2016 Monticello Auditor's Management LetterManagement Report
for
City of Monticello, Minnesota
December 31, 2016
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MMKR
CERTIFIED PUBLIC
ACCOUNTANTS
To the City Council and Management
City of Monticello, Minnesota
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
We have prepared this management report in conjunction with our audit of the City of Monticello,
Minnesota's (the City) financial statements for the year ended December 31, 2016. 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 20, 2017
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
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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, GOVERNMENT AUDITING STANDARDS, AND TITLE 2 U.S. CODE OF FEDERAL
REGULATIONS (CFR) PART 200, UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES,
AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS (UNIFORM GUIDANCE
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, Government Auditing Standards, and the Uniform Guidance, 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 that the Schedule of Expenditures of Federal Awards is fairly stated, in all material
respects, in relation to the basic financial statements.
• The results of our tests noted one instance of noncompliance with requirements that could have a
direct and material effect on the City's major federal program:
o During our audit, we noted one instance of noncompliance with procurement
requirements in which the City did not obtain the necessary Environmental Protection
Agency exception documentation in order to continue use of the same architect or
engineer during construction under the Capitalization Grants for Clean Water State
Revolving Funds agreement. This is also considered a significant deficiency in internal
controls as the City did not have adequate controls in place to ensure proper compliance
with these requirements.
-1-
We reported one additional matter involving the internal controls over compliance and its
operation that we consider to be significant deficiencies in our testing of major federal programs:
o During our audit, we noted that the City did not have documented written controls to
ensure compliance with the U.S. Office of Management and Budget's Uniform Guidance
cash management, allowable costs, procurement, and conflict of interest standards.
• We reported no findings based on our testing of the City's compliance with Minnesota laws and
regulations.
GENERAL COMMENTS AND RECOMMENDATIONS
Inventory Reconciliation
The City operates its liquor store inventory on a perpetual basis and completes an annual inventory count
in January after year-end. For the year ended December 31, 2016, the City experienced a significant
write-down of inventory to reconcile to what was on hand in the count. The size of this adjustment has
increased over the last few years, causing us to have concerns that internal controls over inventory costing
are not operating effectively enough to mitigate material year-end adjustments. We recommend the City
review its policies and procedures over valuing and monitoring its inventory on a first -in first -out cost
basis, improve its internal controls over recording inventory values, and continue to monitor overall
inventory activity in the future to ensure inventory is properly recorded and valued at year-end.
Untimely Reporting to the Minnesota Public Facilities Authority
The City is required to submit a copy of its annual audit report to the public facilities authority within
30 days of the report date. We noted during our audit, that the audit report for the year ended
December 31, 2015 was not submitted until 80 days after the audit report date. We recommend the City
review its internal controls over grant agreements to ensure compliance with the reporting requirements of
all grants.
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.
-2-
• Other Post -Employment Benefit (OPEB) and Pension Liabilities — 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.
• Land Held for Resale — These assets are stated at fair value based on management's estimates.
• Compensated Absences — Management's estimate is based on current rates of pay and sick leave
balances.
• Allowance for Doubtful Accounts — Management's estimate of the allowance for doubtful
accounts is based on historical revenues, historical loss levels, and an analysis of the collectability
of individual accounts.
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.
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 20, 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.
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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 the management's discussion and analysis, the budgetary
comparison schedules, 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 combining and individual fund statements and schedules accompanying
the financial statements and the separately issued Schedule of Expenditures of Federal Awards, which are
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 statistical 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.
