$29,500,000 City of Shakopee, Minnesota

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1 FINAL OFFICIAL STATEMENT DATED DECEMBER 21, 2015 NEW ISSUE Moody s Rating: Aa1 NOT BANK QUALIFIED In the opinion of Kennedy & Graven, Chartered, Bond Counsel, based on present federal and Minnesota laws, regulations, rulings and decisions (which excludes any pending legislation which may have a retroactive effect) and, assuming compliance with certain covenants, interest to be paid on the Bonds is excluded from gross income for federal income tax purposes and, to the same extent, is excluded from taxable net income of individuals, estates, or trusts for Minnesota income tax purposes, and is not a preference item for purposes of computing the federal alternative minimum tax or the Minnesota alternative minimum tax imposed on individuals, trusts, and estates. Such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations and is subject to Minnesota franchise taxes on certain corporations (including financial institutions) measured by income. No opinion will be expressed by Bond Counsel regarding the other state or federal tax consequences caused by the receipt or accrual of interest on the Bonds or arising with respect to ownership of the Bonds. See TAX EXEMPTION herein. $29,500,000 City of Shakopee, Minnesota General Obligation Tax Abatement Bonds, Series 2016A (the Bonds ) (Book Entry Only) Dated Date: Date of Delivery Interest Due: Each February 1 and August 1, commencing August 1, 2016 The Bonds will mature February 1 in the years and amounts as follows: Maturity Interest CUSIP Maturity Interest CUSIP (February 1) Amount Rate Yield (February 1) Amount Rate Yield $1,040, % 0.80% N $1,630, % 2.50%* P $1,095, % 1.05% N $1,680, % 2.60%* Q $1,150, % 1.20% N $1,730, % 2.75%* Q $1,205, % 1.35% P $1,785, % 2.90%* Q $1,265, % 1.55% P $1,835, % 3.00% Q $1,330, % 1.70% P $1,890, % 3.05% Q $1,355, % 1.85% P $1,950, % 3.10% Q $1,425, % 1.95% P $2,005, % 3.14% Q $1,495, % 2.00%* P $2,065, % 3.20% Q $1,570, % 2.05%* P8 7 * Priced to the first optional call date of February 1, The City may elect on February 1, 2025, and on any day thereafter, to prepay Bonds due on or after February 1, 2026 at a price of par plus accrued interest. The Bonds are general obligations of the City for which the City pledges its full faith and credit and power to levy direct general ad valorem taxes. In addition, the City will pledge tax abatement revenues derived from certain abated parcels within the City for repayment of the Bonds. The proceeds will be used to finance improvements to the City s existing community center and the construction of additions to the City s community center. The City will not designate the Bonds as qualified tax-exempt obligations pursuant to Section 265(b)(3) of the Internal Revenue Code of 1986, as amended, and the Bonds will not be subject to the alternative minimum tax for individuals. The Bonds will be issued as fully registered bonds without coupons and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository for the Bonds. Individual purchases may be made in book entry form only, in the principal amount of $5,000 and integral multiples thereof. Investors will not receive physical certificates representing their interest in the Bonds purchased. (See Book Entry System herein.) U.S. Bank National Association, St. Paul, Minnesota will serve as registrar (the Registrar ) for the Bonds. The Bonds will be available for delivery at DTC on or about January 21, Please see the UNDERWRITING section herein for discussion regarding the Purchaser of the Bonds.

2 CITY OF SHAKOPEE, MINNESOTA CITY COUNCIL Brad Tabke (a) Matt Lehman (b) Mike Luce Kathi Mocol Jay Whiting (b) Mayor Councilmember Councilmember Councilmember Councilmember (a) Mayor Brad Tabke did not run for re-election. Mr. William Mars is the City s Mayor-elect with a term commencing January 1, 2016, and ending December 31, (b) Council Members Matt Lehman and Jay Whiting won re-election with terms ending December 31, CITY ADMINISTRATOR William H. Reynolds INTERIM FINANCE DIRECTOR Jean McGann MUNICIPAL ADVISOR Springsted Incorporated Saint Paul, Minnesota BOND COUNSEL Kennedy & Graven, Chartered Minneapolis, Minnesota

3 The Official Statement dated December 21, 2015 is a Final Official Statement within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations with respect to the Bonds, other than as contained in the Preliminary Official Statement or the Final Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City. Certain information contained in the Preliminary Official Statement or the Final Official Statement may have been obtained from sources other than records of the City and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EXPRESSIONS OF OPINION IN THE PRELIMINARY OFFICIAL STATEMENT AND THE FINAL OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE PRELIMINARY OFFICIAL STATEMENT NOR THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY SINCE THE RESPECTIVE DATE THEREOF. References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Preliminary Official Statement or the Final Official Statement, they will be furnished upon request. Any CUSIP numbers for the Bonds included in the Final Official Statement are provided for convenience of the owners and prospective investors. The CUSIP numbers for the Bonds are assigned by an organization unaffiliated with the City. The City is not responsible for the selection of the CUSIP numbers and makes no representation as to the accuracy thereof as printed on the Bonds or as set forth in the Final Official Statement. No assurance can be given by the City that the CUSIP numbers for the Bonds will remain the same after the delivery of the Final Official Statement or the date of issuance and delivery of the Bonds.

4 TABLE OF CONTENTS Page(s) Introductory Statement... 1 Continuing Disclosure... 1 The Bonds... 2 Authority and Purpose... 4 Sources and Uses of Funds... 4 Security and Financing... 4 Future Financing... 5 Litigation... 5 Legality... 5 Tax Exemption... 5 Not Bank-Qualified Tax-Exempt Obligations... 6 Rating... 7 Municipal Advisor... 7 Certification... 7 Underwriting... 7 City Property Values... 8 City Indebtedness... 9 City Tax Rates, Levies and Collections Funds on Hand Investments General Information Concerning the City Governmental Organization and Services Proposed Form of Legal Opinion... Appendix I Continuing Disclosure Certificate... Appendix II Summary of Tax Levies, Payment Provisions, and Minnesota Real Property Valuation... Appendix III Excerpt of 2014 Comprehensive Annual Financial Report... Appendix IV

5 OFFICIAL STATEMENT $29,500,000 CITY OF SHAKOPEE, MINNESOTA GENERAL OBLIGATION TAX ABATEMENT BONDS, SERIES 2016A (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT This Official Statement contains certain information relating to the City of Shakopee, Minnesota (the City ) and its issuance of $29,500,000 General Obligation Tax Abatement Bonds, Series 2016A (the Bonds ). The Bonds are general obligations of the City for which it pledges its full faith and credit and power to levy direct general ad valorem taxes. In addition, the City will pledge tax abatement revenues derived from certain abated parcels within the City for repayment of the Bonds. CONTINUING DISCLOSURE In order to assist the Underwriters in complying with SEC Rule 15c2-12 promulgated by the Securities and Exchange Commission, pursuant to the Securities Exchange Act of 1934, as the same may be amended from time to time, and official interpretations thereof (the Rule ), pursuant to the resolution awarding the sale of the Bonds (the Bond Resolution ), the City has entered into an undertaking (the Undertaking ) for the benefit of holders including beneficial owners of the Bonds to provide certain financial information and operating data relating to the City to the Electronic Municipal Market Access system ( EMMA ) annually, and to provide notices of the occurrence of certain events enumerated in the Rule to EMMA or the Municipal Securities Rulemaking Board (the MSRB ). The specific nature of the Undertaking, as well as the information to be contained in the annual report or the notices of material events, is set forth in the Continuing Disclosure Undertaking to be executed and delivered at the time the Bonds are delivered in substantially the form attached hereto as Appendix II. To the best of its knowledge, the City has complied for the past five years in all material respects in accordance with the terms of its previous continuing disclosure undertakings entered into pursuant to the Rule, except as follows: On November 19, 2015, Moody s Investors Service ( Moody s ) upgraded the City s underlying rating related to its outstanding general obligation bonds (CUSIP ) and the Scott County Community Development Agency, Minnesota s outstanding bonds backed by the City s general obligation pledge (CUSIPs and ) from Aa2 to Aa1. The material event and failure to timely file notices related to this rating change were filed with the MSRB through EMMA on December 11, The following is presented irrespective of materiality: Within the past five years, Moody s Investors Service has changed the credit ratings of certain municipal bond insurance firms, which resulted in the change of the insured ratings of certain debt issues of the City. Material event notices regarding certain insurance rating changes have not been filed; however, the information was publicly available through other sources. A failure by the City to comply with the Undertaking will not constitute an event of default on the Bonds or under any provisions of the Bond Resolution (although holders will have any other available remedy at law or in equity subject to certain limitations). Nevertheless, such a failure must be reported in - 1 -

6 accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. THE BONDS General Description The Bonds are dated as of the date of delivery and will mature annually on February 1 as set forth on the front cover of this Official Statement. The Bonds are issued in book entry form. Interest on the Bonds is payable on February 1 and August 1 of each year, commencing August 1, Interest will be payable to the holder (initially Cede & Co.) registered on the books of the Registrar as of the fifteenth day of the calendar month next preceding such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal of and interest on the Bonds will be paid as described in the section herein entitled Book Entry System. U.S. Bank National Association, St. Paul, Minnesota will serve as Registrar for the Bonds, and the City will pay for registrar services. Redemption Provisions Thirty days written notice of redemption shall be given to the registered owner(s) of the Bonds. Failure to give such written notice to any registered owner of the Bonds or any defect therein shall not affect the validity of any proceedings for the redemption of the Bonds. All Bonds or portions thereof called for redemption will cease to bear interest after the specified redemption date, provided funds for their redemption are on deposit at the place of payment. Optional Redemption The City may elect on February 1, 2025, and on any day thereafter, to prepay Bonds due on or after February 1, Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all the Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All prepayments shall be at a price of par plus accrued interest. Book Entry System The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries)that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both - 2 -

7 U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or its agent on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or - 3 -

8 registered in street name, and will be the responsibility of such Participant and not of DTC or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or its agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to City or its agent. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. AUTHORITY AND PURPOSE The Bonds are being issued pursuant to Minnesota Statutes, Chapter 475, as amended, and Sections through The proceeds of the Bonds will be used to finance improvements to the City s existing community center and the construction of additions to the City s community center. SOURCES AND USES OF FUNDS The composition of the Bonds is as follows: Sources of Funds: Principal Amount $29,500, Reoffering Premium 2,237, Total Sources of Funds $31,737, Uses of Funds: Deposit to Project Funds $30,416, Capitalized Interest 1,120, Costs of Issuance 113, Underwriter s Compensation 86, Total Uses of Funds $31,737, SECURITY AND FINANCING The Bonds are general obligations of the City for which the City pledges its full faith and credit and power to levy direct general ad valorem taxes; however the City does not anticipate the need to levy taxes for repayment of the Bonds. The City will pledge tax abatement revenues derived from certain abated parcels within the City for repayment of the Bonds. Capitalized interest has been included in the par amount of the Bonds to make the interest payments due on the Bonds through February 1, Thereafter, each year s collection of available tax abatement revenues will be sufficient to pay 105% of the debt service due on the Bonds in each year

9 FUTURE FINANCING The City does not anticipate issuing any additional long-term general obligation debt within the next 90 days. LITIGATION The City is not aware of any threatened or pending litigation affecting the validity of the Bonds or the City's ability to meet its financial obligations. LEGALITY The Bonds are subject to approval as to certain matters by Kennedy & Graven, Chartered, of Minneapolis, Minnesota, as Bond Counsel. Bond Counsel has not participated in the preparation of this Official Statement and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify any of the financial or statistical statements or data contained in this Official Statement and will express no opinion with respect thereto. A legal opinion in substantially the form set out in Appendix I herein will be delivered at closing. The Bonds are private activity bonds within the meaning of Section 141(a) of the Internal Revenue Code of 1986, as amended (the Code ), but bear interest not includable in gross income for purposes of federal income taxation under Section 103(a) of the Code, pursuant to the exemption for qualified 501(c)(3) bonds provided in Section 145 of the Code. Interest on the Bonds is not includable in the net taxable income of individuals, trusts, or estates for State of Minnesota income tax purposes. Interest on the Bonds is not an item of tax preference includable in alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on individuals and corporations or the Minnesota alternative minimum tax applicable to individuals, estates, and trusts. Interest on the Bonds is includable in adjusted current earnings of corporations in determining alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on corporations. Interest on the Bonds is includable in the taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. TAX EXEMPTION In the opinion of Kennedy & Graven, Chartered, Bond Counsel, based on present federal and Minnesota laws, regulations, rulings and decisions (which excludes any pending legislation which may have a retroactive effect), and assuming compliance with certain covenants set forth in the Bond Resolution, the interest on the Bonds is excluded from gross income for federal income tax purposes and, to the same extent, from taxable net income of individuals, estates, and trusts for Minnesota income tax purposes, and is not a preference item for purposes of computing the federal alternative minimum tax or the Minnesota alternative minimum tax imposed on individuals, trusts, and estates. Such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations and is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. Noncompliance following the issuance of the Bonds with certain requirements of the Internal Revenue Code of 1986, as amended, (the Code ) and covenants of the Bond Resolution may result in the inclusion of interest on the Bonds in gross income of the owners thereof for federal income tax purposes - 5 -

10 and in net taxable income of individuals, estates, and trusts for Minnesota income tax purposes. No provision has been made for redemption of the Bonds, or for an increase in the interest rate on the Bonds, in the event that interest on the Bonds becomes subject to federal or State of Minnesota income taxation. The Code provides that in the case of an insurance company subject to the tax imposed by Section 831 of the Code, the amount which otherwise would be taken into account as losses incurred under Section 832(b)(5) shall be reduced by an amount equal to 15% of the interest on the Bonds that is received or accrued during the taxable year. Interest on the Bonds may be included in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code. Under certain circumstances, interest on the Bonds may be subject to the tax on excess net passive income of Subchapter S corporations imposed by Section 1375 of the Code. The above is not a comprehensive list of all federal tax consequences which may arise from the receipt of interest on the Bonds. The receipt of interest on the Bonds may otherwise affect the federal or Minnesota income tax liability of the recipient based on the particular taxes to which the recipient is subject and the particular tax status of other items or deductions. Bond Counsel expresses no opinion regarding any such consequences. All prospective purchasers of the Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Bonds. The City will issue the Bonds as qualified 501(c)(3) bonds pursuant to Section 145 of the Code. This designation allows the City to lease all or portions of the bond-financed facility to organizations that are exempt from federal taxation pursuant to Section 501(a) of the Code as a result of the application of Section 501(c)(3) of the Code ( Tax Exempt Organizations ) and enter into long-term use agreements with Tax Exempt Organizations. Original Issue Discount The difference between the principal amount of the February 1, 2033 through February 1, 2036 maturities (the OID Bonds ) and the initial offering price to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Bonds. Such original issue discount accrues actuarially on the constant yield basis over the term of each OID Bond and the basis of each OID Bond acquired at the initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. Original Issue Premium Bonds maturing on February 1 in the years 2018 through 2031 have been sold at initial public offering prices which are greater than the principal amounts payable at maturity. Bondholders who acquire Bonds at a premium should consult their tax advisors concerning the calculation of bond premium and the timing and rate of premium amortization, as well as the federal, state and local tax consequences of owning and selling Bonds acquired at a premium. NOT BANK-QUALIFIED TAX-EXEMPT OBLIGATIONS The City will not designate the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code, relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations

11 RATING Moody s Investors Service ( Moody s ), 7 World Trade Center, 250 Greenwich Street, 23 rd Floor, New York, New York has assigned a rating of Aa1 to the Bonds. The rating reflects only the opinion of Moody s. Any explanation of the significance of the rating may be obtained only from Moody s. There is no assurance that a rating will continue for any given period of time, or that such rating will not be revised, suspended or withdrawn, if, in the judgment of Moody s, circumstances so warrant. A revision, suspension or withdrawal of a rating may have an adverse effect on the market price of the Bonds. MUNICIPAL ADVISOR The City has retained Springsted Incorporated, Public Sector Advisors, of St. Paul, Minnesota ( Springsted ), as municipal advisor in connection with certain aspects of the issuance of the Bonds. In preparing this Official Statement, Springsted has relied upon governmental officials, and other sources, who have access to relevant data to provide accurate information for this Official Statement, and Springsted has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. Springsted is not a public accounting firm and has not been engaged by the City to compile, review, examine or audit any information in this Official Statement in accordance with accounting standards. Springsted is an independent advisory firm, registered as a municipal advisor, and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. CERTIFICATION The City has authorized the distribution of the Preliminary Official Statement for use in connection with the initial sale of the Bonds and a Final Official Statement following award of the Bonds. The Purchaser will be furnished with a certificate signed by the appropriate officers of the City stating that the City examined each document and that, as of the respective date of each and the date of such certificate, each document did not and does not contain any untrue statement of material fact or omit to state a material fact necessary, in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. UNDERWRITING Morgan Stanley & Co. LLC in New York, New York (the Purchaser ) has agreed to purchase the Bonds for a purchase price of $31,651, (representing the principal amount of $29,500,000.00, plus a net reoffering premium of $2,237, and less the underwriter s compensation of $86,433.18). The public offering prices of all the Bonds may be changed from time to time by the Purchaser. Morgan Stanley, parent company of Morgan Stanley & Co. LLC., an underwriter of the Bonds, has entered into a retail distribution arrangement with Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds

12 CITY PROPERTY VALUES Trend of Values (a) Assessment/ Assessor s Market Value Adjusted Collection Estimated Sales Economic Homestead Taxable Taxable Net Year Market Value Ratio (b) Market Value (c) Exclusion Market Value Tax Capacity 2014/15 $3,843,970, % $3,924,156,712 $169,483,700 $3,629,757,200 $43,335, /14 3,442,954, ,725,234, ,023,100 3,206,518,700 38,881, /13 3,312,420, ,472,138, ,875,100 3,064,695,700 37,103, /12 3,581,521, ,535,559, ,785,900 3,347,179,800 40,413, /11 3,618,789,000 N/A N/A N/A 3,570,069,500 42,517,503 (a) For a description of the Minnesota property tax system, see Appendix III. (b) Sales Ratio Study for the year of assessment as posted by the Minnesota Department of Revenue, Prior to 2011/12, a different methodology was used to calculate sales ratios and the economic market value cannot be derived. (c) Economic market values for the year of assessment as posted by the Minnesota Department of Revenue, Source: Scott County, Minnesota, November 2015, except as otherwise noted. 2014/15 Adjusted Taxable Net Tax Capacity: $43,335,865* Real Estate: Residential Homestead $26,416, % Commercial/Industrial, Railroad, and Public Utility 18,307, Agricultural 592, Seasonal Recreational and Other 35, Personal Property 458, /15 Net Tax Capacity $45,812, % Less: Captured Tax Increment (408,172) Contribution to Fiscal Disparities (6,698,887) Plus: Distribution from Fiscal Disparities 4,630, /15 Adjusted Taxable Net Tax Capacity $43,335,865 * Excludes mobile home valuation of $745. Ten of the Largest Taxpayers in the City 2014/15 Net Taxpayer Type of Property Tax Capacity Xcel Energy Utility $ 625,521 J & J Minneapolis LLC Construction Contractor 449,000 Rahr Malting Company Malting Company 447,112 Seagate Technology LLC Computer Hardware 419,250 Imagine! Print Solutions Printer 399,250 St. Francis Regional Medical Center Health Care 374,500 Certain Teed Products Corp. Manufacturer 365,250 Shakopee Station LLC Commercial/Industrial 353,200 Canterbury Park Holding Co. Horse Racing Track 340,760 Valleyfair LLC Amusement Park 323,325 Total $4,097,168* * Represents 9.5% of the City's 2014/15 adjusted taxable net tax capacity

