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2018 Monticello MN PAFRCitizen’s Annual FINANCIAL REPORT for the year ended December 31, 2018 www.ci.monticello mn.us CITY OF MONTICELLO 505 WALNUT STREET MONTICELLO, MN 55362 PHONE: 763.295.2711 FAX: 763.295.4404 Table of Contents Financial Report Message.................................................1 Awards.............................................................................1 City Organization..............................................................2 City Profile & Economic Outlook .......................................3 Government-wide Financial Activity.................................3 Governmental Activities ...................................................4 Business-type Activities ...................................................4 What We Own ..................................................................5 What We Owe...................................................................6 Governmental Funds ........................................................6 General Fund....................................................................7 Special Revenue Funds.....................................................8 Debt Service & Capital Project Funds ...............................8 Hi-Way Liquors.................................................................9 Deputy Registrar ..............................................................9 Tax Levy.........................................................................10 Largest Taxpayers, Employers & Customers...................11 Monticello by the Numbers.............................................12 __________________________________________________________________________________________ 1 | Page We are pleased to present the city of Monticello’s fourth Popular Annual Financial Report (PAFR). The PAFR is a condensed version of the 2018 Comprehensive Annual Financial Report (CAFR), and as such, does not include information on all the city's funds. The report focuses on select major governmental funds (General, Community Center, and Economic Development Authority) and the city’s enterprise funds. The CAFR is a detailed account of the city's financial statements, notes, schedules, and statistics. The CAFR was prepared in conformance with Generally Accepted Accounting Principles (GAAP), audited by Malloy, Montague, Karnowski, Radosevich, & Co. P.A. (MMKR), and received an unmodified (clean) opinion. A copy of the CAFR can be found on the city's website at www.ci.monticello.mn.us/finance. This report provides a summary of the financial position of the city and shows where revenues come from to operate the city and where those dollars are spent. The report is presented in an effort to inform citizens and other interested parties about the financial operations of the city in a simplified and easy-to-read format. Definitions to technical language can be found in the section titled What Does It All Mean? on page 11. Thank you for your interest in your government and its functions. Please feel free to share any questions or comments on the PAFR with Finance Director Wayne Oberg at wayne.oberg@ci.monticello.mn.us or Finance Manager Sarah Rathlisberger at sarah.rathlisberger@ci.monticello.mn.us. Respectfully submitted, Wayne Oberg Finance Director Sarah Rathlisberger Finance Manager The Government Finance Officers Association (GFOA), with more than 20,000 colleagues, is dedicated to enhancing and promoting the professional management of governments for the public benefit. Since 1906, the GFOA has been accomplishing this mission by identifying and developing the highest quality financial policies and practices and promoting them to the public through education, training, and leadership. The GFOA has established several highly regarded professional recognition programs to encourage and assist state and local governments of all types and sizes to improve the quality of their financial management and to recognize their achievement. Each award is valid for one year. The City of Monticello has received the following awards: Popular Annual Financial Report: 2015 - 2017 Distinguished Budget Presentation Award: 2009 - 2018 Comprehensive Annual Financial Report (CAFR): 2009 - 2017 __________________________________________________________________________________________ 2 | Page The city operates under the mayor-council form of government. The five-member city council is elected on a nonpartisan basis. The mayor is elected to serve a two-year term. Councilmembers serve four-year staggered terms, with two councilmembers elected every two years. Policymaking and legislative authority are vested in the city council. The council is responsible for passing policies, ordinances, and resolutions. The council adopts the annual tax levy and budget. Council appointed boards, commissions