INDEPENDENT SCHOOL DISTRICT NO. 197 WEST ST. PAUL MENDOTA HEIGHTS EAGAN, MINNESOTA Financial Statements and Supplemental Information Year Ended June 30, 2016
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INDEPENDENT SCHOOL DISTRICT NO. 197 Table of Contents Page INTRODUCTORY SECTION SCHOOL BOARD AND ADMINISTRATION 1 FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT 24 MANAGEMENT S DISCUSSION AND ANALYSIS 517 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 18 Statement of Activities 19 Fund Financial Statements Governmental Funds Balance Sheet 2021 Reconciliation of the Balance Sheet to the Statement of Net Position 22 Statement of Revenue, Expenditures, and Changes in Fund Balances 2324 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities 25 Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 26 Internal Service Fund Statement of Net Position 27 Statement of Revenue, Expenses, and Changes in Net Position 28 Statement of Cash Flows 29 Fiduciary Funds Statement of Fiduciary Net Position 30 Statement of Changes in Fiduciary Net Position 30 Notes to Basic Financial Statements 3162 REQUIRED SUPPLEMENTARY INFORMATION Public Employees Retirement Association Pension Benefits Plan Schedule of District s Proportionate Share of Net Pension Liability 63 Schedule of District Contributions 63 Teachers Retirement Association Pension Benefits Plan Schedule of District s and Non-Employer Proportionate Share of Net Pension Liability 64 Schedule of District Contributions 64 Other Post-Employment Benefits Plan Schedule of Funding Progress 65 Schedule of District Contributions 65 Pension Benefits Plan Schedule of Funding Progress 65
INDEPENDENT SCHOOL DISTRICT NO. 197 Table of Contents (continued) Page SUPPLEMENTAL INFORMATION Nonmajor Governmental Funds Combining Balance Sheet 66 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 67 General Fund Comparative Balance Sheet 68 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 6971 Food Service Special Revenue Fund Comparative Balance Sheet 72 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 73 Community Service Special Revenue Fund Comparative Balance Sheet 74 Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 75 Capital Projects Building Construction Fund Comparative Balance Sheet 76 Comparative Schedule of Revenue, Expenditures, and Changes in Fund Balances 77 Debt Service Fund Balance Sheet by Account 78 Schedule of Revenue, Expenditures, and Changes in Fund Balances by Account Budget and Actual 7980 OTHER DISTRICT INFORMATION (UNAUDITED) Government-Wide Revenue by Type 81 Government-Wide Expenses by Function 8283 General Fund Revenue by Source 84 General Fund Expenditures by Program 8586 School Tax Levies, Tax Capacity Rates, and Market Value Rates by Fund 87 Tax Capacities and Market Values 8889 Property Tax Levies and Receivables 9091 Students Served 92 SINGLE AUDIT AND OTHER REQUIRED REPORTS Schedule of Expenditures of Federal Awards 93 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 9495 Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 9697 Independent Auditor s Report on Minnesota Legal Compliance 98 Schedule of Findings and Questioned Costs 99102 Uniform Financial Accounting and Reporting Standards Compliance Table 103104
INTRODUCTORY SECTION
INDEPENDENT SCHOOL DISTRICT NO. 197 School Board and Administration as of June 30, 2016 SCHOOL BOARD Board Position Joanne Mansur Stephanie Levine Byron Schwab John Chandler Brenda Corbett Dr. Matthew Klein Terry Stamman Board Chair Vice Chair/Clerk Treasurer Member Member Member Member ADMINISTRATION Dr. Nancy Allen-Mastro Marcy Doud Brian Schultz Cari Jo Kiffmeyer Bernadette MacKenzie Mark Fortman Brenda Albrecht Dave Sandum Carrie Hilger Superintendent Assistant Superintendent Director of Finance Director of Curriculum, Instruction, and Assessment Director of Community Education Director of Operations Director of Human Resources Director of Technology Director of Communications -1-
FINANCIAL SECTION
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INDEPENDENT AUDITOR S REPORT To the School Board and Management of Independent School District No. 197 West St. Paul Mendota Heights Eagan, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 197 (the District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. MANAGEMENT S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -2- (continued)
OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year then ended, in accordance with accounting principles generally accepted in the United States of America. OTHER MATTERS Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and the required supplementary information (RSI), as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The introductory section, supplemental information, and other district information, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements of the District. The accompanying Uniform Financial Accounting and Reporting Standards (UFARS) Compliance Table is presented for purposes of additional analysis as required by the Minnesota Department of Education, and is also not a required part of the basic financial statements of the District. The supplemental information, the Schedule of Expenditures of Federal Awards, and the UFARS Compliance Table are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and other district information sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. -3- (continued)