13 CITY INDEBTEDNESS Legal Debt Limit and Debt Margin* Legal Debt Limit (3% of 2014/15 Estimated Market Value) $115,319,100 Less: Outstanding Debt Subject to Limit (4,175,000) Legal Debt Margin as of January 21, 2016 $111,144,100 * The legal debt margin is referred to statutorily as the Net Debt Limit and may be increased by debt service funds and current revenues which are applicable to the payment of debt in the current fiscal year. NOTES: Certain types of debt are not subject to the legal debt limit. See Appendix III Debt Limitations. The 2013 Minnesota Legislature clarified the definition of estimated market value and established it as the basis for the calculation of the Net Debt Limit. Previously, Net Debt Limit was calculated on taxable market value. A large contributing factor to the change was to offset the effect of the Market Value Homestead Exclusion implemented by the 2012 Minnesota Legislature, which had a significant impact on taxable market values. General Obligation Debt Supported Solely by Taxes* Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $2,275,000 Fire Station Refunding $ 445, ,730,000 Capital Improvement Refunding ,730,000 Total $4,175,000 * These issues are subject to the legal debt limit. General Obligation Special Assessment Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $3,440,000 Local Improvements $ 740, ,370,000 Local Improvements , ,445,000 Local Improvements , ,170,000 Local Improvements , ,555,000 Local Improvements , ,135,000 Improvements Refunding ,000 Total $4,040,000 General Obligation Tax Abatement Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $29,500,000 Community Center (the Bonds) $29,500,

14 General Obligation Revenue Debt Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $ 905,000 Taxable Refunding (River City Centre Project) $ 370,000 (a) ,330,000 Refunding (River City Centre Project) ,170,000 (b) ,220,000 Refunding (River City Centre Project) ,195,000 (c) Total $3,735,000 (a) These bonds were issued by the Scott County Community Development Agency, Minnesota (the Agency ) to finance a senior housing and retail project located in the City. This issue is being repaid from project revenues and tax increment collections, but is secured by the full faith and credit of the City. (b) These bonds were issued by the Agency to refinance a senior housing and retail project located in the City. This issue is being repaid from project revenues, but is secured by the full faith and credit of the City. (c) These bonds were issued by the Agency to refinance a senior housing and retail project located in the City. This issue is being repaid from project revenues and tax increment collections, but is secured by the full faith and credit of the City. Revenue Debt* Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $10,570,000 Utility Improvements Refunding $8,425,000 * This bond was issued by the Shakopee Public Utilities Commission to finance capital improvements, replacements, and additions to the electric and water utilities comprising the Shakopee Public Utilities. Estimated Calendar Year Debt Service Payments Including the Bonds G.O. Debt Supported G.O. Special Solely by Taxes Assessment Debt Principal Principal Year Principal & Interest Principal & Interest 2016 (at 1-21) $ 560,000 $ 642,756 $1,125,000 $1,234, , ,606 1,115,000 1,185, , , , , , , , , , , , , , , , , , ,306 90,000 95, , ,456 85,000 89, , ,556 85,000 87, , ,303 75,000 75,797 Total $4,175,000 $4,579,807 $4,040,000 $4,322,

15 Estimated Calendar Year Debt Service Payments Including the Bonds (Continued) G.O. Tax Abatement Debt G.O. Revenue Debt Principal Principal Year Principal & Interest (a) Principal & Interest 2016 (at 1-21) -0- $ 575,585 $ 345,000 $ 453, ,090, , , $ 1,040,000 2,104, , , ,095,000 2,106, , , ,150,000 2,105, , , ,205,000 2,101, , , ,265,000 2,099, , , ,330,000 2,119, , , ,355,000 2,097, , , ,425,000 2,097, , , ,495,000 2,094, , , ,570,000 2,101, , , ,630,000 2,105, ,680,000 2,105, ,730,000 2,104, ,785,000 2,106, ,835,000 2,102, ,890,000 2,101, ,950,000 2,103, ,005,000 2,099, ,065,000 2,097,266 Total $29,500,000 (b) $41,620,069 $3,735,000 (c) $4,338,639 Revenue Debt Principal Year Principal & Interest 2016 (at 1-21) $ 410,000 $ 764, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,734 Total $8,425,000 (d) $11,474,596 (a) Includes debt service on the Bonds based on the interest rates shown on the front cover of this Official Statement. (b) 33.4% of this debt will be retired within ten years. (c) 91.4% of this debt will be retired within ten years. (d) 58.9% of this debt will be retired within ten years

16 Overlapping Debt 2014/15 Debt Applicable to Adjusted Taxable Est. G.O. Debt Tax Capacity in City Taxing Unit (a) Net Tax Capacity As of (b) Percent Amount Scott County $ 159,180,564 $ 63,050, % $ 17,149,600 I.S.D. No. 720 (Shakopee) 48,960, ,945, ,271,030 I.S.D. No. 191 (Burnsville- Eagan-Savage) 68,869, ,490, ,574,780 Metropolitan Council 3,284,372,173 20,500,000 (c) ,500 Metropolitan Transit 2,617,722, ,095,000 (d) 1.7 4,965,615 Total $211,227,525 (a) Only those units with outstanding general obligation debt are shown here. (b) Excludes general obligation tax and aid anticipation certificates and revenue-supported debt. (c) Excludes general obligation debt supported by wastewater revenues and housing rental payments. Includes certificates of participation. (d) Includes general obligation grant anticipation notes. Debt Ratios* G.O. G.O. Direct & Direct Debt Overlapping Debt To 2014/15 Estimated Market Value ($3,843,970,000) 0.98% 6.48% Per Capita - (39, MN State Demographer Estimate) $954 $6,299 * Excludes general obligation revenue debt and revenue debt. CITY TAX RATES, LEVIES AND COLLECTIONS Tax Capacity Rates for a Resident in Independent School District No. 720 (Shakopee) 2014/15 For 2010/ / / /14 Total Debt Only Scott County % % % % % 4.193% City of Shakopee (a) ISD No. 720 (Shakopee) (b) Special Districts (c) Total % % % % % % (a) The City of Shakopee also has a 2014/15 tax rate of 0.005% spread on the market value of property in support of debt service. (b) Independent School District No. 720 (Shakopee) also has a 2014/15 tax rate of 0.100% spread on the market value of property in support of an excess operating levy. (c) Special districts include the Shakopee Economic Development Authority, Scott County Community Development Agency, Metropolitan Council, Metropolitan Transit, Mosquito Control, and the Lower Minnesota Watershed District. NOTE: Taxes are determined by multiplying the net tax capacity by the tax capacity rate, plus multiplying the referendum market value by the market value rate. This table does not include the market value based rates. See Appendix III

17 Tax Levies and Collections Collected During Collected and/or Abated Net Collection Year as of Levy/Collect Levy * Amount Percent Amount Percent 2014/15 $16,770,491 (In Process of Collection) 2013/14 16,322,976 $16,220, % $16,288, % 2012/13 15,509,622 15,286, ,491, /12 14,835,937 14,666, ,826, /11 14,241,753 14,005, ,236, * The net levy excludes state aid for property tax relief and fiscal disparities, if applicable. The net levy is the basis for computing tax capacity rates. See Appendix III. FUNDS ON HAND As of October 31, 2015 General Fund $ 6,009,424 Special Revenue Funds 1,514,218 Debt Service Funds 2,142,118 Capital Project Funds 8,891,323 Enterprise Fund 27,507,409* Internal Service Fund 13,549,557 Trust and Agency Funds 2,822,704 Total Cash and Investments $62,436,753 * Excludes Shakopee Public Utilities Commission cash and investments. INVESTMENTS The City has a formal investment policy. Safety of principal is the foremost objective of the City's investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed

18 As of October 31, 2015, the market value of the City's investments, excluding the Shakopee Public Utilities Commission investments, totaled $61,771,914, including treasury securities purchased at a discount and accruing interest. Of the City's total investments, approximately 14% of the investments will mature in less than one year (including government mutual funds and money market funds) and 86% will mature in one to five years. GENERAL INFORMATION CONCERNING THE CITY The City is located in northeastern Scott County, approximately 25 miles southwest of the City of Minneapolis. The City is the Scott County seat and is part of the Minneapolis/St. Paul metropolitan area. The Minnesota River forms the City's northern boundary. The City encompasses an area of approximately 30 square miles (19,200 acres), since having annexed 340 acres in Jackson Township in November Population The City s population trend is shown below. Population Percent Change 2014 MN State Demographer Estimate 39, % 2010 U.S. Census 37, U.S. Census 20, U.S. Census 11, U.S. Census 9, Sources: Minnesota State Demographic Center, mn.gov/admin/demography and United States Census Bureau, The City s population by age group for the past two years is as follows: Data Year/ Report Year and Over 2014/15 12,076 9,100 16,519 3, /14 12,051 9,114 16,193 3,044 Source: Claritas, Inc. Transportation U.S. Highway 169 runs through the City as well as County Road 101. Six public and private airports are located within Scott County and the Minneapolis-St. Paul International Airport is located in the City of Bloomington, approximately 30 miles northeast of the City. Public transportation services are provided though Metropolitan Council, Minnesota Valley Transit Authority, and Shakopee Transit

19 Major Employers Approximate Number Employer Product/Service of Employees Shakopee Mdewakanton Sioux Community Entertainment 4,200 Seagate Technology LLC Computer hardware 1,800 Valleyfair Entertainment park 1,600 (a) Independent School District No. 720 (Shakopee) Public education 1,100 Imagine! Print Solutions Commercial printing 850 St. Francis Regional Medical Center Health care 800 Scott County County government 750 (b) Canterbury Park Horse racing 600 (a) City of Shakopee City government 590 (b) Northstar Auto Auction Motor vehicle auctions 350 Vertis Communications Printing company 300 Anchor Glass Glass bottle manufacturer 275 Women s Correctional Facility Women s prison 250 Certain Teed Products Corp. Asphalt shingles 230 Toro Company Turf care products 225 Shakopee Friendship Manor Corp. Nursing home 115 (a) At seasonal peak. (b) Includes full- and part-time and seasonal employees. (c) Includes full- and part-time employees, seasonal employees, and 36 paid on-call firefighters. Source: This does not purport to be a comprehensive list and is based on a September 2015 best efforts telephone survey of individual employers. Some employers do not respond to inquiries. Labor Force Data Annual Average September Labor Force: City of Shakopee 21,558 21,878 22,104 22,237 22,305 Scott County 74,874 76,035 77,161 77,622 77,909 Minneapolis/St. Paul MSA 1,879,765 1,891,151 1,906,358 1,917,301 1,925,078 State of Minnesota 2,944,331 2,954,948 2,965,675 2,974,102 2,988,729 Unemployment Rate: City of Shakopee 5.9% 5.0% 4.4% 3.6% 2.8% Scott County Minneapolis/St. Paul MSA State of Minnesota Source: Minnesota Department of Employment and Economic Development, data are preliminary

20 Retail Sales and Effective Buying Income (EBI) City of Shakopee Scott County Data Year/ Total Retail Total Median Report Year Sales ($000) EBI ($000) Household EBI 2014/15 $1,192,094 $1,087,360 $66, /14 1,180, ,900 63,135 Data Year/ Total Retail Total Median Report Year Sales ($000) EBI ($000) Household EBI 2014/15 $2,692,422 $4,186,488 $70, /14 2,340,281 3,698,718 65, /13 2,278,394 3,646,018 63, /12 1,423,315 3,372,565 62, /11 1,424,409 3,432,343 62,300 The 2014/15 Median Household EBI for the State of Minnesota was $50,560. The 2014/15 Median Household EBI for the United States was $45,448. Source: Claritas, Inc. Permits Issued by the City New Single New Total Value* Family Residential Commercial/Industrial (All Permits) Year Number Value Number Value 2015 (to 10-31) 45 $14,877, $268,128,495 $313,195, ,376, ,653, ,936, ,579, ,923, ,001, ,241, ,573,480 92,586, ,215, ,418,132 71,405, ,688, ,074,321 90,769, ,988, ,794, ,640, ,625, ,315,334 54,150, ,719, ,394,634 96,860, ,995, ,173, ,729,393 * In addition to building permits, the total value includes all other permits issued by the City (i.e. heating, lighting, plumbing, roof replacement, etc.). Source: City of Shakopee

21 Recent Development The following projects are anticipated to begin construction in the near future or are currently under construction in the City: Amazon.com is opening two locations in the City. The first is a new 2,200,000 square-foot distribution center which is currently under construction and the second is an existing building which was rehabbed and is being used as a sorting center. AmeriSource Bergen is building a new 200,000 square-foot pharmaceutical distribution facility. Capp Industries is building a new 120,000 square-foot spec industrial building. Compass Datacenter is expanding with phase two of its development. Elander Mechanical is building a new 20,000 square-foot industrial building. La Costena Market is expanding by rehabbing a previously vacant 10,000 square-foot building in downtown. Marcus Theatres is constructing a new 10-screen movie theater with a nearby coffeehouse/bakery. Metropolitan Council is constructing two solar arrays, Oak Leaf Solar Energy, at the Blue Lake Water Treatment Plant. Midwest Specialties is expanding with an additional 40,000 square-foot warehouse. Munkabeans is a new restaurant/coffee shop expected to open in an existing building being rehabbed in the downtown area of the City. Polaris Industries is expanding into an 800,000 square-foot industrial building. O Brien s Public House is a new full service restaurant expected to open in a building being rehabbed in the downtown area of the City. Rahr Malting is expanding by adding four new buildings: a new malt house, an 80,000 squarefoot warehouse/distribution facility, a maintenance building and a test brew/laboratory facility. South Metro Federal Credit Union has opened a new bank location with room for one additional tenant space. Warners Stellian is constructing a new retail facility which will accommodate its needs along with two additional tenants. Recently completed projects include: RuB, a manufacturer of shut-off brass valves with focus on ball valves for gas, water, air, oil installations, opened in the City. Bayer Crop Science opened a $12 million facility in the City. Badger Hill Brewery moved to a new location in the City. Goodwill completed a new 13,000 square-foot retail building. Gresser Concrete completed a new industrial building. Cities Edge Motorsports expanded and relocated to a 19,000 square-foot facility. Aldi opened a new 17,000 square-foot retail grocery store. Farmers Edge made their first US expansion from Canada with an existing office location in the City s industrial park. ValleyFair added attractions to its waterpark facility. The Yoga Barre has opened in the downtown area of the City. Financial Institutions* City residents are served by Anchor Bank, National Association; BMO Harris Bank National Association; Guaranty Bank; Hometown Bank; Kleinbank; Prime Security Bank; Stonebridge Bank; TCF National Bank; U.S. Bank National Association; and Wells Fargo Bank, National Association. * This does not purport to be a comprehensive list. Source: Federal Deposit Insurance Corporation,

22 Health Care Services The following is a summary of health care facilities located in the City: Facility Location No. of Beds St. Francis Regional Medical Center City of Shakopee 93 hospital beds 18 infant bassinets Shakopee Friendship Manor City of Shakopee 80 nursing home beds St. Gertrude s Health Center City of Shakopee 105 nursing home beds Delphi City of Shakopee 9 intermediate care facility beds Source: Minnesota Department of Health, Education Public Education The following districts serve the residents of the City: 2014/15 * School Location Grades Enrollment ISD No. 720 (Shakopee) City of Shakopee K-12 7,953 ISD No. 191 (Burnsville- Eagan-Savage) City of Burnsville K-12 9,449 * 2015/16 enrollment figures are not yet available. Source: Minnesota Department of Education, Non-Public Education City residents are also served by the following private schools: 2014/15 * School Location Grades Enrollment Shakopee Area Catholic School City of Shakopee K Living Hope Lutheran School City of Shakopee PK-4 75 * 2015/16 enrollment figures are not yet available. Source: Minnesota Department of Education,

23 GOVERNMENTAL ORGANIZATION AND SERVICES Organization The City was incorporated as a City in 1870 and became a statutory city in April The City has a Mayor-Council form of government, with the Mayor elected to a two-year term of office and the four Council members elected to overlapping four-year terms. The following individuals comprise the current City Council: Expiration of Term Brad Tabke Mayor December 31, 2015 (a) Matt Lehman Council Member December 31, 2015 (b) Mike Luce Council Member December 31, 2017 Kathy Mocol Council Member December 31, 2017 Jay Whiting Council Member December 31, 2015 (b) (a) Mayor Brad Tabke did not run for re-election. Mr. William Mars is the City s Mayor-elect with a term commencing January 1, 2016 and ending December 31, (b) Council Members Matt Lehman and Jay Whiting won re-election with terms ending December 31, The City's chief administrative officer is the City Administrator who is appointed by the City Council. Mr. William H. Reynolds has served in this position since June Prior to joining the City, Mr. Reynolds was with the City of Pensacola, Florida. Ms. Jean McGann, the City's Interim Finance Director, has been with the City since February Ms. McGann is President of AEM Financial Solutions and previously worked for the cities of Plymouth, St. Louis Park, and Andover, Minnesota. Ms. McGann also has experience working with Price Waterhouse Coopers. The City has 590 full and part-time employees. Services Police and fire protection for the City is provided by the Police Department, which is authorized to staff up to 48 full-time officers and 10 civilians. The City has a paid on-call Fire Department authorized to staff of 7 full-time and 46 paid on-call employees. The City has a class 4 rating for insurance purposes. The Shakopee Public Utilities Commission (the Commission ) is the governing body of the electric utility and responsible for the management, operation and maintenance of the municipal electric distribution system and water system. The electric utility purchases power from Minnesota Municipal Power Agency (MMPA) and has 16,963 metered customers. The Commission is composed of five members appointed by the City Council to three-year terms. The Commission makes an annual contribution in lieu of taxes to the City and also contributes free electricity for City street lighting. The Commission has five electric substations in operation to service its territory which includes the City, portions of the Townships of Jackson and Louisville, and part of the City of Prior Lake lying north of Prior Lake and between Pike Lake Trail and County Road 18/Crest Avenue and abutting the City. Municipal water and sewer services are provided for all developed areas of the City. Water is supplied by 18 wells and stored in a two million gallon standpipe, a 125,000 gallon sphere, a 1 million gallon hydro pillar, a 500,000 gallon spheroid, and two 2.5 million gallon tanks. The water system has a pumping capacity of 13,750 gallons per minute. Average demand is estimated to be 4.8 million gallons per day, while the historic peak demand is million gallons per day. Interceptor sewer lines and wastewater treatment plants in the Minneapolis/St. Paul metropolitan area are under the jurisdiction of the Metropolitan Council's Environmental Services ( MCES ). MCES finances its operations through user charges based on volume

24 Labor Contracts The status of labor contracts in the City is as follows: Expiration Date Bargaining Unit No. of Employees of Current Contract Law Enforcement Labor Services, Inc. (Police Officers) 36 December 31, 2016 Law Enforcement Labor Services, Inc. (Police Sergeants) 8 December 31, 2016 Minnesota Teamsters Local No December 31, 2016 Subtotal 64 Non-unionized employees 127 Total employees 191 Employee Pensions All full-time employees and certain part-time employees of the City are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF), which are cost-sharing multiple-employer retirement plans. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Security and Basic members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by PEPFF. The City s contributions to GERF and PEPFF are equal to the contractually required contributions for each year as set by State Statute, and are as follows for the past five years: GERF PEPFF City PEDCP 2014 $400,891 $638, , , , , , , , ,396 Four Council members of the City are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by PERA. The PEDCP is a taxqualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until the time of withdrawal. Plan benefits depend solely on the amounts contributed to the plan plus investment earnings less administrative expenses. An eligible elected official who chooses to participate in the plan contributes 5% of their salary, which is matched by the elected official s employer. PERA receives 2% of employer contributions and 0.025% of the assets in each member s account annually for administering the plan

