INDEPENDENT SCHOOL DISTRICT NO. 286 BROOKLYN CENTER, MINNESOTA. Financial Statements and Supplemental Information. Year Ended June 30, 2016

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1 INDEPENDENT SCHOOL DISTRICT NO. 286 BROOKLYN CENTER, MINNESOTA Financial Statements and Supplemental Information Year Ended June 30, 2016

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3 INDEPENDENT SCHOOL DISTRICT NO. 286 Table of Contents Page INTRODUCTORY SECTION SCHOOL BOARD AND ADMINISTRATION 1 FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT 24 MANAGEMENT S DISCUSSION AND ANALYSIS 516 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 17 Statement of Activities 18 Fund Financial Statements Governmental Funds Balance Sheet 1920 Reconciliation of the Balance Sheet to the Statement of Net Position 21 Statement of Revenue, Expenditures, and Changes in Fund Balances 2223 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities 24 Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 25 Internal Service Funds Statement of Net Position 26 Statement of Revenue, Expenses, and Changes in Net Position 27 Statement of Cash Flows 28 Fiduciary Funds Statement of Fiduciary Net Position 29 Statement of Changes in Fiduciary Net Position 29 Notes to Basic Financial Statements 3058 REQUIRED SUPPLEMENTARY INFORMATION Public Employees Retirement Association Pension Benefits Plan Schedule of District s Proportionate Share of Net Pension Liability 59 Schedule of District Contributions 59 Teachers Retirement Association Pension Benefits Plan Schedule of District s and Non-Employer Proportionate Share of Net Pension Liability 60 Schedule of District Contributions 60 Other Post-Employment Benefits Plan Schedule of Funding Progress 61 Schedule of District Contributions 61

4 INDEPENDENT SCHOOL DISTRICT NO. 286 Table of Contents (continued) Page SUPPLEMENTAL INFORMATION Nonmajor Governmental Funds Combining Balance Sheet 62 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 63 General Fund Comparative Balance Sheet 64 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 6567 Food Service Special Revenue Fund Comparative Balance Sheet 68 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 69 Community Service Special Revenue Fund Comparative Balance Sheet 70 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 71 Debt Service Fund Balance Sheet by Account 72 Schedule of Revenue, Expenditures, and Changes in Fund Balances by Account Budget and Actual 7374 Internal Service Funds Combining Statement of Net Position 75 Combining Statement of Revenue, Expenses, and Changes in Net Position 76 Combining Statement of Cash Flows 77 OTHER DISTRICT INFORMATION (UNAUDITED) Student Enrollment 78 SINGLE AUDIT AND OTHER REQUIRED REPORTS Schedule of Expenditures of Federal Awards 79 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 8081 Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 8283 Independent Auditor s Report on Minnesota Legal Compliance 84 Schedule of Findings and Questioned Costs 8587 Uniform Financial Accounting and Reporting Standards Compliance Table 8889

5 INTRODUCTORY SECTION

6 INDEPENDENT SCHOOL DISTRICT NO. 286 School Board and Administration Year Ended June 30, 2016 SCHOOL BOARD Board Position During Cheryl Jechorek John Solomon Jan Thielsen Jeff Palm Ruthie Dallas Erika Schulz Chair Vice Chair Clerk Treasurer Director Director ADMINISTRATION Mark Bonine Sara Bratsch Teresa Gadach Superintendent Finance Director Business Accountant -1-

7 FINANCIAL SECTION

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9 INDEPENDENT AUDITOR S REPORT To the School Board and Management of Independent School District No. 286 Brooklyn Center, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 286 (the District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District 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 District 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 District 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. -2- (continued)

10 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, each major fund, and the aggregate remaining fund information of the District as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year then ended, in accordance with accounting principles generally accepted in the United States of America. 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 required supplementary information (RSI), 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 RSI 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 District s basic financial statements. The introductory section, supplemental information, and other district information, 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 accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements of the District. The accompanying Uniform Financial Accounting and Reporting Standards (UFARS) Compliance Table is presented for purposes of additional analysis as required by the Minnesota Department of Education, and is also not a required part of the basic financial statements of the District. The supplemental information, the Schedule of Expenditures of Federal Awards, and the UFARS Compliance Table are the responsibility of management and were derived from and relate 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 information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and other district information 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. -3- (continued)

