HomeMy WebLinkAbout10A Financial ReportINTRODUCTORY SECTION
CITY OF PRIOR LAKE
Management’s Discussion and Analysis
Fiscal Year Ended December 31, 2012
As the management of the City of Prior Lake, Minnesota (the City), we offer readers of the City’s
financial statements this narrative overview and analysis of the financial activities of the City for the
fiscal year ended December 31, 2012.
FINANCIAL HIGHLIGHTS
The net position of the City exceeded its liabilities at the close of the most recent fiscal year by
$148,158,326 (net position). Of this amount, $22,137,998 (unrestricted net position) may be
used to meet the government’s ongoing obligations to citizens and creditors.
The City’s total net position increased by $5,230,375.
As of the close of the current fiscal year, the City’s governmental funds reported combined
ending fund balances of $21,082,485, a decrease of $1,652,340 in comparison with the prior year.
At the end of the current fiscal year, the unassigned fund balance for the General Fund was
$6,281,374, or 51.5 percent, of budgeted 2013 expenditures and transfers ($12,192,316). The
total fund balance of $6,972,362 reflects a decrease of $774,845, which is primarily due to
funding capital projects and early redemption of bonds.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the City’s basic financial
statements. The City’s basic financial statements include three components: 1) government-wide
financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report
also contains 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 a private sector
business.
TheStatement of Net Position presents information on all of the City’s assets and liabilities, with the
difference between the two reported as net position. Over time, increases or decreases in net position may
serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
TheStatement of Activities presents information showing how the City’s net position changed during the
most recent fiscal year. All changes in net position are reported as soon as the underlying event giving
rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are
reported in this statement for some items that will only result in cash flows in future fiscal periods
(e.g. uncollected taxes and earned, but unused, vacation leave).
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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, and economic development. The business-type activities of the City
include water, sewer, water quality, and transit operations.
The government-wide financial statements can be found in the financial section following this report.
Fund Financial Statements
– A fund is a grouping of related accounts that is used to maintain control
over resources that have been segregated for specific activities or objectives. The City, like other state
and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related
legal requirements. All of the funds of the City can be divided into 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 financial statements. However, unlike the
government-wide financial statements, governmental fund financial statements focus on near-term
inflows and outflows of spendable resources, as well as on balances of spendable resources available at
the end of the fiscal year. Such information may be useful in evaluating a City’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 financing decisions. Both
the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures,
and Changes in Fund Balances provide a reconciliation to facilitate this comparison between
governmental funds and governmental activities.
The City maintains numerous 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 Fund, Debt Service Fund, and Construction Fund, all of
which are considered major funds. Data from the other governmental funds are combined into a single,
aggregated presentation. Individual fund data for each of these nonmajor governmental funds are
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 this fund to demonstrate compliance with this budget.
The basic governmental fund financial statements can be found in the financial section of this report
immediately following the government-wide financial statements.
Proprietary Funds
–The City maintains two types of proprietary funds. Enterprise funds are used to
report the same functions presented as business-type activities in the government-wide financial
statements. The City uses enterprise funds to account for its water, sewer, water quality, and transit
operations.
Proprietary funds provide the same type of information as the government-wide financial statements, only
in more detail.
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Internal service funds are an accounting device used to accumulate and allocate costs internally among
the City’s various functions. The City uses internal service funds to account for severance compensation.
Because these internal service fund activities predominantly benefit governmental rather than
business-type functions, they have been included within governmental activities in the government-wide
financial statements.
The Internal Service Fund is presented separately in the proprietary fund financial statements.
The basic proprietary fund financial statements can be found in the financial section of this report
immediately following the governmental fund statements.
Notes to Basic Financial Statements
–The notes to basic financial statements 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 basic financial statements can be found following the proprietary fund
statements within the financial section of this report.
Other Information
–The combining statements referred to earlier in connection with nonmajor
governmental funds are presented immediately following the required supplementary information.
GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted earlier, net position may serve over time as a useful indicator of a City’s financial position. In
the case of the City, assets exceeded liabilities by $148,158,326 at the close of the most recent fiscal year.
The City’s investment in capital asset (e.g. land, buildings, machinery and equipment), less any related
debt used to acquire those assets that are still outstanding totaled 82 percent of total net position. The
City uses these capital assets to provide services to citizens; consequently, these assets are notavailable
for future spending. Although the City’s investment in its capital assets is reported net of related debt, it
should be noted that the resources needed to repay this debt must be provided from other sources, since
the capital assets themselves cannot be used to liquidate these liabilities.
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The following table provides the City’s Summary of Net Position:
Table 1
Summary of Net Position
as of December 31, 2012 and 2011
GovernmentalBusiness-Type
ActivitiesActivitiesTotal
201220112012201120122011
Assets
Current and other assets26,646,319$ 27,575,348$ 7,759,852$ 7,393,393$ 34,406,171$ 34,968,741$
Capital assets110,089,409 106,710,701 45,764,121 45,435,153 155,853,530 152,145,854
Total assets
$ 134,286,049136,735,728$ 53,523,973$ 52,828,546$ 190,259,701$ 187,114,595$
Liabilities
Long-term liabilities 39,785,916$ 42,523,888$ 125,112$ 146,092$ 39,911,028$ 42,669,980$
Other liabilities1,887,955 1,250,272 302,392 266,392 2,190,347 1,516,664
Total liabilities
$ 43,774,16041,673,871$ 427,504$ 412,484$ 42,101,375$ 44,186,644$
Net position
Net investment in
capital assets75,168,765$ 69,018,493$ 45,764,121$ 45,435,153$ 120,932,886$ 114,453,646$
Restricted5,087,442 7,620,676 – – 5,087,442 7,620,676
Unrestricted14,805,650 13,872,720 7,332,348 6,980,909 22,137,998 20,853,629
Total net osition$ 90,511,88995,061,857$ 53,096,469$ 52,416,062$ 148,158,326$ 142,927,951$
p
An additional portion of the City’s net position ($5,087,442, or 3.4 percent) represents resources that are
subject to external restrictions on how they may be used. The remaining balance of unrestricted net
position $22,137,998 may be used to meet the government’s ongoing obligations to citizens and creditors.
At the end of the current fiscal year, the City is able to report positive balances in all three categories of
net position, both for the government as a whole, as well as for its separate governmental and
business-type activities. The same situation held true for the prior fiscal year.
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Table 2
Changes in Net Position
for the Years Ended December 31, 2012 and 2011
GovernmentalBusiness-Type
ActivitiesActivitiesTotal
201220112012201120122011
Revenues
Program revenues
Charges for services1,950,862$ 1,681,740$ 6,669,861$ 5,391,292$ 8,620,723$ 7,073,032$
Operating grants and
contributions
1,097,9581,132,708 520,768 562,158 1,653,476 1,660,116
Capital grants and
contributions
2,287,5616,695,232 44,485 194,713 6,739,717 2,482,274
General revenues
Property taxes9,920,264 10,308,666 – – 9,920,264 10,308,666
Franchise taxes600,172 587,507 – – 600,172 587,507
Grants and contributions
not restricted to specific18,066 16,831 – – 18,066 16,831
programs
Other
757,952863,590 182,711 301,921 1,046,301 1,059,873
Total revenues21,180,894 16,738,215 7,417,825 6,450,084 28,598,719 23,188,299
Expenses
General government3,156,038 2,731,402 – – 3,156,038 2,731,402
Public safety4,744,743 4,700,282 – – 4,744,743 4,700,282
Public works4,931,149 4,570,863 – – 4,931,149 4,570,863
Culture and recreation2,231,995 2,161,125 – – 2,231,995 2,161,125
Economic development595,770 628,884 – – 595,770 628,884
Interest on long-term debt2,101,559 1,603,642 – – 2,101,559 1,603,642
Water– – 2,057,934 2,126,921 2,057,934 2,126,921
Sewer– – 2,345,657 2,416,499 2,345,657 2,416,499
Water quality– – 362,459 527,928 362,459 527,928
Transit– – 841,040 833,573 841,040 833,573
Total expenses17,761,254 16,396,198 5,607,090 5,904,921 23,368,344 22,301,119
Increase in net position
before transfers
342,0173,419,640 1,810,735 545,163 5,230,375 887,180
Transfers1,130,328 2,058,786 (1,130,328) (2,058,786) – –
Changes in net position4,549,968 2,400,803 680,407 (1,513,623) 5,230,375 887,180
Net position – beginning
88,111,08690,511,889 52,416,062 53,929,685 142,927,951 142,040,771
Net position – ending95,061,857$ 90,511,889$ 53,096,469$ 52,416,062$ 148,158,326$ 142,927,951$
Governmental Activities
–Governmental activities increased the City’s net position by $4,549,968, or
5.0 percent. Key elements of this increase are seen in the table above. The increase is due mostly to
increased state grants for Arcadia Avenue and County Road 21 construction and a federal grant for land
purchases.