25 The City s contributions to PEDCP for the past five years are as follows: City Firefighter s Association PEDCP 2014 $2, , , , ,064 Volunteer firefighters of the City are eligible for pension benefits through membership in the Shakopee Fire Relief Association (the Association ) organized under Minnesota Statutes. The Association provides retirement and disability benefits to members, and benefits to survivors upon the death of eligible members. The minimum support rates from the City and from State aid are determined as the amount required to meet the normal cost plus amortizing any existing prior service costs over a ten-year period. Total City contributions to the Association for the past five years are as follows: Firefighter s Association 2014 $341, , , , ,752 For more information regarding the liability of the City with respect to its employees, please reference Note 14, Defined Contribution Plan State-Wide, Note 15 Defined Contribution Plan State-Wide, and Note 16, Defined Benefit Pension Plan Shakopee Volunteer Fire Relief Association of the City s Comprehensive Annual Financial Report for fiscal year ended December 31, 2014, an excerpt of which is included as Appendix IV of this Official Statement. Sources: City s Comprehensive Annual Financial Reports. Other Post-Employment Benefits The Governmental Accounting Standards Board (GASB) has issued Statement No. 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions (GASB 45), which addresses how state and local governments must account for and report their obligations related to postemployment healthcare and other non-pension benefits (referred to as Other Post Employment Benefits or OPEB ). The City provides a single-employer defined benefit health care plan to eligible retirees and their spouses. The plan offers medical coverage administered by Medica. As of January 1, 2014, the City has eight participants. The City currently finances the plan on a pay-as-you-go basis. During the fiscal year ended December 31, 2014, the City expended $55,738 for these benefits. Under GASB 45 such costs must be accounted for on an accrual basis

26 Components of the City s annual OPEB cost, the amount actually contributed to the plan, and the changes in the City s net OPEB obligation to the plan for the fiscal year ended December 31, 2014 are as follows: Annual required contribution $ 250,460 Interest on net OPEB obligation 42,712 Adjustment to annual required contribution (61,751) Annual OPEB cost (expense) $ 231,421 Contributions made (55,738) Increase in net OPEB obligation $ 175,683 Net OPEB obligation beginning of year $1,067,801 Net OPEB obligation end of year $1,243,484 Funded status of the City s OPEB as reported in the actuarial reports received to-date: Unfunded UAAL as Actuarial Actuarial a percentage Actuarial Actuarial Value Accrued Accrued of Annual Valuation Date of Assets Liability Liability (UAAL) Covered Payroll January 1, $1,938,082 $1,938, % January 1, ,483,810 1,483, January 1, ,887,961 1,887, Required contributions as reported in the actuarial reports received to-date: Fiscal OPEB Employer % of Annual OPEB OPEB Year Ended Cost Contributions Cost Contributed Obligation December 31, 2014 $231,421 $55, % $1,243,484 December 31, ,363 45, ,067,801 December 31, ,190 53, ,960 December 31, ,980 45, ,361 December 31, ,040 27, ,104 For more information regarding the liability of the City with respect to its employees, please reference Note 17, Post Employment Health Benefits Plan of the City s Comprehensive Annual Financial Report for fiscal year ended December 31, 2014, an excerpt of which is included as Appendix IV of this Official Statement. Sources: City s Comprehensive Annual Financial Reports

27 General Fund Budget Summary 2014 Budget 2014 Actual 2015 Budget 2016 Budget* Revenues Property Taxes $15,262,000 $16,041,003 $16,163,000 $17,188,900 Special Assessments 10,400 8,580 11,500 11,500 Licenses and Permits 1,267,000 1,534,165 1,348,300 1,504,100 Intergovernmental 938,200 1,191,127 1,028,393 1,108,500 Charges for Services 4,090,375 4,294,637 4,050,700 4,226,275 Fines and Forfeitures 375, , ,000 1,500 Miscellaneous 320, , , ,838 Total Revenues $22,263,275 $23,794,189 $23,104,893 $24,266,613 Expenditures General Government $ 4,050,470 $ 3,514,499 $ 4,253,325 $ 4,496,731 Public Safety 10,476,353 10,179,026 9,855,744 10,281,026 Public Works 3,117,870 2,835,624 3,238,343 3,405,719 Parks and Recreation 4,217,632 3,977,600 4,258,755 4,356,187 Miscellaneous , ,950 Total Expenditures $21,862,325 $20,506,749 $21,867,167 $22,805,613 Excess (Deficiency) of Revenues Over Expenditures $ 400,950 $ 3,287,440 $ 1,237,726 $ 1,461,000 Other Financing Sources Transfers In $ 180,000 $ 180,000 $ 250,000 $ 250,000 Transfers Out (1,080,000) (2,722,697) (1,900,000) (2,100,000) Unallocated ,000 Proceeds from Sale of Capital Asset Total Other Financing Sources $ (900,000) $ (2,542,383) $ (1,650,000) $ (1,461,000) Fund Balance, January 1 $ 9,092,989 $ 9,092,989 $ 9,838,046 $ 9,425,772 Fund Balance, December 31 $ 8,593,939 $ 9,838,046 $ 9,425,772 $ 9,425,772 * Preliminary general fund budget. Sources: City s Comprehensive Annual Financial Reports, 2015 Budget, and the City. Major General Fund Revenue Sources Revenue Property Taxes $13,557,007 $14,279,016 $14,773,080 $15,587,147 $16,041,003 Charges for Services 1,827,039 3,879,113 4,035,921 4,304,786 4,294,634 Licenses and Permits 1,303,904 1,225,560 1,229,184 1,443,885 1,534,165 Intergovernmental 828, , ,445 1,042,127 1,191,127 Fines and Forfeitures 423, , , , ,500 Sources: City s Comprehensive Annual Financial Reports

28 APPENDIX I PROPOSED FORM OF LEGAL OPINION $29,500,000 General Obligation Tax Abatement Bonds Series 2016A City of Shakopee Scott County, Minnesota We have acted as bond counsel to the City of Shakopee, Scott County, Minnesota (the Issuer ) in connection with the issuance by the Issuer of its General Obligation Tax Abatement Bonds, Series 2016A (the Bonds ), originally dated January 21, 2016, and issued in the original aggregate principal amount of $29,500,000. In such capacity and for the purpose of rendering this opinion we have examined certified copies of certain proceedings, certifications and other documents, and applicable laws as we have deemed necessary. Regarding questions of fact material to this opinion, we have relied on certified proceedings and other certifications of public officials and other documents furnished to us without undertaking to verify the same by independent investigation. Under existing laws, regulations, rulings and decisions in effect on the date hereof, and based on the foregoing we are of the opinion that: 1. The Bonds have been duly authorized and executed, and are valid and binding general obligations of the Issuer, enforceable in accordance with their terms. 2. The principal of and interest on the Bonds are payable primarily from tax abatement revenues, but if necessary for the payment thereof ad valorem taxes are required by law to be levied on all taxable property of the Issuer, which taxes are not subject to any limitation as to rate or amount. 3. The Bonds are private activity bonds within the meaning of Section 141(a) of the Internal Revenue Code of 1986, as amended (the Code ), but bear interest not includable in gross income for purposes of federal income taxation under Section 103(a) of the Code, pursuant to the exemption for qualified 501(c)(3) bonds provided in Section 145 of the Code. Interest on the Bonds (including any original issue discount allocable to an owner thereof) is not includable in the net taxable income of individuals, trusts, or estates for State of Minnesota income tax purposes. Interest on the Bonds is not an item of tax preference includable in alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on individuals and corporations and the Minnesota alternative minimum tax applicable to individuals, estates, and trusts. Interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations and is subject to the State of Minnesota franchise tax imposed on corporations and financial institutions. The opinion set forth in this paragraph is subject to the condition that the Issuer comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes and from taxable net income for Minnesota income tax purposes. The Issuer has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes and taxable net income for Minnesota income tax purposes retroactively to the date of issuance I-1

29 of the Bonds. We express no opinion regarding other federal or state tax consequences arising with respect to ownership of the Bonds or caused by the receipt or accrual of interest thereon. 4. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditor s rights generally and by equitable principles, whether considered at law or in equity. We have not been asked and have not undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds, and accordingly we express no opinion with respect thereto. This opinion is given as of the date hereof and we assume no obligation to update, revise, or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Dated January 21, 2016 at Minneapolis, Minnesota. I-2

30 APPENDIX II CONTINUING DISCLOSURE CERTIFICATE $29,500,000 City of Shakopee, Minnesota General Obligation Tax Abatement Bonds Series 2016A January 21, 2016 This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the City of Shakopee, Minnesota (the Issuer ) in connection with the issuance of its General Obligation Tax Abatement Bonds, Series 2016A (the Bonds ) in the original aggregate principal amount of $29,500,000. The Bonds are being issued pursuant to resolutions adopted by the City Council of the Issuer (the Resolutions ). The Bonds are being delivered to Morgan Stanley & Co. LLC (the Purchaser ) on the date hereof. Pursuant to the Resolutions, the Issuer has covenanted and agreed to provide continuing disclosure of certain financial information and operating data and timely notices of the occurrence of certain events. The Issuer hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Holders (as defined herein) of the Bonds in order to provide for the public availability of such information and assist the Participating Underwriter(s) (as defined herein) in complying with the Rule (as defined herein). This Disclosure Certificate, together with the Resolutions, constitutes the written agreement or contract for the benefit of the Holders of the Bonds that is required by the Rule. Section 2. Definitions. In addition to the defined terms set forth in the Resolutions, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report means any annual report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Audited Financial Statements means annual financial statements of the Issuer, prepared in accordance with generally accepted accounting principles for governmental units ( GAAP ) as prescribed by the Governmental Accounting Standards Board ( GASB ). Bonds means the General Obligation Tax Abatement Bonds, Series 2016A, issued by the Issuer in the original aggregate principal amount of $29,500,000. Disclosure Certificate means this Continuing Disclosure Certificate. EMMA means the Electronic Municipal Market Access system operated by the MSRB and designated as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. Final Official Statement means the deemed Final Official Statement, dated December 21, 2015, which constitutes the final official statement delivered in connection with the Bonds, which is available from the MSRB. Fiscal Year means the fiscal year of the Issuer. II-1

31 Holder means the person in whose name a Bond is registered or a beneficial owner of such a Bond. Bonds. Issuer means the City of Shakopee, Minnesota, which is the obligated person with respect to the Material Event means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board located at 1900 Duke Street, Suite 600, Alexandria, VA Participating Underwriter means any of the original underwriter(s) of the Bonds (including the Purchaser) required to comply with the Rule in connection with the offering of the Bonds. Purchaser means Morgan Stanley & Co. LLC. Repository means EMMA, or any successor thereto designated by the SEC. Rule means SEC Rule 15c2-12(b)(5) promulgated by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time, and including written interpretations thereof by the SEC. SEC means Securities and Exchange Commission, and any successor thereto. Section 3. Provision of Annual Financial Information and Audited Financial Statements. (a) The Issuer shall provide to the Repository, as soon as available, but not later than twelve (12) months after the end of the Fiscal Year commencing with the year that ends December 31, 2015, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the Audited Financial Statements of the Issuer may be submitted separately from the balance of the Annual Report and will be submitted as soon as available. (b) If the Issuer is unable or fails to provide to the Repository an Annual Report by the date required in subsection (a), the Issuer shall send a notice of that fact to the Repository and the MSRB. (c) The Issuer shall determine each year prior to the date for providing the Annual Report the name and address of each Repository. Section 4. Content of Annual Reports. The Issuer s Annual Report shall contain or incorporate by reference the following sections of the Final Official Statement: 1. City Property Values 2. City Indebtedness 3. City Tax Rates, Levies and Collections In addition to the items listed above, the Annual Report shall include Audited Financial Statements submitted in accordance with Section 3 of this Disclosure Certificate. II-2

32 Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement, it must also be available from the MSRB. The Issuer shall clearly identify each such other document so incorporated by reference. Section 5. Reporting of Material Events. (a) This Section 5 shall govern the giving of notice of the occurrence of any of the following events ( Material Events ) with respect to the Bonds: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB), or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; 7. Modifications to rights of security holders, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the securities, if material; 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the obligated person; 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) The Issuer shall file a notice of such occurrence with the Repository or with the MSRB within ten (10) business days of the occurrence of the Material Event. (c) Unless otherwise required by law and subject to technical and economic feasibility, the Issuer shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of the Issuer s information. II-3

33 Section 6. EMMA. The SEC has designated EMMA as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. Until the EMMA system is amended or altered by the MSRB and the SEC, the Issuer shall make all filings required under this Disclosure Certificate solely with EMMA. Section 7. Termination of Reporting Obligation. The Issuer s obligations under the Resolutions and this Disclosure Certificate shall terminate upon the legal defeasance, the redemption in full of all Bonds, or the payment in full of all Bonds. Section 8. Agent. The Issuer may, from time to time, appoint or engage a dissemination agent to assist it in carrying out its obligations under the Resolutions and this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor dissemination agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of the Resolutions or this Disclosure Certificate, the Issuer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of nationally recognized bond counsel to the effect that such amendment or waiver would not, in and of itself, cause a violation of the Rule. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate, or any provision hereof, shall be null and void in the event that the Issuer delivers to the Repository an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which impose the continuing disclosure requirements of the Resolutions and the execution and delivery of this Disclosure Certificate are invalid, have been repealed retroactively or otherwise do not apply to the Bonds. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate may be amended without the consent of the Holders of the Bonds, but only upon the delivery by the Issuer to the Repository of the proposed amendment and an opinion of nationally recognized bond counsel to the effect that such amendment, and giving effect thereto, will not adversely affect the compliance with the Rule. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Material Event, in addition to that which is required by this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Certificate, the Issuer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Material Event. Section 11. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate any Holder of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Issuer to comply with its obligations under the Resolutions and this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default with respect to the Bonds and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the Participating Underwriters, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. II-4

34 IN WITNESS WHEREOF, we have executed this Disclosure Certificate in our official capacities effective as of the date and year first written above. CITY OF SHAKOPEE, MINNESOTA Mayor City Administrator II-5

35 APPENDIX III SUMMARY OF TAX LEVIES, PAYMENT PROVISIONS, AND MINNESOTA REAL PROPERTY VALUATION Following is a summary of certain statutory provisions relative to tax levy procedures, tax payment and credit procedures, and the mechanics of real property valuation. The summary does not purport to be inclusive of all such provisions or of the specific provisions discussed, and is qualified by reference to the complete text of applicable statutes, rules and regulations of the State of Minnesota. Property Valuations (Chapter 273, Minnesota Statutes) Assessor's Estimated Market Value. Each parcel of real property subject to taxation must, by statute, be appraised at least once every five years as of January 2 of the year of appraisal. With certain exceptions, all property is valued at its market value, which is the value the assessor determines to be the price the property to be fairly worth, and which is referred to as the Estimated Market Value. The 2013 Minnesota Legislature established the Estimated Market Value as the value used to calculate a municipality s legal debt limit. Economic Market Value. The Economic Market Value is the value of locally assessed real property (Assessor s Estimated Market Value) divided by the sales ratio as provided by the State of Minnesota Department of Revenue plus the estimated market value of personal property, utilities, railroad, and minerals. Taxable Market Value. The Taxable Market Value is the value that Net Tax Capacity is based on, after all reductions, limitations, exemptions and deferrals. Net Tax Capacity. The Net Tax Capacity is the value upon which net taxes are levied, extended and collected. The Net Tax Capacity is computed by applying the class rate percentages specific to each type of property classification against the Taxable Market Value. Class rate percentages vary depending on the type of property as shown on the last page of this Appendix. The formulas and class rates for converting Taxable Market Value to Net Tax Capacity represent a basic element of the State's property tax relief system and are subject to annual revisions by the State Legislature. Property taxes are the sum of the amounts determined by (i) multiplying the Net Tax Capacity by the tax capacity rate, and (ii) multiplying the referendum market value by the market value rate. Market Value Homestead Exclusion. In 2011, the Market Value Homestead Exclusion Program (MVHE) was implemented to offset the elimination of the Market Value Homestead Credit Program that provided relief to certain homesteads. The MVHE reduces the taxable market value of a homestead with an Assessor s Estimated Market Value up to $413,800 in an attempt to result in a property tax similar to the effective property tax prior to the elimination of the homestead credit. The MVHE applies to property classified as Class 1a or 1b and Class 2a, and causes a decrease in the City s aggregate Taxable Market Value, even if the Assessor s Estimated Market Value on the same properties did not decline. Property Tax Payments and Delinquencies (Chapters 275, 276, 277, and 549, Minnesota Statutes) Ad valorem property taxes levied by local governments in Minnesota are extended and collected by the various counties within the State. Each taxing jurisdiction is required to certify the annual tax levy to the county auditor within five (5) working days after December 20 of the year preceding the collection year. A listing of property taxes due is prepared by the county auditor and turned over to the county treasurer on or before the first business day in March. III-1

36 The county treasurer is responsible for collecting all property taxes within the county. Real estate and personal property tax statements are mailed out by March 31. One-half (1/2) of the taxes on real property is due on or before May 15. The remainder is due on or before October 15. Real property taxes not paid by their due date are assessed a penalty on homestead property of 2% until May 31 and increased to 4% on June 1. The penalty on nonhomestead property is assessed at a rate of 4% until May 31 and increased to 8% on June 1. Thereafter, an additional 1% penalty shall accrue each month through October 1 of the collection year for unpaid real property taxes. In the case of the second installment of real property taxes due October 15, a penalty of 2% on homestead property and 4% on nonhomestead property is assessed. The penalty for homestead property increases to 6% on November 1 and again to 8% on December 1. The penalty for nonhomestead property increases to 8% on November 1 and again to 12% on December 1. Personal property taxes remaining unpaid on May 16 are deemed to be delinquent and a penalty of 8% attaches to the unpaid tax. However, personal property that is owned by a tax-exempt entity, but is treated as taxable by virtue of a lease agreement, is subject to the same delinquent property tax penalties as real property. On the first business day of January of the year following collection all delinquencies are subject to an additional 2% penalty, and those delinquencies outstanding as of February 15 are filed for a tax lien judgment with the district court. By March 20 the county auditor files a publication of legal action and a mailing of notice of action to delinquent parties. Those property interests not responding to this notice have judgment entered for the amount of the delinquency and associated penalties. The amount of the judgment is subject to a variable interest determined annually by the Department of Revenue, and equal to the adjusted prime rate charged by banks but in no event is the rate less than 10% or more than 14%. Property owners subject to a tax lien judgment generally have three years (3) to redeem the property. After expiration of the redemption period, unredeemed properties are declared tax forfeit with title held in trust by the State of Minnesota for the respective taxing districts. The county auditor, or equivalent thereof, then sells those properties not claimed for a public purpose at auction. The net proceeds of the sale are first dedicated to the satisfaction of outstanding special assessments on the parcel, with any remaining balance in most cases being divided on the following basis: county - 40%; town or city - 20%; and school district - 40%. Property Tax Credits (Chapter 273, Minnesota Statutes) In addition to adjusting the taxable value for various property types, primary elements of Minnesota's property tax relief system are: property tax levy reduction aids; the homestead credit refund and the renter s property tax refund, which relate property taxes to income and provide relief on a sliding income scale; and targeted tax relief, which is aimed primarily at easing the effect of significant tax increases. The homestead credit refund, the renter s property tax refund, and targeted credits are reimbursed to the taxpayer upon application by the taxpayer. Property tax levy reduction aid includes educational aids, local governmental aid, equalization aid, county program aid and disparity reduction aid. Debt Limitations All Minnesota municipalities (counties, cities, towns and school districts) are subject to statutory net debt limitations under the provisions of Minnesota Statutes, Section Net debt is defined as the amount remaining after deducting from gross debt the amount of current revenues that are applicable within the current fiscal year to the payment of any debt and the aggregate of the principal of the following: 1. Obligations issued for improvements that are payable wholly or partially from the proceeds of special assessments levied upon benefited property. 2. Warrants or orders having no definite or fixed maturity. 3. Obligations payable wholly from the income from revenue producing conveniences. III-2

