CITY OF SHOREWOOD SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2012

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1 CITY OF SHOREWOOD SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2012 BILL JOYNES, CITY ADMINISTRATOR REPORT PREPARED BY BRUCE DEJONG, FINANCE DIRECTOR/TREASURER MEMBER OF GOVERNMENT FINANCE OFFICERS ASSOCIATION OF THE UNITED STATES AND CANADA

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3 CITY OF SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit Page No. INTRODUCTORY SECTION Elected and Appointed Officials 4 Organization Chart 5 Letter of Transmittal 7 Certification of Achievement for Excellence in Financial Reporting 12 FINANCIAL SECTION Independent Auditor s Report 15 Management s Discussion and Analysis 19 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 1 33 Statement of Activities 2 34 Fund Financial Statements Governmental Funds Balance Sheet 3 38 Reconciliation of the Balance Sheet to the Statement of Net Position 4 41 Statement of Revenues, Expenditures and Changes in Fund Balances 5 42 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 6 44 General Fund Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 7 45 Proprietary Funds Statements of Net Position 8 46 Statements of Revenues, Expenses and Changes in Net Position 9 48 Statements of Cash Flows Fiduciary Fund Statement of Net Position Notes to the Financial Statements 55 Combining and Individual Fund Financial Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet A-1 80 Combining Statement of Revenues, Expenditures and Changes in Fund Balances A-2 81 Nonmajor Capital Projects Funds Combining Balance Sheet B-1 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances B-2 86 Nonmajor Proprietary Funds Combining Statements of Net Position C-1 90 Combining Statements of Revenues, Expenses and Changes in Net Position C-2 92 Combining Statements of Cash Flows C-3 94 General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual D-1 97 Debt Service Funds Combining Balance Sheet E Combining Schedule of Revenues, Expenditures and Changes in Fund Balances E Agency Fund Combining Schedule of Changes in Assets and Liabilities F Summary Financial Report Revenues and Expenditures for General Operations - Governmental Funds G

4 CITY OF SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit Page No. STATISTICAL SECTION (UNAUDITED) Net Position by Component Changes in Net Position Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Tax Capacity, Market Value and Estimated Actual Value of Taxable Property Property Tax Capacity Rates - Direct and Overlapping Governments Principal Taxpayers Property Tax Levies and Collections Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita Ratios of General Bonded Debt Outstanding Computation of Direct and Overlapping Debt Legal Debt Margin Information Pledged-Revenue Coverage Demographic and Economic Statistics Principal Employers Full-Time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function

5 INTRODUCTORY SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31,

6 CITY OF SHOREWOOD, MINNESOTA ELECTED AND APPOINTED OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2012 ELECTED Name Title Term Expires Christine Lizée Mayor 12/31/12 Richard Woodruff Council Member 12/31/12 Scott Zerby Council Member 12/31/12 Laura Hotvet Council Member 12/31/14 Debbie Siakel Council Member 12/31/14 APPOINTED Name Title Bill Joynes Bruce DeJong City Administrator Finance Director/Treasurer -4-

7 City of Shorewood Organizational Chart Joint Powers Agencies Police Fire LMCD LMCC Residents Council Administrator Advisory Boards Plan Commission Park Commission Finance Dir Plan/Zone Dir Deputy Clerk Engineer Pub Works Dir Sr Acct Clerk Planning Asst Bldg Official Receptionist Utiliites Comm Coord Parks Maint. Contracted Services IT/Phones Mound Fire Assessor Recycling Community Center Attorney Park/Rec Coord -5- Streets

