HomeMy WebLinkAbout9A 2016 Annual Financial Report and Management Letter Report
4646 Dakota Street SE
Prior Lake, MN 55372
CITY COUNCIL AGENDA REPORT
MEETING DATE: JUNE 12, 2017
AGENDA #: 9A
PREPARED BY: CATHY ERICKSON, ACCOUNTING MANAGER
PRESENTED BY: JIM EICHTEN, MMKR & CO, P.A.
AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION APPROVING THE 2016
ANNUAL FINANCIAL REPORT AND MANAGEMENT LETTER
DISCUSSION: Introduction
The 2016 annual audit was conducted in accordance with generally
accepted auditing standards and represents an independent opinion of the
financial activities during the year and position of the City of Prior Lake as of
12/31/2016. The purpose of the audit is to express an opinion about
whether the financial statements prepared are fairly presented, in all
material respects, and in conformity with accounting principles generally
accepted in the United States of America.
History
All cities with a population of more than 2,500 are required by state statute
to complete an audit each year. The firm of Malloy, Montague, Karnowski,
Radosevich & Co, P.A. (MMKR) has been retained by the City for this
purpose.
Current Circumstances
Copies of the reports are included in the packet that was distributed to
Council members on June 7. Copies of the 2016 Annual Financial Report
and Management Letter will also be available for the Council and public
prior to the Council meeting on June 12.
The Annual Financial Report represents the financial reporting model that
reflects GASB Statement No. 34 as required by the Governmental
Accounting Standards Board (GASB). This format consolidates the City’s
financial reporting activity into two groups (governmental activities and
business-type activities) and includes a statement of net assets. A
statement of net assets identifies capital assets (i.e. land, buildings and
improvements) and long-term liabilities. As stated in the Financial Report,
the City’s overall net asset financial position (governmental and business-
type activities combined) is $170,347,384 and represents an increase of
$6,270,636 from December 31, 2015.
Conclusion
The Management Letter is intended to bring to the City Council’s attention
any deficiencies or conditions recommended for improvement within the
design or administration of the City’s financial operations and to follow-up on
prior year findings and recommendations.
2
Based on their audit of the City’s financial statements for the year ended
December 31, 2016:
• MMKR issued an unmodified opinion on the City’s financial
statements;
• MMKR reported no deficiencies in the City’s internal control over
financial reporting that they considered to be material weaknesses;
• The results of MMKR’s testing disclosed no instances of
noncompliance required to be reported under Government Auditing
Standards;
• MMKR reported one finding based on testing of the City’s
compliance with Minnesota laws and regulations.
➢ The City had cash in excess of federal depository insurance with one
investment broker as of December 31, 2016, which was not
adequately covered by pledged collateral with a market value of 110
percent of the excess, as required by state statutes. As a result,
$408,416 of the City’s deposits were exposed to custodial credit risk
at year-end. This was an oversight by former staff and, once
identified, was rectified immediately by current staff. Current staff
has requested that the broker sweep funds into the money market
account daily.
• MMKR performed procedures to follow-up on the findings and
recommendations that resulted from our prior your audit (2015).
They reported that the following prior year finding was corrected in
the current year (2016).
➢ The City held two CD’s each through separate investment brokers at
December 31, 2015, leaving $484,995 of the City’s deposits
uninsured and uncollateralized. This oversight was corrected in
early 2016. Staff reviews collateral coverage to assure that
adequate diversification of CDs is obtained.
The Management Letter also includes summaries and graphs for
operational activity for the General Fund and proprietary funds, comparative
information for property taxes and governmental fund revenues and
expenditures, and accounting and auditing updates.
GASB requires that a Management’s Discussion and Analysis (known as an
MD&A) be assimilated in the Annual Financial Report to provide
supplementary information to facilitate a greater understanding of the audit
report by the general reader. As in previous years, the MD&A includes a
section attributed to the financial management policies of the City. A key
element within the City’s Vision and Strategic Plan is the ability to
demonstrate strong financial management and effective use of community
resources. In addition, the Comprehensive Financial Management Policy
(CFMP) includes a section on Financial Planning and Reporting for the
purpose of providing “accurate, current and meaningful information about
the City’s operations to guide decision making and enhance and protect the
City’s financial position.” The Council recently updated this section of the
CFMP to include five (5) objectives/metrics to be included in the Annual
Financial Report. They include:
3
o Bond Rating – Maintain or improve current Aa2 bond rating;
o General Fund Reserve Balance - Maintain a General Fund
unrestricted fund balance (which includes Committed,
Assigned and Unassigned classifications) within a range of
40 – 50% of projected expenditures for the subsequent year;
o Property Taxes – Maintain or improve property tax rank when
compared to a broader list of metro area cities;
o Property Taxes / Household – Maintain a level of property
taxes on a per household basis which takes into account the
cost of inflation and community growth.
o General Fund Expenditures / Household – Maintain a level of
General Fund operational expenditures on a per household
basis which takes into account the cost of inflation and
community growth.
All five objectives/metrics are discussed and graphically presented within
the MD&A section of the 2016 Annual Financial Report.
The primary results for the General Fund as indicated within the 2016
Annual Financial Report are:
1) Actual revenues were $12,977,956 (including transfers and sale of
assets) compared to amended budgeted revenues of $12,775,738 or
98% of budget.
2) Actual expenditures were $12,417,787 (including transfers out)
compared to amended budgeted expenditures of $13,008,738 or
95% of budget.
3) Gross expenditures exceeded revenues by an amount of $560,169.
The 2016 year-end General Fund balance (which is maintained for cash
flow, emergency purposes, etc.) increased to $6,684,920. Of that amount,
$50,000 is assigned for the 2017 budget for professional services in the
building department, leaving unassigned fund balance of the General Fund
of $6,634,920 that is unrestricted. This represents a reserve of 50.8% of the
2017 General Fund budgeted expenditures and transfers out ($13,070,878).
This level of reserve is slightly higher than the targeted range of 40-50% as
identified in the City’s Comprehensive Financial Management Policy.
The total fund balance of $6,684,920 reflects an increase of $560,169 from
the prior year and an increase of $793,169 from the amended budget. The
amended budget reflected the use of fund balance of $233,000 for projects
carried over from 2015. The increase in fund balance is primarily due to
increased revenues from building permits and fees, and modest increases
in intergovernmental revenues, including a Local Planning Assistant Grant
from the Metropolitan Council. Also, the City had lower than budgeted
expenditures due to employee turnover and delays in filling open positions,
decreased street maintenance, fuel, legal expenditures, and less capital
outlay than originally planned for parks.
Please feel free to contact Staff prior to the meeting if you have any
questions or would like to review the Report on a more comprehensive
basis.
4
Jim Eichten of the firm MMKR & Co, P.A. will make a brief presentation
regarding the Report and Management Letter and respond to any questions
the Council may have.
Additional Reporting Required
A City Financial Reporting Form, which is basically a condensed excerpt of
the official document, is required to be submitted to the Office of the State
Auditor by June 30, 2017 along with this report.
ALTERNATIVES: The following alternatives are available to the City Council:
1. Motion and second to adopt the attached resolution accepting the
2016 Annual Financial Report and Management Letter as submitted.
2. Delay action according to a specific Council reason.
RECOMMENDED
MOTION:
Alternative 1.
4646 Dakota Street SE
Prior Lake, MN 55372
RESOLUTION 17-___
A RESOLUTION ACCEPTING THE 2016 ANNUAL FINANCIAL REPORT AND
MANAGEMENT LETTER
Motion By: Second By:
WHEREAS, Minnesota Statutues requires that the City’s financial records be annually audited;
and,
WHEREAS, the annual audit is conducted in conformance with generally accepted accounting
principles; and,
WHEREAS, the purpose of the audit is to express an opinion about whether the financial
statements prepared by the City are fairly presented in all material respects in
conformity with accounting principles generally accepted in the United States of
America; and,
WHEREAS, the firm of Malloy, Montague, Karnowski, Radosevich and Co. P.A. (MMKR) have
been retained by the City Council for this purpose; and,
WHEREAS, MMKR has submitted the 2016 Annual Financial Report and Management Letter;
and,
WHEREAS, MMKR has issued an unmodified opinion with respect to the City’s 2016 financial
statements; and,
WHEREAS, The City staff and City Council have carefully examined the submitted statements
and reports and their contents at a regular City Council meeting.
NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE,
MINNESOTA as follows:
1. The recitals set forth above are incorporated herein.
2. The City Council hereby accepts the 2016 Annual Financial Report and Management Letter.
3. The staff is hereby directed to submit the reports to the Office of the State Auditor.
Passed and adopted by the Prior Lake City Council this 12th day of June, 2017
VOTE Briggs McGuire Thompson Braid Burkart
Aye ☐ ☐ ☐ ☐ ☐
Nay ☐ ☐ ☐ ☐ ☐
Abstain ☐ ☐ ☐ ☐ ☐
Absent ☐ ☐ ☐ ☐ ☐
______________________________
Frank Boyles, City Manager
CITY OF PRIOR LAKE
SCOTT COUNTY, MINNESOTA
Financial Statements
and Supplemental Information
Year Ended
December 31, 2016
THIS PAGE INTENTIONALLY LEFT BLANK
Page
INTRODUCTORY SECTION
ELECTED AND APPOINTED OFFICIALS 1
FINANCIAL SECTION
INDEPENDENT AUDITOR’S REPORT 2–4
MANAGEMENT’S DISCUSSION AND ANALYSIS 5–18
BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements
Statement of Net Position 19
Statement of Activities 20–21
Fund Financial Statements
Governmental Funds
Balance Sheet 22–23
Reconciliation of the Balance Sheet to the Statement of Net Position 24
Statement of Revenues, Expenditures, and Changes in Fund Balances 25–26
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund
Balances to the Statement of Activities 27
Statement of Revenues, Expenditures, and Changes in Fund Balances –
General Fund – Budget and Actual 28
Proprietary Funds
Statements of Net Position 29–30
Statements of Revenues, Expenses, and Changes in Net Position 31–32
Statements of Cash Flows 33–36
Notes to Basic Financial Statements 37–70
REQUIRED SUPPLEMENTARY INFORMATION
PERA – General Employees Retirement Fund
Schedule of City’s and Non-Employer Proportionate Share of the Net Pension Liability 71
Schedule of City Contributions 71
PERA – Public Employees Police and Fire Fund
Schedule of City’s Proportionate Share of the Net Pension Liability 72
Schedule of City Contributions 72
Prior Lake Fire Relief Association
Schedule of Changes in the Relief Association’s Net Pension Asset
and Related Ratios 73
Schedule of City Contributions 74
City of Prior Lake Other Post-Employment Benefits Plan
Schedule of Funding Progress 75
CITY OF PRIOR LAKE
SCOTT COUNTY, MINNESOTA
Table of Contents
Page
SUPPLEMENTAL INFORMATION
Combining and Individual Fund Statements and Schedules
Nonmajor Governmental Funds
Combining Balance Sheet 76
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 77
Nonmajor Special Revenue Funds
Combining Balance Sheet 78–79
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 80–81
Nonmajor Capital Projects Funds
Combining Balance Sheet 82–85
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 86–89
General Fund
Schedule of Revenues, Expenditures, and Changes in Fund Balances –
Budget and Actual 90–95
Debt Service Funds
Balance Sheet by Account 96–101
Schedule of Revenues, Expenditures, and Changes in Fund Balances 102–107
Internal Service Funds
Combining Statement of Net Position 108
Combining Statement of Revenues, Expenses, and Changes in Net Position 109
Combining Statement of Cash Flows 110
OTHER INFORMATION SECTION
Summary Financial Report
Revenues and Expenditures for General Operations 111
Combined Schedule of Indebtedness 112–113
Bond Schedules 114–119
Debt Service Requirements 120–121
Tax Levies and Collections, Special Assessment Levies and Collections 122
Schedules of Market Value, Tax Levy, Tax Capacity Values, Tax Capacity Rate,
and Market Value Rate 123
Key Financial Indicators 124
OTHER REQUIRED REPORTS
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards 125–126
Independent Auditor’s Report on Minnesota Legal Compliance 127
Schedule of Findings 128
CITY OF PRIOR LAKE
SCOTT COUNTY, MINNESOTA
Table of Contents (continued)
INTRODUCTORY SECTION
-1-
Term Expires
Ken Hedberg Mayor 12/31/2016
Richard Keeney Councilmember 12/31/2016
Michael McGuire Councilmember 12/31/2018
Monique Morton Councilmember 12/31/2016
Annette Thompson Councilmember 12/31/2018
Frank Boyles City Manager
Donald Uram Finance Director
Cathy Erickson Accounting Manager
ELECTED
APPOINTED
CITY OF PRIOR LAKE
SCOTT COUNTY, MINNESOTA
Elected and Appointed Officials
As of December 31, 2016
FINANCIAL SECTION
THIS PAGE INTENTIONALLY LEFT BLANK
C ERTIFIED
A CCOUNTANTS
P UBLIC
PRINCIPALS
Thomas A. Karnowski, CPA
Paul A. Radosevich, CPA
William J. Lauer, CPA
James H. Eichten, CPA
Aaron J. Nielsen, CPA
Victoria L. Holinka, CPA/CMA
Malloy, Montague, Karnowski, Radosevich & Co., P.A.
5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com
-2-
INDEPENDENT AUDITOR’S REPORT
To the City Council and Management
City of Prior Lake, Minnesota
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information of the City of Prior Lake,
Minnesota (the City) as of and for the year ended December 31, 2016, and the related notes to the
financial statements, which collectively comprise the City’s basic financial statements as listed in the
table of contents.
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the City’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
(continued)
-3-
OPINIONS
In our opinion, the financial statements referred to on the previous page present fairly, in all material
respects, the respective financial position of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City as of December 31, 2016, and the
respective changes in financial position and, where applicable, cash flows thereof, and the budgetary
comparison for the General Fund for the year then ended, in accordance with accounting principles
generally accepted in the United States of America.
OTHER MATTERS
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis and the required supplementary information (RSI), as listed in the table of
contents, be presented to supplement the basic financial statements. Such information, although not a part
of the basic financial statements, is required by the Governmental Accounting Standards Board, who
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to
the RSI in accordance with auditing standards generally accepted in the United States of America, which
consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management’s responses to our inquiries, the basic financial statements,
and other knowledge we obtained during our audit of the basic financial statements. We do not express an
opinion or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, combining and individual fund
statements and schedules, and other information section, as listed in the table of contents, are presented
for purposes of additional analysis and are not required parts of the basic financial statements.
The combining and individual fund statements and schedules are the responsibility of management and
were derived from and relate directly to the underlying accounting and other records used to prepare the
basic financial statements. Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to prepare the
basic financial statements or to the basic financial statements themselves, and other additional procedures
in accordance with auditing standards generally accepted in the United States of America. In our opinion,
the information is fairly stated, in all material respects, in relation to the basic financial statements as a
whole.
The introductory and other information sections have not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or
provide any assurance on them.
(continued)
-4-
Prior Year Comparative Information
We have previously audited the City’s 2015 financial statements, and we expressed unmodified audit
opinions on the respective financial statements of the governmental activities, the business-type activities,
each major fund, and the aggregate remaining fund information in our report dated May 18, 2016. In our
opinion, the partial comparative information presented herein as of and for the year ended December 31,
2015 is consistent, in all material respects, with the audited financial statements from which it has been
derived.
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated June 1, 2017 on
our consideration of the City’s internal control over financial reporting and on our tests of its compliance
with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose
of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the City’s internal control over financial reporting and
compliance.
Minneapolis, Minnesota
June 1, 2017
THIS PAGE INTENTIONALLY LEFT BLANK
CITY OF PRIOR LAKE
Management’s Discussion and Analysis
Fiscal Year Ended December 31, 2016
-5-
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, 2016.
FINANCIAL HIGHLIGHTS
The assets and deferred outflows of resources of the City exceeded its liabilities and deferred
inflows of resources at the close of the most recent fiscal year by $170,347,384 (net position). Of
this amount, $13,401,852 (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 $6,270,636.
As of the close of the current fiscal year, the City’s governmental funds reported combined
ending fund balances of $26,864,626, an increase of $1,239,402 in comparison with the prior
year.
At the end of the current fiscal year, the fund balance for the General Fund was $6,684,920. Of
that amount, $50,000 is assigned for the 2017 budget for professional services in the building
department. The unassigned amount of $6,634,920 is 50.8 percent of budgeted 2017 expenditures
and transfers out ($13,070,878). The total fund balance of $6,684,920 reflects an increase of
$560,169 from the prior year and an increase of $793,169 from the amended budget. The
amended budget reflected the use of fund balance of $233,000 for projects carried over from
2015. The increase in fund balance is primarily due to increased revenues from building permits
and fees, and modest increases in intergovernmental revenues, including a Local Planning
Assistant Grant from the Metropolitan Council. Also, the City had lower than budgeted
expenditures due to employee turnover and delays in filling open positions, decreased street
maintenance, fuel, legal expenditures, and less capital outlay than originally planned for in parks.
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.
The Statement of Net Position presents information on all of the City’s assets, deferred outflows of
resources, liabilities, and deferred inflows of resources, with the difference between them 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.
-6-
The Statement of Activities presents information showing how the City’s net position changed during the
most recent fiscal year. All changes in net position are reported as soon as the underlying event giving
rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are
reported in this statement for some items that will only result in cash flows in future fiscal periods
(e.g., uncollected taxes and earned, but unused, vacation leave).
Both of the government-wide financial statements distinguish functions of the City that are principally
supported by taxes and intergovernmental 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, and water quality operations. The Transit Fund was closed in 2015.
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 funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures,
and Changes in Fund Balances provide a reconciliation to facilitate this comparison between
governmental funds and governmental activities.
The City maintains numerous individual governmental funds. Information is presented separately in the
governmental funds Balance Sheet and in the governmental funds Statement of Revenues, Expenditures,
and Changes in Fund Balances for the General Fund, DAG Special Revenue 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, and water quality operations.
The Transit Fund was closed in 2015.
-7-
Proprietary funds provide the same type of information as shown in the government-wide financial
statements, only in more detail.
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
and insurance benefits. 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 funds are 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.
Supplemental Information – The combining and individual fund statements and schedules 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 and deferred outflows of resources exceeded liabilities and deferred inflows of
resources by $170,347,384 at the close of the most recent fiscal year.
The City’s investment in capital assets (e.g., land, buildings, and machinery and equipment), less any
related debt used to acquire those assets that is still outstanding, totaled 88.4 percent of total net position.
The City uses these capital assets to provide services to citizens; consequently, these assets are not
available for future spending. Although the City’s investment in its capital assets is reported net of related
debt, it should be noted that the resources needed to repay this debt must be provided from other sources,
since the capital assets themselves cannot be used to liquidate these liabilities.
-8-
The following table provides the City’s Summary of Net Position:
2016 2015 2016 2015 2016 2015
Assets
Current and other assets 34,656,763$ 34,420,681$ 5,679,447$ 5,185,565$ 40,336,210$ 39,606,246$
Capital assets 137,876,393 134,217,973 51,075,358 47,805,809 188,951,751 182,023,782
Total assets 172,533,156$ 168,638,654$ 56,754,805$ 52,991,374$ 229,287,961$ 221,630,028$
Deferred outflows of resources
Pension plan deferments 8,862,104$ 1,271,046$ 632,391$ 137,788$ 9,494,495$ 1,408,834$
Liabilities
Long-term liabilities 60,724,315$ 52,654,689$ 1,649,156$ 1,119,251$ 62,373,471$ 53,773,940$
Other liabilities 3,474,169 3,840,708 166,592 222,595 3,640,761 4,063,303
Total liabilities 64,198,484$ 56,495,397$ 1,815,748$ 1,341,846$ 66,014,232$ 57,837,243$
Deferred inflows of resources
Pension plan deferments 2,234,103$ 1,024,683$ 186,737$ 100,188$ 2,420,840$ 1,124,871$
Net position
Net investment in
capital assets 99,587,768$ 94,087,717$ 51,075,358$ 47,805,809$ 150,663,126$ 141,893,526$
Restricted 6,282,406 6,836,277 – – 6,282,406 6,836,277
Unrestricted 9,092,499 11,465,626 4,309,353 3,881,319 13,401,852 15,346,945
Total net position 114,962,673$ 112,389,620$ 55,384,711$ 51,687,128$ 170,347,384$ 164,076,748$
Activities Activities Total
Governmental Business-Type
Summary of Net Position
as of December 31, 2016 and 2015
Table 1
An additional portion of the City’s net position ($6,282,406, or 3.7 percent) represents resources that are
subject to external restrictions on how they may be used. The remaining balance of unrestricted net
position, $13,401,852, may be used to meet the government’s ongoing obligations to citizens and
creditors.
The significant increase in deferred outflows of resources, long-term liabilities, and deferred inflows of
resources relates to the changes in accounting for the defined benefit pension plan administered by the
Public Employees Retirement Association (PERA). The Governmental Accounting Standards Board
(GASB) Statement No. 68 requires the City to recognize its proportionate share of pension benefit
obligations.
At the end of the current fiscal year, the City is able to report positive balances in all three categories of
net position, both for the government as a whole, as well as for its separate governmental and
business-type activities. The same situation held true for the prior fiscal year.
-9-
2016 2015 2016 2015 2016 2015
Revenues
Program revenues
Charges for services 2,001,048$ 1,908,653$ 7,335,805$ 6,688,221$ 9,336,853$ 8,596,874$
Operating grants and
contributions 1,505,694 1,505,332 9,232 42,402 1,514,926 1,547,734
Capital grants and
contributions 6,088,779 9,448,983 1,608,264 851,824 7,697,043 10,300,807
General revenues
Property taxes and tax
increments 11,582,548 10,847,377 – – 11,582,548 10,847,377
Franchise taxes 659,782 604,997 – – 659,782 604,997
Grants and contributions
not restricted to specific
programs 19,864 13,250 – – 19,864 13,250
Interest income 394,422 398,549 65,941 127,457 460,363 526,006
Gain on sale of capital assets 6,163 – – – 6,163 –
Miscellaneous 153,648 308,307 9,825 10,021 163,473 318,328
Total revenues 22,411,948 25,035,448 9,029,067 7,719,925 31,441,015 32,755,373
Expenses
General government 3,176,442 3,266,222 – – 3,176,442 3,266,222
Public safety 7,583,658 5,426,539 – – 7,583,658 5,426,539
Public works 4,672,078 4,775,320 – – 4,672,078 4,775,320
Culture and recreation 2,105,696 2,271,719 – – 2,105,696 2,271,719
Economic development 610,584 590,532 – – 610,584 590,532
Interest on long-term debt 1,294,104 1,410,844 – – 1,294,104 1,410,844
Water – – 2,493,541 2,347,154 2,493,541 2,347,154
Sewer – – 2,635,304 2,468,932 2,635,304 2,468,932
Water quality – – 598,972 560,820 598,972 560,820
Total expenses 19,442,562 17,741,176 5,727,817 5,376,906 25,170,379 23,118,082
Increase in net position
before transfers and
special items 2,969,386 7,294,272 3,301,250 2,343,019 6,270,636 9,637,291
Special items
Transfer of operations – – – (25,200) – (25,200)
Transfers (396,333) 2,737,462 396,333 (2,737,462) – –
Changes in net position 2,573,053 10,031,734 3,697,583 (419,643) 6,270,636 9,612,091
Net position – beginning 112,389,620 102,357,886 51,687,128 52,106,771 164,076,748 154,464,657
Net position – ending 114,962,673$ 112,389,620$ 55,384,711$ 51,687,128$ 170,347,384$ 164,076,748$
Activities Activities Total
Table 2
Changes in Net Position
for the Years Ended December 31, 2016 and 2015
Governmental Business-Type
Governmental Activities – Governmental activities increased the City’s net position by $2,573,053. Key
elements of this increase are seen in the table above. The increase is due primarily to the recognition of
special assessments for the 2016 street reconstruction projects and developer land/infrastructure
contributions.
The significant increase in public safety expenditures relates to changes in accounting for the defined
benefit pension plan administered by the PERA.
The business-type activities increased the City’s net position in total by $3,697,583, mostly due to
increases in capital contributions of $692,717 from developers and $1,613,546 from the governmental
funds.
-10-
Below are specific graphs that provide comparisons of the governmental activities program revenues and
expenses:
$–
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
$7,000,000
$7,500,000
$8,000,000
General
Government
Public Safety Public Works Culture and
Recreation
Economic
Development
Interest on
Long-Term
Debt
Expenses Program Revenues
Governmental Activities – Revenue by Program
-11-
Business-Type Activities – Below are graphs showing the business-type activities program revenues and
expense comparisons.
$–
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$1,750,000
$2,000,000
$2,250,000
$2,500,000
$2,750,000
$3,000,000
$3,250,000
$3,500,000
$3,750,000
$4,000,000
$4,250,000
$4,500,000
Water Sewer Water Quality
Expenses Program Revenues
Business-Type Activities – Revenue by Source
-12-
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 $26,864,626, an increase of $1,239,402 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, total fund
balance reached $6,684,920. Of that amount, $50,000 is assigned for the 2017 budget for professional
services in the building department, leaving unassigned fund balance of the General Fund of $6,634,920.
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 50.8 percent of total 2017 General
Fund budgeted expenditures and transfers out ($13,070,878).
The total fund balance of $6,684,920 reflects an increase of $560,169 from the prior year and an increase
of $793,169 from the amended budget. The amended budget reflected the use of fund balance of
$233,000 for projects carried over from 2015. The increase in fund balance is primarily due to increased
revenues from building permits and fees, and modest increases in intergovernmental revenues, including a
Local Planning Assistant Grant from the Metropolitan Council. Also, the City had lower than budgeted
expenditures due to employee turnover and delays in filling open positions, decreased street maintenance,
fuel, legal expenditures, and less capital outlay than originally planned for in parks.
The DAG Special Revenue Fund balance decreased $56,050. Charges for services decreased $189,981,
but capital outlay only decreased $71,563 in 2016, which caused the decrease in fund balance.
The Debt Service Fund balance increased by $1,847,938. This is largely due to the issuance of the
refunding portion of the 2016A General Obligation Improvement Bonds. This issuance completed the
refunding of the City’s G.O. Water Treatment Revenue Plant Bonds, Series 2007A. 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 $907,907. This decrease is mainly due to a significant
decrease in activity from state aid revenues for capital outlay in addition to a smaller issuance on the
2016A General Obligation Improvement Bonds compared to the 2015A issuance. In 2016, new
construction activity was limited to the Manitou Road Reconstruction Project.
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.
-13-
GENERAL FUND BUDGETARY HIGHLIGHTS
Actual revenues were $192,089 over budget in 2016 due primarily to new multi-family developments of
Grainwood and Courtwood Village that were not expected in the budget. The number of building permits
came in 19 percent over budget. This resulted in an increase in revenues associated with building permit
fees causing licenses and permits to be $121,329 more than budget.
Actual expenditures were $665,458 less than budget in 2016. The largest variances from budget were in
general government and public works being under budget by $122,193 and $298,853, respectively. This
is primarily due to certain staff positions not being filled and park and street improvements not being
completed as budgeted.
CAPITAL ASSETS AND LONG-TERM DEBT
Capital Assets – The City’s investment in capital assets for its governmental and business-type activities
as of December 31, 2016 amounts to $188,951,751 (net of accumulated depreciation). This investment in
capital assets includes items such as land, buildings and improvements, machinery and equipment, park
facilities, roads, highways, and bridges.
2016 2015 2016 2015 2016 2015
Land 32,221,249$ 32,221,249$ –$ –$ 32,221,249$ 32,221,249$
Easements 37,271,304 36,823,303 75,300 75,300 37,346,604 36,898,603
Construction in progress 12,622,172 15,229,989 – 327,534 12,622,172 15,557,523
Land improvements 1,234,187 772,769 57,129 61,516 1,291,316 834,285
Machinery and equipment 2,712,684 2,718,747 360,085 402,831 3,072,769 3,121,578
Vehicles 1,708,560 1,331,252 21,151 31,470 1,729,711 1,362,722
Infrastructure 50,106,237 45,120,664 50,561,693 46,907,158 100,667,930 92,027,822
Total 137,876,393$ 134,217,973$ 51,075,358$ 47,805,809$ 188,951,751$ 182,023,782$
Table 3
Capital Assets
(Net of Depreciation)
Total
Business-Type
Activities
Governmental
Activities
Additional information on the City’s capital assets can be found in Note 3 of the notes to basic financial
statements.
Long-Term Debt – At the end of the current fiscal year, the City had total bonded debt outstanding of
$42,980,000. This amount comprises debt backed by the full faith and credit of the City. The City’s total
debt increased during the current fiscal year due to the increase in net pension liability as well as the
issuance of the 2016A General Obligation Improvement Bonds.
-14-
2016 2015 2016 2015 2016 2015
G.O. bonds 14,980,000$ 13,775,000$ –$ –$ 14,980,000$ 13,775,000$
G.O. special assessment bonds 13,745,000 16,370,000 – – 13,745,000 16,370,000
G.O. tax increment bonds 205,000 225,000 – – 205,000 225,000
G.O. revenue bonds 14,050,000 12,650,000 – – 14,050,000 12,650,000
Premium (discount) on bonds payable 572,534 495,558 – – 572,534 495,558
Energy loan payable 2,327,085 2,574,450 – – 2,327,085 2,574,450
Compensated absences payable 872,720 881,375 134,300 113,169 1,007,020 994,544
Net OPEB obligation 324,900 236,195 – – 324,900 236,195
Net pension liability – GERF and PEPFF 13,647,076 5,447,111 1,514,856 1,006,082 15,161,932 6,453,193
Total 60,724,315$ 52,654,689$ 1,649,156$ 1,119,251$ 62,373,471$ 53,773,940$
Table 4
Long-Term Liabilities
Total
Governmental Business-Type
Activities Activities
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 $2,842,299,000, which calculates to a debt limit of
$85,268,970. 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 $14,980,000 of general obligation debt outstanding, leaving a debt limit of
$70,288,970.
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 $13,070,878, for expenditures and other financing
uses, for fiscal 2017, an increase of $125,140, or 1.0 percent, from the 2016 original budget.
Continued staged development of land with the 2,000 acres annexed in 2004 from Spring Lake
Township will provide most of the City’s anticipated market value growth over the course of the
next 10–15 years.
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.