37 4. Obligations issued to create or maintain a permanent improvement revolving fund. 5. Obligations issued for the acquisition and betterment of public waterworks systems, and public lighting, heating or power systems, and any combination thereof, or for any other public convenience from which revenue is or may be derived. 6. Certain debt service loans and capital loans made to school districts. 7. Certain obligations to repay loans. 8. Obligations specifically excluded under the provisions of law authorizing their issuance. 9. Certain obligations to pay pension fund liabilities. 10. Debt service funds for the payment of principal and interest on obligations other than those described above. 11. Obligations issued to pay judgments against the municipality. Levies for General Obligation Debt (Sections and , Minnesota Statutes) Any municipality that issues general obligation debt must, at the time of issuance, certify levies to the county auditor of the county(ies) within which the municipality is situated. Such levies shall be in an amount that if collected in full will, together with estimates of other revenues pledged for payment of the obligations, produce at least five percent in excess of the amount needed to pay principal and interest when due. Notwithstanding any other limitations upon the ability of a taxing unit to levy taxes, its ability to levy taxes for a deficiency in prior levies for payment of general obligation indebtedness is without limitation as to rate or amount. Metropolitan Revenue Distribution (Chapter 473F, Minnesota Statutes) Fiscal Disparities Law The Charles R. Weaver Metropolitan Revenue Distribution Act, more commonly known as Fiscal Disparities, was first implemented for taxes payable in Forty percent of the increase in commercial-industrial (including public utility and railroad) net tax capacity valuation since 1971 in each assessment district in the Minneapolis/St. Paul seven-county metropolitan area (Anoka, Carver, Dakota, excluding the City of Northfield, Hennepin, Ramsey, Scott, excluding the City of New Prague, and Washington Counties) is contributed to an area-wide tax base. A distribution index, based on the factors of population and real property market value per capita, is employed in determining what proportion of the net tax capacity value in the area-wide tax base shall be distributed back to each assessment district. III-3

38 STATUTORY FORMULAE: CONVERSION OF TAXABLE MARKET VALUE (TMV) TO NET TAX CAPACITY FOR MAJOR PROPERTY CLASSIFICATIONS Local Tax Local Tax Local Tax Payable Payable Payable Property Type Residential Homestead (1a) Up to $500, % 1.00% 1.00% Over $500, % 1.25% 1.25% Residential Non-homestead Single Unit (4bb1) Up to $500, % 1.00% 1.00% Over $500, % 1.25% 1.25% 1-3 unit and undeveloped land (4b1) 1.25% 1.25% 1.25% Market Rate Apartments Regular (4a) 1.25% 1.25% 1.25% Low-Income (4d) 0.75% Up to $100, % Over $100, % (a) (b) (c) Up to $106, % Over $106, % Commercial/Industrial/Public Utility (3a) Up to $150, % (a) 1.50% (a) 1.50% (a) Over $150, % (a) 2.00% (a) 2.00% (a) Electric Generation Machinery 2.00% 2.00% 2.00% Commercial Seasonal Residential Homestead Resorts (1c) Up to $600, % 0.50% 0.50% $600,000 - $2,300, % 1.00% 1.00% Over $2,300, % (a) 1.25% (a) 1.25% (a) Seasonal Resorts (4c) Up to $500, % (a) 1.00% (a) 1.00% (a) Over $500, % (a) 1.25% (a) 1.25% (a) Non-Commercial (4c12) Up to $500, % (a)(b) 1.00% (a)(b) 1.00% (a)(b) Over $500, % (a)(b) 1.25% (a)(b) 1.25% (a)(b) Disabled Homestead (1b) Up to $50, % 0.45% 0.45% Agricultural Land & Buildings Homestead (2a) Up to $500, % 1.00% 1.00% Over $500, % 1.25% 1.25% Remainder of Farm Up to $2,140,000 (c) 0.50% (b) 0.50% (b) 0.50% (b) Over $2,140,000 (c) 1.00% (b) 1.00% (b) 1.00% (b) Non-homestead (2b) 1.00% (b) 1.00% (b) 1.00% (b) State tax is applicable to these classifications. Exempt from referendum market value based taxes. Legislative increases, payable Historical valuations are: Payable $1,900,000; Payable $1,500,000; Payable $1,290,000; and Payable $1,210,000. NOTE: For purposes of the State general property tax only, the net tax capacity of non-commercial class 4c(1) seasonal residential recreational property has the following class rate structure: First $76, %; $76,000 to $500, %; and over $500, %. In addition to the State tax base exemptions referenced by property classification, airport property exempt from city and school district property taxes under M.S is exempt from the State general property tax (MSP International Airport and Holman Field in St. Paul are exempt under this provision). III-4

39 EXCERPT OF 2014 COMPREHENSIVE ANNUAL FINANCIAL REPORT APPENDIX IV Data on the following pages was extracted from the City s Comprehensive Annual Financial Report for fiscal year ended December 31, The reader should be aware that the complete financial statements may contain additional information which may interpret, explain or modify the data presented here. The City s comprehensive annual financial reports for the years ending 1984 through 2013 were awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of the United States and Canada (GFOA). The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial reporting. The City has submitted its CAFR for the 2014 fiscal year to GFOA. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report (CAFR), whose contents conform to program standards. Such CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. IV-1

40 INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Members of the City Council City of Shakopee Shakopee. Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund infonnation of the City of Shakopee, Minnesota, 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 Slandards, issued by the Comptroller General of the United States. Those standards require that we plan and perfonn the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves perfonning 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 appj1.?priate 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. Opinions In our opinion, the financial statements referred to above present fairly. in all material respects, the respective financial position of the governmental activities. the business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund infonnation of the City of Shakopee, Minnesota, as of December 31, 2014, 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. Olber Mailers Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis which follows this letter, the Schedule of Funding Progress- Other Post Employment Benefits as listed in the Table of Contents be presented to supplement the basic financial statements. Such infonnation, 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 infonnation 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 infonnation and comparing the infonnation 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 infonnation because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 01her Information Our audit was conducted for the purpose of fonnin!l opinions on the financial statements that collectively comprise the City of Shakopee's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements 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 infonnation 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 infonnation 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 combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Gowmnnent A11diting Stttndttrds In accordance with Government Auditing Standards, we have also issued our report dated May 20,2015 on our consideration of the City of Shakopee's internal control over financial reporting and on our tests of its compliance with certain provisions of laws. regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and results of that testing, and not to provide an opinion on internal control over financial 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 of Shakopee's internal control over financial reporting and compliance. Kw.-,l>t:w_._...t.., V4UP. KERN, DEWENTER. VIERE, LTD. St. Cloud, Minnesota May20, 2015 IV-2

41 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 As management of the City of Shakopee (the "City"), we offerreaders of the City's financial statements this narrative overview and analysis of the financial activities of the City for the 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, which can be found on pages 3 to 8 of this report. Financial HighUghts The government-wide financial statements include not only the City itself {known as the primary government), but also two legally separate entities for which the City is financially accountable. The component units are Shakopee Public Utilities Commission (SPUC) and the Economic Development Authority {EDA). SPUC's financial information is reported separately from the financial information presented for the primary government as a discretely presented component unit. The EDA, which functions like a department of the City although it is a legally separate entity, is presented within the City's government-wide financial statements. The City Council is the EDA Board. IV-3 The assets of the City exceeded its liabilities at the close of the most recent year by$ million (net position). Of this amount,$ 63.7 million (unrestricted net position) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net position increased$ I,074,506. As of the close of the current year, the City's governmental funds reported combined ending fund balances of$ 25,886,973 million, decreasing from the prior year. Approximately 37.9% of this total amount,$ 9.8 million is available for spending at the City's discretion (unassigned fund balance). At the end of the current year, unassigned fund balance for the General Fund was$ 9.8 million, or47.9 %, of total General Fund 2014 expenditures and 45% of the 2015 budgeted expenditures. The City's total bonded debt decreased$ 3,160,000. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise three components: I) government-wide financial statements, 2) fund financial statements, and 3) Notes to the Financial Statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to private-sector business. The Statement of Net Position presents information on all of the City's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the City's net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused employee leaves). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges {businesstype activities). The governmental activities of the City include general government, public safety, highways and streets, economic development and recreation. The business-type activities of the City include sewer, storm drainage utilities and refuse. The government-wide financial statements can be found on pages 28 and 29 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Government Funds Government funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a City's near-term financing's requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City's near-term financing decisions. The governmental funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains 30 individual governmental funds. Information is presented separately in the governmental funds Balance Sheet and in the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances for the General Fund and the Capital Improvement Capital Project Fund. Those are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been prepared for the fund to demonstrate compliance with the budget. The basic governmental funds financial statements can be found on pages 30 to 33of this report.

42 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2014 Proprietary Funds The City maintains three different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its sewer, storm drainage and refuse operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses internal service funds to account for its fleet of vehicles and mobile equipment, its major buildings, the replacement of park assets, information technology items and for employee compensated absences. All of these services predominantly benefit governmental rather than business-type functions. Proprietary funds provide the same type of information as the government-wide financial statements. The proprietary fund financial statements provide separate information for the sewer, storm drainage and refuse operations, all of which are considered to be major funds of the City. Conversely, all internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 36 to 39 of this report. The combining statements referred to earlier in connection with non-major governmental funds, internal service funds and fiduciary funds are presented immediately following the required supplementary information on pensions. Combining and individual fund statements and schedules can be found on pages 84 to I 0 I of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a City's financial position. For the City, assets exceeded liabilities by $ million at the close of the most recent year. By far the largest portion of the City's net position (72.4 %) reflects its investment in capital assets (e.g., land, buildings and equipment); less any related debt used to acquire those assets that is still outstanding. The City used 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, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Net Position (Expressed in Thousands) IV-4 Component Units Component units are legally separate organizations for which the City is financially accountable. The government-wide financial statements present information for the component units in a single column on the Statement of Net Position. Also, some information on the Statement of Changes in Net Position is aggregated for component units. The component units' Statements of Net Position and Statement of Changes in Net Position provide detail for each major component unit. 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 statement because the resources of those funds are not available to support the City's own programs. The basic fiduciary fund financial statements can be found on page 41 of this report. Notes to the Financial Statements Governmental Activi.ies Busiless-Type Activities Total Current and Other Asset..; $ 52,636 $ 51,813 $ 29,190 $ $ $ 83,566 Capital Assets 128, ,831 65, , ,473 Total Asset<.; $ 180,867 ~105 $ 97,021 $ 96,934 $ 277,888 $ 279,039 Long-Term Liabilities OutstandB1g $ 10,370 $ 15,832 $ 88 $ 93 $ 10,458 $ 15,925 Other Liabilities 10~ 7, ,727 7,486 - Total Liabilities $ 20,481..!...B:,842 $ 704 $ 569 $ $ 23,411 NET POSITION: Net lnvestmer< B1 Capital Assets $ 117,981 $ 118,167 $ 67,831 $ 65,181 $ $ Restricted 7,103 10,454 7,103 10,454 Uruestricted 35,302 30,642 28,486 31,184 63,788 61,826 The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The Notes to the Financial Statements can be found on pages 45 to 78 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City's progress in funding its obligation to provide pension benefits to its employees. Total Net Position $ 160~ $ 159,263 $ 96,317 $ 96,365 $ 256,703 ~28 An additional portion of the City's net position (2.8%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position($ 63.7 million) may be used to meet the City's ongoing obligations to citizens and creditors. At the end of the current year, the City was able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior year.

43 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 IV-5 During the current year, the City's net position increased by$ 1.1 million. Governmental activities increased as a result of the City receiving additional state and federal grants for road projects. Additionally, an increase in the tax levy along with conservative spending and increased developmental revenues has aided in the increase in net position. Transit grant revenues also increased and the City received additional local grants and contributions for projects that took place during the year. The business-type activities revenues increased as a result of significant prepayments on special assessments. Expenses remained consistent with the prior year which come in above revenues in business type activities resulting in an overall decrease in net position. REVENUES: Program Revenues: Charges fur Services Operating Grants and C ontributijns Capital Grants and CortriJutiom General Reverrues: Property Taxes Other Taxes Other Total Reven\l!s EXPENSES: General Governtrent Public Safi:ty Public Works Cukure and Recreation Economic Development Interest on Long-Term Debt Sewer Stonn Refuse Total Expe!Rs Increase (Decrease B1 Net Position before Transfers Transfurs $ Governmental Acvtivities ~ lq_!l Changes in Net Position (Expressed in Thousands) $ 7,468 2, , ,544 10,667 4,251 1, ,024 1,542 (419) , ,258 4,705 9,868 7,578 4, ,085 (827) 162 Business-Type Activiies 2014 lq!l 4, ,235 3,778 1,924 5,702 (467) 419 $ 4, ,786 4,097 1,641 5,738 (952) (162) 2014 $ 11,774 2,880 7,166 16, ,318 39,801 5,514 10,544 10,667 4,251 1, ,778 1,924 38,726 1,075 Total ,193 1, ,705 9,868 7,578 4, ,097 1,641 32,823 (1,779) Governmental Activities Governmental activities increased the City's net position by$ 1,122,962. The major increase was a result of increased state and federal grants and aid for road projects. As well as an increased levy, conservative spending and increased development resulting in increased revenues. Additionally, increase transit revenue and local grants and contributions to help offset some of the City's costs for projects during the year. Expenses and Program Revenues - Governmental Activities $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- ;; -a.., " E!! E 0 " " i; 0,., ~ " ~ Jl... 0 ;;; e "6 0 - ~ 8. "' ~ " " g~ '-= '-=....J{l CQ ;: E.&>.&> <:<: " " ~ i. l "'o e ~ Bf-<.5 Revenues bv Source - Governmental Activities Operating Grants OtherRevenues\ and 2% \ Cont~~tions ~- L_ l Capital Grants and / "\\ J '--,~ Contri:lutions Charges for ~ J ' 19"/o Services--... ' \. / \ 22% ~ '\; \I OProgram Revenues Expenses Change in Net Position 1,123 (665) (48) (1,114) 1,075 (1,779) NETPOSTION: January I Decerrt>er ,263 $ 160, , ,263 96,365 ~ 97,479 96, , ,407 $ 255,628 Other Taxes 1% Property Taxes 48%

44 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 Business-Type Activities FINANCIAL ANALYSIS OF THE CITY'S FUNDS IV-6 Business-type activities decreased the City's net position by$ 48,456. Key elements of this decrease are as follows: Charges for services decreased$ 525,327 as metro SAC charges decreased due to the city depleting its metro sac credits during The City experienced an increased revenue collections due to increased water consumption and usage during the year. This was partially offset by a decrease in storm trunk charges in 2014, during 2013 the City an influx of industrial and residential development. Capital Grants and contributions increased $ 488,875 as a result of significant prepayments on special assessments The sewer and storm water activities will continue to experience a higher degree of expense, as the deferral of maintenance and increasing mandates will continue to put pressure on the funds, to meet the demands of on-going and future development needs. Expenses and Program Revenues - Business-Type Activities $4, $ $ $2, As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, assigned and unassigned fund balance may serve as a useful measure of a City's net resources available for spending at the end of the year. As of the end of the current year, the City's governmental funds reported combined ending fund balances of$ 25,886,973, a decrease of$ I,815,224 in comparison with the prior year. Approximately 37.9%, ($ 9,816,781), of the total amount constitutes unassigned fund balance, which is available for spending at the City's discretion. Approximately 22.9%, ($ 5,934,579), of the total amount constitutes assigned fund balance, which is assigned for designated purposes. The remainder of fund balance, ($ I 0, 135,613), is not available for new spending because it has already been restricted or is non-spendable. The General Fund is the chief operating fund of the City. At the end of the current year, fund balance of the General Fund was$ 9,838,046. As a measure of the General Fund's liquidity, it may be useful to compare fund balance (unassigned) to total fund expenditures. Fund balance represents 47.9% of total General Fund expenditures. $2, $1, $ $500,000 $- s...., Stonn Refuse Revenues by Source- Business-Type Activities _ ~-... Capital Grants and. Contributiom '""-.. 10% ~ ' Vi '" \ -Charges lor Servi:es Ea11111gs,, l 10% -... / lnves~nt/. ) 80% Fund balance of the City's General Fund increased by $ 745,057 during the current year. Key factors in this increase consist of the following: Before transfers, the fund balance of the General Fund showed a$ 3,287,440 increase. After the net transfer out of$ 2,542,697 and a gain on sales of assets of$ 314, fund balance increased $ 745,057. Transfers provided the necessary funding for several significant capital infrastructure programs and projects, payment of some debt service funds as well as funding for the growing Information Technology needs of the City Overall Revenues increased approximately $ 924,000 as a result of increased property taxes. Additional licenses and permits increased due to increased growth and development during the year. Intergovernmental revenue increased due to an increase in federal grants received for graffiti, police vests and evidence room improvements as well as an increase in state aid maintenance money. Increase also due to an increase in investment revenue. Overall expenditures increased approximately$ 967,000 due to new positions added during 2013 being employed for the full year, as well as the new positions added in Additionally an early buy-out incentive was offered in 20 I 4. This resulted in payouts of severance for some long term employees who qualified and opted to take the incentive.

