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HomeMy WebLinkAbout7A Annual Financial ReportCITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA ANNUAL FINANCIAL REPORT YEAR ENDED DECEMBER 31, 2008 CITY OF PRIOR LAKE, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2008 Page No. I. INTRODUCTORY SECTION Elected and Appointed Officials II. FINANCIAL SECTION Independent Auditor's Report 2 - 3 Management's Discussion and Analysis I - XV Basic Financial Statements Government-wide Financial Statements Statement of Net Assets 4 Statement of Activities 5 - 6 Fund Financial Statements Governmental Funds Balance Sheet 7 - 8 Reconciliation of the Balance Sheet to the Statement of Net Assets 9 Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) 10 - 11 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) to the Statement of Activities ] 2 General Fund Statement of Revenues, Expenditures and Changes in Fund Balances -Budget and Actual 13 Proprietary Funds Statements of Net Assets 14 - 15 Statements of Revenues, Expenses and Changes in Fund Net Assets l 6 - 17 Statements of Cash Flows 18 - 21 Notes to the Financial Statements 22 - 52 Combining and Individual Fund Financial Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet 53 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances 54 - 55 Nonmajor Special Revenue Funds Combining Balance Sheet 56 - 57 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances 58 - 59 Nonmajor Capital Projects Funds Combining Balance Sheet 60 - 61 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances 62 - 63 General Fund Schedule of Revenue, Expenditures and Changes in Fund Balances -Budget and Actual 64 - 71 Debt Service Funds Combining Balance Sheet 72 - 75 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances (Deficits) 76 - 79 Water and Sewer Utilities Fund Comparative Schedule of Revenues, Expenses and Changes in Fund Net Assets 80 - 81 CITY OF PRIOR LAKE, MINNESOTA TABLE OF CONTENTS -CONTINUED DECEMBER 31, 2008 Page No. III. FINANCIAL EXHIBITS Combined Schedule of Indebtedness 82 - 83 Bond Schedules 84 - 90 Debt Service Requirements 91 - 92 Tax Levies and Collections, Special Assessment Levies and Collections and Other Schedules 93 - 94 Key Financial Indicators 95 IV. OTHER REPORT Report on Minnesota Legal Compliance 96 INTRODUCTORY SECTION CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 CITY OF PRIOR LAKE, MINNESOTA ELECTED AND APPOINTED OFFICIALS DECEMBER 31, 2008 ELECTED Name Title Jack Haugen Mayor Warren Erickson Council Chad LeMair Council Ken Hedberg Council Steve Millar Council APPOINTED Frank Boyles City Manager Jerilyn Erickson Finance Director Janie Gilb Accounting Supervisor Term Expires 12/31 /09 12/31 /09 12/31 /09 12/31/10 12/31/10 -1- FINANCIAL SECTION CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 aa~ EIC[{ 0l1 ~~ ~ 1~JIJL'~ 1 L~ LLP Cen~d Public Accountants & Consultants 5201 Eden Avenue Suite 370 Edina, MN 55436 INDEPENDENT AUDITOR' S REPORT Honorable Mayor and Council City of Prior Lake Prior Lake, Minnesota 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 Prior Lake, Minnesota (the City), as of and for the year ended December 31, 2008 ,which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. 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 2007 financial statements and, in our report dated May 5, 2008, we expressed unqualified opinions on the respective proprietary fund fmancial statements. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, 2008, and the respective changes in financial position and, where applicable, cash flows and the respective budgetary comparison for the General fund thereof, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As Discussed in Note 6 to the basic financial statements, the City adopted Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions for the year ended December 31, 2008. The Management's Discussion and Analysis on pages I through XV is not a required part of the financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. -2- 952.835.9090 Fax 952.835.3261 www.aemcpas.com Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual fund financial statements, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. April 11, 2009 Minneapolis, Minnesota -3- ~~ s ~L~ ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 Fax 952.835.3261 www.aemcpas.com Management's Discussion and Analysis As management of the City of Prior Lake (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, 2008. Financial Highlights • The City's bond rating of Aa3 was reaffirmed by Moody's Investor Service which places Prior Lake in the top ten percentile of all Minnesota cities. Moody's recognizes Prior Lake for following prudent fiscal management practices and credited the City for being progressive and anticipatory of its growth needs. • The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $128,917,046 (net assets). Of this amount, $20,403,510 (unrestricted net assets) maybe used to meet the City's ongoing obligations to citizens and creditors. • The City's total net assets increased by $4,549,462. • As of the close of the current fiscal year, the City's governmental funds reported combined ending fund balances of $13,974,994, a decrease of $10,667,935 in comparison with the prior year. Approximately 83 percent of this total amount or $11,566,810 is available for spending at the City's discretion (unreserved fund balance). • At the end of the current fiscal year, unreserved fund balance for the general fund was $5,489,435, or 44 percent of budgeted 2008 expenditures and transfers ($12,426,431) Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise three components: 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. 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 aprivate-sector business. The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets 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 assets changed during the most recent fiscal year. All changes in net assets 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 expenditures 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 revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, culture and recreation, economic development and interest on long-term debt. The business-type activities of the City include water and sewer utilities, storm water utility and transit services. The government-wide financial statements can be found on pages 4 - 6 of this report. -I- Management's Discussion and Analysis -Continued April 11, 2009 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 government, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide fmancial 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 maybe 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 of the City's near-term fmancing 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 21 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, Construction, Trunk Reserve, Water Storage funds which are the major funds. Data from the other 16 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 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 can be found on pages 7 - 13 of this report. Proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer utilities, storm water utility and transit services. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements can be found on pages 14 - 21 of this report. Notes to 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 can be found on pages 22 - 52 of this report. Other Information The combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented immediately following the notes to financial statements. Combining and individual fund fmancial statements and schedules can be found on pages 53 - 81 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City, assets exceeded liabilities by $128,917,046 at the close of the most recent fiscal year. The City's investment in capital assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those assets that are still outstanding total 81 percent of total net assets. 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. -II- Management's Discussion and Analysis -Continued April 11, 2009 Net Assets Governmental Activities Business-type Activities Increase Increase 2008 2007 (Decrease) 2008 2007 (Decrease) Assets Cash and equivalents $ 14,417,428 $ 26,763,909 $ (12,346,481) $ 9,069,594 $ 8,501,901 $ 567,693 Receivables Delinquent taxes 266,532 236,829 29,703 - - - Accounts 200,775 179,301 21,474 146,390 212,177 (65,787) Special assessments 2,454,989 2,302,824 152,165 4,612 5,456 (844) Due from other governmental agencies 158,431 - 158,431 83,136 - 83,136 Bond discount and issuance costs, net 368,578 341,697 26,881 - - - Capital assets not being depreciated 74,627,061 65,833,670 8,793,391 1,047,398 621,948 425,450 Capital assets net of accumulated depreciation 40,660,102 38,038,072 2,622,030 25,791,799 23,504,719 2,287,080 Total assets 133,153,896 133,696,302 (542,406) 36,142,929 32,846,201 3,296,728 Liabilities Accounts payable and accrued expenses 336,709 1,799,048 (1,462,339) 95,189 287,471 (192,282) Due to other governmental agencies 344 - 344 24,783 24,638 145 Deposits payable 447,395 577,750 (130,355) - - - Accrued interest 101,861 109,234 (7,373) - - - Unearnedrevenue 17,192 - 17,192 - - - Long-term liabilities Due within one year Compensated absences 238,060 205,875 32,185 52,850 41,371 11,479 Bonds, capital leases and contracts 2,560,000 2,450,000 110,000 - - - Due in more than one year Bonds, capita] leases and contracts 35,835,000 37,080,000 (1,245,000) - - - Compensated absences 566,434 504,202 62,232 103,962 95,330 8,632 Total liabilities 40,102,995 42,726,109 (2,623,114) 276,784 448,810 (172,026) Net assets Invested in capital assets, net ofrelated debt 77,600,741 64,683,439 12,917,302 26,839,197 24,126,667 2,712,530 Restricted for Debt service 4,073,598 4,577,941 (504,343) - - - Unrestricted 11,376,562 21,708,813 (10,332,251) 9,026,948 8,270,724 756,224 Total net assets $ 93,050,901 $ 90,970,193 $ 2,080,708 $ 35,866,145 $ 32,397,391 $ 3,468,754 An additional portion of the City's net assets (3 percent) repres ents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($20,403,510) may be used to meet the City's ongoing obligations to citizens and creditors. At the end of the current fiscal y ear, the City is able to report p ositive balances in all three categories of net assets, both for the City as a whole, as well as for its separate governmental and business-type activities. The increase in net assets in business-type activ ities was mainly from operating cash flow of the operations. -III- Management's Discussion and Analysis -Continued April 11, 2009 Governmental activities. The changes in net assets for the past two years are summarized below: Changes in Net Assets Governmental Activities Business-type Activities Increase Increase 2008 2007 (Decrease) 2008 2007 (Decrease) Revenues Program revenues Charges for services $ 1,643,462 $ 1,765,354 $ (121,892) $ 4,804,428 $ 5,072,937 $ (268,509) Operating grants and contributions 1,007,765 985,660 22,105 777,109 738,204 38,905 Capital grants and contributions 2,346,898 2,156,632 190,266 460,491 450,348 10,143 General revenues Taxes 9,990,663 9,239,450 751,213 - - - Grants and contributions not restricted to specific programs 151,688 1,222,299 (1,070,611) - - - Unrestricted investment earnings 795,379 1,779,780 (984,401) 534,245 474,849 59,396 Miscellaneous 50,053 223,633 (173,580} 170 4,435 (4,265) Capital assets contributed by developers - 615,000 (615,000) - 109,248 (109,248) Capital assets contributed to enterprise funds (2,439,385) (58,818) (2,380,567) 2,439,385 58,818 2,380,567 Transfers 1,003,826 709,025 294,801 (1,003,826) (709,025) (294,801) Total revenues 14,550,349 18,638,015 (4,087,666) 8,012,002 6,199,814 1,812,188 Expenses General government 2,766,792 1,903,936 862,856 - - - Public safety 4,416,069 5,463,583 (1,047,514) - - - Public works 1,042,402 6,404,729 (5,362,327) - - - Culture and recreation 2,179,317 1,564,635 614,682 - - - Economic development 368,043 272,225 95,818 - - - Interest on long-term debt 1,697,018 1,513,391 183,627 - - - Water and sewer utilities - - - 3,751,896 3,775,663 (23,767) Storm water utility - - - 237,671 267,708 (30,037) Transit services - - - 553,681 692,071 (138,390) Total expenses 12,469,641 17,122,499 (4,652,858) 4,543,248 4,735,442 (192,194) Change in net assets 2,080,708 1,515,516 565,192 3,468,754 1,464,372 2,004,382 Net assets, January 1 90,970,193 92,570,313 (1,600,120) 32,397,391 31,154,529 1,242,862 Prior period adjustment - (3,115,636) 3,115,636 - (221,510) 22],510 Net assets, December 31 $ 93,050,901 $ 90,970,193 $ 2,080,708 $ 35,866,145 $ 32,397,391 $ 3,468,754 • The largest change in the governmental activities was a reduction in the amount expended for public works totaling over $5.3 million. • As mentioned on the pri or page the increase in busines s type activities was due to operating cash flow. -IV- Management's Discussion and Analysis -Continued April 11, 2009 The graph below relates program revenues to program expenses exclusive of general revenues: Expenses and Program Revenues -Governmental Activities $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- ~ ~ ~ ~ ~ U ~ ~ ~ N ~ ~ ~ ~ ~ ~ ~ U a ... ~ O ~ ~ ~ a ~ N U ~ ,,N. • •V• ~ ~ N U N ~ C7 ~ ~ ~ .fl Fr ~ ~ S. . C p ,~ . C ~ ~ ~ SN-~ ~+ +~+ a ~ ~ U U Expenses •ProgramRevenues Revenues by Source -Governmental Activities Unrestricted investmen`- -- --'--- 4.9 Miscellane 0.31 Other taxes 3.36% 59.14% Charges for services Operating grants and 1 n 2R% contributions N a. O N "~ U .r O C O U W Y tiA S. O O sN. N C rants and >utions i8% Grants and ontributions unrestricted 0.95% -V- Management's Discussion and Analysis -Continued April 11, 2009 For the most part, increases in expenses closely paralleled inflation and growth in the demand for services. • Business-type activities. Business-type activities increased the City's net assets $3,468,754. Expenses and Program Revenues -Business-type Activities $6,000,000 $s,ooo,ooo $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Waterand sewer utilities Storm water utilities Transit services ~ Expenses ®Program Revenues Revenues by Source -Business-type Activities Charges for services 7'i_OF%, Other 8.12% Zts and GVll L11OUL10nS 11.82% -VI- Capital grants and contributions 7.00% Management's Discussion and Analysis -Continued April 11, 2009 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, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Activity in the City's major funds is discussed below. Major funds Fund Balance December 31 2008 2oa7 Increase (Decrease) General $ 5,489,435 $ 5,020,666 $ 468,769 The increase in the general fund was mainly due to a decrease in overall spending. Debt Service 2,097,292 2,437,706 (340,414) The debt service fund balance decreased $340 thousand. This was anticipated since the City manages cash flow in all debt service funds and ensures adequate resources exist to fund future obligations. Construction $ 744,631 $ 811,968 $ (67,337) This major projects in this fund during 2008 were costs related to the County Road 21 project and proceeds from the 2008 Street bonds. Trunk Reserve $ 1,026,109 $ 1,322,544 $ (296,435) This fund is used to account for capital projects. Water Storage $ 486,845 $ 9,912,602 $ (9,425,757) The most significant costs were approximately $10 million to fund construction of the water treatment facility. -VII- Management's Discussion and Analysis -Continued April 11, 2009 General Fund Budgetary Highlights Actual revenues were $405,000 less than budget in 2008. This is primarily due to reductions in development-related revenues. In addition, the State cut the second half Market Value Homestead Credit (MVHC) which resulted in a reduction of $113,000. Offsetting some of the reduced revenues was increased interest income earnings. Interest income was $135,000 over budget. During 2008, market yields declined significantly resulting in higher market prices. The increased interest income includes the fair value adjustment for investments. Actual expenditures were $874,000 less than budget in 2008. In anticipation of a reduction in revenues, the organizational structure was modified and expenditures were reduced for all departments. In addition, the contingency reserve comprised $185,000 of the