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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 26.0 percent for taxes payable in 2015 and 13.1 percent for
taxes payable in 2016. The following graph shows the City's changes in taxable market value over the
past 10 years:
$1,800,000,000
$1,600,000,000
$1,400,000,000
$1,200,000,000
$1,000,000,000
$800,000,000
$600,000,000
$400,000,000
$200,000,000
Taxable Market Value
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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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 for taxes payable in 2015 increased 29.6 percent
and 7.8 percent in 2016. The following graph shows the City's change in tax capacities over the past
10 years:
Local Tax Capacity
$27,500,000
$25,000,000
$22,500,000
$20,000,000
$17,500,000
$15,000,000
$12,500,000
$10,000,000
$7,500,000
$5,000,000
$2,500,000
$-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
The City's portion of the average state-wide tax rates for 2016 showed a small decrease 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 rates:
Rates expressed as a percentage of net tax capacity
All Cities
State -Wide City of Monticello
2015 2016 2015 2016
Average tax rate
City 46.9 46.5 35.7 34.5
County
44.7
44.1 40.6 40.0
School
27.1
27.5 22.9 20.9
Special taxing
6.9
6.9 — 1.1
Total
125.6
125.0 99.2 96.5
Average tax rates have been below state-wide averages for the last few years as a result of improved
market values and tax capacities. The increase in market values and local tax capacity in 2015 and 2016 is
related to significant increases to market values at the Xcel Power Plant.
10
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 in these tables may be classified differently than how they
appear in 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.
The City has generated more property tax revenue for its governmental funds revenue compared to the
average Minnesota city. The City continues to generate more tax increment revenue per capita than
average, as it has made use of this tool to finance commercial development. The City generates more
special assessment revenue (typically used for new development) as the City continues to be in a growth
phase.
The City's per capita governmental funds revenue for 2016 was $1,297, a decrease of about 4.5 percent,
from the prior year. Special assessments decreased $179 per capita, as the City received a large amount of
assessments from the I-94 Interchange Project in 2015. Property tax revenue increased $41 per capita
based on an increase in the tax levy. Intergovernmental revenue increased $37 per capita, due to the City
receiving increased federal, state, and county funding in 2016 for the Highway 25/75 Intersection Project.
Licenses and permits revenue increased $15 per capita, due to increased building permit sales related to
increased development projects in 2016. Charges for services and other revenues increased $10 and
$14 per capita, respectively, based on increased storm sewer trunk charges, higher investment earnings
from an increase in investments, and the sale of parcels of land held for resale.
EVA
Governmental Funds Revenue per Capita
With State -Wide Averages by Population Class
State -Wide
City
of Monticello
Year
December 31, 2015
2014
2015
2016
Population
2,500-10,000
10,000-20,000 20,000-100,000
12,993
13,125
13,299
Property taxes
$ 443
$ 414 $ 443
$ 647
$ 658
$ 699
Tax increments
26
33 37
64
55
50
Franchise fees and other taxes
33
42 39
28
25
31
Special assessments
59
52 59
147
253
74
Licenses and permits
31
31 43
29
35
50
Intergovernmental revenues
285
322 156
56
116
153
Charges for services
110
85 94
131
157
167
Other
69
62 58
91
59
73
Total revenue
$ 1,056
$ 1,041 $ 929
$ 1,193
$ 1,358
$ 1,297
The City has generated more property tax revenue for its governmental funds revenue compared to the
average Minnesota city. The City continues to generate more tax increment revenue per capita than
average, as it has made use of this tool to finance commercial development. The City generates more
special assessment revenue (typically used for new development) as the City continues to be in a growth
phase.
The City's per capita governmental funds revenue for 2016 was $1,297, a decrease of about 4.5 percent,
from the prior year. Special assessments decreased $179 per capita, as the City received a large amount of
assessments from the I-94 Interchange Project in 2015. Property tax revenue increased $41 per capita
based on an increase in the tax levy. Intergovernmental revenue increased $37 per capita, due to the City
receiving increased federal, state, and county funding in 2016 for the Highway 25/75 Intersection Project.
Licenses and permits revenue increased $15 per capita, due to increased building permit sales related to
increased development projects in 2016. Charges for services and other revenues increased $10 and
$14 per capita, respectively, based on increased storm sewer trunk charges, higher investment earnings
from an increase in investments, and the sale of parcels of land held for resale.
EVA
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:
The City's governmental funds current per capita expenditures are higher than state-wide averages for
cities in the same population class.
The City's per capita expenditures for capital outlay and construction increased significantly from the
prior year and will vary on a yearly basis depending on current, ongoing capital projects. Debt service
costs are significantly higher than other cities state-wide, due to the stage of development of the City.