45 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2014 IV-7 Fund balance of the Capital Improvements fund decreased $ 123,491. The City paid for the following projects in 2014 from this fund: Valley View Road Vierling Drive and CSAH 17 Interchange CR 101 Trail Extension Vierling Drive Pavement Rehabilitation Valley Park Business Center Street Reconstruction Project Bituminous Overlay Quarry Lake Trail Fund balance of the Non-major Governmental Funds decreased$ 2,436,790. Major changes are as follows: Debt service fund decreased approximately $ 2 million due to regular bond payments as well as paying off the 2004A bond during 2014 with refunding bond proceeds. Transit decreased approximately$ 306,000. Services are being transferred to Metro Valley Transit Authority (MVTA) in The City paid start-up costs to MVTA during Economic Development Authority decreased approximately $ 324,000 due to a business subsidy payment made during 2014 to a company. Park Reserve decreased approximately$ 248,000. Southbridge Community Park, Huber Park shelter, Quarry Lake Park and Riverside fields are projects that took place during the year. Proprietary funds GENERAL FUND BUDGETARY HIGHLIGHTS The original legally adopted budget for expenditures was $ 21,862,325 and transfers out were budgeted at$ 1,080,000 with no budget adjustments. Actual expenditures of$ 20,506,749 were$ 1,355,576 under budget. The variance was a result of several unique events, including higher than anticipated position turnover and the accompanying lag in replacement hiring time and lower than anticipated attorney costs due to the Scott Joint Prosecution Association ceasing operations as of October I, Additionally, City staff continued a trend of conservative spending. The City was diligent in obtaining many of the services and supplies originally budgeted for the year at a lower than anticipated cost, such as training and training related costs, building maintenance costs and limited use of the contingency funds which provide for unplanned events or occurrences. Additional transfers out over budget are under taken annually. This is to comply with the City's established fund balance policy. At the end of 2014 following transfers the city maintained a fund balance percentage of 47.9% of current year expenditures and 45% of the 2015 budgeted expenditures. The original and final adopted budgets for revenues were $ 22,263,275 and transfers in were $ 180,000. Actual revenues of$ 23,794,189 were$ 1,530,914 over budget. This was a result of an increase in collection of property taxes. Additionally increases in development and building and conservative budgeting resulting in both licenses and permits and charges for services to come in over budget. The revenue received from the Electric and Water utility, component units, is recorded as a Charge for Service, were over budget as a result of conservative budgeting as the amounts can fluctuate from year to year based on usage. CAPITAL ASSET AND DEBT ADMINISTRATION The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the enterprise funds (expressed in thousands): Sewer Storm Refuse Beginni1g ofy ear $ 15,647 $ 15,374 $ Change Dlrilg Year (1,438) (139) (1,100) End ofyear $ 14,209 $ 15,235 $ (1,100) The Refuse fund was created during 2014 with the City's purchase of garbage carts. The City has undertaken several new development projects, beginning in 2014 and continuing into 2015, which will expand both the collections of revenues for connection fees and charges for services. The capital assets of the projects will increase the capital assets of these funds, as well as the offsetting future year depreciation charges. A portion of these projects are funded through special assessments, but a significant portion of this is funded through the anticipated future revenues collected for services. Capital Assets The City's investment in capital assets for its governmental and business type activities as of December 31,2014, amounts to$ 196,061,651 (net of accumulated depreciation). This investment in capital assets includes land, buildings and systems, improvement, machinery and equipment, park facilities, roads, highways and bridges. In the near future, the impact of planned business, commercial and residential expansions will impact the type and funding of capital projects, as the economy in the area is experiencing upward and steady growth and will impact planning and construction of roads, trails, parks and traffic flows and management. Major capital assets events during the current year included the following: Southbridge Community Park which includes enclosed dog park areas, trails and playgrounds. Valley Park Business Center improvements relating to streets, trails, storm drainage, sanitary sewer and water mains Reconstruction of streets, sanitary sewer, storm sewer and water mains on CSAH 17 /Vierling Drive, Valley View Road, Shakopee Avenue, 7'h Avenue, Apgar Street, Scott Street, Atwood Street and Fuller Street. Several bituminous overlay projects were also undertaken in the community, to maintain the infrastructure of the system Vehicle replacements in police, streets, parks Additional information on the City's capital assets can be found in Note 6 on pages 62 to 64 of this report.

46 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CITY OF SHAKOPEE MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 IV-8 Land ROW Construction in Progress Li1e Rights Infrastructure Build01gs Machinery and Equ4>rnent Total $ $ CAPITAL ASSETS (Net of Depreciation) Expressed in Thousands Governmental Activities ,783 $ 20, ,671 3,500 71,471 73,101 26,041 26,682 7,011 6, ,231 $ 130,292 Business-TyPe Activities $ 3,797 $ 3, ,716 1, ,532 57,023 2,497 1,478 ~ $ 65,181 Total $ 24,580 $ 23, ,387 5, , ,124 26,041 26,682 9,508 8,465 $ 196,062 $ 195,473 In 2014, several projects that were "in progress" were continued and completed, as these projects often involved the coordination with County, State and Federal entities. The status of these projects is highly dependent on weather and the funding and staffing of cooperating entities, and will often impact the ability of the City to complete these projects in the anticipated year. Long-Term Debt At the end of the current year, the City had total bonded debt outstanding of$ 13,830,000. Of this amount,$ 9,390,000 comprises debt backed by the full faith and credit of the government and $ 4,440,000 is special assessment debt for which the government is liable in the event of default by the property owners subject to the assessment. Additional information on the City's long-term debt can be found in Note 7 on pages 64 to 67 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The unemployment rate for the state continued to decrease to a year-end level of 3.6%. The City is currently experiencing the construction and development of several new commercial business sites that were initiated in 2013 and These companies such as Recovery Technology Solution, Aldi, Badger Hill and Bayer, and improvements at sites such as Canterbury Park and Rahr Malting are expanding and enhancing the economic tax base as well as the employment options in the community. These business ventures will bring not only a strong base of varied jobs to the area but enhanced tax base for the recently developed commercial and industrial sites. The City is also experiencing interest from business entities that are considering Shakopee as a favorable site due to increased economic activity and expanded retail sale activity. During the current year, the unassigned fund balance in the General Fund was$ 9,824,097. This can be similarly compared to the unassigned fund balance of2013 of$ 9,076,549. The City continues to maintain a strong financial position as the economic climate and the economic diversification of the region and the state continue to improve. The general tax levy for 2014/2015 is increased to$ 16,138,000, in comparison to the prior year amount of$ 15,793,220. This levy was increase to provide needed funding for newly created city positions relating to fire, economic development and police. The levy also provided increased funding for the infrastructure needs through the capital improvement fund. Historically only 30% of some of the project costs are funded through special assessments which will require a firm commitment of the Council to provide needed resources for maintenance, improvements and additions to the existing infrastructure. G.O. Bonds Special Assessment Debt with Governmental Comnitment Total Outstanding Debt G.O. and Revenue Bonds Expressed In Thousands Govennnental ActivKies $ 9,390 $ 9,865 4,440 7,125 $ 13,830 $ 16,990 City staff continues to refine and coordinate multi-department development related activities. This is done through review of fees, charges, consistent practices and detailed discussions specific to each development review. As staff continues to refine these practices the achieved outcome will be to provide a higher level of positive customer and development satisfaction. REQUESTS FOR INFORMATION This financial report is designed to provide a general view of the City's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Finance Director, 129 Holmes St. S., Shakopee, Minnesota, The City's total bonded debt decreased by$ 3,160,000 during the current year. Minnesota Statutes limit the amount of general obligation (G.O.) debt a government entity may issue to a net figure of3% of the taxable market value. The current legal debt margin for the City is$ 91 million, which is significantly in excess ofthe City's outstanding G.O. debt.

47 BASIC FINANCIAL STATEMENTS IV-9

48 CITY OF SHAKOPEE STATEMENT OF NET POSTION December 31, 2014 Governmental Business-Type Activities Activities Total Comeonent Unit ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Assets Cash and Investments (Including Cash Equivalents) $ 41,954,804 $ 28,365,559 $ 70,320,363 $ 29,978,417 Cash with Fiscal Agent 3,610,245 3,610,245 Restricted Cash and Investments 10,572,688 Property Tax Receivable 157, ,555 Accounts Receivable (Net of Allowance for Uncollectible Accounts) 551,740 10, ,349 3,943,117 Interest Receivable , ,024 27,499 Due From Other Governments 413, , , ,719 Special Assessments Receivable 5,792, ,362 6,052,634 Inventories 1,114,382 Prepaid Expenses 13,949 13,949 74,236 Electric Plant Acquisition (Net of Accumulated Amortization) 88,720 Capital Assets, Net of Accumulated Depreciation (Where Applicable): Land and Land Improvements 20,782,779 3,796,803 24,579,582 5,097,532 RightofWay 253, , ,650 Construction in Progress 2,671,223 1,716,056 4,387,279 4,135,537 Line Rights 841, ,543 Infrastructure 71,471,336 58,531, ,003,253 Plant in Service 65,407,148 Buildings 26,040,573 26,040,573 Machinery and Equipment 7,010,737 2,497, ,771 Total Assets 180,866,865 97, , , Deferred Outflows of Resources Deferral on Refunding 260,263 Total Assets and Deferred Outflows of Resources $ 180,866,865 $ 97,021,383 $ 277.K8K,24K $ ,258 LIABILITIES AND NET POSITION Liabilities Accounts and Contracts Payable $ 1,158,293 $ 152,596 $ 1.310,889 $ 3,269,998 Other Current Liabilities 383,580 Due to Other Governments 1,467, , , ,956 Salaries and Benefits Payable 893, ,380 Deposits Payable 2.014,745 Interest Payable 181, , ,096 Unearned Revenue ,132 Customer Advances 682,512 Bond Principal Payable, Net: Payable Within One Year 5,615,000 5,615, ,000 Payable After One Year 8,215,000 8,215,000 8, Compensated Absences Payable: Payable Within One Year 794, ,424 Payable After One Year 970, ,072 Net Other Post Employment Benefits (OPED) Obligation 1.184,032 59, ,484 Total Liabilities 20,480, , , Net Position Net Investment in Capital Assets 117,980,552 67,831, ,811,651 65,923,775 Restricted for: Economic Development 361, ,569 Cable PEG Fees 76,342 76,342 Transit 635, Forfeiture 174, ,580 Debt Service 4,227,412 4,227,412 Component Units 8,299,847 Capital improvements 1,628,431 1,628,431 Unrestricted 35,302, ,814 63,787, Total Net Position ,168 96,316, , ,077 Total Liabilities and Net Position $ 180, $ $ 277,888,248 $ I ,258 The Notes to the Financial Statements are an integral part of this statement. IV-10

49 CITY OF SHAKOPEE STATEMENT OF ACTIVITIES For the Year Ended December 31,2014 Pro~am Revenues Operating Capital Grants Net (Expense) Revenues and Chanses in Net Position Charges for Grants and and Governmental Business-Type Component Functions/Pro~ms ~enses Services Contributions Contributions Activities Activities Total Units Governmental Activities General Government $ 5,514,412 $ 3,155,648 $ 1,100,979 $ - $ (1,257,785) $ $ (1,257,785) $ Public Safety 10,543,861 1,879, ,221 - (8,016,431) (8,016,431) Public Works 10,667, , ,756 6,668,531 (2,739,341) - (2,739,341) Culture and Recreation 4,250,557 1,827,046 59,699 - (2,363,812) - (2,363,812) Economic Development 1,593,968 18, ,838 - (1,070, 130) - ( 1,070, 130) Interest on Long-Term Debt 453, (453,696) - (453,696) Total Governmental Activities 33,023,769 7,573,550 2,880,493 6,668,531 _(15,901,195) - (15,901,195) IV-11 Business-Type Activities Sewer 3,777,866 2,916, ,037 - (377,637) (377,637) Storm Drainage 1,924,853 1,211,793-12,618 (700,442) (700,442) Refuse - 72, ,167 72,167 Total Business-Type Activities 5,702,719 4,200, ,655 - (1,005,912) (1,005,912) Total Primary Government $ 38,726,488 $ 11,773,702 $ 2,880,493 $ 7,165,186 (15,901,195) (1,005,912) (16,907,107) Component Unit- SPUC Electric $ 37,890,491 $ 42,491,281 $ - $ 291,568-4,892,358 Water 4,398,408 4,498,167-1,813,728-1,913,487 Total Component Unit $ 42,288,899 $ 46,989,448 $ - $ 2,105, ,805,845 General Revenues Property Taxes 16,446,631-16,446,631 Tax Increments 216, ,441 Unrestricted Investment Earnings 727, ,248 1,265, ,780 Gain on Sale of Asset 52,674-52,674 31,348 Transfers (419,208) 419,208 Total General Revenues and Transfers 17,024, ,456 17,981, ,128 Change In Net Position 1,122,962 (48,456) 1,074,506 6,937,973 Net Position - Beginning 159,263,206 96,365, ,628,575 98,243,104 Net Position - Ending $ 160,386,168 $ 96,316,913 $ 256,703,081 $ 105,181,077 The Notes to the Financial Statements are an integral part of this statement.

50 CITY OF SHAKOPEE BALANCESHEET-GOVERNMENTALFUNDS December 31, 2014 Capital Project Other Total Capital Governmental Governmental General Fund Improvements Funds Funds ASSETS Cash and Investments $ 10,305,273 $ 6,988,834 $ 7,534,587 $ 24,828,694 Cash with a Fiscal Agent 3,610,245 3,610,245 Delinquent Taxes Receivable 156, ,555 Special Assessments Receivable: Delinquent 4,023 22,407 17,645 44,075 Deferred 45,304 4,785, ,615 5,748,197 Accounts Receivable 277, , ,740 Interest Receivable 42,017 18,315 23,918 84,250 Due from Other Funds 7,090 7,090 Due From Other Governments 410,433 2, ,999 Prepaid Items 13,949 13,949 Total Assets $ 11,255,039 $ 11,824,667 $ 12,380,088 $ 35,459,794 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities Accounts Payable $ 357,896 $ 250,629 $ 187,714 $ 796,239 Contracts Payable 193,024 25, ,905 Due to Other Funds 7,090 7,090 Due to Other Governments 219, , ,734 1,467,651 Salaries and Benefits Payable 632, ,252 Advance from Other Funds 500, ,000 Unearned Revenue Total Liabilities 1,210,771 1,386,804 1,025,419 3,622,994 Deferred Inflows of Resources Unavailable Revenue - Property Taxes 156, ,555 Unavailable Revenue - Special Assessments 49,327 4,807, ,260 5,792,272 Total Deferred Inflows of Resources 206,222 4,807, ,920 5,949,827 Fund Balances Nonspendable 13,949 13,949 Restricted 10,121,664 10,121,664 Assigned 5,630, ,401 5,934,579 Unassigned 9,824,097 (7,316) 9,816,781 Total Fund Balances 9,838,046 5,630,178 10,418,749 25,886,973 Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 11,255,039 $ 11,824,667 $ 12,380,088 $ 35,459,794 The Notes to the Financial Statements are an integral part of this statement. IV-12

51 CITY OF SHAKOPEE RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION -GOVERNMENTAL FUNDS December 31, 2014 Total Fund Balances - Governmental Funds $ 25,886,973 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Cost of Capital Assets Less Accumulated Depreciation Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bond Principal Payable Net OPEB Obligation Delinquent property taxes and assessments receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the funds. Property Taxes Special Assessments Deferred special assessments receivable are not available to pay for current expenditures and, therefore, are reported as unavailable revenue in the funds. Deferred Special Assessments Governmental funds do not report a liability for accrued interest due and payable. Internal service funds are used by management to charge the costs of equipment, buildings, park assets and employee benefits to individual funds. A portion of the assets and liabilities of those funds are included in governmental activities in the Statement of Net Position. Total Net Position- Governmental Activities 167,372,803 (70, 708,985) (13,830,000) ( 1 '184,032) 157,555 44,075 5,748,197 ( 181,536) 47,081,118 $ 160,386,168 The Notes to the Financial Statements are an integral part of this statement. IV-13

52 CITY OF SHAKOPEE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS For the Year Ended December 31,2014 Ca2ital Projects Other Total Capital Governmental Governmental General Fund ImErovements Funds Funds REVENUES Property Taxes $ 16,041,003 $ 541,098 $ 16,582,101 Tax Increment 216, ,441 Special Assessments 8,580 2,124, ,608 2,673,132 Licenses and Permits 1,534, ,282 2,318,447 Intergovernmental 1,191,127 2,031,298 1,520,589 4,743,014 Charges for Services 4,294, ,085 4,683,722 Fines and Forfeitures 391,500 37, ,021 Miscellaneous 333, , , ,643 Total Revenues 23,794,189 4,297,378 4,229,954 32,321,521 EXPENDITURES Current General Government 3,514,499 1,710,984 5,225,483 Public Safety 10,139,833 53,663 10,193,496 Public Works 2,829,846 2,829,846 Culture and Recreation 3,977,600 4,399 3,981,999 Economic Development 1,595,628 1,595,628 Debt Service Principal 3,160,000 3,160,000 Interest and Other Charges 504, ,460 Capital Outlay 44,971 6,140,205 1,059,981 7,245,157 Total Expenditures 20,506,749 6,140,205 8,089,115 34,736,069 Excess of Revenues Over (Under) Expenditures 3,287,440 (I,842,827) (3,859,161) (2,414,548) OTHER FINANCING SOURCES (USES) Proceeds from Sale of Capital Asset Transfers In 180,000 1,750,000 1,601,038 3,531,038 Transfers Out (2,722,697) (30,664) (178,667) (2,932,028) Total Other Financing Sources (Uses) (2,542,383) 1,719,336 1,422, ,324 Net Change in Fund Balances 745,057 (123,491) (2,436,790) (1,815,224) FUND BALANCES Beginning of Year 9,092,989 5,753,669 12,855,539 27,702,197 End of Year $ 9,838,046 $ 5,630,178 $ 10,418,749 $ 25,886,973 The Notes to the Financial Statements are an integral part of this statement. IV-14

53 CITY OF SHAKOPEE RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES- GOVERNMENTAL FUNDS For the Year Ended December 31,2014 Net Change in Fund Balances - Governmental Funds $ (l,8i5,224) Amounts reported for governmental activities in the Statement of Activities are Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital Outlays Depreciation Expense Loss on Disposal of Fixed Assets Contributed Assets Principal payments on long-term debt are recognized as expenditures in the governmental funds but as an increase in the net position in the Statement of Activities. Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. Certain revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Special Assessments Delinquent Special Assessments Deferred OPEB obligations are recognized when paid in the government funds but recognized when incurred in the Statement of Activities Delinquent receivables will be collected this year, but are not available soon enough to pay for the current period's expenditures and, therefore, are not revenues in the funds. Capital assets transferred from governmental funds to proprietary funds Capital assets transferred from governmental funds funds to internal service funds Internal service funds are used by management to charge the costs of certain activities such as buildings, equipment, park assets and employee benefits to individual funds. (See Note 2.B.) Change in Net Position - Governmental Activities 4,243,719 ( 4, 723,490) (77,316) 43,500 3,160,000 50,764 21,553 1,949,047 (167,917) (135,470) (763,218) ( 12,350) (650,636) $ 1,122,962 The Notes to the Financial Statements are an integral part of this statement. IV-15

54 CITY OF SHAKOPEE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL- GENERAL FUND For the Year Ended December 31,2014 Original and Actual Final Budget Amounts REVENUES Property Taxes $ 15,262,000 $ 16,041,003 Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Miscellaneous Revenues: Investment Income Contributions and Donations Rents Other Total Revenues 10,400 1,267, ,200 4,090, , ,000 2,550 8, ,250 22,263,275 8,580 1,534,165 1, ,294, , ,101 14,275 8, ,055 23,794,189 Variance with Final Budget- Over (Under) $ 779,003 (1,820) 267, , ,262 16,500 (15,899) 11, ,805 1,530,914 EXPENDITURES Current General Government Public Safety Public Works Parks and Recreation Capital Outlay Public Safety Public Works Park and Recreation Total Expenditures 4,050,470 10,476,353 3,117,870 4,215,932 1,700 21,862,325 3,514,499 10,139,833 2,829,846 3,977,600 39,193 5,778 20,506,749 (535,971) (336,520) (288,024) (238,332) 39,193 5,778 (1,700) ( 1,355,576) Excess of Revenues Over (Under) Expenditures 400,950 3,287,440 2,886,490 OTHER FINANCING SOURCES (USES) Proceeds from Sale of Capital Asset Transfers In Transfers Out 180,000 (I,080,000) ,000 (2,722,697) 314 (I,642,697) Total Other Financing Sources (Uses) (900,000) (2,542,383) ( 1,642,383) Net Change in Fund Balances $ (499,050) 745,057 $ 1,244,107 FUND BALANCES Beginning of Year 9,092,989 End of Year $ 9,838,046 The Notes to the Financial Statements are an integral part of this statement. IV-16