11 Prior Year Comparative Information We have previously audited the District s 2015 financial statements, and we expressed unmodified audit opinions on the respective financial statements of the governmental activities, each major fund, and the aggregate remaining fund information in our report dated October 26, In our opinion, the partial comparative information presented herein as of and for the year ended June 30, 2015 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 November 1, 2016 on our consideration of the District 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 District s internal control over financial reporting and compliance. Minneapolis, Minnesota November 1,

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13 INDEPENDENT SCHOOL DISTRICT NO. 286 Management s Discussion and Analysis Year Ended June 30, 2016 This section of Independent School District No. 286 s (the District) annual financial statements presents management s narrative overview and analysis of the District s financial performance during the fiscal year ended June 30, Please read it in conjunction with the other components of the District s annual financial statements. FINANCIAL HIGHLIGHTS The District s liabilities and deferred inflows of resources exceeded its assets and deferred outflows of resources at June 30, 2016 by $12,646,099 (net position). The District s total net position increased by $2,385,329 during the fiscal year ended June 30, Government-wide revenues totaled $37,928,238 and were $2,385,329 more than expenses of $35,542,909. The General Fund s total fund balance (under the governmental fund presentation) increased $2,318,272 from the prior year, to a year-end balance of $2,417,472. This compared to a $541,500 increase planned in the budget. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual financial statements consists of the following parts: Independent Auditor s Report; Management s Discussion and Analysis; Basic financial statements, including the government-wide financial statements, fund financial statements, and the notes to basic financial statements; Required supplementary information; and Supplemental information consisting of combining and individual fund statements and schedules. The following explains the two types of statements included in the basic financial statements: GOVERNMENT-WIDE FINANCIAL STATEMENTS The government-wide financial statements (Statement of Net Position and Statement of Activities) report information about the District as a whole using accounting methods similar to those used by private sector companies. The Statement of Net Position includes all of the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, except for the fiduciary funds. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. -5-

14 The two government-wide financial statements report the District s net position and how it has changed. Net position the difference between the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net position are indicators of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District requires consideration of additional non-financial factors, such as changes in the District s property tax base and the condition of school buildings and other facilities. In the government-wide financial statements the District s activities are all shown in one category titled governmental activities. These activities, including regular and special education instruction, transportation, administration, food services, and community education, are primarily financed with state aids and property taxes. FUND FINANCIAL STATEMENTS The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds, rather than the District as a whole. Funds (Food Service Special Revenue and Community Service Special Revenue) that do not meet the threshold to be classified as major funds are called nonmajor funds. Detailed financial information for nonmajor funds can be found in the supplemental information section. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs. For Minnesota schools, funds are established in accordance with Uniform Financial Accounting and Reporting Standards in accordance with statutory requirements and accounting principles generally accepted in the United States of America. The District maintains the following kinds of funds: Governmental Funds The District s basic services are included in governmental funds, which generally focus on: 1) how cash and other financial assets that can readily be converted to cash flow in and out, and 2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps to determine whether there are more or less financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the government-wide financial statements, we provide additional information (reconciliation schedules) immediately following the governmental fund statements that explain the relationship (or differences) between these two types of financial statement presentations. Proprietary Funds The District maintains one type of proprietary fund. The internal service funds are used as an accounting device to accumulate and allocate costs internally among the District s various functions. The District uses its internal service funds to account for the self-insurance activities of the district employees medical and dental claims. These services have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. Fiduciary Funds The District is the trustee, or fiduciary, for assets that belong to other organizations. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District s fiduciary activities are reported in a separate Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. We exclude these activities from the government-wide financial statements because the District cannot use these assets to finance its operations. -6-

15 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1 is a summarized view of the District s Statement of Net Position: Table 1 Summary Statement of Net Position as of June 30, 2016 and Assets Current and other assets $ 16,772,355 $ 14,674,062 Capital assets, net of depreciation 25,824,114 26,533,795 Total assets $ 42,596,469 $ 41,207,857 Deferred outflows of resources Pension plan deferments PERA and TRA $ 4,031,846 $ 3,261,088 Liabilities Current and other liabilities $ 8,185,998 $ 8,665,536 Long-term liabilities, including due within one year 44,428,004 42,168,304 Total liabilities $ 52,614,002 $ 50,833,840 Deferred inflows of resources Property taxes levied for subsequent year $ 4,457,049 $ 4,146,255 Pension plan deferments PERA and TRA 2,203,363 4,520,278 Total deferred inflows of resources $ 6,660,412 $ 8,666,533 Net position Net investment in capital assets $ 1,054,391 $ 1,209,462 Restricted 570, ,968 Unrestricted (14,270,624) (16,579,858) Total net position $ (12,646,099) $ (15,031,428) The District s financial position is the product of many factors. For example, the determination of the District s net investment in capital assets involves many assumptions and estimates, such as current and accumulated depreciation amounts. A conservative versus liberal approach to depreciation estimates, as well as capitalization policies, will produce a significant difference in the calculated amounts. The other major factor in determining net position as compared to fund balances is the liability for long-term severance, pension, and other post-employment benefits (OPEB), which impacts the unrestricted portion of net position. Total net position increased by $2,385,329 from current year operating results. -7-

