2015 Monticello Auditor's Management Letter
Management Report
for
City of Monticello, Minnesota
December 31, 2015
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To the City Council and Management
City of Monticello, Minnesota
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, 2015. The purpose of this
report is to provide comments resulting from our audit process and to communicate information relevant
to city finances in Minnesota. We have organized this report into the following sections:
Audit Summary
Governmental Funds Overview
Enterprise Funds Overview
Government-Wide Financial Statements
Legislative Updates
Accounting and Auditing Updates
We would be pleased to further discuss any of the information contained in this report or any other
concerns that you would like us to address. We would also like to express our thanks for the courtesy and
assistance extended to us during the course of our audit.
The purpose of this report is solely to provide those charged with governance of the City, management,
and those who have responsibility for oversight of the financial reporting process comments resulting
from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is
not suitable for any other purpose.
Minneapolis, Minnesota
June 27, 2016
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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 AND GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City as of and for the year ended
December 31, 2015, and the related notes to the financial statements. Professional standards require that
we provide you with information about our responsibilities under auditing standards generally accepted in
the United States of America and Government Auditing Standards, as well as certain information related
to the planned scope and timing of our audit. We have communicated such information to you verbally
and in our audit engagement letter. Professional standards also require that we communicate the following
information related to our audit.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously discussed and coordinated
in order to obtain sufficient audit evidence and complete an effective audit.
AUDIT OPINION AND FINDINGS
Based on our audit of the City’s financial statements for the year ended December 31, 2015:
We have issued an unmodified opinion on the City’s basic financial statements. Our report
included a paragraph emphasizing that the City implemented Governmental Accounting
Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions—
an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement
No. 68, during the year ended December 31, 2015. Our opinion was not modified with respect to
this matter.
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 no findings based on our testing of the City’s compliance with Minnesota laws and
regulations.
FOLLOW-UP ON PRIOR YEAR FINDINGS AND RECOMMENDATIONS
As a part of our audit of the City’s financial statements for the year ended December 31, 2015, we
performed procedures to follow-up on the findings and recommendations that resulted from our prior year
audit. We reported the following findings that were corrected by the City in the current year:
In the prior year, we reported that for 4 of 25 claims for payroll, the City did not receive a signed
approval declaration as required by state statute. There was no similar finding in the current year.
In the prior year, we also reported that 1 of 40 disbursements tested was not paid within the 35-
day period as required by state statute. There was no similar finding in the current year.
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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.
The City implemented GASB Statement Nos. 68 and 71 during the year ended December 31, 2015. These
statements provide new guidance on accounting and financial reporting for pensions accounted for in the
financial statements of plan employers. Implementation of these standards resulted in an adjustment to the
beginning equity reported in the City’s government-wide and enterprise fund financial statements, as
described in Note 1 of the notes to basic financial statements. The application of remaining policies was
not changed during the year ended December 31, 2015.
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.
Other Post-Employment Benefit (OPEB) and Pension Liabilities – These obligations are
calculated using actuarial methodologies described in 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 the lower of cost or net realizable 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.
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are 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.
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DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
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 27, 2016.
MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves
application of an accounting principle to the City’s financial statements or a determination of the type of
auditor’s opinion that may be expressed on those statements, our professional standards require the
consulting accountant to check with us to determine that the consultant has all the relevant facts. To our
knowledge, there were no such consultations with other accountants.
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City’s auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
OTHER MATTERS
We applied certain limited procedures to Management’s Discussion and Analysis, 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 individual fund statements and other supplementary
schedules accompanying the financial statements 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 section and statistical section which accompany the
financial statements but are not RSI. We did not audit or perform other procedures on this other
information and 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 include 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 2014 fiscal year, local ad valorem property tax levies provided 39.0 percent of the total
governmental fund revenues for cities over 2,500 in population, and 35.5 percent for cities under 2,500 in
population. Property tax levies certified by Minnesota cities for 2015 increased about 4.0 percent over
2014, compared to an increase of 1.6 percent the prior year. A one-year levy limit imposed on cities over
2,500 in population for the 2014 levy year was lifted for the 2015 levy year.