55 CITY OF SHAKOPEE STATEMENT OF NET POSITION- PROPRIETARY FUNDS Deeember 31,2014 Business-T~ee Activities- Ente!Erise Funds Governmental Activities - Storm Internal Sewer Draina~e Refuse Total Service Funds ASSETS Current Assets Cash and Investments, Including Cash Equivalents $ 12,729,450 $ 15,493,729 $ $ 28,223,179 $ 17,268,490 Accounts Receivable ,016 10,609 Interest Receivable 43,051 52,224 95,275 57,499 Special Assessment Receivable: Deferred 260, ,362 Due from Other Funds 42,883 42,883 Due from Other Governments 324, , Total Current Assets , ,737 10,016 29,090,787 17,325,989 Noncurrent Assets Advances to Other Funds, Noncurrent 1,067,034 1,067, ,000 Capital Assets: Land 4,500 3,792, ,803 RightofWay 447, ,746 Construction in Progress 1,416, ,192 1,716, ,702 Line Rights 1,368,569 1,368,569 Infrastructure 39,505,253 40, ,126,743 2,974,722 Buildings 34, Machinery and Equipment 1.911, ,366 1,172, ,505 12,842,884 Total Cost 44,206,257 46,122,097 1,172,068 91,500,422 50,831,576 Less Accumulated Depreciation (12.131,436) (II,537,887) (23,669,323) ( 19,264,842) Net Capital Assets 32,074, ,172,068 67,831,099 31,566,734 Total Noncurrent Assets 33,141,855 34,584,210 1,172, ,133 32,066,734 Total Assets $ 46,542,889 $ 50,263,947 $ 1,182,084 $ 97,988,920 $ 49,392,723 LIABILITIES AND NET POSITION Current Liabilities Accounts Payable $ 62,882 $ 21,628 $ $ 84, ,094 Contracts Payable 68,086 68,086 10,055 Salaries and Benefits Payable 261,128 Due to Other Funds 42, Due to Other Governments 73, , ,874 Current Compensated Absences 11,365 11,832 23, ,227 Total Current Liabilities 215, ,798 42, ,550 1,198,504 Noneurrent Liabilities Advances from Other Funds 1,067,034 1,067,034 Compensated Absences 13, , ,721 Net OPEB Obligation 29,726 29, Total Noncurrent Liabilities 43,616 44,187 1,067,034 1,154, ,721 Total Liabilities 259, ,985 1,109,917 1,814,387 2,169,225 Net Position Investment in Capital Assets 32,074,821 34,584,210 1,172,068 67,831,099 31,566,734 Unrestricted 14,208,583 15,234,752 (1.099,901) ,434 15,656,764 Total Net Position 46,283,404 49,818,962 72,167 96,174,533 47,223,498 Total Liabilities and Net Position $ 46,542,889 $ 50, $ 1.182,084 $ 49,392,723 Adjustment to Reflect the Consolidation of Internal Service Fund Activity Related to Enterprise Funds (See Note 2c) Total Business-Type Activities Net Position $ 96,316,913 The Notes to the Financial Statements are an integral part of this statement. IV-17

56 CITY OF SHAKOPEE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION - PROPRIETARY FUNDS For the Year Ended December 31,2014 Business-T~[!e Activities- Ente!:(!rise Funds Governmental Activities - Internal Service Sewer Storm Drainase Refuse Total Funds OPERATING REVENUES Charges for Services $ 2.872,662 $ 1,065,997 $ 61,121 $ 3,999,780 $ Rental Charges 2, Other Charges 11,046 11, Special Assessments Total Operating Revenues 2.872,662 1,066,118 72,167 4,010,947 2,096,542 OPERATING EXPENSES Salaries and Benefits 225, , , ,714 Depreciation 750, , , Professional Services 134,841 98, ,229 Sewer Disposal Charges 2,405, ,760 Repairs and Maintenance 40, ,Q70 41,801 Materials and Supplies 25,140 68,829 93, ,731 Rent 39,800 41,991 81,791 Insurance 32,665 35, Utilities 80,619 1,901 82,520 Total Operating Expenses 3,734,691 1, ,670,155 2,916,948 Operating Income (Loss) (862,029) (869,346) 72,167 (1,659,208) ( ) NONOPERATING REVENUES (EXPENSES) Investment Income 260, , , Grants and Contributions Gain (Loss) on Sale of Asset (11,924) (11,924) 52,360 Other Income 103, , ,205 26,306 Total Nonoperating Revenues (Expenses) 364, , , ,780 Income before Capital Contributions and Transfers (497,453) (458,228) 72,167 (883,514) (428,626) Capital Contributions from Special Assessments Capital Contributions from Outside Developers 12,618 12,618 Captial Contributions from Governmental Funds 125, , , Transfers In 210,000 Transfers Out ( ) (90,000) (344,010) (465,000) Change in Net Position (201,729) 101,746 72,167 (27,816) (671,276) NET POSITION Beginning of Year 46, ,717,216 96,202,349 47,894,774 End of Year $ 46, $ 49,818,962 $ 72,167 $ 96, $ 47, Adjustment to Reflect the Consolidation oflnternal Service Fund Activity Related to Enterprise Funds (See Note 2d) (20,640) Governmental Activites Contribution Revenue Reported Above (763,218) Transfers In ofcaptial Assets from Governmental Activities 763,218 Change in Net Position - Business-Type Activities $ (48.456) The Notes to the Financial Statements are an integral part of this statement. IV-18

57 CITY OF SHAKOPEE STATEMENT OF CASH FLOWS- PROPRIETARY FUNDS (Continued) For the Year Ended December 31, 2014 Business-T~e Activities- Ente!Erise Funds Stonn Sewer Drainage Refuse CASH FLOWS- OPERATING ACTIVITIES Receipts from Customers and Users $ 2,875,491 $ 1,065,684 $ 62,151 Receipts from Interfund Services 42,883 Payments to Suppliers (2,928,431) (396,032) Payments to Employees (249,651) (449,766) Payments for lnterfund Services (42,883) Net Cash Flows- Operating Activities (345,474) 219, ,034 Total Governmental Activities - Internal Service Funds $ 4,003,326 $ 2,096,542 42,883 (3,324,463) (578,570) (699,417) (311,097) (42,883) (20,554) 1,206,875 CASH FLOWS- NONCAPIT AL FINANCING ACTIVITIES lnterfund Loan Issued (1,067,034) 1,067,034 Transfer from Other Funds Transfer to Other Funds (254,010) (90,000) Net Cash Flows - Noncapital Financing Activities (1,321,044) (90,000) 1,067,034 CASH FLOWS -CAPITAL AND RELATED FINANCING ACTIVITIES Trunk Charges 103, ,675 Capital Related Special Assessments 320,994 Intergovernmental Capital Grant 165 Proceeds (Loss) from Disposal of Capital Assets 59,594 Acquisition of Capital Assets (I,86 I,299) (422,81 I) (I, I 72,068) Net Cash Flows - Capital and Related Financing Activities (1,436,610) (21 7,542) (I, I 72,068) CASH FLOWS- INVESTING ACTIVITIES Payment Received for Notes Receivable Interest Received 282, ,796 Net Cash Flows - Investing Activities 282, ,796 Net Change in Cash and Cash Equivalents (2,820,520) 202,140 (500,000) 210,000 (344,010) (465,000) ~344,010) (755,000) 249,205 26, , ,594 (37,001) (3,456, I 78) ( ) (2,826,220) (910,996) 95, , , , ,772 (2,618,380) (32,349) CASH AND CASH EQUIVALENTS Beginning of Year 15,549,970 15,291,589 End of Year $ 12,729,450 $ 15,493,729 $ 30,841,559 17,300,839 $ 28,223, 179 $ 17,268,490 The Notes to the Financial Statements are an integral part of this statement. IV-19

58 CITY OF SHAKOPEE STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS For the Year Ended December 31,2014 Business-T~~ Activities- Ente!Erise Funds Storm Sewer Draina~e Refuse RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FLOWS- OPERATING ACTIVITIES Operating Income (Loss) $ (862,029) $ (869,346) $ 72,167 Adjustment~ to Reconcile Operating Income (Loss) to Net Cash Flows - Operating Activities: Depreciation Expense 750, ,634 Changes in: Accounts Receivable (473) (59) (10,016) Due from Other Funds (42,883) Due from Other Governments 3,302 (431) Special Assessments 56 Due to Other Governments 20, ,973 Accounts and Contracts Payable (189,875) (28,964) Due to Other Funds 42,883 Salaries Payable Compensated Absences Payable (28,471) 4,140 Net OPEB Obligation 3,883 3,883 Total Adjustments 516,555 1,089,232 32,867 Net Cash Flows - Operating Activities $ (345,474) $ 219,886 $ 105,034 Total Governmental Activities- Internal Service Funds $ (I,659,208) $ (820,406) 1,510,862 1,814,473 (10,548) (42,883) 2, ,817 (218,839) (20,809) 42, ,128 (24,331) (27,511) 7,766 1,638,654 2,027,281 $ (20,554) $ 1,206,875 NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Contributions of Capital Assets from Developers 12,618 Transfer of Capital Assets $ 125,862 $ 637,356 $ 12,618 $ 763,218 $ 12,350 The Notes to the Financial Statements are an integral part of this statement. IV-20

59 CITY OF SHAKOPEE COMBINED STATEMENT OF FIDUCIARY NET POSITION December 31,2014 ASSETS Current Cash and Investments Interest Receivable Due from Other Governments Total Assets LIABILITIES Accounts Payable Deposits Payable Due to Other Governments Total Liabilities Total Agency Funds $ 2,399,258 2,348 12,630 $ 2,414,236 $ 595,410 1,804,217 14,609 $ 2,414,236 The Notes to the Financial Statements are an integral part of this statement. IV-21

60 CITY OF SHAKOPEE STATEMENT OF NET POSITION- COMPONENT UNIT- SPUC December 31,2014 ASSETS Current Assets Casb and Investments Restricted Assets: Sinking Accowt Accrued Interest Receivable Customer Accowts Receivable Allowance for Uncollectible Accowts Other Accowts Receivable Due from City of Shakopee Inventory Prepaid Expenses Total Current Assets Electric $ 25,056, ,5% 20,667 3,581,114 (31,735) 73, ,565 1,080,613 55,677 30,552,375 $ Water 4,921,913 6, ,904 (9,195) 12,655 98,154 33,769 18,559 5,399,591 $ Total 29,978, ,5% 27,499 3,898,018 (40,930) 86, ,719 1,114,382 74,236 35,951,966 Noncurrent Assets Restricted Assets: Customer Deposits Accowt Connection AccoiDit Water Reconstruction Accowt Emergency Repairs AccoiDit Capital Assets: Plant in Service Accomulated Depreciation Coostruction in Progress Other Assets: Prepaid Bood Issuance Electric Plant Acquisition, Net Total Noocurrent Assets 1,990, ,000 55,244,646 (18,914,155) 1,548,395 45,819 88,720 40,104,062 24,108 7,691, ,584 48,953,746 (14,779,557) 2,587,142 44,727,786 2,014,745 7,691, , , ,198,392 (33,693,712) 4,135,537 45,819 88,720 84,831,848 Total Assets 70,656,437 50,127, ,783,814 Deferred Outflows of Resources Deferral on RefiDiding 214, ,444 Total Assets and Deferred Outflows of Resources $ 70,870,881 $ 50,127,3 77 $ 120,998,258 LIABILITIES AND NET ASSETS Current Liabilities AccoiDits Payable Due to City of Shakopee Other Current Liabilities Total Current Liabilities $ 3,094, , ,852 3,709,168 $ 175,121 73, , ,366 $ 3,269, , ,580 4,154,534 Liabilities Payable from Restricted Assets Current Portion of Revenue Bonds Accrued Interest Payable Customer Deposits Total Liabilities Payable from Restricted Assets 390, ,096 1,990,637 2,538,733 24,108 24, , ,096 2,014,745 2,562,841 Noncurrent Liabilities Revenue Bonds Unamortized Bood DiscoiDit Unearned Revenues Customer Advances Total Noncurrent Liabilities Total Liabilities 8,425,000 (9,838) 2, ,148 9,018,442 15,266,343 81,364 81, ,838 8,425,000 (9,838) 2, ,512 9,099,806 15,817,181 Net Position Investment in Capital Assets Restricted for Debt Service Restricted for Connections & Reconstruction Unrestricted Total Net Position 29,162, ,500 26,084,594 55,604,538 36,761,331 7,942,347 4,872,861 49,576,539 65,923, ,500 7,942,347 30,957, ,181,077 Total Liabilities and Net Positioo $ 70,870,881 $ 50,127,377 $ 120,998,258 The Notes to the Financial Statements are an integral part of this statement. IV-22

61 CITY OF SHAKOPEE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION - COMPONENT UNIT- SPUC For the Year Ended December 31,2014 Electric Water Total Operating Revenues $ 42,134,042 $ 4,316,382 Operating Expenses 36,200,894 3,535,880 Operating Income 5,933, ,502 NONOPERATING REVENUES (EXPENSES) Rentals and Miscellaneous 267, ,785 Interdepartmental Rent from Water 90,000 Investment Income 84,111 16,669 Interest Expense (382,412) (31) Amortization of Debt Issuance Costs and Loss on Refunding (17,802) Gain(Loss) on Disposition ofproperty 31,348 Total Nonoperating Revenues (Expenses) 72, ,423 Income Before Contributions and Transfers 6,005, ,925 Capital Contributions 291,568 1,813,728 Transfers to Municipality (1,289,383) (862,497) Change in Net Position 5,007,817 1,930,156 NET POSITION Beginning of Year 50,596,721 47,646,383 End of Year $ 55,604,538 $ 49,576,539 $ 46,450,424 39,736,774 6,713, ,024 90, ,780 (382,443) (17,802) 31, ,907 6,984,557 2,105,296 (2, 151,880) 6,937,973 98,243,104 $105,181,077 The Notes to the Financial Statements are an integral part of this statement. IV-23

62 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity (Continued) IV-24 The City of Shakopee is a statutory city governed by an elected mayor and four council members. The accompanying financial statements present the government entities for which the government is considered to be financially accountable. The financial statements present the City and its component units. The City includes all funds, organizations, institutions, agencies, departments and offices that are not legally separate from such. Component units are legally separate organizations for which the elected officials of the City are financially accountable and are included within the financial statements of the City because of the significance of their operational or fmancial relationships with the City. The City is considered fmancially accountable for a component unit if it appoints a voting majority of the organization's governing body and it is able to impose its will on the organization by significantly influencing the programs, projects, activities or level of services performed or provided by the organization or there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on. the City. As a result of applying the component unit defmition criteria above, certain organizations have been defined and are presented in this report as follows: Blended Component Unit- Reported as if they were part of the City. Discretely Presented Component Unit - Entails reporting the component unit financial data in statements separate from the financial date of the City. Joint Ventures and Jointly Governed Organizations- The relationship of the City with the entity is disclosed. 2. Discretely Presented Component Unit The electric and water utilities of the Shakopee Public Utilities Commission (SPUC) are selfsupporting entities and collectively comprise separate enterprise funds of the City of Shakopee (the "City"). The utility provides electric and water operations to properties within the City as well as electric distribution to certain other areas outside of the City. The utility accounts for the costs of electric and water operations on a continuing basis and is managed by the SPUC. The SPUC Board consists of five members who serve three year consecutive terms. SPUC is presented as a discretely presented component unit because of the nature and significance of its relationship with the primary government. Separate financial statements are included in this report for the SPUC Funds to emphasize that it is legally separate from the City. The complete financial statements can be obtained from the Shakopee Public Utility Commission, 225 Sarazin Street, Shakopee, Minnesota Joint Ventures and Jointly Governed Organizations Local Government Information Systems Local Government Information Systems (LOGIS) is a joint venture of approximately 44 governmental entities that provides computerized data processing and support services to its members. Legally separate, the City does not appoint a voting majority of the Board and LOGIS is fiscally independent of the City. During 2014, the City paid$ 138,982 to LOGIS for services provided which is included in expenditures of the General Fund. Financial statements are available by contacting LOGIS, 5750 Duluth Street, Golden Valley, Minnesota Scott Joint Prosecution Association For each of the categories above, the specific entities are identified as follows: 1. Blended Component Unit The Shakopee Economic Development Authority (EDA) was organized to promote development, improve housing and reduce blighted areas in the City. It is included by reason of the City Council having final approval for Shakopee EDA actions and the Shakopee EDA Board being comprised entirely of City Council Members. City staff handles Shakopee EDA activity including Shakopee EDA funds and the City approves Shakopee EDA tax levies and bonding activity. Therefore, the City has fmancial oversight for Shakopee EDA activities. The City also has operational responsibility of the EDA. The activity of the Shakopee EDA is shown in the Shakopee EDA Special Revenue Fund in the City's fmancial statements. No separate financial statements for the Shakopee EDA are issued. For any information desired beyond what is presented in this report, contact the Finance Director for the City of Shakopee at 129 Holmes Street South, Shakopee, Minnesota Scott Joint Prosecution Association (SJPA) is a joint venture of approximately seven cities that provides legal prosecution and support services to its members. Legally separate, the City does not appoint a voting majority of the Board of Directors and the SJPA is fiscally independent of the City. During 2014, the City paid$ 169,899 to the SJPA for services provided which is included in expenditures of the General Fund. Financial statements are available by contacting the SJPA, 200 Fourth Avenue West, Shakopee, Minnesota As of October I, 2014 SJPA ceased operations and returned the City's Investment in SJPA totaling$ 124,582.

63 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 IV-25 NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity (Continued) 4. Other Organizations Shakopee Volunteer Fire Department Relief Association The Shakopee Volunteer Fire Department Relief Association (the "Association") is organized as a nonprofit organization, legally separate from the City, by its members to provide pensions and other benefits to such members in accordance with Minnesota Statutes. It is not a component unit of the City because the Board of Directors is appointed by the membership of the Association and not by the City Council. The financial oversight of the City is limited to approval authority for amending the Association bylaws when the change results in an increase in the pension benefit level requiring an increased City contribution. The Association has the authority to levy its own taxes for pensions and deficits and would continue to exist for its members if the City was dissolved. Because the Association is fiscally independent of the City, the fmancial statements of the Association have not been included within the City's reporting entity. B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement ofnet Position and the Statement of Activities) report information on all of the nonfiduciary activities of the City. The fiduciary funds are only reported in the Statement of Fiduciary Net Position at the fund financial statement level. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Interest on general long-term debt is considered an indirect expense and is reported separately in the Statement of Activities. Program revenues include I) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Internally dedicated revenues are reported as general revenues rather than program revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The Escrow Agency Fund is presented in the fiduciary fund financial statements. Since, by definition, these assets are being held for the benefit of a third party (other local governments, private parties, etc.) and cannot be used to address activities or obligations of the City, this Fund is not incorporated into the government-wide statements. NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The Agency Funds report only assets and liabilities and have no measurement focus, but do use the accrual basis of accounting to recognize receivables and payables. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses and interest associated with the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current period. Only the portion of special assessments receivable due within the current period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Description of Funds: Major Governmental Funds: General Fund- This Fund is the City's primary operating fund. It accounts for all financial resources of the general City, except those required to be accounted for in another fund. Capital improvements Capital Project Fund- This Fund accounts for the capital projects of the City not accounted for in separate capital funds. Proprietary Funds: Sewer Fund- This Fund accounts for operations of the City's sewer utility. Storm Drainage Fund- This Fund accounts for the activities of the City's storm drainage utility. Refuse Fund- This Fund accounts for operations associated with the City's garbage carts and recycling operations.