Prior Year Comparative Information We have previously audited the District s 2015 financial statements, and we expressed unmodified audit opinions on the respective financial statements of the governmental activities, each major fund, and the aggregate remaining fund information in our report dated December 16, 2015. In our opinion, the partial comparative information presented herein as of and for the year ended June 30, 2015 is consistent, in all material respects, with the audited financial statements from which it has been derived. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2016 on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. Minneapolis, Minnesota November 16, 2016-4-
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INDEPENDENT SCHOOL DISTRICT NO. 197 Management s Discussion and Analysis Fiscal Year Ended June 30, 2016 This section of Independent School District No. 197 s (the District) financial statements presents management s discussion and analysis of the District s financial performance during the fiscal year ended June 30, 2016. Please read it in conjunction with the other components of the District s financial statements. FINANCIAL HIGHLIGHTS The District s assets and deferred outflows of resources were lower than its liabilities and deferred inflows of resources at June 30, 2016 by ($774,264) (net position). The District s total net position increased by $1,426,592 during the fiscal year ended June 30, 2016. Government-wide revenues totaled $79,052,019 and were $1,426,592 more than expenses of $77,625,427. The General Fund s total fund balance (under the governmental fund presentation) decreased $513,293 from the prior year, compared to a $637,864 decrease planned in the budget. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the financial statements consists of the following parts: Independent Auditor s Report; Management s Discussion and Analysis; Basic financial statements, including the government-wide financial statements, fund financial statements, and the notes to basic financial statements; Required supplementary information; and Supplemental information, which includes combining and individual fund statements and schedules. The following explains the two types of statements included in the basic financial statements: GOVERNMENT-WIDE FINANCIAL STATEMENTS The government-wide financial statements (Statement of Net Position and Statement of Activities) report information about the District as a whole using accounting methods similar to those used by private sector companies. The Statement of Net Position includes all of the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, except for the fiduciary funds. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two government-wide financial statements report the District s net position and how it has changed. Net position the difference between the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net position are indicators of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District requires consideration of additional nonfinancial factors such as changes in the District s property tax base and the condition of school buildings and other facilities. -5-
In the government-wide financial statements the District s activities are all shown in one category titled governmental activities. These activities, including regular and special education instruction, transportation, administration, food services, and community education, are primarily financed with state aids and property taxes. FUND FINANCIAL STATEMENTS The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds, rather than the District as a whole. Funds (Food Service Special Revenue Fund, Community Service Special Revenue Fund, and Capital Projects Building Construction Fund) that do not meet the threshold to be classified as major funds are called nonmajor funds. Detailed financial information for nonmajor funds can be found in the supplemental information section. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs. Some funds are required by state law and by bond covenants. The District may establish other funds to control and manage money for particular purposes or to show that it is properly using certain revenues. The District maintains the following kinds of funds: Governmental Funds The District s basic services are included in governmental funds, which generally focus on: 1) how cash and other financial assets that can readily be converted to cash flow in and out, and 2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps to determine whether there are more or less financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the government-wide financial statements, we provide additional information (reconciliation schedules) immediately following the governmental fund statements that explain the relationship (or differences) between these two types of financial statement presentations. Proprietary Funds The District maintains one type of proprietary fund. The internal service funds are used as an accounting device to accumulate and allocate costs internally among the District s various functions. The District uses its internal service funds to account for the self-insurance activities of the District s employees medical and dental claims. These services have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. Fiduciary Funds The District is the trustee, or fiduciary, for assets that belong to other organizations. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District s fiduciary activities are reported in a separate Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. We exclude these activities from the government-wide financial statements because the District cannot use these assets to finance its operations. -6-
FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1 is a summarized view of the District s Statement of Net Position: Table 1 Summary Statement of Net Position as of June 30, 2016 and 2015 2016 2015 Assets Current and other assets $ 51,474,341 $ 54,438,702 Capital assets, net of depreciation 65,728,468 65,051,302 Total assets $ 117,202,809 $ 119,490,004 Deferred outflows of resources Pension plan deferments PERA and TRA $ 9,739,007 $ 8,241,573 Liabilities Current and other liabilities $ 6,687,928 $ 6,529,870 Long-term liabilities, including due within one year 93,540,795 89,806,258 Total liabilities $ 100,228,723 $ 96,336,128 Deferred inflows of resources Property taxes levied for subsequent year $ 22,197,354 $ 22,799,936 Pension plan deferments PERA and TRA 5,290,003 10,796,369 Total deferred inflows of resources $ 27,487,357 $ 33,596,305 Net position Net investment in capital assets $ 27,881,279 $ 26,590,366 Restricted 496,252 610,477 Unrestricted (29,151,795) (29,401,699) Total net position $ (774,264) $ (2,200,856) The District s financial position is the product of many factors. For example, the determination of the District s net investment in capital assets involves many assumptions and estimates, such as current and accumulated depreciation amounts. A conservative versus liberal approach to depreciation estimates, as well as capitalization policies, will produce a significant difference in the calculated amounts. The other major factor in determining net position as compared to fund balances is the liability for long-term severance, pension, and other post-employment benefits (OPEB), which is partially unfunded. This impacts the unrestricted portion of net position. Total net position increased by $1,426,592 mainly from positive operating results in the District s internal service fund. Also, the District s payments on outstanding long-term debt exceed the depreciation on the capital assets financed by these obligations. -7-
Table 2 presents a condensed version of the Statement of Activities of the District: Table 2 Summary Statement of Activities for the Years Ended June 30, 2016 and 2015 2016 2015 Revenues Program revenues Charges for services $ 3,558,864 $ 3,553,159 Operating grants and contributions 12,119,900 11,695,269 General revenues Property taxes 24,496,152 23,417,595 General grants and aids 38,397,409 37,380,784 Other 479,694 393,960 Total revenues 79,052,019 76,440,767 Expenses Administration 2,392,415 2,272,017 District support services 1,211,351 1,168,582 Elementary and secondary regular instruction 30,410,328 28,474,670 Vocational education instruction 184,771 214,634 Special education instruction 12,508,454 11,258,782 Instructional support services 9,400,257 5,214,306 Pupil support services 5,356,033 4,692,008 Sites and buildings 6,112,340 5,083,451 Fiscal and other fixed cost programs 193,846 213,543 Food service 2,706,681 2,791,457 Community service 3,659,170 3,458,258 Depreciation not included in other functions 1,914,460 1,876,078 Interest and fiscal charges on debt 1,575,321 1,767,570 Total expenses 77,625,427 68,485,356 Change in net position 1,426,592 7,955,411 Net position beginning (2,200,856) (10,156,267) Net position ending $ (774,264) $ (2,200,856) This statement is presented on an accrual basis of accounting, and it includes all of the governmental activities of the District. This statement includes depreciation expense, but excludes capital asset purchase costs, debt proceeds, and the repayment of debt principal. The increase in instructional support services in fiscal 2016 relates to the issuance of capital leases for computer equipment, all of which fall below the capitalization threshold of the District. -8-
Figures A and B show further analysis of these revenue sources and expense functions: Figure A Sources of Revenues for Fiscal Years 2016 and 2015 The largest share of the District s revenue is received from the state, including the general education aid formula and most of the operating grants. This significant reliance on the state for funding has placed pressure on local school districts as a result of limited funding increases in recent years. Property taxes are generally the next largest source of funding. The level of revenue property tax sources provide is not only dependent on district taxpayers by way of operating and building referenda, but also by decisions made by the Legislature in the mix of state aid and local effort in a variety of funding formulas. -9-