savings. The City's General Fund balance will have increased by an estimated net amount of $469,000 to a preliminary audited position of $5.49 million. This General Fund balance amount represents a reserve of 44 percent based upon the 2008 annual budget. We anticipate that the regional building slowdown will continue another 24 months. Because of this market uncertainty it is important that the City of Prior Lake exercise caution and continue to maintain its financial strength through a healthy General Fund reserve. Capital Assets. The City's investment in capital assets for its governmental and business type activities as of December 31, 2008, amounts to $143,038,195 (net of accumulated depreciation). This investment in capital assets includes land, buildings and system, improvements, machinery and equipment, park facilities, roads, highways and bridges. A variety of street construction projects in new residential developments contributed to the overall recent residential growth. Land Construction work in process Land improvements Machinery and equipment Vehicles Infrastructure Total Capital Assets, Net of Depreciation Governmental Activities Business-type Activities Increase Increase 2008 2007 (Decrease) 2008 2007 (Decrease) $ 55,749,666 $ 55,296,272 $ 453,394 $ - $ _ $ _ 18,877,395 10,537,398 8,339,997 1,047,398 621,948 425,450 1,014,717 1,035,301 (20,584) 5,172,447 4,299,489 872,958 2,462,240 2,132,210 330,030 289,210 213,732 75,478 1,755,145 1,792,696 (37,551) 27,858 55,714 (27,856) 35,428,000 33,077,865 2,350,135 20,302,284 18,935,784 1,366,500 $ 115,287,163 $ 103,871,742 $ 11,415,421 $ 26,839,197 $ 24,126,667 $ 2,712,530 Additional information on the City's capital assets can be found in Note 3C on pages 34 - 35 of this report. -VIII- Management's Discussion and Analysis -Continued April 11, 2009 Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $38,395,000. Governmental Activities Outstanding Debt General Obligation and Revenue Bonds Governmental Activities Business-type Activities General obligation special assessments bonds General obligation tax increment bonds General obligation bonds Revenue bonds General obligation capital 2008 2007 $ 6,880,000 $ 8,305,000 340,000 355,000 11,065,000 10,300,000 9,625,000 9,770,000 Increase (Decrease) Increase 2008 2007 Decrease $ (1,425,000) $ (15,000) 765,000 (145,000) - $ - $ improvement bonds 1,140,000 1,225,000 (85,000) - - - General obligation revenue bonds 9,345,000 9,575,000 (230,000) - - - OPEB Liability 18,445 - 18,445 - - - Compensated absences 786,049 710,077 75,972 156,812 136,701 20,111 Total $ 39,199,494 $ 40,240,077 $ (1,040,583) $ 156,812 $ 136,701 $ 20,111 The City's total debt decreased during the current fiscal year due to the scheduled retirement of outstanding bonds. The City`s assigned rating from Moody's is Aa3 for general obligation debt. The City's statutory debt limit is equal to three percent of estimated taxable market value of property located within the City. The taxable market value totals $2,695,007,700, which calculates to a debt margin of $80,850,231. Debt financed partially or entirely by special assessments is not applied against the City's debt limit, nor is debt fmanced by proprietary fund revenues. Currently, the City has $11,065,000 of general obligation debt outstanding leaving a debt margin of $69,785,231. Additional information on the City's long-term debt can be found in Note 3E on pages 37 - 43 of this report. -IX- Management's Discussion and Analysis -Continued April 11, 2009 Economic Factors and Next Year's Budgets and Rates • The City adopted a general operating budget of $12,476,974 for fiscal year 2009, an increase of $50,543 or .41 percent over the 2008 budget. This budget reflects an anticipated reduction of $226,000 in Market Value Homestead Credit from the State and a reduced level of staffing due to the reorganization that took place in 2008. • The City approved a 5.51 percent property tax levy increase for 2009. This includes the levy required to meet the debt service obligations and reflects a continued reduction in development-related revenues. • The 2009 budget for the enterprise funds is $6.4 million, an increase of $433,000 over the 2008 budget. This increase is primarily due to additional water quality improvement projects and transit contract services. • Continued staged development of land with the 3,000 acres annexed in 2004 from Spring Lake Township will provide the majority of the City's anticipated market value growth over the course of the next 10-15 years. • Residential building activity is expected to continue its slowdown reflecting the metropolitan twin cities area construction downturn. • It's anticipated that 25 single family construction starts will occur in 2009. • The design phase of the CR42/McKenna road improvement is scheduled to begin in 2009. Construction for the CR21 extension to CSAH 169 project is scheduled to begin in 2009. • The 7.5 MGD water treatment facility is scheduled for completion in 2009. Financial management policies The City has set a goal to establish "Financial Performance Gold Standards" to measure the financial health of the City. These standards serve multiple purposes: (a) to serve as best practice measures to strengthen the City's financial position and maximize the return of the taxpayer dollar (b) to communicate the fiscal performance and condition of the City to residents in a consistent manner (c) to facilitate the setting of policy and fmancial direction by the Council with resident input Objective 1: Aa2 Bond Rating Achieve an Aa2 Bond Rating -Strong credit rating by Moody's Inc. provides low cost financing for the City's general obligation bonds. Year Rating 2003 A 1 2004 A 1 2005 Aa3 2006 Aa3 2007 Aa3 -X- Management's Discussion and Analysis -Continued April 11, 2009 Objective 2: 45 Percent General Fund Reserve Balance Maintain a 45 Percent General Fund Reserve Balance -Office of the State Auditor (OSA) and City Auditor recommended reserve to provide adequate cash flow, offset revenue shortfalls and insurance for unforeseen catastrophic events. $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- $12,426,431 $11,685,807 $10,840,734 $9,716,031 40.0% 45.0% 40.0% 47.0% 45.0% 2004 2005 2006 2007 ~-ActualFund Balance Budget 2008 -XI- Management's Discussion and Analysis -Continued April 11, 2009 Objective 3: Lowest City Property Tax Rank in Scott County Achieve the Lowest City Property Tax Rank in Scott County -Favorable tax rate provides stimulus for growth of residential and commercial property tax base. Cities 2004 2005 2006 2007 2008 Belle Plaine 61.700 58.142 54.983 56.929 55.137 Elko New Market - - - 35.687 * 37.161 Jordan 54.176 55.530 50.786 47.287 51.039 New Prague 61.815 57.299 49.987 50.934 51.402 Prior Lake 34.347 32.469 31.305 28.435 28.064 Savage 51.404 46.385 46.489 50.155 48.356 Shakopee 32.433 31.115 30.974 31.939 31.925 * -Consolidated in 2007 Source: Scott County Department of Taxation Property tax rate -Scott County Cities 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0.000 2004 2005 2006 2007 2008 ~- Belle Plaine t Elko New Market -~ Jordan ~-New Prague Prior Lake Savage Shakopee -XII- Management's Discussion and Analysis -Continued April 11, 2009 Objective 4: 100 Percent Funded Fire Relief Association Pension Assure 100 percent Funded Fire Relief Association Pension -reduces reliance upon future property rate increases. The last year of reported information is 2006. Fire Relief Funding Rate 125.00% 120.00% 115.00% 110.00% 105.00% 100.00% 95.00% 90.00% 2003 2004 2005 2006 Objective 5: 98 Percent General Fund Budget Outcome Limit expenditure level to a 98 percent General Fund Budget Outcome -ensures fiscal accountability at the highest level. Actual Expenditures to Budget 105% 103% 101% 99% 97% 95% 93% 91% 89% 87% 85% 101.0% 98.0% 95.0% 91.9% 2004 2005 2006 2007 2008 -XIII- Management's Discussion and Analysis -Continued April 11, 2009 Objective 6: 97 Percent Investment Position of All City Funds Manage a 97 percent Investment Position of All City Funds -Active investment realizes best possible return and fund stewardship. Percent of cash invested 1 oo°io 99°io 99% 98°ro 98% 97% 97% 96% 96% 95% 95% 2004 2005 2006 2007 2008 Objective 7: 60/40 Percent Property Tax Ratio Target a 60/40 percent Properly Tax Ratio - A proper balance between property tax and non-property tax revenues provides relief to the citizen in the form of lower property taxes. Non-property revenue to total revenue 42% 41% 40% 39% 38% 37% 36% 35% 34% 33% 2004 2005 2006 2007 2008 -XIV- Management's Discussion and Analysis -Continued April 11, 2009 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 Finance Director, City of Prior Lake, 4646 Dakota Street, S.E., Prior Lake, Minnesota 55372-1714. -XV- BASIC FINANCIAL STATEMENTS CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF PRIOR LAKE, MINNESOTA STATEMENT OF NET ASSETS DECEMBER 31, 2008 ASSETS Cash and temporary investments Receivables Delinquent taxes Accounts Special assessments Due from other governmental agencies Unamortized bond discount and issuance costs, net Capital assets not being depreciated Capital assets net of accumulated depreciation TOTAL ASSETS LIABILITIES Accounts payable and accrued expenses Due to other governmental agencies Deposits payable Accrued interest payable Unearned revenue Lonb term liabilities Due within one year Compensated absences Bonds, capital leases and contracts Due in more than one year OPEB liability Compensated absences Bonds, capital leases and contracts TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted for Debt service Unrestricted TOTAL NET ASSETS Governmental Business-type $ 14,417,428 $ 9,069,594 $ 23,487,022 266,532 - 266,532 200,775 146,390 347,165 2,454,989 4,612 2,459,601 158,431 83,136 241,567 368,578 - 368,578 74,627,061 1,047,398 75,674,459 40,660,102 25,791,799 66,451,901 133,153,896 36,142,929 169,296,825 336,709 95,189 431,898 344 24,783 25,127 447,395 - 447,395 101,861 - 101,861 17,192 - 17,192 238,060 52,850 290,910 2,560,000 - 2,560,000 18,445 - 18,445 547,989 103,962 651,951 35,835,000 - 35,835,000 40,102,995 276,784 40,379,779 77,600,741 26,839,197 104,439,938 4,073,598 - 4,073,598 11,376,562 9,026,948 20,403,510 $ 93,050,901 $ 35,866,145 $ 128,917,046 The notes to the financial statements are an integral part to this statement. -4- CITY OF PRIOR LAKE, MINNESOTA STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2008 Functions/Programs Governmental activities General government Public safety Police Fire Other Public works Culture and recreation Library Other Economic development Interest on long-term debt Total governmental activities Business-Type activities Water and sewer utilities Storm water utilities Transit services Total business-type activities Total Total general revenues, special items, and transfers Change in net assets Net assets, January 1 Net assets, December 31 The notes to the financial statements are an integral part of this statement. Program Revenues Charges Operating Capital Grants for Grants and and Expenses Services Contributions Contributions $ 2,766,792 $ 651,041 $ - $ _ 2,895,126 192,536 567,685 - 628,762 2,300 440,080 60,792 892,181 387,835 - _ 1,042,402 - - 2,203,428 102, 894 - _ _ 2,076,423 409,750 - 82,678 368,043 - _ _ 1,697,018 - _ _ 12,469,641 _ 1,643,462 1,007,765 2,346,898 3,751,896 4,319,112 37,500 460,491 237,671 352,130 - _ 553,681 133,186 739,609 - 4,543,248 4,804,428 777,109 460,491 $ 17,012,889 $ 6,447,890 $ 1,784,874 $ 2,807,389 General revenues Taxes Property taxes, levied for general purposes Property taxes, levied for debt service Franchise taxes Tax increments Grants and contributions not restricted to specific programs Unrestricted investment earnings Miscellaneous Capital assets contributed to enterprise funds Transfers -5- Net (Expenses) Revenues and Changes in Net Assets Governmental Business-type $ (2,115,751) $ - $ (2,116,751) (2,134,905) - (2,134,905) (125,590) - (125,590) (504,346) - (504,346) 1,161,026 - 1,161,026 (102,894) - (102,894) (1,583,995) - (1,583,995) (368,043) - (368,043) (1,697,018) - (1,697,018) (7,471,516) - (7,471,516) - 1,065,207 1,065,207 - 114,459 114,459 - 319,114 319,114 - 1,498,780 1,498,780 (7,471,516) 1,498,780 (5,972,736) 8,202,939 - 8,202,939 925,786 - 925,786 536,896 - 536,896 325,042 - 325,042 151,688 - 151,688 795,379 534,245 1,329,624 50,053 170 50,223 (2,439,385) 2,439,385 - 1,003,826 (1,003,826) - 9,552,224 1,969,974 11,522,198 2,080,708 3,468,754 5,549,462 90,970,193 32,397,391 123,367,584 $ 93,050,901 $ 35,866,145 $ 128,917,046 -6- THIS PAGE IS LEFT BLANK INTENTIONALLY FUND FINANCIAL STATEMENTS CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 CITY OF PRIOR LAKE, MINNESOTA BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2008 ASSETS Cash and temporary investments Delinquent taxes Accounts Special assessments Delinquent Deferred Other (Green Acres) Due from other goverrunents TOTAL ASSETS General $ 5,731,958 266,532 200,775 Debt Service LIABILITIES AND FUND BALANCES (DEFICITS) LIABILITIES Accounts payable Due to other governments Deposits payable Deferred revenue TOTAL LIABILITIES FUND BALANCES (DEFICITS) Reserved for Severance compensation Debt service Unreserved, designated for, reported in: General fund Special revenue funds Capital projects funds TOTAL FUND BALANCES (DEFICITS) TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 2,090,796 $ 810,071 - 8,808 - 480 1,566,692 - - 842,668 - 130,445 6,495 - $ 6,330,190 $ 4,515,459 $ 810,071 $ 108,811 $ - $ 65,440 344 - 447,395 - - 284,205 2,418,167 - 840,755 2,418,167 65,440 - 2,097,292 - 5,489,435 - - - - 744,631 5,489,435 2,097,292 744,631 $ 6,330,190 $ 4,515,459 $ 810,071 The notes to the financial statements are an integral part to this statement. -7- Other Total Trunk Water Governmental Governmental Reserve Storage Funds Funds $ 1,026,287 $ 476,558 $ 4,281,758 $ 14,417,428 - - - 266,532 _ - - 200,775 - - - 8,808 - - 32,978 1,600,150 3,363 - - 846,031 $ 1,029,650 $ 495,665 $ 4,317,120 $ 17,498,155 $ 178 $ 3,363 3,541 8,820 $ 153,460 $ 336,709 - - 344 - - 447,395 - 32,978 2,738,713 8,820 186,438 3,523,161 - - 310,892 310,892 - - - 2,097,292 - - - 5,489,435 - - 1,166,510 1,166,510 1,026,109 486,845 2,653,280 4,910,865 1,026,109 486,845 4,130,682 13,974,994 $ 1,029,650 $ 495,665 $ 4,317,120 $ 17,498,155 -8- THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF PRIOR LAKE, MINNESOTA RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS AS OF DECEMBER 31, 2008 Total fund balances -governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Cost of capital assets Less: accumulated depreciation Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Compensated absences OPEB Liability Bond principal payable Less bond discount net of accumulated amortization Revenues in the statement of activities that do not provide current financial resources are not reported as revenue in the fund financial statements. Delinquent property taxes Special assessments Governmental funds do not report a liability for accrued interest until due and payable. Total net assets -governmental activities $ 13,974,994 148,501,471 (33,214,308) (786,049) (18,445) (38,395,000) 368,578 266,531 2,454,990 (101,861) $ 93,050,901 The notes to the financial statements are an integral part of this statement. -9- CITY OF PRIOR LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2008 REVENUES Taxes Licenses and permits Intergovernmental Charges for services Fines and forfeitures Special assessments Interest on investments Miscellaneous TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Culture and recreation Economic development Contingency Capital outlay General government Public safety Public works Culture and recreation Economic development Debt service Principal Interest and other TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Bonds issued Bonds refunded Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES (DEFICITS), DECEMBER 31 Debt General Service Construction $ 8,498,514 $ 925,786 $ - 455,955 - - 1,239,244 - - 952,319 - - 192,428 - - - 453,493 - 278,478 162,379 75,492 104,456 - - 11,721,394 1,541,658 75,492 2,288,191 - - 3,793,626 - - 1,724,639 - 200,000 1,768,109 - - 110,567 - - 90,000 - - 34,334 - - 148,629 - - 7,085 - 1,264,326 10,253 - - 917 - - - 2,455,000 - - 1,681,049 - 9,976,350 4,136,049 1,464,326 1,745,044 (2,594,391) (1,388,834) 300,000 2,233,977 21,497 - 945,000 1,300,000 - (925,000) (1,576,275) - - (1,276,275) 2,253,977 1,321,497 468,769 (340,414) (67,337) 5,020,666 2,437,706 811,968 $ 5,489,435 $ 2,097,292 $ 744,631 The notes to the financial statements are an integral part of this statement. -10- Other Nonmajor Total Trunk Water Governmental Governmental Reserve Storage Funds Funds $ - $ - $ 621,865 $ 10,046,165 _ _ - 455,955 - - 441,918 1,681,162 250,201 - 55,155 1,257,675 _ _ - 192,428 - - 6,327 .459,820 69,369 (7,535) 217,196 795,379 - 165,146 272,425 542,027 319,570 157,611 1,614,886 15,430,611 - - 91,085 2,379,276 - - - 3,793,626 - - - 1,924,639 - - - 1,768,109 - - 203 110,770 - - - 90,000 - - 36,008 70,342 - - 1,406,681 1,555,310 594,508 9,583,368 408,063 11,857,350 - - 469,518 479,771 - - 256,213 257,130 - - - 2,455,000 - - - 1,681,049 594,508 9,583,368 2,667,771 28,422,372 (274,938) (9,425,757) (1,052,885) (12,991,761) - - 505,000 3,060,474 - - - 2,245,000 (925,000) (21,497) - (458,876) (2,056,648) (21,497) - 46,124 2,323,826 (296,435) (9,425,757) (1,006,761) (10,667,935) 1,322,544 9,912,602 5,137,443 24,642,929 $ 1,026,109 $ 486,845 $ 4,130,682 $ 13,974,994 -11- CITY OF PRIOR LAKE, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2008 Total net change in fund balances -governmental funds $ (10,667,935) Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital outlay 16 176 974 Depreciation expense (2,619,080) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Principal repayments 3,380,000 Debt issued or incurred, plus premium, less issuance costs and discount (2,245,000) Bond issuance costs 50,223 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Capital assets contributed by developers 296,912 Assets constructed in the governmental funds for the enterprise funds are eliminated in the government-wide statements. (2,439,385) Interest on long-term debt in the statement of activities differs from the amount reported in the governmental fund because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. 