16 The District s decrease in net investment in capital assets is due mostly to the timing of the District adding additional capital assets, repaying debt, and the rate of the assets being depreciated. An increase in net position restricted for food service and community service contributed to the overall increase in the restricted portion of net position. The increase in unrestricted net position was primarily due to the positive operating results for the year. Table 2 presents a summarized version of the District s Statement of Activities: Table 2 Summary Statement of Activities for the Years Ended June 30, 2016 and Revenues Program revenues Charges for services $ 1,225,397 $ 794,651 Operating grants and contributions 5,187,037 4,371,858 General revenues Property taxes 4,412,025 4,494,358 General grants and aids 25,980,432 24,651,575 Other 1,123,347 1,560,240 Total revenues 37,928,238 35,872,682 Expenses Administration 1,338,687 1,359,013 District support services 1,247,777 1,121,152 Elementary and secondary regular instruction 15,171,697 14,723,735 Vocational education instruction 217, ,597 Special education instruction 3,982,816 3,830,212 Instructional support services 2,826,326 2,521,241 Pupil support services 3,293,922 3,174,534 Sites and buildings 2,628,386 2,577,400 Fiscal and other fixed cost programs 92,417 78,578 Food service 1,312,955 1,364,668 Community service 1,726,267 1,143,124 Interest and fiscal charges 1,704,126 1,213,216 Total expenses 35,542,909 33,484,470 Change in net position 2,385,329 2,388,212 Net position beginning (15,031,428) (17,419,640) Net position ending $ (12,646,099) $ (15,031,428) This table is presented on an accrual basis of accounting, and it includes all of the governmental activities of the District. This statement includes depreciation expense, but excludes capital asset purchase costs, debt proceeds, and the repayment of debt principal. -8-

17 Figure A shows further analysis of these revenue sources: Figure A Sources of Revenue for Fiscal Years 2016 and 2015 The largest share of the District s revenue is received from the state, including the general education aid formula and most of the operating grants. This significant reliance on the state for funding has placed pressure on local school districts as a result of limited funding increases in recent years. Property taxes are generally the next largest source of funding. The level of revenue property tax sources provide is not only dependent on district taxpayers by way of operating and building referenda, but also by decisions made by the Legislature in the mix of state aid and local effort in a variety of funding formulas. -9-

18 Figure B shows further analysis of these expense functions: Figure B Expenses for Fiscal Years 2016 and 2015 The District s expenses are predominately related to educating students. Programs (or functions) such as elementary and secondary regular instruction, vocational education instruction, special education instruction, and instructional support services are directly related to classroom instruction, while the rest of the programs support instruction and other necessary costs to operate the District. -10-

19 FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the District as a whole is also reflected in its governmental funds. Table 3 shows the change in total fund balances in each of the District s governmental funds: Table 3 Governmental Fund Balances as of June 30, 2016 and 2015 Increase (Decrease) Major funds General $ 2,417,472 $ 99,200 $ 2,318,272 Debt Service 602, ,622 45,062 Nonmajor funds Food Service Special Revenue 368, , ,024 Community Service Special Revenue 93,622 77,402 16,220 Total governmental funds $ 3,482,131 $ 860,553 $ 2,621,578 The focus of the District s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the District s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the District itself, or a group or individual that has been delegated authority to assign resources for use for particular purposes by the District s School Board. At June 30, 2016, the District s governmental funds reported combined fund balance of $3,482,131, an increase of $2,621,578 in comparison with the prior year. Of this amount, the unassigned fund balance represents $2,324,331. The remainder of the fund balance is either nonspendable or restricted to indicate that it is: 1) not in spendable form ($120,092), or 2) restricted for particular purposes ($1,037,708). -11-