The business-type activities increased the City’s net position by $680,407 due mostly to a rate increase in
water service charges combined with increased consumption during 2012.
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Below are specific graphs that provide comparisons of the governmental activities program revenues and
expenses:
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$–
GeneralPublic SafetyPublic WorksCulture andEconomicInterest on
GovernmentRecreationDevelopmentLong-Term
Debt
ExpensesProgram Revenues
Governmental Activities – Revenue by Program
Other
Charges for Services
4%
9%
Franchise Taxes
Operating Grants and
3%
Contributions
5%
Capital Grants and
Contributions
32%
Property Taxes
47%
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Business-Type Activities
–For the most part, increases in expenses closely paralleled inflation and
growth in the demand for services. Below are graphs showing the business-type activities program
revenues and expense comparisons:
$3,500,000
$3,250,000
$3,000,000
$2,750,000
$2,500,000
$2,250,000
$2,000,000
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
$–
WaterSewerWater QualityTransit
ExpensesProgram Revenues
Business-Type Activities – Revenue by Source
Capital Grants and
Contributions
1%
Other
2%
Operating Grants and
Contributions
7%
Charges for Services
90%
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FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with
finance-related legal requirements.
Governmental Funds
–The focus of the City’s governmental funds is to provide information on
near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing
the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure
of a government’s net resources available for spending at the end of the fiscal year.
As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund
balances of $21,082,485, a decrease of $1,652,340 in comparison with the prior year.
The General Fund is the chief operating fund of the City. At the end of the recent fiscal year, unassigned
fund balance of the General Fund was $6,281,374, while total fund balance reached $6,972,362. As a
measure of the General Fund’s liquidity, it may be useful to compare the unassigned fund balance to total
fund expenditures. Unassigned fund balance represents about 51.5 percent of total 2013 General Fund
budgeted expenditures ($12,192,316).
Total fund balance for the City’s General Fund decreased by $774,845 during 2012, due to an increase in
transfers out in the current year to fund fiscal 2012 and 2013 capital projects and the early redemption of
bonds in fiscal 2013.
The Debt Service Fund balance decreased by $248,311. The City manages cash flow in all debt service
funds and ensures adequate resources exist to fund future obligations.
The Construction Fund balance decreased by $2,426,226. This decrease is mainly due to the City
completing multiple road construction projects in the current year.
Proprietary Funds
– The City’s proprietary funds provide the same information for the business-type
activities found in the government-wide financial statements, but in more detail.
GENERAL FUND BUDGETARY HIGHLIGHTS
Actual revenues were $841,403 over budget in 2012. This is primarily due to taxes, licenses and permits,
and charges for services being higher than anticipated.
Actual expenditures were $299,545 less than budget in 2012. The largest variances from budget were
general governmental and public works, both being under budget by $106,460 and $87,382, respectively.
This is primarily due to savings from open positions, utility costs, and legal and professional services.
These savings were offset by higher costs for repair and maintenance.