-15-
Objective 1: Aa2 Bond Rating
Maintain or improve current Aa2 Bond Rating – Strong credit rating by Moody’s Investors Service
(Moody’s), provides low cost financing for the City’s general obligation bonds. In April 2010, Moody’s
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 2015 bond issuances. The City also
received an initial bond rating of AA+ from S&P in 2015. The AA+ bond rating was reaffirmed with the
2016 bond issuance:
Moody’s S&P
2012 Aa2
2013 Aa2
2014 Aa2
2015 Aa2 AA+
2016 AA+
Objective 2: General Fund Reserve Balance
Maintain a 40 to 50 Percent General Fund Reserve Balance – The Office of the State Auditor
recommended a reserve balance to provide adequate cash flow, offset revenue shortfalls, and insurance
for unforeseen catastrophic events. The City Council adopted a revision to the Comprehensive Financial
Management Policy which established a fund balance policy regarding the minimum unrestricted fund
balance for the General Fund. The policy established that the City will strive to maintain an unrestricted
General Fund balance (which includes committed, assigned, and unassigned classifications) within a
range from 40 to 50 percent of the projected expenditures for the subsequent year.
$12,192,316
$12,985,255
$12,563,945
$12,945,738
$13,070,878
57%50%
46%47%
51%
$11,000,000
$11,250,000
$11,500,000
$11,750,000
$12,000,000
$12,250,000
$12,500,000
$12,750,000
$13,000,000
$13,250,000
2012 2013 2014 2015 2016
Subsequent Year’s Budget Actual Fund Balance
-16-
Objective 3: Property Taxes
Maintain or improve property tax rank when compared to a broader list of metro area cities. 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 as well as
the Economic Development Authority. The tables do 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’s parks and library.
Metro
10,000–24,999
Seven-County
Metro Area
City of
Prior Lake
2012 43.27 43.45 29.74
2013 46.05 46.14 31.89
2014 48.80 46.00 30.69
2015 46.90 43.40 31.96
2016 46.96 42.95 31.95
Average City Tax Capacity Rate
2012 –
2013 0.62
2014 0.55
2015 0.55
2016 –
EDA Tax Capacity Rate
Average Prior Lake
Source: League of Minnesota
Cities and Scott County
-17-
Objective 4: Property Taxes/Household
Maintain a level of property taxes on a per household basis which takes into account the cost of inflation
and community growth. The goal is to have a tax levy per household that is at or below the rate of
inflation over time. This chart reflects community growth and the cost of inflation using the
Minneapolis-St. Paul consumer price index (CPI).
$1,000
$1,025
$1,050
$1,075
$1,100
$1,125
$1,150
$1,175
$1,200
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Property Tax Levy Per Household
Property Tax Levy/HH Expected Property Tax Levy/HH
-18-
Objective 5: General Fund Expenditures/Household
Maintain a level of General Fund operational expenditures on a per household basis which takes into
account the cost of inflation and community growth. The goal is to maintain General Fund operating
expenditures per household at or below the rate of inflation over time. This chart reflects community
growth and the cost of inflation using the Minneapolis-St. Paul CPI.
$1,150
$1,200
$1,250
$1,300
$1,350
$1,400
$1,450
$1,500
$1,550
$1,600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
General Fund Total Operating
Expenditures Per Household
Expected Operating Expenditures/HH Operating Expenditures/HH
REQUESTS FOR INFORMATION
These financial statements are designed to provide a general overview of the City’s finances for all those
with an interest in the City’s finances. Questions concerning any of the information provided in this report
or requests for additional financial information should be addressed to the office of the City’s Finance
Director at the City of Prior Lake, 4646 Dakota Street Southeast, Prior Lake, MN 55372-1714.
BASIC FINANCIAL STATEMENTS
THIS PAGE INTENTIONALLY LEFT BLANK
Governmental Business-Type
Activities Activities Total
Assets
Cash and investments 22,540,991$ 5,388,768$ 27,929,759$
Receivables
Delinquent taxes 118,473 – 118,473
Accounts 385,518 241,128 626,646
Special assessments 3,321,107 47,454 3,368,561
Due from other governmental agencies 297,662 2,097 299,759
Restricted assets – temporarily restricted
Cash and investments held in escrow 7,385,994 – 7,385,994
Net pension asset 607,018 – 607,018
Capital assets not being depreciated 82,114,725 75,300 82,190,025
Capital assets net of accumulated depreciation 55,761,668 51,000,058 106,761,726
Total assets 172,533,156 56,754,805 229,287,961
Deferred outflows of resources
Pension plan deferments – GERF and PEPFF 8,627,213 632,391 9,259,604
Pension plan deferments – fire relief 234,891 – 234,891
Total deferred outflows of resources 8,862,104 632,391 9,494,495
Total assets and deferred
outflows of resources 181,395,260$ 57,387,196$ 238,782,456$
Liabilities
Accounts and contracts payable 1,447,483$ 72,520$ 1,520,003$
Accrued salaries and employee benefits payable 339,696 54,753 394,449
Due to other governmental agencies 837,524 34,819 872,343
Deposits payable 761,858 4,500 766,358
Accrued interest payable 49,193 – 49,193
Unearned revenue 38,415 – 38,415
Long-term liabilities
Due within one year 11,087,524 58,144 11,145,668
Due in more than one year 49,636,791 1,591,012 51,227,803
Total liabilities 64,198,484 1,815,748 66,014,232
Deferred inflows of resources
Pension plan deferments – GERF and PEPFF 1,672,891 186,737 1,859,628
Pension plan deferments – fire relief 561,212 – 561,212
Total deferred inflows of resources 2,234,103 186,737 2,420,840
Net position
Net investment in capital assets 99,587,768 51,075,358 150,663,126
Restricted for debt service 5,268,594 – 5,268,594
Restricted for other purposes 1,013,812 – 1,013,812
Unrestricted 9,092,499 4,309,353 13,401,852
Total net position 114,962,673 55,384,711 170,347,384
Total liabilities, deferred inflows
of resources, and net position 181,395,260$ 57,387,196$ 238,782,456$
See notes to basic financial statements
CITY OF PRIOR LAKE
Statement of Net Position
as of December 31, 2016
-19-
Program Revenues
Operating Capital
Charges for Grants and Grants and
Functions/Programs Expenses Services Contributions Contributions
Governmental activities
General government 3,176,442$ 615,554$ 5,244$ –$
Public safety 7,583,658 1,024,977 1,485,744 56,298
Public works 4,672,078 39,075 3,277 5,221,383
Culture and recreation 2,105,696 305,252 3,714 811,098
Economic development 610,584 16,190 7,715 –
Interest on long-term debt 1,294,104 – – –
Total governmental activities 19,442,562 2,001,048 1,505,694 6,088,779
Business-type activities
Water 2,493,541 3,674,099 5,955 789,667
Sewer 2,635,304 2,741,578 2,185 756,336
Water quality 598,972 920,128 1,092 62,261
Total business-type activities 5,727,817 7,335,805 9,232 1,608,264
Total 25,170,379$ 9,336,853$ 1,514,926$ 7,697,043$
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
Interest income
Gain on sale of capital assets
Miscellaneous
Transfers
Total general revenues and transfers
Change in net position
Net position – beginning
Net position – ending
See notes to basic financial statements
CITY OF PRIOR LAKE
Statement of Activities
Year Ended December 31, 2016
-20-
Governmental Business-Type
Activities Activities Total
(2,555,644)$ –$ (2,555,644)$
(5,016,639) – (5,016,639)
591,657 – 591,657
(985,632) – (985,632)
(586,679) – (586,679)
(1,294,104) – (1,294,104)
(9,847,041) – (9,847,041)
– 1,976,180 1,976,180
– 864,795 864,795
– 384,509 384,509
– 3,225,484 3,225,484
(9,847,041) 3,225,484 (6,621,557)
8,730,295 – 8,730,295
2,350,538 – 2,350,538
659,782 – 659,782
501,715 – 501,715
19,864 – 19,864
394,422 65,941 460,363
6,163 – 6,163
153,648 9,825 163,473
(396,333) 396,333 –
12,420,094 472,099 12,892,193
2,573,053 3,697,583 6,270,636
112,389,620 51,687,128 164,076,748
114,962,673$ 55,384,711$ 170,347,384$
Changes in Net Position
Net (Expense) Revenues and
-21-
THIS PAGE INTENTIONALLY LEFT BLANK
FUND FINANCIAL STATEMENTS
DAG Debt
General Special Revenue Service
Assets
Cash and investments 7,211,301$ 1,080,105$ 2,481,996$
Cash held in escrow – – 6,895,799
Receivables
Delinquent taxes 117,752 – –
Accounts 242,182 – 15,797
Special assessments
Delinquent 834 – 22,559
Deferred 77,128 – 2,484,542
Other (Green Acres)– – 718,253
Due from other governmental agencies 193,360 – 24,154
Due from other funds 7,064 – –
Total assets 7,849,621$ 1,080,105$ 12,643,100$
Liabilities, Deferred Inflows of Resources,
and Fund Balances
Liabilities
Accounts and contracts payable 222,669$ 31,955$ 3,125$
Accrued salaries and employee benefits payable 335,588 – –
Due to other governmental agencies 97,836 – –
Due to other funds – – 6,846
Deposits payable 376,432 360,426 –
Unearned revenue 4,665 – –
Total liabilities 1,037,190 392,381 9,971
Deferred inflows of resources
Unavailable revenue from delinquent taxes 117,752 – –
Unavailable revenue from special assessments 9,759 – 3,225,355
Total deferred inflows of resources 127,511 – 3,225,355
Fund balances
Restricted – – 9,408,212
Assigned 50,000 687,724 –
Unassigned, reported in
General Fund 6,634,920 – –
Debt Service Fund – – (438)
Total fund balances 6,684,920 687,724 9,407,774
Total liabilities, deferred inflows
of resources, and fund balances 7,849,621$ 1,080,105$ 12,643,100$
See notes to basic financial statements
CITY OF PRIOR LAKE
Balance Sheet
Governmental Funds
as of December 31, 2016
-22-
Nonmajor Total
Governmental Governmental
Construction Funds Funds
4,305,280$ 7,076,059$ 22,154,741$
– 490,195 7,385,994
– 721 118,473
5,082 119,941 383,002
– – 23,393
– 16,388 2,578,058
– 1,403 719,656
75,108 5,040 297,662
– – 7,064
4,385,470$ 7,709,747$ 33,668,043$
319,465$ 870,269$ 1,447,483$
– 4,108 339,696
739,142 546 837,524
– 218 7,064
– 25,000 761,858
– 33,750 38,415
1,058,607 933,891 3,432,040
– 721 118,473
– 17,790 3,252,904
– 18,511 3,371,377
5,000 1,061,236 10,474,448
3,321,863 5,696,327 9,755,914
– – 6,634,920
– (218) (656)
3,326,863 6,757,345 26,864,626
4,385,470$ 7,709,747$ 33,668,043$
-23-
THIS PAGE INTENTIONALLY LEFT BLANK
26,864,626$
Capital assets are included in net position,but are excluded from fund balances because they do not
represent financial resources.
Cost of capital assets 194,590,627
Less accumulated depreciation (56,714,234)
Long-term liabilities are included in net position but are excluded from fund balances until due and
payable.
Bond principal payable (42,980,000)
Energy loan payable (2,327,085)
Net OPEB obligation (324,900)
Net pension liability – GERF and PEPFF (13,647,076)
Debt issuance premiums and discounts are excluded from net position until amortized,but are
included in fund balances upon issuance as other financing sources and uses.(572,534)
Accrued interest payable on long-term debt is included in net position,but is excluded from fund
balances until due and payable.(49,193)
Internal service funds are used by management to charge certain costs to individual funds.The
assets and liabilities of the internal service funds are included in governmental activities in the
Statement of Net Position.
Internal service fund net position included in governmental activities (483,954)
The recognition of certain revenues and expenses/expenditures differ between the full accrual
governmental activities financial statements and the modified accrual governmental fund financial
statements.
Delinquent property taxes 118,473
Special assessments 3,252,904
Net pension asset 607,018
Deferred outflows – GERF and PEPFF pension plans 8,627,213
Deferred outflows – fire relief pension plan 234,891
Deferred inflows – GERF and PEPFF pension plans (1,672,891)
Deferred inflows – fire relief pension plan (561,212)
Total net position – governmental activities 114,962,673$
See notes to basic financial statements
Amounts reported for governmental activities in the Statement of Net Position are different because:
as of December 31, 2016
CITY OF PRIOR LAKE
Reconciliation of the Balance Sheet to the
Statement of Net Position
Governmental Funds
Total fund balances – governmental funds
-24-
DAG Debt
General Special Revenue Service
Revenues
Taxes 8,271,183$ –$ 2,350,538$
Franchise taxes 615,028 – –
Special assessments 9,363 – 832,762
Licenses and permits 751,824 – –
Intergovernmental 1,581,752 – –
Charges for services 1,132,504 39,075 –
Fines and forfeits 4,743 – –
Interest on investments 97,036 – 105,541
Miscellaneous 141,754 – 4,053
Total revenues 12,605,187 39,075 3,292,894
Expenditures
Current
General government 2,531,266 – –
Public safety 5,034,978 – –
Public works 1,875,534 – –
Culture and recreation 1,593,975 – –
Economic development – – –
Capital outlay 222,808 95,125 –
Debt service
Principal – – 3,792,365
Interest and other – – 1,325,255
Total expenditures 11,258,561 95,125 5,117,620
Excess (deficiency) of revenues over expenditures 1,346,626 (56,050) (1,824,726)
Other financing sources (uses)
Debt issued – – 16,085
Refunding debt issued – – 1,640,000
Premium on debt issued – – 70,270
Transfers in 362,640 – 1,946,309
Transfers out (1,159,226) – –
Sale of assets 10,129 – –
Total other financing sources (uses)(786,457) – 3,672,664
Net change in fund balances 560,169 (56,050) 1,847,938
Fund balances
Beginning of year 6,124,751 743,774 7,559,836
End of year 6,684,920$ 687,724$ 9,407,774$
See notes to basic financial statements
CITY OF PRIOR LAKE
Statement of Revenues, Expenditures, and Changes in Fund Balances
Governmental Funds
Year Ended December 31, 2016
-25-
Nonmajor Total
Governmental Governmental
Construction Funds Funds
–$ 982,823$ 11,604,544$
– 44,754 659,782
2,635 12,310 857,070
– – 751,824
67,349 7,278 1,656,379
– 2,170,228 3,341,807
– – 4,743
76,735 108,772 388,084
– 62,908 208,715
146,719 3,389,073 19,472,948
– 5,248 2,536,514
– 41,174 5,076,152
– – 1,875,534
– 12,856 1,606,831
– 150,177 150,177
5,381,872 2,201,493 7,901,298
– – 3,792,365
39,174 11,039 1,375,468
5,421,046 2,421,987 24,314,339
(5,274,327) 967,086 (4,841,391)
1,438,915 410,000 1,865,000
– – 1,640,000
54,604 16,305 141,179
2,990,084 446,308 5,745,341
(117,183) (2,044,447) (3,320,856)
– – 10,129
4,366,420 (1,171,834) 6,080,793
(907,907) (204,748) 1,239,402
4,234,770 6,962,093 25,625,224
3,326,863$ 6,757,345$ 26,864,626$
-26-
THIS PAGE INTENTIONALLY LEFT BLANK
1,239,402$
Capital outlays are recorded in net position and the cost is allocated over their estimated useful lives as depreciation
expense; however, fund balances are reduced for the full cost of capital outlays at the time of purchase.
Capital outlay 7,366,189
Capital contributions 2,861,724
Depreciation expense (3,695,385)
A gain or loss on the disposal of capital assets,including the difference between the carrying value and any related sale
proceeds,is included in the change in net position;however,only the sale proceeds are included in the change in fund
balance.(53,290)
Capital assets constructed in the governmental funds then transferred to the enterprise funds are shown in the
government-wide financial statements but not in the governmental funds statements.(2,820,818)
The amount of debt issued is reported in the governmental funds as a source of financing.Debt obligations are not
revenues in the Statement of Activities, but rather constitute long-term liabilities. Repayment of long-term debt does not
affect the change in net position; however, it reduces fund balances.
Principal repayments 3,792,365
Debt issued (3,505,000)
Net OPEB obligations (88,705)
Net pension liability – GERF and PEPFF (8,199,965)
Interest on long-term debt is included in the change in net position as it accrues,regardless of when the payment is due;
however, it is included in the change in fund balances when due.17,161
Debt issuance premiums and discounts are included in the change in net position as they are amortized over the life of
the debt; however, they are included in the change in fund balances upon issuance as other financing sources and uses.(76,976)
Internal service funds are used by management to charge certain costs to individual funds.The net revenue of certain
activities of the internal service funds is reported with governmental activities in the government-wide financial
statements.
Internal service fund activity included in governmental activities (10,858)
The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities
financial statements and the modified accrual governmental fund financial statements.
Delinquent property taxes (21,203)
Special assessments (292,356)
Net pension asset (320,870)
Deferred outflows – GERF and PEPFF pension plans 7,585,167
Deferred outflows – fire relief pension plan 5,891
Deferred inflows – GERF and PEPFF pension plans (896,786)
Deferred inflows – fire relief pension plan (312,634)
2,573,053$ Change in net position – governmental activities
See notes to basic financial statements
CITY OF PRIOR LAKE
Year Ended December 31, 2016
Governmental Funds
to the Statement of Activities
Amounts reported for governmental activities in the Statement of Activities are different because:
Total net change in fund balances – governmental funds
Revenues, Expenditures, and Changes in Fund Balances
Reconciliation of the Statement of
Certain expenses are included in the change in net position,but do not require the use of current funds,and are not
included in the change in fund balances.
-27-
THIS PAGE INTENTIONALLY LEFT BLANK
Actual Variance With
Original Final Amounts Final Budget
Revenues
Taxes
Property taxes 8,257,512$ 8,257,512$ 8,271,183$ 13,671$
Franchise taxes 595,000 595,000 615,028 20,028
Special assessments 5,000 5,000 9,363 4,363
Licenses and permits 630,495 630,495 751,824 121,329
Intergovernmental 1,535,235 1,535,235 1,581,752 46,517
Charges for services 1,119,306 1,119,306 1,132,504 13,198
Fines and forfeits – – 4,743 4,743
Interest on investments 120,000 120,000 97,036 (22,964)
Miscellaneous 150,550 150,550 141,754 (8,796)
Total revenues 12,413,098 12,413,098 12,605,187 192,089
Expenditures
Current
General government 2,653,459 2,653,459 2,531,266 (122,193)
Public safety
Police 3,542,365 3,554,365 3,520,359 (34,006)
Fire and rescue 898,232 898,232 895,149 (3,083)
Other 632,041 632,041 619,470 (12,571)
Public works 2,153,387 2,174,387 1,875,534 (298,853)
Culture and recreation 1,685,868 1,685,868 1,593,975 (91,893)
Capital outlay
General government 91,390 91,390 79,873 (11,517)
Public safety
Police – – 176 176
Fire and rescue 3,800 3,800 – (3,800)
Culture and recreation 200,477 230,477 142,759 (87,718)
Total expenditures 11,861,019 11,924,019 11,258,561 (665,458)
Excess of revenues over expenditures 552,079 489,079 1,346,626 857,547
Other financing sources (uses)
Transfers in 532,640 362,640 362,640 –
Transfers out (1,084,719) (1,084,719) (1,159,226) (74,507)
Sale of assets – – 10,129 10,129
Total other financing sources (uses)(552,079) (722,079) (786,457) (64,378)
Net change in fund balances –$ (233,000)$ 560,169 793,169$
Fund balances, January 1 6,124,751
Fund balances, December 31 6,684,920$
See notes to basic financial statements
CITY OF PRIOR LAKE
Budgeted Amounts
Year Ended December 31, 2016
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balances
Budget and Actual
-28-
2016 2015 2016 2015
Current assets
Cash and investments 2,794,170$ 2,658,290$ 1,657,304$ 1,574,261$
Receivables
Accounts 77,385 80,598 104,010 88,770
Special assessments
Delinquent 22,088 34,504 22,088 –
Deferred 3,278 4,550 – –
Due from other governmental agencies 1,269 4,132 163 143
Total current assets 2,898,190 2,782,074 1,783,565 1,663,174
Noncurrent assets
Capital assets not being depreciated 75,300 306,440 – –
Depreciable capital assets 39,141,571 36,229,785 26,423,279 24,678,067
Accumulated depreciation (8,648,686) (7,958,390) (7,000,787) (6,576,762)
Total noncurrent assets 30,568,185 28,577,835 19,422,492 18,101,305
Total assets 33,466,375 31,359,909 21,206,057 19,764,479
Deferred outflows of resources
Pension plan deferments – GERF 281,063 61,239 234,219 51,033
Total assets and deferred outflows of resources 33,747,438$ 31,421,148$ 21,440,276$ 19,815,512$
Current liabilities
Accounts and contracts payable 53,254$ 78,474$ 14,158$ 23,644$
Accrued salaries and employee benefits payable 22,678 19,235 23,955 20,192
Due to other governmental agencies 24,860 25,722 6,200 2,800
Deposits payable 4,500 3,000 – –
Current portion of compensated absences payable 28,870 21,976 20,677 15,280
Total current liabilities 134,162 148,407 64,990 61,916
Noncurrent liabilities
Compensated absences payable 52,022 50,633 21,788 16,500
Net pension liability 673,270 447,148 561,058 372,623
Total noncurrent liabbilities 725,292 497,781 582,846 389,123
Total liabilities 859,454 646,188 647,836 451,039
Deferred inflows of resources
Pension plan deferments – GERF 82,994 44,528 69,162 37,107
Net position (deficit)
Investment in capital assets 30,568,185 28,577,835 19,422,492 18,101,305
Unrestricted 2,236,805 2,152,597 1,300,786 1,226,061
Total net position 32,804,990 30,730,432 20,723,278 19,327,366
Total liabilities, deferred inflows of
resources, and net position 33,747,438$ 31,421,148$ 21,440,276$ 19,815,512$
See notes to basic financial statements
CITY OF PRIOR LAKE
Statements of Net Position
Proprietary Funds
as of December 31, 2016 and 2015
Business-Type Activities – Enterprise Funds
Water Sewer
-29-
Governmental
Activities –
2016 2015 2016 2015 2016 2015 Internal Service
937,294$ 697,672$ –$ –$ 5,388,768$ 4,930,223$ 386,250$
59,733 21,142 – – 241,128 190,510 2,516
– – – – 44,176 34,504 –
– – – – 3,278 4,550 –
665 21,503 – – 2,097 25,778 –
997,692 740,317 – – 5,679,447 5,185,565 388,766
– 96,394 – – 75,300 402,834 –
1,491,829 1,330,931 – – 67,056,679 62,238,783 –
(407,148) (300,656) – – (16,056,621) (14,835,808) –
1,084,681 1,126,669 – – 51,075,358 47,805,809 –
2,082,373 1,866,986 – – 56,754,805 52,991,374 388,766
117,109 25,516 – – 632,391 137,788 –
2,199,482$ 1,892,502$ –$ –$ 57,387,196$ 53,129,162$ 388,766$
5,108$ 7,353$ –$ –$ 72,520$ 109,471$ –$
8,120 7,871 – – 54,753 47,298 –
3,759 34,304 – – 34,819 62,826 –
– – – – 4,500 3,000 –
8,597 5,257 – – 58,144 42,513 309,890
25,584 54,785 – – 224,736 265,108 309,890
2,346 3,523 – – 76,156 70,656 562,830
280,528 186,311 – – 1,514,856 1,006,082 –
282,874 189,834 – – 1,591,012 1,076,738 562,830
308,458 244,619 – – 1,815,748 1,341,846 872,720
34,581 18,553 – – 186,737 100,188 –
1,084,681 1,126,669 – – 51,075,358 47,805,809 –
771,762 502,661 – – 4,309,353 3,881,319 (483,954)
1,856,443 1,629,330 – – 55,384,711 51,687,128 (483,954)
2,199,482$ 1,892,502$ –$ –$ 57,387,196$ 53,129,162$ 388,766$
Water Quality TotalsTransit
-30-
2016 2015 2016 2015
Operating revenues
Sewer charges –$ –$ 2,484,584$ 2,179,696$
Water charges 3,329,247 3,032,176 – –
Storm water charges – – – –
Capital facility charges 256,984 253,220 256,994 253,229
Meter sales 87,868 104,656 – –
Charges for services – – – –
Total operating revenues 3,674,099 3,390,052 2,741,578 2,432,925
Operating expenses
Personal services 738,337 688,995 684,644 605,937
Supplies 308,377 310,183 48,644 87,152
Repairs and maintenance 115,261 116,695 65,099 19,841
Other services and charges 162,565 145,132 54,440 82,554
Insurance 1,841 1,973 1,841 1,973
Utilities 472,969 424,444 33,563 35,746
Disposal charges – – 1,323,005 1,228,533
Miscellaneous 3,895 2,601 43 121
Depreciation 690,296 657,131 424,025 407,075
Total operating expenses 2,493,541 2,347,154 2,635,304 2,468,932
Operating income (loss)1,180,558 1,042,898 106,274 (36,007)
Nonoperating revenues (expenses)
Intergovernmental 16,948 4,550 59,465 –
Interest income 35,216 58,274 20,473 34,017
Miscellaneous 6,525 10,021 3,180 –
Total nonoperating revenues (expenses)58,689 72,845 83,118 34,017
Income (loss) before contributions, transfers,
and special items 1,239,247 1,115,743 189,392 (1,990)
Capital contributions from other funds 1,774,662 542,506 1,046,156 399,075
Capital contributions from developers 778,674 575,323 699,056 271,951
Transfers in 24,871 – 92,312 –
Transfers out (1,742,896) (2,279,145) (631,004) (1,343,820)
Special item – transfer of operations – – – –
Change in net position 2,074,558 (45,573) 1,395,912 (674,784)
Net position – beginning 30,730,432 30,776,005 19,327,366 20,002,150
Net position – ending 32,804,990$ 30,730,432$ 20,723,278$ 19,327,366$
See notes to basic financial statements
Business-Type Activities – Enterprise Funds
CITY OF PRIOR LAKE
Statements of Revenues, Expenses, and Changes in Net Position
Proprietary Funds
Years Ended December 31, 2016 and 2015
Water Sewer
-31-
Governmental
Activities –
Internal Service
2016 2015 2016 2015 2016 2015 Fund
–$ –$ –$ –$ 2,484,584$ 2,179,696$ –$
– – – – 3,329,247 3,032,176 –
920,128 865,244 – – 920,128 865,244 –
– – – – 513,978 506,449 –
– – – – 87,868 104,656 –
– – – – – – 26,466
920,128 865,244 – – 7,335,805 6,688,221 26,466
293,907 284,200 – – 1,716,888 1,579,132 127,945
27,076 21,617 – – 384,097 418,952 –
51,036 47,888 – – 231,396 184,424 –
35,088 112,987 – – 252,093 340,673 –
– – – – 3,682 3,946 –
– – – – 506,532 460,190 –
– – – – 1,323,005 1,228,533 –
85,373 2,160 – – 89,311 4,882 –
106,492 91,968 – – 1,220,813 1,156,174 –
598,972 560,820 – – 5,727,817 5,376,906 127,945
321,156 304,424 – – 1,607,988 1,311,315 (101,479)
1,092 42,402 – – 77,505 46,952 –
10,252 9,966 – 25,200 65,941 127,457 6,334
120 – – – 9,825 10,021 84,287
11,464 52,368 – 25,200 153,271 184,430 90,621
332,620 356,792 – 25,200 1,761,259 1,495,745 (10,858)
– 265,691 – – 2,820,818 1,207,272 –
62,261 – – – 1,539,991 847,274 –
– – – – 117,183 – –
(167,768) (321,769) – – (2,541,668) (3,944,734) –
– – – (25,200) – (25,200) –
227,113 300,714 – – 3,697,583 (419,643) (10,858)
1,629,330 1,328,616 – – 51,687,128 52,106,771 (473,096)
1,856,443$ 1,629,330$ –$ –$ 55,384,711$ 51,687,128$ (483,954)$
Water Quality Transit Totals
-32-
2016 2015 2016 2015
Cash flows from operating activities
Cash received from customers 3,695,363$ 3,353,746$ 2,704,230$ 2,413,895$
Cash payments to suppliers (1,090,990) (962,908) (1,532,721) (1,472,910)
Cash payments to employees (681,847) (665,621) (632,892) (599,584)
Net cash flows from operating
activities 1,922,526 1,725,217 538,617 341,401
Cash flows from noncapital financing activities
Special item – transfer of operations – – – –
Intergovernmental 16,948 4,550 59,465 –
Transfers in (out)(1,718,025) (2,279,145) (538,692) (1,343,820)
Net cash flows from noncapital
financing activities (1,701,077) (2,274,595) (479,227) (1,343,820)
Cash flows from capital and related financing
activities
Miscellaneous 6,525 10,021 3,180 –
Purchase of capital assets (127,310) (231,140) – –
Net cash flows from capital
financing activities (120,785) (221,119) 3,180 –
Cash flows from investing activities
Interest received on cash and investments 35,216 58,274 20,473 34,017
Net increase (decrease) in cash and cash
equivalents 135,880 (712,223) 83,043 (968,402)
Cash and cash equivalents, January 1 2,658,290 3,370,513 1,574,261 2,542,663
Cash and cash equivalents, December 31 2,794,170$ 2,658,290$ 1,657,304$ 1,574,261$
See notes to basic financial statements
Business-Type Activities – Enterprise Funds
CITY OF PRIOR LAKE
Statements of Cash Flows
Proprietary Funds
Years Ended December 31, 2016 and 2015
Water Sewer
-33-
Governmental
Activities –
Internal Service
2016 2015 2016 2015 2016 2015 Fund
902,375$ 933,970$ –$ 161,614$ 7,301,968$ 6,863,225$ 26,611$
(231,363) (183,922) – (1,058,650) (2,855,074) (3,678,390) –
(272,843) (276,195) – – (1,587,582) (1,541,400) (136,600)
398,169 473,853 – (897,036) 2,859,312 1,643,435 (109,989)
– – – (25,200) – (25,200) –
1,092 42,402 – – 77,505 46,952 –
(167,768) (321,769) – – (2,424,485) (3,944,734) –
(166,676) (279,367) – (25,200) (2,346,980) (3,922,982) –
120 – – – 9,825 10,021 84,287
(2,243) (49,113) – – (129,553) (280,253) –
(2,123) (49,113) – – (119,728) (270,232) 84,287
10,252 9,966 – 25,200 65,941 127,457 6,334
239,622 155,339 – (897,036) 458,545 (2,422,322) (19,368)
697,672 542,333 – 897,036 4,930,223 7,352,545 405,618
937,294$ 697,672$ –$ –$ 5,388,768$ 4,930,223$ 386,250$
(continued)
Transit TotalsWater Quality
-34-
2016 2015 2016 2015
Reconciliation of operating income (loss) to net
cash flows from operating activities
Operating income (loss)1,180,558$ 1,042,898$ 106,274$ (36,007)$
Adjustments to reconcile operating income (loss)
to net cash flows from operating activities
Depreciation 690,296 657,131 424,025 407,075
(Increase) decrease in assets
and deferred outflows of resources
Accounts receivable 3,213 (17,938) (15,240) (19,074)
Special assessments receivable 13,688 (14,497) (22,088) –
Due from other governments 2,863 (3,371) (20) 44
Deferred outflows of resources (219,824) (42,621) (183,186) (35,518)
Increase (decrease) in liabilities
and deferred inflows of resources
Accounts and contracts payable (25,220) 42,488 (9,486) (14,935)
Accrued salaries and employee benefits payable 3,443 (585) 3,763 1,799
Due to other governmental agencies (862) (4,368) 3,400 (2,055)
Deposits payable 1,500 (500) – –
Compensated absences payable 8,283 9,517 10,685 (7,481)
Net pension liability 226,122 12,535 188,435 10,446
Deferred inflows of resources 38,466 44,528 32,055 37,107
Net cash flows from operating
activities 1,922,526$ 1,725,217$ 538,617$ 341,401$
Schedule of noncash activities from capital and
related financing activities
Capital assets contributed from other funds 1,774,662$ 542,506$ 1,046,156$ 399,075$
Capital assets contributed by developers 778,674$ 575,323$ 699,056$ 271,951$
See notes to basic financial statements
Statements of Cash Flows (continued)
Proprietary Funds
Years Ended December 31, 2016 and 2015
Business-Type Activities – Enterprise Funds
Water
CITY OF PRIOR LAKE
Sewer
-35-
Governmental
Activities –
Internal Service
2016 2015 2016 2015 2016 2015 Fund
321,156$ 304,424$ –$ –$ 1,607,988$ 1,311,315$ (101,479)$
106,492 91,968 – – 1,220,813 1,156,174 –
(38,591) (3,663) – 7,771 (50,618) (32,904) 145
– – – – (8,400) (14,497) –
20,838 72,389 – 153,843 23,681 222,905 –
(91,593) (17,759) – – (494,603) (95,898) –
(2,245) (15,184) – (60,364) (36,951) (47,995) –
249 27 – – 7,455 1,241 –
(30,545) 15,914 – (998,286) (28,007) (988,795) –
– – – – 1,500 (500) –
2,163 1,961 – – 21,131 3,997 (8,655)
94,217 5,223 – – 508,774 28,204 –
16,028 18,553 – – 86,549 100,188 –
398,169$ 473,853$ –$ (897,036)$ 2,859,312$ 1,643,435$ (109,989)$
–$ 265,691$ –$ –$ 2,820,818$ 1,207,272$ –$
62,261$ –$ –$ –$ 1,539,991$ 847,274$ –$
Transit TotalsWater Quality
-36-
THIS PAGE INTENTIONALLY LEFT BLANK
CITY OF PRIOR LAKE
Notes to Basic Financial Statements
December 31, 2016
-37-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
A. Organization
The City of Prior Lake, Minnesota (the City) operates under “Optional Plan B” as defined in Minnesota
Statutes. Under this plan, the government of the City is directed by a City Council composed of an elected
mayor and four elected councilmembers. The City Council exercises legislative authority and determines
all matters of policy. The City 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 accounting policies of the City conform to accounting principles generally accepted in the United
States of America as applicable to governmental units.