Figure B Expenses for Fiscal Years 2016 and 2015 The District s expenses are predominately related to educating students. Programs (or functions) such as elementary and secondary regular instruction, vocational education instruction, special education instruction, and instructional support services are directly related to classroom instruction, while the rest of the programs support instruction and other necessary costs to operate the District. -10-
FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the District as a whole is also reflected in its governmental funds. Table 3 shows the change in total fund balances in each of the District s governmental funds: Table 3 Governmental Fund Balances as of June 30, 2016 and 2015 Increase 2016 2015 (Decrease) Major funds General $ 11,218,829 $ 11,732,122 $ (513,293) Debt Service 1,791,119 1,660,763 130,356 Nonmajor funds Food Service Special Revenue 65,348 62,357 2,991 Community Service Special Revenue 153,538 55,273 98,265 Capital Projects Building Construction 3,104,845 (3,104,845) Total governmental funds $ 13,228,834 $ 16,615,360 $ (3,386,526) The focus of the District s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the District s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the District itself, or a group or individual that has been delegated authority to assign resources for use for particular purposes by the District s School Board. The General Fund balance decrease is due to an increase in capital expenditures related to ongoing projects as well as an increase in principal payments on outstanding debt. The decrease in the Capital Projects Building Construction Fund is due to the completion of projects bonded for in prior years and the total spenddown of the fund balance in 2016. -11-
ANALYSIS OF THE GENERAL FUND Table 4 summarizes the amendments to the General Fund budget: Table 4 General Fund Budget Increase Original Budget Final Budget (Decrease) Percent Change Revenue $ 62,568,353 $ 63,698,937 $ 1,130,584 1.8% Expenditures $ 62,394,143 $ 64,336,801 $ 1,942,658 3.1% The District is required to adopt an operating budget prior to the beginning of its fiscal year, referred to above as the original budget. During the year, the District amended the budget for known significant changes in circumstances such as: updated enrollment estimates, legislative changes, additional funding received from grants or other local sources, staffing changes, employee contract settlements, insurance premium changes, special education tuition changes, or for new debt issued. Table 5 summarizes the operating results of the General Fund: Table 5 General Fund Operating Results Over (Under) Over (Under) Final Budget Prior Year 2016 Actual Amount Percent Amount Percent Revenue $ 64,411,073 $ 712,136 1.1% $ 2,328,860 3.8% Expenditures 68,856,169 4,519,368 7.0% $ 9,971,300 16.9% Excess of revenue over expenditures (4,445,096) (3,807,232) Other financing sources (uses) 3,931,803 3,931,803 Net change in fund balances $ (513,293) $ 124,571-12-
Significant budget variances include the following: Approximate Type Amount Reason Revenue State sources $ 716,000 Pension benefits financing sources received from the state of Minnesota for the merger of the Duluth Teachers Retirement Fund Association (DTRFA) in 2015 were not budgeted for. Federal sources $ (400,000) Budgeted based on full grant entitlements; however, spending came in under these amounts. Unspent funds will be carried over to future years. Other $ 285,000 Medical assistance revenue and shared transportation services came in higher than estimated in budget. Expenditures Salaries $ (760,000) Spending came in under budget for staff development, hot spot allocation, severance, and Alternative Teacher Professional Pay System (ATPPS). New hires for open positions also came in under budget estimates. $ (145,000) Federal grants budgeted based on full grant entitlements; however, spending came in under these amounts. Unspent funds will be carried over to future years. Benefits $ 464,000 Direct aid included in expenditures related to the merger of the DTRFA in 2015 was not budgeted and offset by over budgeting of areas noted in salaries above. $ (44,000) Federal grants budgeted based on full grant entitlements; however, spending came in under these amounts. Unspent funds will be carried over to future years. Purchased services $ 300,000 Federal tuition adjustment not budgeted. Supplies and materials $ (395,000) Federal grants budgeted based on full grant entitlements; however, spending came in under these amounts. Unspent funds will be carried over to future years. Capital expenditures $ 4,710,000 The District entered into capital lease agreements for technology equipment in fiscal year 2016 that were not included in the budget. Security projects also came in above budget estimates. -13-