Governmental Funds Expenditures per Capita
With State -Wide Averages by Population Class
State -Wide
City
of Monticello
Year
December 31, 2015
2014
2015
2016
Population
2,500-10,000
10,000-20,000 20,000-100,000
12,993
13,125
13,299
Current
General government
S 134
$ 109 $
89
$ 112
$ 112
$ 112
Public safety
255
244
261
142
150
153
Street maintenance and
lighting
119
117
99
138
132
146
Recreation and culture
88
108
94
184
200
207
All other
64
70
89
124
140
88
660
648
632
700
734
706
Capital outlay
and construction
372
389
286
171
171
469
Debt service
Principal
181
178
117
416
383
427
Interest and fiscal charges
51
40
33
51
49
48
232
218
150
467
432
475
Total expenditures
$ 1,264
$ 1,255 $
1,068
$ 1,338
$ 1,337
$ 1,650
The City's governmental funds current per capita expenditures are higher than state-wide averages for
cities in the same population class.
The City's per capita expenditures for capital outlay and construction increased significantly from the
prior year and will vary on a yearly basis depending on current, ongoing capital projects. Debt service
costs are significantly higher than other cities state-wide, due to the stage of development of the City.
GOVERNMENTAL FUND BALANCES
The following table summarizes the changes in the fund balances of the City's governmental funds during
the years ended December 31, 2015 and 2016, presented both by fund balance classification and by fund:
Governmental Fund Changes in Fund Balance
Fund balances of governmental funds
Total by classification
Nonspendable
Restricted
Assigned
Unassigned
Total governmental funds
Total by fund
Major funds
General
Community Center
Economic Development Authority
Debt Service
Capital Projects
Nonmaj or funds
Total governmental funds
Fund Balance
as of December 31,
2015 2016
$ 4,373,045
8,619,905
11,109, 806
4,873,494
$ 3,824,575
6,987,234
13,320,718
6,142,475
Increase
(Decrease)
$ (548,470)
(1,632,671)
2,210,912
1,268,981
$ 28,976,250 $ 30,275,002 $ 1,298,752
$ 4,986,796
629,442
6,562,865
5,382,214
5,392,213
6,022,720
$ 28,976,250
$ 6,276,720
761,829
7,142,330
3,543,551
6,884,229
5,666,343
$ 30,275,002
$ 1,289,924
132,387
579,465
(1,838,663)
1,492,016
(356,377)
1,298,752
As reflected in the table above, total governmental fund balance increased by $1,298,752. The increase
was largely due to the increase in fund balance in the Capital Projects Fund from unspent bond proceeds
and positive results compared to budget in the General Fund. These were both offset by the decrease in
fund balance in the Debt Service Fund, mainly from the decrease in special assessments collected as well
as increased principal payments on outstanding debt.
In
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
operations, police and fire protection, building inspection, streets and highway maintenance, and
recreation and culture.
The following graph displays the City's General Fund trends of financial position and changes in the
volume of financial activity. Fund balance and cash balance are typically used as indicators of financial
health or equity, while annual expenditures are often used to measure the size of the operation.
$8,500,000
$8,000,000
$7,500,000
$7,000,000
$6,500,000
$6,000,000
$5,500,000
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
General Fund Financial Position
Year Ended December 31,
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
� Fund Balance D Cash Balance Expenditures
The City's General Fund cash and investments balance at December 31, 2016 was $7,091,381, which
increased $277,443 from 2015. Total fund balance at December 31, 2016 was $6,276,720, up $1,289,924.
This fund balance level represents approximately 89.8 percent of the City's annual General Fund
expenditures, based on 2016 expenditure levels. The City's adopted fund balance policy requires that the
City set aside fund balance to represent 45.0 percent of expenditures for working capital and
contingencies.
Having an appropriate fund balance is an important factor because a government, like any organization,
requires a certain amount of equity to operate. Generally, the amount of equity required typically
increases as the size of the operation increases. A healthy financial position also 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 can be a factor in determining the City's
bond rating and resulting interest costs.