B. Reporting Entity
As required by accounting principles generally accepted in the United States of America, these financial
statements include the City (the primary government) and its component units. Component units are
legally separate entities for which the primary government is financially accountable, or for which the
exclusion of the component unit would render the financial statements of the primary government
misleading. The criteria used to determine if the primary government is financially accountable for a
component unit includes whether or not the primary government appoints the voting majority of the
potential component unit’s board, is able to impose its will on the potential component unit, is in a
relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon
by the potential component unit.
As a result of applying these criteria, certain organizations have been included or disclosed in this report
as follows:
Blended Component Unit – The Prior Lake Economic and Development Authority (EDA) was
created pursuant to Minnesota Statutes § 469.090 through § 469.108 to carryout economic and
industrial development and redevelopment within the City in accordance with policies established by
the City Council. The five-member Board of Directors consists of two councilmembers and
three members appointed from the community. The EDA is reported as a blended component unit
within the EDA Special Revenue Fund. Separate financial statements are not issued for this
component unit. The EDA may not exercise any of the powers enumerated by the authorizing statutes
without prior approval of the City Council.
C. Government-Wide Financial Statements
The government-wide financial statements (Statement of Net Position and Statement of Activities)
display information about the reporting government as a whole. These statements include all of the
financial activities of the City. Governmental activities, which are normally supported by taxes and
intergovernmental revenues, are reported separately from business-type activities, which significantly rely
upon sales, fees, and charges for support.
-38-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Statement of Activities demonstrates the degree to which the direct expenses of a given function or
segment 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, 2) operating grants and contributions, and 3) capital grants and contributions, including special
assessments that are restricted to meeting the operational or capital requirements of a particular function
or segment. Taxes and other internally directed revenues are reported as general revenues.
The government-wide financial statements are reported using the economic resources measurement focus
and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when
a liability is incurred, regardless of the timing of related cash flows. Property taxes and special
assessments are recognized as revenues in the fiscal year for which they are certified for levy. Grants and
similar items are recognized when all eligibility requirements imposed by the provider have been met.
As a general rule, the effect of interfund activity has been eliminated from the government-wide financial
statements. However, charges between the City’s enterprise funds and other functions are not eliminated,
as that would distort the direct costs and program revenues reported in those functions. The City applies
restricted resources first when an expense is incurred for which both restricted and unrestricted resources
are available. Depreciation expense is included in the direct expenses of each function. Interest on
long-term debt is considered an indirect expense and is reported separately on the Statement of Activities.
D. Fund Financial Statement Presentation
Separate fund financial statements are provided for governmental and proprietary funds. Major individual
governmental and enterprise funds are reported as separate columns in the fund financial statements.
Aggregated information for the remaining nonmajor governmental funds is reported in a single column in
the fund financial statements.
Governmental fund financial statements are reported using the current financial resources measurement
focus and the modified accrual basis of accounting. Under this basis of accounting transactions are
recorded in the following manner:
1. Revenue Recognition – Revenue is recognized when it becomes measurable and available.
“Measurable” means the amount of the transaction can be determined and “available” means
collectible within the current period or soon enough thereafter to be used to pay liabilities of the
current period. For this purpose, the City considers revenues to be available if they are collected
within 60 days after year-end. 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.
Grants and similar items are recognized when all eligibility requirements imposed by the provider
have been met. Proceeds of long-term debt and acquisitions under capital leases are reported as
other financing sources.
Major revenue that is susceptible to accrual includes property taxes, franchise taxes, special
assessments, intergovernmental revenue, charges for services, and interest earned on investments.
Major revenue that is not susceptible to accrual includes licenses and permits, fees, and
miscellaneous revenue. Such revenue is recorded only when received because it is not measurable
until collected.
2. Recording of Expenditures – Expenditures are generally recorded when a liability is incurred,
except for principal and interest on long-term debt and compensated absences, which are
recognized as expenditures to the extent they have matured. Capital asset acquisitions are
reported as capital outlay expenditures in the governmental funds.
-39-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Proprietary fund financial statements are reported using the economic resources measurement focus and
the accrual basis of accounting, similar to the government-wide financial statements. 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’s enterprise
funds and internal service funds are charges to customers for sales and services. The operating expenses
for the enterprise funds and internal service funds include the cost of sales and services, administrative
expenses, and depreciation on capital assets. All revenues and expenses that do not meet this definition
are reported as nonoperating revenues and expenses.
Aggregated information for the internal service funds is reported in a single column in the proprietary
fund financial statements. Because the principal user of the internal services is the City’s governmental
activities, the financial statements of the internal service funds are consolidated into the governmental
column when presented in the government-wide financial statements. The cost of these services is
reported in the appropriate functional activity.
Description of Funds
The City reports the following major governmental funds:
General Fund – This is the general operating fund of the City. It is used to account for all financial
resources except those required to be accounted for in another fund.
DAG Special Revenue Fund – This fund accounts for costs the City incurs in connection with a
subdivision. The fees are paid to the City by the developer when the development contract and final
plat are approved by the City Council. These revenues are used to pay for legal expenses incurred in
connection with review and approval of the plat and inspection services on developer-installed
utilities, including sewer, water, and street installation for newly-approved subdivisions within the
City.
Debt Service Fund – This fund accounts for the resources accumulated to provide repayment of the
City’s general obligation debt.
Construction Capital Project Fund – This fund accounts for the resources accumulated and
payments made for city projects.
The City reports the following major proprietary funds:
Water Fund – This fund is used to account for the operation, maintenance, and improvement of the
City’s water system.
Sewer Fund – This fund is used to account for the operation, maintenance, and improvement of the
City’s sewer collection operations.
Water Quality Fund – This fund accounts for the costs associated with the City’s storm water
system.
Transit Fund – This fund was used to account for the City’s transit services, which were funded
mainly by the Metropolitan Council. In 2014, the City transferred the responsibility for operating the
transit operation to the Minnesota Valley Transit Authority. The Transit Fund was closed in 2015.
-40-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The City also reports the following fund type:
Internal Service Funds – Internal service funds account for the financing of goods and services
provided to other departments or agencies of the City on a cost reimbursement basis. The City utilizes
a Severance Compensation Internal Service Fund and an Insurance Internal Service Fund in managing
city operations.
E. Cash and Investments
1. Deposits and Investments
The City’s cash and cash equivalents are considered to be cash on hand, demand deposits,
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 combined and invested to the extent available in short-term
investments. Earnings from the pooled investments are allocated to the individual funds based on
the average monthly cash and investment balances of the respective funds.
The Minnesota Municipal Money Market Fund (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-related
investments.
Investments are generally stated at fair value, except for investments in external investment pools,
which are stated at amortized cost. Short-term, highly liquid debt instruments (including bankers’
acceptance and U.S. treasury and agency obligations) purchased with a remaining maturity of one
year or less are also reported at amortized cost. Investment income is accrued at the Balance
Sheet date.
Cash held in escrow includes balances held in escrow accounts for future capital projects from
energy loan proceeds and proceeds from refunding bonds held to pay off refunded bonds.
Earnings on these accounts are allocated directly to those funds.
The City categorizes its fair value measurements within the fair value hierarchy established by
accounting principles generally accepted in the United States of America. The hierarchy is based
on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted
prices in active markets for identical assets; Level 2 inputs are significant other observable inputs;
and Level 3 inputs are significant unobservable inputs.
Debt securities classified in Level 2 of the fair value hierarchy are valued using a matrix pricing
technique. Matrix pricing is used to value securities based on the securities’ relationship to
benchmark quoted prices.
See Note 2 for the City’s recurring fair value measurements as of year-end.
-41-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2. Investment Policy
The City’s investment policy contains the following restrictions:
a) Allowable Investments
The City may invest in any type of security allowed by Minnesota Statutes and may be
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 at state and federally-chartered institutions that are limited to
the amount of coverage provided by the Federal Deposit Insurance Corporation
(FDIC);
4) Money market accounts that are invested in the above referenced government
securities.
5) State and local securities which have at the time of investment one of the three
highest credit ratings by a nationally recognized rating agency.
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 FDIC.
7) Investment products that are considered as derivatives are specifically excluded from
approved investments.
b) 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,
issuers, or class of securities. Diversification strategies shall be determined and revised
periodically by the City’s finance director. The diversification shall be as follows:
1) Up to 100 percent of 2. a) 1), but not less than 10 percent
2) Up to 90 percent of 2. a) 2) and 2. a) 3)
3) Up to 20 percent of 2. a) 4)
4) Up to 20 percent of 2. a) 5)
c) Duration
It is the policy of the City to require that all investment maturities shall not extend beyond
10 years with no more than 20 percent maturing beyond 5 years. 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.
F. Receivables
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.
-42-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. Property Taxes
Property tax levies are set by the City Council in December of each year, and are certified to Scott County
for collection in the following year. In Minnesota, counties act as collection agents for all property taxes.
The county spreads all levies over taxable property. Such taxes become a lien on January 1 and are
recorded as receivables by the City on that date. Real property taxes may be paid by taxpayers in two
equal installments on May 15 and October 15. Personal property taxes are due in full on May 15. The
county provides tax settlements to cities and other taxing districts three times a year; in July, December,
and January. Taxes which remain unpaid on December 31 are classified as delinquent taxes receivable.
H. Special Assessments
Special assessments represent the financing for public improvements paid for by benefiting property
owners. These assessments are recorded as delinquent (levied but unremitted) or deferred (certified but
not yet levied) special assessments receivable. Deferred contingent special assessments represent
assessments on undeveloped property that will not be levied and collected until the properties are
subdivided or developed.
I. Interfund Receivables and Payables
In the fund financial statements, activity between funds that is representative of lending or borrowing
arrangements is reported as either “due to/from other funds” (current portion) or “advances to/from other
funds.” All other outstanding balances between funds are reported as “due to/from other funds.” Any
residual balances outstanding between the governmental activities and business-type activities are
reported in the government-wide financial statements as “internal balances.”
J. Capital Assets
Capital assets, which include property, buildings, improvements, equipment, infrastructure assets (roads,
bridges, sidewalks, and similar items), and intangible assets such as easements, are reported in the
applicable governmental or business-type activities columns in the government-wide financial statements.
Such assets are capitalized at historical cost, or estimated historical cost for assets where actual historical
cost is not available. Donated assets are recorded as capital assets at their estimated acquisition value on
the date of donation. The City defines capital assets as those with an initial, individual cost of $5,000 or
more with an estimated useful life in excess of one year. The cost of normal maintenance and repairs that
do not add to the value of the asset or materially extend asset lives are not capitalized.
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 back-trending (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).
-43-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital assets are recorded in the government-wide and proprietary fund financial statements, but are not
reported in the governmental fund financial statements. Interest incurred during the construction phase of
capital assets for 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 5–20
Machinery and equipment 5–30
Vehicles 8–25
Infrastructure 10–65
Land, easements, and construction in progress are not depreciated.
K. 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. The majority of separation benefits are paid into a retirement health savings plan.
The City has provided funding for these obligations in the Severance Compensation Internal Service
Fund.
L. Long-Term Liabilities
In the government-wide and proprietary fund financial statements, long-term debt and other long-term
obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the
life of the bonds using the straight-line method.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as
well as bond issuance costs, during the current period. The face amount of debt issued is reported as other
financing sources. Premiums received on debt issuances are reported as other financing sources while
discounts on debt issuances are reported as other financing uses.
M. Other Post-Employment Benefits (OPEB)
Under Minnesota Statute § 471.61, Subd. 2b, public employers must allow retirees and their dependents
to continue coverage indefinitely in an employer-sponsored healthcare plan, under the following
conditions: 1) retirees must be receiving (or be eligible to receive) an annuity from a Minnesota public
pension plan; 2) coverage must continue in a group plan until age 65, and retirees must pay no more than
the group premium; and 3) retirees may obtain dependent coverage immediately before retirement. All
premiums are funded on a pay-as-you-go basis. The liability was actuarially determined, in accordance
with Governmental Accounting Standards Board (GASB) Statement No. 45, at January 1, 2014.
N. Pension Plans
For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension
expense, information about the fiduciary net position of the Public Employees Retirement Association
(PERA) and additions to/deductions from the PERA’s fiduciary net position have been determined on the
same basis as they are reported by the PERA except that the PERA’s fiscal year-end is June 30. For this
purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and
refunds are recognized when due and payable in accordance with the benefit terms. Investments are
reported at fair value.
-44-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The PERA has a special funding situation created by a direct aid contribution made by the state of
Minnesota. The direct aid is a result of the merger of the Minneapolis Employees Retirement Fund into
the PERA on January 1, 2015.
O. Deferred Outflows/Inflows of Resources
In addition to assets, statements of financial position or balance sheets will sometimes report a separate
section for deferred outflows of resources. This separate financial statement element, deferred outflows of
resources, represents a consumption of net position that applies to future periods and so will not be
recognized as an outflow of resources (expense/expenditure) until then. The City only has one item that
qualifies for reporting in this category. It is the deferred outflows of resources related to pensions reported
in the government-wide and enterprise funds Statement of Net Position. This deferred outflow results
from differences between expected and actual experience, changes of assumptions, difference between
projected and actual earnings on pension plan investments, and from contributions to the plan subsequent
to the measurement date and before the end of the reporting period. These amounts are deferred and
amortized as required under pension standards.
In addition to liabilities, statements of financial position or balance sheets will sometimes report a
separate section for deferred inflows of resources. This separate financial statement element represents an
acquisition of net position that applies to future periods and so will not be recognized as an inflow of
resources (revenue) until that time. The City has two types of items which qualify for reporting in this
category.
The first item, unavailable revenue, arises only under a modified accrual basis of accounting and,
therefore, is only reported in the governmental funds Balance Sheet. The governmental funds report
unavailable revenue from two sources: property taxes and special assessments. These amounts are
deferred and recognized as an inflow of resources in the period that the amounts become available.
The second item, deferred inflows of resources related to pensions, is reported in the government-wide
and enterprise funds Statement of Net Position. This deferred inflow results from differences between
expected and actual experience, changes of assumptions, and difference between projected and actual
earnings on pension plan investments. These amounts are deferred and amortized as required under
pension standards.
P. Net Position
In the government-wide and proprietary fund financial statements, net position represents the difference
between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position
is displayed in three components:
Net Investment in Capital Assets – Consists of capital assets, net of accumulated depreciation,
reduced by any outstanding debt attributable to acquire capital assets.
Restricted Net Position – Consists of net position restricted when there are limitations imposed
on their use through external restrictions imposed by creditors, grantors, or laws or regulations of
other governments.
Unrestricted Net Position – All other elements of net position that do not meet the definition of
“restricted” or “net investment in capital assets.”
-45-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Q. Fund Balance Classifications
In the fund financial statements, governmental funds report fund balance in classifications that disclose
constraints for which amounts in those funds can be spent. These classifications are as follows:
Nonspendable – Consists of amounts that are not in spendable form, such as prepaid items,
inventory, and other long-term assets.
Restricted – Consists of amounts related to externally imposed constraints established by
creditors, grantors, or contributors; or constraints imposed by state statutory provisions.
Committed – Consists of internally imposed constraints that are established by resolution of the
City Council. Those committed amounts cannot be used for any other purpose unless the City
Council removes or changes the specified use by taking the same type of action it employed to
previously commit those amounts.
Assigned – Consists of internally imposed constraints. These constraints consist of amounts
intended to be used by the City for specific purposes but do not meet the criteria to be classified
as restricted or committed. In governmental funds, assigned amounts represent intended uses
established by the governing body itself or by an official to which the governing body delegates
the authority. Pursuant to City Council resolution, the finance director is authorized to establish
assignments of fund balance.
Unassigned – The residual classification for the General Fund which also reflects negative
residual amounts in other funds.
When both restricted and unrestricted resources are available for use, it is the City’s policy to first use
restricted resources, then use unrestricted resources as they are needed. When committed, assigned, or
unassigned resources are available for use, it is the City’s policy to use resources in the following order:
1) committed, 2) assigned, and 3) unassigned.
R. Comparative Data
The basic financial statements include certain prior year partial comparative information in total, but not
at the level of detail required for a presentation in conformity with accounting principles generally
accepted in the United States of America. Accordingly, such information should be read in conjunction
with the City’s financial statements for the year ended December 31, 2015, from which the summarized
information was derived. Also, certain amounts presented in the prior year data have been reclassified in
order to be consistent with the current year’s presentation.
S. Budgets and Budgetary Accounting
Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the
United States of America for the General Fund. The City does not prepare a budget for the DAG Special
Revenue Fund. All annual appropriations lapse at 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. In September, the proposed budget is presented to the City Council for
review. The City Council holds public hearings and a final budget is prepared and adopted in early
December.
-46-
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
T. Statement of Cash Flows
For purposes of the Statement of Cash Flows, the City considers all highly liquid debt instruments with an
original maturity from the time of purchase by the City of three months or less to be cash equivalents. The
proprietary funds’ portion in the government-wide cash and investment management pool is considered to
be cash equivalent.
U. 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; and natural disasters. The City participates in the League of Minnesota Cities
Insurance Trust (LMCIT), a public entity risk pool for its general property and casualty, workers’
compensation, and other miscellaneous insurance coverages. The LMCIT operates as a common risk
management and insurance program for a large number of cities in Minnesota. The City pays an annual
premium to the LMCIT for insurance coverage. The LMCIT agreement provides that the trust will be
self-sustaining through member premiums and will reinsure through commercial companies for claims in
excess of certain limits. Settled claims did not exceed insurance coverage in the past three fiscal years.
There were no significant reductions in insurance coverage in 2016.
V. Restricted Assets
Restricted assets are cash, investments, and interest accrued thereon; the use of which is limited by
external requirements, such as a bond indenture or trust agreements.
W. Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in
the United States of America, requires management to make estimates and assumptions that affect the
reported amounts and disclosures at the date of the financial statements, and the reported amounts of
revenue and expenditures/expenses during the reporting period. Actual results could differ from those
estimates.
-47-
NOTE 2 – CASH AND INVESTMENTS
A. Components of Cash and Investments
Cash and investments at year-end consist of the following:
Deposits 2,375,080$
Investments 32,939,923
Cash on hand 750
Total 35,315,753$
Cash and investments are presented in the financial statements as follows:
Statement of Net Position
Cash and investments 27,929,759$
Restricted assets – temporarily restricted –
cash and investments held in escrow 7,385,994
Total 35,315,753$
B. Deposits
In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks
authorized by the City Council, including checking accounts and certificates of deposit.
The following is considered the most significant risk associated with deposits:
Custodial Credit Risk – In the case of deposits, this is the risk that in the event of a bank failure, the
City’s deposits may be lost.
Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety
bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not
covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes
treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated “A” or
better; revenue obligations rated “AA” or better; irrevocable standard letters of credit issued by the
Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities
pledged as collateral be held in safekeeping in a restricted account at the 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 City has no additional deposit
policies addressing custodial credit risk.
At year-end, the carrying amount of the City’s deposits was $2,375,080 while the balance on the bank
records was $2,487,594. At December 31, 2016, $2,079,178 of deposits were fully covered by federal
depository insurance, surety bonds, or by collateral held by the City’s agent in the City’s name, and
$408,416 were uninsured and uncollateralized.
-48-
NOTE 2 – CASH AND INVESTMENTS (CONTINUED)
C. Investments
The City has the following investments at year-end:
Fair Value
Investment TypeRatingAgencyMeasurement Less Than 1 1 to 5 Over 5 Total
U.S. treasury securities AAA Moody’s Level 1 10,012$ –$ –$ 10,012$
U.S. treasury securities N/R N/A Level 1 1,652,268 – – 1,652,268
U.S. government securities AAA Moody’s Level 2 899,370 – – 899,370
U.S. government securities AA S&P Level 1 – 499,335 – 499,335
U.S. government securities AA S&P Level 2 5,229,300 5,865,640 – 11,094,940
Local government securities AAA S&P Level 2 – 250,476 – 250,476
Local government securities AA S&P Level 2 1,707,000 1,559,435 – 3,266,435
Negotiable certificates of deposit N/R N/A Level 1 4,577,928 4,932,521 241,717 9,752,166
14,075,878$ 13,107,407$ 241,717$ 27,425,002
Investment pools/mutual funds
Minnesota Municipal Money Market Fund N/R N/A N/A 3,920,423
Fidelity Treasury Portfolio – Class I AAA S&P Level 1 465,195
Wells Fargo Advantage Government Money
Market AAA S&P N/A 473,313
Northland Federated Treasury Cash Series AAA S&P Level 1 655,990
Total investment pools/mutual funds 5,514,921
Total investments 32,939,923$
N/A – Not Applicable
N/R – Not Rated
Credit Risk
Interest Risk –
Segmented Time Distribution in Years
The 4M Fund is an external investment pool regulated by Minnesota Statutes that is not registered with
the Securities and Exchange Commission (SEC), but follows the same regulatory rules of the SEC. The
City’s investment in this fund is measured at amortized cost.
Investments are subject to various risks, the following of which are considered the most significant:
Custodial Credit Risk – For investments, this is the risk that in the event of a failure of the
counterparty to an investment transaction (typically a broker-dealer) the City would not be able to
recover the value of its investments or collateral securities that are in the possession of an outside
party. The City does not have a formal investment policy addressing this risk, but typically limits its
exposure by purchasing insured or registered investments, or by the control of who holds the
securities.
-49-
NOTE 2 – CASH AND INVESTMENTS (CONTINUED)
Credit Risk – This is the risk that an issuer or other counterparty to an investment will not fulfill its
obligations. Minnesota Statutes limit the City’s investments to direct obligations or obligations
guaranteed by the United States or its agencies; shares of investment companies registered under the
Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the
two highest rating categories by a statistical rating agency, and all of the investments have a final
maturity of 13 months or less; general obligations rated “A” or better; revenue obligations rated “AA”
or better; general obligations of the Minnesota Housing Finance Agency rated “A” or better; bankers’
acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial
paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality
category by at least two nationally recognized rating agencies, and maturing in 270 days or less;
Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of
a foreign bank, or a United States insurance company, and with a credit quality in one of the top two
highest categories; repurchase or reverse purchase agreements and securities lending agreements with
financial institutions qualified as a “depository” by the government entity, with banks that are
members of the Federal Reserve System with capitalization exceeding $10,000,000; that are a
primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York; or
certain Minnesota securities broker-dealers. The City’s investment policy as described in Note 1
addresses credit risk.
Concentration Risk – This is the risk associated with investing a significant portion of the City’s
investment (considered 5.0 percent or more) in the securities of a single issuer, excluding U.S.
guaranteed investments (such as treasuries), investment pools, and mutual funds. At December 31,
2016, the City had 10.6 and 18.6 percent of its portfolio invested with Federal Home Loan Mortgage
Corporation and Federal Home Loan Bank, respectively. The City also had another 8.7 percent of its
portfolio invested with Federal National Mortgage Association. The City’s investment policy as
described in Note 1 addresses concentration risk.
Interest Rate Risk – This is the risk of potential variability in the fair value of fixed rate investments
resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the
greater the risk). The City has an investment policy as described in Note 1 which addresses interest
rate risk.
-50-
NOTE 3 – CAPITAL ASSETS
Capital asset activity for the year ended December 31, 2016 was as follows:
A. Changes in Capital Assets Used in Governmental Activities
Transfers
Beginning and Completed
of Year Additions Deletions Construction End of Year
Capital assets, not depreciated
Land 32,221,249$ –$ –$ –$ 32,221,249$
Easements 36,823,303 448,001 – – 37,271,304
Construction in progress 15,229,989 5,985,294 – (8,593,111) 12,622,172
Total capital assets, not depreciated 84,274,541 6,433,295 – (8,593,111) 82,114,725
Capital assets, depreciated
Land improvements 2,230,318 – – 543,809 2,774,127
Machinery and equipment 6,025,150 440,441 (218,518) – 6,247,073
Vehicles 5,467,510 700,457 (208,826) – 5,959,141
Infrastructure 89,613,357 2,653,720 – 5,228,484 97,495,561
Total capital assets, depreciated 103,336,335 3,794,618 (427,344) 5,772,293 112,475,902
Less accumulated depreciation on
Land improvements (1,457,549) (82,391) – – (1,539,940)
Machinery and equipment (3,306,403) (395,051) 167,065 – (3,534,389)
Vehicles (4,136,258) (321,312) 206,989 – (4,250,581)
Infrastructure (44,492,693) (2,896,631) – – (47,389,324)
Total accumulated depreciation (53,392,903) (3,695,385) 374,054 – (56,714,234)
Net capital assets, depreciated 49,943,432 99,233 (53,290) 5,772,293 55,761,668
Total capital assets, net 134,217,973$ 6,532,528$ (53,290)$ (2,820,818)$ 137,876,393$
B. Changes in Capital Assets Used in Business-Type Activities
Transfers
Beginning and Completed
of Year Additions Deletions Construction End of Year
Capital assets, not depreciated
Easements 75,300$ –$ –$ –$ 75,300$
Construction in progress 327,534 123,690 – (451,224) –
Total capital assets, not depreciated 402,834 123,690 – (451,224) 75,300
Capital assets, depreciated
Land improvements 87,739 – – – 87,739
Machinery and equipment 1,011,918 5,863 – – 1,017,781
Vehicles 305,493 – – – 305,493
Infrastructure 60,833,633 1,539,991 – 3,272,042 65,645,666
Total capital assets, depreciated 62,238,783 1,545,854 – 3,272,042 67,056,679
Less accumulated depreciation on
Land improvements (26,223) (4,387) – – (30,610)
Machinery and equipment (609,087) (48,609) – – (657,696)
Vehicles (274,023) (10,319) – – (284,342)
Infrastructure (13,926,475) (1,157,498) – – (15,083,973)
Total accumulated depreciation (14,835,808) (1,220,813) – – (16,056,621)
Net capital assets, depreciated 47,402,975 325,041 – 3,272,042 51,000,058
Total capital assets, net 47,805,809$ 448,731$ –$ 2,820,818$ 51,075,358$
-51-
NOTE 3 – CAPITAL ASSETS (CONTINUED)
C. Depreciation Expense by Function
Depreciation expense for the year ended December 31, 2016 was charged to the following functions:
Governmental activities
General government 494,526$
Public safety 195,402
Public works 2,561,818
Culture and recreation 443,639
Total depreciation expense – governmental activities 3,695,385$
Business-type activities
Water 690,296$
Sewer 424,025
Water quality 106,492
Total depreciation expense – business-type activities 1,220,813$
NOTE 4 – INTERFUND BALANCES AND TRANSFERS
A. Interfund Balances
Interfund borrowing is done for cash flow purposes. The composition of interfund balances as of
December 31, 2016 is as follows:
Receivable Fund Payable Fund Amount
General Fund Debt Service Fund 6,846$
General Fund Nonmajor governmental funds 218
Total 7,064$
B. Interfund Transfers
A schedule of interfund transfers is as follows:
Transfers Out General Debt Service Construction Nonmajor Water Sewer Total
Governmental funds
General –$ 1,084,719$ –$ 74,507$ –$ –$ 1,159,226$
Construction – – – – 24,871 92,312 117,183
Nonmajor – 75,667 1,792,979 175,801 – – 2,044,447
Proprietary funds
Water 181,320 785,923 670,653 105,000 – – 1,742,896
Sewer 181,320 – 379,684 70,000 – – 631,004
Water Quality – – 146,768 21,000 – – 167,768
362,640$ 1,946,309$ 2,990,084$ 446,308$ 24,871$ 92,312$ 5,862,524$
Transfer In
Governmental Proprietary
Transfers are used to move revenues from the funds in which they are collected to the funds where they
are to be spent in accordance with statutory, budgetary, or contractual requirements.