and committees usually include at least one councilmember. A council- appointed city administrator is responsible for implementing policies and providing general operational oversight. The City Council includes: Term expires: Mayor Brian Stumpf 12/31/2020 brian.stumpf@ci.monticello.mn.us Councilmember Jim Davidson 12/31/2020 jim.davidson@ci.monticello.mn.us Councilmember Bill Fair 12/31/2020 bill.fair@ci.monticello.mn.us Councilmember Charlotte Gabler 12/31/2022 charlotte.gabler@ci.monticello.mn.us Councilmember Lloyd Hilgart 12/31/2022 lloyd.hilgart@ci.monticello.mn.us Charlotte Gabler, Brian Stumpf, Lloyd Hilgart Bill Fair, Jim Davidson All councilmembers: allcitycounciladdress@ci.monticello.mn.us Citizens of Monticello City Council City Administrator: Jeff O'Neill Administration City Clerk: Jennifer Schreiber Human Resources: Tracy Ergen Communications: Rachel Leonard Planning Community Development Director: Angela Schumann Building Official: Ron Hackenmueller Economic Development Manager: Jim Thares Finance Finance Director: Wayne Oberg Finance Manager: Sarah Rathlisberger DMV Manager: Carolyn Granger Liquor Store Manager: Randall Johnsen Public Works Engineer-Public Works Director: Matt Leonard Streets Superintendent: Tom Moores Parks Superintendent: Tom Pawelk Utilities Superintendent: Mat Stang Fire Fire Chief: Mike Mossey Fire Marshal- Emergency Management Coordinator: Dan Klein Community Center MCC Director: Ann Mosack Operations Manager: Sara Cahill Member Services Coordinator: Tricia Handorff The mission of the city of Monticello is to responsibly use our resources to provide quality services and programs that foster a dynamic community rooted in history and preparing for a vibrant future. __________________________________________________________________________________________ 3 | Page The city of Monticello, organized as a municipality in 1856, has the Mississippi River as its north border. The city is located approximately 45 miles northwest of the Minneapolis/St. Paul metropolitan area along the I-94 corridor in Wright County. The city benefits from employment opportunities in the area and a relatively low unemployment rate of 3.4%. The city provides its residents and businesses with a full range of municipal services consisting of law enforcement (Wright County Sheriff) and fire protection, the construction and maintenance of streets and other infrastructure, a community center for recreation activities, park operations and maintenance, and general administrative services. In addition, the city operates five enterprises: a water utility, a sewage utility, a liquor store, a fiber optics utility (FiberNet), and a deputy registrar (DMV). The city of Monticello continues to grow. In 2018, the city issued 58 permits for new homes, compared to 64 in 2017, and 61 in 2016. While the number of buildable lots had been declining, new plats in 2018 offset new home construction, and the number of lots available for single-family homes is 50. More subdivisions are occurring in 2019. For 2018, the city's population was estimated at 13,553, an increase of 794 or about 6%, from the 2010 Census number of 12,759. The city currently occupies 8.9 square miles but could ultimately expand to 20.8 square miles as portions of Monticello Township may be annexed through an orderly annexation agreement. Condensed Statement of Net Position The Statement of Net Position presents information on all of the city’s assets and deferred outflows of resources, less liabilities and deferred inflows of resources, with the difference 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. 2018 2017 Change Current and other assets 57,482,763$ 53,304,170$ 4,178,593$ Capital assets 111,128,481 106,211,474 4,917,007 Total assets 168,611,244 159,515,644 9,095,600 Deferred outflows of resources 707,457 899,846 (192,389) Long-term liabilities 32,170,967 30,271,175 1,899,792 Other liabilities 2,734,647 2,479,057 255,590 Total liabilities 34,905,614 32,750,232 2,155,382 Deferred inflows of resources 5,311,755 1,780,705 3,531,050 Net position Net investment in capital assets 82,768,194 81,480,434 1,287,760 Restricted 9,649,085 11,599,951 (1,950,866) Unrestricted 36,684,053 32,804,168 3,879,885 Total net position 129,101,332$ 125,884,553$ 3,216,779$ Condensed Statement of Activities The Statement of Activities presents information showing how the city’s net position changed during the most recent fiscal year. * Net position was restated January 1, 2018 for a change in accounting standard 2018 2017 Change Revenues 26,313,579$ 25,030,313$ 1,283,266$ Expenses 23,172,056 21,684,018 1,488,038 Change in net position 3,141,523 3,346,295 (204,772) Net position, January 1* 125,959,809 122,538,258 3,421,551 Net position, December 31 129,101,332$ 125,884,553$ 3,216,779$ Governmental Activities Basic city services primarily