7,373 Governmental funds report debt issuance premiums and discounts as an other financing sources or uses at the time of issuance. Premiums and discounts are reported as an unamortized asset or liability in the government-wide financial statements. (23,342) Delinquent property taxes receivable will be collected this year but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. 93,671 Certain revenues are recognized as soon as earned. Under the modified accrual basis of accounting certain revenues cannot be recognized until they are available to liquidate liabilities of the current period. Special assessments 164 714 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Assets received from enterprise funds Compensated absences and OPEB liability (94,417) Change in net assets -governmental activities $ 2,080,708 The notes to the financial statements are an integral part of this statement. -12- CITY OF PRIOR LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 2008 Variance with Budgeted Amounts Final Budget - Actual Positive Original Final Amounts (Negative) REVENUES Taxes Property taxes $ 8,131,224 $ 8,131,224 $ 7,925,658 $ (205,566) Franchise taxes 551,904 551,904 572,856 20,952 Licenses and permits 625,925 625,925 455,955 (169,970) Intergovernmental 1,305,838 1,305,838 1,239,244 (66,594) Charges for services 1,042,440 1,042,440 952,319 (90,121) Fines and forfeitures 189,600 189,600 192,428 2,828 Interest on investments 142,500 142,500 278,478 135,978 Miscellaneous 137,000 137,000 104,456 (32,544) TOTAL REVENUES 12,126,431 12,126,431 11,721,394 (405,037) EXPENDITURES Current General government 2,458,082 2,458,082 2,288,191 169,891 Public safety Police 2,896,200 2,896,200 2,812,412 83,788 Fire and rescue 709,853 709,853 574,118 135,735 Other 478,833 478,833 407,096 71,737 Public works 1,801,123 1,801,123 1,724,639 76,484 Culture and recreation 1,866,897 1,866,897 1,768,109 98,788 Economic development 131,872 131,872 110,567 21,305 Contingency 275,000 275,000 90,000 185,000 Capital outlay General government 58,500 58,500 34,334 24,166 Public safety Police 96,790 96,790 92,438 4,352 Fire and rescue 56,300 56,300 56,191 109 Public works 5,000 5,000 7,085 (2,085) Culture and recreation 15,500 15,500 10,253 5,247 Economic development - - 917 (917) TOTAL EXPENDITURES 10,849,950 10,849,950 9,976,350 873,600 EXCESS OF REVENUES OVER EXPENDITURES 1,276,481 1,276,481 1,745,044 468,563 OTHER FINANCING SOURCES (USES) Transfers in 300,000 300,000 300,000 - Transfers out (1,576,481) (1,576,481) (1,576,275) 206 TOTAL OTHER FINANCING SOURCES (USES) (1,276,481) (1,276,481} (1,276,275) 206 NET CHANGE IN FUND BALANCES - - 468,769 468,769 FUND BALANCES, JANUARY 1 5,020,666 5,020,666 5,020,666 - FUND BALANCES, DECEMBER 31 $ 5,020,666 $ 5,020,666 $ 5,489,435 $ 468,769 The notes to the financial statements are an integral part to this statement. -13- CITY OF PRIOR LAKE, MINNESOTA STATEMENTS OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2008 AND 2007 Business-type Activities -Enterprise Funds Water and Sewer Utilities Storm Water Utilities 2008 2007 2008 2007 ASSETS CURRENT ASSETS Cash and temporary investments $ 7,088,699 $ 6,631,844 $ 492,056 $ 435,640 Receivables Accounts 139,444 133,683 6,848 8,693 Due from other governments 194 - 9,746 - Delinquent special assessments 4,106 5,226 506 230 TOTAL CURRENT ASSETS 7,232,443 6,770,753 509,156 444,563 NONCURRENT ASSETS Capital assets not being depreciated 985,481 621,948 61,917 - Depreciable capital assets 33,617,750 30,789,532 - - Accumulated depreciation (7,825,951) (7,284,813) - - TOTAL NONCURRENT ASSETS 26,777,280 24,126,667 61,917 - TOTAL ASSETS 34,009,723 30,897,420 571,073 444,563 LIABILITIES CURRENT LIABILITIES Accounts payable 41,036 81,286 2,665 26,321 Current portion of compensated absences 49,327 37,497 2,392 1,957 Due to other governments 24,783 24,638 - - TOTAL CURRENT LIABILITIES 115,146 143,421 5,057 28,278 NONCURRENT LIABILITIES Compensated absences payable 89,435 84,618 2,972 2,896 TOTAL LIABILITIES 204,581 228,039 8,029 31,174 NET ASSETS Invested in capital assets, net of related debt 26,777,280 24,126,667 - - Unrestricted 7,027,862 6,542,714 563,044 413,389 TOTAL NET ASSETS $ 33,805,142 $ 30,669,381 $ 563,044 $ 413,389 The notes to the financial statements are an integral part to this statement. -14- Business-type Activities -Enterprise Funds -Continued Transit Services Totals 2008 2007 2008 2007 $ 1,488,839 $ 1,434,417 $ 9,069,594 $ 8,501,901 98 69,801 146,390 212,177 73,196 - 83,136 - - - 4,612 5,456 1,562,133 1,504,218 9,303,732 8,719,534 - - 1,047,398 621,948 - - 33,617,750 30,789,532 - - (7,825,951) (7,284,813) - - 26,839,197 24,126,667 1,562,133 1,504,218 36,142,929 32,846,201 51,488 179,864 95,189 287,471 1,131 978 52,850 40,432 - - 24,783 24,638 52,619 180,842 172,822 352,541 11,555 8,755 103,962 96,269 64,174 189,597 276,784 448,810 - - 26,777,280 24,126,667 1,497,959 1,314,621 9,088,865 8,270,724 $ 1,497,959 $ 1,314,621 $ 35,866,145 $ 32,397,391 -15- CITY OF PRIOR LAKE, MINNESOTA STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEARS ENDED DECEMBER 31, 2008 AND 2007 Business-type Activities -Enterprise Funds Water and Sewer Utilities Storm Water Utilities 2008 2007 2008 2007 OPERATING REVENUES Sewer charges $ 1,947,059 $ 2,137,172 $ - $ - Water charges 2,325,202 2,425,089 - - Storm water charges - - 352,130 350,524 Capital facility charges 452,196 446,148 - - Meter sales 55,146 78,792 - Transit charges - - - _ TOTAL OPERATING REVENUES 4,779,603 5,087,201 352,130 350,524 OPERATING EXPENSES Personal services 1,024,558 954,509 100,059 88,891 Supplies 231,365 198,556 4,693 4,936 Repairs and maintenance 480,197 657,027 85,832 116,451 Other services and charges 99,598 82,936 46,248 50,510 Insurance 5,298 5,738 - - Utilities 217,366 206,642 - - Disposal charges 1,097,835 1,070,194 - - Miscellaneous 15,805 45,661 839 6,920 Depreciation 588,658 526,110 - - TOTAL OPERATING EXPENSES 3,760,680 3,747,373 237,671 267,708 OPERATING INCOME (LOSS) 1,018,923 1,339,828 114,459 82,816 NONOPERATING REVENUES (EXPENSES) Intergovernmental 37,500 - - - Interest income 499,049 445,858 35,196 28,991 Gain (loss) on disposal of capital assets 8,784 (28,290) - - Miscellaneous 170 4,435 - - TOTAL NONOPERATING REVENUES (EXPENSES) 545,503 422,003 35,196 28,991 INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 1,564,426 1,761,831 149,655 1 11,807 ASSET CONTRIBUTIONS TO OTHER FUNDS - - - - CONTRIBUTIONS FROM DEVELOPERS - 109,248 - - CONTRIBUTIONS FROM OTHER FUNDS 2,575,161 58,818 - - TRANSFERS OUT (1,003,826) (709,025) - - CHANGE IN NET ASSETS 3,135,761 1,220,872 149,655 111,807 NET ASSETS, JANUARY 1 30,669,381 29,670,019 413,389 301,582 PRIOR PERIOD ADJUSTMENT - (221,510) - - NET ASSETS, DECEMBER 31 $ 33,805,142 $ 30,669,381 $ 563,044 $ 413,389 The notes to the financial statements are an integral part to this statement. -16- Business-type Activities -Enterprise Funds -Continued Transit Services Totals 2008 2007 2008 2007 $ - $ - $ 1,947,059 $ 2,137,172 - - 2,325,202 2,425,089 - - 352,130 350,524 - - 452,196 446,148 - - 55,146 78,792 133,186 85,560 133,186 85,560 133,186 85,560 5,264,919 5,523,285 50,165 46,268 1,174;782 1,089,668 4,984 6,744 241,042 210,236 - - 566,029 773,478 498,532 639,059 644,378 772,505 - - 5,298 5,738 - - 217,366 206,642 - - 1,097,835 1,070,194 - - 16,644 52,581 - - 588,658 526,110 553,681 692,071 4,552,032 4,707,152 (420,495) (606,511) 712,887 816,133 739,609 738,204 777,109 738,204 - - 534,245 474,849 - - 8,784 (28,290) - - 170 4,435 739,609 738,204 1,320,308 1,189,198 319,114 131,693 2,033,195 2,005,331 (135,776) - (135,776) - - - - 109,248 - - 2,575,161 58,818 - - (1,003,826) (709,025) 183,338 131,693 3,468,754 1,464,372 1,314,621 1,182,928 32,397,391 31,154,529 - - - (221,510) $ 1,497,959 $ 1,314,621 $ 35,866,145 $ 32,397,391 -17- CITY OF PRIOR LAKE, MINNESOTA STATEMENTS OF CASH FLOWS PROPRIETARY FUNDS YEARS ENDED DECEMBER 31, 2008 AND 2007 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Payments to employees NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Intergovernmental Transfers out Business-type Activities -Enterprise Funds Water and Sewer Utilities Storm Water Utilities 2008 2007 2008 2007 $ 4,774,938 $ 5,216,814 $ 343,953 $ 364,260 (2,187,569) (2,256,206) (161,268) (160,351) (1,007,911) (950,083) (99,548) (88,941) 1,579,458 2,010,525 83,137 114,968 37,500 - (1,003,826) (709,025) NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES (966,326) (709,025) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Asset transfers to governmental funds Purchase of property and equipment NET CASH PROVIDED (USED) BY CAPITAL FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest received on cash and investments NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, JANUARY 1 CASH AND CASH EQUIVALENTS, DECEMBER 31 (655,326) (567,196) (61,917) - (655,326) (567,196) (61,917) - 499,049 445,858 35,196 28,991 456,855 1,180,162 56,416 143,959 6,631,844 5,451,682 435,640 291,681 $ 7,088,699 $ 6,631,844 $ 492,056 $ 435,640 The notes to the financial statements are an integral part of this statement. -18- Business-type Activities -Enterprise Funds -Continued Transit Services 2008 2007 Totals 2008 2007 $ 129,693 $ 15,759 $ 5,248,584 $ 5,596,833 (631,892} (498,305) (2,980,729) (2,914,862) (47,212) (44,641) (1,154,671) (1,083,665) (549,411) (527,187) 1,113,184 1,598,306 739,609 738,204 777,109 738,204 - - (1,003,826) (709,025) 739,609 738,204 (226,717) 29,179 (135,776) - (135,776) - - - (717,243) (567,196) (135,776) - (853,019) (567,196) - - 534,245 474,849 54,422 211,017 567,693 1,535,138 1,434,417 1,223,400 8,501,901 6,966,763 $ 1,488,839 $ 1,434,417 $ 9,069,594 $ 8,501,901 -19- CITY OF PRIOR LAKE, MINNESOTA STATEMENTS OF CASH FLOWS -CONTINUED PROPRIETARY FUNDS YEARS ENDED DECEMBER 31, 2008 AND 2007 Business-type Activities -Enterprise Funds -Continued Water and Sewer Utilities Storm Water Utilities 2008 2007 2008 2007 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ 1,018,923 $ 1,339,828 $ 114,459 $ 82,816 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Other income related to operations 170 4,435 - - Depreciation 588,658 526,110 - - (Increase) decrease in assets: Accounts receivable (5,761) 121,326 1,845 13,736 Due from other governments (194) - (9,746) - Special assessments receivable 1,120 3,852 (276) - Increase (decrease) in liabilities: Accounts payable (40,250) 10,066 (23,656) 18,466 Due to other governments 145 482 - - Compensated absences payable 16,647 4,426 511 (50) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 1,579,458 $ 2,010,525 $ 83,137 $ 114,968 SCHEDULE OF NONCASH ACTIVITIES FROM CAPITAL AND RELATED FINANCING ACTIVITIES Fixed assets contributed by developers $ - $ 109,248 $ - $ - Capital assets contributed from other funds $ 2,575,161 $ 58,818 $ - $ - Gain (loss) on disposal of capital assets $ (8,784) $ 28,290 $ - $ - The notes to the financial statements are an integral part of this statement. -20- Business-type Activities -Enterprise Funds -Continued Transit Services Totals 2008 2007 2008 2007 $ (420,495) $ (606,511) $ 712,887 $ 816,133 _ _ 170 4,435 _ _ 588,658 526,110 69,703 (69,801) 65,787 65,261 (73,196) - (83,136) - _ _ 844 3,852 (128,376) 147,498 (192,282) 176,030 _ _ 145 482 2,953 1,627 20,111 6,003 $ (549,411) $ (527,187) $ 1,113,184 $ 1,598,306 $ _ $ _ $ - $ 109,248 $ - $ - $ 2,575,161 $ 58,818 $ - $ - $ (8,784) $ 28,290 -21- THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Prior Lake, Minnesota (the City), operates under "Optional Plan B" as defined in the State of Minnesota statutes. Under this plan, the government of the City is directed by a Council composed of an elected Mayor and four elected Council members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The City has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. The City has the following component unit: Blended Component Unit The Prior Lake Economic Development Authority (EDA) was created pursuant to Minnesota statutes 469.090 through 469.108 to carry out economic and industrial development and redevelopment within the City in accordance with policies established by the Council. The five-member Board of Directors consists of the full Council. The EDA may not exercise any of the powers enumerated by the authorizing statutes without prior approval of the Council. The EDA is reported as a blended special revenue fund. Separate financial statements are not issued for this component unit. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the City and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. -22- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current fnancial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, grants, entitlement and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as deferred revenue. On the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue in the fund financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -23- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED The City reports major governmental funds that are calculated based on these criteria: 1) Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total (that is, total governmental or total enterprise funds), and 2) Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. The following major governmental funds meet the criteria described above: The General fund is the City's primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The Debt Service fund accounts for the resources accumulated to provide repayment of the City's general obligation debt. The Construction fund accounts for the resources accumulated and payments made for City projects. The Trunk Reserve fund accounts for the resources to complete capital project development. The Water Storage fund accounts for the resources to construct a new water treatment plant. The City reports the following major proprietary funds: The Water and Sewer Utilities fund accounts for the activities of the water distribution system the City maintains and for the activities of the City's sewage collection operations. The Storm Water Utility fund accounts for the costs associated with the City's storm water system, which are financed by the storm water surcharge, and insure that user charges are sufficient to pay for those costs. The Transit Services fund accounts for the City's transit services. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule the effect of interfund activity has been eliminated from government-wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contribution, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. -24- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities and Net Assets or Equity Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, commercial paper, government securities and short-term investments with original maturities of three months or less from the date of acquisition. Cash balances from all funds are pooled and invested, to the extent available, in authorized investments. Investments are reported at fair value. Earnings from such investments are allocated on the basis of applicable participation by each of the funds. Minnesota statutes authorize the City to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds, repurchase agreements, the State Treasurer's Investment Pool and shares of investment companies registered under the Federal Investment Company Act of 1940 whose only investments are obligations guaranteed by the United States or its agencies. The 4M Fund is a customized cash management and investment program for Minnesota public funds. Sponsored and governed by the League of Minnesota Cities since 1987, the 4M Fund is a unique investment alternative designed to address the daily and long term investment needs of Minnesota cities and other municipal entities. Allowable under Minnesota statutes, the 4M Fund is comprised of top quality, rated investments. Investments for the City are reported at fair value. Earnings on investments are allocated to the individual funds based upon the average of month-end cash and investment balances. -25- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED The City's investment policy contains the following restrictions: Investment Instruments The City may invest in any type of security allowed by Minnesota Statutes as maybe amended from time to time. The City has chosen to limit its allowable investments to those instruments listed below: 1. Bonds, notes, certificates of indebtedness, treasury bills or other securities now or hereafter issued by the United States of America, its agencies and allowable instrumentalities; 2. Interest bearing checking and savings accounts, or any other investments constituting direct obligations of any bank; 3. Certificates of deposit with federally insured institutions that are collateralized or insured in excess of the $100,000 provided by the Federal Deposit Insurance Corporation coverage limit; 4. Money market accounts that are invested in above referenced government securities. 5. Commercial paper meeting the following requirements a. The corporation must be organized in the United States. b. The corporation's assets must exceed $500,000,000. c. The obligations at the time of purchase must be rated at the highest classifications by at least two of the four standard rating services (Standard and Poor's, Duff and Phelps, Moody's and Fitch Investors Service). d. The obligations cannot have a maturity longer than 270 days. e. The total investment in any one corporation cannot exceed 10 percent of that corporation's outstanding obligations. f. The total investment in any one corporation cannot be more than $2 million. 6. Investments may be made only in those savings banks or savings and loan associations the shares, or investment certificates of which are insured by the Federal Deposit Insurance Corporation. 7. Investment products that are considered as derivatives are specifically excluded from approved investments. Diversification It is the policy of the City to diversify its investment portfolio. Investments shall be diversified to eliminate the risk of loss resulting in over concentration in a specific maturity, issuer, or class of securities. Diversification strategies shall be determined and revised periodically by the City Finance Director. The diversification shall be as follows: a) Up to 100 percent of 1., but not less than 10 percent. b) Up to 90 percent of 2. and C.3. c) Up to 20 percent of 4. d) Up to 10 percent of 5. -26- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Duration It is the policy of the City to require that all investment maturities shall not extend beyond ten (10) years in length. Subject to market conditions and cash flow requirements, it is desirable for the city's investments to be laddered over time in an effort to reduce interest rate market risk. Accounts Receivable Accounts receivable include amounts billed for services provided before year end. The City annually certifies delinquent water and sewer accounts to the County for collection in the following year. Therefore, there has been no allowance for doubtful accounts established. Property Taxes The Council annually adopts a tax levy and certifies it to the County in December for collection in the following year. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property within the City on January 1 and are payable by the property owners in two installments. The taxes are collected by the County Treasurer and tax settlements are made to the City during January, June and December each year. Taxes payable on homestead property, as defined by Minnesota statutes, were partially reduced by a market value credit aid. The credit is paid to the City by the State of Minnesota (the State) in lieu of taxes levied against the homestead property. The State remits this credit in two equal installments in October and December each year. Delinquent taxes receivable include the past six years' uncollected taxes. Delinquent taxes have been offset by a deferred revenue liability for delinquent taxes not received within 60 days after year end in the governmental fund financial statements. Special Assessments Special assessments represent the financing for public improvements paid for by benefiting property owners. These assessments are recorded as receivables upon certification to the County. Special assessments are recognized as revenue when they are received in cash or within 60 days after year end. All governmental special assessments receivable are offset by a deferred revenue liability in the governmental fund financial statements. Interfund Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." -27- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of three years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. In the case of initial capitalization of general infrastructure assets (i.e., those reported by governmental activities) the City chose to include items dating back to June 30, 1980. The City was able to estimate the historical cost for the initial reporting of these assets through backtracking (i.e., estimating the current replacement cost of the infrastructure to be capitalized and using an appropriate price-level index to deflate the cost to the acquisition year or estimated acquisition year). As the City constructs or acquires capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. In the case of donations the City values these capital assets at the estimated fair value of the item at the date of its donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Property, plant and equipment of the City, are depreciated using the straight-line method over the following estimated useful lives: Useful Lives Assets in Years Land improvements 20 Machinery and equipment 5 - 30 Vehicles 5 - 10 Infrastructure 10 - 65 -28- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and sick leave. Upon separation, unused vacation and 50 percent of sick pay are paid to the employee if employed longer than five years. Exempt employees who retire at age 55 or over have their sick leave paid into a Retirement Health Savings Plan (HSA) according to the following schedule: Years 10 15 Percentage 50 75 100 Vacation and sick leave are computed at year end. Accrued vacation and sick leave totaled $942,861 at year end. Vacation and sick pay are accrued when incurred in proprietary funds and reported as long-term liabilities. The total liability in the enterprise fund is $156,812. Vacation and sick pay of the governmental funds totaled $786;049 at year end. The City has provided funding for these obligations with the severance compensation fund at a currently computed level of 40 percent. Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business- type activities or proprietary fund type statement of net assets. Beginning January 1, 2003, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method in the government-wide and proprietary financial statements. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognized bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Net Assets Net assets represent the difference between assets and liabilities. Net assets are displayed in three components: a. Invested in capital assets, net of related debt -Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. b. Restricted net assets -Consist of net assets restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws or regulations of other governments. c. Unrestricted net assets -All other net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt". -29- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Comparative Data/Reclassifications Comparative total data for the prior year have been presented only for individual enterprise funds in the fund financial statements in order to provide an understanding of the changes in the financial position and operations of these funds. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the General fund. All annual appropriations lapse at fiscal year end. The City does not use encumbrance accounting. In June of each year, all departments of the City submit requests for appropriations to the Finance Director so that a budget may be prepared. Before September 15th, the proposed budget is presented to the Council for review. The Council holds public hearings and a final budget is prepared and adopted in early December. The appropriated budget is prepared by fund, function and department. The City's department heads may make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the City Manager. The legal level of budgetary control is the fund level. There were no budget amendments during the year. -30- .CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the City's deposits and investments may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the Council, the City maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota statutes require that all City deposits be protected by insurance, surety bond or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. Authorized collateral in lieu of a corporate surety bond includes: • United States government Treasury bills, Treasury notes, Treasury bonds; • Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity; • General obligation securities of any state or local government with taxing powers which is rate "A" or better by a national bond rating service, or revenue obligation securities of any state or local government with taxing powers which is rated "AA" or better by a national bond rating service; • General obligation securities of a local government with taxing powers may be pledged as collateral against funds deposited by that same local government entity; • Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by written evidence that the bank's public debt is rated "AA" or better by Moody's Investors Service, Inc., or Standard & Poor's Corporation; and • Time deposits that are fully insured by any federal agency. Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the government entity. At year end, the City's carrying amount of deposits was $999,450 and the bank balance was $1,805,797. The bank balance was covered by federal depository insurance totaling $250,000. The remaining balance of $1,555,797 was collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. -31- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED Investments At year end, the City's investment balances were as follows: Types of Investments Pooled investments 4M Money Market Mutual Fund Broker Money Market Funds Total pooled investments Non-pooled investments: U.S. Government Securities Total U.S. Government Securities Municipal Bonds Total municipal bonds Brokered Certificates of Deposit Fair Value Credit Segmented and Quality/ Time Carrying Ratings (1) Distribution (2) Amount P1 Less than 6 months $ 2,321,587 NA Less than 6 months 1,519,421 3,841,008 AAA Less than 6 months 499,845 AAA 6 to 12 months 495,545 AAA 1 to 3 years 2,063,540 AAA More than 3 years 13,841,881 16,900,811 BAA1 1 to 3 years 487,380 BAA1 More than 3 years 212,214 699,594 NA More than 3 years 766,014 Mortgage and Asset Backed Securities AAA More than 3 years 280,145 Total non-pooled investments 18,646,564 Total investments $ 22,487,572 1. Ratings are provided by various credit rating agencies where applicable to indicate associated credit risk. 2. Interest rate risk is disclosed using the segmented time distribution method. N/A Indicate not applicable or available. At year end, the City's cash and investment balances were as follows: Carrying amount of deposits $ 999,450 Investments 22,487,572 Total $ 23,487,022 -32- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED B. Deferred Revenue Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: Fund TTnavailahla TTnParnari Total General Delinquent property taxes Rents received in advance Special assessments Debt Service Special assessments Trunk Reserve Special assessments Street Oversizing Special assessments Total $ 266,532 $ 266,532 - 17,192 17,192 481 - 481 2,418,167 - 2,418,167 3,363 - 3,363 32,978 - 32,978 $ 2,721,521 $ 17,192 $ 2,738,713 -33- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED C. Capital Assets Capital asset activity for the year ended December 31, 2008 was as follows: Governmental activities Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets, being depreciated Land improvements Machinery and equipment Vehicles Infrastructure Total capital assets being depreciated Less accumulated depreciation for Land improvements Machinery and equipment Vehicles Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Governmental activities capital assets, net Beginning Ending Balance Increases Decreases Balance $ 55,296,272 $ 453,394 $ - $ 55,749,666 10,537,398 11,469,314 (3,129,317) 18,877,395 65,833,670 11,922,708 (3,129,317) 74,627,061 1,889,310 50,400 - 1,939,710 3,937,825 620,210 (153,014) 4,405,021 4,173,627 355,367 (165,499) 4,363,495 58,903,905 4,262,280 - 63,166,185 68,904,667 5,288,257 (318,513) 73,874,411 (854,009) (70,984} - (924,993) (1,805,615) (278,712) 141,546 (1,942,781) (2,380,931) (357,239) 129,820 (2,608,350) (25,826,040) (1,912,145) - (27,738,185) (30,866,595) (2,619,080) 271,366 (33,214,309) 38,038,072 2,669,177 (47,147) 40,660,102 $ 103,871,742 $ 14,591,885 $ (3,176,464) $ 115,287,163 -34- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED Business-type activities Capital assets not being depreciated Construction in progress Beginning Balance Increases Ending Decreases Balance Total capital assets not being depreciated Capital assets being depreciated Land improvements Machinery and equipment Vehicles Infrastructure Total capital assets being depreciated Less accumulated depreciation for Land Improvements Machinery and equipment Vehicles Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Business-type activities capital assets, net $ 621,948 $ 425,450 $ 1,047,398 621,948 425,450 - 1,047,398 5,354,142 1,171,498 (201,019) 6,324,621 575,255 103,632 - 678,887 263,509 (17,963) 245,546 24,596,626 1,772,070 - 26,368,696 30,789,532 3,047,200 (218,982) 33,617,750 (1,054,653) (127,078) 29,557 (1,152,174) (361,523) (28,154) - (389,677) (207,794) (27,857) 17,963 (217,688) (5,660,843) (405,569) - (6,066,412) (7,284,813) (588,658) 47,520 (7,825,951) 23,504,719 2,458,542 (171,462) 25,791,799 $ 24,126,667 $ 2,883,992 $ (171,462) $ 26,839,197 Depreciation expense was charged to functions/programs of the City as follows: Governmental activities General government $ 432,893 Public safety 272,665 Streets and highways 1,521,485 Culture and recreation 392,037 Total depreciation expense -governmental activities $ 2,619,080 Business-type activities Water $ 274,594 Sewer 314,064 Total depreciation