-52-
NOTE 5 – LONG-TERM DEBT
A. Components of Long-Term Debt
Final Balance –
Original Issue Interest Rate Issue Date Maturity Date End of Year
Governmental activities
General obligation bonds
Park Refunding Bonds of 2005 6,260,000$ 3.75–5.00% 09/01/2005 12/01/2017 755,000$
Street Reconstruction Bonds of 2007 1,400,000$ 4.00% 05/15/2007 12/15/2017 170,000
Capital Improvement Plan Bonds 1,225,000$ 3.80–3.90% 08/01/2007 02/01/2017 150,000
Fire Hall Refunding Bonds 2011B 3,500,000$ 2.00–3.40% 12/14/2011 12/15/2031 3,245,000
Capital Improvement Refunding Bonds 2012A 9,825,000$ 2.00–2.70% 03/13/2012 12/15/2029 7,830,000
Street Reconstruction Bonds of 2015B 2,330,000$ 1.00–2.25% 05/14/2015 12/15/2022 2,070,000
Street Reconstruction Bonds of 2016A 760,000$ 2.00% 05/01/2016 12/15/2026 760,000
Total general obligation bonds 14,980,000
General obligation special assessment bonds
Improvement Bonds of 2009A 1,700,000$ 1.10–3.50% 05/15/2009 12/15/2019 525,000
Improvement Bonds of 2010A 1,235,000$ 0.80–3.20% 05/26/2010 12/15/2020 510,000
Improvement Bonds of 2011A 2,130,000$ 1.80–2.50% 08/31/2011 12/15/2021 1,100,000
Improvement Bonds of 2011B 2,280,000$ 2.00–2.35% 12/14/2011 12/15/2022 1,415,000
Improvement Bonds of 2013A 3,240,000$ 2.00–2.65% 08/15/2013 12/15/2023 2,265,000
Improvement Bonds of 2014A 2,665,000$ 2.00–2.50% 09/25/2014 12/15/2024 2,045,000
Improvement Bonds of 2015A 4,640,000$ 2.00–3.00% 05/14/2015 12/15/2030 4,640,000
Improvement Bonds of 2015B 160,000$ 1.00–2.25% 05/14/2015 12/15/2022 140,000
Improvement Bonds of 2016A 1,105,000$ 2.00% 05/01/2016 12/15/2026 1,105,000
Total general obligation special
assessment bonds 13,745,000
Tax increment bonds
Tax Increment Refunding Bonds of 2011A 290,000$ 1.80–3.00% 08/31/2011 12/15/2024 205,000
General obligation revenue bonds
Water Treatment Plant Revenue
Bonds of 2007A 8,500,000$ 4.00–4.20% 05/15/2007 12/15/2017 7,050,000
General Obligation Improvement
Bonds of 2015A 5,360,000$ 1.00–3.00% 05/14/2015 12/15/2031 5,360,000
General Obligation Improvement
Bonds of 2016A 1,640,000$ 2.00% 05/01/2016 12/15/2022 1,640,000
Total general obligation revenue bonds 14,050,000
Premium (discount) on bonds payable 572,534
Energy loan payable 2,667,924$ 2.12% 12/08/2014 06/19/2025 2,327,085
Compensated absences payable 1,007,020
Net OPEB obligation 324,900
Net pension liability – GERF and PEPFF 15,161,932
Total long-term debt 62,373,471$
-53-
NOTE 5 – LONG-TERM DEBT (CONTINUED)
B. Changes in Long-Term Debt
Balance –
Beginning Balance – Due Within
of Year Additions Deletions End of Year One Year
Governmental activities
Bonds payable
G.O. bonds 16,105,000$ 760,000$ 1,885,000$ 14,980,000$ 1,940,000$
G.O. special assessment bonds 14,040,000 1,105,000 1,400,000 13,745,000 1,515,000
G.O. tax increment bonds 225,000 – 20,000 205,000 20,000
G.O. revenue bonds 12,650,000 1,640,000 240,000 14,050,000 7,050,000
Premium (discount) on bonds payable 495,558 141,179 64,203 572,534 –
Total bonds payable, net of premium (discount) 43,515,558 3,646,179 3,609,203 43,552,534 10,525,000
Energy loan payable 2,574,450 – 247,365 2,327,085 252,634
Compensated absences payable 881,375 127,944 136,599 872,720 309,890
Net OPEB obligation 236,195 108,880 20,175 324,900 –
Net pension liability – GERF and PEPFF 5,447,111 10,177,081 1,977,116 13,647,076 –
Governmental activities long-term liabilities 52,654,689$ 14,060,084$ 5,990,458$ 60,724,315$ 11,087,524$
Business-type activities
Compensated absences payable 113,169$ 21,131$ –$ 134,300$ 58,144$
Net pension liability – GERF 1,006,082 755,639 246,865 1,514,856 –
Business-type activities long-term liabilities 1,119,251$ 776,770$ 246,865$ 1,649,156$ 58,144$
C. Minimum Debt Payments
Minimum annual principal and interest payments required to retire long-term debt are as follows:
Year Ending
December 31, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest
2017 1,940,000$ 363,918$ 1,515,000$ 320,388$ 20,000$ 5,160$ 7,050,000$ 455,039$ 252,634$ 47,980$
2018 1,330,000 301,243 1,545,000 288,030 25,000 4,800 370,000 166,925 258,016 42,598
2019 1,060,000 278,423 1,435,000 253,375 25,000 4,300 385,000 160,275 263,512 37,102
2020 955,000 258,543 1,275,000 220,390 25,000 3,763 400,000 153,325 269,126 31,488
2021 1,105,000 239,548 1,160,000 192,140 25,000 3,175 420,000 145,700 274,859 25,755
2022–2026 4,885,000 859,243 4,540,000 615,430 85,000 5,250 2,460,000 595,775 1,008,938 43,209
2027–2031 3,705,000 268,960 2,275,000 169,275 – – 2,965,000 270,850 – –
14,980,000$ 2,569,878$ 13,745,000$ 2,059,028$ 205,000$ 26,448$ 14,050,000$ 1,947,889$ 2,327,085$ 228,132$
Energy Loan Payable
Governmental Activities
General Obligation G.O. Special Assessment Tax Increment Bonds G.O. Revenue Bonds
-54-
NOTE 5 – LONG-TERM DEBT (CONTINUED)
D. Descriptions and Restrictions of Long-Term Debt
General Obligation Bonds – The City issues general obligation bonds to provide funds for the
acquisition and construction of major capital facilities. They will be repaid with ad valorem taxes.
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. The capital improvement plan bonds were issued on behalf
of the City by Scott County for the City’s share of the County Road 82 improvement.
General Obligation Special Assessment Bonds – Special assessment 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 full faith and credit of the City.
General Obligation Tax Increment Bonds – These 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.
General Obligation Revenue Bonds – These bonds were used to finance maintenance and 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.
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. The Internal Service Fund
and enterprise funds will be used to liquidate this liability.
Net OPEB Obligation – Long-term liabilities for OPEB will be paid by the General Fund.
Net Pension Liability – The details of this liability are disclosed elsewhere in these notes. Such benefits
are financed by the General Fund and enterprise funds.
Refunding Bonds – In 2015, the City issued $10,000,000 of General Obligation Bonds, Series 2015A. A
portion of the bond issue is a crossover refunding of the 2007A Water Treatment Plant Revenue Bonds.
The proceeds of the new bonds were deposited in an escrow account on May 14, 2015, the closing date.
The escrow investments bear interest rates that will provide sufficient funds to refund the old bonds when
called on December 15, 2017. The escrow account also provided debt service payments on the new bonds
until the crossover date. The old bonds are considered defeased on the crossover date and, therefore, will
be removed as a liability on that date. As a result of the crossover refunding issue, the City will save
$752,549 in debt service payments and achieve an economic gain (the present value of the difference
between the old and the new debt service) of $536,817.
In 2016, the City issued $3,505,000 of General Obligation Bonds, Series 2016A. A portion of the bond
issue is a crossover refunding of the 2007A Water Treatment Plant Revenue Bonds. The proceeds of the
new bonds were deposited in an escrow account on May 26, 2016, the closing date. The escrow
investments bear interest rates that will provide sufficient funds to refund the old bonds when called on
December 15, 2017. The escrow account also provided debt service payments on the new bonds until the
crossover date. The old bonds are considered defeased on the crossover date and, therefore, will be
removed as a liability on that date. As a result of the crossover refunding issue, the City will save $88,765
in debt service payments and achieve an economic gain (the present value of the difference between the
old and the new debt service) of $90,369.
-55-
NOTE 5 – LONG-TERM DEBT (CONTINUED)
Energy Loan Payable – In 2014, the City entered into an energy loan payable for the purpose of
furnishing certain equipment and work designed to reduce energy consumption and operational costs in
the City. In this energy loan payable agreement, the provider guarantees a minimum level of energy and
operational savings in the City. Payments on the loan will be made semiannually in the amount of
$150,307 commencing December 19, 2015 and each June and December 19 thereafter until final payment
is made on June 19, 2025.
E. Conduit Debt Obligations
Conduit debt obligations are certain limited-obligation revenue bonds or similar instruments issued for the
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 the 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. The aggregate amount of all
conduit debt outstanding at December 31, 2016 is $5,106,848.
F. Revenue Pledged
Future revenue pledged for the payment of long-term debt is as follows:
Percent of Remaining Principal Pledged
Use of Total Term of Principal and Interest Revenue
Bond Issue Proceeds Type Debt Service Pledge and Interest Paid Received
Tax Increment Refunding
Bonds of 2011A Street and site
improvements Tax increment financing 100% 2011–2024 231,448$ 25,520$ 105,853$
Water Treatment Plant
Revenue Bonds of 2007A Water treatment facility Utility charges 100% 2007–2032 7,338,114$ 537,714$ 3,674,099$
General Obligation Bonds of 2015A Partial refunding Utility charges 100% 2015–2031 6,885,075$ 134,125$ 3,674,099$
General Obligation Bonds of 2016A Partial refunding Utility charges 100% 2016–2022 1,774,700$ 20,409$ 3,674,099$
Revenue Pledged Current Year
G. Legal Debt Margin
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 $2,842,299,000, which calculates to a debt limit of
$85,268,970. 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 $14,980,000 of general obligation debt outstanding, leaving a debt margin of
$70,288,970.
-56-
NOTE 6 – FUND BALANCES
A. Classifications
At December 31, 2016, a summary of the City’s governmental fund balance classifications are as follows:
DAG Special Debt Construction Nonmajor
General Fund Revenue Fund Service Fund Fund Funds Total
Restricted
Future debt service –$ –$ 9,408,212$ –$ 63,214$ 9,471,426$
Capital improvements – – – 5,000 – 5,000
Economic development – – – – 218,847 218,847
Tax increment – – – – 544,926 544,926
Forfeiture sales – – – – 234,249 234,249
Total restricted – – 9,408,212 5,000 1,061,236 10,474,448
Assigned
Subsequent year’s budget 50,000 – – – – 50,000
Capital improvements – – – 3,321,863 5,380,478 8,702,341
Development – 687,724 – – 203,362 891,086
Communications – – – – 112,487 112,487
Total assigned 50,000 687,724 – 3,321,863 5,696,327 9,755,914
Unassigned 6,634,920 – (438) – (218) 6,634,264
Total 6,684,920$ 687,724$ 9,407,774$ 3,326,863$ 6,757,345$ 26,864,626$
B. Minimum Unrestricted Fund Balance Policy
The City Council has formally adopted a fund balance policy regarding the minimum unrestricted fund
balance for the General Fund. The policy establishes that the City will strive to maintain an unrestricted
General Fund balance (which includes committed, assigned, and unassigned classifications) between
40.0 and 50.0 percent of the subsequent year’s General Fund budgeted expenditures. At December 31,
2016, the unrestricted fund balance of the General Fund was 50.8 percent of the subsequent year’s
budgeted expenditures and transfers out.
The City Council may consider the judicious use of reserve balances in the following situations:
to fund an expenditure of long-term benefit or legacy to the community
to fund a one-time (nonrecurring) expenditure or grant matching opportunity
to fund a one-time unplanned revenue shortfall
to fund an unplanned expenditure due to an emergency or disaster
to moderate property taxes
to retire existing debt
to fund policy shifts by other governmental entities having a negative impact on the City
to provide catch-up funding for long-term obligations not previously recognized
In no case will the unrestricted balance be allowed to fall below 40 percent.
In the event that the year-end unrestricted balance is projected to be less than the target level due to the
use of unrestricted balances for purposes identified above, a plan must be presented to the City Council at
the time the unrestricted funds are appropriated that will reestablish the target level within 24 to
36 months.
If restoration of the unrestricted balance cannot be accomplished within such period without severe
hardship to the City, then the City Council will establish a different time period.
-57-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE
A. Plan Description
The City participates in the following cost-sharing, multiple-employer defined benefit pension plans
administered by the PERA of Minnesota. The PERA’s defined benefit pension plans are established and
administered in accordance with Minnesota Statutes, Chapters 353 and 356. The PERA’s defined benefit
pension plans are tax-qualified plans under Section 401(a) of the Internal Revenue Code.
1. General Employees Retirement Fund (GERF)
All full-time and certain part-time employees of the City are covered by the General Employees
Retirement Fund (GERF). GERF 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.
The Basic Plan was closed to new members in 1967. All new members must participate in the
Coordinated Plan.
2. Public Employees Police and Fire Fund (PEPFF)
The Public Employees Police and Fire Fund (PEPFF), originally established for police officers
and firefighters not covered by a local relief association, now covers all police officers and
firefighters hired since 1980. Effective July 1, 1999, the PEPFF also covers police officers and
firefighters belonging to local relief associations that elected to merge with and transfer assets and
administration to the PERA.
B. Benefits Provided
The PERA provides retirement, disability, and death benefits. Benefit provisions are established by state
statute and can only be modified by the State Legislature.
Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio
of the plan. Members in plans that are at least 90.0 percent funded for two consecutive years are given
2.5 percent increases. Members in plans that have not exceeded 90.0 percent funded, or have fallen below
80.0 percent, are given 1.0 percent increases.
The benefit provisions stated in the following 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.
1. GERF Benefits
Benefits are based on a member’s highest average salary for any five successive years of
allowable service, age, and years of credit at termination of service. Two methods are used to
compute benefits for the PERA’s Coordinated and Basic Plan members. The retiring member
receives the higher of a 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 members hired prior to July 1, 1989, a full annuity is
available when age plus years of service equal 90 and normal retirement age is 65. For members
hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security
benefits capped at age 66.
-58-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED)
2. PEPFF Benefits
Benefits for PEPFF members first hired after June 30, 2010, but before July 1, 2014, vest on a
prorated basis from 50 percent after five years up to 100 percent after 10 years of credited service.
Benefits for PEPFF members first hired after June 30, 2014, vest on a prorated basis from
50 percent after 10 years up to 100 percent after 20 years of credited service. The annuity accrual
rate is 3 percent of average salary for each year of service. For PEPFF members who were first
hired prior to July 1, 1989, a full annuity is available when age plus years of service equal at least
90.
C. Contributions
Minnesota Statute, Chapter 353 sets the rates for employer and employee contributions. Contribution
rates can only be modified by the State Legislature.
1. GERF Contributions
Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and
6.50 percent, respectively, of their annual covered salary in calendar year 2016. The City was
required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for
Coordinated Plan members in calendar year 2016. The City’s contributions to the GERF for the
year ended December 31, 2016 were $332,258. The City’s contributions were equal to the
required contributions as set by state statute.
2. PEPFF Contributions
Plan members were required to contribute 10.8 percent of their annual covered salary in calendar
year 2016. The City was required to contribute 16.2 percent of pay for PEPFF members in
calendar year 2016. The City’s regular contributions to the PEPFF for the year ended
December 31, 2016 were $377,586. The City’s contributions were equal to the required
contributions as set by state statute.
D. Pension Costs
1. GERF Pension Costs
At December 31, 2016, the City reported a liability of $5,610,578 for its proportionate share of
the GERF’s net pension liability. The City’s net pension liability reflected a reduction due to the
state of Minnesota’s contribution of $6 million to the fund in 2016. The state of Minnesota is
considered a non-employer contributing entity and the state of Minnesota’s contribution meets the
definition of a special funding situation. The state of Minnesota’s proportionate share of the net
pension liability associated with the City totaled $73,274. The net pension liability was measured
as of June 30, 2016, and the total pension liability used to calculate the net pension liability was
determined by an actuarial valuation as of that date. The City’s proportion of the net pension
liability was based on the City’s contributions received by the PERA during the measurement
period for employer payroll paid dates from July 1, 2015 through June 30, 2016, relative to the
total employer contributions received from all of the PERA’s participating employers. At
June 30, 2016, the City’s proportionate share was 0.0691 percent, which was a decrease of
0.0028 percent from its proportion measured as of June 30, 2015.
-59-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED)
For the year ended December 31, 2016, the City recognized pension expense of $705,864 for its
proportionate share of the GERF’s pension expense. In addition, the City recognized an
additional $21,848 as pension expense (and grant revenue) for its proportionate share of the state
of Minnesota’s contribution of $6 million to the GERF.
At December 31, 2016, the City reported its proportionate share of the GERF’s deferred outflows
of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Differences between expected and actual economic experience –$ 460,653$
Changes in actuarial assumptions 1,098,556 –
Differences between projected and actual investment earnings 1,075,215 –
Changes in proportion – 230,967
Contributions paid to the PERA subsequent to the measurement
date 168,419 –
Total 2,342,190$ 691,620$
Deferred outflows of resources reported $168,419 related to pensions resulting from city
contributions subsequent to the measurement date that will be recognized as a reduction of the net
pension liability in the year ending December 31, 2017. Other amounts reported as deferred
outflows and inflows of resources related to pensions will be recognized in pension expense as
follows:
Pension
Year Ending Expense
December 31, Amount
2017 385,265$
2018 385,265$
2019 508,955$
2020 202,666$
2. PEPFF Pension Costs
At December 31, 2016, the City reported a liability of $9,551,354 for its proportionate share of
the PEPFF’s net pension liability. The net pension liability was measured as of June 30, 2016,
and the total pension liability used to calculate the net pension liability was determined by an
actuarial valuation as of that date. The City’s proportion of the net pension liability was based on
the City’s contributions received by the PERA during the measurement period for employer
payroll paid dates from July 1, 2015 through June 30, 2016, relative to the total employer
contributions received from all of the PERA’s participating employers. At June 30, 2016, the
City’s proportion was 0.238 percent, which was a decrease of 0.002 percent from its proportion
measured as of June 30, 2015.
For the year ended December 31, 2016, the City recognized pension expense of $1,638,057 for its
proportionate share of the PEPFF’s pension expense. The City also recognized $21,420 for the
year ended December 31, 2016, as pension expense (and an offsetting reduction of net pension
liability) for its proportionate share of the state of Minnesota’s on-behalf contributions to the
PEPFF. In 2013, legislation passed and required the state of Minnesota to begin contributing
$9 million to the PEPFF each year, starting in fiscal year 2014.
-60-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED)
At December 31, 2016, the City reported its proportionate share of the PEPFF’s deferred outflows
of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Differences between expected and actual economic experience –$ 1,098,669$
Changes in actuarial assumptions 5,256,528 –
Differences between projected and actual investment earnings 1,460,573 –
Changes in proportion – 69,339
Contributions paid to the PERA subsequent to the measurement
date 200,313 –
Total 6,917,414$ 1,168,008$
Deferred outflows of resources reported $200,313 related to pensions resulting from city
contributions subsequent to the measurement date that will be recognized as a reduction of the net
pension liability in the year ending December 31, 2017. Other amounts reported as deferred
outflows and inflows of resources related to pensions will be recognized in pension expense as
follows:
Pension
Year Ending Expense
December 31, Amount
2017 1,192,334$
2018 1,192,334$
2019 1,192,334$
2020 1,073,552$
2021 898,539$
E. Actuarial Assumptions
The total pension liability in the June 30, 2016 actuarial valuation was determined using the following
actuarial assumptions:
Inflation 2.50% per year
Active member payroll growth 3.25% per year
Investment rate of return 7.50%
Salary increases were based on a service-related table. Mortality rates for active members, retirees,
survivors, and disabilitants were based on RP-2014 tables for the GERF and RP-2000 tables for the
PEPFF for males or females, as appropriate, with slight adjustments. Cost of living benefit increases for
retirees are assumed to be: 1 percent per year for all future years for the GERF and the PEPFF.
Actuarial assumptions used in the June 30, 2016 valuation were based on the results of actuarial
experience studies. The most recent four-year experience study in the GERF was completed in 2015. The
experience study for the PEPFF was for the period July 1, 2004 through June 30, 2009.
-61-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED)
There following changes in actuarial assumptions occurred in 2016:
1. GERF
The assumed post-retirement benefit increase rate was changed from 1.00 percent per year
through 2035 and 2.50 percent per year thereafter to 1.00 percent per year for all future years.
The assumed investment return was changed from 7.90 percent to 7.50 percent. The single
discount rate was changed from 7.90 percent to 7.50 percent.
Other assumptions were changed pursuant to the experience study dated June 30, 2015. The
assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent
to 3.25 percent for payroll growth and 2.50 percent for inflation.
2. PEPFF
The assumed post-retirement benefit increase rate was changed from 1.00 percent per year
through 2037 and 2.50 percent thereafter to 1.00 percent per year for all future years.
The assumed investment return was changed from 7.90 percent to 7.50 percent. The single
discount rate changed from 7.90 percent to 5.60 percent.
The assumed future salary increases, payroll growth, and inflation were decreased by
0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation.
The State Board of Investment, which manages the investments of the PERA, prepares an analysis of the
reasonableness of the long-term expected rate of return on a regular basis using a building-block method
in which best-estimate ranges of expected future rates of return are developed for each major asset class.
These ranges are combined to produce an expected long-term rate of return by weighting the expected
future rates of return by the target asset allocation percentages. The target allocation and best estimates of
geometric real rates of return for each major asset class are summarized in the following table:
Asset Class
Domestic stocks 45 % 5.50 %
International stocks 15 % 6.00 %
Bonds 18 % 1.45 %
Alternative assets 20 % 6.40 %
Cash 2 % 0.50 %
Target
Allocation
Long-Term
Expected
of Return
Real Rate
F. Discount Rate
The discount rate used to measure the total pension liability in 2016 was 7.5 percent, a reduction from the
7.9 percent used in 2015. The projection of cash flows used to determine the discount rate assumed that
employee and employer contributions will be made at the rate specified in statute. Based on these
assumptions, fiduciary net position of the GERF was projected to be available to make all projected future
benefit payments of current plan members. Therefore, the long-term expected rate of return on pension
plan investments was applied to all periods of projected benefit payments to determine the total pension
liability.
-62-
NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED)
In the PEPFF, the fiduciary net position was projected to be available to make all projected future benefit
payments of current plan members through June 30, 2056. Beginning in fiscal year ended June 30, 2057,
when projected benefit payments exceed the funds’ projected fiduciary net position, benefit payments will
be discounted at the municipal bond rate of 2.85 percent based on an index of 20-year general obligation
bonds with an average AA credit rating at the measurement date. An equivalent single discount rate of
5.60 percent was determined that produced approximately the same present value of projected benefits
when applied to all years of projected benefits as the present value of projected benefits using
7.50 percent applied to all years of projected benefits through the point of asset depletion and 2.85 percent
thereafter.
G. Pension Liability Sensitivity
The following presents the City’s proportionate share of the net pension liability for all plans it
participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the
City’s proportionate share of the net pension liability would be if it were calculated using a discount rate
1 percentage point lower or 1 percentage point higher than the current discount rate:
1% Decrease in 1% Increase in
Discount Rate Discount Rate Discount Rate
(6.5%) (7.5%) (8.5%)
The City’s proportionate share of the
GERF net pension liability 7,968,682$ 5,610,578$ 3,668,140$
1% Decrease in 1% Increase in
Discount Rate Discount Rate Discount Rate
(4.6%) (5.6%) (6.6%)
The City’s proportionate share of the
PEPFF net pension liability 13,370,628$ 9,551,354$ 6,430,717$
H. Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in a separately issued
PERA financial report that includes financial statements and required supplementary information. That
report may be obtained on the PERA website at www.mnpera.org.
-63-
NOTE 8 – DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION
A. Plan Description
All members of the Prior Lake Fire Department (the Department) are covered by a defined benefit plan
administered by the City of Prior Lake Fire Department Relief Association (the Association). As of
December 31, 2015, the plan covered 35 active firefighters and 12 vested terminated firefighters whose
pension benefits are deferred. The plan was established November 1, 1957, and the Association operates
under the provisions of Minnesota Laws 1965, Chapter 446, as amended and Minnesota Statutes,
Chapters 69 and 424A. It is governed by a Board of Trustees (the Board) made up of six members elected
by the members of the Association for three-year terms, and the mayor, city manager, and fire chief, who
serve as ex-officio voting members of the Board of Trustees.
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 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). Funds are also derived
from investment income.
B. Benefits Provided
Retirement Benefits
According to the bylaws of the Association and pursuant to Minnesota Statutes, Chapter 424A.02,
Subdivisions 2 and 4, the Association pays to each member who has served as an active firefighter in the
Department for a period of 20 years or more to his/her resignation, and who has reached the age of
50 years or more, $7,100 per year of service for lump sum. A member who has served in the Department
for at least 20 years, but has not reached the age of 50 may retire and be placed on the deferred pension
roll until he/she reaches the age of 50. Members who retire with less than 20 years of service and have
reached the age of 50 and have completed at least 10 years of active membership are entitled to a reduced
service pension.
Disability Benefits
If a member of the Association becomes totally or permanently disabled, the Association shall pay to such
members the sum of $7,100 lump sum plan for each year that they have served as an active member of the
Department.
Death Benefit
Upon the death of any member of the Association who is in good standing at the time of their death, the
Association shall pay to the surviving spouse, if any, and if there is no surviving spouse, to surviving
child or children, if any, and if no child or children survive, to the estate of such deceased member under
10 years of service, the sum of $7,100 for each year that they served as an active member of the
Department.
-64-
NOTE 8 – DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION
(CONTINUED)
C. Contributions
Minnesota Statutes, Chapters 424 and 424A, authorize pension benefits for volunteer fire relief
associations. The plan is funded by fire state aid, investment earnings, and, if necessary, employer
contributions as specified in Minnesota Statutes and voluntary city contributions (if applicable). The state
of Minnesota contributed $208,087 in fire state aid to the plan on behalf of the Department for the year
ended December 31, 2015, which was recorded as a revenue. Required employer contributions are
calculated annually based on statutory provisions. The City’s statutorily-required contributions to the plan
for the year ended December 31, 2015 were $208,087. The City’s contributions were equal to the required
contributions as set by state statute. The City made a $20,000 voluntary contribution to the plan in the
year ended December 31, 2015. Furthermore, firefighters have no obligation to contribute to the plan.
D. Pension Costs
At December 31, 2016, the City reported a net pension liability (asset) of ($607,018) for the plan. The net
pension liability (asset) was measured as of December 31, 2015. The total pension liability used to
calculate the net pension liability (asset) in accordance with GASB Statement No. 68 was determined by
Hildi, Inc. applying an actuarial formula to specific census data certified by the Department as of
December 31, 2015.
The following table presents the changes in net pension liability (asset):
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability (Asset)
Beginning balance – January 1, 2015 2,736,744$ 3,664,632$ (927,888)$
Changes for the year
Service cost 109,387 – 109,387
Interest on pension liability (asset) 164,204 – 164,204
Plan changes 99,450 – 99,450
Projected investment earnings – 226,521 (226,521)
Contributions (employer)– 20,000 (20,000)
Contributions (state)– 208,087 (208,087)
Asset (gain) loss – (395,797) 395,797
Administrative costs – (6,640) 6,640
Total net changes 373,041 52,171 320,870
Ending balance – December 31, 2015 3,109,785$ 3,716,803$ (607,018)$
For the year ended December 31, 2015, the City recognized pension revenue of $208,087 and pension
expense of $855,700.
A benefit level increase from $6,800 to $7,100 was reflected in the pension liability in the current year. A
subsequent increase to $7,200 effective January 1, 2017 will be reflected in the next valuation.
-65-
NOTE 8 – DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION
(CONTINUED)
At December 31, 2016, the City reported deferred inflows of resources and deferred outflows of resources
related to the pension from the following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Net difference between projected and actual earnings on
plan investments –$ 346,321$
State aid to the City subsequent to the measurement date – 214,891
Contributions from the City subsequent to the measurement date 234,891 –
Total 234,891$ 561,212$
Deferred outflows of resources totaling $234,891 related to pensions resulting from the city contributions
to the plan subsequent to the measurement date will be recognized as a reduction of the net pension
liability in the year ended December 31, 2017. Deferred inflows of resources totaling $214,891 related to
state aid received subsequent to the measurement date will be recognized for its impact on the net pension
liability in the year ended December 31, 2017. Other amounts reported as deferred outflows and inflows
of resources related to the plan will be recognized in pension expense as follows:
Pension
Year Ending Expense
December 31, Amount
2017 (89,055)$
2018 (89,055)$
2019 (89,054)$
2019 (79,157)$
E. Actuarial Assumptions
The total pension liability at December 31, 2015 was determined using the entry age normal actuarial cost
method and the following actuarial assumptions:
Retirement eligibility at 100 percent service pension at age 50 with 20 years of service, early
vested retirement at age 50 with 10 years of service vested at 60 percent and increased by
4 percent for each additional year of service up to 20 and eligibility for deferred service
pension payable at age 50 with 20 years of service
Salary increases 2.50%
Cost of living increases 5.00%
Investment rate of return 6.00%
20-year municipal bond yield 3.50%
The 6 percent long-term expected rate of return on pension plan investments was determined using a
building-block method in which best estimates for expected future real rates of return (expected returns,
net of inflation) were developed for each asset class using the plan’s target investment allocation along
with long-term return expectations by asset class. Inflation expectations were applied to derive the
nominal rate of return for the portfolio.