Transfers to other funds were amended in 2012 to include funding for the acquisition of property in 2012,
facility improvements in 2013, and the early redemption of bonds in 2013. General Fund reserves were
used to fund these additional transfers.
The City’s General Fund balance decreased by a net amount of $774,845 to a position of $6.97 million.
This General Fund amount represents a reserve of 57.2 percent based upon the 2013 annual budget
($12,192,316).
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CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
– The City’s investment in capital assets for its governmental and business-type activities
as of December 31, 2012 amounts to $155,853,530 (net of accumulated depreciation). This investment in
capital assets includes items such as land, buildings and improvements, machinery and equipment, park
facilities, roads, highways, and bridges.
Table 3
Capital Assets
(Net of Depreciation)
GovernmentalBusiness-Type
ActivitiesActivitiesTotal
201220112012201120122011
Land31,593,977$ 30,509,967$ –$ –$ 31,593,977$ 30,509,967$
Easements29,179,937 27,151,185 75,300 75,300 29,255,237 27,226,485
Construction in progress4,350,287 4,468,954 – – 4,350,287 4,468,954
Land improvements867,025 862,238 55,343 58,802 922,368 921,040
Machinery and equipment3,008,202 2,428,157 285,558 224,504 3,293,760 2,652,661
Vehicles1,307,659 1,563,875 30,270 – 1,337,929 1,563,875
Infrastructure39,782,322 39,726,325 45,317,650 45,076,547 85,099,972 84,802,872
Total110,089,409$ 106,710,701$ 45,764,121$ 45,435,153$ 155,853,530$ 152,145,854$
Additional information on the City’s capital assets can be found in Note 3 of the notes to basic financial
statements.
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Long-Term Debt
– At the end of the current fiscal year, the City had total bonded debt outstanding of
$38,580,000. All of this amount comprises debt backed by the full faith and credit of the City. The
City’s total debt decreased during the current fiscal year due to scheduled debt service payments.
Table 4
Long-Term Liabilities
GovernmentalBusiness-Type
ActivitiesActivitiesTotal
201220112012201120122011
G.O. bonds21,335,000$ 13,010,000$ –$ –$ 21,335,000$ 13,010,000$
G.O. special assessment bonds8,730,000 10,230,000 – – 8,730,000 10,230,000
G.O. tax increment bonds290,000 585,000 – – 290,000 585,000
G.O. revenue bonds8,225,000 8,545,000 – – 8,225,000 8,545,000
Revenue bonds– 9,070,000 – – – 9,070,000
Premium (discount) on bonds payable310,094 212,606 – – 310,094 212,606
Compensated absences payable895,822 871,282 125,112 146,092 1,020,934 1,017,374
Total39,785,916$ 42,523,888$ 125,112$ 146,092$ 39,911,028$ 42,669,980$
In April 2010, Moody’s Investor Services recalibrated the City’s bond rating to the global rating scale
and, therefore, changed the City’s bond rating from Aa3 to an Aa2. The Aa2 bond rating was reaffirmed
with the 2012 bond issuance.
The City’s statutory debt limit is equal to 3 percent of estimated taxable market value of property located
within the City. The taxable market value totals $2,504,043,900, which calculates to a debt margin of
$75,121,317. Debt financed partially or entirely by special assessments, tax increments, and other
revenue sources is not applied against the City’s debt limit, nor is debt financed by proprietary fund
revenues. Currently, the City has $21,335,000 of general obligation debt outstanding leaving a debt
margin of $53,786,317.
Additional information on the City’s long-term debt can be found in Note 5 of the notes to basic financial
statements.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES
The City adopted a general operating budget of $12,192,316, expenditures and other financing
uses, for fiscal 2013, a decrease of $537,652, or 4.2 percent, from the 2012 original budget.
2013 budgets were adopted for the Debt Service Fund, Revolving Equipment Fund, Facilities
Management Fund, and Economic Development Authority Fund in the amounts of $14,358,310,
$489,196, $447,874, and $151,684, respectively.