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9 June 24, 2013 Honorable Mayor and Members of the City Council, City of Shorewood, Minnesota Mayor and City Council Members: The Comprehensive Annual Financial Report of the City of Shorewood, Minnesota, for the fiscal year ended December 31, 2012, is hereby submitted. The report was prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as established by the Governmental Accounting Standards Board and meets the requirements of the Office of State Auditor. The report consists of management s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established internal controls designed to protect the City s assets from loss, theft, or misuse, and to provide sufficient information for the preparation of these financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh the benefits, the City s internal controls have been designed to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. As management, we assert that to the best of our knowledge and belief this financial report is complete and reliable in all material respects. The City of Shorewood s financial statements have been audited by the firm of Abdo, Eick & Meyers, LLP, Certified Public Accountants. The goal of the audit was to provide reasonable assurance that the financial statements of the City for the year ended December 31, 2012, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates used by management; and evaluating the overall financial statement presentation. Based upon the audit, the independent auditor concluded that there was reasonable basis for rendering an unqualified opinion that the City s financial statements, for the year ended December 31, 2012, are fairly presented in conformity with GAAP. The independent auditor's report is presented at the front of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). The City s MD&A can be found in the financial section of this report immediately following the independent auditor s report. -7-

10 City Profile The City of Shorewood is a suburban community located southwest of the Twin Cities on the southern shore of Lake Minnetonka, a setting of rolling hills and picturesque lakes and creeks. Shorewood has a convenient location, a comprehensive system of highways, and is a short distance from downtown Minneapolis and St. Paul and the Minneapolis-St. Paul International Airport. The City is predominantly a residential community with limited commercial businesses and two commercial shopping malls. The City is 6 square miles in area and had an estimated population of 7,312 as of The City, which is currently 95% developed, continues to experience some growth in its residential base but, because of the limited availability of large tracts of land, this growth will come slowly through small developments such as the Ashland Woods subdivision. Incorporated in 1956 as a village, the City of Shorewood operates under the Council-Administrator form of government. Policy making and legislative authority are vested in a governing council consisting of the mayor and four-member council, elected on a non-partisan basis. Council members serve four-year staggered terms, with two council members elected every two years. The mayor is elected to serve a two-year term. The City Administrator/Clerk is responsible for overseeing the dayto-day operations of the government, and to assign responsibility to City staff for the efficient and effective delivery of City services. The Economic Development Authority (EDA) of the City was created in 2001 pursuant to Minnesota Statutes to carry out economic and industrial development and redevelopment consistent with policies established by the Council. Its board is comprised of members of the City Council. The EDA activities are blended and separate financial statements are not issued for this component unit. The City provides its residents and businesses with a broad range of municipal services consisting of police and fire protection, street maintenance, recreation programs, park maintenance, community and economic development, and administrative services, including building inspections. During 2012, the City operated four enterprises: a water utility, sanitary sewer, recycling, and storm water management utilities. Economic Conditions and Outlook Governance The City Council, in its leadership role, has effectively established a focus for government in Shorewood and has established overall goals and expectations for the City. The Council s calendar consists of three phases. The first phase is planning. It includes review of the previous year s work plan and identifies goals and priorities for the next twelve months. The second phase is capital finance planning; each year the ten-year Capital Improvement Program is reviewed and updated based upon priorities established in the first phase. Those projects are then incorporated into a financial management plan that includes both operating and capital spending plans to determine the overall feasibility of the plans and the effect of that spending on fund balances and tax levies. The third phase is budgeting; the annual operating budget is developed based on decisions made in the first two phases. The annual budget serves as the foundation of the City of Shorewood s financial planning and control. Departments submit budget requests to Finance in June and the City Administrator presents the proposed budget to the City Council for review prior to September 15 th of each year. Budget work-sessions are held with the City Council in July and August. The City Council holds a Truth-in-Taxation public hearing on the proposed budget and adopts the final budget in December each year. -8-