-66-
NOTE 8 – DEFINED BENEFIT PENSION PLANS – FIRE RELIEF ASSOCIATION
(CONTINUED)
The target allocation and best estimates of arithmetic real rates of return for each major asset class are
summarized in the following table:
Asset Class
Cash 14.00 % 2.00 %
Fixed income 26.00 5.00 %
Equities 58.00 7.50 %
Other 2.00 6.00 %
Total 100.00 % 6.00 %
Long-Term
Target Expected Real
Allocation Rate of Return
F. Discount Rate
The discount rate used to measure the total pension liability was 6.00 percent. The projection of cash
flows used to determine the discount rate assumed that contributions to the plan will be made as specified
in the statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net
position was projected to be available to make all projected future benefit payments of current active and
inactive members. Therefore, the long-term expected rate of return on pension plan investments was
applied to all periods of projected benefit payments to determine the total pension liability.
G. Pension Liability (Asset) Sensitivity
The following presents the City’s net pension liability (asset) for the plan, calculated using the discount
rate disclosed in the preceding paragraph, as well as what the City’s net pension liability (asset) would be
if it were calculated using a discount rate 1 percent lower or 1 percent higher than the current discount
rate:
1% Decrease Discount Rate 1% Increase
(5.00%) (6.00%) (7.00%)
Defined benefit plan (513,544)$ (607,018)$ (695,959)$
H. Pension Plan Fiduciary Net Position
The Association issues a publicly available financial report. This report may be obtained by writing to the
Prior Lake Fire Relief Association, 5316 Hampton Street, Prior Lake, MN 55372.
-67-
NOTE 9 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN
A. Plan Description
The City provides post-employment benefits to certain eligible employees through the City’s OPEB Plan,
a single-employer defined benefit plan administered by the City. All post-employment benefits are based
on contractual agreements with employee groups. As of January 1, 2014, the plan had 84 active
participants and 2 retired participants. Eligibility for these benefits is based on years of service and/or
minimum age requirements. These contractual agreements do not include any specific contribution or
funding requirements. The plan does not issue a publicly available financial report. These benefits are
summarized as follows:
Post-Employment Insurance Benefits – All retirees of the City have the option under state law to
continue their medical insurance coverage through the City from the time of retirement until the
employee reaches the age of eligibility for Medicare. For two employees, the City pays for all of the
eligible retiree’s premiums for medical insurance from the time of retirement until the employee
reaches the age of eligibility for Medicare. Retirees not eligible for these city-paid premium benefits
must pay the full city premium rate for their coverage.
The City is legally required to include any retirees for whom it provides health insurance coverage in
the same insurance pool as its active employees, whether the premiums are paid by the City or the
retiree. Consequently, participating retirees are considered to receive a secondary benefit known as an
“implicit rate subsidy.” This benefit relates to the assumption that the retiree is receiving a more
favorable premium rate than they would otherwise be able to obtain if purchasing insurance on their
own, due to being included in the same pool with the City’s younger and statistically healthier active
employees.
B. Funding Policy
The required contribution is based on projected pay-as-you-go financing requirements, with additional
amounts to pre-fund benefits as determined annually by the City. There are no invested plan assets
accumulated for payment of future benefits.
C. Annual OPEB Cost and Net OPEB Obligation
The City’s annual OPEB cost (expense) is calculated based on annual required contributions (ARC) of the
City, an amount determined on an actuarially determined basis in accordance with the parameters of
GASB Statement No. 45. The ARC represents a level funding that, if paid on an ongoing basis, is
projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding
excess) over a period not to exceed 30 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 the changes in the City’s
net OPEB obligation to the plan:
ARC 113,021$
Interest on net OPEB obligation 9,448
Adjustment to ARC (13,589)
Annual OPEB cost 108,880
Contributions made (20,175)
Increase in net OPEB obligation 88,705
Net OPEB obligation – beginning of year 236,195
Net OPEB obligation – end of year 324,900$
-68-
NOTE 9 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN (CONTINUED)
The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net
OPEB obligation for the year are as follows:
Year Ended Annual Employer Net OPEB
December 31, OPEB Cost Contribution Obligation
2016 108,880$ 20,175$ 18.5 %324,900$
2015 110,580$ 17,699$ 16.0 %236,195$
2014 158,749$ 15,435$ 9.7 %143,314$
Percentage of
Annual OPEB
Cost Contributed
D. Funded Status and Funding Progress
As of January 1, 2014, the most recent actuarial valuation date, the plan was zero percent funded. The
actuarial accrued liability for benefits was $753,525, and the actuarial value of assets was $0, resulting in
an unfunded actuarial accrued liability (UAAL) of $753,525. The covered payroll (annual payroll of
active employees covered by the plan) was $5,840,769, and the ratio of the UAAL to the covered payroll
was 12.9 percent.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and
assumptions about the probability 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 ARC 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 following the notes to basic 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.
E. Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
understood by the employer and the 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 actuarial 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.
In the January 1, 2014 actuarial valuation, the entry age normal level dollar method was used. The
actuarial assumptions included: a 4.0 percent investment rate of return (net of administrative expenses)
based on the City’s own investments; a 2.5 percent rate of projected salary increases; a general inflation
rate of 2.5 percent; and an annual healthcare cost trend rate of 7.5 percent initially, reduced by decrements
to an ultimate rate of 5.0 percent after six years. The UAAL is being amortized on a level dollar basis
over a closed period. The remaining amortization base periods at January 1, 2014 is 30 years.
NOTE 10 – STEWARDSHIP AND ACCOUNTABILITY
Deficit Net Position
As of December 31, 2016, the Severance Compensation Internal Service Fund had a deficit net position of
$568,157. This deficit will be eliminated by future charges for services. The Park Referendum and Fire
Station #2 Nonmajor Debt Service Funds and Tax Increment 1-5 Gateway Center Nonmajor Capital
Project Fund had deficit fund balances of $262, $176, and $218, respectively.
-69-
NOTE 11 – TAX ABATEMENT AGREEMENTS
The City, in order to spur economic development and redevelopment, has entered into private
development and redevelopment agreements to encourage a developer to construct, expand, or improve
new or existing properties and buildings or clean-up and redevelop blighted areas. The City currently has
five agreements that would be considered tax abatements under GASB Statement No. 77.
Outstanding
Amount of Principal Date of
Abated During Balance Required
Name Purpose the Fiscal Year at Year-End Decertification
1-3 Lakefront
1-4 River Valley Vet
3-1 Creekside Estates 54-unit senior housing facility 64,782$ 201,522$ 12/31/2029
5-1 Premier Dance
6-1 Shepherds Path
7,219$ 42,802$ 12/31/2022
80-unit owner-occupied senior housing facility
and 12,000 square feet of retail space and
related improvements 12/31/2029705,837$ 79,390$
7,000 square foot addition to the existing
veterinary clinic facility
151,944$ 12/31/2034
11,584$
80.03 acres, including 442 senior housing units,
a YMCA facility, youth center, medical
office/clinic, bank, park area, trails and
companion uses to the existing church 272,690$
171,464$ 12/31/2034
10,000 square foot commercial facility to be
used as a dance studio
The City is authorized to create a tax increment financing plan under Minnesota Statute, Chapter 469.175.
The criteria that must be met under the statute are that, in the opinion of the municipality:
The proposed development or redevelopment would not reasonably be expected to occur solely
through private investment within the reasonably foreseeable future;
The increased market value of the site that could reasonably be expected to occur without the use
of tax increment financing would be less than the increase in the market value estimated to result
from the proposed development after subtracting the present value of the projected tax increments
for the maximum duration of the district permitted by the plan. The requirements of this item do
not apply if the district is a housing district;
The tax increment financing plan conforms to the general plan for the development or
redevelopment of the municipality as a whole; and
The tax increment financing plan will afford maximum opportunity, consistent with the sound
needs of the municipality as a whole, for the development or redevelopment of the project by
private enterprise.
The City has entered into private development agreements regarding certain tax increment properties. The
vehicle used for this reimbursement is called a tax increment revenue note.
-70-
NOTE 11 – TAX ABATEMENT AGREEMENTS (CONTINUED)
These notes provide for the payment of principal, equal to the developer's costs, plus interest at a set rate.
Payments on the loan will be made at the lesser of the note payment or the actual net tax increment
received (or a reduced percentage received in certain cases) during specific years as stated in the
agreement. Payments are first applied to accrued interest and then to the principal balance. The note is
canceled at the end of the agreement term, whether or not the note has been repaid. Any additional tax
increments received in years following the term are retained by the City.
The outstanding principal balances as of December 31, 2016 for these agreements are listed on the
previous page. These amounts are not included in long-term debt because the nature of the note is that
repayment is required only if sufficient tax increments are received. The City's position is that these are
obligations to assign future and uncertain revenue sources and, as such, is not actual debt in substance.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
A. Federal and State Funding
Amounts received or receivable from federal and state agencies are subject to agency audit and
adjustment. Any disallowed claims, including amounts already collected, may constitute a liability of the
applicable funds. The amount, if any, of funds that may be disallowed by the agencies cannot be
determined at this time although the City expects such amounts, if any, to be immaterial.
B. Legal Claims
The City has the usual and customary type of miscellaneous legal claims pending at year-end. Although
the outcome of these lawsuits is not presently determinable, the City’s management believes that the City
will not incur any material monetary loss resulting from these claims. No loss has been recorded on the
City’s financial statements relating to these claims.
C. Construction Contracts
During fiscal 2016, the City awarded contracts for various construction and remodeling projects. The
City’s commitment for uncompleted work on these contracts at December 31, 2016 is $1,742,415.
D. Tax Increment Districts
The City’s tax increment districts are subject to review by the Office of the State Auditor. Any disallowed
claims or misuse of tax increments could become a liability of the applicable fund. Management has
indicated that they are not aware of any instances of noncompliance which would have a material effect
on the financial statements.
REQUIRED SUPPLEMENTARY INFORMATION
Proportionate
Share of the
City’s Net Pension
Proportionate Liability and City’s
Share of the the City’s Proportionate Plan Fiduciary
State of Share of the Share of the Net Position
City’s City’s Minnesota’s State of Net Pension as a
PERA Fiscal Proportion Proportionate Proportionate Minnesota’s Liability as a Percentage
Year-End Date of the Net Share of the Share of the Share of the City’s Percentage of of the Total
(Measurement Pension Net Pension Net Pension Net Pension Covered Covered Pension
Date)Liability Liability Liability Liability Payroll Payroll Liability
06/30/2015 0.0719% 3,726,231$ –$ 3,726,231$ 4,189,768$ 88.94% 78.20%
06/30/2016 0.0691% 5,610,578$ 73,274$ 5,683,852$ 4,285,600$ 130.92% 68.90%
Contributions Contributions
PERA Fiscal in Relation to as a
Year-End Date Statutorily the Statutorily Contribution Percentage
(Measurement Required Required Deficiency Covered of Covered
Date)Contributions Contributions (Excess)Payroll Payroll
06/30/2015 314,233$ 314,233$ –$ 4,189,768$ 7.50%
06/30/2016 332,258$ 332,258$ –$ 4,430,122$ 7.50%
Note 1:
Note 2:
Note 3:
CITY OF PRIOR LAKE
PERA – General Employees Retirement Fund
Schedule of City’s and Non-Employer Proportionate Share of Net Pension Liability
PERA – General Employees Retirement Fund
12/31/2016
Schedule of City Contributions
City Fiscal
Year-End Date
12/31/2015
12/31/2016
Changes in Plan Provisions.On January 1,2015,the Minneapolis Employees Retirement Fund was merged into the GERF,which increased the total
pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million.Upon consolidation,state and employer contributions
were revised.
Changes in Actuarial Assumptions.(1)2015 Changes –The assumed post-retirement benefit increase rate was changed from 1.00 percent per year
through 2030 and 2.50 percent per year thereafter to 1.00 percent per year through 2035 and 2.50 percent per year thereafter.(2)2016 Changes –The
assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2035 and 2.50 percent per year thereafter to 1.00 percent
per year for all future years.The assumed investment return was changed from 7.90 percent to 7.50 percent.The single discount rate was changed from
7.90 percent to 7.50 percent.Other assumptions were changed pursuant to the experience study dated June 30,2015.The assumed future salary
increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation.
The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This information is not available for previous
fiscal years.
City Fiscal
Year-End Date
12/31/2015
-71-
City’s
Proportionate Plan Fiduciary
Share of the Net Position
City’s City’s Net Pension as a
PERA Fiscal Proportion Proportionate Liability as a Percentage
Year-End Date of the Net Share of the City’s Percentage of of the Total
(Measurement Pension Net Pension Covered Covered Pension
Date)Liability Liability Payroll Payroll Liability
06/30/2015 0.2400% 2,726,962$ 2,244,215$ 121.51% 86.60%
06/30/2016 0.2380% 9,551,354$ 2,294,383$ 416.29% 63.90%
Contributions Contributions
PERA Fiscal in Relation to as a
Year-End Date Statutorily the Statutorily Contribution Percentage
(Measurement Required Required Deficiency Covered of Covered
Date)Contributions Contributions (Excess)Payroll Payroll
06/30/2015 363,525$ 363,525$ –$ 2,244,215$ 16.20%
06/30/2016 377,586$ 377,586$ –$ 2,337,729$ 16.15%
Note 1:
Note 2:
Note 3:
Changes in Actuarial Assumptions.(1)2015 Changes –The assumed post-retirement benefit increase rate was
changed from 1.00 percent per year through 2030 and 2.50 percent per year thereafter to 1.00 percent per year
through 2037 and 2.50 percent per year thereafter.(2)2016 Changes –The assumed post-retirement benefit increase
rate was changed from 1.00 percent per year through 2037 and 2.50 percent thereafter to 1.00 percent per year for all
future years.The assumed investment return was changed from 7.90 percent to 7.50 percent.The single discount rate
was changed from 7.90 percent to 5.60 percent.The assumed future salary increases,payroll growth,and inflation
were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation.
The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This
information is not available for previous fiscal years.
CITY OF PRIOR LAKE
City Fiscal
Year-End Date
12/31/2015
12/31/2016
Changes in Plan Provisions.The post-retirement benefit increase to be paid after attainment of the 90.0 percent
funding threshold was changed, from inflation up to 2.5 percent, to a fixed rate of 2.5 percent.
PERA – Public Employees Police and Fire Fund
Schedule of City’s Proportionate Share of Net Pension Liability
PERA – Public Employees Police and Fire Fund
Schedule of City Contributions
City Fiscal
Year-End Date
12/31/2015
12/31/2016
-72-
City fiscal year-end dated December 31,2015 2016
Measurment period December 31, 2014 December 31, 2015
Total pension liability
Service cost 106,719$ 109,387$
Interest 148,718 164,204
Plan changes – 99,450
Net change in total pension liability 255,437 373,041
Total pension liability – beginning 2,481,307 2,736,744
Total pension liability – ending 2,736,744$ 3,109,785$
Plan fiduciary net position
Contributions (state and local)215,194$ 228,087$
Net investment income 154,856 (169,276)
Administrative costs (6,647) (6,640)
Net change in plan fiduciary net position 363,403 52,171
Total pension liability – beginning 3,301,229 3,664,632
Total pension liability – ending 3,664,632$ 3,716,803$
Net pension liability (asset) – ending (927,888)$ (607,018)$
Plan fiduciary net position as a percentage
of the total pension liability 133.90%119.52%
*The City implemented GASB Statement No.68 in fiscal 2015 (using a December 31,2014 measurement date).This
information is not available for previous years.
CITY OF PRIOR LAKE
Prior Lake Fire Relief Association
Schedule of Changes in the Relief Association’s
Net Pension Asset and Related Ratios
(Last Ten Years*)
-73-
Contributions in
Relation to the
Statutorily Statutorily Contribution Voluntary
Required Required Deficiency City
Contributions Contributions (Excess)Contribution
12/31/2015 208,087$ 208,087$ –$ 20,000$
12/31/2016 214,891$ 214,891$ –$ 20,000$
*The City implemented GASB Statement No.68 in fiscal 2015 (using a December 31,2014 measurement date).This
information is not available for previous years.
City Fiscal
Year-End Date
CITY OF PRIOR LAKE
Prior Lake Fire Relief Association
Schedule of City Contributions
Year Ended December 31, 2016
(Last Ten Years*)
-74-
Actuarial Actuarial Unfunded
Fiscal Year Valuation Actuarial Value Actuarial
Ended Date –Accrued of Accrued Covered
December 31,January 1,Liability Plan Assets Liability Payroll
2014 2014 753,525$ –$ 753,525$ – %5,840,769$ 12.9 %
CITY OF PRIOR LAKE
Ratio
Funded
Payroll
Percentage of
Liability as a
Unfunded
Other Post-Employment Benefits Plan
Schedule of Funding Progress
-75-
SUPPLEMENTAL INFORMATION
Special
Revenue Capital Projects Total
Assets
Cash and investments 1,511,777$ 5,564,282$ 7,076,059$
Cash held in escrow 25,000 465,195 490,195
Receivables
Delinquent taxes 721 – 721
Accounts 45,895 74,046 119,941
Special assessments
Deferred – 16,388 16,388
Other (Green Acres)– 1,403 1,403
Due from other governmental agencies 1,219 3,821 5,040
Total assets 1,584,612$ 6,125,135$ 7,709,747$
Liabilities
Accounts and contracts payable 2,184$ 868,085$ 870,269$
Accrued salaries and employee benefits payable 4,108 – 4,108
Due to other governmental agencies 546 – 546
Due to other funds – 218 218
Deposits payable 25,000 – 25,000
Unearned revenue 33,750 – 33,750
Total liabilities 65,588 868,303 933,891
Deferred inflows of resources
Unavailable revenue from delinquent taxes 721 – 721
Unavailable revenue from special assessments – 17,790 17,790
Total deferred inflows of resources 721 17,790 18,511
Fund balances
Restricted 453,096 608,140 1,061,236
Assigned 1,065,207 4,631,120 5,696,327
Unassigned (deficit in restricted balance)– (218) (218)
Total fund balances 1,518,303 5,239,042 6,757,345
Total liabilities, deferred inflows
of resources, and fund balances 1,584,612$ 6,125,135$ 7,709,747$
CITY OF PRIOR LAKE
Nonmajor Governmental Funds
Combining Balance Sheet
as of December 31, 2016
-76-
Special
Revenue Capital Projects Total
Revenue
Taxes 155,069$ 827,754$ 982,823$
Franchise taxes 44,754 – 44,754
Special assessments – 12,310 12,310
Intergovernmental 7,278 – 7,278
Charges for services 826,736 1,343,492 2,170,228
Interest on investments 14,324 94,448 108,772
Miscellaneous
Contributions and donations 6,610 – 6,610
Other 56,298 – 56,298
Total revenue 1,111,069 2,278,004 3,389,073
Expenditures
Current
General government 5,248 – 5,248
Public safety 41,174 – 41,174
Culture and recreation 12,856 – 12,856
Economic development 150,177 – 150,177
Capital outlay 484,389 1,717,104 2,201,493
Debt service
Interest and other – 11,039 11,039
Total expenditures 693,844 1,728,143 2,421,987
Excess of revenues over expenditures 417,225 549,861 967,086
Other financing sources (uses)
Debt issued – 410,000 410,000
Premium on debt issued – 16,305 16,305
Transfers in 217,995 228,313 446,308
Transfers out – (2,044,447) (2,044,447)
Total other financing sources (uses)217,995 (1,389,829) (1,171,834)
Net change in fund balances 635,220 (839,968) (204,748)
Fund balances
Beginning of year 883,083 6,079,010 6,962,093
End of year 1,518,303$ 5,239,042$ 6,757,345$
Year Ended December 31, 2016
CITY OF PRIOR LAKE
Nonmajor Governmental Funds
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances
-77-
Capital ED Revolving Revolving
Park Loan Loan
Assets
Cash and investments 781,725$ 122,704$ 95,287$
Cash held in escrow – – –
Receivables
Delinquent taxes – – –
Accounts 1,383 482 374
Due from other governmental agencies – – –
Total assets 783,108$ 123,186$ 95,661$
Liabilities
Accounts and contracts payable –$ –$ –$
Accrued salaries and employee benefits payable – – –
Due to other governmental agencies – – –
Deposits payable – – –
Unearned revenue 33,750 – –
Total liabilities 33,750 – –
Deferred inflows of resources
Unavailable revenue from delinquent taxes – – –
Fund balances
Restricted for economic development – 123,186 95,661
Restricted for forfeiture sales – – –
Assigned for capital improvements 749,358 – –
Assigned for development – – –
Assigned for communications – – –
Total fund balances 749,358 123,186 95,661
Total liabilities, deferred inflows
of resources, and fund balances 783,108$ 123,186$ 95,661$
as of December 31, 2016
CITY OF PRIOR LAKE
Nonmajor Special Revenue Funds
Combining Balance Sheet
-78-
Cable Police
Franchise EDA Forfeiture Total
73,751$ 202,969$ 235,341$ 1,511,777$
25,000 – – 25,000
– 721 – 721
38,736 4,972 (52) 45,895
– 1,219 – 1,219
137,487$ 209,881$ 235,289$ 1,584,612$
–$ 1,144$ 1,040$ 2,184$
– 4,108 – 4,108
– 546 – 546
25,000 – – 25,000
– – – 33,750
25,000 5,798 1,040 65,588
– 721 – 721
– – – 218,847
– – 234,249 234,249
– – – 749,358
– 203,362 – 203,362
112,487 – – 112,487
112,487 203,362 234,249 1,518,303
137,487$ 209,881$ 235,289$ 1,584,612$
-79-
Capital ED Revolving Revolving
Park Loan Loan
Revenues
Taxes –$ –$ –$
Franchise taxes – – –
Intergovernmental – – –
Charges for services 814,100 – –
Interest on investments 8,043 1,831 1,422
Miscellaneous
Contributions and donations 6,610 – –
Other
Total revenues 828,753 1,831 1,422
Expenditures
Current
General government – – –
Public safety – – –
Culture and recreation 12,856 – –
Economic development – – –
Capital outlay 483,399 – –
Total expenditures 496,255 – –
Excess of revenues over expenditures 332,498 1,831 1,422
Other financing sources
Transfers in – – –
Net change in fund balances 332,498 1,831 1,422
Fund balances
Beginning of year 416,860 121,355 94,239
End of year 749,358$ 123,186$ 95,661$
Year Ended December 31, 2016
CITY OF PRIOR LAKE
Nonmajor Special Revenue Funds
Combining Statement of Revenues, Expenditures,
and Changes in Fund Balances
-80-
Cable Police
Franchise EDA Forfeiture Total
–$ 155,069$ –$ 155,069$
44,754 – – 44,754
– 7,278 – 7,278
6,296 6,340 – 826,736
– 1,898 1,130 14,324
– – – 6,610
56,298 56,298
51,050 170,585 57,428 1,111,069
5,248 – – 5,248
– – 41,174 41,174
– – – 12,856
– 150,177 – 150,177
– 990 – 484,389
5,248 151,167 41,174 693,844
45,802 19,418 16,254 417,225
– – 217,995 217,995
45,802 19,418 234,249 635,220
66,685 183,944 – 883,083
112,487$ 203,362$ 234,249$ 1,518,303$
-81-
Tax Revolving Trunk
Increment Equipment Reserve
Assets
Cash and investments 66,127$ 828,350$ 899,052$
Cash held in escrow – – –
Receivables
Accounts 20,910 5,686 24,881
Special assessments
Deferred – – 9,728
Other (Green Acres)– – 1,403
Due from other governmental agencies – 2,823 –
Total assets 87,037$ 836,859$ 935,064$
Liabilities
Accounts and contracts payable –$ 249,057$ –$
Due to other funds – – –
Total liabilities – 249,057 –
Deferred inflows of resources
Unavailable revenue from special assessments – – 11,130
Fund balances
Restricted for tax increment 87,037 – –
Restricted for future capital improvements – – –
Assigned for capital improvements – 587,802 923,934
Unassigned (deficit in restricted balance)– – –
Total fund balances 87,037 587,802 923,934
Total liabilities, deferred inflows
of resources, and fund balances 87,037$ 836,859$ 935,064$
CITY OF PRIOR LAKE
Nonmajor Capital Projects Funds
Combining Balance Sheet
as of December 31, 2016
-82-
Tax Tax
Street Water Increment 1-3 Increment 3-1
Oversizing Storage Lakefront Creekside
552,308$ 1,543,059$ 133,722$ 125,746$
– – – –
2,845 13,789 538 263
1,221 5,439 – –
– – – –
– – 998 –
556,374$ 1,562,287$ 135,258$ 126,009$
–$ –$ 40,004$ 32,390$
– – – –
– – 40,004 32,390
1,221 5,439 – –
– – 95,254 93,619
– – – –
555,153 1,556,848 – –
– – – –
555,153 1,556,848 95,254 93,619
556,374$ 1,562,287$ 135,258$ 126,009$
(continued)
-83-
Tax Tax Tax
Increment 5-1 Increment 6-1 Increment 1-4
Premiere Shepard’s Path River Vet
Assets
Cash and investments 12,437$ 397,495$ 4,135$
Cash held in escrow – – –
Receivables
Accounts 21 682 (8)
Special assessments
Deferred – – –
Other (Green Acres)– – –
Due from other governmental agencies – – –
Total assets 12,458$ 398,177$ 4,127$
Liabilities
Accounts and contracts payable 5,793$ 136,344$ 3,609$
Due to other funds – – –
Total liabilities 5,793 136,344 3,609
Deferred inflows of resources
Unavailable revenue from special assessments – – –
Fund balances
Restricted for tax increment 6,665 261,833 518
Restricted for future capital improvements – – –