20 ANALYSIS OF THE GENERAL FUND Table 4 summarizes the amendments to the General Fund budget: Table 4 General Fund Budget Original Budget Final Budget Increase Percent Change Revenues $ 30,144,885 $ 31,187,575 $ 1,042, % Expenditures $ 29,744,885 $ 30,646,075 $ 901, % The District is required to adopt an operating budget prior to the beginning of its fiscal year, referred to above as the original budget. During the year, the District amended the budget for known significant changes in circumstances such as: updated enrollment estimates, legislative changes, additional funding received from grants or other local sources, staffing changes, employee contract settlements, insurance premium changes, special education tuition changes, or for new debt issued. Table 5 summarizes the operating results of the General Fund: Table 5 General Fund Operating Results Over (Under) Final Budget Over (Under) Prior Year 2016 Actual Amount Percent Amount Percent Revenues $ 31,922,253 $ 734, % $ 1,388, % Expenditures 29,918,818 (727,257) (2.4%) 570, % Excess of revenue over expenditures 2,003,435 1,461, ,579 Net other financing sources 314, , % 314, % Net change in fund balances $ 2,318,272 $ 1,776,772 $ 1,132,416 The fund balance of the General Fund increased $2,318,272, compared to an increase of $541,500 approved in the final budget. -12-

21 As presented above, revenues surpassed amounts planned in the budget while expenditures were kept under budgeted amounts. The largest revenue variances to budget occurred in state sources, which were $934,052 more than projected in the budget. Conservative budgeting for general education and prior year accruals caused state sources to exceed budget. The increase from the prior year was mainly due to additional special education revenue, improvements in the general education funding formula, and pass-through of state funding for pensions. General Fund expenditures were 2.4 percent under budget, which was spread across several programs and object categories. Expenditures also increased from the prior year with an increase in salaries and benefits as anticipated with scheduled contract improvements and for pension pass-through payments for the Teachers Retirement Association (TRA). Capital expenditures were also over prior year levels in the instructional support services and pupil support services programs. COMMENTS ON SIGNIFICANT ACTIVITIES IN OTHER FUNDS Debt Service Fund The Debt Service Fund revenues and other financing sources exceeded expenditures and other financing uses by $45,062 in the current year compared to a $77,667 fund balance decrease anticipated in the budget. The funding of debt service is controlled in accordance with each outstanding debt issue s financing plan. The remaining fund balance of $602,684 at June 30, 2016 is available for meeting future debt service obligations. The District issued $21,450,000 in refunding bonds that were used in a current refunding to reduce future debt service payments and related debt levies for taxpayers of the District. Food Service Special Revenue Fund The Food Service Special Revenue Fund ended the year with revenues exceeding expenditures, increasing equity by $242,024, compared to a balanced budget. Community Service Special Revenue Fund The Community Service Special Revenue Fund ended the year with revenues exceeding expenditures, increasing equity by $16,220, compared to a balanced budget. Internal Service Funds Internal service funds are used to account for the financing of goods and services provided by one department or agency of a government to other departments or agencies on a cost reimbursement basis. The District currently maintains two internal service funds. These funds are used to account for the District s self-insured health and dental insurance functions. Operating revenues for the internal service funds for fiscal year 2016 totaled $3,312,394. This is an increase from the fiscal year 2015 operating revenue level of $2,356,140. Nonoperating revenues totaled $1,115, which is an increase from the fiscal year 2015 nonoperating revenue of $0. Operating expenses totaled $3,433,287, which represents an increase from fiscal year 2015 operating expenditures of $2,092,363, due to an increase in health benefit claims. The net position balance for all internal service funds as of June 30, 2016 was $143,999, which represents a decrease of $119,778 from the prior year. -13-

22 CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital Assets Table 6 shows the District s capital assets, together with changes from the previous year. The table also shows the total depreciation expense for fiscal years ending June 30, 2016 and 2015: Table 6 Capital Assets Change Land $ 85,990 $ 85,990 $ Land and building improvements 3,588,289 3,559,329 28,960 Buildings 38,365,138 38,365,138 Furniture and equipment 8,739,125 8,360, ,036 Less accumulated depreciation (24,954,428) (23,836,751) (1,117,677) Total $ 25,824,114 $ 26,533,795 $ (709,681) Depreciation expense $ 1,126,557 $ 1,114,812 $ 11,745 By the end of 2016, the District had invested in a broad range of capital assets, including school buildings, athletic facilities, and other equipment for various instructional programs (see Table 6). The changes presented in the table above reflect the ongoing activity and completion of projects at district sites during fiscal year The District defines capital assets as those with an initial, individual cost of $2,000 or more, which benefit more than one fiscal year. Additional details about capital assets can be found in the notes to basic financial statements. -14-