11 The budget is prepared by fund and function. The City s department directors develop their budgets, with subsequent review and input from the City Administrator and Finance Director. Any changes in the overall budget must be approved by the City Council. Cooperative Public Service Delivery Shorewood is committed to working cooperatively with other Lake Minnetonka area cities to carefully consider methods to efficiently deliver public services. The City has various contractual arrangements with other governmental jurisdictions and with private entities for providing many of these services. The City is also involved in cooperative employee training, disaster preparedness and other areas of mutual concern as an active participant in the Lake Minnetonka area. The City has been a member city of the South Lake Minnetonka Police Department (SLMPD) since its inception in The other members of this joint powers organization are the cities of Excelsior, Greenwood, and Tonka Bay. The City of Shorewood, along with the cities of Deephaven, Excelsior, Greenwood, and Tonka Bay, has been a member of the Excelsior Fire District since The Excelsior Fire District is a joint powers organization. A combined police and fire public safety building that serves the South Lake Minnetonka Area cities was completed in late The City contracts with Hennepin County for property assessment services. The Hennepin County Assessor analyzes property sales information, sets taxable values, and handles the valuation appeal process. Debt Administration As of December 31, 2012, the City's debt outstanding totaled $12,015,000. Of this total, $2,500,000 is General Obligation Water Revenue bonds issued in 1996, 2005, and The proceeds from these bonds financed water system extensions and improvements and will be repaid from special assessments and water rate revenues. The remaining outstanding debt balance of $9,515,000 is EDA Lease Revenue Advance Refunding bonds issued in 2007 for the public safety buildings and EDA Lease Revenue bonds issued in 2008 for remodeling City Hall. These bonds will be repaid from lease payments from the Excelsior Fire District, South Lake Minnetonka Police Department, and the City of Shorewood. The City of Shorewood s bond rating was upgraded to Aa2 from Aa3 in July, 2008, by Moody s Investors Service. At that time, Moody s also upgraded the Shorewood Economic Development Authority (EDA) bond rating to Aa3 from A1, based upon the City s pledge to make the lease payments subject to annual appropriation in the City s operating budget, and the fact that a city hall facility is an essential part of a municipality. Long-term Financial Planning The City has implemented various financial/budgetary policies to guide the City Council and staff when making financial decisions to ensure the long-term stability and flexibility of City finances and operations. These policies include the following: The original budget should be balanced with revenues equal to expenditures. -9-

12 By policy, the City Council has set the fund balance level in the General Fund 55-60% of the next years expenditure budget. This policy ensures the long-term economic stability of the organization by providing adequate working capital given the periodic nature of tax receipts and by providing for unexpected shortfalls or emergencies. In accordance with this policy, the City Council may use up to 3% of any General Fund reserves in excess of 60% to reduce the budgeted tax levy, or for one-time projects, or transfer to any of the city s capital funds. The City will maintain a ten-year capital improvement plan to provide for capital asset acquisition, maintenance, replacement, and retirement. The City will continue to accumulate resources for future capital equipment and improvement projects with operating transfers to various capital project funds in Budgeted transfers for capital improvement purposes during 2012 were $907,800. Major Initiatives The City implemented a 10 year Financial Management Plan. This is a comprehensive review of all funds of the city on both an operational and capital spending basis. It compares spending plans against revenue sources to determine how planned outlays compare against estimated revenues and what additional resources may be necessary to accomplish long-term balanced budgets. Other initiatives during the year included the following: The City of Shorewood operated the Southshore Community Center for the entire year of The Center was built in the late 1990s as a joint venture by the following five Lake Minnetonka Area Cities: Shorewood, Excelsior, Tonka Bay, Deephaven, and Greenwood. Until recently, the Center was leased to an organization that emphasized senior programming. Many of the senior-oriented programs still remain during the day, and these are a critical component, but Center renovations were made to attract new renters, including businesses, community education classes, and wedding, birthday, and graduation parties. Shorewood has committed to operate the center through December, 2015 by the renewal of an automatic three year extension. New programs have been developed to attract all ages. The Southshore Center s long range options are being evaluated by a committee of the South Shore Senior Partners and other interested parties. Certificate of Achievement The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Shorewood for its comprehensive annual financial report (CAFR) for the fiscal year ended December 31, The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report whose contents conform to program standards. Such comprehensive annual financial report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year. The City of Shorewood has received a Certificate of Achievement for the past eighteen consecutive years. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. -10-

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15 FINANCIAL SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31,