Assigned for capital improvements – – –
Unassigned (deficit in restricted balance)– – –
Total fund balances 6,665 261,833 518
Total liabilities, deferred inflows
of resources, and fund balances 12,458$ 398,177$ 4,127$
as of December 31, 2016
CITY OF PRIOR LAKE
Nonmajor Capital Projects Funds
Combining Balance Sheet (continued)
-84-
Tax Revolving
Increment 1-5 Park Facility
Gateway Ctr Equipment Management Total
–$ 394,017$ 607,834$ 5,564,282$
– – 465,195 465,195
– 1,371 3,068 74,046
– – – 16,388
– – – 1,403
– – – 3,821
–$ 395,388$ 1,076,097$ 6,125,135$
–$ –$ 400,888$ 868,085$
218 – – 218
218 – 400,888 868,303
– – – 17,790
– – – 544,926
– – 63,214 63,214
– 395,388 611,995 4,631,120
(218) – – (218)
(218) 395,388 675,209 5,239,042
–$ 395,388$ 1,076,097$ 6,125,135$
-85-
Tax Revolving Trunk
Increment Equipment Reserve
Revenues
Taxes –$ 326,039$ –$
Special assessments – – 5,034
Charges for services 9,850 – 841,532
Interest on investments 1,244 12,037 28,211
Total revenues 11,094 338,076 874,777
Expenditures
Capital outlay 2,243 1,016,459 –
Debt service
Interest and other – 11,039 –
Total expenditures 2,243 1,027,498 –
Excess (deficiency) of revenues
over expenditures 8,851 (689,422) 874,777
Other financing sources (uses)
Debt issued – 410,000 –
Premium on debt issued – 16,305 –
Transfers in – 141,000 –
Transfers out – (148,021) (1,542,344)
Total other financing sources (uses)– 419,284 (1,542,344)
Net change in fund balances 8,851 (270,138) (667,567)
Fund balances (deficit)
Beginning of year 78,186 857,940 1,591,501
End of year 87,037$ 587,802$ 923,934$
CITY OF PRIOR LAKE
Nonmajor Capital Projects Funds
Combining Statement of Revenues, Expenditures,
and Changes in Fund Balances
Year Ended December 31, 2016
-86-
Tax Tax
Street Water Increment 1-3 Increment 3-1
Oversizing Storage Lakefront Creekside
–$ –$ 105,853$ 71,980$
3,957 3,319 – –
107,910 384,200 – –
10,636 18,045 1,488 1,901
122,503 405,564 107,341 73,881
– – 81,402 65,300
– – – –
– – 81,402 65,300
122,503 405,564 25,939 8,581
– – – –
– – – –
– – 32,313 –
(250,635) – (25,520) (32,313)
(250,635) – 6,793 (32,313)
(128,132) 405,564 32,732 (23,732)
683,285 1,151,284 62,522 117,351
555,153$ 1,556,848$ 95,254$ 93,619$
(continued)
-87-
Tax Tax Tax
Increment 5-1 Increment 6-1 Increment 1-4
Premiere Shepard’s Path River Vet
Revenues
Taxes 12,871$ 302,989$ 8,022$
Special assessments – – –
Charges for services – – –
Interest on investments 145 4,728 10
Total revenues 13,016 307,717 8,032
Expenditures
Capital outlay 12,102 273,190 7,737
Debt service
Interest and other – – –
Total expenditures 12,102 273,190 7,737
Excess (deficiency) of revenues
over expenditures 914 34,527 295
Other financing sources (uses)
Debt issued – – –
Premium on debt issued – – –
Transfers in – – –
Transfers out – – –
Total other financing sources (uses)– – –
Net change in fund balances 914 34,527 295
Fund balances (deficit)
Beginning of year 5,751 227,306 223
End of year 6,665$ 261,833$ 518$
Year Ended December 31, 2016
CITY OF PRIOR LAKE
Nonmajor Capital Projects Funds
Combining Statement of Revenues, Expenditures,
and Changes in Fund Balances (continued)
-88-
Tax Revolving
Increment 1-5 Park Facility
Gateway Ctr Equipment Management Total
–$ –$ –$ 827,754$
– – – 12,310
– – – 1,343,492
– 5,980 10,023 94,448
– 5,980 10,023 2,278,004
218 – 258,453 1,717,104
– – – 11,039
218 – 258,453 1,728,143
(218) 5,980 (248,430) 549,861
– – – 410,000
– – – 16,305
– – 55,000 228,313
– – (45,614) (2,044,447)
– – 9,386 (1,389,829)
(218) 5,980 (239,044) (839,968)
– 389,408 914,253 6,079,010
(218)$ 395,388$ 675,209$ 5,239,042$
-89-
2015
Actual Variance With Actual
Original Final Amounts Final Budget Amounts
Revenues
Taxes
Property taxes 8,257,512$ 8,257,512$ 8,271,183$ 13,671$ 8,087,428$
Franchise taxes 595,000 595,000 615,028 20,028 604,997
Total taxes 8,852,512 8,852,512 8,886,211 33,699 8,692,425
Special assessments 5,000 5,000 9,363 4,363 366
Licenses and permits
Business 78,140 78,140 87,365 9,225 77,870
Nonbusiness 552,355 552,355 664,459 112,104 509,594
Total licenses and permits 630,495 630,495 751,824 121,329 587,464
Intergovernmental
Federal grants 18,000 18,000 17,145 (855) 19,806
State
Road and bridge aid 316,827 316,827 325,213 8,386 316,827
Fire relief aid 213,000 213,000 223,801 10,801 213,941
Police aid 182,800 182,800 199,490 16,690 209,926
Other state aids 15,180 15,180 11,905 (3,275) 18,559
County and local
County aid 12,500 12,500 16,000 3,500 –
Township fire and rescue aid 311,068 311,068 311,068 – 279,094
Liaison aid 45,860 45,860 47,130 1,270 23,565
Payment in lieu of taxes 420,000 420,000 430,000 10,000 420,000
Other local aids – – – – 72,147
Total intergovernmental 1,535,235 1,535,235 1,581,752 46,517 1,573,865
Charges for services
Zoning fees 17,050 17,050 28,529 11,479 26,626
Plan check fees 253,396 253,396 310,435 57,039 233,752
Park fees 59,250 59,250 80,081 20,831 65,127
Project fees 343,000 343,000 212,839 (130,161) 273,943
Park program revenue 65,000 65,000 63,462 (1,538) 67,210
Tower leases 243,069 243,069 246,883 3,814 243,499
PEG access fees 34,000 34,000 32,227 (1,773) 32,952
Park admission/rent 29,000 29,000 36,664 7,664 29,852
Facility rental 73,361 73,361 119,722 46,361 72,757
Reports 2,180 2,180 1,662 (518) 2,846
Total charges for services 1,119,306 1,119,306 1,132,504 13,198 1,048,564
(continued)
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
2016
Budgeted Amounts
CITY OF PRIOR LAKE
General Fund
Schedule of Revenues, Expenditures, and
Changes in Fund Balances – Budget and Actual
Year Ended December 31, 2016
-90-
2015
Variance With
Original Final Actual Final Budget Actual
Revenues (continued)
Fines and forfeits – – 4,743 4,743 1,390
Interest on investments 120,000 120,000 97,036 (22,964) 114,970
Miscellaneous
Other 95,550 95,550 39,444 (56,106) 238,492
Contributions and donations – – 26,049 26,049 11,866
Developers’ agreements 55,000 55,000 76,261 21,261 59,867
Total miscellaneous 150,550 150,550 141,754 (8,796) 310,225
Total revenues 12,413,098 12,413,098 12,605,187 192,089 12,329,269
Expenditures
Current expenditures
General government
Mayor and City Council
Personal services 49,389 49,389 51,301 1,912 53,503
Supplies 300 300 171 (129) 42
Other services and charges 5,720 5,720 5,709 (11) 4,987
Total Mayor and City Council 55,409 55,409 57,181 1,772 58,532
Ordinance
Other services and charges 7,500 7,500 7,329 (171) 6,952
Administration
Personal services 344,628 344,628 349,935 5,307 318,613
Supplies 3,250 3,250 6,128 2,878 5,688
Other services and charges 56,203 56,203 60,427 4,224 51,241
Total administration 404,081 404,081 416,490 12,409 375,542
Boards and commissions
Personal services 9,689 9,689 9,903 214 9,258
Other services and charges 850 850 467 (383) 879
Total boards and commissions 10,539 10,539 10,370 (169) 10,137
Election
Personal services 24,640 24,640 14,070 (10,570) –
Supplies 3,000 3,000 1,546 (1,454) –
Other services and charges 2,000 2,000 1,366 (634) 84,750
Total election 29,640 29,640 16,982 (12,658) 84,750
(continued)
Year Ended December 31, 2016
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
2016
Schedule of Revenues, Expenditures, and
Budgeted Amounts
General Fund
Changes in Fund Balances – Budget and Actual (continued)
CITY OF PRIOR LAKE
-91-
2015
Variance With
Original Final Actual Final Budget Actual
Expenditures (continued)
Current expenditures (continued)
General government (continued)
Finance
Personal services 429,064 429,064 418,264 (10,800) 396,539
Supplies 1,425 1,425 2,200 775 2,297
Other services and charges 14,488 14,488 8,512 (5,976) 12,418
Total finance 444,977 444,977 428,976 (16,001) 411,254
Auditing
Other services and charges 28,150 28,150 31,733 3,583 30,748
Assessing
Other services and charges 169,750 169,750 169,608 (142) 152,155
Legal services
Other services and charges 200,000 200,000 147,402 (52,598) 233,507
Personnel
Personal services 127,318 127,318 127,300 (18) 55,315
Supplies 250 250 45 (205) 323
Other services and charges 27,263 27,263 24,662 (2,601) 33,297
Total personnel 154,831 154,831 152,007 (2,824) 88,935
Communications
Personal services 92,043 92,043 89,499 (2,544) 72,801
Supplies 750 750 42 (708) 92
Other services and charges 21,600 21,600 16,826 (4,774) 15,550
Total communications 114,393 114,393 106,367 (8,026) 88,443
Community development
Personal services 286,409 286,409 291,720 5,311 286,768
Supplies 2,200 2,200 2,342 142 2,556
Other services and charges 48,750 48,750 29,663 (19,087) 5,340
Total community development 337,359 337,359 323,725 (13,634) 294,664
(continued)
Budgeted Amounts
2016
Year Ended December 31, 2016
CITY OF PRIOR LAKE
Changes in Fund Balances – Budget and Actual (continued)
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
Schedule of Revenues, Expenditures, and
General Fund
-92-
2015
Variance With
Original Final Actual Final Budget Actual
Expenditures (continued)
Current expenditures (continued)
General government (continued)
Technology
Personal services 139,457 139,457 139,147 (310) 131,814
Supplies 4,135 4,135 1,051 (3,084) 578
Other services and charges 106,179 106,179 92,270 (13,909) 107,494
Total technology 249,771 249,771 232,468 (17,303) 239,886
Buildings and plant
Personal services 76,681 76,681 77,207 526 74,214
Supplies 5,614 5,614 6,478 864 5,779
Other services and charges 364,764 364,764 346,943 (17,821) 412,974
Total buildings and plant 447,059 447,059 430,628 (16,431) 492,967
Total general government 2,653,459 2,653,459 2,531,266 (122,193) 2,568,472
Public safety
Police
Personal services 3,221,711 3,221,711 3,226,226 4,515 3,090,015
Supplies 122,386 134,386 114,874 (19,512) 115,158
Other services and charges 198,268 198,268 179,259 (19,009) 146,611
Total police 3,542,365 3,554,365 3,520,359 (34,006) 3,351,784
Fire and rescue
Personal services 419,482 419,482 425,597 6,115 399,781
Supplies 92,713 92,713 71,840 (20,873) 62,952
Other services and charges 386,037 386,037 397,712 11,675 418,185
Total fire and rescue 898,232 898,232 895,149 (3,083) 880,918
Building inspections
Personal services 577,939 577,939 548,022 (29,917) 538,616
Supplies 10,275 10,275 10,116 (159) 8,648
Other services and charges 7,629 7,629 25,693 18,064 6,407
Total building inspections 595,843 595,843 583,831 (12,012) 553,671
Emergency management
Other services and charges 9,750 9,750 9,639 (111) 9,577
Animal control
Other services and charges 26,448 26,448 26,000 (448) 25,200
Total public safety 5,072,638 5,084,638 5,034,978 (49,660) 4,821,150
(continued)
CITY OF PRIOR LAKE
General Fund
Schedule of Revenues, Expenditures, and
Changes in Fund Balances – Budget and Actual (continued)
Year Ended December 31, 2016
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
2016
Budgeted Amounts
-93-
2015
Variance With
Original Final Actual Final Budget Actual
Expenditures (continued)
Current expenditures (continued)
Public works
Engineering
Personal services 348,212 348,212 311,937 (36,275) 343,925
Supplies 12,196 12,196 13,286 1,090 9,087
Other services and charges 27,218 27,218 15,420 (11,798) 8,653
Total engineering 387,626 387,626 340,643 (46,983) 361,665
Central garage
Personal services 187,282 187,282 183,998 (3,284) 178,660
Supplies 167,387 167,387 129,897 (37,490) 123,596
Other services and charges 25,700 25,700 47,393 21,693 30,196
Total central garage 380,369 380,369 361,288 (19,081) 332,452
Streets
Personal services 406,082 406,082 354,288 (51,794) 331,049
Supplies 241,027 241,027 212,713 (28,314) 231,351
Other services and charges 738,283 759,283 606,602 (152,681) 821,792
Total streets 1,385,392 1,406,392 1,173,603 (232,789) 1,384,192
Total public works 2,153,387 2,174,387 1,875,534 (298,853) 2,078,309
Culture and recreation
Recreation
Personal services 314,099 314,099 299,687 (14,412) 268,297
Supplies 66,039 66,039 69,424 3,385 60,447
Other services and charges 26,080 26,080 15,611 (10,469) 17,670
Total recreation 406,218 406,218 384,722 (21,496) 346,414
Parks
Personal services 883,056 883,056 855,018 (28,038) 847,810
Supplies 194,360 194,360 128,685 (65,675) 184,303
Other services and charges 155,945 155,945 184,110 28,165 160,107
Total parks 1,233,361 1,233,361 1,167,813 (65,548) 1,192,220
Libraries
Supplies – – 2,776 2,776 3,597
Other services and charges 46,289 46,289 38,515 (7,774) 57,840
Total libraries 46,289 46,289 41,291 (4,998) 61,437
(continued)
Budgeted Amounts
Year Ended December 31, 2016
2016
CITY OF PRIOR LAKE
General Fund
Schedule of Revenues, Expenditures, and
Changes in Fund Balances – Budget and Actual (continued)
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
-94-
2015
Variance With
Original Final Actual Final Budget Actual
Expenditures (continued)
Current expenditures (continued)
Culture and recreation
Natural resources
Personal services – – 149 149 –
Total culture and recreation 1,685,868 1,685,868 1,593,975 (91,893) 1,600,071
Economic development
Other services and charges – – – – 6,213
Total current expenditures 11,565,352 11,598,352 11,035,753 (562,599) 11,074,215
Capital outlay
General government
Technology 86,390 86,390 74,320 (12,070) 81,353
Buildings and plant 5,000 5,000 5,553 553 6,516
Public safety
Police – – 176 176 –
Fire and rescue 3,800 3,800 – (3,800) –
Culture and recreation
Parks 200,477 230,477 142,759 (87,718) 145,486
Total capital outlay 295,667 325,667 222,808 (102,859) 233,355
Total expenditures 11,861,019 11,924,019 11,258,561 (665,458) 11,307,570
Excess of revenues
over expenditures 552,079 489,079 1,346,626 857,547 1,021,699
Other financing sources (uses)
Transfers in 532,640 362,640 362,640 – 355,520
Transfers out (1,084,719) (1,084,719) (1,159,226) (74,507) (1,036,245)
Sale of assets – – 10,129 10,129 7,130
Total other financing
sources (uses)(552,079) (722,079) (786,457) (64,378) (673,595)
Net change in fund balances –$ (233,000)$ 560,169 793,169$ 348,104
Fund balances
Beginning of year 6,124,751 5,776,647
End of year 6,684,920$ 6,124,751$
General Fund
CITY OF PRIOR LAKE
Budgeted Amounts
Schedule of Revenues, Expenditures, and
Changes in Fund Balances – Budget and Actual (continued)
Year Ended December 31, 2016
2016
(With Comparative Actual Amounts for the Year Ended December 31, 2015)
-95-
Water
Park City Hall Fire Treatment
Referendum 2005 Station #2 Plant
Assets
Cash and investments –$ 7,973$ –$ 5,859$
Cash held in escrow – – – 6,895,799
Receivables
Accounts – 27 – –
Special assessments
Delinquent – – – –
Deferred – – – –
Other (Green Acres)– – – –
Due from other governmental agencies – 5,162 – –
Total assets –$ 13,162$ –$ 6,901,658$
Liabilities
Accounts and contracts payable 175$ 177$ 89$ 170$
Due to other funds 87 – 87 –
Total liabilities 262 177 176 170
Deferred inflows of resources
Unavailable revenue from
special assessments – – – –
Fund balances (deficit)
Restricted for debt service – 12,985 – 6,901,488
Unassigned (deficit in restricted balance)(262) – (176) –
Total fund balances (deficit)(262) 12,985 (176) 6,901,488
Total liabilities, deferred inflows
of resources, and fund balances –$ 13,162$ –$ 6,901,658$
CITY OF PRIOR LAKE
Debt Service Funds
Balance Sheet by Account
as of December 31, 2016
-96-
Tax
Increment Breezy Fish
2004 Point Point CSAH 82
27,295$ 31,413$ –$ 21,738$
– – – –
107 667 – 101
– – – –
– – 30,112 –
– – 692,597 –
– – – 1,209
27,402$ 32,080$ 722,709$ 23,048$
87$ –$ –$ –$
– – – –
87 – – –
– – 722,709 –
27,315 32,080 – 23,048
– – – –
27,315 32,080 – 23,048
27,402$ 32,080$ 722,709$ 23,048$
(continued)
-97-
Street Brooksville Brooksville CR 12 and
Reconstruction Hills Hills II/Maple 2010
2007 2008 Glen 2nd Reconstruction
Assets
Cash and investments 28,211$ 55,437$ 49,149$ 37,114$
Cash held in escrow – – – –
Receivables
Accounts 112 958 839 487
Special assessments
Delinquent – 1,089 – –
Deferred – 77,573 63,033 34,630
Other (Green Acres)– – – –
Due from other governmental agencies 1,473 741 1,732 944
Total assets 29,796$ 135,798$ 114,753$ 73,175$
Liabilities
Accounts and contracts payable 174$ –$ 175$ 175$
Due to other funds – – – –
Total liabilities 174 – 175 175
Deferred inflows of resources
Unavailable revenue from
special assessments – 78,662 63,033 34,630
Fund balances (deficit)
Restricted for debt service 29,622 57,136 51,545 38,370
Unassigned (deficit in restricted balance)– – – –
Total fund balances (deficit)29,622 57,136 51,545 38,370
Total liabilities, deferred inflows
of resources, and fund balances 29,796$ 135,798$ 114,753$ 73,175$
as of December 31, 2016
Balance Sheet by Account (continued)
Debt Service Funds
CITY OF PRIOR LAKE
-98-
CSAH 44,
Boudin Boudin Welcome,Crest,
Phase I Phase II CR 12, Sunset Maplewood
248,437$ 200,813$ 756,588$ 238,599$
– – – –
1,167 755 3,267 (130)
524 – 17,484 1,612
184,130 192,136 500,259 69,256
– – 25,656 –
1,235 1,747 2,650 2,249
435,493$ 395,451$ 1,305,904$ 311,586$
88$ 88$ 174$ 85$
– – – –
88 88 174 85
184,654 192,136 543,399 70,869
250,751 203,227 762,331 240,632
– – – –
250,751 203,227 762,331 240,632
435,493$ 395,451$ 1,305,904$ 311,586$
(continued)
-99-
Street TH 13, 150th
Reconstruction Street 2015 Manitou Road
GESP Lease 2015 Reconstruction Improvement
Assets
Cash and investments –$ 365,917$ 248,997$ 158,226$
Cash held in escrow – – – –
Receivables
Accounts 7,440 – – –
Special assessments
Delinquent – 1,850 – –
Deferred – 1,070,016 – 263,397
Other (Green Acres)– – – –
Due from other governmental agencies 2,215 1,968 829 –
Total assets 9,655$ 1,439,751$ 249,826$ 421,623$
Liabilities
Accounts and contracts payable –$ 1,168$ 168$ 44$
Due to other funds 6,672 – – –
Total liabilities 6,672 1,168 168 44
Deferred inflows of resources
Unavailable revenue from
special assessments – 1,071,866 – 263,397
Fund balances (deficit)
Restricted for debt service 2,983 366,717 249,658 158,182
Unassigned (deficit in restricted balance)– – – –
Total fund balances (deficit)2,983 366,717 249,658 158,182
Total liabilities, deferred inflows
of resources, and fund balances 9,655$ 1,439,751$ 249,826$ 421,623$
CITY OF PRIOR LAKE
Debt Service Funds
Balance Sheet by Account (continued)
as of December 31, 2016
-100-
TH 13, 150th
Street 2016 Equipment
Reconstruction 2016 Total
106$ 124$ 2,481,996$
– – 6,895,799
– – 15,797
– – 22,559
– – 2,484,542
– – 718,253
– – 24,154
106$ 124$ 12,643,100$
45$ 43$ 3,125$
– – 6,846
45 43 9,971
– – 3,225,355
61 81 9,408,212
– – (438)
61 81 9,407,774
106$ 124$ 12,643,100$
-101-
Water
Park City Hall Fire Treatment
Referendum 2005 Station #2 Plant
Revenues
Taxes –$ 596,040$ –$ –$
Special assessments – – – –
Interest on investments – 532 – 76,623
Miscellaneous – – – –
Total revenues – 596,572 – 76,623
Expenditures
Debt service
Principal 780,000 410,000 135,000 240,000
Interest and other 76,925 184,828 92,969 496,572
Total expenditures 856,925 594,828 227,969 736,572
Excess (deficiency) of revenues
over expenditures (856,925) 1,744 (227,969) (659,949)
Other financing sources (uses)
Debt issued – – – –
Refunding debt issued – – – 1,640,000
Premium on debt issued – – – 70,270
Transfers in 856,838 – 227,881 542,144
Total other financing sources (uses)856,838 – 227,881 2,252,414
Net change in fund balances (87) 1,744 (88) 1,592,465
Fund balances (deficit)
Beginning of year (175) 11,241 (88) 5,309,023
End of year (262)$ 12,985$ (176)$ 6,901,488$
Year Ended December 31, 2016
and Changes in Fund Balances
CITY OF PRIOR LAKE
Debt Service Funds
Schedule of Revenues, Expenditures,
-102-
Tax
Increment Breezy Fish
2004 Point Point CSAH 82
–$ –$ –$ 139,585$
– – – –
398 379 – 403
– – – –
398 379 – 139,988
20,000 – – 140,000
5,651 – – 8,545
25,651 – – 148,545
(25,253) 379 – (8,557)
– – – –
– – – –
– – – –
25,520 – – –
25,520 – – –
267 379 – (8,557)
27,048 31,701 – 31,605
27,315$ 32,080$ –$ 23,048$
(continued)
-103-
Street Brooksville Brooksville CR 12 and
Reconstruction Hills Hills II/Maple 2010
2007 2008 Glen 2nd Reconstruction
Revenues
Taxes 170,152$ 85,585$ 150,793$ 109,019$
Special assessments – 34,683 36,923 15,739
Interest on investments 635 1,118 1,098 1,008
Miscellaneous – – – –
Total revenues 170,787 121,386 188,814 125,766
Expenditures
Debt service
Principal 160,000 125,000 175,000 125,000
Interest and other 13,375 7,500 22,925 19,172
Total expenditures 173,375 132,500 197,925 144,172
Excess (deficiency) of revenues
over expenditures (2,588) (11,114) (9,111) (18,406)
Other financing sources (uses)
Debt issued – – – –
Refunding debt issued – – – –
Premium on debt issued – – – –
Transfers in – – – –
Total other financing sources (uses)– – – –
Net change in fund balances (2,588) (11,114) (9,111) (18,406)
Fund balances (deficit)
Beginning of year 32,210 68,250 60,656 56,776
End of year 29,622$ 57,136$ 51,545$ 38,370$
and Changes in Fund Balances (continued)
Year Ended December 31, 2016
CITY OF PRIOR LAKE
Debt Service Funds
Schedule of Revenues, Expenditures,
-104-
CSAH 44,
Boudin Boudin Welcome,Crest,
Phase I Phase II CR 12, Sunset Maplewood
142,642$ 201,737$ 160,982$ 242,492$
59,035 47,147 179,595 15,029
4,625 3,447 7,870 3,375
– – – –
206,302 252,331 348,447 260,896
215,000 225,000 325,000 190,000
28,204 34,588 56,955 42,188
243,204 259,588 381,955 232,188
(36,902) (7,257) (33,508) 28,708
– – – –
– – – –
– – – –
– – 243,779 –
– – 243,779 –
(36,902) (7,257) 210,271 28,708
287,653 210,484 552,060 211,924
250,751$ 203,227$ 762,331$ 240,632$
(continued)
-105-
Street TH 13, 150th
Reconstruction Street 2015 Manitou Road
GESP Lease 2015 Reconstruction Improvement
Revenues
Taxes 255,737$ –$ 95,774$ –$
Special assessments – 271,158 15,578 157,875
Interest on investments – 156 702 1,886
Miscellaneous 4,053 – – –
Total revenues 259,790 271,314 112,054 159,761
Expenditures
Debt service
Principal 247,365 – 280,000 –
Interest and other 53,249 116,994 41,274 13,795
Total expenditures 300,614 116,994 321,274 13,795
Excess (deficiency) of revenues
over expenditures (40,824) 154,320 (209,220) 145,966
Other financing sources (uses)
Debt issued – – – 12,216
Refunding debt issued – – – –
Premium on debt issued – – – –
Transfers in 45,614 – – –
Total other financing sources (uses)45,614 – – 12,216
Net change in fund balances 4,790 154,320 (209,220) 158,182
Fund balances (deficit)
Beginning of year (1,807) 212,397 458,878 –
End of year 2,983$ 366,717$ 249,658$ 158,182$
CITY OF PRIOR LAKE
Debt Service Funds
Schedule of Revenues, Expenditures,
and Changes in Fund Balances (continued)
Year Ended December 31, 2016
-106-
TH 13, 150th
Street 2016 Equipment
Reconstruction 2016 Total
–$ –$ 2,350,538$
– – 832,762
592 694 105,541
– – 4,053
592 694 3,292,894
– – 3,792,365
4,400 5,146 1,325,255
4,400 5,146 5,117,620
(3,808) (4,452) (1,824,726)
3,869 – 16,085
– – 1,640,000
– – 70,270
– 4,533 1,946,309
3,869 4,533 3,672,664
61 81 1,847,938
– – 7,559,836
61$ 81$ 9,407,774$
-107-
Severance
Compensation Insurance Total
Assets
Cash and investments 302,081$ 84,169$ 386,250$
Receivables
Accounts 2,482 34 2,516
Total assets 304,563$ 84,203$ 388,766$
Current liabilities
Current portion of compensated absences payable 309,890$ –$ 309,890$
Noncurrent liabilities
Compensated absences payable 562,830 – 562,830
Total liabilities 872,720 – 872,720
Net position (deficit)
Unrestricted (568,157) 84,203 (483,954)
Total liabilities and fund balances 304,563$ 84,203$ 388,766$
CITY OF PRIOR LAKE
Internal Service Funds
Combining Statement of Net Position
as of December 31, 2016
-108-
Severance
Compensation Insurance Total
Operating revenues
Charges for services 26,466$ –$ 26,466$
Operating expenses
Personal services 127,945 – 127,945
Operating income (loss)(101,479) – (101,479)
Nonoperating revenues (expenses)
Interest income 6,418 (84) 6,334
Miscellaneous – 84,287 84,287
Total nonoperating revenues (expenses)6,418 84,203 90,621
Change in net position (95,061) 84,203 (10,858)
Net position
Beginning of year (473,096) – (473,096)
End of year (568,157)$ 84,203$ (483,954)$
CITY OF PRIOR LAKE
Internal Service Funds
Combining Statement of Revenues, Expenses, and Changes in Net Position
Year Ended December 31, 2016
-109-
Severance
Compensation Insurance Total
Cash flows from operating activities
Cash received from customers 26,645$ (34)$ 26,611$
Cash payments to employees (136,600) – (136,600)
Net cash flows from operating activities (109,955) (34) (109,989)
Cash flows from capital and related financing
activities
Miscellaneous – 84,287 84,287
Cash flows from investing activities
Interest received on cash and investments 6,418 (84) 6,334
Net increase (decrease) in cash and cash equivalents (103,537) 84,169 (19,368)
Cash and cash equivalents, January 1 405,618 – 405,618
Cash and cash equivalents, December 31 302,081$ 84,169$ 386,250$
Reconciliation of operating income (loss) to net
cash flows from operating activities
Operating income (loss)(101,479)$ –$ (101,479)$
Adjustments to reconcile operating income (loss)
to net cash flows from operating activities
(Increase) decrease in assets
Accounts receivable 179 (34) 145
Increase (decrease) in liabilities
Compensated absences payable (8,655) – (8,655)
Net cash flows from operating activities (109,955)$ (34)$ (109,989)$
CITY OF PRIOR LAKE
Internal Service Funds
Combining Statement of Cash Flows
Year Ended December 31, 2016
-110-
OTHER INFORMATION SECTION
THIS PAGE INTENTIONALLY LEFT BLANK
Percent
Increase
2016 2015 (Decrease)
Revenues
Taxes 11,604,544$ 10,844,247$ 7.0%
Franchise taxes 659,782 604,997 9.1%
Special assessments 857,070 1,141,067 (24.9%)
Licenses and permits 751,824 587,464 28.0%
Intergovernmental 1,656,379 2,882,091 (42.5%)
Charges for services 3,341,807 2,493,523 34.0%
Fines and forfeits 4,743 1,390 241.2%
Interest on investments 388,084 376,624 3.0%
Miscellaneous 208,715 479,996 (56.5%)
Total revenues 19,472,948$ 19,411,399$ 0.3%
Per capita 768$ 775$ (0.9%)
Expenditures
Current
General government 2,536,514$ 2,639,188$ (3.9%)
Public safety 5,076,152 4,821,150 5.3%
Public works 1,875,534 2,078,309 (9.8%)
Culture and recreation 1,606,831 1,684,169 (4.6%)
Economic development 150,177 164,783 (8.9%)
Capital outlay 7,901,298 14,205,764 (44.4%)
Debt service
Principal 3,792,365 3,203,474 18.4%
Interest and other charges 1,375,468 1,484,684 (7.4%)
Total disbursements 24,314,339$ 30,281,521$ (19.7%)
Per capita 959$ 1,209$ (20.7%)
Total long-term bonded indebtedness 42,980,000$ 43,020,000$ (0.1%)
Per capita 1,695$ 1,717$ (1.3%)
General Fund balance – December 31 6,684,920$ 6,124,751$ 9.1%
Per capita 264$ 245$ 7.8%
The purpose of this report is to provide a summary of financial information concerning the City to interested citizens.The
complete financial statements may be examined at City Hall,4646 Dakota Street Southeast,Prior Lake,Minnesota
55372-1714. Questions about this report should be directed to the Finance Director at (952) 447-9841.