23 Long-Term Liabilities Table 7 illustrates the components of the District s long-term liabilities with changes from the prior year: Table 7 Outstanding Long-Term Liabilities Increase (Decrease) General obligation bonds payable $ 24,480,000 $ 26,900,000 $ (2,420,000) Unamortized premium/discount 1,296,214 (76,368) 1,372,582 Capital leases payable 215, ,539 Claims and judgments payable 20,000 40,000 (20,000) Net pension liability PERA 4,524,339 4,655,222 (130,883) Net pension liability TRA 13,646,292 10,377,054 3,269,238 Severance benefits payable 150, ,077 (49,453) Compensated absences payable 94,996 72,319 22,677 Total $ 44,428,004 $ 42,168,304 $ 2,259,700 The decrease in bond obligations payable in the table above is primarily due to the planned repayment schedules reflecting principal payments during the year, in addition to the refunding bond transactions previously discussed for the Debt Service Fund in fiscal The increase in capital leases payable reflects the three new leases used to finance equipment in The differences in the Public Employees Retirement Association and the TRA net pension liabilities reflects the change in the District s proportionate share of these state-wide pension obligations. The state limits the amount of general obligation debt the District can issue to 15 percent of the market value of all taxable property within the District s corporate limits (see Table 8). Table 8 Limitations on Debt District s market value $ 575,414,300 Limit rate 15.0% Legal debt limit $ 86,312,145 Additional details of the District s long-term debt activity can be found in the notes to basic financial statements. -15-

24 FACTORS BEARING ON THE DISTRICT S FUTURE With the exception of the voter-approved operating referendum, the District is dependent on the state of Minnesota for a majority of its revenue authority. Recent experience demonstrates that legislated revenue increases have not been sufficient to meet instructional program needs and increased costs due to inflation. The general education program is the method by which school districts receive the majority of their financial support. This source of funding is primarily state aid and, as such, school districts rely heavily on the state of Minnesota for educational resources. For the 2016 fiscal year, the Legislature added $117, or 2.0 percent, per pupil to the basic general education funding formula and an additional $119, or 2.0 percent, per pupil to the formula for fiscal year The ongoing demands on limited resources continue to present challenges in funding education for Minnesota schools. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT These financial statements are designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about these statements or need additional financial information, contact the Business Office, Independent School District No. 286, 6300 Shingle Creek Parkway, Suite 286, Brooklyn Center, Minnesota

25 BASIC FINANCIAL STATEMENTS

26 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Net Position as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Governmental Activities Assets Cash and temporary investments $ 8,168,182 $ 5,655,061 Receivables Current taxes 2,466,238 2,321,936 Delinquent taxes 74,242 69,776 Accounts and interest 102, ,758 Due from other governmental units 4,852,803 5,086,677 Due from OPEB trust 150,000 Inventory 26,351 18,768 Prepaid items 93,741 94,003 Net OPEB asset 988,287 1,125,083 Capital assets Not depreciated 85,990 85,990 Depreciated, net of accumulated depreciation 25,738,124 26,447,805 Total capital assets, net of accumulated depreciation 25,824,114 26,533,795 Total assets 42,596,469 41,207,857 Deferred outflows of resources Pension plan deferments PERA and TRA 4,031,846 3,261,088 Total assets and deferred outflows of resources $ 46,628,315 $ 44,468,945 Liabilities Aid anticipation certificates $ 3,438,581 $ 3,925,329 Salaries payable 1,120,532 1,171,452 Accounts and contracts payable 1,699,530 1,436,317 Accrued interest payable 562, ,604 Due to other governmental units 76,947 88,911 Unearned revenue 1,146,592 1,320,002 Claims incurred, but not reported 141, ,921 Long-term liabilities Due within one year 1,681,111 1,622,319 Due in more than one year 42,746,893 40,545,985 Total long-term liabilities 44,428,004 42,168,304 Total liabilities 52,614,002 50,833,840 Deferred inflows of resources Property taxes levied for subsequent year 4,457,049 4,146,255 Pension plan deferments PERA and TRA 2,203,363 4,520,278 Total deferred inflows of resources 6,660,412 8,666,533 Net position Net investment in capital assets 1,054,391 1,209,462 Restricted for Debt service 107, ,245 Food service 368, ,329 Community service 94,304 80,394 Unrestricted (14,270,624) (16,579,858) Total net position (12,646,099) (15,031,428) Total liabilities, deferred inflows of resources, and net position $ 46,628,315 $ 44,468,945 See notes to basic financial statements -17-