Significant changes from prior years include the following: Approximate Type Amount Reason Revenue Property taxes $ 930,000 Increase in tax levy due to approved increase in capital project levy and higher enrollment. Other $ 106,000 Medical assistance and rent revenue increased over fiscal year 2015. State sources $ 536,000 Prior year under accrual of state aid receivable. $ 716,000 Pension benefits financing sources received from the state of Minnesota for the merger of the DTRFA in 2015. Federal sources $ (70,000) Budgeted based on full grant entitlements; however, spending came in under these amounts. Unspent funds will be carried over to future years. The Magnet Grant also ended in prior year. Expenditures Salaries $ 1,772,000 Increased staffing costs due to negotiated contract increases, enrollment, program additions, and compensatory. Benefits $ 1,246,000 Increases in benefits tied to salary increases and program additions as well as direct aid included in expenditures related to the merger of the DTRFA in 2015 that was not budgeted for. Purchased services $ 567,000 Increase in homeless transportation, special education services from Intermediate School District No. 917, and federal tuition adjustment. Supplies and materials $ (274,000) Decrease in transportation fuel costs and various building/department consumable supplies. Capital expenditures $ 4,660,000 The District entered into capital lease agreements for technology equipment in fiscal year 2016 in addition to increased spending for security projects. $ 710,000 Increase in capital projects levy. $ 555,000 Contribution per Joint Powers Agreement for ice arena improvements. Other expenditures $ 649,000 New technology equipment lease payments. -14-
ANALYSIS OF OTHER FUNDS Food Service Special Revenue Fund The Food Service Special Revenue Fund ended the year with revenues and other financing sources exceeding expenditures, increasing fund balance by $2,991. Community Service Special Revenue Fund The Community Service Special Revenue Fund ended the year with revenues exceeding expenditures, increasing fund balance by $98,265. Capital Projects Building Construction Fund The Capital Projects Building Construction Fund is used to account for financial resources used for the acquisition or construction of major capital facilities authorized by bond issue. Debt Service Fund The Debt Service Fund is controlled in accordance with each outstanding debt issue s financing plan. The restricted fund balance in this fund at June 30, 2016 is available to pay outstanding principal and interest on the general obligation bonds of the District. Internal Service Fund Internal service funds are used to account for the financing of goods and services provided by one department or agency of a government to other departments or agencies on a cost reimbursement basis. The District currently maintains one Internal Service Fund. This fund is used to account for the District s self-insured health and dental insurance functions. Operating revenues and nonoperating revenue for the Internal Service Fund for fiscal 2016 totaled $9,763,662. Operating expenses totaled $8,372,821. The net position balance for the Internal Service Fund as of June 30, 2016 was $4,392,565. CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital Assets Table 6 shows the District s capital assets, together with changes from the previous year. The table also shows the total depreciation expense for fiscal years ended June 30, 2016 and 2015. Table 6 Capital Assets 2016 2015 Change Land $ 1,098,730 $ 1,098,730 $ Construction in progress 3,157,628 161,918 2,995,710 Buildings and improvements 115,037,961 114,206,709 831,252 Furniture and equipment 10,069,587 10,357,803 (288,216) Less accumulated depreciation (63,635,438) (60,773,858) (2,861,580) Total $ 65,728,468 $ 65,051,302 $ 677,166 Depreciation expense $ 3,387,469 $ 3,363,541 $ 23,928 The increase in construction in progress in fiscal 2016 relates to ongoing security improvement projects in the District. -15-
Long-Term Liabilities Table 7 illustrates the components of the District s long-term liabilities, together with the change from the prior year: Table 7 Outstanding Long-Term Liabilities 2016 2015 Change General obligation bonds $ 43,450,000 $ 49,465,000 $ (6,015,000) Premiums on bonds payable 3,217,936 3,603,368 (385,432) Capital leases payable 3,311,042 411,554 2,899,488 Net pension liability PERA 9,064,226 8,817,206 247,020 Net pension liability TRA 33,756,942 26,762,846 6,994,096 Severance benefits payable 426,470 450,626 (24,156) Compensated absences 314,179 295,658 18,521 Total $ 93,540,795 $ 89,806,258 $ 3,734,537 The decreases in bonds payable in the table above are primarily due to the planned repayment schedules reflecting principal payments during fiscal year 2016. The increase in capital leases payable above is primarily due to the new technology equipment leases issued in the current year for $3,959,652. The state limits the amount of general obligation debt the District can issue to 15 percent of the market value of all taxable property within the District s corporate limits. (See Table 8.) Table 8 Limitations on Debt District s market value $ 5,382,458,225 Limit rate 15.0% Legal debt limit $ 807,368,734 Additional details of the District s capital assets and long-term debt activity can be found in the notes to basic financial statements. -16-
