these services are generally reported in the proprietary funds. These funds are reported in the same manner that all activities are reported in the Statement of Net Position and Statement of Activities. In fact, the City s enterprise funds are the same as the business-type activities reported in the government-wide financial statements, but provide more detailed and additional information, such as cash flows, for proprietary funds. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to Basic Financial Statements The notes to basic financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. -5-

27 Other Information Required supplementary information (RSI) on the St. Michael Firemen s Relief Association pension plan is presented following the notes to basic financial statements. Supplemental information, consisting of combining and individual fund statements and schedules and other city information, is presented immediately following the RSI. Statistical tables are presented as the last section in this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Position Net position may serve over time as a useful indicator of a city s financial position. In the case of the City, assets exceeded liabilities by $43,906,495 at the close of the most recent fiscal year. The City s total net position increased $1,239,928 from the previous year-end. The following is a summary of the City s net position: Governmental Activities Business-Type Activities Total Current and other assets $ 17,933,416 $ 19,682,045 $ 4,796,428 $ 2,672,703 $ 22,729,844 $ 22,354,748 Capital assets 28,851,626 29,583,825 24,487,571 23,398,371 53,339,197 52,982,196 Total assets $ 46,785,042 $ 49,265,870 $ 29,283,999 $ 26,071,074 $ 76,069,041 $ 75,336,944 Long-term liabilities (including current portion) $ 24,578,052 $ 28,230,185 $ 6,862,567 $ 3,861,911 $ 31,440,619 $ 32,092,096 Other liabilities 536, , ,540 80, , ,281 Total liabilities $ 25,114,439 $ 28,727,721 $ 7,048,107 $ 3,942,656 $ 32,162,546 $ 32,670,377 Net position Net investment in capital assets $ 7,049,002 $ 4,922,649 $ 19,629,997 $ 20,015,909 $ 26,678,999 $ 24,938,558 Restricted 103,153 36, ,153 36,417 Unrestricted 14,518,448 15,579,083 2,605,895 2,112,509 17,124,343 17,691,592 Total net position $ 21,670,603 $ 20,538,149 $ 22,235,892 $ 22,128,418 $ 43,906,495 $ 42,666,567 A large portion of the City s net position (61 percent) reflects its investment in capital assets (land, buildings, and machinery and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investment in its capital assets is reported net of related debt, 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. A small portion (less than 1 percent) of the City s net position represents resources that are subject to external restrictions on how they may be used. The remainder of the City s net position (39 percent) is unrestricted. -6-

28 The following is a summary of the City s changes in net position: Governmental Activities Business-Type Activities Total Revenues Program revenues Charges for services $ 1,199,341 $ 902,145 $ 2,822,047 $ 2,794,916 $ 4,021,388 $ 3,697,061 Operating grants and contributions 423, ,685 27,099 27, , ,781 Capital grants and contributions 669, , , ,430 General revenues Property taxes and tax increments 5,163,237 5,134,107 5,163,237 5,134,107 Franchise and other taxes 420, , , ,229 Unrestricted grants and contributions 246,477 9, ,477 9,854 Unrestricted investment earnings 146,112 53,461 50,807 2, ,919 55,534 Gain on sale of capital assets 12,201 12,201 Total revenues 8,281,150 7,513,911 2,899,953 2,824,085 11,181,103 10,337,996 Expenses General government 1,430,613 1,184,606 1,430,613 1,184,606 Public safety 1,575,381 1,518,469 1,575,381 1,518,469 Public works 2,964,090 3,046,199 2,964,090 3,046,199 Culture and recreation 908, , , ,287 Interest on long-term debt 611, , , ,829 Water 592, , , ,703 Sewer 1,520,293 1,357,256 1,520,293 1,357,256 Storm water 150, , , ,371 Recycling 186, , , ,781 Total expenses 7,490,593 7,380,390 2,450,582 2,197,111 9,941,175 9,577,501 Changes in net position before transfers 790, , , ,974 1,239, ,495 Transfers 341, ,353 (341,897) (188,353) Change in net position 1,132, , , ,621 1,239, ,495 Net position beginning 20,538,149 20,216,275 22,128,418 21,689,797 42,666,567 41,906,072 Net position ending $ 21,670,603 $ 20,538,149 $ 22,235,892 $ 22,128,418 $ 43,906,495 $ 42,666,567 Governmental activities increased the City s net position by $1,132,454 in 2014, while business-type activities increased net position by $107,