supported by taxes & intergovernmental revenues. City Services General Government Deputy Registrar Fiber Optics Liquor Sewage Water Economic Development Recreation & Culture Transit Sanitation Public Works Public Safety Business-Type Activities City services intended to recover all or a significant portion of their costs through user charges. __________________________________________________________________________________________ 4 | Page        Where the money comes from… Where the money goes… Where the money comes from… Revenues: The most significant revenue source for business-type activities is charges for services at 84%. Charges for services include fees for water, sewage, and fiber optic utilities, as well as liquor store sales, and deputy registrar processing fees. Capital grants and contributions include impact fees related to new development. The gain on sales of capital assets was related to a sale of land from the sewage fund. Where the money goes… Revenues: The most significant revenue source for governmental activities is property taxes at 59% of total revenues. Charges for services accounts for 18% of revenues, most of which is generated by the Community Center. Capital grants and contributions (12%) include special assessments and revenues from other sources restricted to capital asset acquisition. Expenses: The largest use of funds within business-type activities is for the sewage utility (38%). The city contracts with Veolia to run is wastewater treatment plant. Fiber optics expenses are also significant (30%). The city contracts with Arvig to manage FiberNet, the city’s fiber optic network. The water utility uses 16% of the city’s business-type activities. Liquor expenses are mainly the costs of goods sold and wages. Expenses: Public works expenses are the most significant (36%), followed by recreation and culture (22%), and public safety (15%). Public works expenses include engineering, streets, ice & snow removal, shop & garage, and street lighting. Recreation and culture includes parks, cemetery, senior center, and community center expenses. Included in public safety expenses in the city contract with Wright County for police services. __________________________________________________________________________________________ 5 | Page 2018 Major Projects  Completed the 2017 street reconstruction project.  Acquired additional right-of-way and constructed a significant portion of the Fallon Ave. overpass project.  Constructed street and sewer improvements on Chelsea Rd, including sidewalk and trail work.  Prepared for park improvements at Bertram Chain of Lakes Regional Athletic Park.  Began HVAC upgrades at the Community Center.  Purchased various pieces of equipment. Future Major Projects  Complete the Fallon Ave. overpass over I-94, improvements along Chelsea Rd, and Community Center HVAC upgrades  Continue work on development of Bertram Chain of Lakes Park Regional Athletic Park.  Install various sidewalk extensions as part of the 2018 and 2019 Pedestrian Improvement projects.  Construct a new fire station and purchase a new ladder truck. Long-term Financial Planning The city has developed a long-term financial model for its four major operating funds: General, Community Center, Water, and Sewage. All four funds operate in a relatively stable environment and no large adjustments to taxes or user charges are anticipated. The city has also developed a Capital Improvement Program (CIP) plan, which is a five-year forecast of the city’s facility, equipment, and infrastructure needs. Items in the first year of the CIP are incorporated into the annual budget. Items in the later years are less certain and difficult to plan. Both the city’s debt load and annual debt service property tax levy are evaluated for large projects requiring debt issuance. Current year revenues and one-time use of reserves provide pay-as-you-go financing for smaller projects. Roundabout at 7th St. & Washington St. as part of Aerial view of the Fallon Ave. overpass bridge the Fallon Ave. overpass project Land 10% Buildings 10% Infrastructure - Water 8% Infrastructure - Sewage 15% Infrastructure - Fiber Optics 10% Infrastructure - Streets & Other 35% Machinery and Equipment 3% Construction in Progress 9% Grading in preparation for Bertram Chain of Lakes Regional Athletic Park improvements __________________________________________________________________________________________ 6 | Page Total Long-term Liabilities The city’s long-term liabilities outstanding at the end of the current fiscal year, December 31, 2018, were $32.1 million. The chart below displays the breakdown for the major categories of those liabilities. Bonds In 2018, Moody’s affirmed the city's A2 bond rating when the city issued $5,000,000 in bonds for construction of the Fallon Avenue overpass. An A2 is an upper medium grade. A