FACTORS BEARING ON THE DISTRICT S FUTURE With the exception of the voter-approved operating referendum, the District is dependent on the state of Minnesota for a majority of its revenue authority. Recent experience demonstrates that legislated revenue increases have not been sufficient to meet instructional program needs and increased costs due to inflation. The general education program is the method by which school districts receive the majority of their financial support. This source of funding is primarily state aid and, as such, school districts rely heavily on the state of Minnesota for educational resources. For the 2016 fiscal year, the legislature added $117, or 2.0 percent, per pupil to the basic general education funding formula and an additional $119, or 2.0 percent, per pupil to the formula for fiscal year 2017. The ongoing demands on limited resources continue to present challenges in funding education for Minnesota schools. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT These financial statements are designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Department, Independent School District No. 197, 1897 Delaware Avenue, Mendota Heights, Minnesota 55118. -17-
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BASIC FINANCIAL STATEMENTS
INDEPENDENT SCHOOL DISTRICT NO. 197 Statement of Net Position as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Governmental Activities 2016 2015 Assets Cash and temporary investments $ 25,764,017 $ 27,797,097 Receivables Current taxes 12,834,716 13,050,484 Delinquent taxes 131,278 383,434 Accounts and interest 423,619 166,794 Due from fiduciary fund 657,783 714,093 Due from other governmental units 5,769,987 5,995,095 Inventory 70,101 65,016 Prepaid items 168,663 76,364 Negative net pension benefits obligation 144,226 137,386 Negative net other post-employment benefits obligation 5,509,951 6,052,939 Capital assets Not depreciated 4,256,358 1,260,648 Depreciated, net of accumulated depreciation 61,472,110 63,790,654 Total capital assets, net of accumulated depreciation 65,728,468 65,051,302 Total assets 117,202,809 119,490,004 Deferred outflows of resources Pension plan deferments PERA and TRA 9,739,007 8,241,573 Total assets and deferred outflows of resources $ 126,941,816 $ 127,731,577 Liabilities Salaries and compensated absences payable $ 2,600,306 $ 2,470,613 Accounts and contracts payable 2,825,543 2,796,408 Accrued interest payable 761,521 852,133 Due to other governmental units 475,878 353,268 Unearned revenue 24,680 57,448 Long-term liabilities Due within one year 6,961,367 6,759,764 Due in more than one year 86,579,428 83,046,494 Total long-term liabilities 93,540,795 89,806,258 Total liabilities 100,228,723 96,336,128 Deferred inflows of resources Property taxes levied for subsequent year 22,197,354 22,799,936 Pension plan deferments PERA and TRA 5,290,003 10,796,369 Total deferred inflows of resources 27,487,357 33,596,305 Net position Net investment in capital assets 27,881,279 26,590,366 Restricted for Capital asset acquisition 59,548 Food service 65,348 62,357 Community service 156,834 59,223 Other purposes (state funding restrictions) 274,070 429,349 Unrestricted (29,151,795) (29,401,699) Total net position (774,264) (2,200,856) Total liabilities, deferred inflows of resources, and net position $ 126,941,816 $ 127,731,577 See notes to basic financial statements -18-
INDEPENDENT SCHOOL DISTRICT NO. 197 Statement of Activities Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) 2016 2015 Net (Expense) Net (Expense) Revenue and Revenue and Changes in Changes in Program Revenues Net Position Net Position Operating Charges for Grants and Governmental Governmental Functions/Programs Expenses Services Contributions Activities Activities Governmental activities Administration $ 2,392,415 $ $ $ (2,392,415) $ (2,268,369) District support services 1,211,351 26,906 (1,184,445) (1,150,919) Elementary and secondary regular instruction 30,410,328 341,978 1,331,622 (28,736,728) (27,371,995) Vocational education instruction 184,771 11,302 (173,469) (201,539) Special education instruction 12,508,454 248,111 7,814,526 (4,445,817) (3,237,065) Instructional support services 9,400,257 (9,400,257) (5,209,156) Pupil support services 5,356,033 386,442 (4,969,591) (4,108,073) Sites and buildings 6,112,340 227,781 (5,884,559) (4,811,048) Fiscal and other fixed cost programs 193,846 (193,846) (213,543) Food service 2,706,681 944,705 1,603,421 (158,555) (298,427) Community service 3,659,170 1,769,383 972,587 (917,200) (723,146) Depreciation not included in other functions 1,914,460 (1,914,460) (1,876,078) Interest and fiscal charges 1,575,321 (1,575,321) (1,767,570) Total governmental activities $ 77,625,427 $ 3,558,864 $ 12,119,900 (61,946,663) (53,236,928) General revenue Taxes Property taxes, levied for general purposes 15,444,591 14,542,338 Property taxes, levied for community service 884,401 883,283 Property taxes, levied for debt service 8,167,160 7,991,974 General grants and aids 38,397,409 37,380,784 Other general revenues 425,347 367,672 Investment earnings 54,347 26,288 Total general revenue 63,373,255 61,192,339 Change in net position 1,426,592 7,955,411 Net position beginning (2,200,856) (10,156,267) Net position ending $ (774,264) $ (2,200,856) See notes to basic financial statements -19-