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17 INDEPENDENT AUDITOR S REPORT Honorable Mayor and City Council City of Shorewood, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Shorewood, Minnesota (the City), as of and for the year ended December 31, 2012, 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. The prior year comparative information has been derived from the City s 2011 financial statements and, in our report dated August 20, 2012 we express unqualified opinions on the respective proprietary fund financial statements. We did not audit the financial statements of the South Lake Minnetonka Police Department, a joint venture, which is disclosed in Note 5A in the notes to the financial statements. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the South Lake Minnetonka Police Department, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -15-

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19 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, each major fund, and the aggregate remaining fund information of the City as of December 31, 2012, 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 conformity with accounting principles generally accepted in the United States of America. Other Matters Change in Accounting Standards As described in the Note 8 to the basic financial statements, the City adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and Statement No. 65, Items Previously Reported as Assets and Liabilities, for the year ended December 31, Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial statements. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis starting on page 19 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information in Relation to the Financial Statements as a Whole Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements as a whole. The introductory section, combining and individual fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory section and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. June 24, 2013 Minneapolis, Minnesota ABDO, EICK & MEYERS, LLP Certified Public Accountants -17-

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21 Management s Discussion and Analysis As management of the City of Shorewood, Minnesota, (the City), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, Financial Highlights The assets of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $31,108,781 (net position). Of this amount, $16,127,543 (unrestricted net position) may be used to meet the City s ongoing obligations to residents and creditors. The City s total net position decreased $733,239, due primarily to losses in the Sewer and Stormwater Management funds and depreciation on infrastructure and equipment. As of the close of the current fiscal year, the City s governmental funds reported combined ending fund balances of $8,085,567, an increase of $187,305 in comparison with the prior year. This increase is primarily the result of current expenditures in nonmajor governmental funds. Approximately 43.3 percent of this total amount, $3,499,143, is unassigned and available for spending at the City s discretion. At the end of the current fiscal year, unassigned fund balance for the General fund was $3,574,468, or 83.9 percent of total 2012 budgeted expenditures. The City has a policy to maintain a General fund working capital balance of percent of expenditures and transfers. The City s total debt decreased $833,020, or 6.4 percent during the current fiscal year. The key factor in this decrease was annual principal and interest payments. -19-

22 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of combining and individual fund financial statements and schedules that further explains and supports the information in the financial statements. Figure 1 illustrates how the required parts of this annual report are arranged and relate to one another. In addition to these required elements, we have included a section with combining and individual fund financial statements and schedules that provide details about nonmajor governmental funds, which are added together and presented in single columns in the basic financial statements. Figure 1 Required Components of the City s Annual Financial Report Management's Discussion and Analysis Basic Financial Statements Required Supplementary Information Governmentwide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail -20-

23 Figure 2 summarizes the major features of the City s financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis explains the structure and contents of each of the statements. Figure 2 Major features of the Government-wide and Fund Financial Statements Scope Required financial statements Accounting Basis and measurement focus Type of asset/liability information Type of deferred outflows/inflows of resources information Type of in flow/out flow information Government-wide Statements Entire City government (except fiduciary funds) and the City s component units Statement of Net Position Statement of Activities Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and short-term and long-term All deferred outflows/inflows of resources, regardless of when cash is received or paid. All revenues and expenses during year, regardless of when cash is received or paid Fund Financial Statements Governmental Funds Proprietary Funds The activities of the City that are not proprietary or fiduciary, such as police, fire and parks Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balances Modified accrual accounting and current financial resources focus Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Only deferred outflows of resources expected to be used up and deferred inflows of resources that come due during the year of son thereafter; no capital assets included Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter Activities the City operates similar to private businesses, such as the water and sewer system Statements of Net Position Statements of Revenues, Expenses and Changes in Fund Net Position Statements of Cash Flows Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and short-term and long-term All deferred outflows/inflows of resources, regardless of when cash is received or paid All revenues and expenses during the year, regardless of when cash is received or paid 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 a 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 fiscal 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 vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenue (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, culture and recreation, and interest on long-term debt. The business-type activities of the City include water, sewer, recycling, and stormwater management utility. -21-