64 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Description of Funds: (Continued) Internal Service Funds: Equipment Fund- This Fund accounts for the City's acquisition oflarger pieces of equipment. NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments, where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the City's utility function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. IV-26 Buildings Fund- This Fund accounts for the City's funds accumulated for construction, improvement or major repairs of major public buildings. Park Assets Fund- This Fund accounts for the City's funds accumulated for the replacement of park assets. Employee Benefits Fund- This Fund accounts for the City's funds accumulated for compensated absences and OPEB. Information and Technology Fund- This Fund accounts for the City's funds accumulated for information technology resources. The City's internal service funds are allocated between governmental and business-type activities and are combined, as allocated in Note 2, with the respective governmental activities and business-type activities in the government-wide financial statements. Fiduciary Funds: Escrow Agency Fund - This Fund accounts for the monies held for specific purposes for individuals, private organizations, other government units and other funds. Escrows are held on behalf of builders and developers, for security deposits and police evidence deposits. Southwest Metro Drug Task Force Agency Fund- This Fund accounts for the activity related to the task force held by the City in a strictly custodial capacity. Component Unit Funds: Electric Fund- This Fund accounts for the operations of the SPUC's electric utility. Water Fund- This Fund accounts for the operations of the SPUC's water utility. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities and Net Position or Equity I. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and highly liquid debt instruments purchased with original maturities of three months or less from the date of acquisition. Investments are stated at fair value. Minnesota Statutes authorizes the City to invest in obligations of the U.S. Treasury, agencies and instrumentalities, shares of investment companies whose only investments are in the aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' acceptances, future contracts, repurchase and reverse repurchase agreements and commercial paper of the highest quality with a maturity of no longer than 270 days and in the Minnesota Municipal Money Market Fund. The Minnesota Municipal Money Market Fund is an external investment pool not registered with the Securities Exchange Commission (SEC) that follows the same regulatory rules of the SEC under Rule 2.a.7. The fair value of the position in the pool is the same as the value of the pool shares. The City's investment policy for all funds except the component units addresses custodial credit risk for deposits. The policy also addresses credit risk, interest rate risk, concentration of credit risk and custodial credit risk for investments. The City's component units also have a formal policy to address all of these risks except custodial credit risk for investments.

65 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) I. Deposits and Investments (Continued) Custodial Credit Risk- Deposits: This is the risk that in the event of a bank failure, the City's deposits may not be returned to it. Minnesota Statutes require all deposits be protected by federal deposit insurance, corporate surety bonds or collateral. The market value of collateral pledged must equal II 0% of deposits not covered by Federal Deposit Insurance Corporation (FDIC) insurance or corporate surety bonds and letters of credit. The City and component unit's investment policies state deposits must be collateralized in order to comply with Minnesota Statutes. NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) 1. Deposits and Investments (Continued) Having all investments, other than those in direct obligations or agencies of the United States, secured by collateral or repurchase agreements, shaji not exceed 50% of the aggregate investment portfolio. Mortgage backed securities shaji not exceed 35% of the aggregate investment portfolio, at the time of investment (i.e., commercial paper or bankers' acceptance). Limiting investments in any one corporation to 5% of the aggregate investment portfolio. IV-27 Credit Risk: This is the risk that an issuer or other counterparty to an investment will not fulfill its obligation to the holder of the investment. Minnesota Statutes 118A.04 and 188A.05 limit investments that are in the top two ratings issued by nationally recognized statistical rating organizations. The City's investment policy references Minnesota Statutes and further limits the types of investments that the City is allowed to invest in. The component unit's investment policy also defmes suitable and authorized investments and related minimum ratings. Interest Rate Risk: This is the risk that changes in market interest rates will adversely affect the fair value of an investment. The City's policy states the investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. To the extent possible, the City shaji attempt to match its investments in short -term operating funds with anticipated cash flow requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing more than ten years from the date of purchase. Long-term funds shall not be invested in securities exceeding I 0 years in modified duration, at time of purchase. The investment policy for the City's Electric and Water Enterprise Funds (Shakopee Public Utilities Commission) addresses this risk by requiring holding of securities to maturity (subject to certain exceptions) and limiting maturity constraints to a relatively short duration. Concentration of Credit Risk: This is the risk of Joss attributed to the magnitude of an investment in a single issuer. According to the City's investment policy, the aggregate investment portfolio shall be diversified by: Limiting investments to avoid over concentration in securities from a specific issuer or business sector. Limiting investments in securities that have higher credit risks. Investing in securities with varying maturities. Continuously investing a portion of the portfolio in readily available funds, such as Local Government Investment Pools (LGIP), money market funds or repurchase agreements to ensure appropriate liquidity is maintained in order to meet ongoing obligations. The investment policy for the City's Electric and Water Enterprise Funds (Shakopee Public Utilities Commission) defines suitable and authorized investments and related minimum ratings as well as application of prudent person standards in construction of portfolio management and diversification. Custodial Credit Risk- Investments: For an investment, this is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policy states all securities purchased, including appropriate collateral, shall be placed with an independent third party for custodial safekeeping. 2. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are referred to as "advances to/from other funds". All other outstanding balances between funds are reported as "due to/from other funds". Any residual balances outstanding between the governmental activities and business-type activities are reported in the governmentwide financial statements as "interfund balances". All trade and property tax receivables are shown at a gross amount since both are assessable to the property taxes and are collectible upon the sale of the property. The City levies its property tax for the subsequent year during the month of December. December 28 is the last day the City can certify a tax leyy to the County Auditor for collection the following year. Such taxes become a lien on January I and are recorded as receivables by the City at that date. The property tax is recorded as revenue when it becomes measurable and available. Scott County is the collecting agency for the leyy and remits the collections to the City three times a year. The tax leyy notice is mailed in March with the first half of the payment due on May 15 and the second half due on October 15. Taxes not collected as of December 31 each year are shown as delinquent taxes receivable. The County Auditor prepares the tax list for all taxable property in the City, applying the applicable tax rate to the tax capacity of individual properties, to arrive at the actual tax for each property. The County Auditor also collects all special assessments, except for certain prepayments paid directly to the City.

66 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 3I, 20I4 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 3I, 2014 NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) 2. Receivables and Payables (Continued) The County Auditor submits the list of taxes and special assessments to be collected on each parcel of property to the County Treasurer in January of each year. NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) 5. Capital Assets (Continued) Property, plant and equipment of the City are depreciated using the straight-line method over the following estimated useful lives. IV Inventory, Prepaid Items and Other Assets Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaid expenditures of governmental funds are reported using the consumption method and recorded as expenditures/expenses at the time of consumption. Inventories of enterprise funds are valued at average cost using the first in, first out (FIFO) method. Inventory in the governmental funds are recorded as an expenditure when consumed rather than when purchased. Other assets include unamortized debt issuance costs, the Emergency Repairs Account and the asset and related amortization relating to the Electric Plant Acquisition. 4. Restricted Assets Certain cash and investments in the component units are classified as restricted. The Electric Fund has monies restricted for customer deposits and debt service. The Water Fund has monies restricted for water production and trunk distribution facility acquisition, based on trunk and connection fees collected from users, construction projects and debt service. 5. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City, excluding the component unit, as assets with an initial, individual cost of more than $ I 0,000 and an estimated useful life in excess of two years. Capital assets for the component unit are defmed as assets with an initial, individual cost of more than $ I,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Assets Buiklings Park Buikling> Buikling lrryrovements Light Vehicles Machinery and Equipment Utility Imtnbution System Infrastructure Fire Trucks 6. Deferred Outflows/Inflows of Resources Years In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The Component Unit only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the statement of net position- component unit - SPUC. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City only has one type of item, which arises only under the modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item is reported only in the governmental funds balance sheet as unavailable revenue. The governmental funds report unavailable revenues from two sources: property taxes and special assessments. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available.

67 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) 7. Compensated Absences NOTE I -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Position or Equity (Continued) 9. Fund Equity (Continued) IV-29 Vacation and sick leave benefits are recorded as expenditures in the Employee Benefits Internal Service Fund and governmental funds when the obligations have matured and are expected to be liquidated with expendable financial resources. City employees earn vacation time based on years of City service. Employees who have 0 to 15 years of employment may accumulate no more than 240 hours. Employees who have 16 or more years of service may accumulate no more than 360 hours of vacation leave. Upon termination, employees will receive compensation for all unused vacation. Employees earn sick leave and may accumulate to a maximum of960 hours. The City compensates employees who leave municipal service at the rate of 45% up to 15 years of service. After 15 years of service, employees who leave are compensated at the rate of 55% plus 2% for each year of service beyond 15 years up to 75% of unused sick leave. 8. Long-Term Obligations In the government-wide fmancial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type Statement of Net Position. Enterprise fund bond premiums and discounts, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. 9. Fund Equity a. Classification In the fund financial statements, governmental funds report fund classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in those funds can be spent. Non-spendable fund balances include amounts that cannot be spent because they are not in spendable form. Amounts that are restricted to specific purposes either by a) constraints placed on the use of resources by creditors, grantors, contributors. or laws or regulations of other governments or b) imposed by law through enabling legislation are classified as restricted fund balances. Amounts that can only be used for specific purposes pursuant to constraints imposed by the City Council (highest level of decision making authority) through resolution are classified as committed fund balances. Amounts that are constrained by the City's intent to be used for specific purposes but are neither restricted nor committed are classified as assigned fund balances. Assignments are made by the City's Finance Director based on the City Council's direction. Unassigned fund balance represents fund balance that has not been assigned to other funds and that has not been restricted, committed or a. Classification (Continued) assigned to a specific purpose in the General Fund. The City's policy is to consider unrestricted fund balance to be spent by City Council action, appropriations or emergency situations. The City applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned and unassigned) are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. b. Minimum Fund Balance The City's target General Fund balance is to maintain an unassigned level between 40% (minimum) and 45% of current year expenditures. This level is to provide working capital for cash flow, expected decline in revenues and unforeseen expenditures such as natural disasters. Replenishing fund balance when it falls below the target level shall be accomplished by interfund transfers or budgeting for expenditures and other uses to be less than revenues or other sources over a period not to exceed three years. I 0. Net Position Net position represents the difference between assets and deferred outflows and liabilities and deferred inflows in the government-wide financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported as restricted in the government-wide financial statement when there are limitations on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. 11. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenditures/expense during the reporting period. Actual results could differ from those estimates.

68 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 NOTE 2- RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of Certain Differences between the Governmental Fund Balance Sheet and the Government-Wide Statement of Net Position The governmental fund Balance Sheet includes reconciliation between fund balance - total governmental funds and net position- governmental activities as reported in the government-wide Statement of Net Position. One element of that reconciliation explains that "Internal Service Funds are used by management to charge the costs of providing certain services for the City." Net Position of the Internal Service Funds $ 47,223,498 NOTE 2- RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS C. Explanation of Certain Differences between the Proprietary Fund Statements of Net Position and the Government-Wide Statement of Net Position (Continued) Internal Payable Representmg Costs less than Charges to Business- Type Activities- Current Year $ 142,380 D. Explanation of Certain Differences between the Proprietary Fund Statements of Revenues, Expenses, and Changes In Fund Net Position and the Government-Wide Statement of Activities IV-30 Less Portion Loss Related to Business- Type Activities Net Adjusmtent to Increase Fund Balance- Total Governmental Funds to Arrive at Net Position- Governmental Activities (142,380) $ 47,081,118 B. Explanation of Certain Differences between the Governmental Fund Statements of Revenues, Expenditures, and Changes in Fund Balances and the Government-Wide Statement of Activities Another element of that reconciliation states that "Internal Service Funds are used by management to charge the costs of providing various services for the City." The details of this difference are as follows: Change in Net Position of the Internal Service Fund Less the Net o flndirect Revenues and Expense $ (671,276) 20,640 Another element of that reconciliation states that "Internal Service Funds are used by management to charge the costs of providing various services for the City." The details of this difference are as follows: Net adjustment to Increase Net Change in Fund Balances- Total Enterprise Funds to Arrive at Changes in Net Position of Business- Type Activities $ NOTE 3-STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information (20,640) Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annually appropriated budgets are adopted for the General Fund. Budgeted amounts present the originally adopted budget and final amended budget approved by the City Council. The City does not use encumbrances. Budgeted expenditure appropriations lapse at year-end. Net Adjustment to Decrease Net Change in Fund Balances- Total Government Funds to Arrive at Changes in Net position of Government Activities $ (650,636) C. Explanation of Certain Differences between the Proprietary Fund Statements of Net Position and the Government-Wide Statement of Net Position The proprietary fund Statement of Net Position includes reconciliation between net position- total enterprise funds and net position of business-type activities as reported in the government-wide Statement of Net Position. The description of the sole reconciliation is "adjustment to reflect the consolidation of internal service fund activities related to enterprise funds." The details are as follows: I. In August of each year, City staff submits to the City Council, a proposed operating budget for the year commencing the following January I. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comments. 3. The budget is legally enacted through passage of a resolution after obtaining taxpayer comments. 4. Expenditures may not legally exceed budgeted appropriations at the division level. No fund's budget can be increased without City Council approval. The City Council may authorize transfer of budgeted amounts between divisions within any fund. Management may amend budgets within a division level, so long as the total division budget is not changed. 5. An annual budget is adopted for the General Fund. Annual appropriated budgets are not adopted for Debt Service Funds because effective budgetary control is alternatively achieved through bond indenture provisions. Budgetary control for Capital Projects Funds is accomplished through the use of project controls and budgets are not adopted.

69 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 IV-31 NOTE 3-STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information (Continued) 6. Budgeted amounts are as originally adopted or as amended by the City Council. Individual amendments were not material in relation to the original amounts budgeted. NOTE 4- DEPOSITS AND INVESTMENTS A. Deposits In accordance with applicable Minnesota Statutes, the City and the Component Unit maintains deposits at depository banks authorized by the City Council and the Commissioners. Custodial Credit Risk: As of December 31,2014, the City and Commission's bank balances were not exposed to custodial credit risk because they were insured through Federal Deposit Insurance Corporation (FDIC) and properly collateralized with securities held by the pledging financial institutions' trust departments or agents in the City's name. As of December 31,2014, the City had the following deposits: City Deposits Component Unit Deposits Total Deposits B. Investments $ 1,180,190 9,367,046 $ 10,547,236 As of December 31, 2014, the City held the following investments: Yean to Manriy Less lban Fai'Vakle One Year 1-5 Yean 5-IOYears Years Certi!i;ate ofdeposit 9.471,185 $ 2,738,658 $ 6,732,527 s $ Money Market Ftnl 11,166,924 11,166,924 Mortgage FFCB 3,102,660 1,096, ,650 FHLB 8,180, ,722 6,469, FHLMC 880, , , ,720 FNMA 4,064,230 1,387 2,035,669 97,131 1,930,043 Mllli:~aiBol>l 9,495,610 2,022,120 4,401,166 3,072,324 US Treasll)' Notes , , ,139 Totallnvestments $ ,553 $ ,614 $ 44,959,622 $ 4,160,554 $ 2,370,763 Coocentrnti:m Moody's Ratilg 13.24% NR 15.61% NR 4.34% Aaa 11.44% Aaa 1.23% Aaa 5.68% NR 13.27% Aaa-AI 35.19% Aaa % NOTE 4- DEPOSITS AND INVESTMENTS B. Investments (Continued) As of December 31, 2014, the City held the following cash with fiscal agent: YearstoMa~ l..esslhan Moody's FUValle One Year 1 5Years ~ Money MarXet Fmd $ I $ I $ NR Tn Deposl: ,610,244 NR Total Cash wlb Fi!ical Agent: $ $ $ As ofdecember 31,2014, the component units had the following investments: Years to Maturity Less than Fair Value One Year 1-5 Years Rating US Agencies $ $ 6, $ 4, AAA U.S. Treasuries 7.479, ,606 6, AAA 4MFund 12, N/A Money Market Fund N/A Total s ,359 $ ,029 $ ConcentratDn 0.00% %~ % Concentration 34.31% 23.98% 41.66% 0.05% % Custodial Credit Risk- Investments: As of December 31, 2014, all investments of the City and the component units were insured, registered and held by the City or its agent and in the City's name, or by the SPUC and in the SPUC's name. Concentration of Credit Risk: As of December 3 I, 2014, the City held investments that exceeded 5% of its total investments for all funds as noted in the table on the previous page. The component units' investments noted in the table above exceeded 5% of its total investments as of December 31,2014. The following is a summary of total deposits and investments as of December 31, 2014: Deposits (Note 3.A) City Investments City Investment with Fiscal Agent Component Unit Investments City Petty Cash Component Unit Petty Cash $ 10,547,236 71,531,553 3,610,245 31,182,359 7,878 1,700 Total Deposits and Investments $ 116,880,971

70 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 IV-32 NOTE 4-DEPOSITS AND INVESTMENTS B. Investments (Continued) Deposits and investments are presented in the December 31, 2014 basic financial statements as follows: City Component Funds Units Total Statement ofnet Position: Cash and Investments $ 70, $29,978,417 $100,298,780 Cash with Fiscal Agent 3,610,245-3,610,245 Restricted Assets 10,572,688 10,572,688 Statement of Fiduciary Net Position: Cash and Investments 2,399,258-2,399,258 Total $ 76,329,866 $40.551,105 $116,880,971 NOTE S- RECEIVABLES/UNAVAILABLE REVENUE A. Taxes and Assessments Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current year, the various components of unavailable revenue reported in the governmental funds were as follows: Delinquent Delinquent Deterred Property Special Special Taxes Assessments Assessments Total GeneralFmd $ 156,895 $ 4,023 $ 45,304 $ 206,222 Caplallmprovements - 22,407 4,785,278 4,807,685 Nonmajor Fmds , ,615 ~920 NOTE 6- CAPITAL ASSETS Governmental capital asset activity for the year ended December 3 I, 20 I 4 was as follows: Beginning Balance Increases Decreases Governmental Activities: Capital Assets not being Depreciated: Land $ 20,022,040 $ $ Right-Of Way 253,904 Construction in Progress 3.499,929 2,618,420 3,447,126 Total Capital Assets not being Depreciated ,969 3,633, Capital Assets being Depreciated: Buildings , ,455 Infrastructure ,749 3,034,627 Machinery and Equipment 14,051,607 1,138, ,143 Total Capital Assets being Depreciated , ,143 Less Accumulated Depreciation for: Buildings 10,871, ,944 Infrastructure 65,706,383 4,663,657 Machinery and Equipment 7,064, Total Accumulated Depreciation ,537, ,716 Total Capital Assets being Depreciated. Net ,556 (2.105,483) 141,427 Governmental Activities Capital Assets, Net $ 130,291,525 $ 1,527,580 $ 3,588,553 Ending Balance $ 20, ,904 2,671, ,813, ,841, , ,370,040 7,831,125 89, ,522,646 $ Total $ 157,555 $ 44,075 $5,748,197 ~827 Depreciation expense was charged to functions/programs of the City as follows: B. Notes Receivable The Equipment Internal Service Fund had a note receivable with the Scott County HRA that originated in 1998 as a result of the River City Center Development Project. This note had an interest rate of 6.75% and was paid in full in February During 2014,$95,000 of principal and$ 3,206 of interest was paid. Govemmertal Activities: General Government Public Safuty Public Works Parks and Recreation Total Depreciation Expense Governmental Activities $ 186, ,010 4,861, ,659 $ 6,537,963