INDEPENDENT SCHOOL DISTRICT NO. 197 Balance Sheet Governmental Funds as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) Debt General Fund Service Fund Nonmajor Funds Assets Cash and temporary investments $ 14,924,740 $ 5,246,504 $ 641,052 Receivables Current taxes 8,363,574 3,956,887 514,255 Delinquent taxes 79,674 46,744 4,860 Accounts and interest 215,550 6,640 198,579 Due from other governmental units 5,721,519 21 48,447 Due from fiduciary fund 657,783 Inventory 35,643 34,458 Prepaid items 142,351 26,312 Total assets $ 30,140,834 $ 9,256,796 $ 1,467,963 Liabilities Salaries and compensated absences payable $ 2,453,103 $ $ 147,203 Accounts and contracts payable 2,157,715 105,822 Due to other governmental units 473,878 2,000 Unearned revenue 24,680 Total liabilities 5,084,696 279,705 Deferred inflows of resources Property taxes levied for subsequent year 13,797,792 7,433,486 966,076 Unavailable revenue delinquent taxes 39,517 32,191 3,296 Total deferred inflows of resources 13,837,309 7,465,677 969,372 Fund balances (deficit) Nonspendable 177,994 60,770 Restricted 346,765 1,791,119 177,124 Assigned 1,259,235 Unassigned 9,434,835 (19,008) Total fund balances 11,218,829 1,791,119 218,886 Total liabilities, deferred inflows of resources, and fund balances $ 30,140,834 $ 9,256,796 $ 1,467,963 See notes to basic financial statements -20-
Total Governmental Funds 2016 2015 $ 20,812,296 $ 24,228,369 12,834,716 13,050,484 131,278 383,434 420,769 165,651 5,769,987 5,995,095 657,783 714,093 70,101 65,016 168,663 76,364 $ 40,865,593 $ 44,678,506 $ 2,600,306 $ 2,470,613 2,263,537 2,228,261 475,878 353,268 24,680 57,448 5,364,401 5,109,590 22,197,354 22,799,936 75,004 153,620 22,272,358 22,953,556 238,764 141,380 2,315,008 5,755,844 1,259,235 930,333 9,415,827 9,787,803 13,228,834 16,615,360 $ 40,865,593 $ 44,678,506-21-
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INDEPENDENT SCHOOL DISTRICT NO. 197 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds as of June 30, 2016 (With Partial Comparative Information as of June 30, 2015) 2016 2015 Total fund balances governmental funds $ 13,228,834 $ 16,615,360 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets are included in net position, but are excluded from fund balances because they do not represent financial resources. Cost of capital assets 129,363,906 125,825,160 Accumulated depreciation (63,635,438) (60,773,858) Long-term liabilities are included in net position, but are excluded from fund balances until due and payable. Debt issuance premiums are excluded from net position until amortized, but are included in fund balances upon issuance as other financing sources and uses. General obligation bonds payable (43,450,000) (49,465,000) Premium on bonds payable (3,217,936) (3,603,368) Capital leases payable (3,311,042) (411,554) Net pension liability PERA (9,064,226) (8,817,206) Net pension liability TRA (33,756,942) (26,762,846) Severance benefits payable (426,470) (450,626) Compensated absences payable (314,179) (295,658) Net other post-employment and pension benefit obligations reported in the Statement of Net Position do not require the use of current financial resources and are not reported as assets (liabilities) in governmental funds until actually due. Negative net other post-employment benefits obligation 5,509,951 6,052,939 Negative net pension benefits obligation 144,226 137,386 Accrued interest payable on long-term debt is included in net position, but is excluded from fund balances until due and payable. (761,521) (852,133) Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the Internal Service Fund are included in the governmental activities in the Statement of Net Position. 4,392,565 3,001,724 The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows PERA and TRA pension plans 9,739,007 8,241,573 Deferred inflows PERA and TRA pension plans (5,290,003) (10,796,369) Deferred inflows delinquent taxes receivable 75,004 153,620 Total net position governmental activities $ (774,264) $ (2,200,856) See notes to basic financial statements -22-
INDEPENDENT SCHOOL DISTRICT NO. 197 Statement of Revenue, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) Debt General Fund Service Fund Nonmajor Funds Revenue Local sources Property taxes $ 15,519,233 $ 8,170,480 $ 885,055 Investment earnings 34,397 16,612 3,338 Other 1,270,123 2,714,088 State sources 45,503,634 212 1,323,409 Federal sources 2,083,686 1,606,368 Total revenue 64,411,073 8,187,304 6,532,258 Expenditures Current Administration 2,351,424 District support services 1,205,122 Elementary and secondary regular instruction 29,107,133 Vocational education instruction 185,070 Special education instruction 12,807,507 Instructional support services 9,464,335 Pupil support services 5,424,087 Sites and buildings 7,048,064 Fiscal and other fixed cost programs 193,846 Food service 2,683,586 Community service 3,709,068 Capital outlay 3,171,042 Debt service Principal 1,060,164 6,015,000 Interest and fiscal charges 9,417 2,041,948 Total expenditures 68,856,169 8,056,948 9,563,696 Excess (deficiency) of revenue over expenditures (4,445,096) 130,356 (3,031,438) Other financing sources (uses) Transfer in 27,849 Transfers (out) (27,849) Debt issued Premium on debt issued Capital leases issued 3,959,652 Total other financing sources (uses) 3,931,803 27,849 Net change in fund balances (513,293) 130,356 (3,003,589) Fund balances Beginning of year 11,732,122 1,660,763 3,222,475 End of year $ 11,218,829 $ 1,791,119 $ 218,886 See notes to basic financial statements -23-