24 The government-wide financial statements include not only the City itself (known as the primary government), but also a legally separate Economic Development Authority (EDA) for which the City is financially accountable. The EDA, although legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government. The government-wide financial statements start on page 33 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. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing 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 by the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund 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 15 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General, Debt Service, and Community Infrastructure funds, which are considered to be major funds. Data from the other eight governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements or schedules elsewhere in this report. The City adopts an annual appropriated budget for its General fund. A budgetary comparison statement has been provided for the General fund to demonstrate compliance with this budget. The basic governmental fund financial statements start on page 38 of this report. Proprietary funds. The City maintains one type of proprietary fund. 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 water, sewer, recycling, and stormwater management utility. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for each of the enterprise funds which are considered to be major funds of the City. The basic proprietary fund financial statements start on page 46 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 54 of this report. Notes to the financial statements. 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 start on page 55 of this report. Other information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented following the notes to the financial statements. Combined and individual fund financial statements and schedules starts on page 80 of this report. -22-

25 Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the City, assets exceeded liabilities and deferred inflows of resources by $31,108,781 at the close of the most recent fiscal year. Of the City s net position 48.2 percent reflects its investment in capital assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investment in its capital assets is reported net of related debt, 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. City of Shorewood s Summary of Net Position Governmental Activities Business-type Activities Increase Restated Increase (Decrease) (Decrease) Assets Cash and temporary investments $ 7,593,686 $ 7,596,833 $ (3,147) $ 7,452,376 $ 7,482,041 $ (29,665) Cash with fiscal agent - 6,504 (6,504) 235, ,957 68,288 Receivables 8,997,619 9,486,472 (488,853) 615, ,382 (20,531) Prepaids 50,000 48,000 2, Land held for resale 150, , Capital assets 9,627,162 10,413,669 (786,507) 8,994,076 9,350,613 (356,537) Total assets 26,418,535 27,701,546 (1,283,011) 17,297,548 17,635,993 (338,445) Liabilities Noncurrent liabilities 9,696,762 10,354,782 (658,020) 2,500,000 2,675,000 (175,000) Other liabilities 255, ,590 (58,349) 155, ,147 3,152 Total liabilities 9,952,003 10,668,372 (716,369) 2,655,299 2,827,147 (171,848) Net position Net investment in capital assets 8,487,162 9,223,669 (736,507) 6,494,076 6,675,613 (181,537) Unrestricted 7,979,370 7,809, ,865 8,148,173 8,133,233 14,940 Total net position $ 16,466,532 $ 17,033,174 $ (566,642) $ 14,642,249 $ 14,808,846 $ (166,597) The balance of unrestricted net position is $16,127,543. This may be used to meet the City s ongoing obligations to citizens and creditors. -23-

26 Governmental activities. Governmental activities decreased the City s net position by $566,642. Key elements of this increase are as follows: City of Shorewood s Changes in Net Position Governmental Activities Business-type Activities Increase Restated Increase (Decrease) (Decrease) Revenues Program revenues Charges for services $ 832,626 $ 732,114 $ 100,512 $ 1,940,551 $ 1,840,253 $ 100,298 Operating grants and contributions 102, ,717 (10,758) 23,007 33,586 (10,579) Capital grants and contributions ,400 15,000 7,400 General revenues Property taxes 4,761,213 4,733,948 27, Grants and contributions not restricted to specific programs 6,019 4,751 1, Unrestricted investment earnings 61,584 56,705 4,879 64,135 62,345 1,790 Gain on sale of capital assets - 28,500 (28,500) Total revenues 5,764,401 5,669,735 94,666 2,050,093 1,951,184 98,909 Expenses General government 1,331,286 1,405,791 (74,505) Public safety 1,947,868 1,960,894 (13,026) Public works 2,162,123 2,031, , Culture and recreation 460, ,257 48, Interest on long-term debt 428, ,088 (9,201) Water , ,098 7,107 Sewer ,065,926 1,151,626 (85,700) Recycling , ,857 12,856 Stormwater management utility , ,035 40,811 Total expenses 6,331,043 6,248,166 82,877 2,216,690 2,241,616 (24,926) Increase (decrease) in net position before transfers (566,642) (578,431) 11,789 (166,597) (290,432) 123,835 Transfers Change in net position (566,642) (578,431) 11,789 (166,597) (290,432) 123,835 Net position, January 1 17,033,174 17,611,605 (578,431) 14,808,846 15,099,278 (290,432) Net position, December 31 $ 16,466,532 $ 17,033,174 $ (566,642) $ 14,642,249 $ 14,808,846 $ (166,597) -24-