-10-
The following illustration provides you with the components of the City's General Fund revenue
compared to budget for 2016:
Property Taxes
Licenses and Permits
Intergovernmental
Charges for Services
Other
General Fund Revenue
Budget to Actual
p0� SOP �O� p0� �O� SOP p0� �O� �O� p0� �O� �O� p0�
�O�p, Op �O�p, ���, �ODp�0�, Op�h�,
■ Budget ❑ Actual
Total General Fund revenues for 2016 were $8,271,556, which was $675,556 (8.9 percent) over the final
budget. As reflected in the table above, other revenues were over budget by $166,059, which was mainly
due to receiving dividends from the League of Minnesota Cities Insurance Trust that were not expected in
the budget. Licenses and permits revenue also exceeded budgeted amounts by $329,702, as a result of
increased development and new construction that was not budgeted for.
The following graph presents the City's General Fund revenue sources for the last five years:
The graph reflects the City's increasing reliance on taxes to finance its General Fund operations.
Overall, General Fund revenues increased $633,910 (8.3 percent) from the previous year. Property taxes
increased $298,174, due to an increase in the General Fund tax levy. Other revenues increased $301,410,
mainly due to an increase in the sales of buildings permits in 2016 related to new home construction and
other development projects.
-11-
General Fund Revenue by Source
Year Ended December 31,
$6,500,000
$6,000,000
$5,500,000
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$—
Ta x es Intergovernmental Other
■ 2012 ■ 2013 ■ 2014 ❑ 2015 ■ 2016
The graph reflects the City's increasing reliance on taxes to finance its General Fund operations.
Overall, General Fund revenues increased $633,910 (8.3 percent) from the previous year. Property taxes
increased $298,174, due to an increase in the General Fund tax levy. Other revenues increased $301,410,
mainly due to an increase in the sales of buildings permits in 2016 related to new home construction and
other development projects.
-11-
The following graph illustrates the components of General Fund spending for 2016 compared to budget:
General Governmental
Public Safety
Public Works
Recreation and Culture
Other
General Fund Expenditures
Budget to Actual
�000 �000 �000 �000 �000 �000
���1��y0yD
■ Budget ■ Actual
Total General Fund expenditures for 2016 were $6,992,812, which was $603,188 (7.9 percent) under
budget. The public works area was under budget by $443,118, mainly in street repairs and administration.
The general government area was under budget by $67,706, mainly within the finance department.
The following illustration provides you with the components of the City's General Fund spending by
function for the past five years:
$2,250,000
$2,000,000
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
General Fund Expenditures by Function
Year Ended December 31,
General Public Safety Public Works Recreation and Other
Governmental Culture
■ 2012 ■ 2013 ■ 2014 ❑ 2015 ■ 2016
Overall, General Fund expenditures increased $277,443 (4.1 percent) from the prior year. All general
fund expenditure functions increased in 2016, with the largest change in public works ($93,821), mainly
due to increased equipment rentals. Public safety expenditures increased $63,791, mainly due to increased
building inspections.
-12-
ENTERPRISE FUNDS OVERVIEW
The City maintains several 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
Utility, Sewage Utility, Liquor Operations, Fiber Optics, and Deputy Registrar Funds.
ENTERPRISE FUNDS FINANCIAL POSITION
The following table summarizes the changes in the financial position of the City's enterprise funds during
the years ended December 31, 2015 and 2016, presented both by classification and by fund:
Enterprise Funds Change in Financial Position
Net position of enterprise funds
Total by classification
Net investment in capital assets
Unrestricted
Total enterprise funds
Total by fund
Water
Sewage
Liquor
Fiber Optics
Deputy Registrar
Total enterprise funds
Net Position
as of December 31,
2015 2016
Increase
(Decrease)
$ 40,722,087 $ 41,014,122 $ 292,035
8,136,000 8,998,670 862,670
$ 48,858,087 $ 50,012,792 $ 1,154,705
$ 14,328,760
$ 14,390,486
$ 61,726
19,813,546
20,489,128
675,582
905,806
1,141,827
236,021
13,400,141
13,361,470
(38,671)
409,834
629,881
220,047
$ 48,858,087 $ 50,012,792 $ 1,154,705
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WATER ENTERPRISE FUND
The following graph presents 10 years of comparative operating results for the City's Water Enterprise
Fund:
$1,400,000
$1,300,000
$1,200,000
$1,100,000
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
Water Enterprise Fund
Year Ended December 31,
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
D Operating Revenue
Operating Expense
Operating Income Before Depreciation
At December 31, 2016, the Water Enterprise Fund had a cash balance of $4,035,865 and a net position of
$14,390,486. Net position consisted of $10,135,313 in net investment in capital assets and $4,255,173 in
unrestricted net position.