Total Governmental Funds 2016 2015 $ 24,574,768 $ 23,572,204 54,347 26,288 3,984,211 3,920,831 46,827,255 45,268,043 3,690,054 3,725,874 79,130,635 76,513,240 2,351,424 2,281,630 1,205,122 1,167,212 29,107,133 27,437,971 185,070 221,798 12,807,507 11,628,950 9,464,335 5,349,297 5,424,087 5,013,193 7,048,064 5,150,304 193,846 213,543 2,683,586 2,568,239 3,709,068 3,524,681 3,171,042 392,145 7,075,164 6,242,350 2,051,365 2,213,318 86,476,813 73,404,631 (7,346,178) 3,108,609 27,849 11,045 (27,849) (11,045) 3,275,000 62,909 3,959,652 3,959,652 3,337,909 (3,386,526) 6,446,518 16,615,360 10,168,842 $ 13,228,834 $ 16,615,360-24-
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INDEPENDENT SCHOOL DISTRICT NO. 197 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds Year Ended June 30, 2016 (With Partial Comparative Information for the Year Ended June 30, 2015) 2016 2015 Total net change in fund balances governmental funds $ (3,386,526) $ 6,446,518 Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are recorded as net position and the cost is allocated over their estimated useful lives as depreciation expense. However, fund balances are reduced for the full cost of capital outlays at the time of purchase. Capital outlays 4,064,635 452,963 Depreciation expense (3,387,469) (3,363,541) The amount of debt issued is reported in the governmental funds as a source of financing. Debt obligations are not revenues in the Statement of Activities, but rather constitute long-term liabilities. (3,959,652) (3,275,000) A gain or loss on the disposal of capital assets, including the difference between the carrying value and any related sale proceeds, is included in the change in net position. However, only the sale proceeds are included in the change in fund balances. (6,633) Repayment of long-term debt does not affect the change in net position. However, it reduces fund balances. General obligation bonds payable 6,015,000 5,840,000 Capital leases payable 1,060,164 402,350 Interest on long-term debt is included in the change in net position as it accrues, regardless of when payment is due. However, it is included in the change in fund balances when due. 90,612 53,927 Debt issuance premiums and discounts are included in the change in net position as they are amortized over the life of the debt. However, they are included in the change in fund balances upon issuance as other financing sources and uses. 385,432 328,912 Certain expenses are included in the change in net position, but do not require the use of current funds, and are not included in the change in fund balances. Compensated absences payable (18,521) 32,477 Net pension liability PERA (247,020) 1,401,321 Net pension liability TRA (6,994,096) 4,042,825 Severance benefits payable 24,156 27,832 Net OPEB obligation (542,988) (748,653) Net pension obligation 6,840 157,222 Internal service funds are used by management to charge the costs of certain activities to individual funds. The change in net position of the Internal Service Fund is included in the governmental activities in the Statement of Activities. 1,390,841 1,442,569 The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows PERA and TRA pension plans 1,497,434 5,671,300 Deferred inflows PERA and TRA pension plans 5,506,366 (10,796,369) Deferred inflows delinquent taxes receivable (78,616) (154,609) Change in net position governmental activities $ 1,426,592 $ 7,955,411 See notes to basic financial statements -25-
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INDEPENDENT SCHOOL DISTRICT NO. 197 Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual General Fund Year Ended June 30, 2016 Budgeted Amounts Over (Under) Original Final Actual Final Budget Revenue Local sources Property taxes $ 15,567,820 $ 15,567,820 $ 15,519,233 $ (48,587) Investment earnings 20,000 20,000 34,397 14,397 Other 964,132 984,132 1,270,123 285,991 State sources 43,928,732 44,643,867 45,503,634 859,767 Federal sources 2,087,669 2,483,118 2,083,686 (399,432) Total revenue 62,568,353 63,698,937 64,411,073 712,136 Expenditures Current Administration 2,349,587 2,349,587 2,351,424 1,837 District support services 1,137,657 1,194,657 1,205,122 10,465 Elementary and secondary regular instruction 29,816,286 30,030,941 29,107,133 (923,808) Vocational education instruction 172,531 184,319 185,070 751 Special education instruction 11,581,239 12,185,796 12,807,507 621,711 Instructional support services 6,343,062 5,571,576 9,464,335 3,892,759 Pupil support services 5,348,162 5,346,162 5,424,087 77,925 Sites and buildings 5,361,093 6,179,656 7,048,064 868,408 Fiscal and other fixed cost programs 284,526 224,526 193,846 (30,680) Debt service Principal 1,060,164 1,060,164 Interest and fiscal charges 9,417 9,417 Total expenditures 62,394,143 64,336,801 68,856,169 4,519,368 Excess (deficiency) of revenue over expenditures 174,210 (637,864) (4,445,096) (3,807,232) Other financing sources (uses) Transfer (out) (27,849) (27,849) Capital leases issued 3,959,652 3,959,652 Total other financing sources (uses) 3,931,803 3,931,803 Net change in fund balances $ 174,210 $ (637,864) (513,293) $ 124,571 Fund balances Beginning of year 11,732,122 End of year $ 11,218,829 See notes to basic financial statements -26-