27 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Activities Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) Net (Expense) Net (Expense) Revenue and Revenue and Changes in Changes in Program Revenues Net Position Net Position Operating Capital Charges for Grants and Grants and Governmental Governmental Functions/Programs Expenses Services Contributions Contributions Activities Activities Governmental activities Administration $ 1,338,687 $ $ $ $ (1,338,687) $ (1,357,204) District support services 1,247,777 (1,247,777) (1,121,152) Elementary and secondary regular instruction 15,171,697 90, ,715 (14,233,490) (13,972,234) Vocational education instruction 217,533 23,422 (194,111) (309,014) Special education instruction 3,982,816 2,210,101 (1,772,715) (1,982,716) Instructional support services 2,826,326 (2,826,326) (2,518,760) Pupil support services 3,293,922 (3,293,922) (3,174,267) Sites and buildings 2,628,386 39,279 10,419 (2,578,688) (2,537,823) Fiscal and other fixed cost programs 92,417 (92,417) (78,578) Food service 1,312, ,186 1,458, ,596 68,658 Community service 1,726, , ,015 (135,812) (121,655) Interest and fiscal charges 1,704,126 (1,704,126) (1,213,216) Total governmental activities $ 35,542,909 $ 1,225,397 $ 5,187,037 $ (29,130,475) (28,317,961) General revenue Taxes Property taxes, levied for general purposes 1,913,154 1,929,453 Property taxes, levied for community service 139, ,822 Property taxes, levied for debt service 2,359,677 2,420,083 General grants and aids 25,980,432 24,651,575 Other general revenues 1,107,111 1,558,416 Investment earnings 16,236 1,824 Total general revenue 31,515,804 30,706,173 Change in net position 2,385,329 2,388,212 Net position beginning (15,031,428) (17,419,640) Net position ending $ (12,646,099) $ (15,031,428) See notes to basic financial statements -18-

28 INDEPENDENT SCHOOL DISTRICT NO. 286 Balance Sheet Governmental Funds as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Debt General Fund Service Fund Nonmajor Funds Assets Cash and temporary investments $ 5,505,251 $ 1,738,320 $ 380,112 Receivables Current taxes 1,161,493 1,229,376 75,369 Delinquent taxes 31,836 40,048 2,358 Accounts and interest 72,232 5,993 Due from other governmental units 4,572,582 33, ,788 Due from other funds 62,096 Inventory 26,351 Prepaid items 93, Total assets $ 11,498,631 $ 3,041,177 $ 737,571 Liabilities Aid anticipation certificates $ 3,438,581 $ $ Salaries payable 1,093,514 27,018 Accounts and contracts payable 1,662,964 36,566 Accrued interest payable 55,919 Due to other governmental units 76, Due to other funds 62,096 Unearned revenue 862,974 Total liabilities 7,190, ,111 Deferred inflows of resources Property taxes levied for subsequent year 1,881,275 2,426, ,803 Unavailable revenue 9,416 11, Total deferred inflows of resources 1,890,691 2,438, ,485 Fund balances Nonspendable 93,141 26,951 Restricted 602, ,024 Unassigned 2,324,331 Total fund balances 2,417, , ,975 Total liabilities, deferred inflows of resources, and fund balances $ 11,498,631 $ 3,041,177 $ 737,571 See notes to basic financial statements -19-

29 Total Governmental Funds $ 7,623,683 $ 4,886,682 2,466,238 2,321,936 74,242 69,776 78, ,245 4,852,803 5,086,677 62, ,000 26,351 18,768 93,741 94,003 $ 15,277,379 $ 12,777,087 $ 3,438,581 $ 3,925,329 1,120,532 1,171,452 1,699,530 1,417,676 55,919 61,776 76,947 88,911 62, ,974 1,013,449 7,316,579 7,678,593 4,457,049 4,146,255 21,620 91,686 4,478,669 4,237, , ,771 1,037, ,585 2,324,331 5,197 3,482, ,553 $ 15,277,379 $ 12,777,