The total market value of property in Minnesota cities increased about 8.5 percent for the 2015 levy year,
following a modest increase of 1.1 percent for levy year 2014 and a four-year trend of declining market
values for levy years 2010 through 2013. Market values showed increases across all property categories
for 2015, with gains in the market values of residential homestead properties (10.0 percent) and
non-homestead residential properties (9.7 percent) outpacing the market value gain of
commercial/industrial properties (2.2 percent). Because the assessed valuation used for levying property
taxes is based on values from the previous fiscal year (e.g., the market value for taxes payable in 2015 is
based on estimated values as of January 1, 2014), market value improvement has lagged behind recent
upturns in the housing market and the economy in general.
The City’s taxable market value decreased 1.5 percent for taxes payable in 2014, but increased
26.0 percent for taxes payable in 2015. The following graph shows the City’s changes in taxable market
value over the past 10 years:
$–
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
$1,600,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Taxable Market Value
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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 2014 decreased 2.8 percent
and increased 29.6 percent in 2015. The following graph shows the City’s change in tax capacities over
the past 10 years:
$–
$2,500,000
$5,000,000
$7,500,000
$10,000,000
$12,500,000
$15,000,000
$17,500,000
$20,000,000
$22,500,000
$25,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Local Tax Capacity
The improvement in property tax capacities contributed to decreases to the overall state-wide tax rates for
2015. 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
2014 2015 2014 2015
Average tax rate
City 48.8 46.9 44.7 35.7
County 47.6 44.7 43.4 40.6
School 28.9 27.1 28.3 22.9
Special taxing 7.3 6.9 – –
Total 132.6 125.6 116.4 99.2
City of Monticello
All Cities
State-Wide
Average tax rates have been below state-wide averages for the last few years as a result of improved
market values and tax capacities that began to rise in 2013 and continued in fiscal 2015. The increase in
market values and local tax capacity in 2015 is related to significant increases to market values at the Xcel
power plant.
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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
the 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 the City’s operation. Also, certain data on these tables may be classified differently than how
they appear on the City’s financial statements in order to be more comparable to the state-wide
information, particularly in separating capital expenditures from current expenditures.
We have designed this section of our management report using per capita data in order to better identify
unique or unusual trends and activities of your city. We intend for this type of comparative and trend
information to complement, rather than duplicate, information in the Management’s Discussion and
Analysis. An inherent difficulty in presenting per capita information is the accuracy of the population
count, which for most years is based on estimates.
Year 2013 2014 2015
Population 2,500–10,000 10,000–20,000 20,000–100,000 12,964 12,993 13,125
Property taxes 427$ 396$ 427$ 616$ 647$ 658$
Tax increments 26 37 46 75 64 55
Franchise fees and other taxes 32 42 37 25 28 25
Special assessments 59 51 64 159 147 253
Licenses and permits 28 27 41 26 29 35
Intergovernmental revenues 298 264 166 98 56 116
Charges for services 105 82 90 142 131 157
Other 66 72 65 40 91 59
Total revenue 1,041$ 971$ 936$ 1,181$ 1,193$ 1,358$
December 31, 2014
City of Monticello
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
State-Wide
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 2015 was $1,358, an increase of about 13.9 percent
from the prior year. Special assessments increased $106 per capita as the City received a large amount of
assessments from the I-94 Interchange Project in 2015. Intergovernmental revenue increased $60 per
capita due to the City receiving increased state highway aid in 2015. Charges for services also increased
$26 per capita based on increased rates, more rentals of community spaces, and increased storm sewer
trunk charges. These increases were offset by a decrease in other revenues of $32 per capita mainly as a
result of a positive market value adjustment in the City’s investment portfolio in the prior year compared
to the current year.
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The expenditures of governmental funds will also vary from state-wide averages and from year-to-year,
based on the City’s circumstances. Expenditures are classified into three types as follows:
Current – These are typically the general operating type expenditures occurring on an annual
basis, and are primarily funded by general sources such as taxes and intergovernmental revenues.
Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more
typically fluctuating significantly from year-to-year. Many of these expenditures are
project-oriented, and are often funded by specific sources that have benefited from the
expenditure, such as special assessment improvement projects.
Debt Service – Although the expenditures for debt service may be relatively consistent over the
term of the respective debt, the funding source is the important factor. Some debt may be repaid
through specific sources such as special assessments or redevelopment funding, while other debt
may be repaid with general property taxes.
The City’s expenditures per capita of its governmental funds for the past three years, together with
state-wide averages, are presented in the following table:
Year 2013 2014 2015
Population 2,500–10,000 10,000–20,000 20,000–100,000 12,964 12,993 13,125
Current
131$ 104$ 87$ 122$ 112$ 112$
248 237 254 139 142 150
121 119 114 132 138 132
86 101 92 191 184 200
69 89 98 117 124 140
655 650 645 701 700 734
Capital outlay
and construction 357 278 276 105 171 171
Debt service
180 163 115 408 416 383
54 40 34 72 51 49
234 203 149 480 467 432
Total expenditures 1,246$ 1,131$ 1,070$ 1,286$ 1,338$ 1,337$
Interest and fiscal charges
General government
Public safety
Street maintenance and
lighting
Recreation and culture
All other
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
City of Monticello
Principal
December 31, 2014
State-Wide
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 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.
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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, 2014 and 2015, presented both by fund balance classification and by fund:
Increase
2014 2015 (Decrease)
Fund balances of governmental funds
Total by classification
Nonspendable 1,941,414$ 4,373,045$ 2,431,631$
Restricted 10,453,449 8,619,905 (1,833,544)
Assigned 7,321,744 11,109,806 3,788,062
Unassigned 4,204,731 4,873,494 668,763
Total governmental funds 23,921,338$ 28,976,250$ 5,054,912$
Total by fund
Major funds
General 4,331,058$ 4,986,796$ 655,738$
Community Center 440,824 629,442 188,618
Economic Development Authority 6,911,674 6,562,865 (348,809)
Debt Service 3,919,070 5,382,214 1,463,144
Capital Projects 2,895,619 5,392,213 2,496,594
Nonmajor funds 5,423,093 6,022,720 599,627
Total governmental funds 23,921,338$ 28,976,250$ 5,054,912$
Governmental Fund Changes in Fund Balance
Fund Balance
as of December 31,
As reflected in the table above, total governmental fund balance increased by $5,054,912. The increase
was largely due to the increase in fund balance in the Capital Projects Fund from unspent bond proceeds
and Debt Service Fund, mainly from transfers to these funds from enterprise funds.
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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.
$–
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
$7,000,000
$7,500,000
$8,000,000
$8,500,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
General Fund Financial Position
Year Ended December 31,
Fund Balance Cash Balance Expenditures
The City’s General Fund cash and investments balance at December 31, 2015 was $5,649,254, which
increased $1,010,048 from 2014. Total fund balance at December 31, 2015 was $4,986,796, up $655,738.
This fund balance level represents approximately 74.3 percent of the City’s annual General Fund
expenditures, based on 2015 expenditure levels. The City’s adopted fund balance policy requires that the
City set aside fund balance to represent 45 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.
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The following illustrations provide you with the components of the City’s General Fund revenue
compared to budget for 2015:
Other
Charges for Services
Intergovernmental
Licenses and Permits
Property Taxes
General Fund Revenue
Budget to Actual
Budget Actual
Total General Fund revenues for 2015 were $7,637,646, which was $391,646 (5.4 percent) over the final
budget. As reflected in the table above, other revenues were over budget by $109,680, which was mainly
due to small amounts over budget spread across many categories. Licenses and permits revenue also
exceeded budgeted amounts by $139,869 as a result of conservative budgeting in the revenue category.
The following graph presents the City’s General Fund revenue sources for the last five years.
$–
$400,000
$800,000
$1,200,000
$1,600,000
$2,000,000
$2,400,000
$2,800,000
$3,200,000
$3,600,000
$4,000,000
$4,400,000
$4,800,000
$5,200,000
$5,600,000
$6,000,000
Taxes Intergovernmental Other
General Fund Revenue by Source
Year Ended December 31,
2011 2012 2013 2014 2015
The graph reflects the City’s increasing reliance on taxes to finance its General Fund operations.