29 Governmental Activities The following graph shows the sources of revenue for the City s governmental activities: Revenue by Source Governmental Activities Governmental activities increased the City s net position by $1,132,454 in 2014, compared to an increase of $321,874 in Key elements of this net increase include the following: The City received local government aid from the state for the first time in many years. This amounted to $239,141. In 2013, the market value adjustment on investments was a loss of $168,915. In 2014, the market value adjustment was $23,452, a difference of $192,367. Special assessment revenue for projects increased $153,668 from $629,331 to $782,999 due to a developer paying delinquent assessments in Revenue from park dedication fees increased by $52,410 due mainly to a new housing development. Building permit revenue increased $17,500. Other development-related fees brought in $14,144 and $34,330 in lateral charges. Interest on long-term debt decreased by $170,207 due to refunding of the 2005B and 2005C bonds, which were defeased in

30 Business-Type Activities The following graph shows the sources of revenue for the City s business-type activities: Revenue by Source Business-Type Activities The City s business-type net position increased $107,474 during 2014, as compared to an increase of $438,621 in Key elements of this change include the following: Water usage was down from million gallons per day to million gallons per day causing a decrease in water revenue of $51,064. Connection fees decreased by $111,020 overall as new housing units decreased from 56 in 2013 to 38 in The City contracts with Veolia Water North America for utility services. The overage on that contract increased $63,929 from 2013 to The base contract amount increased by $44,755. Net transfers out increased by $153,554, which was planned due to the improved financial condition of the enterprise funds. FINANCIAL ANALYSIS OF THE CITY S FUNDS Governmental Funds At the end of the fiscal year, the City s governmental funds reported combined ending fund balances of $12,832,203, a decrease of $1,233,582 in comparison with the prior year. The use of $2,562,794 of fund balance is restricted by various externally imposed constraints. An additional $6,830,476 is assigned for internally imposed spending constraints. Fund balance of $63,896 represents assets, such as prepaid items, that are not considered to be in spendable form. Finally, the remaining $3,375,037 of fund balance is unassigned and may be used for any approved public purpose. General Fund The fund balance of the General Fund increased by $466,665 to $3,438,933 at December 31, This fund balance is equal to 65 percent of 2014 General Fund expenditures, which puts the General Fund in an excellent financial position. The City s fund balance policy includes a goal requiring the total year-end General Fund balance to be at least 50 percent of General Fund expenditures for the year then ended. Thus, as the City s General Fund expenditures increase, the fund balance must also increase. The City managed to improve the fund balance of the General Fund in 2014, as well as transfer $427,733 to capital project funds for various capital projects and equipment purchases. -9-

31 2007B PIR Bonds Debt Service Fund This bond was issued to finance various city improvement projects assessed to the benefitting property owners. Fund balance decreased by $32,862 in 2014, as scheduled debt service payments exceeded revenues and net transfers into the fund. Permanent Improvement Revolving Capital Projects Fund Fund balance decreased by $846,123 in 2014 due to a planned spend-down of fund balance to partially finance prior year capital outlay through transfers for debt service payments. General Fund Budgetary Highlights The City adopted an original General Fund budget that projected a fund balance increase of $50 in The budget was amended during the year, with the final budget projecting a fund balance increase of $36,050. The budget for current and delinquent property taxes was amended to reflect delinquent taxes and a state adjustment to the levy. Total property taxes were $38,025 more than the amended budget due to an excess on TIF districts ($25,698) and penalties paid on prior year delinquent taxes ($11,913). The budget for building permit revenue was increased by $149,000 during the year to reflect a higher than expected level of development. Intergovernmental aid received was $84,911 more than budgeted. State fire aid was $25,836 more than the budgeted amount and municipal street aid was $17,263 over budget. The City also received aid of $11,358 due to flooding issues in the spring. Revenue for charges for service was $49,410 more than budgeted. The following line items exceeded budget: rental of civic rooms ($16,500), zoning fees ($12,320), and engineering services ($17,603). The City has developed a practice of spending to needs, not budgets. Therefore, expenditures in many departments came in under budget. In total, expenditures were $241,208 less than budgeted. Auditing and accounting expenditures were $23,978 under budget due to a planned intern position in the Finance Department that was never hired. Engineering expenditures were $113,854 less than budgeted due to more time being allocated to projects. Snow plowing and removal costs were heavier than expected again in 2014 due to the weather. The snow and ice control budget was increased $59,000 during the year to reflect this, but actual costs still exceeded the final budget by $41,014. Some of the additional wages allocated to snow plowing reduced the wages charged to street and park maintenance. The street and park maintenance budgets were decreased by $45,000 to reflect this offset. Street maintenance expenditures were $144,515 less than budget due to savings in paved street maintenance from delaying an overlay project for a year ($91,612). Street maintenance wages were under the amended budget ($32,066) and supply expenditures were under budget ($14,036). -10-