Governmental Funds
Years Ended December 31, 2016 and 2015
Total
CITY OF PRIOR LAKE
Summary Financial Report
Revenues and Expenditures for General Operations
-111-
Final
Issue Maturity
Date Date
Bonded indebtedness
General obligation special assessment bonds
G.O. Improvement Bonds of 2009A 1.10–3.50 %05/15/2009 12/15/2019
G.O. Improvement Bonds of 2010A 0.80–3.20 05/26/2010 12/15/2020
G.O. Improvement Bonds of 2011A 1.80–2.50 08/31/2011 12/15/2021
G.O. Improvement Bonds of 2011B 2.00–2.35 12/14/2011 12/15/2022
G.O. Improvement Bonds of 2013A 2.00–2.65 08/15/2013 12/15/2023
G.O. Improvement Bonds of 2014A 2.00–2.50 09/15/2014 12/15/2024
G.O. Improvement Refunding Bonds of 2014A 2.00 09/15/2014 12/15/2018
G.O. Improvement Bonds of 2015A 2.00–3.00 05/14/2015 12/15/2030
G.O. Improvement Bonds of 2015B 1.00–2.25 05/14/2015 12/15/2022
G.O. Improvement Bonds of 2016A 2.00 05/01/2016 12/15/2026
Total general obligation special assessment bonds
General obligation tax increment bonds
G.O. Tax Increment Refunding Bonds of 2011A 1.80–3.00 08/31/2011 12/15/2024
General obligation bonds
G.O. Park Refunding Bonds of 2005 3.75–5.00 09/01/2005 12/01/2017
G.O. Street Reconstruction Bonds of 2007B 4.00 05/15/2007 12/15/2017
G.O. Improvement Bonds of 2011B 2.00–3.40 12/14/2011 12/15/2031
G.O. Capital Improvement Refunding Bonds of 2012A 2.00–2.70 03/13/2012 12/15/2029
G.O. Street Reconstruction Bonds of 2015B 1.00–2.25 05/14/2015 12/15/2022
G.O. Street Reconstruction Bonds of 2016A 2.00 05/01/2016 12/15/2026
Total general obligation bonds
General obligation revenue bonds
G.O. Water Treatment Plant Revenue Bonds of 2007A 4.00–4.20 05/15/2007 12/15/2017
G.O. Improvement Refunding Bonds of 2015A 1.00–3.00 05/14/2015 12/15/2031
G.O. Improvement Refunding Bonds of 2016A 2.00 05/01/2016 12/15/2022
Total general obligation revenue bonds
General obligation capital improvement plan bonds
G.O. Capital Plan Bonds of 2006A 3.80–3.90 08/01/2007 02/01/2017
Total bonded indebtedness
Rate
CITY OF PRIOR LAKE
Combined Schedule of Indebtedness
for the Year Ended December 31, 2016
Interest
-112-
Outstanding Issued Outstanding
Authorized January 1 (Retired)December 31 Principal Interest
1,700,000$ 700,000$ (175,000)$ 525,000$ 175,000$ 17,500$
1,235,000 635,000 (125,000) 510,000 125,000 15,378
2,130,000 1,315,000 (215,000) 1,100,000 215,000 23,795
2,280,000 1,640,000 (225,000) 1,415,000 225,000 29,768
3,240,000 2,590,000 (325,000) 2,265,000 325,000 50,280
2,170,000 1,985,000 (190,000) 1,795,000 190,000 38,300
495,000 375,000 (125,000) 250,000 125,000 5,000
4,640,000 4,640,000 – 4,640,000 – 115,825
160,000 160,000 (20,000) 140,000 20,000 2,442
1,105,000 – 1,105,000 1,105,000 115,000 22,100
19,155,000 14,040,000 (295,000) 13,745,000 1,515,000 320,388
290,000 225,000 (20,000) 205,000 20,000 5,160
6,260,000 1,535,000 (780,000) 755,000 755,000 37,751
1,400,000 330,000 (160,000) 170,000 170,000 6,800
3,500,000 3,380,000 (135,000) 3,245,000 135,000 89,918
9,825,000 8,240,000 (410,000) 7,830,000 435,000 175,958
2,330,000 2,330,000 (260,000) 2,070,000 210,000 35,368
760,000 – 760,000 760,000 85,000 15,200
24,075,000 15,815,000 (985,000) 14,830,000 1,790,000 360,995
8,500,000 7,290,000 (240,000) 7,050,000 7,050,000 288,114
5,360,000 5,360,000 – 5,360,000 – 134,125
1,640,000 – 1,640,000 1,640,000 – 32,800
15,500,000 12,650,000 1,400,000 14,050,000 7,050,000 455,039
1,225,000 290,000 (140,000) 150,000 150,000 2,923
60,245,000$ 43,020,000$ (40,000)$ 42,980,000$ 10,525,000$ 1,144,505$
Due in 2017
-113-
Final
Issue Maturity
Date Date Principal
General obligation
special assessment bonds
$1,700,000 General Obligation
Improvement Bonds, Series 2009A 05/15/2009 3.00 %12/15/2017 175,000$
3.00 12/15/2018 175,000
3.50 12/15/2019 175,000
Total 525,000
$1,235,000 General Obligation
Improvement Bonds, Series 2010A 05/26/2010 2.50 %12/15/2017 125,000
2.75 12/15/2018 125,000
3.10 12/15/2019 130,000
3.20 12/15/2020 130,000
Total 510,000
$2,130,000 General Obligation
Improvement Bonds, Series 2011A 08/31/2011 1.80 %12/15/2017 215,000
2.00 12/15/2018 220,000
2.15 12/15/2019 220,000
2.35 12/15/2020 220,000
2.50 12/15/2021 225,000
Total 1,100,000
$2,280,000 General Obligation
Improvement Bonds, Series 2011B 12/14/2011 1.80 %12/15/2017 225,000
2.00 12/15/2018 230,000
2.15 12/15/2019 230,000
2.35 12/15/2020 240,000
2.50 12/15/2021 245,000
3.00 12/15/2022 245,000
Total 1,415,000
$3,240,000 General Obligation
Improvement Bonds, Series 2013A 08/15/2013 2.00 %12/15/2017 325,000
2.00 12/15/2018 325,000
2.00 12/15/2019 325,000
2.10 12/15/2020 325,000
2.30 12/15/2021 325,000
2.50 12/15/2022 320,000
2.65 12/15/2023 320,000
Total 2,265,000
(continued)
CITY OF PRIOR LAKE
Bond Schedules
December 31, 2016
Rate
Interest
-114-
Final
Issue Maturity
Date Date Principal
General obligation
special assessment bonds (continued)
$2,170,000 General Obligation
Improvement Bonds, Series 2014A 09/25/2014 2.00 %12/15/2017 190,000
2.00 12/15/2018 215,000
2.00 12/15/2019 220,000
2.00 12/15/2020 225,000
2.00 12/15/2021 230,000
2.00 12/15/2022 235,000
2.50 12/15/2023 235,000
2.50 12/15/2024 245,000
Total 1,795,000
$495,000 General Obligation Improvement
Refunding Bonds, Series 2014A 09/25/2014 2.00 %12/15/2017 125,000
2.00 12/15/2018 125,000
Total 250,000
$4,640,000 General Obligation
Improvement Bonds, Series 2015A 05/14/2015 2.00 %12/15/2023 405,000
2.00 12/15/2024 575,000
2.00 12/15/2025 775,000
2.50 12/15/2026 610,000
2.50 12/15/2027 555,000
3.00 12/15/2028 550,000
3.00 12/15/2029 600,000
3.00 12/15/2030 570,000
Total 4,640,000
$160,000 General Obligation
Improvement Bonds, Series 2015B 05/14/2015 1.00 %12/15/2017 20,000
1.40 12/15/2018 20,000
1.60 12/15/2019 25,000
1.90 12/15/2020 25,000
2.10 12/15/2021 25,000
2.25 12/15/2022 25,000
140,000
(continued)
CITY OF PRIOR LAKE
Bond Schedules (continued)
December 31, 2016
Interest
Rate
-115-
Final
Issue Maturity
Date Date Principal
General obligation
special assessment bonds (continued)
$1,105,000 General Obligation
Improvement Bonds, Series 2016A 05/01/2016 2.00 %12/15/2017 115,000
2.00 12/15/2018 110,000
2.00 12/15/2019 110,000
2.00 12/15/2020 110,000
2.00 12/15/2021 110,000
2.00 12/15/2022 110,000
2.00 12/15/2023 110,000
2.00 12/15/2024 110,000
2.00 12/15/2025 110,000
2.00 12/15/2026 110,000
1,105,000
Total general obligation special assessment bonds 13,745,000$
General obligation
tax increment bonds
$290,000 Tax Increment Refunding
Bonds, Series 2011A 08/31/2011 1.80 %12/15/2017 20,000$
2.00 12/15/2018 25,000
2.15 12/15/2019 25,000
2.35 12/15/2020 25,000
2.50 12/15/2021 25,000
3.00 12/15/2022 25,000
3.00 12/15/2023 30,000
3.00 12/15/2024 30,000
Total general obligation tax increment bonds 205,000$
General obligation bonds
$6,260,000 General Obligation Park
Refunding Bonds of 2005 09/01/2005 5.000 %12/01/2017 755,000$
$1,400,000 General Obligation
Street Reconstruction Bonds of 2007B 05/15/2007 4.00 %12/15/2017 170,000
(continued)
Bond Schedules (continued)
December 31, 2016
Interest
Rate
CITY OF PRIOR LAKE
-116-
Final
Issue Maturity
Date Date Principal
General obligation bonds (continued)
$3,500,000 General Obligation Improvement
Bonds, Series 2011B 12/14/2011 2.00 %12/15/2017 135,000
2.00 12/15/2018 140,000
2.00 12/15/2019 150,000
2.05 12/15/2020 160,000
2.20 12/15/2021 175,000
2.35 12/15/2022 180,000
2.50 12/15/2023 195,000
2.65 12/15/2024 215,000
2.75 12/15/2025 230,000
2.85 12/15/2026 240,000
3.00 12/15/2027 255,000
3.20 12/15/2028 270,000
3.20 12/15/2029 285,000
3.40 12/15/2030 300,000
3.40 12/15/2031 315,000
Total 3,245,000
$9,825,000 General Obligation Capital
Improvement Refunding Bonds of 2012A 03/13/2012 2.00 %12/15/2017 435,000
2.00 12/15/2018 470,000
2.00 12/15/2019 485,000
2.00 12/15/2020 515,000
2.00 12/15/2021 545,000
2.00 12/15/2022 565,000
2.00 12/15/2023 590,000
2.15 12/15/2024 615,000
2.30 12/15/2025 645,000
2.40 12/15/2026 685,000
2.50 12/15/2027 720,000
2.60 12/15/2028 760,000
2.70 12/15/2029 800,000
Total 7,830,000
$2,330,000 General Obligation
Street Reconstruction Bonds, Series 2015B 05/14/2015 1.00 %12/15/2017 210,000
1.40 12/15/2018 630,000
1.60 12/15/2019 330,000
1.90 12/15/2020 185,000
2.10 12/15/2021 290,000
2.25 12/15/2022 425,000
2,070,000
(continued)
December 31, 2016
Interest
Rate
CITY OF PRIOR LAKE
Bond Schedules (continued)
-117-
Final
Issue Maturity
Date Date Principal
General obligation bonds (continued)
$760,000 General Obligation
Street Reconstruction Bonds, Series 2016A 05/01/2016 2.00 %12/15/2017 85,000
2.00 12/15/2018 90,000
2.00 12/15/2019 95,000
2.00 12/15/2020 95,000
2.00 12/15/2021 95,000
2.00 12/15/2022 95,000
2.00 12/15/2023 95,000
2.00 12/15/2024 35,000
2.00 12/15/2025 35,000
2.00 12/15/2026 40,000
760,000
Total general obligation bonds 14,830,000$
General obligation revenue bonds
$8,500,000 General Obligation Water
Treatment Plant Revenue Bonds of 2007A 05/15/2007 4.00 %12/15/2017 5,420,000$
4.00 12/15/2018 280,000
4.00 12/15/2019 300,000
4.00 12/15/2020 325,000
4.00 12/15/2021 350,000
4.00 12/15/2022 375,000
Total 7,050,000
$5,360,000 General Obligation Improvement
Refunding Bonds, Series 2015A 05/14/2015 1.00 %12/15/2018 75,000
1.00 12/15/2019 75,000
1.50 12/15/2020 75,000
1.50 12/15/2021 75,000
1.50 12/15/2022 75,000
2.00 12/15/2023 480,000
2.00 12/15/2024 495,000
2.00 12/15/2025 515,000
2.50 12/15/2026 530,000
2.50 12/15/2027 550,000
3.00 12/15/2028 570,000
3.00 12/15/2029 590,000
3.00 12/15/2030 615,000
3.00 12/15/2031 640,000
Total 5,360,000
(continued)
CITY OF PRIOR LAKE
Bond Schedules (continued)
December 31, 2016
Interest
Rate
-118-
Final
Issue Maturity
Date Date Principal
General obligation revenue bonds (continued)
$1,640,000 General Obligation Improvement
Refunding Bonds, Series 2016A 05/01/2016 2.00 %12/15/2017 295,000
2.00 12/15/2018 310,000
2.00 12/15/2019 325,000
2.00 12/15/2020 345,000
2.00 12/15/2021 365,000
1,640,000
Total general obligation revenue bonds 14,050,000$
General obligation capital improvement
plan bonds
$1,225,000 General Obligation Capital
Improvement Plan Bonds 08/01/2007 3.85 %02/01/2017 150,000$
Total general obligation capital improvement plan bonds 150,000$
Interest
Rate
CITY OF PRIOR LAKE
Bond Schedules (continued)
December 31, 2016
-119-
Year Principal Interest Principal Interest Principal Interest
2017 1,790,000$ 360,993$ 1,515,000$ 320,388$ 20,000$ 5,160$
2018 1,330,000 301,243 1,545,000 288,030 25,000 4,800
2019 1,060,000 278,423 1,435,000 253,375 25,000 4,300
2020 955,000 258,543 1,275,000 220,390 25,000 3,763
2021 1,105,000 239,548 1,160,000 192,140 25,000 3,175
2022 1,265,000 216,808 935,000 166,325 25,000 2,550
2023 880,000 189,815 1,070,000 145,105 30,000 1,800
2024 865,000 171,240 930,000 120,450 30,000 900
2025 910,000 151,620 885,000 100,625 – –
2026 965,000 129,760 720,000 82,925 – –
2027 975,000 105,680 555,000 65,475 – –
2028 1,030,000 80,030 550,000 51,600 – –
2029 1,085,000 51,630 600,000 35,100 – –
2030 300,000 20,910 570,000 17,100 – –
2031 315,000 10,710 – – – –
Total 14,830,000$ 2,566,953$ 13,745,000$ 2,059,028$ 205,000$ 26,448$
CITY OF PRIOR LAKE
Debt Service Requirements
December 31, 2016
General Obligation Bonds Special Assessment Bonds
General Obligation
Tax Increment Bonds
General Obligation
-120-
Principal Interest Principal Interest
7,050,000$ 455,039$ 150,000$ 2,925$
370,000 166,925 – –
385,000 160,275 – –
400,000 153,325 – –
420,000 145,700 – –
440,000 137,675 – –
480,000 129,250 – –
495,000 119,650 – –
515,000 109,750 – –
530,000 99,450 – –
550,000 86,200 – –
570,000 72,450 – –
590,000 55,350 – –
615,000 37,650 – –
640,000 19,200 – –
14,050,000$ 1,947,889$ 150,000$ 2,925$
Revenue Bonds Capital Improvement Plan Bonds
General ObligationGeneral Obligation
-121-
Collection Collections
Total of Current of Prior Total
Year Levy Year Levy Years’ Levy Collections
2007 8,718,777$ 8,557,509$ 98.15 %*96,934$ 8,654,443$ 99.26 %
2008 9,365,437 9,027,680 96.39 *1,520,587 9,148,267 97.68
2009 9,881,555 9,330,012 94.42 *157,906 9,487,918 96.02
2010 10,079,186 9,764,852 96.88 *235,004 9,999,856 99.21
2011 10,114,124 9,742,074 96.32 *148,029 9,890,103 97.79
2012 9,414,124 9,367,641 99.51 132,726 9,500,367 100.92
2013 9,414,124 9,307,276 98.87 79,901 9,387,177 99.71
2014 9,448,918 9,361,417 99.07 86,180 9,447,597 99.99
2015 10,394,086 10,323,081 99.32 48,336 10,371,417 99.78
2016 11,078,361 11,034,353 99.60 68,478 11,102,831 100.22
*Market value credit was withheld by the state of Minnesota
Collection Collections
Total of Current of Prior Total
Year Levy Year Levy**Years’ Levy Collections
2007 405,756$ 400,937$ 98.81 %39,075$ 440,012$ 108.44 %
2008 336,687 330,203 98.07 9,243 339,446 100.82
2009 366,972 362,795 98.86 3,461 366,256 99.80
2010 441,066 435,017 98.63 3,522 438,539 99.43
2011 347,795 341,728 98.26 5,802 347,530 99.92
2012 385,017 380,144 98.73 4,240 384,384 99.84
2013 393,347 388,480 98.76 4,943 393,423 100.02
2014 526,584 460,800 87.51 4,946 465,746 88.45
2015 374,285 365,481 97.65 11,655 377,136 100.76
2016 516,007 475,376 92.13 2,611 477,987 92.63
**Excludes prepaid assessment collections
Percentage
Percentage
Percentage
Collected
Percentage
Collectionsof Levy
of Total
of Total
to Levy
CITY OF PRIOR LAKE
Tax Levies and Collections, and
Special Assessment Levies and Collections
Special Assessment Levies and Collections
Prior Ten Years
Tax Levies and Collections
of Levy
Collected to Levy
Collections
-122-
2014 2015 2016
Taxable market value 2,445,568,700$ 2,620,934,100$ 2,842,299,000$
Tax levy 9,448,918$ 10,394,086$ 11,078,361$
Tax capacity, net of fiscal disparities,
and tax increment 24,793,703$ 26,636,432$ 28,850,704$
Tax capacity rate 30.736% 31.988% 31.953%
Market value rate 0.040% 0.039% 0.038%
EDA tax capacity rate 0.551% 0.557% 0.496%
Prior Three Years
CITY OF PRIOR LAKE
Schedules of Market Value, Tax Levy, Tax Capacity Values,
Tax Capacity Rate, and Market Value Rate
-123-
2014 2015 2016
Current population 24,911 25,049 25,356
Tax capacity, net of fiscal disparities,
and tax increment 24,793,703$ 26,636,432$ 28,850,704$
Percent of current property taxes collected 99.07%99.32% 99.60%
City revenues per capita (governmental funds)713$ 775$ 768$
City expenditures per capita (governmental funds)886$ 1,209$ 959$
Ratio of bonded debt to tax capacity 128.05% 153.07% 141.14%
Bond rating Aa2 (Moody’s)Aa2 (Moody’s)AA+ (S&P)
CITY OF PRIOR LAKE
Key Financial Indicators
Prior Three Years
-124-
OTHER REQUIRED REPORTS
THIS PAGE INTENTIONALLY LEFT BLANK
C ERTIFIED
A CCOUNTANTS
P UBLIC
PRINCIPALS
Thomas A. Karnowski, CPA
Paul A. Radosevich, CPA
William J. Lauer, CPA
James H. Eichten, CPA
Aaron J. Nielsen, CPA
Victoria L. Holinka, CPA/CMA
Malloy, Montague, Karnowski, Radosevich & Co., P.A.
5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com
-125-
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the City Council and Management
City of Prior Lake, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the 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, 2016, and the
related notes to the financial statements, which collectively comprise the City’s basic financial statements,
and have issued our report thereon dated June 1, 2017.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination
of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement
of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
(continued)
-126-
COMPLIANCE AND OTHER MATTERS
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
PURPOSE OF THIS REPORT
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the City’s internal control and compliance. Accordingly,
this report is not suitable for any other purpose.
Minneapolis, Minnesota
June 1, 2017
C ERTIFIED
A CCOUNTANTS
P UBLIC
PRINCIPALS
Thomas A. Karnowski, CPA
Paul A. Radosevich, CPA
William J. Lauer, CPA
James H. Eichten, CPA
Aaron J. Nielsen, CPA
Victoria L. Holinka, CPA/CMA
Malloy, Montague, Karnowski, Radosevich & Co., P.A.
5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com
-127-
INDEPENDENT AUDITOR’S REPORT
ON MINNESOTA LEGAL COMPLIANCE
To the City Council and Management
City of Prior Lake, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America, and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the 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, 2016, and the
related notes to the financial statements, which collectively comprise the City’s basic financial statements,
and have issued our report thereon dated June 1, 2017.
MINNESOTA LEGAL COMPLIANCE
The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to
Minnesota Statute § 6.65, contains seven categories of compliance to be tested: contracting and bidding,
deposits and investments, conflicts of interest, public indebtedness, claims and disbursements,
miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories.
In connection with our audit, nothing came to our attention that caused us to believe that the City failed to
comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities, except as
described in the Schedule of Findings as item 2016-001. However, our audit was not directed primarily
toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional
procedures, other matters may have come to our attention regarding the City’s noncompliance with the
above referenced provisions.
CITY’S RESPONSE TO FINDING
The City’s response to the legal compliance finding identified in our audit has been included in the
Schedule of Findings. The City’s response was not subject to the auditing procedures applied in our audit
of the financial statements and, accordingly, we express no opinion on it.
PURPOSE OF THIS REPORT
The purpose of this report is solely to describe the scope of our testing of compliance and the results of
that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any
other purpose.
Minneapolis, Minnesota
June 1, 2017
CITY OF PRIOR LAKE
Schedule of Findings
December 31, 2016
-128-
FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT
2016-001 COLLATERAL FOR UNINSURED DEPOSITS
Condition and Criteria – Minnesota Statute § 118A.03 requires that if a city’s deposits
exceed federal insurance coverage, excess deposits must be covered by corporate surety
bonds or collateral that has a market value of at least 110 percent of such excess. This
requirement was not met for cash deposits held with an investment broker as the City of Prior
Lake, Minnesota (the City) held $408,416 of uninsured and uncollateralized deposits at
December 31, 2016.
Cause – This was an oversight by city personnel.
Effect – City deposits not covered by federal depository insurance or pledged collateral were
subject to custodial credit risk, the risk they may be lost if the depository bank fails.
Recommendation – We recommend that the City review its investment portfolio to assure
that in the future excess cash is reinvested or placed into a collateralized security type
investment. This will ensure the City will remain covered by federal depository insurance
coverage for collateral purposes.
Management Response – There is no disagreement with the audit finding. This was an
oversight by the City that was recognized by city staff and rectified in January 2017. The
City’s staff reviews collateral coverage regularly and will assure that adequate coverage is
obtained in the future.
Management Report
for
City of Prior Lake, Minnesota
December 31, 2016
THIS PAGE INTENTIONALLY LEFT BLANK
C ERTIFIED
A CCOUNTANTS
P UBLIC
PRINCIPALS
Thomas A. Karnowski, CPA
Paul A. Radosevich, CPA
William J. Lauer, CPA
James H. Eichten, CPA
Aaron J. Nielsen, CPA
Victoria L. Holinka, CPA/CMA
Malloy, Montague, Karnowski, Radosevich & Co., P.A.
5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com
To the City Council and Management
City of Prior Lake, Minnesota
We have prepared this management report in conjunction with our audit of the City of Prior Lake,
Minnesota’s (the City) financial statements for the year ended December 31, 2016. The purpose of this
report is to provide comments resulting from our audit process and to communicate information relevant
to city finances in Minnesota. We have organized this report into the following sections:
Audit Summary
Governmental Funds Overview
Enterprise Funds Overview
Government-Wide Financial Statements
Legislative Updates
Accounting and Auditing Updates
We would be pleased to further discuss any of the information contained in this report or any other
concerns that you would like us to address. We would also like to express our thanks for the courtesy and
assistance extended to us during the course of our audit.
The purpose of this report is solely to provide those charged with governance of the City, management,
and those who have responsibility for oversight of the financial reporting process comments resulting
from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is
not suitable for any other purpose.
Minneapolis, Minnesota
June 1, 2017
THIS PAGE INTENTIONALLY LEFT BLANK
-1-
AUDIT SUMMARY
The following is a summary of our audit work, key conclusions, and other information that we consider
important or that is required to be communicated to the City Council, administration, or those charged
with governance of the City.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED
STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City as of and for the year ended
December 31, 2016, and the related notes to the financial statements. Professional standards require that
we provide you with information about our responsibilities under auditing standards generally accepted in
the United States of America and Government Auditing Standards, as well as certain information related
to the planned scope and timing of our audit. We have communicated such information to you verbally
and in our audit engagement letter. Professional standards also require that we communicate the following
information related to our audit.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously discussed and coordinated
in order to obtain sufficient audit evidence and complete an effective audit.
AUDIT OPINION AND FINDINGS
Based on our audit of the City’s financial statements for the year ended December 31, 2016:
We have issued an unmodified opinion on the City’s basic financial statements.
We reported no deficiencies in the City’s internal control over financial reporting that we
considered to be material weaknesses.
The results of our testing disclosed no instances of noncompliance required to be reported under
Government Auditing Standards.
We reported one finding based on our testing of the City’s compliance with Minnesota laws and
regulations:
1) The City had cash in excess of federal depository insurance with one investment broker
as of December 31, 2016, which was not adequately covered by pledged collateral with a
market value of 110 percent of the excess, as required by state statutes. As a result,
$408,416 of the City’s deposits were exposed to custodial credit risk at year-end.
Subsequent to year-end, the City has requested that the broker sweep funds into the
money market account on a daily basis.
-2-
FOLLOW-UP ON PRIOR YEAR FINDINGS AND RECOMMENDATIONS
As a part of our audit of the City’s financial statements for the year ended December 31, 2016, we
performed procedures to follow-up on the findings and recommendations that resulted from our prior year
audit. We reported the following findings that were corrected by the City in the current year:
The City had certificates of deposit in excess of federal depository insurance at two depositories
as of December 31, 2015, and the excess deposits were not adequately covered by pledged
collateral with a market value of 110 percent of the excess, as required by state statutes. This
particular oversight was corrected in early 2016, but the City has a similar collateral finding again
in the current year with a different broker as explained on the previous page.
SIGNIFICANT ACCOUNTING POLICIES
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 of the notes to basic financial statements.
No new accounting policies were adopted and the application of existing policies was not changed during
the year ended December 31, 2016. We noted no transactions entered into by the City during the year for
which there is a lack of authoritative guidance or consensus. All significant transactions have been
recognized in the financial statements in the proper period.
ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the financial statements were:
Depreciation – Management’s estimates of depreciation expense are based on the estimated
useful lives of the assets.
Compensated Absences – Estimates for compensated absences payable are based on current sick
and vacation leave balances.
Net Other Post-Employment Benefit (OPEB) and Net Pension Liabilities – The City has
recorded liabilities and activity for other post-employment benefits (OPEB) and pension benefits.
These obligations are calculated using actuarial methodologies described in Governmental
Accounting Standards Board (GASB) Statement Nos. 45 and 68. These actuarial calculations
include significant assumptions, including projected changes, healthcare insurance costs,
investment returns, retirement ages, proportionate share, and employee turnover.
We evaluated the key factors and assumptions used by management to develop these estimates in
determining that they are reasonable in relation to the basic financial statements taken as a whole.
The financial statement disclosures are neutral, consistent, and clear.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
-3-
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are clearly trivial, and communicate them to the appropriate level of
management. Where applicable, management has corrected all such misstatements. In addition, none of
the misstatements detected as a result of audit procedures and corrected by management, when applicable,
were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as
a whole.
DISAGREEMENTS WITH MANAGEMENT
For purposes of this report, professional standards define a disagreement with management as a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be
significant to the financial statements or the auditor’s report. We are pleased to report that no such
disagreements arose during the course of our audit.
MANAGEMENT REPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter dated June 1, 2017.
MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves
application of an accounting principle to the City’s financial statements or a determination of the type of
auditor’s opinion that may be expressed on those statements, our professional standards require the
consulting accountant to check with us to determine that the consultant has all the relevant facts. To our
knowledge, there were no such consultations with other accountants.
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City’s auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
OTHER MATTERS
We applied certain limited procedures to management’s discussion and analysis and the pension and
OPEB-related required supplementary information (RSI) that supplements the basic financial statements.
Our procedures consisted of inquiries of management regarding the methods of preparing the information
and comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the supplemental information accompanying the financial statements
which is not RSI. With respect to this supplementary information, we made certain inquiries of
management and evaluated the form, content, and methods of preparing the information to determine that
the information complies with accounting principles generally accepted in the United States of America,
the method of preparing it has not changed from the prior period, and the information is appropriate and
complete in relation to our audit of the financial statements. We compared and reconciled the
supplementary information to the underlying accounting records used to prepare the financial statements
or to the financial statements themselves.
We were not engaged to report on the introductory and other information sections which accompany the
financial statements but are not RSI. Such information has not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or
provide any assurance on it.
-4-
GOVERNMENTAL FUNDS OVERVIEW
This section of the report provides you with an overview of the financial trends and activities of the City’s
governmental funds, which includes the General, special revenue, debt service, and capital project funds.
These funds are used to account for the basic services the City provides to all of its citizens, which are
financed primarily with property taxes. The governmental fund information in the City’s financial
statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current
assets to finance its current liabilities.
PROPERTY TAXES
Minnesota cities rely heavily on local property tax levies to support their governmental fund activities.
For the 2015 fiscal year, local ad valorem property tax levies provided 39.8 percent of the total
governmental fund revenues for cities over 2,500 in population, and 35.6 percent for cities under 2,500 in
population. Property tax levies certified by Minnesota cities for 2016 increased about 4.8 percent over
2015, compared to an increase of 4.0 percent the prior year.
The total market value of property in Minnesota cities increased about 5.7 percent for the 2016 levy year.
While the percentage of market value growth was less than the 8.5 percent increase for levy year 2015, it
was considerably larger than the 1.1 percent growth experienced in levy year 2014. Market values
increased across all property categories for 2016, with gains in the market values of nonhomestead
residential properties (9.1 percent) and other properties (7.3 percent) outpacing the market value gain of
residential homestead properties (5.0 percent), commercial/industrial properties (4.9 percent), and farms
(0.1 percent). The market values used for levying property taxes are based on the previous fiscal year
(e.g., market values for taxes levied in 2016 were based on assessed values as of January 1, 2015), so the
trend of change in these market values lags somewhat behind the housing market and economy in general.
The City’s taxable market value increased 7.2 percent for taxes payable in 2015 and 8.4 percent for taxes
payable in 2016. The following graph shows the City’s changes in taxable market value over the past
10 years:
$–
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
$3,000,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Taxable Market Value
-5-
Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s
property classification system to each property’s market value. Each property classification, such as
commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total
tax capacity will change at a different rate than its total market value, as tax capacity is affected by the
proportion of the City’s tax base that is in each property classification from year-to-year, as well as
legislative changes to tax rates. The City’s tax capacity increased 7.4 percent and 8.3 percent for taxes
payable in 2015 and 2016, respectively.
The following graph shows the City’s change in tax capacities over the past 10 years:
$–
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Local Net Tax Capacity
The city portion of the average state-wide and metro area tax rates for 2016 both showed small decreases
from the prior year, as levy increases were offset by improvements in property tax capacities. The
following table presents the average tax rates applied to city residents for each of the last two levy years,
along with comparative state-wide and metro area rates:
Rates expressed as a percentage of net tax capacity
2015 2016 2015 2016 2015 2016
Average tax rate
City 46.9 46.5 43.4 43.0 32.0 32.0
County 44.7 44.1 42.9 42.3 36.6 36.2
School 27.1 27.5 28.3 28.6 32.7 32.9
Special taxing 6.9 6.9 8.8 8.7 7.3 7.2
Total 125.6 125.0 123.4 122.6 108.6 108.3
Prior LakeMetro Area
Seven-CountyAll Cities
State-Wide
City of
The City’s portion of the total tax rate is below both the state-wide and metro area averages, as presented
in the table above. The school rate within the City exceeds the state-wide and the metro area averages.
The average tax rate in total is below these averages.
-6-
GOVERNMENTAL FUND BALANCES
The following table summarizes the changes in the fund balances of the City’s governmental funds during
the year ended December 31, 2016, presented both by fund balance classification and by fund:
Increase
2016 2015 (Decrease)
Fund balances of governmental funds
Total by classification
Nonspendable –$ 9,150$ (9,150)$
Restricted 10,474,448 9,469,229 1,005,219
Assigned 9,755,914 10,107,820 (351,906)
Unassigned 6,634,264 6,039,025 595,239
Total – governmental funds 26,864,626$ 25,625,224$ 1,239,402$
Total by fund
General 6,684,920$ 6,124,751$ 560,169$
DAG Special Revenue 687,724 743,774 (56,050)
Debt Service 9,407,774 7,559,836 1,847,938
Construction 3,326,863 4,234,770 (907,907)
Special revenue nonmajor funds 1,518,303 883,083 635,220
Capital projects nonmajor funds 5,239,042 6,079,010 (839,968)
Total – governmental funds 26,864,626$ 25,625,224$ 1,239,402$
Governmental Funds Change in Fund Balance
Fund Balance
as of December 31,
In total, the fund balances of the City’s governmental funds increased by $1,239,402 during the year
ended December 31, 2016. Debt Service Fund balance increased due to the issuance of the refunding
portion of the 2016A General Obligation Improvement Bonds that will refund the 2007A General
Obligation Water Treatment Plant Revenue Bonds. Construction Fund balance decreased due to further
spending of capital outlay on the previously issued bonds. Special Revenue Fund balances increased due
to the significant amount of dedication revenue received for various new developments during 2016.
Capital Projects Fund balances decreased due to the significant amount of transfers out related to the
Stemmer Ridge Road Project in the Construction Fund.
-7-
GOVERNMENTAL FUNDS REVENUE AND EXPENDITURES
The following table presents the per capita revenue of the City’s governmental funds for the past
three years, along with state-wide averages.