high bond rating is important because it results in lower interest costs when issuing debt. The city plans to issue future debt to take advantage of low interest rates. The amount of bonds outstanding at year-end 2018 was $26,457,287, compared to the 2017 year-end amount of $25,918,402. The chart below provides a glimpse of the current bonds outstanding, which excludes the Minnesota Public Facilities Authority note payable for wastewater treatment plant improvements. The city plans to issue approximately $8,000,000 in General Obligation (G.O.) bonds in 2019 to further finance the Fallon Avenue overpass construction along with the new fire station and fire ladder truck. $- $5 $10 $15 $20 $25 $30 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029MillionsG.O. Debt Outstanding (2015 - 2029) 2007A Imp.2008 Sewer 2010A Imp.2011A Imp.2013 COI 2013 WWT 2014A JE 2015B SRI 2016A SRI 2017A 2018A A fund is a grouping of accounts segregated for a specific purpose. In 2014, reserves were used to retire debt and finance capital asset purchases. In 2015, revenues grew, which is attributable to increases in property taxes, intergovernmental revenues, and licenses/permits. Street reconstruction and improvement projects contributed to large expenditure increases in 2016, 2017, and 2018. The governmental funds operate on the modified accrual basis of accounting, and include various fund types including:  General fund - accounts for all financial resources except those accounted for in another fund.  Special revenue funds - account for revenues restricted by law or administrative action for specific purposes.  Debt service funds - account for the activity related to long-term debt principal, interest, and related costs.  Capital project funds - account for the acquisition or construction of major governmental capital facilities. A2 $- $5 $10 $15 $20 $25 2014 2015 2016 2017 2018Millions Revenues Expenditures __________________________________________________________________________________________ 7 | Page The chart below shows General fund revenues and expenditures for the last five years. Revenues have increased every year with higher tax levies, and charges for services increased in 2017 with the implementation of a new garbage charge. Expenditures rose in 2018 mostly due to wage increases, including the hiring of an engineer-public works director, which had been vacant, and a fire marshal-emergency management coordinator, which was a new position.  Fund balance is determined as follows: (Assets + Deferred Outflows of Resources) - (Liabilities + Deferred Inflows of Resources) = Fund Balance Fund balance can fall into five different classifications shown at the bottom of this page. The city's policy is to maintain a year- end unassigned fund balance of 65% of the following year's budgeted expenditures. This is the amount needed to pay expenditures until the city receives its first property tax settlement in June. The 2018 year-end unassigned fund balance is $6,984,828. The chart to the right shows 2018 revenues by category, excluding other financing sources. Property taxes continue to be the primary revenue source. In 2018, property taxes were 79% of actual revenues, while budgeted property taxes were 83% of budgeted revenues. Why? Non-tax revenue sources are more conservatively estimated. Revenues for 2018 totaled $8,689,793, compared to a budgeted $8,287,000. Building permit revenue exceeded the $335,000 estimate by $92,644. Charges for services, intergovernmental, and other (notably investment earnings & insurance dividends) also contributed to the positive revenue variance. In the chart to the left, General fund expenditures are distributed by function. The 2018 total expenditures were $7,924,408, which was $362,592 below the budgeted $8,287,000. The variance is mainly due to partial year position vacancies, low fuel costs, and savings in hiring an internal engineer, as well as vigilant budget management. The largest positive variances (expenditures less than budget) were in the public works ($290,100) and general government ($71,454) functions. Nonspendable: Resources not in spendable form Restricted: To be used for an externally-imposed purpose Committed: To be used as established by city council via resolution Assigned: To be used for a specific purpose as decided by the city Unassigned: Remaining balance in the General fund OR negative balance in any other fund __________________________________________________________________________________________ 8 | Page $- $0.5 $1.0 $1.5 $2.0 $2.5 2016 2017 2018MillionsCommunity Center Fund Revenues Expenditures Year-End Fund Balance The Monticello Community Center (MCC) is a full-service facility with amenities including gym memberships, fitness classes, climbing wall, aquatics, child indoor play, concessions, room rentals for events, and more. The MCC hosts