Operating revenue in the Water Enterprise Fund is $1,172,258, an increase of $45,540 from the prior
year, mostly due to an increase in rates while operating expenses for 2016 were $1,172,236, an increase
of $67,000, mainly in personal services.
It is important that this fund continue to have positive operating results so as not to place an additional
burden on other city funds. It is also important that the City continue to monitor water rates so that they
are designed to also provide for future repairs and replacement of the infrastructure assets.
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SEWAGE ENTERPRISE FUND
The following graph presents 10 years of comparative operating results for the City's Sewage Enterprise
Fund:
$2,800,000
$2,600,000
$2,400,000
$2,200,000
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
Sewage Enterprise Fund
Year Ended December 31,
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
O Operating Revenue
Operating Expense
Operating Income (Loss) Before Depreciation
At December 31, 2016, the Sewage Enterprise Fund had a cash balance of $2,596,530 and a net position
balance of $20,489,128. Net position consisted of $17,580,101 in net investment in capital assets and
$2,909,027 of unrestricted net position.
Sewage Enterprise Fund operating revenues for 2016 were $2,223,252, which is $140,130 more than the
previous year, due to increased rates and usage. Operating expenses for 2016 were $2,554,310, which
decreased $28,244 from 2015.
It is important that this fund have positive operating results so as not to place an additional burden on
other city funds. It is also important that the City continue to monitor sewage rates so they are designed to
also provide for future repairs and replacement of infrastructure assets.
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LIQUOR ENTERPRISE FUND
The following graph presents 10 years of comparative operating results for the Liquor Enterprise Fund:
$5,600,000
$5,200,000
$4,800,000
$4,400,000
$4,000,000
$3,600,000
$3,200,000
$2,800,000
$2,400,000
$2,000,000
$1,600,000
$1,200,000
$800,000
$400,000
Liquor Enterprise Fund
Year Ended December 31,
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
D Sales
v Operating Expenses
� Cost of Sales
Operating Income (Loss)
The Liquor Enterprise Fund ended 2016 with a net position balance of $1,141,827, an increase of
$236,021 from the prior year. Of the net position balance, $177,354 represents the investment in liquor
capital assets, leaving $964,473 of unrestricted net position.
Liquor sales for 2016 were $5,448,584, a decrease of $40,846 from last year. The Liquor Enterprise Fund
generated a gross profit of $1,407,360 in 2016, or about 25.8 percent, of gross sales. The Liquor
Enterprise Fund's gross profit margin decreased to a more comparative percentage with 2014 and years
prior after experiencing an improved gross profit percentage in 2015. Operating expenses for 2016 were
$836,048, an increase of $34,503 from last year, due to increased personal services, and materials and
supplies to meet the demand of consumers.
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FIBER OPTICS ENTERPRISE FUND
The following graph presents six years of comparative operating results for the Fiber Optics Enterprise
Fund:
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$(500,000)
$(1,000,000)
$(1,500,000)
Fiber Optics Enterprise Fund
Year Ended December 31,
2011 2012 2013 2014 2015 2016
Operating Revenue
Operating Expense
Operating Income (Loss) Before Depreciation
At December 31, 2016, the Fiber Optics Enterprise Fund had a cash balance of $303,008 and a net
position balance of $13,361,470. Net position consisted of $13,055,556 in net investment in capital assets
and $305,914 of unrestricted net position.
Operating revenue in this fund was $1,739,566, an increase of $97,163, or 5.9 percent, in 2016. Operating
expenses also increased $61,128 in fiscal 2016. This was mainly due to turning over the management of
the City's FiberNet Monticello to a third party management company, which caused an increase in other
service charges.
The operating loss before depreciation in this fund during this year was $331,799. This was an
improvement of $35,808 in the current year, mostly related to increased operating revenues as the
third party management company was better equipped to advertise the service and obtain more customers.