We have included the most recent comparative state-wide averages available from the Office of the State
Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical
major sources of governmental fund revenue will naturally vary between cities based on factors such as a
city’s stage of development, location, size and density of its population, property values, services it
provides, and other attributes. It will also differ from year-to-year due to the effect of inflation and
changes in its operation. Also, certain data on these tables may be classified differently than how they
appear on the City’s financial statements in order to be more comparable to the state-wide information,
particularly in separating capital expenditures from current expenditures.
We have designed this section of our management report using per capita data in order to better identify
unique or unusual trends and activities of the City. We intend for this type of comparative and trend
information to complement, rather than duplicate, information in the management’s discussion and
analysis. An inherent difficulty in presenting per capita information is the accuracy of the population
count, which for most years is based on estimates.
Year 2014 2015 2016
Population 2,500–10,000 10,000–20,000 20,000–100,000 24,911 25,049 25,356
Property taxes 443$ 414$ 443$ 380$ 414$ 438$
Tax increments 26 33 37 19 19 20
Franchise and other taxes 33 42 39 24 24 26
Special assessments 59 52 59 25 46 34
Licenses and permits 31 31 43 23 23 30
Intergovernmental revenues 285 322 156 82 115 65
Charges for services 110 85 94 111 100 132
Other 69 62 58 49 34 24
Total revenue 1,056$ 1,041$ 929$ 713$ 775$ 769$
December 31, 2015
City of Prior LakeState-Wide
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
In total, the City’s governmental fund revenues for 2016 were $19,472,948, an increase of $61,549
(0.3 percent) from the prior year. On a per capita basis, the City received $769 in governmental fund
revenue for 2016, a decrease of $6 from the prior year. In general, the City has generated less
governmental fund revenue per capita than the state-wide averages. Most of this relates to lower than
average revenues in many of the development categories, including tax increment and special
assessments.
-8-
The expenditures of governmental funds will also vary from state-wide averages and from year-to-year,
based on the City’s circumstances. Expenditures are classified into three types as follows:
Current – These are typically the general operating type expenditures occurring on an annual
basis, and are primarily funded by general sources such as taxes and intergovernmental revenues.
Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more
typically fluctuating significantly from year-to-year. Many of these expenditures are
project-oriented, and are often funded by specific sources that have benefited from the
expenditure, such as special assessment improvement projects.
Debt Service – Although the expenditures for debt service may be relatively consistent over the
term of the respective debt, the funding source is the important factor. Some debt may be repaid
through specific sources such as special assessments or redevelopment funding, while other debt
may be repaid with general property taxes.
The City’s expenditures per capita of its governmental funds for the past three years, together with
comparative state-wide averages, are presented in the following table:
Year 2014 2015 2016
Population 2,500–10,000 10,000–20,000 20,000–100,000 24,911 25,049 25,356
Current
134$ 109$ 89$ 113$ 105$ 100$
255 244 261 190 192 200
119 117 99 75 83 74
88 108 94 71 67 63
64 70 89 5 7 6
660 648 632 454 454 443
Capital outlay
and construction 372 389 286 254 567 312
Debt service
181 178 117 128 128 150
51 40 33 50 59 54
232 218 150 178 187 204
Total expenditures 1,264$ 1,255$ 1,068$ 886$ 1,208$ 959$
Interest and fiscal charge
Public safety
Streets and highways
Culture and recreation
All other
Principal
General government
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
December 31, 2015
City of Prior LakeState-Wide
Total expenditures in the City’s governmental funds for 2016 were $24,314,339, a decrease of $5,967,182
(19.7 percent) from the prior year. On a per capita basis, the City expended a total of $959 in 2016.
Capital outlay expenditures decreased $255 per capita from the prior year due to significant street
construction and equipment replacement expenditures in 2015. Debt service expenditures for 2016 were
$17 per capita higher than the prior year, mainly due to the payment of principal and interest on bonds
issued in 2015.
-9-
GENERAL FUND
The City’s General Fund accounts for the financial activity of the basic services provided to the
community. The primary services included within this fund are the administration of the municipal
operation, police and fire protection, building inspection, streets and highway maintenance, and culture
and recreation. The graph below illustrates the change in the General Fund financial position over the last
five years. We have also included a line representing annual expenditures and operating transfers out to
reflect the change in the size of the General Fund operation over the same period.
$–
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
2012 2013 2014 2015 2016
General Fund Financial Position
Year Ended December 31,
Fund Balance Cash and Investments Balance Expenditures and Transfers Out
The City’s General Fund cash and investments balance at December 31, 2016 was $7,211,301, an
increase of $308,375. Total fund balance at December 31, 2016 was $6,684,920, which is an increase of
$560,169 from the prior year.
As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels
as the volume of financial activity has grown. This is an important factor because a government, like any
organization, requires a certain amount of equity to operate. A healthy financial position allows the City
to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the
adequate and consistent funding of services, repairs, and unexpected costs; and is a factor in determining
the City’s bond rating and resulting interest costs. Maintaining an adequate fund balance has become
increasingly important given the fluctuations in state funding for cities in recent years.
The City has formally adopted a fund balance policy regarding the minimum unrestricted fund balance for
the General Fund. The policy establishes that the City will strive to maintain an unrestricted General Fund
balance (which includes committed, assigned, and unassigned classifications) between 40 and 50 percent
of the subsequent year’s General Fund budgeted expenditures and transfers out. At December 31, 2016,
the unrestricted fund balance of the General Fund was 50.8 percent of the subsequent year’s budgeted
expenditures and transfers out.
-10-
The following chart reflects the City’s General Fund revenue sources for 2016 compared to budget:
All Other
Fines and Forfeits
Charges for Services
Intergovernmental
Licenses and Permits
Taxes
General Fund Revenue
Budget and Actual
Actual Budget
General Fund revenue for 2016 was $12,605,187, which was $192,089 (1.5 percent) more than budget
mainly due to the City having more developments than expected leading to more building permits.
The following graph presents the City’s General Fund revenue by source for the last five years. The graph
reflects the City’s increased reliance on property tax revenue in recent years.
$–
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
Taxes Licenses
and
Permits
Intergovernmental Charges
for
Services
Fines
and
Forfeits
All Other
General Fund Revenue by Source
Year Ended December 31,
2012 2013 2014 2015 2016
Total General Fund revenue for 2016 was $275,918 (2.2 percent) higher than last year. Tax revenue
increased by $193,786, or 2.2 percent, related to the increased tax levy. Licenses and permits were
$164,360 higher than last year due to the City having more developments leading to increased building
permits during 2016. In 2016, the “all other” revenue category was lower than the prior year by $177,408
(41.7 percent) mainly due to the City recording its League of Minnesota Cities Insurance Trust property
dividend in the new Insurance Internal Service Fund instead of the General Fund.
-11-
The following graphs illustrate the components of General Fund spending for 2016 compared to budget:
All Other
Culture and Recreation
Public Works
Public Safety
General Government
General Fund Expenditures
Budget and Actual
Actual Budget
Total General Fund expenditures for 2016 were $11,258,561, which was $665,458 (5.6 percent) under
budget. General government expenditures were $122,193 under budget mostly due to the City budgeting
for more in litigation costs than were actually incurred during the year. Public works expenditures were
$298,853 under budget, due mostly to anticipated projects that did not occur in 2016 as well as recording
various other projects to other program functions. The All Other category expenditures were $102,859
under budget, mainly in capital outlay as some projects didn’t spend their entire budget.
The following graph presents the City’s General Fund expenditures by function for the last five years:
$–
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
General
Government
Public Safety Public Works Culture and
Recreation
All Other
General Fund Expenditures by Function
Year Ended December 31,
2012 2013 2014 2015 2016
Total General Fund expenditures for 2016 were $49,009 (0.4 percent) lower than the previous year.
Public safety expenditures increased $213,828 due to a fully staffed department, working more overtime
hours, and a general wage rate increase. Public works expenditures offset the increase in public safety
expenditures by $202,775 due to fewer projects during 2016 and the recording of other expenditures to
other program functions. Each other program function remained relatively similar to the previous year.
-12-
ENTERPRISE FUNDS OVERVIEW
The City maintains a number of enterprise funds to account for services the City provides that are
financed primarily through fees charged to those utilizing the service. This section of the report provides
you with an overview of the financial trends and activities of the City’s enterprise funds, which includes
the Water, Sewer, and Water Quality Funds.
ENTERPRISE FUNDS FINANCIAL POSITION
The following table summarizes the changes in the financial position of the City’s enterprise funds during
the year ended December 31, 2016, presented by both classification and by fund:
Increase
2016 2015 (Decrease)
Net position of enterprise funds
Total by classification
Investment in capital assets 51,075,358$ 47,805,809$ 3,269,549$
Unrestricted 4,309,353 3,881,319 428,034
Total – enterprise funds 55,384,711$ 51,687,128$ 3,697,583$
Total by fund
Water 32,804,990$ 30,730,432$ 2,074,558$
Sewer 20,723,278 19,327,366 1,395,912
Water Quality 1,856,443 1,629,330 227,113
Total – enterprise funds 55,384,711$ 51,687,128$ 3,697,583$
Enterprise Funds Change in Financial Position
Net Position
as of December 31,
INTERNAL SERVICE FUND
During the year ended December 31, 2011, the City established a Compensated Absences Internal Service
Fund to finance the compensated absence obligations of the governmental funds of the City. At
December 31, 2016, this fund had assets totaling $304,563, while liabilities totaled $872,720, leaving a
deficit net position balance of ($568,157). We recommend that the City continue to include the financing
of these obligations as part of its long range financial plans.
During the year ended December 31, 2016, the City established an Insurance Internal Service Fund to
account for risk management activities, including worker’s compensation, volunteer accident, and
property/casualty insurance. At December 31, 2016, this fund had assets totaling $84,203 and no
liabilities, leading to a net position balance of $84,203.
-13-
WATER ENTERPRISE FUND
The following graph presents five years of comparative operating results for the City’s Water Fund:
$–
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2012 2013 2014 2015 2016
Water Enterprise Fund
Year Ended December 31,
Operating Revenue Operating Expenses
Operating Income (Loss)Income Before Depreciation
The Water Fund ended 2016 with net position of $32,804,990, an increase of $2,074,558 from the prior
year. Of this, $30,568,185 represents the investment in capital assets, leaving $2,236,805 in unrestricted
net position. The Water Fund had transfers out totaling $1,742,896 in 2016 to support other funds, pay
debt service, and provide for construction projects.
Operating revenue in the Water Fund was $3,674,099, an increase of 8.4 percent from the prior year. This
increase was due to a combination of increased rates and water usage in 2016.
Water Fund operating expenses for 2016 were $2,493,541, an increase of $146,387 (6.2 percent) from the
previous year. The largest factors contributing to the change were increases in utilities of $48,525 and
personal services of $49,342 related to the Public Employees Retirement Association (PERA) pension
expense allocation.
State and federal grant, interest, and miscellaneous income, which are not included in the table above,
totaled $16,948, $35,216, and $6,525, respectively, in 2016. After including this revenue, the Water Fund
reflected income before contributions and transfers of $1,239,247.
-14-
SEWER ENTERPRISE FUND
The following graph presents five years of comparative operating results for the City’s Sewer Fund:
$(250,000)
$–
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$1,750,000
$2,000,000
$2,250,000
$2,500,000
$2,750,000
$3,000,000
2012 2013 2014 2015 2016
Sewer Enterprise Fund
Year Ended December 31,
Operating Revenue Operating Expenses
Operating Income (Loss)Income Before Depreciation
The Sewer Fund ended 2016 with net position of $20,723,278, an increase of $1,395,912 from the prior
year. Of this, $19,422,492 represents the City’s investment in capital assets, leaving $1,300,786 in
unrestricted net position. The Sewer Fund had transfers out totaling $631,004 in 2016 to support other
funds, pay debt service, and provide for construction projects.
Operating revenue in the Sewer Fund was $2,741,578, an increase of $308,653 (12.7 percent) from the
prior year, mainly related to increased rates and increased sewer treatments. Sewer Fund operating
expenses for 2016 were $2,635,304, an increase of $166,372 (6.7 percent). The largest factors
contributing to the change were increases in disposal charges of $94,472 and personal services of $78,707
related to the PERA pension expense allocation, increased full time wages, and additional compensated
absences paid during 2016.
State and federal grant, interest, and miscellaneous income, which are not included in the table above,
totaled $59,465, $20,473, and $3,180, respectively, in 2016. After including this revenue, the Sewer Fund
reflected income before contributions and transfers of $189,392.
-15-
WATER QUALITY ENTERPRISE FUND
The following graph presents five years of comparative operating results for the City’s Water Quality
Fund:
$–
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
2012 2013 2014 2015 2016
Water Quality Enterprise Fund
Year Ended December 31,
Operating Revenue Operating Expenses
Operating Income (Loss)Income Before Depreciation
The Water Quality Fund ended 2016 with net position of $1,856,443, an increase of $227,113 from the
prior year. Of this, $1,084,681 represents the investment in capital assets, leaving $771,762 in unrestricted
net position.
Operating revenue in the Water Quality Fund was $920,128, an increase of $54,884 (6.3 percent) from the
prior year due to an increase in the rates in 2016 as well as an adjustment to true-up billings from previous
years for various commercial, industrial, and multifamily stormwater accounts that resulted from an
internal review of stormwater billing. Water Quality Fund operating expenses for 2016 were $598,972, an
increase of $38,152 (6.8 percent) from the previous year, due to general increases in the cost of
operations.
-16-
GOVERNMENT-WIDE FINANCIAL STATEMENTS
In addition to fund-based information, the current reporting model for governmental entities also requires
the inclusion of two government-wide financial statements designed to present a clear picture of the City
as a single, unified entity. These government-wide financial statements provide information on the total
cost of delivering services, including capital assets and long-term liabilities.
STATEMENT OF NET POSITION
The Statement of Net Position essentially tells you what the City owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to
use for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, net position is
divided into three components: net investment in capital assets, restricted, and unrestricted.
The following table presents the components of the City’s net position as of December 31, 2016 and
2015, for governmental activities and business-type activities:
Increase
2016 2015 (Decrease)
Net position
Governmental activities
Net investment in capital assets 99,587,768$ 94,087,717$ 5,500,051$
Restricted 6,282,406 6,836,277 (553,871)
Unrestricted 9,092,499 11,465,626 (2,373,127)
Total governmental activities 114,962,673 112,389,620 2,573,053
Business-type activities
Net investment in capital assets 51,075,358 47,805,809 3,269,549
Unrestricted 4,309,353 3,881,319 428,034
Total business-type activities 55,384,711 51,687,128 3,697,583
Total net position 170,347,384$ 164,076,748$ 6,270,636$
As of December 31,
The City’s total net position at December 31, 2016 was $6,270,636 higher than the total net position
reported at the previous year-end. The increase in the net investment in capital assets balance was mostly
due to capital outlay and capital contribution activity during fiscal 2016.
At the end of the current fiscal year, the City is able to present positive balances in all three categories of
net position, both for the government as a whole, as well as for its separate governmental and
business-type activities. The same situation held true for the prior year.
-17-
STATEMENT OF ACTIVITIES
The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other
transactions that increase or reduce total net positions. These amounts represent the full cost of providing
services. The Statement of Activities provides a more comprehensive measure than just the amount of
cash that changed hands, as reflected in the fund-based financial statements. This statement includes the
cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses.
The following table presents the change in the net position of the City for the years ended December 31,
2016 and 2015:
2015
Program
Expenses Revenues Net Change Net Change
Governmental activities
General government 3,176,442$ 620,798$ (2,555,644)$ (2,475,185)$
Public safety 7,583,658 2,567,019 (5,016,639) (3,404,130)
Public works 4,672,078 5,263,735 591,657 4,707,495
Culture and recreation 2,105,696 1,120,064 (985,632) (1,958,671)
Economic development 610,584 23,905 (586,679) (336,873)
Interest on long-term debt 1,294,104 – (1,294,104) (1,410,844)
Business-type activities
Water 2,493,541 4,469,721 1,976,180 1,622,771
Sewer 2,635,304 3,500,099 864,795 235,944
Water quality 598,972 983,481 384,509 346,826
25,170,379$ 18,548,822$ (6,621,557) (2,672,667)
General revenues
Taxes 12,242,330 11,452,374
Unrestricted grants and contributions 19,864 13,250
Interest income 460,363 526,006
Gain on sale of capital assets 6,163 –
Miscellaneous 163,473 318,328
Special item – transfer of operations – (25,200)
Total general revenues 12,892,193 12,284,758
6,270,636$ 9,612,091$
Total net (expense) revenue
Change in net position
Net (expense) revenue
2016
One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the
way the City’s governmental and business-type operations are financed. The table clearly illustrates the
dependence of the City’s governmental operations on general revenues, such as property taxes and
unrestricted grants. It also shows that the City’s business-type activities are generating sufficient program
revenues (service charges and program-specific grants) to cover expenses. This is critical given the
current downward pressures on the general revenue sources.
-18-
LEGISLATIVE UPDATES
The 2016 legislative session, falling in the second half of the state’s fiscal biennium, was scheduled to be
a short session lasting only 11 weeks. Since biennial budgets are adopted in odd-year legislative sessions,
less time is usually needed for the even-year sessions. However, because the 2015 Legislature adjourned
without passing funding bills in several significant areas, it was anticipated that the 2016 legislative
session would be considerably more active than the typical short session. In spite of this, only a few
funding bills were brought forth to the Governor by the end of the 2016 regular legislative session,
including a supplemental budget bill and an omnibus tax bill. The Governor chose not to sign the tax bill
due to a drafting error that would have resulted in an unintended reduction of state revenues. When the
framework for a special session could not be agreed upon, the fiscal year ended without the adoption of a
new tax bill, capital bonding bill, or transportation funding package.
The following is a summary of recent legislation affecting Minnesota cities:
Border-to-Border Broadband Grants – The 2016 supplemental budget act appropriated
$35 million in fiscal 2017 for a Border-to-Border Broadband Grant Program. The grants, available
through the Office of Broadband Development in the Department of Employment and Economic
Development (DEED), provide funding to help communities meet state goals for the development of
state-wide high-speed broadband access, focusing on areas currently considered to be underserved or
with a high concentration of low-income households.
Equity-Related Programs and Grants – The 2016 supplemental budget act also appropriated
$35 million in fiscal 2017 for the financing of equity-related programs through DEED, the majority of
which was allocated for programs and grants for communities of color, people with disabilities,
seniors, and youth.
Sales Tax Exemption – Effective January 1, 2017, the sales tax exemption on the purchase of goods
or services enacted for cities in 2014 is expanded to include all special districts; city, county, or
township instrumentalities; economic development authorities; housing and redevelopment
authorities; and all joint power boards or organizations.
Taxes Covered Under Debt Management Services – Amendments were made to the statutes
governing debt management and debt settlement services to clarify the status of delinquent taxes
owed to Minnesota local governments and political subdivisions as debt with regard to those services,
and include those entities as creditors for the purpose of debt management services.
Elections – An omnibus elections law was passed making several changes to elections administration
requirements. In addition to establishing a presidential primary to take the place of the current caucus
system beginning in 2020, the law modified election procedures in a number of areas, including:
absentee balloting, voting station dimensions, election canvassing, candidate filing, the extension of
polling hours to accommodate voters in line at closing, and emergency election plans.
Police-Worn Body Cameras – A number of new laws were enacted related to portable recording
systems (police-worn body cameras) and the data derived from their use, addressing: data retention
and destruction, permitted uses of the systems, audits of the data, and vendor practices. Among the
changes are a requirement for gathering public input before purchasing or implementing the use of
portable recording systems, and requirements for the adoption and dissemination of written policies
over the use of portable recording systems.
Veteran Preference Act – New language was added to state statutes clarifying that Minnesota cities
and towns may require a veteran to complete an initial probationary period when hired.
-19-
Charitable Gambling – Cities that require charitable gambling organizations to contribute
10 percent of their net profits to the city for charitable purposes are now required to acknowledge the
source of the funds, either in communications about the receipt or distribution of the funds.
Donation of Surplus Equipment – Local governments are now permitted to donate surplus public
works equipment, cell phones, or emergency medical and firefighting equipment to nonprofit
organizations. The donation of surplus equipment was added to the list of exceptions to municipal tort
liability. Prior to making any such donations, a city must adopt a policy on how it will determine what
equipment is considered surplus and eligible for donation and how it will determine which nonprofit
organizations will receive such donations. The policy must address the city’s obligation to disclose
that the donated equipment may be defective and cannot be relied upon for safety.
Temporary Family Health Care Housing Permits – A new special land use permit system was
established for a specific type of mobile health care-related mobile housing, intended to provide
transitional housing for seniors. Cities will be required to implement the new permit system unless
they officially act to opt out of the program. The program sets forth requirements for structure and
placement, the permit process and duration, applicants, inspections, and the process for opting out.
Partition Fence Viewing Exemption – Cities now have the authority to pass a resolution to exempt
adjoining owners or occupants from the partition fence law when their land is considered to be less
than 20 acres combined, thereby relieving the city of the responsibility of participating in a potentially
costly “fence-viewing” process to mediate disputes between adjoining landowners required to share
the costs of constructing fences.
-20-
ACCOUNTING AND AUDITING UPDATES
GASB STATEMENT NO. 73, ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS AND RELATED
ASSETS THAT ARE NOT WITHIN THE SCOPE OF GASB STATEMENT 68, AND AMENDMENTS TO
CERTAIN PROVISIONS OF GASB STATEMENTS 67 AND 68
This statement extends the approach to accounting and financial reporting established in GASB Statement
No. 68 to all pensions, including those not administered through a trust. Governmental employers
participating in such plans will be required to report the total of any unfunded pension liability related to
the plan in their accrual basis financial statements, rather than the net pension liability. The requirements
of this statement that address accounting and financial reporting by employers and governmental
nonemployer contributing entities for pensions not within the scope of GASB Statement No. 68, are
effective for financial statements for fiscal years beginning after June 15, 2016.
This statement also clarified the application of certain provisions of GASB Statement Nos. 67 and 68
regarding 10-year schedules of required supplementary information (RSI) and other recognition issues
pertaining to employers and nonemployer contributing entities effective for financial statements for fiscal
years beginning after June 15, 2015.
GASB STATEMENT NO. 74, FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFIT PLANS OTHER
THAN PENSION PLANS
This statement establishes new accounting and financial reporting requirements for other
post-employment benefits (OPEB) plans, replacing GASB Statement Nos. 43 and 57. It also includes
requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in
GASB Statement Nos. 25, 43, and 50.
This statement will improve financial reporting primarily through enhanced note disclosures and
schedules of RSI that will be presented by OPEB plans administered through trusts meeting the specified
criteria. The new information will enhance the decision-usefulness of the financial reports of those OPEB
plans, their value for assessing accountability, and their transparency by providing information about
measures of net OPEB liabilities and explanations of how and why those liabilities changed from
year-to-year. The net OPEB liability information, including ratios, will offer an up-to-date indication of
the extent to which the total OPEB liability is covered by the fiduciary net position of the OPEB plan.
The comparability of the reported information for similar types of OPEB plans will be improved by the
changes related to the attribution method used to determine the total OPEB liability. The contribution
schedule will provide measures to evaluate decisions related to the assessment of contribution rates in
comparison with actuarially determined rates, if such rates are determined. In addition, new information
about rates of return on OPEB plan investments will inform financial report users about the effects of
market conditions on the OPEB plan’s assets over time and provide information for users to assess the
relative success of the OPEB plan’s investment strategy and the relative contribution that investment
earnings provide to the OPEB plan’s ability to pay benefits to plan members when they come due.
This statement is effective for financial statements for fiscal years beginning after June 15, 2016. Earlier
application is encouraged.
-21-
GASB STATEMENT NO. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT
BENEFITS OTHER THAN PENSIONS
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than
Pensions, establishes new accounting and financial reporting requirements for governments whose
employees are provided with OPEB, as well as for certain nonemployer governments that have a legal
obligation to provide financial support for OPEB provided to the employees of other entities. This
statement replaces the requirements of GASB Statement Nos. 45 and 57.
This statement establishes standards for recognizing and measuring liabilities, deferred outflows of
resources, deferred inflows of resources, and expense/expenditures. Similar to changes implemented for
pensions, this statement requires the liability of employers and nonemployer contributing entities to
employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present
value of projected benefit payments to be provided to current active and inactive employees that is
attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB
plan’s fiduciary net position. Note disclosure and RSI requirements about defined benefit OPEB also are
addressed.
This statement is effective for fiscal years beginning after June 15, 2017. Earlier application is
encouraged.
GASB STATEMENT NO. 80, BLENDING REQUIREMENTS FOR CERTAIN COMPONENT UNITS—AN
AMENDMENT OF GASB STATEMENT NO. 14
The objective of this statement is to clarify the financial statement presentation requirements for certain
component units. This statement amends the blending requirements for the financial statement
presentation of component units of all state and local governments. The additional criterion requires
blending of a component unit incorporated as a not-for-profit corporation in which the primary
government is the sole corporate member. The additional criterion does not apply to component units
included in the financial reporting entity pursuant to the provisions of GASB Statement No. 39,
Determining Whether Certain Organizations Are Component Units—an amendment of GASB Statement
No. 14.
The requirements of this statement are effective for reporting periods beginning after June 15, 2016.
Earlier application is encouraged.
GASB STATEMENT NO. 81, IRREVOCABLE SPLIT-INTEREST AGREEMENTS
This statement provides recognition and measurement guidance for the accounting and financial reporting
of irrevocable split-interest agreements by governments that are the beneficiary of such an agreement.
Split-interest agreements are a type of giving agreement used by donors to provide resources to two or
more beneficiaries, including governments.
This statement requires that a government that receives resources pursuant to an irrevocable split-interest
agreement (1) recognize assets, liabilities, and deferred inflows of resources at the inception of the
agreement, (2) recognize assets representing its beneficial interests in irrevocable split-interest agreements
that are administered by a third party if the government controls the present service capacity of the
beneficial interests, and (3) recognize revenue when the resources become applicable to the reporting
period.
The requirements of this statement are effective for financial statements for periods beginning after
December 15, 2016, and should be applied retroactively. Earlier application is encouraged.
-22-
GASB STATEMENT NO. 82, PENSION ISSUES—AN AMENDMENT OF GASB STATEMENTS NO. 67,
NO. 68, AND NO. 73
The intent of this statement is to address certain issues raised with respect to GASB Statement Nos. 67,
68, and 73.
This statement amends GASB Statement Nos. 67 and 68, changing the definition of “covered payroll”
utilized in schedules of RSI from the payroll of employees that are provided with pensions through the
pension plan, to the payroll on which contributions to a pension plan are based. It clarifies that a
deviation, as the term is used in Actuarial Standards of Practice, is not considered to be in conformity
with the requirements of GASB Statement Nos. 67, 68, or 73 for the selection of assumptions used in
determining the total pension liability and related measures. It also clarifies that payments made by an
employer to satisfy contribution requirements that are identified by the pension plan terms as plan
member contribution requirements should be classified as plan member contributions for purposes of
Statement No. 67 and as employee contributions for purposes of Statement No. 68, and requires that an
employer’s expense and expenditures for those amounts be recognized in the period for which the
contribution is assessed and classified in the same manner as the employer classifies similar compensation
other than pensions.
The requirements of this statement are effective for reporting periods beginning after June 15, 2016,
except for the requirements of this statement for the selection of assumptions in a circumstance in which
an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal
year-end. In that circumstance, the requirements for the selection of assumptions are effective for that
employer in the first reporting period in which the measurement date of the pension liability is on or after
June 15, 2017. Earlier application is encouraged.
GASB STATEMENT NO. 83, CERTAIN ASSET RETIREMENT OBLIGATIONS
This statement addresses accounting and financial reporting for certain asset retirement obligations
(ARO), which are legally enforceable liabilities associated with the retirement of a tangible capital asset.
This statement establishes criteria for determining the timing and pattern of recognition of a liability and a
corresponding deferred outflow of resources for ARO. A government that has legal obligations to perform
future asset retirement activities related to its tangible capital assets should recognize a liability when it is
both incurred and reasonably estimable. The measurement of an ARO is required to be based on the best
estimate of the current value of outlays expected to be incurred, and a deferred outflow of resources
associated with an ARO is required to be measured at the amount of the corresponding liability upon
initial measurement.
This statement requires the current value of a government’s AROs to be adjusted for the effects of general
inflation or deflation at least annually, and a government to evaluate all relevant factors at least annually
to determine whether the effects of one or more of the factors are expected to significantly change the
estimated asset retirement outlays. A government should remeasure an ARO only when the result of the
evaluation indicates there is a significant change in the estimated outlays. Deferred outflows of resources
should be reduced and recognized as outflows of resources in a systematic and rational manner over the
estimated useful life of the tangible capital asset.
If a government owns a minority interest in a jointly owned tangible asset where a nongovernmental
entity is the majority owner or has operational responsibility for the jointly owned asset, the government’s
minority share of an ARO should be reported using the measurement produced by the nongovernmental
majority owner or the nongovernmental minority owner that has operational responsibility, without
adjustment to conform to the liability measurement and recognition requirements of this statement.
-23-
The statement also requires disclosures of any funding or financial assurance requirements a government
has related to the performance of asset retirement activities, along with any assets restricted for the
payment of the government’s AROs. This statement also requires disclosure of information about the
nature of a government’s AROs, the methods and assumptions used for the estimates of the liabilities, and
the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions
thereof) has been incurred by a government but is not yet recognized because it is not reasonably
estimable, the government is required to disclose that fact and the reasons therefor. This statement
requires similar disclosures for a government’s minority shares of AROs.
The requirements of this statement are effective for reporting periods beginning after June 15, 2018.
Earlier application is encouraged.
GASB STATEMENT NO. 84, FIDUCIARY ACTIVITIES
This statement establishes criteria for identifying fiduciary activities of all state and local governments.
The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary
activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included
to identify fiduciary component units and postemployment benefit arrangements that are fiduciary
activities.
An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements,
which should present a statement of fiduciary net position and a statement of changes in fiduciary net
position. This statement describes four fiduciary funds that should be reported, if applicable: (1) pension
(and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and
(4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust
or equivalent arrangement that meets specific criteria.
A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary
government, should combine its information with its component units that are fiduciary component units
and aggregate that combined information with the primary government’s fiduciary funds.
This statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an
event has occurred that compels the government to disburse fiduciary resources, defined as when a
demand for the resources has been made or when no further action, approval, or condition is required to
be taken or met by the beneficiary to release the assets.
The requirements of this statement are effective for reporting periods beginning after December 15, 2018.
Earlier application is encouraged.
THIS PAGE INTENTIONALLY LEFT BLANK