various events including a weekly summer farmers market, movies in the park, and Music on the Mississippi concert series. $- $1 $2 $3 $4 $5 $6 2016 2017 2018MillionsEconomic Development Authority Fund Revenues Expenditures Year-End Fund Balance The Economic Development Authority (EDA) is focused on improvements to Monticello’s original downtown. Properties on Block 52 near West Bridge Park have been acquired in preparation for area improvements. The EDA is also working on improvements along Walnut Street and Broadway Street including curb extensions and a façade improvement program. Other special revenue funds include Minnesota investment, cemetery, and CDBG-revitalization. The city has one combined debt service fund made up of seven sub-funds for the various governmental debt issuances outstanding. The fund balance is restricted for repayment of debt. One of the issuances, the 2010A GO Improvement bonds, was approved for an early redemption on February 1, 2019. Details about the city’s general obligation debt came be found on page 6. The Capital Projects fund is the only major capital project fund of the city. This fund accounts for the majority of governmental buildings and infrastructure projects, some of which are detailed on page 5. The nonmajor capital projects funds include improvements for storm sewer, street lighting, and park & pathway dedication. __________________________________________________________________________________________ 9 | Page Hi-Way Liquors operations are accounted for the in the Liquor enterprise fund. Profits generated from the liquor store support city projects, including improvements to the Bertram Chain of Lakes regional park. The liquor store also transfers money to the Fiber Optics fund. Sales continue to grow, reaching $6 million for the first time in 2018 due to organic growth as well as the addition of Sunday liquor sales. The liquor store is conveniently located along the west side of State Hwy 25 near the only Mississippi River crossing within an approximately 25-mile span. The excellent location and experienced management team combine to achieve the 14th highest gross sales out of the 190 municipally run liquor stores in Minnesota in 2017. Monticello’s Department of Motor Vehicles (DMV) operations are reflected in the Deputy Registrar enterprise fund. The transition to MNLARS in 2017 created a challenge in learning a new system, but also provided an opportunity to acquire new business from new dealerships. The DMV provides the following services:  Vehicle plates and registration  Vehicle title transfers  Driver’s licenses (address change or reinstatement only)  DNR recreation vehicle registrations  Camper, motor home and utility trailer registrations  Hunting and fishing licenses  Notary services $- $1 $2 $3 $4 $5 $6 2016 2017 2018MillionsHi-Way Liquors Sales Operating Expenses Change in Net Position __________________________________________________________________________________________ 10 | Page The City Council adopts a tax levy for the General fund, Monticello Community Center fund, Economic Development Authority (EDA) fund, Debt Service fund, and Capital Projects fund. The levy for taxes payable in 2018 was $9,870,000, which is $440,000 (2.4%) higher than the 2017 levy of $9,430,000. Most residents experienced an increase in their 2018 property taxes as property values rebounded, reducing the homestead value exclusion. Xcel Energy continued to make improvements to its nuclear power generating plant in 2015. The 2015 improvements reached the tax rolls in 2017. Xcel plant uprate improvements in 2011 and 2013 added significant taxable market value, leading to big tax capacity rates decreases in 2013 and 2015, respectively. The chart to the left displays the property tax levy using the left scale (green bars) and the tax capacity rate using the right scale (red line). The city has increased the levy the last three years to compensate for the drop in the tax capacity rates caused by Xcel uprates. The tax levy divided by the tax capacity equals the tax capacity rate. Tax capacity is a derivative of the taxable market value. The General fund is primarily supported by property taxes. Annual General fund budgets typically plan to receive 80% of the total revenue from the property tax levy. No other revenue source comprises more than 5% of budgeted General fund total revenues. However, actual revenues for licenses and permits and charges for services each made up roughly 6% of revenues. Debt service funds are typically supported by a wide range of revenue sources (property taxes, special assessments, developer impact fees, transfers from other funds, etc.). The MCC fund is primarily supported by user fees (memberships, activity fees, rental charges, etc.) Additionally, the MCC fund receives a portion of the tax levy for operations. Three tax levying