expense -business-type activities $ 588,658 -35- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED Construction Commitments The City has active construction projects as of December 31, 2008. The projects include street construction in areas with newly developed housing, well construction, and widening and construction of existing streets. At year end the City's commitments with contractors are as follows: Project Municipal Production Well No 8, 9 and 10 Street Reconstruction CR 21 Extension Underpass Study and Utility Design Water treatment project Brooksville Hills Prior Lake Police Station and City Hall Total D. Interfund Receivables, Payables and Transfers Interfund transfers - A schedule of interfund transfers follows: Spent Remaining to date Commitment $ 359,076 $ 95,131 864,124 171,009 - 10,000 13,256,701 410,995 351,673 28,564 13,323,433 94,671 $ 28,155,007 $ 810,370 Transfer in Nonmajor General Debt Service Governmental Fund Fund Fund Construction Funds Total Transfer out General $ - $ 1,576,275 $ - $ - $ 1,576,275 Nonmajor governmental - 33,876 - 425,000 458,876 Trunk reserve - - 21,497 - 21,497 Water/Sewer enterprise 300,000 623,826 - 80,000 1,003,826 Total transfers out $ 300,000 $ 2,233,977 $ 21,497 $ 505,000 $ 3,060,474 • The General fund transferred $1,576,275 for its share of debt service costs. • The Nonmajor Governmental funds transferred $33,876 to the Debt Service funds for TIF payments, and $425,000 to other nonmajor governmental funds for equipment and project funding. • The Trunk reserve transferred $21,497 to the Construction fund for its share of project costs. • The Water and Sewer fund made transfers for $300,000 for administrative costs to the General fund, $623,826 for current debt service and $80,000 for project costs. -36- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED E. Long-term Debt General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for general government activities. In addition, general obligation bonds have been issued to refund bond issues. General obligation bonds are direct obligations and pledge the full faith and credit of the City. General obligation bonds currently outstanding are as follows: General Obligation Special Assessment Bonds The following bonds were issued to finance various improvements and will be repaid primarily from special assessments levied on the properties benefiting from the improvements. Some issues, however, are partly financed by ad valorem tax levies. All special assessment debt is backed by the full faith and credit of the City. Authorized Description and Issued G.O. Improvement Bonds of 2000 $ 1,125,000 G.O. Improvement Bonds of 2001 1,035,000 G.O. Improvement Bonds of 2002 1,050,000 G.O. Improvement Bonds of 2003 1,975,000 G.O. Improvement Crossover Refunding Bonds of 2004 1,385,000 G.O. Improvement Bonds of 2004 2,700,000 G.O. Improvement Bonds of 2005 2,500,000 G.O. Street Improvement Bonds of 2008 1,300,000 Total G.O. Special Assessment Bonds Interest Rate 4.85 - 4.90 4.00 - 4.25 3.20 - 3.55 2.90 - 3.50 2.10 - 2.35 3.00 - 3.90 3.00 - 3.75 2.40 - 3.65 -37- Issue Date 10/01/00 10/O1/O1 10/01/02 04/01 /03 04/01 /04 06/01 /04 07/01 /OS 05/15/08 Maturity Date 12/01/10 12/01/11 12/01/12 12/01/13 12/01/09 12/01/14 12/15/15 12/15/18 Balance at $ 250,000 335,000 450,000 1,000,000 125,000 1,650,000 1,770, 000 1,300,000 $ 6,880,000 CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED The annual service requirements to maturity for General Obligation Special Assessment Bonds outstanding at December 31, 2008 are as follows: G.O. Special Assessment Bonds Year Ending Governmental Activities December 31, Principal Interest Total 2009 $ 1,300,000 $ 235,115 $ 1,535,115 2010 1,175,000 194,115 1,369,115 2011 1,085,000 154,240 1,239,240 2012 1,000,000 117,315 1,117,315 2013 855,000 83,127 938,127 2014-2018 1,465,000 111,615 1,576,615 Total $ 6,880,000 $ 895,527 $ 7,775,527 General Obligation Bonds The following bonds were used to finance improvements and buildings. They will be repaid with ad valorem taxes. The bonds are backed by the full faith and credit of the City. General obligation bonds currently outstanding are as follows: Description G.O. Park Refunding Bonds of 2005 G.O. Fire Hall Bonds of 2006 G.O. Street Reconstruction Bonds of 2007 G.O. Fire Station Refunding Bonds of 2008 Authorized Interest and Issued Rate $ 6,260,000 4.125 - 5.00 Balance Issue Maturity at Date Date Year End 09/01/05 12/01/17 $ 5,365,000 11/21/06 12/15/31 3,600,000 05/15/07 12/15/17 1,285,000 3,700,000 4.00 - 4.50 1,400,000 4.00 945,000 2.00 - 2.85 Total General Obligation Bonds 05/01/08 12/01/13 815,000 $ 11,065,000 -38- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED The annual service requirements to maturity for General Obligation Bonds outstanding at December 31, 2008 are as follows: Year Ending December 31, 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2031 Total General Obligation Revenue Bonds Principal Interest Total $ 730,000 $ 480,190 $ 1,210,190 790,000 453,013 1,243,013 835,000 422,912 1,257,912 910,000 389,920 1,299,920 985,000 353,121 1,338,121 3,995,000 1,124,336 5,119,336 740,000 572,460 1,312,460 1,165,000 371,025 1,536,025 915,000 84,150 999,150 $ 11,065,000 $ 4,251,126 $ 15,316,126 The following bonds were used to finance maintenance building improvements. They will be repaid with ad valorem taxes and revenue from the Utilities. The bonds are backed by the full faith and credit of the City. Description G.O. Refunding Bonds of 2005 G.O. Water Treatment Plant Revenue Bonds Series 2007A General Obligation Bonds Governmental Activities Authorized Interest and Issued Rate Balance Issue Maturity at Date Date Year End $ 1,310,000 4.125 - 4.75 % 09/01/05 8,500,000 4.00 - 4.20 Total G.O. Revenue Bonds 05/15/07 12/01/17 $ 945,000 12/15/32 8,400,000 $ 9,345,000 -3 9- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED The annual service requirements to maturity for General Obligation Revenue Bonds outstanding at December 31, 2008 are as follows: G.O. Revenue Bonds Year Ending Governmental Activities December 31, Principal Interest Total 2009 $ 245,000 $ 384,214 $ 629,214 2010 265,000 374,246 639,246 2011 290,000 363,282 653,282 2012 320,000 351,102 671,102 2013 345,000 337,452 682,452 2014-2018 1,370,000 1,492,645 2,862,645 2019-2023 1,750,000 1,202,569 2,952,569 2024-2028 2,375,000 800,994 3,175,994 2029-2032 2,385,000 256,628 2,641,628 Total $ 9,345,000 $ 5,563,130 $ 14,908,130 Lease Revenue Bonds The following bonds were used to finance city hall and police station building improvements. They will be repaid with ad valorem taxes. The bonds are backed by the full faith and credit of the City. Balance Authorized Interest Issue Maturity at Description and Issued Rate Date Date Year End Public Project Revenue Bonds of 2005 $ 10,000,000 3.60 - 4.65 % OS/O1/OS 12/15/29 $ 9,625,000 The annual service requirements to maturity for Lease Revenue Bonds outstanding at December 31, 2008 are as follows: Lease Revenue Bonds Year Ending Governmental-type Activities December 31, Principal Interest Total 2009 $ 160,000 $ 425,845 $ 585,845 2010 185,000 420,085 605,085 2011 210,000 413,148 623,148 2012 230,000 404,748 634,748 2013 250,000 395,548 645,548 2014-20.18 1,680,000 1,799,900 3,479,900 2019-2023 2,485,000 1,375,315 3,860,315 2024-2028 3,550,000 722,610 4,272,610 2029 875,000 40,688 915,688 Total $ 9,625,000 $ 5,997,885 $ 15,622,885 -40- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED General Obligation Tax Increment Bonds The following bonds were issued for downtown redevelopment projects. The additional tax increments resulting from increased tax capacity of the redeveloped properties will be used to retire related debt. Balance Authorized Interest Issue Maturity at Description and Issued Rate Date Date Year End G.O. Tax Increment Bonds of 2004 $ 400,000 3.00 - 4.80 % 06/01/04 12/01/24 $ 340,000 The annual service requirements to maturity for General Obligation Tax Increment Bonds outstanding at December 31, 2008 are as follows: G.O. Tax Increment Bonds Year Ending Governmental Activities December 31, Principal Interest Total 2009 $ 15,000 $ 14,725 $ 29,725 2010 15,000 14,275 29,275 2011 15,000 13,735 28,735 2012 15,000 13,195 28,195 2013 15,000 12,633 27,633 2014-2018 105,000 52,140 157,140 2019-2023 130,000 26,250 156,250 2024 30,000 1,440 31,440 Total $ 340,000 $ 148,393 $ 488,393 -41- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED General Obligation Capital Improvement Plan Bonds The following bonds were issued on behalf of the City of Prior Lake by Scott County for the City's share of the County Road 82 improvement. Payments will come from annual appropriation levies. Balance Authorized Interest Issue Maturity at Description and Issued Rate Date Date Year End General Obligation Capital Improvement Plan Bonds $ 1,225,000 3.80 - 3.90 % 08/01/07 02/01/17 $ 1,140,000 The annual service requirements to maturity for General Obligation Capital Improvement Plan Bonds outstanding at December 31, 2008 are as follows: Year Ending December 31, G.O. Capital Improvement Bonds Principal Interest Total 2009 $ 110,000 $ 41,450 $ 151,450 2010 115,000 37,175 152,175 2011 115,000 32,805 147,805 2012 120,000 28,340 148,340 2013 125,000 23,685 148,685 2014-2017 555,000 44,115 599,115 Total $ 1,140,000 $ 207,570 $ 1,347,570 General Obligation Refunding Bonds The City issued $945,000 of general obligation refunding bonds for the purpose of refunding $925,000 of then- outstanding 1999 general obligation crossover refunding bonds. The 2008 bonds bear an interest rate of 2.00-2.85 percent with the final payment due December 1, 2013. The refunded bonds were also due on December 1, 2013. As a result of the refunding, the refunded bonds are considered defeased and the liability has been removed from the governmental activities column of the statement of net assets. The transaction resulted in a reduction of $30,851 in future debt service payments, which is a present value savings of $28,180. Compensated Absences This liability represents vested benefits earned by employees through the end of the year, which will be paid at termination of employment in future years. Total compensated absences $ 942,861 -42- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED Changes in Long-term Liabilities. During the year ended December 31, 2008, the following changes occurred in long-term liabilities. Beginning Ending Due Within Balance Increases Decreases Balance One Year Governmental activities Bonds payable General obligation bonds $ 11,700,000 $ 945,000 $ (1,580,000) $ 11,065,000 $ 730,000 General obligation tax increment bonds 355,000 - (15,000) 340,000 15,000 General obligation special assessment bonds 6,905,000 1,300,000 (1,325,000) 6,880,000 1,300,000 General obligation revenue bonds 9,575,000 - (230,000) 9,345,000 245,000 General obligation capital bonds 1,225,000 - (85,000) 1,140,000 110,000 Revenue Bonds 9,770,000 - (145,000) 9,625,000 160,000 Total bonds payable 39,530,000 2,245,000 (3,380,000) 38,395,000 2,560,000 OPEB liability - 18,445 - 18,445 - Compensated absences payable 710,077 314,032 (238,060) 786,049 238,060 Governmental activity long-term liabilities $ 40,240,077 $ 2,577,477 $ (3,618,060) $ 39,199,494 $ 2,798,060 Business-type activities Compensated absences payable $ 136,701 $ 72,963 $ (52,852) $ 156,812 $ 52,850 -43- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED F. Tax Increment Districts The City is the administering authority for the following tax increment districts: Tax Tax Tax Increment Increment Increment District District District No.l-1 No.l-3 No.3-1 Authorizing law M.S. 273 M.S. 273 M.S. 273 Type of district Redevelopment Redevelopment Housing Year established 1985 2001 2001 Tax capacity Original $ 1,110 $ 4,239 $ 625 Current 22,716 148,525 65,570 Captured -retained $ 21,606 $ 144,286 $ 64,945 Tax Tax Tax Increment Increment Increment District District District No. 4-1 No. S-1 No. 6-1 Authorizing law M.S. 273 M.S. 469.174 M.S. 469.174 Type of district Economic Redevelopment Redevelopment Year established 2005 2006 2006 Duration of district Tax capacity Original $ 464 $ 2,144 $ 1,3 84 Current 8,771 2,144 116,771 Captured -retained $ 8,307 $ - $ 115,387 Bonds and notes issued None $ 400,000 None Amounts redeemed (60,000) Outstanding at December 31, 2008 $ 340,000 The City's tax increment districts are subject to review by the State of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which would have a material effect on the financial statements. -44- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 3: DETAILED NOTES ON ALL FUNDS -CONTINUED G. Fund Equity Certain reservations and designations have been made in the following funds: Fund Fund financial statements Fund balance -Reserved Severance compensation Debt Service Total reserved fund balance Purpose Amount Compensated absences $ 310,892 Debt service 2,097,292 Fund balance -Unreserved -Designated General Nonmajor special revenue Capital Park EDC Revolving Loan Revolving Loan DAG Cable Franchise Economic Development Authority Construction Trunk Reserve Water Storage Nomnajor capital projects Nonmajor capital projects Total designated fund balance Note 4: DEFINED BENEFIT PENSION PLANS -STATEWIDE A. Plan Description $ 10,944,834 All full-time and certain part-time employees of the City are covered by defined benefit plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Fund (PEKE) and the Public Employees Police and Fire Fund (PEPFF), which are cost-sharing, multiple- employer retirement plans. These plans are established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. All police officers, fire-fighters and peace officers who qualify for membership by statute are covered by the PEPFF. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by State statute, and vest after three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. $ 2,408,184 Working capital $ 5,489,435 Improvements 98,637 Development loans 102,107 Development loans 79,292 Improvements 760,078 Communications 29,247 Improvements 97,149 Improvements 744,631 Improvements 1,026,109 Capital improvements (135,131) Capital outlay 2,538,185 Capital improvements 115,095 -45- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 4: DEFINED BENEFIT PENSION PLANS -STATEWIDE -CONTINUED Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For PEPFF members, the annuity accrual rate is 3.0 percent for each year of service. For all PEPFF members and PERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equa190. Normal retirement age is 55 for PEPFF members and 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated members hired on or after July 1, 1989. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single-life annuity is a lifetime annuity that ceases upon death of the retiree--no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service, in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for PERF and PEPFF. That report may be obtained on the Internet at www.mnpera.org, by writing to PERA, 60 Empire Drive #200, St. Paul, Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026. B. Funding Policy Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the State legislature. The City makes annual contributions to the pension plans equal to the amount required by Minnesota statutes. PERF Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.0 percent, respectively, of their annual covered salary in 2008. PEPFF members were required to contribute 8.6 percent of their annual covered salary in 2008. That rate will increase to 9.4 percent in 2009. The City is required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan PERF members, 6.5 percent for Coordinated Plan PERF members and 12.9 percent for PEPFF members. Employer contribution rates for the Coordinated Plan and PEPFF will increase to 6.75 percent and 14.1 percent, respectively, effective January 1, 2009. The City's contributions to the PERF for the years ended December 31, 2008, 2007, and 2006 were $239,181, $201,251, and $160,106, respectively. The City's contributions to the PEPFF for the years ending December 31, 2008, 2007, and 2006 were $230,692, $215,801, and $212,856, respectively. The City's contributions were equal to the contractually required contributions for each year as set by Minnesota statute. -46- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 5: VOLUNTEER FIRE DEPARTMENT RELIEF ASSOCIATION -SINGLE EMPLOYER PERS A. Plan Description The Prior Lake Fire Department Firefighter's Relief and Pension Association (the Association) is the administrator of asingle-employer defined benefit Public Employee Retirement System (PERS) established to provide benefits for members of the Prior Lake Fire Department (the Department) and is administered in accordance with Minnesota statute, chapter 69. The Association maintains a separate Special fund to accumulate assets to fund the retirement benefits earned by the Department's membership. Funding for the Association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (chapter 261 as amended by chapter 509 of Minnesota statutes 1980). The Association issues a publicly available financial report that includes financial statements and required supplementary information. The report may be obtained by writing to the Prior Lake Firemen's Relief Association, B. Funding Policy The financial requirements of the Special fund are determined in accordance with section 69.772 of the Minnesota statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The benefits are payable after age 50, 20 years of service, and 10 years of Association membership or upon death. The City's annual pension cost for the current year and related information for the plan is as follows: Annual pension cost $ 140,284 Contributions made City (Voluntary) 20,000 State aid 140,284 Actuarial valuation date 12/31/08 Actuarial cost method Entry age normal Amortization method Level dollar closed Remaining amortization period Normal cost 20 years Prior service cost 10 years Asset valuation method Market Actuarial assumptions Investment rate of return 10% Projected salary increases N/A Inflation rate N/A Cost of living adjustments None -47- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 5: VOLUNTEER FIRE DEPARTMENT RELIEF ASSOCIATION -SINGLE EMPLOYER PERS -CONTINUED Three Year Trend Information Annual Percentage Year Pension of APC Net Pension Ending Cost (APC) Contributed Obligation 12/31/08 $ 140,284 114.3 % $ - 12/31 /07 162,759 112.3 - 12/31/06 183,789 114.1 - The City makes excess voluntary contributions annually, which according to Minnesota Statute, cannot be used to offset the actuarially required amount. As a result, the percentage of APC contributed may be over 100 percent. These excess voluntary contributions will be used for the future increases in benefits for the Association members. Required Supplementary Information Actuarial Valuation Date Assets in Excess of Actuarial Actuarial (Unfunded) Value of Accrued Accrued Funded Assets Liability Liability Rate 12/31/08 12/31 /07 12/31 /06 12/31/OS * Information not available at time of audit. * ~ $ 2,334,978 $ 2,122,529 1,958,241 1,652,010 1,630,142 1,411,697 Note 6: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS A. Plan Description 212,449 110.0 306,231 118.5 218,445 115.5 The City of Prior Lake administers asingle-employer defined benefit healthcare plan ("the Retiree Health Plan"). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City's group health insurance plan, which covers both active and retired members. Benefit provisions are established through negotiations between the City and the union representing City employees and are renegotiated each three-year bargaining period. The Retiree Health Plan does not issue a publicly available fmancial report. B. Funding Policy Contribution requirements also are negotiated between the City and union representatives. The City contributes none of the cost of current-year premiums for eligible retired plan members and their spouses. For fiscal year 2008, the City contributed $0 to the plan. Plan members receiving benefits contribute 100 percent of their premium costs. In fiscal year 2008, total member contributions were $1,745. -48- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 6: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS -CONTINUED C. Annual OPEB Cost and Net OPEB Obligation The City's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The City has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the Retiree Health Plan: Annual required contribution $ 20,382 Interest on net OPEB obligation - Adjustment to annual required contribution - Annual OPEB cost (expense) 20,382 Contributions made (1,937) Increase in net OPEB obligation 18,445 Net OPEB obligation- beginning of year - NET OPEB obligating -end of year $ 18,445 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2008 and the two preceding fiscal years were as follows: Three Year Trend Information Percentage Year Annual Annual OPEB Net OPEB Ending OPEB Cost Contributed Obligation 12/31/08 12/31/07 12/31/06 20,382 9.5 % $ 18,445 D. Funded Status and Funding Progress As of December 31, 2008, the actuarial accrued liability for benefits was $149,741, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $546,318, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 27.4 percent. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. -49- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 6: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS -CONTINUED E. Methods and Assumptions Projections of benefits for fmancial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following simplifying assumptions were made: Retirement age for active employees -Based on the historical average retirement age for the covered group, active plan members were assumed to retire at age 60, or at the first subsequent year in which the member would qualify for benefits. Marital status -Marital status of members at the calculation date was assumed to continue throughout retirement. Mortality -Life expectancies were based on mortality tables from the National Center for Health Statistics. The 2004 United States Life Tables for Males and for Females were used. Turnover -Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for assigning active members a probability of remaining employed until the assumed retirement age and for developing an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid. Healthcare cost trend rate -The expected rate of increase in healthcare insurance premiums was based on projections of the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 7.0 percent initially, reduced to an ultimate rate of 6.0 percent after six years, was used. Health insurance premiums - 2008 health insurance premiums for retirees were used as the basis for calculation of the present value of total benefits to be paid. Inflation rate -The expected long-term inflation assumption of 3.3 percent was based on projected changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds for an intermediate growth scenario. Payroll growth rate -The expected long-term payroll growth rate was assumed to equal the rate of inflation. Based on the historical and expected returns of the City's short-term investment portfolio, a discount rate of 4.0 percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at December 31, 2008, was thirty years. Required Supplementary Information Unfunded Actuarial Actuarial Actuarial Valuation Value of Date Assets Actuarial Accrued Accrued Liability Liability (UAAL) Funded Ratio 12/31 /08 12/31 /07 12/31 /06 $ 149,741 $ 149,741 UAAL as a Percentage Covered of Covered Payroll Payroll - % $ 546,318 27.4% -50- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 7: JOINT VENTURE The City is a member of a joint powers agreement, together with the cities of Shakopee, Belle Plaine, Jordan, Elko New Market and Savage to provide for the joint exercise of prosecutorial powers. The cities of Shakopee, Belle Plaine, Jordan, Savage, and Elko New Market, and the City each shall appoint one individual to serve on the Scott Joint Prosecution Association Board (the Board). Each member city contributes funds to cover their city's proportionate share of the costs of performing prosecution services. Contributions made by member cities for, 2008 are as follows: Contribution Percentage City of Savage City of Shakopee City of Prior Lake City of Jordan City of Belle Plaine City of Elko New Market $ 140,338 16.7 388,436 46.2 181,061 21.5 38,217 4.5 75,181 8.9 17, 542 2.1 $ 840,775 100.0 The Board issues a publicly available financial report obtainable at the Savage City Hall, 6000 McColl Drive, Savage, Minnesota 55378. Note 8: CONDUIT DEBT OBLIGATIONS Conduit debt obligations are certain limited-obligation revenue bonds or similar instruments issued for express purpose of providing capital financing for a specific third party. The City has issued revenue bonds to provide funding to private- sector entities for projects deemed to be in public interest. Although these bonds bear the name of the City, the City has no obligation for such debt. Accordingly, the bonds are not reported as liabilities in the financial statements of the City. As of December 31, 2008 the following issues were outstanding: Original Amount Balance Name Date of Issue of Issue Outstanding Shepherd's Path Senior Housing, Inc. 2006 $ 10,000,000 $ 10,000,000 Shepherd's Path Senior Housing, Inc. 2006 21,445,000 21,445,000 -51- CITY OF PRIOR LAKE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 9: OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance. The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT), which is a risk sharing pool with approximately 800 other governmental units. The City pays an annual premium to LMCIT for its workers compensation and property and casualty, auto and liability insurance. The LMCIT is self sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. B. Legal Debt Margin The City's statutory debt limit is equal to three percent of estimated taxable market value of property located within the City. The taxable market value totals $2,695,007,700, which calculates to a debt margin of $80,850,231. Debt financed partially or entirely by special assessments is not applied against the City's debt limit, nor is debt financed by proprietary fund revenues. Currently the City has $11,065,000 of general obligation debt outstanding leaving a debt margin of $69,785,231 -52- THIS PAGE IS LEFT BLANK INTENTIONALLY COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF PRIOR LAKE, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2008 ASSETS Cash and temporary investments Special assessments Deferred Due from other governments TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES FUND BALANCES Reserved for severance compensation Unreserved Designated for development loans Designated for capital outlay Designated for improvements TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES Special Revenue $ 1,497,562 Total Capital Nonmajor Projects Governmental $ 2,784,196 $ 4,281,758 32,978 32,978 $ 1,497,562 $ 2,819,558 $ 4,317,120 $ 20,160 $ 133,300 $ 153,460 - 32,978 32,978 20,160 166,278 186,438 310,892 - 310,892 181,399 - 181,399 29,247 1,928,855 1,958,102 955,864 724,425 1,680,289 1,477,402 2,653,280 4,130,682 $ 1,497,562 $ 2,819,558 $ 4,317,120 -53- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED DECEMBER 31, 2008 REVENUES Taxes Intergovernmental Charges for services Park support fees Engineering fees Dedication fees Special assessments Interest on investments Miscellaneous Escrow forfeits Contributions and donations Other Total Nonmaj or Governmental TOTAL REVENUES EXPENDITURES Current General government Culture and recreation Capital outlay General government Public safety Public works Culture and recreation Parks The Pond park Thomas Ryan park Jeffer's park Howard Lake park Shepards park Economic development TOTAL EXPENDITURES Special Capital Revenue Projects - $ 621,865 $ 621,865 - 441,918 441,918 6,800 - 6,800 33,789 - 33,789 14,566 - 14,566 - 6,327 6,327 41,752 175,444 217,196 163,108 - 163,108 68,112 - 68,112 - 41,205 41,205 328,127 1,286,759 1,614,886 91,085 - 91,085 203 - 203 - 36,008 36,008 - 1,406,681 1,406,681 286,630 121,433 408,063 7,391 399,454 406,845 4,177 - 4,177 3,629 - 3,629 16,129 - 16,129 6,104 - 6,104 32,634 - 32,634 - 256,213 256,213 447,982 2,219,789 2,667,771 -54- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -CONTINUED YEAR ENDED DECEMBER 31, 2008 DEFICIENCY OF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 Total Special Capital Nonmajor Revenue Projects Governmental $ (119,855) $ (933,030) $ (1,052,885) - 505,000 505,000 - (458,876) (458,876) - 46,124 46,124 (119,855) (886,906) (1,006,761) 1,597,257 3,540,186 5,137,443 $ 1,477,402 $ 2,653,280 $ 4,130,682 -55- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2008 ASSETS Cash and temporary investments LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable FUND BALANCES Reserved for severance compensation Unreserved Designated for development loans Designated for capital outlay Designated for improvements TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES 225 230 250 EDC Capital Severance Revolving Park Compensation Loan $ 98,637 $ 310,892 $ 102,107 $ - $ - $ - - 310,892 - - - 102,107 98,637 - - 98,637 310,892 102,107 $ 98,637 $ 310,892 $ 102,107 -56- 255 260 210 240 Revolving Cable Loan DAG Franchise EDA Total $ 79,292 $ 780,238 $ 29,247 $ 97,149 $ 1,497,562 $ - $ 20,160 $ - $ - $ 20,160 - - - - 310,892 79,292 - - - 181,399 - - 29,247 - 29,247 - 760,078 - 97,149 ~ 955,864 79,292 760,078 29,247 97,149 1,477,402 $ 79,292 $ 780,238 $ 29,247 $ 97,149 $ 1,497,562 -57- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR SPECIAL REVENUE FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED DECEMBER 31, 2008 REVENUES Charges for services Park support fees Engineering fees Dedication fees Interest on investments Miscellaneous Escrow forfeits Conh•ibutions and donations TOTAL REVENUES EXPENDITURES Current General government Economic development Capital outlay Public works Culture and recreation Parks The Pond park Thomas Ryan park Jeffer's park Howard Lake park Shepards park TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 225 230 250 EDC Capital Severance Revolving Park Compensation Loan $ 6,800 $ - $ 14,566 - - 4,755 22,406 7,095 68,112 - - 94,233 22,406 7,095 - 80,907 7,391 - 4,177 - 3,629 - 16,129 - 6,104 - 32,634 - 70,064 80,907 24,169 (58,501) 7,095 74,468 369,393 95,012 $ 98,637 $ 310,892 $ 102,107 -58- 255 260 210 240 ED MN Revolving Cable Loan DAG Franchise EDA Total $ _ $ _ $ _ $ - $ 6,800 - 33,789 - - 33,789 _ _ _ - 14,566 5,510 - - 1,986 41,752 - 163,108 - - 163,108 _ _ _ - 68,112 5,510 196,897 - 1,986 328,127 - - 10,178 - 91,085 - - - 203 203 - 286,630 - - 286,630 - - - - 7,391 - - - - 4,177 - - - - 3,629 - - - - 16,129 - - - - 6,104 - - - - 32,634 - 286,630 10,178 203 447,982 5,510 (89,733) (10,178) 1,783 (119,855) 73,782 849,811 39,425 95,366 1,597,257 $ 79,292 $ 760,078 $ 29,247 $ 97,149 $ 1,477,402 -59- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2008 ASSETS Cash and temporary investments Special assessments Deferred Due from other governments TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES FUND BALANCES Unreserved Designated for capital outlay Designated for improvements TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES 256 402 410 503 Downtown Tax Revolving Street Redevelopment Increment Equipment Oversizing $ 37,152 $ 114,880 $ 1,616,374 $ 466,064 - - - 32,978 $ 37,152 $ 115,095 $ 1,618,543 $ 499,042 $ - $ - $ 28 $ - - 28 - - 1,618,515 37,152 115,095 - 37,152 115,095 1,618,515 4,259 37,237 461, 805 $ 37,152 $ 115,095 $ 1,618,543 $ 499,042 -60- 413 414 415 417 420 Tax Tax Tax Tax Increment 1-3 Increment 3-1 Increment 4-1 Increment 6-1 Lakefront Creekside On-site Shepards Path Building Total $ 97,032 $ 59,069 $ 5,714 $ 65,571 $ 322,340 $ 2,784,196 - - - - - 32,978 - - - - - 2,384 $ 97,032 $ 59,069 $ 5,714 $ 65,571 $ 322,340 $ 2,819,558 $ 33,979 $ 28,598 $ 3,631 $ 50,805 $ 12,000 $ 133,300 - - - - - 32,978 33,979 28,598 3,631 50,805 12,000 166,278 - - - - 310,340 63,053 30,471 2,083 14,766 - 63,053 30,471 2,083 14,766 310,340 1,928,855 724,425 2,653,280 $ 97,032 $ 59,069 $ 5,714 $ 65,571 $ 322,340 $ 2,819,558 -61- CITY OF PRIOR LAKE, MINNESOTA NONMAJOR CAPITAL PROJECTS FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED DECEMBER 31, 2008 256 402 410 503 Downtown Tax Revolving Street Redevelopment Increment Equipment Oversizing REVENUES Taxes $ - $ 20,328 $ 296,823 $ - Intergovernmental State Property tax credits Construction aid