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31 INDEPENDENT SCHOOL DISTRICT NO. 286 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Total fund balances governmental funds $ 3,482,131 $ 860,553 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets are included in net position, but are excluded from fund balances because they do not represent financial resources. Cost of capital assets 50,778,542 50,370,546 Accumulated depreciation (24,954,428) (23,836,751) Long-term liabilities are included in net position, but are excluded from fund balances until due and payable. Debt issuance premiums and discounts are excluded from net position until amortized, but are included in fund balances upon issuance as other financing sources and uses. General obligation bonds payable (24,480,000) (26,900,000) Unamortized premium/discount (1,296,214) 76,368 Capital leases payable (215,539) Claims and judgments payable (20,000) (40,000) Net pension liability PERA (4,524,339) (4,655,222) Net pension liability TRA (13,646,292) (10,377,054) Severance benefits payable (150,624) (200,077) Compensated absences payable (94,996) (72,319) Net OPEB obligations reported in the Statement of Net Position do not require the use of current financial resources and are not reported as assets (liabilities) in governmental funds until actually due. 988,287 1,125,083 Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the Statement of Net Position. 143, ,777 Accrued interest payable on long-term debt is included in net position, but is excluded from fund balances until due and payable. (506,729) (478,828) The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows PERA and TRA pension plans 4,031,846 3,261,088 Deferred inflows PERA and TRA pension plans (2,203,363) (4,520,278) Deferred inflows delinquent property taxes 21,620 91,686 Total net position governmental activities $ (12,646,099) $ (15,031,428) See notes to basic financial statements -21-

32 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Revenue, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) Debt General Fund Service Fund Nonmajor Funds Revenue Local sources Property taxes $ 1,938,981 $ 2,401,606 $ 141,504 Investment earnings 8,632 5,251 1,238 Other 1,236,882 1,095,626 State sources 27,752, , ,337 Federal sources 985,084 1,769,043 Total revenue 31,922,253 2,741,188 3,333,748 Expenditures Current Administration 1,337,081 District support services 1,197,860 Elementary and secondary regular instruction 14,195,119 Vocational education instruction 211,274 Special education instruction 3,922,287 Instructional support services 2,792,145 Pupil support services 3,425,523 Sites and buildings 2,618,297 Fiscal and other fixed cost programs 92,417 Food service 1,340,648 Community service 1,704,157 Capital outlay 30,699 Debt service Principal 99,298 1,530,000 Interest and fiscal charges 27,517 1,574,967 Total expenditures 29,918,818 3,104,967 3,075,504 Excess (deficiency) of revenue over expenditures 2,003,435 (363,779) 258,244 Other financing sources (uses) Refunding debt issued 21,450,000 Premium on debt issued 1,298,841 Payment on refunded bonds (22,340,000) Capital lease issued 314,837 Total other financing sources (uses) 314, ,841 Net change in fund balances 2,318,272 45, ,244 Fund balances (deficit) Beginning of year 99, , ,731 End of year $ 2,417,472 $ 602,684 $ 461,975 See notes to basic financial statements -22-

33 Total Governmental Funds $ 4,482,091 $ 4,477,925 15,121 1,824 2,332,508 2,353,067 28,413,342 26,293,324 2,754,127 2,698,269 37,997,189 35,824,409 1,337,081 1,386,341 1,197,860 1,098,689 14,195,119 14,074, , ,180 3,922,287 3,846,003 2,792,145 2,558,452 3,425,523 3,101,844 2,618,297 2,625,530 92,417 78,578 1,340,648 1,350,622 1,704,157 1,146,612 30,699 31,336 1,629,298 1,653,174 1,602,484 1,245,573 36,099,289 34,577,305 1,897,900 1,247,104 21,450,000 1,298,841 (22,340,000) 314, ,678 2,621,578 1,247, ,553 (386,551) $ 3,482,131 $ 860,