27 The following graph depicts various governmental activities and shows the revenue and expenses directly related to those activities. $2,500,000 Expenses and Program Revenues - Governmental Activities $2,000,000 $1,500,000 $1,000,000 $500,000 $- General government Public safety Public works Culture and recreation Interest on long-term debt Expenses Program revenues Revenues by Source - Governmental Activities Grants and contributions not restricted to specific programs 1.1% Unrestricted investment earnings 0.1% Charges for services 14.4% Operating grants and contributions 1.8% Property taxes 82.6% -25-

28 Business-type activities. Business-type activities decreased the City s net position by $166,597. $1,200,000 Expenses and Program Revenues - Business-type Activities $1,000,000 $800,000 $600,000 $400,000 $200,000 $- Water Sewer Recycling Stormwater management utility Expenses Program revenues Revenues by Source - Business-type Activities Operating grants and contributions 1.1% Capital grants and contributions 1.1% Unrestricted investment earnings 3.1% Charges for services 94.7% -26-

29 Financial Analysis of the Government s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related 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, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City s governmental funds reported combined ending fund balances of $8,085,567, a increase of $187,305 in comparison with the prior year. Approximately 44 percent of this total amount, $3,499,143 constitutes unassigned fund balance, which is available for spending at the City s discretion. The remaining fund balance is made up of the following: 1) Nonspendable ($200,068), 2) Restricted ($17,700), and 3) Assigned ($4,368,656). The General fund is the chief operating fund of the City. At the end of the current year, the fund balance of the General fund was $3,624,468. As a measure of the General fund s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Total fund balance represents 83.9 percent of same year fund expenditures. The fund balance of the City s General fund increased $136,241 during the current fiscal year. The Debt Service fund has a total fund balance of $17,700, all of which is restricted for the payment of debt service. The decrease in fund balance of $12,739 was in line with the City s debt service financing plan. The Community Infrastructure fund has a fund balance of $1,842,330. The fund balance increased $12,852 during the current fiscal year due to an excess of revenues over expenditures. The Street Reconstruction fund has a fund balance of $1,760,337. The fund balance increased by $278,885 during the current fiscal year due to a transfer in of $700,000, which exceeded expenditures. Proprietary funds. 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 at the end of the year amounted to $8,148,173. The total decrease in net position for the funds was $166,597. Other factors concerning the finances of this fund have already been addressed in the discussion of the City s business-type activities. General Fund Budgetary Highlights The City s General fund budget was not amended during the year. The budget called for the planned use of General fund reserves in the amount of $87,435. Revenues were over budget by $220,367, and expenditures were under budget by $56,487. The actual amounts were different from the final budget amounts because of the following: The largest positive variances in revenue were related to fiscal disparities and refunds and reimbursements, which were over budget by $113,410 and $67,032. There were seven departments that experienced a negative budget variance. The largest negative expenditure variance was related to Administrative which was $96,788 over budget due to personal services and other services and charges. -27-