authorities compete for your property tax dollar: Wright County, City of Monticello, and Independent School District #882. Monticello property owners pay more tax dollars to the county than to the city. Monticello’s tax capacity rate is the lowest in Wright County. A little more than one-third of your property tax supports a wide range of city services, including public safety, streets, parks and recreation, and administration. The city's estimated market value of all properties within the city grew from $1.96 billion to $1.97 billion at the end of 2018. While Xcel Energy’s nuclear power plant saw a decrease in market value, residential and other commercial properties had increases in market values causing a minor overall increase. __________________________________________________________________________________________ 11 | Page As taxpayers go, none is larger in Monticello than Xcel Energy (Xcel). The company operates a nuclear power plant located inside Monticello’s western boundary. The company has made two uprate improvements in the last six years, absorbing a larger share of the city’s property tax levy. Xcel’s share of the levy has increased from 48% to 61% in the last five years. That is nearly a 44% increase to Xcel. Consequently, the city has the lowest tax capacity rate in Wright County. Xcel Energy is the largest employer, too. With 700 employees, Xcel edges out the largest governmental employer, Independent School District 882. Neither Xcel nor the school district are Monticello’s largest utility customer, however. Cargill Kitchen Solutions generates $437,665 or 17% of the sewage utility operating revenue and $82,148 or 6% of the water utility revenue. Cargill operates a plant that produces further-processed egg products in the breakfast category for restaurants and food manufacturers. Current and other assets are resources with present service capacity that the city controls include cash or near cash items that can be used to liquidate liabilities due within a year. Capital assets are nonfinancial assets that have an initial useful life of more than one year and are used in providing services for the city and its residents. Deferred inflows of resources are an acquisition of net position (inflow of resources during the year) by the city that is applicable to a future reporting period Deferred outflows of resources are a consumption of net position by the city (outflow of resources during the year) that is applicable to a future reporting period. Long-term liabilities are obligations of the city including items such as bonds, loans, compensated absences, pension liabilities and other city obligations, typically due beyond the current reporting period. Modified accrual basis of accounting is the method of accounting where revenues are not recognized until they are both measurable and available. Expenditures are recognized in the period when the liability is liquidated rather than incurred. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by any outstanding debt attributable to acquire capital assets. Other liabilities are present obligations of the city to sacrifice resources that it has little or no discretion to avoid. Restricted net position consists of net position restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, or other governments. Unrestricted net position – All other net position that does not meet the definition of “restricted” or “net investment in capital assets. City of Monticello 2014 2015 2016 2017 2018 Estimated Market Value 464,619,100$ 722,993,700$ 795,994,000$ 848,843,600$ 895,655,200$ Net Tax Capacity 9,285,841$ 14,453,109$ 15,913,229$ 16,970,092$ 17,906,151$ Tax Capacity Rate 44.709 35.737 35.552 34.187 33.427 NSP Property Tax Paid 4,151,607$ 5,165,108$ 5,657,471$ 5,801,565$ 5,985,489$ Total City Tax Levy 8,150,000$ 8,535,000$ 9,205,000$ 9,430,000$ 9,870,000$ NSP % of Total City Tax Levy 51% 61% 61% 62% 61% Employer Employees Xcel Energy (Northern States) 700 ISD No. 882 (Monticello) 576 CentraCare Medical Center (New River) 500 Cargill Kitchen Solutions (Sunny Fresh) 433 Wal-Mart Supercenter 325 City of Monticello 188 Home Depot 160 Target 150 Ultra Machine Corporation 140 Cub Foods 100 NUMBERSby the 20182017 Miles of Streets Streetlights Liquor Store Transactions * DMV Vehicle Transactions Acres of Park Land Miles of Trails Parks Wastewater Treated (million gallons) Water Utility Customers Water Pumped (million gallons) New Residential Permits Valuation of Permits Issued (in millions) 188,124 183,523 248,356 261,071 70,605 110,574 51 53 $43.9 $33.1 8.94 8.94 577 592 445434 889 937 260 320 445434 64 58 69 70 2040.5 3233 13,409 13,553 13,409 14,927 4,270 4,341Social Media Followers MCC Visits Area in Square Miles Full-Time Employees Fire Calls Est. Population State implementation of MNLARS changed how transactions are counted in 2018. * 12