As a result of improved, but still poor operating results, we recommend the City continue to monitor the
financial results of this fund. The continued monitoring of this fund would include a discussion on how
the current financial results compare to the future strategic plan for this fund. Most importantly, the future
strategic plan should continue to include a discussion on the impact this fund is having on the overall
financial health of the City, including what impact the changes made to the plan are expected to have on
the City as a whole in the short-term, but also over the long-term.
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DEPUTY REGISTRAR ENTERPRISE FUND
The following graph presents eight years of comparative operating results for the City's Deputy Registrar
Enterprise Fund:
$600,000
$550,000
$500,000
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
Deputy Registrar Fund
Year Ended December 31,
2009 2010 2011 2012 2013 2014 2015 2016
D Operating Revenue
Operating Expense
Operating Income (Loss) before depreciation
At December 31, 2016, the Deputy Registrar Enterprise Fund had a cash balance of $817,006 and a net
position balance of $629,881. Net position consisted of $65,798 in net investment in capital assets and
$564,083 of unrestricted net position.
Deputy Registrar Enterprise Fund operating revenues for 2016 were $562,891, which is $26,960 more
than the previous year, mostly due to an increase in charges for services. Operating expenses for 2016
were $352,117, which is $33,431 higher than 2015, due to increased personal services.
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 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:
Business -type activities
Net investment in capital assets
December 31,
41,014,122
Increase
Unrestricted
2015
2016
(Decrease)
Total business -type activities
48,886,069
Net position
1,180,643
Total net position
$ 117,763,474
Governmental activities
4,774,784
Net investment in capital assets
$ 38,099,568 $
41,077,683
$ 2,978,115
Restricted
12,633,770
10,569,693
(2,064,077)
Unrestricted
18,144,067
20,824,170
2,680,103
Total governmental activities
68,877,405
72,471,546
3,594,141
Business -type activities
Net investment in capital assets
40,722,087
41,014,122
292,035
Unrestricted
8,163,982
9,052,590
888,608
Total business -type activities
48,886,069
50,066,712
1,180,643
Total net position
$ 117,763,474
$ 122,538,258 $
4,774,784
The City's total net position at December 31, 2016 was $4,774,784 higher than the prior year. Of the
increase, $3,594,141 came from governmental activities and $1,180,643 from business -type activities.
The increase in the net investment in capital assets balance was mostly due to capital outlay 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.
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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,
2015 and 2016:
Net (expense) revenue
Governmental activities
General government
Public safety
Public works
Sanitation
Transit
Recreation and culture
Economic development
Interest on long-term debt
Business -type activities
Water
Sewer
Liquor
Fiber optic
Deputy registrar
Total net (expense) revenue
General revenues
Property taxes
Tax increments
Franchise taxes
Investment earnings
Gain on sale of capital assets
Special item — transfer of operations
Special item — contribution of land to Wright County
Total general revenues and special items
Change in net position
Net position — beginning of year
Net position — end of year
Net Change
2015 2016
(1,233,638)
(1,284,810)
(2,456,534)
(563,477)
(40,000)
(1,645,565)
(1,533,222)
(688,855)
292,437
607,783
725,707
(894,058)
221,963
(8,492,269)
8,683,585
727,617
333,484
386,656
118,630
(5,511,547)
4,738,425
(3,753,844)
(1,419,802)
(1,098,466)
(2,067,366)
(510,344)
(41,250)
(2,052,388)
(455,388)
(468,271)
191,639
1,416,967
577,597
(743,696)
217,399
(6,453,369)
9,270,592
668,352
412,217
503,694
16,398
356,900
11,228,153
4,774,784
121,517,318 117,763,474
$ 117,763,474 $ 122,538,258
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 if 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.
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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.
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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.
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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
CER TAINPROVISIONS 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 POSTEHPLOYHENT 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.
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GASB STATEMENT No. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT
BENEFITS OTHER THANPENSIONS
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 parry 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.
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GASB STATEMENT NO. 82, PENSIONISSUES ANAMENDMENT 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, CERTAINASSET 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.
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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, FIDUCIARYACTIVITIES
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.
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