Continued staged development of land with the 2,000 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.
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Financial Management Policies
The City has set a goal to establish “Financial Performance 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 financial direction by the City Council with resident input.
The financial management policies are to be reviewed by City Council and additional
objectives/performance measures considered in 2013.
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. In April 2010, Moody’s Investor Services recalibrated the City’s bond
rating to the global rating scale and, therefore, changed the City’s bond rating from Aa3 to an Aa2. The
Aa2 bond rating was reaffirmed with the 2012 bond issuances:
2008Aa3
2009Aa3
2010Aa2
2011Aa2
2012Aa2
Objective 2: 45 Percent General Fund Reserve Balance
Maintain a 45 Percent General Fund Reserve Balance – The Office of the State Auditor (OSA)
recommended reserve to provide adequate cash flow, offset revenue shortfalls, and insurance for
unforeseen catastrophic events. In April 2011, the City Council adopted the Comprehensive Financial
Management Policy which established a 45 percent targeted level for the General Fund unrestricted fund
balance based on sound rationale and defined intended uses.
$13,000,000
$12,729,968
$12,750,000
$12,476,974
$12,500,000
$12,192,316
$12,188,313
$12,250,000
$12,000,000
$12,120,546
$11,750,000
61%
$11,500,000
58%
57%
$11,250,000
$11,000,000
50%
44%
$10,750,000
$10,500,000
20082009201020112012
Actual Fund Balance
Subsequent Year’s Budget
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Objective 3: Lowest City Property Tax Rank in Scott County
Achieve the Lowest City Property Tax Rank in Scott County – The favorable tax rate provides stimulus
for growth of residential and commercial property tax base. This data reflects the tax capacity rate, which
is based on the levies approved by the City Council to fund general services, such as police, fire, street
maintenance, parks, recreation, finance, and general administration. The table does not reflect the market
value rate, which is a tax based on market referenda approved by the City’s voters to finance the
construction of two fire stations and improvements to the City parks and library.
Cities20082009201020112012
Belle Plaine55.137 54.023 63.338 67.320 83.936
Elko New Market37.161 36.967 39.580 43.912 45.259
Jordan51.039 52.736 60.840 60.660 71.938
New Prague51.402 52.677 58.692 64.080 70.083
Prior Lake28.064 27.647 29.442 30.710 29.739
Savage48.356 46.013 47.335 48.278 51.123
Shakopee31.925 32.630 33.710 34.731 36.655
Source: Scott County Department of Taxation
Property Tax Rate –Scott County Cities
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
–
20082009201020112012
Belle PlaineJordanNew Prague
Prior LakeSavageShakopee
Elko New Market
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Objective 4: 100 Percent Funded Fire Relief Association Pension
Assure 100 Percent Funded Fire Relief Association Pension – This reduces reliance upon future property
rate increases. The last year of reported information is 2011.
Fire Relief Funding Rate
120%
110%
100%
90%
88%
80%
80%
68%
60%
40%
20%
–
20072008200920102011
Objective 5: 98 Percent General Fund Budget Outcome
Limit Expenditures Level to a 98 Percent General Fund Budget Outcome – This ensures fiscal
accountability at the highest level.
Actual Expenditures to Budget
110%
100%
95%
98%
100%
91%
90%
90%
80%
70%
60%
50%
40%
30%
20%
10%
–
20082009201020112012
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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
100%
99%
99%
99%
99%
98%
98%
97%
96%
96%
95%
20082009201020112012
Objective 7: 60/40 Percent Property Tax Ratio
Target a 60/40 Percent Property 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.
Percent of Non-Property Tax Revenue in General Fund
40%
35%
37%
34%
34%
30%
32%
32%
25%
20%
15%
10%
5%
0%
20082009201020112012
* The percentage of prior years has been restated to reflect the non-property tax revenue for the
General Fund only.
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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 office of the Finance Director,
City of Prior Lake, 4646 Dakota Street Southeast, Prior Lake, MN 55372-1714.
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