71 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 6- CAPITAL ASSETS NOTE 6-CAPITAL ASSETS IV-33 Business-type capital asset activity for the year ended December 31, 2014 was as follows: Begkumg Balance Increases Decreases Business-Type Activties: Caput Assets not being Depreciated: Land $ 3,784,003 $ 12,800 $ Rig~K-Of-Way 447,746 Construction n Progress 1,582,443 1,559, ,828 Total Capital Assets not beng Depreciated 5,814,192 1,572,241 1,425,828 Capital Assets being Depreciated: Line RisJKs 1,368,569 Plant n SeM:e 77,343,320 2,783,423 Machinery and ~ment 2,814,658 1,302,178 72,331 Total Caput Assets being Depreciated 81,526,547 4,085,601 72,331 Less AcclmllBted Depreciation fur: Line Rights 502,293 24,733 Plant in Service 20,320,531 1,274,295 Machinety and Eq~ment 1,336, , Total Acclllldated Depreciation 22,159,274 1,510, Total Caput Assets bei!g Depreciated. Net 59,367,273 2,574,739 71,518 Fllding Bahnce $ 3,796, , ,056 5,960,605 1,368,569 80,126,743 4,044,505 85,539, ,026 21,594,826 1,547,471 23,669,323 61,870,494 Component unit capital asset activity for the year ended December 31, 2014 was as follows: Beginnmg Ending Balance Increases Decreases Balance Coll1'0nmt Una Caplal Assets not bei!g Depreciated: Land and Land Rights $ 5,097,532 $ $ $ 5.097,532 Construotion n Progress 882,577 4,728,458 1,475, ,537 Total Caplal Assets not bedg Depreciated 5,980,109 4, , Capital Assets being Depreciated: Distribution ,055 1,646, , ,275 General!.1, 766, , ,809 13,765,585 Total Caplal Assets being Depreciated , , , ,860 Less AccumJiated Depreciation , Total Capital Assets being Depreciated. Net 66, ( ) 85,837 _65,407,148 Co111'0nent Una Caplal Assets, Net $ ,979 $ 3,735,573 $ 1,561,335 $ Depreciation expense was charged to functions/programs of the component units as follows: CoJ11Xlnent Urms: Electric Water Total Depreciation Expense- Co111Jonent Units $ 1,743,148 1,134,075 $ 2,877,223 Business-Type Activties Capital Assets. Net $ 65,181,465 $4,146,980 $1,497,346 Depreciation expense was charged to functions/programs of the City as follows: Business-Type ActiWies: Sanitary Sewer Stonn Drainage Total Depreciation Expense- Business-Type ActiWies $ 67,831,099 $ ,634 $ 1,510,862 NOTE 7- LONG-TERM DEBT A. General Obligation Bonds The City issues general obligation (0.0.) bonds to provide for financing tax increment projects, street improvements and construction of government buildings. Debt service is covered respectively by tax increments and special assessments against benefited properties with any shortfalls being paid from general taxes bonds are direct obligations and pledge the full faith and credit of the City. These bonds generally are issued as serial bonds with equal debt service payments each year bonds currently outstanding are shown on the following page.

72 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 7- LONG-TERM DEBT NOTE 7- LONG-TERM DEBT IV-34 B. Revenue Bonds The Commission issues Revenue Bonds for electric and water activity. Debt service is covered through the revenue producing activities of these funds. C. Components of Long-Term Liabilities Gowm:oertai ActMties: G.O. Bonds: G.O. ~-Bonds: 2004C 2006A 2007A 2007B 2008A 2010A G.O. BoddqReliniqj Bonds G.O. Capital lfl1)to\a!jert Bonds2004D G.O. Boddq Reliniqj Bo>XIs2012A Total G.O. Bonds C~Absenccs TolaiGo Activaes Bumoss-TypeActivibos CoiJ1)eJBIIted Absences c,.,.,.,.,. Uni Lorw-Term Liabilities: Issue Date 11/01/ / /07 09/ / / / /14/12 lttet<st Rates 3.00%-4.00% 4.00% 4.00% 4.00% 3.50'4>-4.00"A> 0.50%-2.900/o 2.25%-4.00"A> 2.50o/o-4.20% % UtiEy ~Bonds: Series 2006A Croaso'm' RefinfirlJ Bonds I %-4.375% t.haoot1iad DilcowD OrisiW Issue , Fm Msn.iy p,;,q,a1 OlD~ s / / / s DuoWillm Oft! Year ~27 $15.5~~ $ /30 s (55.657) D. Changes in Long-Term Liabilities Long-term liability information for the year ended December 31, 2014 was as follows. Begimlg Endmg Balance Additbns Reductbns Balance Governmental Activiies: BorxlsPayable $ $ $ $ Co_,.ated Absences Total Govemmet11al Activiies $ $ !..!:, $ BusRss-Type Activties Co~ensated Absences $ $ s L...1!..:548 Co~ Unit Aclivies: G.O. Utill:y Revenue Borxls s $ $ $ Una!mrti21ed!);.comts (59.162) (3,505) (55.657) Due Wlhin One Year $ $ $ $ Total Co~onert Unit Activies.! s $ s $ E. Governmental Activity G.O. Bonds Debt service to maturity for outstanding G.O. bonds is as follows: Year Ending Governmental Bonds December 31, Principal Interest Total 2015 $ 5,615,000 $ 329,425 $ 5,944, ,685, ,723 1,877, ,685, ,200 1,824, ,000 98,893 1,053, ,000 74, , ,595, ,318 2,771, ,000 5, ,100 Total c,.,.,.,.,. Uni 1..orw-Tmn Liabiibes ~ Long-term bonded indebtedness listed above were issued to finance acquisition and construction of capital facilities or to refinance (refund) previous bond issues. For the most part, the General Fund and the Employee Benefits Internal Service Fund are typically used to liquidate governmental compensated absences payable. The Sewer and Storm Drainage funds are typically used to liquidate business type compensated absences payable. Total $13,830,000 - $ 1,016,511 $ 14,846,511

73 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 7- LONG-TERM DEBT F. Component Unit Revenue Bonds NOTE 8- CONDUIT DEBT OBLIGATIONS As of December 31, 2014, the following conduit debt was outstanding: IV-35 Debt service to maturity for outstanding revenue bonds is as follows: Year Ending Utility Revenue Bonds December 31, Prine!!!!_ htterest 2015 $ 390,000 $ 371, , , , , , , , , ,625,000 1,180, ,295, , ,000 16,734 G. Refunding Total $ 8,815,000 $ 3,420,983 - Total $ 761, , , , ,681 3,805,465 3,836, ,734 $ 12,235,983 In June 2012, the City issued $ 4,865,000 G.O. Improvement Refunding Bonds to refund G.O. Bonds, Series 2004A, maturing in years 2014 through 2025 and G.O. Bonds, Series 2004D, maturing in years 2015 through The net proceeds of$ 4,951,424 were deposited with an escrow agent to provide for the payment of the principal maturities at the call date of the refunded bonds and for the interest on the refunding bonds through the call date. The City is responsible for the principal and interest payments on the remaining refunded bond issues through the call date. The call date for the refunded G.O. Bonds, Series 2004A was February I, 2014 and the call date for the refunded G.O. Bonds, Series 2004D is February I, The refunding resulted in reduction of future debt service payments of $ 442,330 and a net present value savings of$ 387,886. NOTE 8- CONDUIT DEBT OBLIGATIONS Conduit debt obligations are certain limited obligation revenue bonds or similar debt instruments issued for the express purpose of providing capital financing for a specific third party. The City has issued various revenue bonds to provide funding to private-sector entities for projects deemed to be in the public interest. Although these bonds bear the name of the City, the City has no obligation for such debt beyond the resources provided by related leases or loans. Accordingly, the bonds are not reported as liabilities in the financial statements of the City. Project St. Francis Regional Medical Center Heath Care Facilities Revenue Bond Series 1987 Scott Col.Klty CDA Housing Development Refunding- River City Center Project Scott County CDA Housklg Develop~nt 2012A Refunding- North Ridge Court Redevelopment Scott County CDA Housing Development 20 13A Refunding River Ciy Center Project Scott Cot.ny CDA Housing Oevek:tpment 2013E Refunding- River City Center Project Benedictine Health System Obligated Group Health Care and Housing Facilities Revenue Re:fimding Note Series 2013A Benedictine Health System Obligated Group Health Care and Housing Facilkies Revenue Refunding Note Series 2013B Benedictine Health System Obligated Group Taxable Health Care and Housilg Facilities Revenue Note Series 2013C St. Francis Regional Medical Center Heath Care Facilities Revenue RefiDlding Bond Series 2014 Recovezy Teclmology Sohaions Shakopee~ LLC Project Solid Waste Revenue Bond Series 2014 Total Date of ~ 12123/87 07/15/06 04/26/12 12/01/13 12/01/13 12/01/13 12/01/13 12/01/13 06/18/ /14 Original Amount of Issue $ NOTE 9- PAY AS YOU GO TAX INCREMENT FINANCING AGREEMENTS - Balance Outstand!!J! $ ,580,000 2, , $ 86, The City and the Shakopee EDA have a development agreement for costs related to an Imagine! Print Solutions, formally known as Challenge Printing, facility moving to Shakopee. The Shakopee EDA issued a Taxable Tax Increment Revenue Note in the amount of$ 513,900 in support of development costs for the Imagine! Print Solutions Project. Imagine! Print Solutions is the holder of the note. The Shakopee EDA is liable only to the extent of the tax increment received from the Imagine! Print Solutions property. The interest on the note is 6.00%. Payments are scheduled semiannually from August I, 2006 to February I, 2015.

74 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2014 NOTE 10- INTERFUND ASSETS/LIABILITIES NOTE 12- INTERFUND TRANSFERS IV-36 The composition ofinterfund balances as of December 31,2014 is as follows: Receivable Fund Capital improvements Sewer Fund Payable Fund Nonmajor Governmental Funds Refuse Fund Total $ $ Amnmt 7,090 42,883 49,973 The due from/due to other funds balance represents borrowing to eliminate a cash deficit. This will be repaid as funds are available. NOTE 11 -ADVANCE FROM/TO OTHER FUNDS The composition of advance from/to other funds as of December 31, 2014 is as follows: Receivable Fund Payable Fund Amount Sewer Fund Refuse Fund $ 1,067,034 Internal Service Fund Nonmajor Governmental Funds 500,000 Total $ 1,567,034 The advance between the Sewer Fund and General Fund represents a long term interfund loan which was used to purchase garbage carts. This will be repaid over I 0 years with revenue collected for cart usage at rate of I% interest. The advance between the Internal Service fund and Nonmajor Governmental Fund represents a long term interfund loan which was used to recreate a Property Acquisition Fund. This will be repaid over I 0 years with proceeds from the sale of land or tax levy at rate ofo% interest. Transfers Out: General Fund Capitallfl1)rove~nts Other Govemrrental Funds Sewer Fund Storm Drainage Fund Internal Servi:e Fund Total $ General Fund 90,000 90,000 $ 180,000 Transfer In Other Capital Governrnental Inprovernents Funds $1,750,000 $1,750,000 $ 762,697 30, , , ,000 $1,601,038 Internal Service Fund $ 210,000 $ 210,000 Transfers were made according to budgets for operating purposes, to finance projects and for the cancellation of the debt service levy. NOTE 13- RISK MANAGEMENT Total $2,722,697 30, , ,010 90, ,000 $3,741,038 The City purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT) with other cities in the state which is a public entity risk pool currently operating as a common risk management and insurance program. The City pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self-sustaining through member premiums and reinsures through commercial companies for excess claims. The City is covered through the pool for any claims incurred but unreported, however, retains risk for the deductible portion of its insurance policies. The amount of these deductibles ranges from $ 2,500 to $ 5,000 and is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three years. Through the pool, the City is subject to reassessment but due to reserves and reinsurance contracts, the likelihood is very low. The policy limits through the pool included$ 2,000,000 aggregate for liability, $ I,500,000 for automobile coverage, $ I,000,000 faithful performance employee bonding and $ I,000,000 for universal umbrella coverage. Property coverage is at approximately$ I 04,000,000. NOTE 14- DEFINED BENEFIT PENSION PLANS-STATE-WIDE Public Employees' Retirement Association A. Plan Description All full-time and certain part-time employees of the City are covered by defined benefit plans administered by the Public Employees' Retirement Association of Minnesota (PERA ). PERA administers the General Employees' Retirement Fund (GERF) and the Public Employees' Police and Fire Fund (PEPFF), which are cost-sharing, multiple-employer retirement plans. These Plans are established and administered in accordance with Minnesota Statutes Chapters 353 and 356.

75 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 IV-37 NOTE 14- DEFINED BENEFIT PENSION PLANS-STATE-WIDE Public Employees' Retirement Association (Continued) A. Plan Description (Continued) GERF members belong to either the Coordinated or Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. All police officers, firefighters and peace officers who qualify for membership by statute are covered by the PEPFF. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by state statute and vest after five years of credited service. The defmed retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age and years of credit at termination of service. Two methods are used to compute benefits for PERA 's Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method I) or a level accrual formula (Method 2). Under Method I, the annuity accrual rate for a Basic Plan member is 2.2% of average salary for each of the first I 0 years of service and 2. 7% for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2% of average salary for each of the first I 0 years and I. 7% for each remaining year. Under Method 2, the annuity accrual rate is 2. 7% of average salary for Basic Plan members and I. 7% for Coordinated Plan members for each year of service. For PEPFF members, the annuity accrual rate is 3.0% for each year of service. For all GERF and PEPFF members hired prior to July I, 1989, whose annuity is calculated using Method I, a full annuity is available when age plus years of service equal 90. Normal retirement age is 55 for PEPFF members and 65 for Basic and Coordinated Plan members hired prior to July I, Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated Plan members hired on or after July I, A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single-life annuity is a lifetime annuity that ceases upon the death of the retiree- no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the Fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active Plan participants. PERA issues a publicly available financial report that includes financial statements and required supplementary information for GERF and PEPFF. That report may be obtained on the Internet at by writing to PERA at 60 Empire Drive, #200, St. Paul, Minnesota or by calling (651) or (800) NOTE 14- DEFINED BENEFIT PENSION PLANS-STATE-WIDE Public Employees' Retirement Association (Continued) B. Funding Policy Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These Statutes are established and amended by the State Legislature. The City makes annual contributions to the pension plans equal to the amount required by state statutes. GERF Basic Plan members and Coordinated Plan members were required to contribute 9.1% and 6.25%, respectively, of their annual covered salary in PEPFF members were required to contribute 10.2% of their annual covered salary in In 2014, the City was required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan members, 7.25% for Coordinated Plan members and 15.3% for PEPFF members. The City's contributions to the Public Employees' Retirement Fund for the years ending December 31,2014,2013 and 2012 were$ 400,891,$372,656 and$ 349,790, respectively. The City's contributions to the PEPFF for the years ending December 31,2014,2013 and 2012 were$ 638,703, $ 548,485 and$ 529,799, respectively. The City's contributions were equal to the contractually required contributions for each year as set by state statute. Contribution rates will increase on January I, 2015 in the Coordinated Plan (6.5% for members and 7.5% for employers) and the PEPFF (10.8% for members and 16.2% for employers). NOTE IS-DEFINED CONTRIBUTION PLAN -STATE-WIDE Four Council Members of the City are covered by the Public Employees' Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by PERA. The PEDCP is a tax qualified plan under Section 40l(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes Chapter 353D.03 specifies the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5% of salary which is matched by the elected official's employer. Employer and employee contributions are combined and used to purchase shares in one or more of the seven accounts of the Minnesota Supplemental Investment Fund. For administering the plan, PERA receives 2% of employer contributions and four-tenths of 1% of the assets in each member's account annually. Total contributions made by the City during year 2014 were: Contribution Amount Employee Employer $ 2,250 $ 2,250 Percentage of Covered Payroll Employee Employer 5% 5% Required Rates 5%

76 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 IV-38 NOTE 16- DEFINED BENEFIT PENSION PLAN- SHAKOPEE VOLUNTEER FIRE RELIEF ASSOCIATION A. Plan Description The Shakopee Fire Relief Association (the "Association") is the administrator of a single employer defined benefit pension plan established to provide benefits for members of the Shakopee Fire Department. The Association provides retirement and disability benefits to members, and benefits to survivors upon the death of eligible members. Benefits are established in accordance with Minnesota Statutes. The defmed retirement benefits are based on a member's years of service. Benefit provisions can be amended by the Association within the parameters provided by Minnesota Statutes. The Association issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Shakopee Fire Relief Association, 129 Holmes Street South, Shakopee, Minnesota B. Funding Policy Minnesota Statutes Chapter specifies minimum support rates required on an annual basis. The minimum support rates from the municipality and from state aid are determined as the amount required to meet the normal cost plus amortizing any existing prior service costs over a 10 year period. Actuarial valuations are not required for the Association as the Association follows Minnesota Statutes for the valuation calculation. The City has decided to make an annual contribution in addition to state aid received for pension cost. The Association is comprised of volunteers; therefore, there are no payroll expenditures (i.e., there are no covered payroll percentage calculations). Contributions totaling$ 341,036 ($ 113,868 City of Shakopee and$ 227,168 State of Minnesota) were made in accordance with contribution requirements as of December 31, These contributions were entirely for normal service cost. The City's annual pension cost for the current year and related information is as follows: Validation Date Actuarial Cost Method AnDrtillltion Method Rernanklg AnDrtillltion Pemd: Normal Cost Prior Service Cost Asset Valuation Method Actuarial Assllll1'tions: Investment Rate ofretum Projected Salary Increases Inchdes lntlation at Cost oflimg Adjustments December 31,2014 Entry Age Normal Level annual dollar closed 20 years 10 years Market 3% N/A N/A None NOTE 16-DEFINED BENEFIT PENSION PLAN- SHAKOPEE VOLUNTEER FIRE RELIEF ASSOCIATION B. Funding Policy (Continued) Amrual Percentage Net Pension ofapc Pension Year Ended Cost(APCL Contributed Oblig;ltion 12/31112 $ 313, % $ 12/ , % 12/31/14 341,036 I 000/o Satatut01y Statutory Funded Valuation Value of Accrued (Unfunded) Funded Date Assets Liability (SAL) - SAL Ratio 12/31/12 $ 4,634,023 $ 4,832,549 $ (198,526) 95.9% 12/31/13 5,135,900 4,529, , % 12/31/14 5,182,390 4,282, , % The Association is comprised of volunteers; therefore, there are no payroll expenditures (i.e., there are no covered payroll amounts or percentage calculations). NOTE 17- POST EMPLOYMENT HEALTH BENEFITS PLAN A. Plan Description The City provides a single-employer defined benefit health care plan to eligible retirees and their spouses. The plan offers medical coverage administered by Medica. It is the City's policy to periodically review its medical coverage and to obtain requests for proposals in order to provide the most favorable benefits and premiums for City employees and retirees. B. Funding Policy Retirees and their spouses contribute to the health care plan at the same rate as City employees. This results in the retirees receiving an implicit rate subsidy. Contribution requirements are established by the City, based on the contract terms with Medica. The required contributions are based on projected pay-as-you-go fmancing requirements. For the year 2014, the City contributed$ 55,738 to the plan. As of January 1, 2014, there were seven retirees and one disabled officers receiving health benefits from the City's health plan. For the most part, the General Fund and the Employee Benefits Internal Service Fund are typically used to liquidate net other post employment benefit obligations.