Other County Special assessments Interest on investments Miscellaneous Other TOTAL REVENUES EXPENDITURES Capital outlay General government Public safety Public works Culture and recreation Economic development TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES, JANUARY 1 FUND BALANCES, DECEMBER 31 - - - 399,198 - 1,500 - - - - 25,914 - - - 6,327 2,582 7,840 108,796 38,240 - - 41,205 - 2,582 28,168 448,324 469,679 - - 99,041 - - - 59,549 61,884 - - 399,454 - - - 558,044 61,884 2,582 28,168 (109,720) 407,795 - - 505,000 - 505,000 2,582 28,168 395,280 407,795 34,570 86,927 1,223,235 54,010 $ 37,152 $ 115,095 $ 1,618,515 $ 461,805 -62- 413 414 415 417 420 Tax Tax Tax Tax Increment 1-3 Increment 3-1 Increment 4-1 Increment 6-1 Lakefront Creekside On-site Shepards Path Building Total $ 120,196 $ 63,550 $ 8,069 $ 112,899 $ - $ 621,865 15,306 - - - - 15,306 - - - - - 399,198 - - - - - 1,500 - - - - - 25,914 - - - - - 6,327 5,058 3,421 335 3,346 5,826 175,444 - - - - - 41,205 140,560 66,971 8,404 116,245 5,826 1,286,759 - - - - 36,008 36,008 - - - - 1,307,640 1,406,681 - - - - - 121,433 - - - - - 399,454 90,147 57,195 7,262 101,609 - 256,213 90,147 57,195 7,262 101,609 1,343,648 2,219,789 50,413 9,776 1,142 14,636 (1,337,822) (933,030) - - - - - 505,000 (33,876) - - - (425,000) (458,876) (33,876) - - - (425,000) 46,124 16,537 9,776 1,142 14,636 (1,762,822) (886,906) 46,516 20,695 941 130 2,073,162 3,540,186 $ 63,053 $ 30,471 $ 2,083 $ 14,766 $ 310,340 $ 2,653,280 -63- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts REVENUES Taxes Property taxes $ 8,131,224 $ 7,925,658 $ (205,566) $ 7,574,936 Franchise fees 551,904 572,856 20,952 557,542 Total taxes 8,683,128 8,498,514 (184,614) 8,132,478 Licenses and permits Business 62,400 60,555 (1,845) 59,959 Nonbusiness 563,525 395,400 (168,125) 457,703 Total licenses and permits 625,925 455,955 (169,970) 517,662 Intergovernmental State PERA aid 11,905 11,905 - 11,905 Road and bridge aid 220,000 212,955 (7,045) 219,926 Firemen's aid 186,000 140,284 (45,716) 162,759 Police aid 152,040 154,857 2,817 177,620 Other state aids - 810 810 1,850 County and local County aid 21,015 10,454 (10,561) 21,014 Township fire and rescue aid 302,171 295,151 (7,020) 233,952 Liaison aid 52,707 52,828 121 51,329 Payment in lieu of taxes 360,000 360,000 - 360,000 Total intergovernmental 1,305,838 1,239,244 (66,594) 1,240,355 Charges for services Zoning fees 18,950 12,419 (6,531) 15,984 Plan check fees 310,000 195,916 (114,084) 220,353 Park fees 42,000 51,798 9,798 40,834 Project fees 337,361 337,361 - 365,685 Park program revenue 93,000 82,478 (10,522) 87,246 Park admission/rent 20,500 22,733 2,233 25,223 Facility rental 218,929 245,941 27,012 257,524 Reports 1,700 3,673 1,973 3,363 Total charges for services 1,042,440 952,319 (90,121) 1,016,212 -64- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts REVENUES-CONTINUED Fines and forfeitures $ 189,600 $ 192,428 $ 2,828 $ 190,650 Interest on investments 142,500 278,478 135,978 288,869 Miscellaneous Other 30,000 35,853 5,853 51,734 Contributions and donations 20,000 6,700 (13,300) 13,864 Sale of property 12,000 22,732 10,732 9,941 Developers' agreements 75,000 39,171 (35,829) 37,194 Total miscellaneous 137,000 104,456 (32,544) 112,733 TOTAL REVENUES 12,126,431 11,721,394 (405,037) 11,498,959 EXPENDITURES Current expenditures General government Mayor and Council Personal services 58,281 59,645 (1,364) 54,787 Supplies 440 644 (204) 601 Other services and charges 11,210 8,492 2,718 9,437 Total Mayor and Council 69,931 68,781 1,150 64,825 Ordinance Other services and charges 12,000 6,720 5,280 7,826 City manager Personal services 277,633 280,445 (2,812) 261,818 Supplies 4,775 3,844 931 5,625 Other services and charges 80,510 67,162 13,348 77,059 Total city manager 362,918 351,451 11,467 344,502 Boards and commissions Personal services 12,837 6,244 6,593 10,066 Other services and charges 500 - 500 243 Total board and commissions 13,337 6,244 7,093 10,309 -65- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts EXPENDITURES -CONTINUED Current expenditures -Continued General government -continued Election Personal services $ 15,147 $ 15,878 $ (731) $ 2,401 Supplies 500 709 (209) 2,759 Other services and charges 650 992 (342) 141 Total election 16,297 17,579 (1,282) 5,301 Director of finance Personal services 125,385 131,537 (6,152) 121,143 Supplies 2,340 2,770 (430) 3,217 Other services and charges 3,140 3,270 (130) 1,938 Total director of finance 130,865 137,577 (6,712) 126,298 Accounting Persona] services 146,261 146,776 (515) 139,967 Supplies 3,590 3,400 190 2,813 Other services and charges 24,375 14,945 9,430 22,579 Total accounting 174,226 165,121 9,105 165,359 Auditing Other services and charges 22,200 22,190 10 18,190 Assessing Other services and charges 110,800 102,093 8,707 102,886 Legal services Other services and charges 376,000 359,961 16,039 354,398 Personnel Personal services 46,448 47,212 (764) 44,641 Supplies 1,190 378 812 740 Other services and charges 30,705 18,917 11,788 30,143 Total personnel 78,343 66,507 11,836 75,524 -66- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final FinalBudget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts EXPENDITURES -CONTINUED Current expenditures -Continued General government -continued Communications Personal services $ 76,148 $ 73,948 $ 2,200 $ 69,731 Supplies 1,940 3,668 (1,728) 4,003 Other services and charges 48,710 28,047 20,663 35,727 Total communications 126,798 105,663 21,135 109,461 Planning and zoning Personal services 404,531 399,898 4,633 339,565 Supplies 2,890 2,772 118 5,899 Other services and charges 27,295 21,496 5,799 18,838 Total planning and zoning 434,716 424,166 10,550 364,302 Data processing Supplies 4,235 2,157 2,078 4,064 Other services and charges 125,360 66,475 58,885 68,797 Total data processing 129,595 68,632 60,963 72,861 Buildings and plant Personal services 44,580 73 44,507 - Supplies 5,000 6,976 (1,976) 11,578 Other services and charges 350,476 378,457 (27,981) 358,865 Total buildings and plant 400,056 385,506 14,550 370,443 Total general government 2,458,082 2,288,191 169,891 2,192,485 Public safety Police Personal services 2,590,588 2,536,109 54,479 2,402,154 Supplies 121,390 102,710 18,680 117,516 Other services and charges 184,222 173,593 10,629 168,954 Total police 2,896,200 2,812,412 83,788 2,688,624 -67- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts EXPENDITURES -CONTINUED Current expenditures -Continued Public safety -continued Fire and rescue Personal services $ 246,319 $ 218,933 $ 27,386 $ 232,351 Supplies 73,795 73,216 579 61,262 Other services and charges 389,739 281,969 107,770 286,528 Total fire and rescue 709,853 574,118 135,735 580,141 Building inspections Personal services 413,863 349,278 64,585 394,178 Supplies 13,380 11,437 1,943 8,343 Other services and charges 9,200 8,060 1,140 7,105 Total building inspections 436,443 368,775 67,668 409,626 Civil defense Other services and charges 7,500 2,557 4,943 4,394 Animal control Other services and charges 34,890 35,764 (874) 33,228 Total public safety 4,084,886 3,793,626 291,260 3,716,013 Public works Engineering Personal services 516,379 438,853 77,526 488,438 Supplies 11,970 9,228 2,742 10,537 Other services and charges 31,810 45,913 (14,103) 32,491 Total engineering 560,159 493,994 66,165 531,466 Central garage Personal services 142,273 139,602 2,671 130,654 Supplies 17,440 15,392 2,048 17,286 Other services and charges 136,600 133,524 3,076 134,523 Total central garage 296,313 288,518 7,795 282,463 -68- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts EXPENDITURES -CONTINUED Current expenditures -Continued Public works -continued Streets Personal services $ 269,541 $ 261,755 $ 7,786 $ 261,090 Supplies 191,310 198,316 (7,006) 213,304 Other services and charges 483,800 482,056 1,744 446,052 Total streets 944,651 942,127 2,524 920,446 Total public works 1,801,123 1,724,639 76,484 1,734,375 Culture and recreation Recreation Personal services 327,598 269,518 58,080 252,029 Supplies 85,100 70,873 14,227 64,385 Other services and charges 60,775 64,891 (4,116) 49,701 Total recreation 473,473 405,282 68,191 366,115 Parks Personal services 898,647 867,706 30,941 860,818 Supplies 223,325 237,086 (13,761) 193,299 Other services and charges 175,520 155,141 20,379 156,647 Total parks 1,297,492 1,259,933 37,559 1,210,764 Libraries Supplies 6,220 3,661 2,559 5,916 Other services and charges 89,712 99,233 (9,521) 72,247 Total libraries 95,932 102,894 (6,962) 78,163 Total culture and recreation 1,866,897 1,768,109 98,788 1,655,042 -69- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31 , 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts EXPENDITURES -CONTINUED Current expenditures -Continued Economic development Personal services $ 91,991 $ 91,017 $ 974 $ 86,919 Supplies 1,440 533 907 567 Other services and charges 38,441 19,017 19,424 22,146 Total economic development 131,872 110,567 21,305 109,632 Contingency Contingency reserve 275,000 90,000 185,000 107,498 Total current expenditures 10,617,860 9,775,132 842,728 9,515,045 Capital outlay General government City manager 2,500 817 1,683 1,386 Data processing 46,000 27,789 18,211 64,952 Buildings and plant 10,000 5,728 4,272 12,482 Public safety Police 96,790 92,438 4,352 384,367 Fire and rescue 56,300 56,191 109 46,745 Civil defense - - - 17,434 Public works Street 5,000 7,085 (2,085) - Culture and recreation Recreation 5,000 5,523 5,000 - Library 5,000 - (523) 255,037 Parks 5,500 4,730 770 3,807 Economic development - 917 (917) - Total capital outlay 232,090 201,218 30,872 786,210 TOTAL EXPENDITURES 10,849,950 9,976,350 873,600 10,301,255 EXCESS OF REVENUES OVER EXPENDITURES 1,276,481 1,745,044 468,563 1,197,704 -70- CITY OF PRIOR LAKE, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -CONTINUED YEAR ENDED DECEMBER 31, 2008 (With comparative actual amounts for the year ended December 31, 2007) 2008 2007 Variance with Final Final Budget - Budgeted Actual Positive Actual Amounts Amounts (Negative) Amounts OTHER FINANCING SOURCES (USES) Transfers in $ 300,000 $ 300,000 $ - $ 250,000 Transfers out (1,576,481) (1,576,275) 206 (1,703,438) TOTAL OTHER FINANCING SOURCES (USES) (1,276,481} (1,276,275) 206 (1,453,438) NET CHANGE IN FUND BALANCES - 468,769 468,769 (255,734) FUND BALANCES, JANUARY 1 5,020,666 5,020,666 - 5,276,400 FUND BALANCES, DECEMBER 31 $ 5,020,666 $ 5,489,435 $ 468,769 $ 5,020,666 -71- ASSETS Cash and temporary investments Due from other governments Special assessments Delinquent Deferred Other (Green Acres) TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES Deferred revenue FUND BALANCES Reserved for debt service TOTAL LIABILITIES AND FUND BALANCES CITY OF PRIOR LAKE, MINNESOTA DEBT SERVICE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2008 314 316 Fire Hall Park Bonds Referendum $ - $ 317 318 City Hall Fire Station - $ - $ - $ - $ - $ $ - $ - $ - $ - - $ - $ - $ - $ - $ -72- 350 351 Water Water Revenue Treatment PW Building Plant $ - $ - $ $ - $ $ - $ - $ - $ $ - $ - $ 541 542 543 545 Candy Oak Frog Duluth Cove Ridge Town - $ 75,642 $ 144,221 $ 161,180 - 381 559 448 - 389 1,155 - - 13,462 40,365 29,304 - - 6,908 - - $ 89,874 $ 193,208 $ 190,932 - $ 13,851 $ 48,428 $ 29,304 - 76,023 144,780 161,628 - $ 89,874 $ 193,208 $ 190,932 -73- CITY OF PRIOR LAKE, MINNESOTA DEBT SERVICE FUNDS COMBINING BALANCE SHEET -CONTINUED DECEMBER 31, 2008 546 547 549 550 Tax Pixie 150th Mitchell Increment Breezy Point Condons 2004 Point ASSETS Cash and temporary investments $ 184,090 $ 124,172 $ 23,502 $ 410,869 Due from other governments 455 866 - 1,401 Special assessments Delinquent - 2,177 - 5,070 Deferred 57,210 256,468 - 386,147 Other (Green Acres) - 113,052 - - TOTAL ASSETS $ 241,755 $ 496,735 $ 23,502 $ 803,487 LIABILITIES AND FUND BALANCES LIABILITIES Deferred revenue $ 57,210 $ 371,696 $ - $ 391,217 FUND BALANCES Reserved for debt service 184,545 125,039 23,502 412,270 TOTAL LIABILITIES AND FUND BALANCES $ 241,755 $ 496,735 $ 23,502 $ 803,487 -74- 551 553 554 555 Street Brooksville Fish Reconstruction Hills Point CSAH 82 2007 2008 Total $ 873,948 $ 4,412 $ 5,637 $ 83,123 $ 2,090,796 94 989 1,302 - 6,495 17 - - - 8,808 356,694 - - 427,042 1,566,692 722,708 - - - 842,668 $ 1,953,461 $ 5,401 $ 6,939 $ 510,165 $ 4,515,459 $ 1,079,419 $ - $ - $ 427,042 $ 2,418,167 874,042 5,401 6,939 83,123 2,097,292 $ 1,953,461 $ 5,401 $ 6,939 $ 510,165 $ 4,515,459 -75- CITY OF PRIOR LAKE, NIINNESOTA DEBT SERVICE FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) YEAR ENDED DECEMBER 31, 2008 314 316 317 318 Fire Hall Park City Hall Fire Station REVENUES Taxes General property taxes Special assessments Interest on investments TOTAL REVENUES EXPENDITURES Debt service Principal Interest and other TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Bonds issued Bonds refunded Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES (DEFICITS), JANUARY 1 FUND BALANCES, DECEMBER 31 $ - $ - $ - $ - 130,000 360,000 145,000 50,000 55,531 264,469 430,920 160,355 185,531 624,469 575,920 210,355 (185,531) (624,469) (575,920) (210,355) 165,531 624,469 575,920 210,355 945,000 - - - (925,000) - - - 185,531 624,469 575,920 210,355 $ - $ - $ - $ - -76- 350 351 541 542 543 545 Water Water Revenue Treatment Candy Oak Frog PW Building Plant Duluth Cove Ridge Town $ - $ - $ 59,701 $ 52,133 $ 76,518 $ 61,383 - - 25,250 10,646 26,525 16,688 - - 7,624 7,547 11,331 12,500 - - 92,575 70,326 114,374 90,571 13 0,000 100, 000 145, 000 130, 000 125, 000 100, 000 47,437 346,389 3,045 5,943 18,463 18,062 177,437 446,389 148,045 135,943 143,463 118,062 (177,437) (446,389) (55,470) (65,617) (29,089) (27,491) 177,437 446,389 - - - - - - (9,794) - - - 177,437 446,389 (9,794) - - - - - (65,264) (65,617) (29,089) (27,491) - - 65,264 141,640 173,869 189,119 $ - $ - $ - $ 76,023 $ 144,780 $ 161,628 -77- CITY OF PRIOR LAKE, MINNESOTA DEBT SERVICE FUNDS -MBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) - CONTINU: YEAR ENDED DECEMBER 31, 2008 546 547 549 550 Tax Pixie 150th Mitchell Increment Breezy REVENUES Taxes General property taxes Special assessments Interest on investments TOTAL REVENUES EXPENDITURES Debt service Principal Interest and other TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Bonds issued Bond premium Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES (DEFICIT) ,JANUARY 1 FUND BALANCES, DECEMBER 31 $ 62,224 $ 118,561 $ 20,023 63,810 13,986 10,638 96,233 193,009 100,000 200,000 15,000 275,000 18,600 37,475 15,854 65,175 118,600 237,475 30,854 340,175 (22,367) (44,466) (29,907) (34,648) - - 33,876 - - - 33,876 - (22,367) (44,466) 3,969 (34,648) 206,912 169,505 19,533 446,918 $ 184,545 $ 125,039 $ 23,502 $ 412,270 - $ 181,626 - 92,888 947 305,527 -78- 551 553 554 555 Street Brooksville Fish Reconstruction Hills Point CSAH 82 2007 2008 Total $ - $ 135,378 $ 178,262 $ - $ 925,786 94,123 - - 103,540 453,493 63,039 178 227 3,349 162,379 157,162 135,556 178,489 106,889 1,541,658 250,000 85,000 115,000 - 2,455,000 68,135 45,155 56,275 23,766 1,681,049 318,135 130,155 171,275 23,766 4,136,049 (160,973) 5,401 7,214 83,123 (2,594,391) 9,794 - - - 2,243,771 - - - - 945,000 - - - - (925,000) - - - - (9,794) 9,794 - - - 2,253,977 (151,179) 5,401 7,214 83,123 (340,414) 1,025,221 - (275) - 2,437,706 $ 874,042 $ 5,401 $ 6,939 $ 83,123 $ 2,097,292 -79- CITY OF PRIOR LAKE, MINNESOTA WATER AND SEWER UTILITIES FUND COMPARATIVE SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS YEARS ENDED DECEMBER 31, 2008 AND 2007 2008 2007 OPERATING REVENUES Sewer charges $ 1,947,059 $ 2,137,172 Water charges 2,325,202 2,425,089 Capital facility charges 452,196 446,148 Meter sales 55,146 78,792 TOTAL OPERATING REVENUES 4,779,603 5,087,201 OPERATING EXPENSES Water utility Personal services 448,462 445,779 Supplies 193,990 169,398 Repairs and maintenance 312,099 559,625 Other services and charges 71,458 59,536 Insurance 2,649 2,869 Utilities 177,051 165,104 Depreciation 274,594 229,053 Miscellaneous 13,806 44,420 Total water utility 1,494,109 1,675,784 Sewer utility Personal services 576,096 508,730 Supplies 37,375 29,158 Repairs and maintenance 168,098 97,402 Other services and charges 28,140 23,400 Insurance 2,649 2,869 Utilities 40,315 41,538 Depreciation 314,064 297,057 Disposal charges 1,097,835 1,070,194 Miscellaneous 1,999 1,241 Total sewer utility 2,266,571 