32 Capital Assets The City s investment in capital assets for its governmental and business-type activities amounted to $53,339,197 (net of accumulated depreciation) at year-end. The investment in capital assets includes: land, buildings, park facilities, equipment, streets, storm sewers, and water and sanitary sewer lines. The total increase in the City s capital assets for the current fiscal year was $357,001 (a 2.5 percent decrease for governmental activities and a 4.7 percent increase in business-type activities). Governmental Activities Business-Type Activities Total Land $ 5,935,133 $ 5,935,133 $ 579,466 $ 579,466 $ 6,514,599 $ 6,514,599 Easements 19,181 19,181 19,181 19,181 Buildings and improvements 8,546,339 8,755,096 8,546,339 8,755,096 Improvements other than buildings 1,303,376 1,320,803 5,234,042 5,393,865 6,537,418 6,714,668 Machinery and equipment 1,940,353 2,109,725 59,037 55,092 1,999,390 2,164,817 Sewer and water system 12,746,122 13,157,680 12,746,122 13,157,680 Infrastructure 10,433,550 11,251,025 3,936,672 4,061,836 14,370,222 15,312,861 Construction in progress 692, ,043 1,913, ,251 2,605, ,294 Total capital assets $ 28,851,626 $ 29,583,825 $ 24,487,571 $ 23,398,371 $ 53,339,197 $ 52,982,196 Major capital assets added during the current fiscal year included the following: Trails at Beebe Lake ($48,870) and County 119 ($117,855); NE Downtown Reconstruction Project: street $549,512, business-type utilities $778,453; and Sludge Storage Project at the Wastewater Treatment Facility $975,673 (business-type). Additional details of the City s capital asset activity for the year can be found in Note 4 of the notes to basic financial statements. Long-Term Debt The City has $31.0 million in outstanding bonded debt at December 31, 2014, compared to $31.7 million last year. The City made regularly scheduled principal payments to retire $3,480,000 of its outstanding bonds in The City retired an additional $1,205,000 of outstanding bonds, prior to its stated maturities, through a crossover refunding transaction during the year. The following table reflects the City s total outstanding debt: Governmental Activities Business-Type Activities Total General obligation bonds $ 1,985,000 $ 1,985,000 $ $ $ 1,985,000 $ 1,985,000 Special assessment bonds 21,862,730 25,510,367 21,862,730 25,510,367 Revenue bonds 6,757,270 3,834,633 6,757,270 3,834,633 Premiums on bonds 331, , ,296 27, , ,809 Discounts on bonds (927) (927) Total $ 24,179,525 $ 27,884,971 $ 6,862,566 $ 3,861,911 $ 31,042,091 $ 31,746,882 The City s bond rating is AA-. The rating reflects the City s rapidly expanding tax base with diverse growth expected to continue over the mid-term, historically strong financial operations with favorable General Fund reserve levels, and a high debt burden mitigated by considerable debt service reserves and alternate funding sources. Additional information on the City s long-term debt can be found in Note 8 of the notes to basic financial statements. -11-