Overall, General Fund revenues increased $518,644 (7.3 percent) from the previous year. Property taxes
increased $378,297 due to an increase in the General Fund tax levy. Other revenues increased $106,359,
mainly due to an increased dividend received from the League of Minnesota Cities Insurance Trust in
2015.
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The following graphs illustrate the components of General Fund spending for 2015 compared to budget:
General Governmental
Public Safety
Public Works
Recreation and Culture
Other
General Fund Expenditures
Budget to Actual
Budget Actual Total General Fund expenditures for 2015 were $6,715,369, which was $366,561 (5.2 percent) under
budget. The public works area was under budget by $314,949, mainly in street repairs. Recreation and
culture was under budget by $73,552, mainly within park operations.
The following illustrations provide you with the components of the City’s General Fund spending by
function for the past five years:
$–
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$1,750,000
$2,000,000
General
Governmental
Public Safety Public Works Recreation and
Culture
Other
General Fund Expenditures by Function
Year Ended December 31,
2011 2012 2013 2014 2015
Overall, General Fund expenditures increased $305,862 (4.8 percent) from the prior year. Recreation and
culture expenditures increased $171,707, which was mainly due to increased spending for trail repairs.
Additionally, public safety expenditures increased $127,913 due to an increase in the monthly charge for
police services.
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ENTERPRISE FUNDS OVERVIEW
The City maintains several enterprise funds to account for services the City provides that are financed
primarily through fees charged to those utilizing the service. This section of the report provides you with
an overview of the financial trends and activities of the City’s enterprise funds, which includes the Water
Utility, Sewage Utility, Liquor Operations, Fiber Optics, and Deputy Registrar Funds.
ENTERPRISE FUNDS FINANCIAL POSITION
The following table summarizes the changes in the financial position of the City’s enterprise funds during
the years ended December 31, 2014 and 2015, presented both by classification and by fund:
Increase
2014 2015 (Decrease)
Net position of enterprise funds
Total by classification
Net investment in capital assets 42,117,264$ 40,722,087$ (1,395,177)$
Unrestricted 9,112,037 8,136,000 (976,037)
Total enterprise funds 51,229,301$ 48,858,087$ (2,371,214)$
Total by fund
Water 14,901,305$ 14,328,760$ (572,545)$
Sewage 20,761,130 19,813,546 (947,584)
Liquor 987,433 905,806 (81,627)
Fiber Optics 14,198,557 13,400,141 (798,416)
Deputy Registrar 380,876 409,834 28,958
Total enterprise funds 51,229,301$ 48,858,087$ (2,371,214)$
Enterprise Funds Change in Financial Position
Net Position
as of December 31,
In total, the net position of the City’s enterprise funds decreased by $2,371,214 during the year ended
December 31, 2015. This change was a combination of a decline in net position of $1,168,932 in the
current year and the recording of a change in accounting principle as described in other areas of this
report that decreased beginning net position by $1,202,282.
The Sewage Fund and Fiber Optics Fund operated at net losses as expenses exceeded revenues, while the
City continues to push these funds to be sustainable on their own.
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WATER ENTERPRISE FUND
The following graph presents 10 years of comparative operating results for the City’s Water Enterprise
Fund:
$–
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Water Enterprise Fund
Year Ended December 31,
Operating Revenue
Operating Expense
Operating Income Before Depreciation
At December 31, 2015, the Water Enterprise Fund had a cash balance of $4,406,268 and a net position
balance of $14,328,760. Net position consisted of $9,662,761 in net investment in capital assets and
$4,665,999 in unrestricted net position.
Operating revenue in the Water Enterprise Fund is $1,126,718, an increase of $9,492 from the prior year
while operating expenses for 2015 were $1,105,230, an increase of $19,224.