2,071,589 TOTAL OPERATING EXPENSES 3,760,680 3,747,373 OPERATING INCOME 1,018,923 1,339,828 NONOPERATING REVENUES Intergovernmental 37,500 - Interest income 499,049 445,858 Loss on disposal of capital assets 8,784 (28,290) Miscellaneous revenue 170 4,435 TOTAL NONOPERATING REVENUES 545,503 422.003 -80- CITY OF PRIOR LAKE, MINNESOTA WATER AND SEWER UTILITIES FUND COMPARATIVE SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS -CONTINUED YEARS ENDED DECEMBER 31, 2008 AND 2007 INCOME BEFORE CONTRIBUTIONS AND TRANSFERS CONTRIBUTIONS FROM DEVELOPERS CONTRIBUTIONS FROM OTHER FUNDS TRANSFERS OUT CHANGE IN FUND NET ASSETS FUND NET ASSETS, JANUARY 1 PRIOR PERIOD ADJUSTMENT FUND NET ASSETS, JANUARY 1, RESTATED FUND NET ASSETS, DECEMBER 31 $ 1,564,426 $ 1,761,831 - 109,248 2,575,161 58,818 (1,003,826) (709,025) 3,135,761 1,220,872 3 0,669,3 81 29,670,019 - (221,510) 30,669,381 29,448,509 $ 33,805,142 $ 30,669,381 -81- THIS PAGE IS LEFT BLANK INTENTIONALLY FINANCIAL EXHIBITS CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT COMBINED SCHEDULE OF INDEBTEDNESS YEAR ENDED DECEMBER 31, 2008 Final Interest Issue Maturity Rate Date Date Bonded indebtedness G.O. special assessment bonds G.O. Improvement Bonds of 2000 4.85 - 4.90 % 10/O1/00 12/01/10 G.O. Improvement Bonds of 2001 4.00 - 4.25 10/O1/O1 12/01/11 G.O. Improvement Bonds of 2002 3.20 - 3.55 10/01/02 12/01/12 G.O. Improvement Bonds of 2003 2.90 - 3.50 04/01/03 12/01/13 G.O. Improvement Crossover Refunding Bonds of 2004 2.10 - 2.35 04/01/04 12/01/09 G.O. Improvement Bonds of 2004 3.00 - 3.90 06/01/04 12/01/14 G.O. Improvement Bonds of 2005C 3.00 - 3.75 07/01/05 12/15/15 G.O. Street Improvement Bonds of 2008 2.40 - 3.65 05/15/08 12/15/18 Total G.O. special assessment bonds General obligation bonds G.O. Crossover Refunding Fire Station Bonds of 1999 4.25 - 4.50 02/01/99 12/01/13 G.O. Park Refunding Bonds of 2005 4.125 - 5.00 09/01/05 12/01/17 G.O. Fire Hall bonds of 2006A 4.00 - 4.50 11/21/06 12/31/31 G.O. Street Reconstruction Bonds 2007B 4.00 05/15/07 12/15/17 G.O. Refunding Fire Station Bonds 2008A 2.00 - 2.85 05/01/08 12/15/13 Total general obligation bonds General obligation revenue bonds G.O. Public Works Building Refund Bonds of 2005 4.125 - 4.75 09/01/05 12/01/17 G.O. Water Treatment Plant Revenue Bonds of 2007A 4.00 - 4.20 05/15/07 12/15/32 Total general obligation revenue bonds Revenue bonds Public Project Revenue Bonds of 2005B 3.60 - 4.65 OS/O1/OS 12/15/29 Tax increment bonds G.O. Tax Increment Bonds of 2004 3.00 - 4.80 06/01/04 12/01/24 General obligation capital improvement plan bonds G.O. Capital Plan bonds of 2006A 3.80 - 3.90 08/01/07 02/01/17 Total bonded indebtedness -82- Outstanding Issued Outstanding Authorized January 1 (Retired) December 31 $ 1,125,000 1,035,000 1,050,000 1,975,000 1,385,000 2,700,000 2,500,000 Due in 2009 Principal Interest $ 375,000 $ (125,000) $ 250,000 $ 125,000 $ 12,188 435,000 (100,000} 335,000 100,000 13,888 550,000 (100,000) 450,000 100,000 15,325 1,200,000 (200,000) 1,000,000 200,000 32,200 400,000 (275,000) 125,000 125,000 2,938 1,925,000 (275,000) 1,650,000 275,000 57,475 2,020,000 (250,000) 1,770,000 250,000 60,360 13,070,000 6,905,000 (25,000) 1,300,000 125,000 40,743 6,880,000 1,300,000 235,115 1,570,000 925,000 (925,000) - - - 6,260,000 5,725,000 (360,000) 5,365,000 410,000 249,932 3,700,000 3,650,000 (50,000) 3,600,000 55,000 158,080 1,400,000 1,400,000 (115,000) 1,285,000 120,000 51,400 945,000 - 815,000 815,000 145,000 20,778 13,875,000 11,700,000 (635,000) 11,065,000 730,000 480,190 1,310,000 1,075,000 (130,000) 945,000 135,000 42,100 8,500,000 8,500,000 (100,000) 8,400,000 110,000 342,114 9,810,000 9,575,000 (230,000) 9,345,000 245,000 384,214 10,000,000 9,770,000 (145,000) 9,625,000 160,000 425,845 400,000 355,000 (15,000) 340,000 15,000 14,725 1,225,000 1,225,000 (85,000) 1,140,000 110,000 41,450 $ 48,380,000 $ 39,530,000 $ (1,135,000) $ 38,395,000 $ 2,560,000 $ 1,581,538 -83- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES DECEMBER 31, 2008 Final Issue Interest Maturity Date Rate Date Principal G.O. special assessment bonds $1,125,000 G.O. Improvement Bonds of 2000 10/01/00 4.85 % 12/01/09 $ 125,000 4.90 12/01/10 125,000 Total 250,000 $1,035,000 G.O. Improvement Bonds of 2001 10/O1/O1 4.00 12/01/09 100,000 4.15 12/01/10 100,000 4.25 12/01/11 135,000 Total 335,000 $1,050,000 G.O. Improvement Bonds of 2002 10/01/02 3.20 12/01 /09 100,000 3.35 12/01/10 100,000 3.45 12/01 /11 100,000 3.55 12/01/12 150,000 Total 450,000 $1,975,000 G.O. Improvement Bonds of 2003 04/01/03 2.90 12/01/09 200,000 3.10 12/01/10 200,000 3.25 12/01/11 200,000 3.35 12/01/12 200,000 3.50 12/01/13 200,000 Total 1,000,000 $1,385,000 G.O. Improvement Crossover Refunding Bonds of 2004 04/01/04 2.35 12/01 /09 125,000 $2,700,000 G.O. Improvement Bonds of 2004 06/01/04 3.00 12/01/09 275,000 3.20 12/01/10 275,000 3.45 12/01/11 275,000 3.65 12/01/12 275,000 3.70 12/01/13 275,000 3.90 12/01/14 275,000 Total 1,650,000 -84- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES - CONTINiJED DECEMBER 31, 2008 Final Issue Interest Maturity Date Rate Date Principal G.O. special assessment bonds -continued $2,500,000 G.O. Improvement Bonds of 2005 07/01/05 3.10 12/15/09 250,000 3.20 12/15/10 250,000 3.30 12/15/11 250,000 3.40 12/15/12 250,000 3.50 12/15/13 250,000 3.60 12/15/14 260,000 3.75 12/15/15 260,000 Total $1,300,000 G.O. Street Improvement Bonds of 2008 05/15/08 ~ ~~n nnn 2.40 12/15/09 125,000 2.60 12/15/10 125,000 2.80 12/15/11 125,000 2.90 12/15/12 125,000 3.20 12/15/13 130,000 3.20 12/15/14 130,000 3.40 12/15/15 130,000 3.40 12/15/16 135,000 3.65 12/15/17 135,000 3.65 12/15/18 140,000 i inn nnn Total G.O. special assessment bonds $ 6,880,000 -85- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES -CONTINUED DECEMBER 31, 2008 Final Issue Interest Maturity Date Rate Date Principal G.O. tax increment bonds $400,000 Tax Increment Bonds of 2004 06/01/04 3.00 % 12/01/09 $ 15,000 3.60 12/01 /10 15,000 3.60 12/01/11 15,000 3.75 12/01/12 15,000 3.75 12/01 / 13 15,000 4.00 12/01/14 20,000 4.00 12/01/15 20,000 4.35 12/01/16 20,000 4.35 12/01/17 20,000 4.60 12/01/18 25,000 4.60 12/01/19 25,000 4.60 12/01/20 25,000 4.80 12/01 /21 25,000 4.80 12/01/22 25,000 4.80 12/01/23 30,000 4.80 12/01/24 30,000 Total 340,000 Total G.O. tax increment bonds $ 340,000 General obligation bonds $6,260,000 G.O. Park Refunding Bonds of 2005 03/01/98 4.125 % 12/01/09 $ 410,000 4.250 12/01/10 455,000 4.375 12/01 / 11 490,000 4.500 12/01/12 535,000 4.625 12/01/13 585,000 4.750 12/01/14 645,000 4.750 12/01/15 710,000 5.000 12/01/16 780,000 5.000 12/01/17 755,000 Total 5 ~~5 nnn -86- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES -CONTINUED DECEMBER 31, 2008 Final Issue Interest Maturity Date Rate Date Principal General obligation bonds -Continued $3,700,000 G.O. Fire Hall Bonds of 2006A 11/15/06 Total $1,400,000 G.O. Street Reconstruction Bonds 2007B 05/15/07 Total 4.00 12/15/09 55,000 4.00 12/15/10 55,000 4.00 12/15/11 60,000 4.00 12/15/12 65,000 4.00 12/15/13 75,000 4.00 12/15/14 75,000 4.00 12/15/15 85,000 4.25 12/15/16 100,000 4.25 12/15/17 100,000 4.25 12/15/18 110,000 4.25 12/15/19 120,000 4.30 12/15/20 135,000 4.35 12/15/21 150,000 4.50 12/15/22 160,000 4.50 12/15/23 175,000 4.50 12!15/24 200,000 4.50 12/15/25 215,000 4.50 12/15/26 230,000 4.50 12/15/27 250,000 4.50 12/15/28 270,000 4.50 12/15/29 285,000 4.50 12/15/30 305,000 4.50 12/15/31 325.000 3,600,000 4.00 12/15/09 120,000 4.00 12/15/10 125,000 4.00 12/15/11 130,000 4.00 12/15/12 135,000 4.00 12/15/13 140,000 4.00 12/15/14 150,000 4.00 12/15/15 155,000 4.00 12/15/16 160,000 4.00 12/15/17 170,000 1,285,000 -87- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES -CONTINUED DECEMBER 31, 2008 Final Issue Interest Maturity Date Rate Date Principal General obligation bonds -Continued $945,000 G.O. Refunding Fire Station Bonds 2008A 05/01/08 2.25 12/01/09 145,000 2.30 12/01/10 155,000 2.55 12/01/11 155,000 2.70 12/01 / 12 175,000 2.85 12/01/13 185,000 R i 5 nnn Total general obligation Bonds $ 11,065,000 Revenue Bonds $10,000,000 Lease Revenue Bonds of 2005B OS/O1/OS 3.60 % 12/15/09 $ 160,000 3.75 12/15/10 185,000 4.00 12/15/11 210,000 4.00 12/15/12 230,000 4.00 12/15/13 250,000 4.00 12/15/14 285,000 4.25 12/15/15 305,000 4.25 12/15/16 330,000 4.25 12/15/17 360,000 4.25 12/15/18 400,000 4.25 12/15/19 425,000 4.25 12/15/20 460,000 4.45 12/15/21 500,000 4.45 12/15/22 530,000 4.45 12/15/23 570,000 4.50 12/15/24 610,000 4.65 12/15/25 655,000 4.65 12/15/26 710,000 4.65 12/15/27 760,000 4.65 12/15/28 815,000 4.65 12/15/29 875,000 Total revenue bonds $ 9,625,000 -88- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES -CONTINUED DECEMBER 31, 2008 General Obligation Revenue Bonds $1,310,000 G.O. Building Revenue Bonds of 2005 Total $8,500,000 G.O. Water Treatment Plant Revenue Bonds of 2007A Final Issue Interest Maturity Date Rate Date Principal 09/07/05 4.125 % 12/01/09 $ 135,000 4.250 12/01 / 10 145,000 4.375 12/01/11 155,000 4.500 12/01 / 12 170,000 4.625 12/01 / 13 170,000 4.750 12/01 / 14 170,000 945 nnn 05/15/07 4.00 12/15/09 110,000 4.00 12/15/10 120,000 4.00 12/15/11 135,000 4.00 12/15/12 150,000 4.00 12/15/13 175,000 4.00 12/15/14 200,000 4.00 12/15/15 220,000 4.00 12/15/16 240,000 4.00 12/15/17 260,000 4.00 12/15/18 280,000 4.00 12/15/19 300,000 4.00 12/15/20 325,000 4.00 12/15/21 350,000 4.00 12/15/22 375,000 4.00 12/15/23 400,000 4.00 12/15/24 425,000 4.00 12/15/25 450,000 4.10 12/15/26 475,000 4.13 12/15/27 500,000 4.13 12/15/28 525,000 4.13 12/15/29 550,000 4.20 12/15/30 580,000 4.20 12/15/31 610,000 4.20 12/15/32 645,000 Total 8,400,000 Total general obligation revenue bonds $ 9,345,000 -89- THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT BOND SCHEDULES -CONTINUED DECEMBER 31, 2008 General obligation capital improvement plan bonds $1,225,000 G.O. Capital Improvement Plan Bonds Total Final Issue Interest Maturity Date Rate Date Principal 08/01/07 3.80 % 02/01/09 $ 110,000 3.80 02/01/10 115,000 3.80 02/01/11 115,000 3.80 02/01/12 120,000 3.80 02/01/13 125,000 3.80 02/01/14 130,000 3.80 02/01/15 135,000 3.85 02/01/16 140,000 3.90 02/01/17 150,000 $ 1,140,000 -90- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT DEBT SERVICE REQUIREMENTS DECEMBER 31, 2008 Year G.O. Special Assessment Bonds G.O. Bonds G.O. Revenue Bonds 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total Principal Interest Principal Interest Principal Interest $ 1,300,000 $ 235,115 $ 730,000 $ 480,190 $ 245,000 $ 384,214 1,175,000 194,115 790,000 453,013 265,000 374,246 1,085,000 154,240 835,000 422,912 290,000 363,282 1,000,000 117,315 910,000 389,920 320,000 351,102 855,000 83,128 985,000 353,121 345,000 337,452 665,000 53,043 870,000 312,192 370,000 322,590 390,000 28,798 950,000 272,554 220,000 306,514 135,000 14,628 1,040,000 229,230 240,000 297,714 135,000 10,038 1,025,000 179,580 260,000 288,114 140,000 5,110 110,000 130,780 280,000 277,714 - - 120,000 126,105 300,000 266,514 - - 135,000 121,005 325,000 254,514 - - 150,000 115,200 350,000 241,514 - - 160,000 108,675 375,000 227,514 - - 175,000 101,475 400,000 212,514 - - 200,000 93,600 425,000 196,514 - - 215,000 84,600 450,000 179,514 - - 230,000 74,925 475,000 161,514 - - 250,000 64,575 500,000 142,039 - - 270,000 53,325 525,000 121,414 - - 285,000 41,175 550,000 99,758 - - 305,000 28,350 580,000 77,070 - - 325,000 14,625 610,000 52,710 _ _ _ - 645,000 27,090 $ 6,880,000 $ 895,528 $ 11,065,000 $ 4,251,126 $ 9,345,000 $ 5,563,130 -91- Revenue Bonds Tax Increment Bonds G.O. Capital Plan Bonds Principal Interest Principal Interest Principal Interest $ 160,000 $ 425,845 $ 15,000 $ 14,725 $ 110,000 $ 41,450 185,000 420,085 15,000 14,275 115,000 37,175 210,000 413,148 15,000 13,735 115,000 32,805 230,000 404,748 15,000 13,195 120,000 28,340 250,000 395,548 15,000 12,633 125,000 23,685 285,000 385,548 20,000 12,070 130,000 18,840 305,000 374,148 20,000 11,270 135,000 13,805 330,000 361,185 20,000 10,470 140,000 8,545 360,000 347,160 20,000 9,600 150,000 2,925 400,000 331,860 25,000 8,730 - - 425,000 314,860 25,000 7,580 - - 460,000 296,798 25,000 6,430 - - 500,000 277,248 25,000 5,280 - - 530,000 254,998 25,000 4,080 - - 570,000 231,413 30,000 2,880 - - 610,000 205,763 30,000 1,440 - - 655,000 177,398 - - - 710,000 146,940 - - - 760,000 113,925 - - - 815,000 78,585 - - - 875,000 40,688 - - - _ $ 9,625,000 $ 5,997,885 $ 340,000 $ 148,393 $ 1,140,000 $ 207,570 -92- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT TAX LEVIES AND COLLECTIONS, SPECIAL ASSESSMENT LEVIES AND COLLECTIONS AND OTHER SCHEDULES PRIOR TEN YEARS Collection Total of Current Year Levy Year Levy 1999 $ 4,802,997 $ 4,724,119 2000 4,866,728 4,789,471 2001 4,728,647 4,642,846 2002 5,520,913 5,454,555 2003 6,062,013 5,622,173 2004 6,588,000 6,149,977 2005 7,313,669 6,903,982 2006 8,086,236 7,733,423 2007 8,718,777 8,557,509 2008 9,365,437 9,027,680 TAX LEVIES AND COLLECTIONS Percentage Percentage Collection of Total of Levy of Prior Total Collections Collected Years' Levies Collections to Levy 98.36 % $ 71,717 $ 4,795,836 99.85 98.41 59,551 4,849,022 99.64 98.19 63,850 4,706,696 99.54 98.80 131,862 5,586,417 101.19 92.74 * 91,660 5,713,833 94.26 93.35 * 73,164 6,223,141 94.46 94.40 * 83,978 6,987,960 95.55 95.64 * 76,133 7,809,556 96.58 98.15 * 96,934 8,654,443 99.26 96.39 * 120,587 9,148,267 97.68 * Market value credit was withheld by the State of Minnesota. SPECIAL ASSESSMENT LEVIES AND COLLECTIONS Collection Percentage Total of Current of Levy Year Levy Year Levy** Collected 1999 $ 338,621 $ 308,533 91.11 2000 288,866 278,169 96.30 2001 304,693 297,070 97.50 2002 296,832 289,718 97.60 2003 254,792 248,054 97.36 2004 471,563 434,451 92.13 2005 408,574 380,040 93.02 2006 476,717 446,508 93.66 2007 405,756 400,937 98.81 2008 336,687 330,203 98.07 ** Excludes prepaid assessment collections Percentage Collection of Total of Other Total Collections Years' Levies Collections to Levy $ 39,756 $ 348,289 102.86 30,780 308,949 106.95 4,273 301,343 98.90 55,291 345,009 116.23 7,426 255,480 100.27 4,783 439,234 93.14 5,927 385,967 94.47 49,397 495,905 104.03 39,075 440,012 108.44 9,243 339,446 100.82 -93- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT TAX LEVIES AND COLLECTIONS, SPECIAL ASSESSMENT LEVIES AND COLLECTIONS AND OTHER SCHEDULES -CONTINUED PRIOR THREE YEARS OTHER SCHEDULES SCHEDULES OF MARKET VALUE, TAX LEVY, TAX CAPACITY VALUES AND TAX CAPACITY RATE Market value Tax levy Tax capacity net of fiscal disparities and tax increment Tax capacity rate Market Value Rate 2006 2007 2008 $ 2,132,768,700 $ 8,086,236 $ 23,414,820 31.305% 0.036% $ 2,457,196,600 $ 8,718,777 $ 27,042,716 28.435% 0.040% $ 2,695,007,700 $ 9,365,437 $ 29,777,707 28.064% 3.800% -94- CITY OF PRIOR LAKE, MINNESOTA FINANCIAL EXHIBIT KEY FINANCIAL INDICATORS PRIOR THREE YEARS 2006 2007 2008 Current population 22,100 Tax capacity net of fiscal disparities and tax increment $ 23,414,820 Percent of current property taxes collected 96 % * City revenues per capita (Governmental Funds) $ 986 City expenditures per capita (Governmental Funds) $ 1,408 Ratio of bonded debt to tax capacity 142 Bond Rating Aa3 * Net of market value aid reduction by the State of Minnesota 22,506 $ 27,042,716 98 $ 791 $ 1,317 153 Aa3 22,111 $ 29,777,707 96 $ 698 $ 1,285 139 Aa3 -95- OTHER REPORT CITY OF PRIOR LAKE PRIOR LAKE, MINNESOTA YEAR ENDED DECEMBER 31, 2008 THIS PAGE IS LEFT BLANK INTENTIONALLY Arno F.ICK & ~/' •~' _l1VIEYERSLLP Cert~d Public Accountants & Consultants 5201 Eden Avenue Suite 370 Edina, MN 55436 REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and Council City of Prior Lake, Minnesota 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 Prior Lake, Minnesota (the City) as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements, and have issued our report thereon dated April 11, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the State Auditor pursuant to Minnesota statute, section 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures, as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous city provisions and tax increment financing. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the Council, management and the Minnesota Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. April 11, 2009 Minneapolis, Minnesota -96- ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 Fax 952.835.3261 www.aemcpas.com