30 Capital Asset and Debt Administration Capital assets. The City s investment in capital assets for its governmental and business-type activities as of December 31, 2012, amounts to $18,621,238 (net of accumulated depreciation). This investment in capital assets includes land, structures, improvements, machinery and equipment, park facilities, and roads. Major capital asset events during the current fiscal year included the following: Freightliner dump truck Asphalt roller Case skid steer tractor Covington Road sediment trap Smithtown sewer reconstruction Additional information on the City s capital assets can be found in Note 3B starting on page 66 of this report. City of Shorewood s Capital Assets (net of depreciation) Governmental Activities Business-type Activities Increase Increase (Decrease) (Decrease) Land $ 741,826 $ 741,826 $ - $ 434,113 $ 434,113 $ - Construction in progress - 52,145 (52,145) 63, ,603 (110,672) Buildings 2,339,814 2,424,026 (84,212) Improvements other than buildings 325, ,799 (39,857) Machinery and equipment 714, ,216 62,069 4,331 9,249 (4,918) Infrastructure 5,505,295 6,177,657 (672,362) 8,491,701 8,732,648 (240,947) Total $ 9,627,162 $ 10,413,669 $ (786,507) $ 8,994,076 $ 9,350,613 $ (356,537) Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $12,015,000. Of this amount, $9,515,000 is lease revenue bonds and $2,500,000 is general obligation revenue bonds. While all of the City s bonds have dedicated revenue streams pledged to repayment, the general obligation revenue bonds are all backed by the full faith and credit of the City. City of Shorewood s Outstanding Debt Governmental Activities Business-type Activities Increase Increase (Decrease) (Decrease) General obligation revenue bonds $ - $ - $ - $ 2,500,000 $ 2,675,000 $ (175,000) Lease revenue bonds 9,515,000 10,170,000 (655,000) Compensated absences payable 181, ,782 (3,020) Total $ 9,696,762 $ 10,354,782 $ (658,020) $ 2,500,000 $ 2,675,000 $ (175,000) Minnesota statutes limit the amount of net general obligation debt a City may issue to 3 percent of the market value of taxable property within the City. Net debt is debt payable solely from ad valorem taxes. Additional information on the City s long-term debt can be found in Note 3D starting on page 68 of this report. -28-

31 Economic Factors and Next Year s Budgets and Rates The City is experiencing a decrease in property values on higher value properties, but lower value home prices seem to be stabilizing. Unemployment trends in the region compare favorably to national indices. The 2013 budget was developed to continue using General fund balance to bring the overall balance down to the policy level while continuing to provide the same basic service levels to the public. Property tax revenues for the 2013 budget were unchanged from the 2012 budget. All of these factors were taken into account in preparing the City s budget for the 2013 fiscal year. During the 2012 fiscal year, the fund balance in the General fund increased by $136,241. This City budgeted a use of fund balance of $87,435. This planned use of fund balance in accordance with the Fund Balance Policy adopted by the City Council. Other possible uses of available fund balance over the policy level include one-time projects, and transfers to capital project funds as determined by the City Council. Requests for Information This financial report is designed to provide a general overview 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 financial information should be addressed to the City of Shorewood, 5755 Country Club Road, Shorewood, Minnesota

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33 GOVERNMENT-WIDE FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31,

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35 CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2012 Exhibit 1 Governmental Business-type Activities Activities Total ASSETS Cash and temporary investments $ 7,593,686 $ 7,452,376 $ 15,046,062 Cash with fiscal agent - 235, ,245 Receivables Accrued interest 174,877 31, ,913 Property taxes 118, ,582 Accounts 45, , ,052 Special assessments 2, , ,752 Lease 8,652,892-8,652,892 Due from other governments 3,279-3,279 Prepaid items 50,000-50,000 Land held for resale 150, ,068 Capital assets Nondepreciable assets 741, ,044 1,239,870 Depreciable capital assets, net 8,885,336 8,496,032 17,381,368 TOTAL ASSETS 26,418,535 17,297,548 43,716,083 LIABILITIES Accounts and contracts payable 104, , ,357 Due to other governments 1,518 1,157 2,675 Accrued interest payable 149,688 49, ,508 Noncurrent liabilities Due within one year 822, ,000 1,007,969 Due in more than one year 8,873,793 2,315,000 11,188,793 TOTAL LIABILITIES 9,952,003 2,655,299 12,607,302 NET POSITION Net investment in capital assets 8,487,162 6,494,076 14,981,238 Unrestricted 7,979,370 8,148,173 16,127,543 TOTAL NET POSITION $ 16,466,532 $ 14,642,249 $ 31,108,781 The notes to the financial statements are an integral part of this statement. -33-