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35 INDEPENDENT SCHOOL DISTRICT NO. 286 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) Total net change in fund balances governmental funds $ 2,621,578 $ 1,247,104 Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are recorded as net position and the cost is allocated over their estimated useful lives as depreciation expense. However, fund balances are reduced for the full cost of capital outlays at the time of purchase. Capital outlays 416, ,959 Depreciation expense (1,126,557) (1,114,812) The amount of debt issued is reported in the governmental funds as a source of financing. Debt obligations are not revenues in the Statement of Activities, but rather constitute long-term liabilities. General obligation bonds payable (21,450,000) Capital leases payable (314,837) Repayment of long-term debt does not affect the change in net position. However, it reduces fund balances. General obligation bonds payable 23,870,000 1,470,000 Capital leases payable 99, ,174 Debt issuance premiums and discounts are included in the change in net position as they are amortized over the life of the debt. However, they are included in the change in fund balances upon issuance as other financing sources and uses. (1,372,582) 2,839 Certain expenses are included in the change in net position, but do not require the use of current funds, and are not included in the change in fund balances. Claims and judgments payable 20,000 75,000 Net pension liability PERA 130, ,855 Net pension liability TRA (3,269,238) 1,807,535 Severance benefits payable 49,453 21,667 Compensated absences payable (22,677) (20,792) The change in net other post-employment benefit obligations do not require the use of current financia resources and are not included in the change in fund balances until due. (136,796) (103,134) Internal service funds are used by management to charge the costs of certain activities to individual funds. The change in net position of the internal service funds is included in the governmental activities in the Statement of Activities. (119,778) 263,777 Interest on long-term debt is included in the change in net position as it accrues, regardless of when payment is due. However, it is included in the change in fund balances when due. (27,901) 29,518 The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows PERA and TRA pension plans 770,758 2,164,367 Deferred inflows PERA and TRA pension plans 2,316,915 (4,520,278) Deferred inflows delinquent property taxes (70,066) 16,433 Change in net position governmental activities $ 2,385,329 $ 2,388,212 See notes to basic financial statements -24-

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37 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual General Fund Year Ended June 30, 2016 Budgeted Amounts Over (Under) Original Final Actual Final Budget Revenue Local sources Property taxes $ 1,967,343 $ 1,952,256 $ 1,938,981 $ (13,275) Investment earnings ,632 8,132 Other 1,302,673 1,378,175 1,236,882 (141,293) State sources 25,905,201 26,818,622 27,752, ,052 Federal sources 969,168 1,038, ,084 (52,938) Total revenue 30,144,885 31,187,575 31,922, ,678 Expenditures Current Administration 1,261,214 1,443,523 1,337,081 (106,442) District support services 1,632,141 1,824,079 1,197,860 (626,219) Elementary and secondary regular instruction 14,461,177 13,722,730 14,195, ,389 Vocational education instruction 365, , ,274 (143,590) Special education instruction 3,743,749 4,046,465 3,922,287 (124,178) Instructional support services 2,871,529 2,946,764 2,792,145 (154,619) Pupil support services 3,069,681 3,455,029 3,425,523 (29,506) Sites and buildings 2,238,026 2,646,485 2,618,297 (28,188) Fiscal and other fixed cost programs 90, ,045 92,417 (9,628) Debt service Principal 91,617 99,298 7,681 Interest and fiscal charges 11,925 12,474 27,517 15,043 Total expenditures 29,744,885 30,646,075 29,918,818 (727,257) Excess of revenue over expenditures 400, ,500 2,003,435 1,461,935 Other financing sources Capital lease issued 314, ,837 Net change in fund balances $ 400,000 $ 541,500 2,318,272 $ 1,776,772 Fund balances Beginning of year 99,200 End of year $ 2,417,472 See notes to basic financial statements -25-

38 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Net Position Internal Service Funds as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Assets Current assets Cash and temporary investments $ 544,499 $ 768,379 Receivables Accounts and interest 24,286 3,513 Total current assets 568, ,892 Liabilities Current liabilities Accounts and contracts payable 18,641 Unearned revenue 283, ,553 Claims incurred, but not reported 141, ,921 Total current liabilities 424, ,115 Net position Unrestricted $ 143,999 $ 263,777 See notes to basic financial statements -26-

39 INDEPENDENT SCHOOL DISTRICT NO. 286 Statement of Revenue, Expenses, and Changes in Net Position Internal Service Funds Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) Operating revenue Charges for services Contributions from governmental funds $ 3,312,394 $ 2,356,140 Operating expenses Health benefit claims 3,239,147 1,886,447 Dental benefit claims 194, ,916 Total operating expenses 3,433,287 2,092,363 Operating income (loss) (120,893) 263,777 Nonoperating revenue Investment earnings 1,115 Change in net position (119,778) 263,777 Net position Beginning of year 263,777 End of year $ 143,999 $ 263,777 See notes to basic financial statements -27-