33 ECONOMIC FACTORS AND NEXT YEAR S BUDGET The City s elected and appointed officials considered many factors when they developed the 2014 budget and tax levy and when they set the appropriate fees that will be charged for business-type activities. These factors include: 1) Keeping tax increases as low as possible, which is challenging, due to the following factors: a. Independent School District No. 885, St. Michael Albertville School District carries a relatively high debt burden due to levy increases for new schools, including a new elementary school and high school, which opened in the fall of 2007 and 2009, respectively. b. Due to state cutbacks, school districts have had to rely more and more on referendums to finance operations. c. While the economy has shown some signs of recovery, investment performance remains low and potential new business and projects are more cautious. 2) Building permit revenue can fluctuate so the City budgets conservatively. In 2012, the City received permits for 28 new single family homes. That number doubled in 2013 but decreased to 38 in For January April 2015 there are 13 permits, compared to 6 at this time last year. There were three commercial/industrial permits in ) Maintaining a high level of customer service to citizens as noted in the Strategic Plan. The City has a desire to provide high quality infrastructure and services at the lowest possible cost. 4) Ensuring current operational needs are met as well as meeting long-term capital requirements. The City has 10-year budgets for capital project funds. 5) The Consumer Price Index (CPI) average for the year was 0.8. Most supply and material items have remained steady. However, energy services such as electricity and gas have increased at a higher rate. The CPI for electricity and gas services was 3.1 and 5.8, respectively. 6) The City has increased the year-end General Fund balance as the budget increases. The City s ideal target for a year-end balance is 50 percent of expenditures. For 2014, the General Fund year-end balance was 65 percent of the General Fund expenditures (not including transfers). 7) The City maintains the AA- bond rating received in This rating was reaffirmed with the bonds sold in It is the City s long-term goal to continue to improve the bond rating with careful fiscal management and planning. REQUESTS FOR INFORMATION This comprehensive annual financial report is designed to provide a general overview of the City s finances for all those interested in the government s finances. If you have any questions about this report or need additional information, contact the City s Finance Department at Town Center Drive, Suite 300, St. Michael, Minnesota 55376; or (763)

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35 GOVERNMENT-WIDE FINANCIAL STATEMENTS

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37 CITY OF ST. MICHAEL Statement of Net Position December 31, 2014 Primary Government Component Unit Economic Governmental Business-Type Development Activities Activities Total Authority Assets Cash and investments $ 9,826,468 $ 3,862,514 $ 13,688,982 $ 107,473 Receivables Accounts 127,848 27, ,702 53,833 Interest 25,740 25,740 Taxes and tax increments 79,720 79,720 1,618 Special assessments delinquent 21,606 2,818 24,424 Special assessments deferred 3,912,612 22,340 3,934,952 Due from other governmental units 838, ,819 1,240, Allowance for doubtful accounts (2,818) (2,818) Due from component unit 167, ,432 Loans receivable from component unit 457, ,283 Inventories 3,091 3,091 Prepaid items 63,896 6,488 70,384 Land held for resale 228,662 Restricted assets temporarily restricted Cash and investments 2,412, ,322 2,884,873 Capital assets, not being depreciated 6,628,008 2,511,698 9,139,706 Capital assets, net of accumulated depreciation 22,223,618 21,975,873 44,199,491 Total capital assets, net of accumulated depreciation 28,851,626 24,487,571 53,339,197 Total assets $ 46,785,042 $ 29,283,999 $ 76,069,041 $ 391,938 Liabilities Accounts payable $ 198,384 $ 105,682 $ 304,066 $ Accrued salaries and wages 88,891 4,904 93,795 Accrued interest 249,112 74, ,066 Due to primary government 167,432 Loans payable to primary government 457,283 Long-term liabilities Due within one year 2,558, ,708 2,990,430 Due in more than one year 22,019,330 6,430,859 28,450,189 Total long-term liabilities 24,578,052 6,862,567 31,440,619 Total liabilities 25,114,439 7,048,107 32,162, ,715 Net position Net investment in capital assets 7,049,002 19,629,997 26,678,999 Restricted for park improvement 103, ,153 Restricted for economic development 1,959,074 Unrestricted 14,518,448 2,605,895 17,124,343 (2,191,851) Total net position 21,670,603 22,235,892 43,906,495 (232,777) Total liabilities and net position $ 46,785,042 $ 29,283,999 $ 76,069,041 $ 391,938 See notes to basic financial statements -13-