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:
$(200,000)
$–
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
$2,200,000
$2,400,000
$2,600,000
$2,800,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sewage Enterprise Fund
Year Ended December 31,
Operating Revenue
Operating Expense
Operating Income (Loss) Before Depreciation
At December 31, 2015, the Sewage Enterprise Fund had a cash balance of $2,200,605 and a net position
balance of $19,813,546. Net position consisted of $17,321,768 in net investment in capital assets and
$2,491,778 of unrestricted net position.
Sewage Enterprise Fund operating revenues for 2015 were $2,083,122, which is $1,462 more than the
previous year. Operating expenses for 2015 were $2,582,554, which decreased $94,175 from 2014. This
decrease is due to less spending for waste water treatment plant services compared to those in the
previous year.
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:
$–
$400,000
$800,000
$1,200,000
$1,600,000
$2,000,000
$2,400,000
$2,800,000
$3,200,000
$3,600,000
$4,000,000
$4,400,000
$4,800,000
$5,200,000
$5,600,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Liquor Enterprise Fund
Year Ended December 31,
Sales
Cost of Sales
Operating Expenses
Operating Income (Loss)
The Liquor Enterprise Fund ended 2015 with a net position balance of $905,806, an increase of $275,808
from the prior year. Of the net position balance, $217,867 represents the investment in liquor capital
assets, leaving $687,939 of unrestricted net position.
Liquor sales for 2015 were $5,489,430, an increase of $323,693 (6.3 percent) from last year. Sales have
steadily increased over the last several years, increasing by about 51.7 percent since 2006. The Liquor
Enterprise Fund generated a gross profit of $1,519,843 in 2015, or about 27.7 percent, of gross sales. The
Liquor Enterprise Fund’s gross profit margin increased significantly when compared to prior years.
Operating expenses for 2015 were $801,545, an increase of $106,978 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:
$(1,500,000)
$(1,000,000)
$(500,000)
$–
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2010 2011 2012 2013 2014 2015
Fiber Optics Enterprise Fund
Year Ended December 31,
Operating Revenue
Operating Expense
Operating Income (Loss) Before Depreciation
At December 31, 2015, the Fiber Optics Enterprise Fund had a cash balance of $341,721 and a net
position balance of $13,400,141. Net position consisted of $13,475,112 in net investment in capital assets
and a deficit of $74,971 as unrestricted net position.
Operating revenue in this fund was $1,642,403, a decrease of $119,575, or 6.8 percent, in 2015. Operating
expenses declined $381,292 in fiscal 2015. This was mainly due to no bond settlement charges in fiscal
2015 as there was in 2014 for the extinguishment of debt.
The operating loss before depreciation in this fund during this year was $367,607. This was an
improvement of $238,569 in the current year, mostly related to decreased operating expenses as
previously discussed.
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:
$–
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
2008 2009 2010 2011 2012 2013 2014 2015
Deputy Registrar Fund
Year Ended December 31,
Operating Revenue
Operating Expense
Operating Income (Loss) before depreciation
At December 31, 2015, the Deputy Registrar Enterprise Fund had a cash balance of $598,017 and a net
position balance of $409,834. Net position consisted of $44,579 in net investment in capital assets and
$365,255 of unrestricted net position.
Deputy Registrar Enterprise Fund operating revenues for 2015 were $535,931, which is $38,133 more
than the previous year, mostly due to an increase in charges for services. Operating expenses for 2015
were $318,686, which is $15,977 higher than 2014.
As shown in the above graph, operating income before depreciation has been steadily increasing over the
past several years.
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GOVERNMENT-WIDE FINANCIAL STATEMENTS
In addition to fund-based information, the current reporting model for governmental entities also requires
the inclusion of two government-wide financial statements designed to present a clear picture of the City
as a single, unified entity. These government-wide statements provide information on the total cost of
delivering services, including capital assets and long-term liabilities.
STATEMENT OF NET POSITION
The Statement of Net Position essentially tells you what your city owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to
use for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, net position is
divided into three components: net investment in capital assets, restricted, and unrestricted.
The following table presents the components of the City’s net position as of December 31, 2014 and
2015, for governmental activities and business-type activities:
Increase
2014 2015
(Decrease)
Net position
Governmental activities
Net investment in capital assets 48,253,810$ 38,099,568$ (10,154,242)$
Restricted 10,453,449 12,633,770 2,180,321
Unrestricted 14,792,521 18,144,067 3,351,546
Total governmental activities 73,499,780 68,877,405 (4,622,375)
Business-type activities
Net investment in capital assets 42,117,264 40,722,087 (1,395,177)
Unrestricted 9,121,952 8,163,982 (957,970)
Total business-type activities 51,239,216 48,886,069 (2,353,147)
Total net position 124,738,996$ 117,763,474$ (6,975,522)$
December 31,
The City’s total net position at December 31, 2015 was $6,975,522 lower than the prior year. Of the
decrease, $4,622,375 came from governmental activities and $2,353,147 from business-type activities.
The change in the table above is a combination of a decline in net position of $3,753,844 in fiscal 2015
and a change in accounting principle for reporting the City’s participation in the Public Employees
Retirement Association and the Monticello Fire Relief Association pension plan that reduced beginning
unrestricted net position by $3,221,678.
During the year ended December 31, 2015, the City also recorded a contribution of land to Wright County
around the Bertram Chain of Lakes totaling $5,511,547.
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STATEMENT OF ACTIVITIES
The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other
transactions that increase or reduce total net positions. These amounts represent the full cost of providing
services. The Statement of Activities provides a more comprehensive measure than just the amount of
cash that changed hands, as reflected in the fund-based financial statements. This statement includes the
cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses.
The following table presents the change in net position of the City for the years ended December 31, 2015
(including the change in accounting principle discussed previously) and 2014:
2014 2015
Net (expense) revenue
Governmental activities
General government (1,308,098)$ (1,233,638)$
Public safety (1,531,029) (1,284,810)
Public works (3,335,479) (2,456,534)
Sanitation (469,571) (563,477)
Transit (10,000) (40,000)
Recreation and culture (1,180,833) (1,645,565)
Economic development (1,084,620) (1,533,222)
Interest on long-term debt (649,854) (688,855)
Business-type activities
Water 113,635 292,437
Sewer (273,360) 607,783
Liquor 596,393 725,707
Fiber optic (1,157,192) (894,058)
Deputy registrar 197,562 221,963
(10,092,446) (8,492,269)
General revenues
Property taxes 8,393,374 8,683,585
Tax increments 826,363 727,617
Franchise taxes 357,409 333,484
General aids and grants 27,502 –
Investment earnings 1,184,104 386,656
Other general revenues 217,643 –
Gain on sale of capital assets – 118,630
Special item – gain on extinguishment of debt 20,990,451 –
Special item – contribution of land to Wright County – (5,511,547)
31,996,846 4,738,425
21,904,400 (3,753,844)
Net position – beginning of year, as previously reported 102,834,596 124,738,996
Change in accounting principle – (3,221,678)
Net position – beginning of year, as restated 102,834,596 121,517,318
Net position – end of year 124,738,996$ 117,763,474$
Total net (expense) revenue
Total general revenues
Change in net position
Net Change
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
Despite the 2015 legislative session beginning with a projected budget excess of $1.87 billion for the
2016–2017 biennium, the most favorable budget forecast in over a decade, little was accomplished during
the regular legislative session due to partisan disagreement. The regular session adjourned without the
Legislature bringing forth a number of significant funding bills, including the Omnibus Legacy Bill
(funding for outdoor heritage, clean water, parks and trails, arts, and cultural heritage) and a bonding bill
for capital projects. The Governor subsequently vetoed a number of other funding bills, including the
Omnibus E–12 Education Bill due to the Legislature not addressing his demand for a universal preschool
provision. Eventually, a one-day special session produced funding bills for E–12 education, jobs and
energy, Legacy programs, environment and agriculture, and capital investment.
The following is a summary of recent legislation affecting Minnesota cities in 2015 and into the future:
Local Government Aid (LGA) – The Legislature completely overhauled the LGA formula for fiscal
year 2014 and thereafter, creating a three-tiered formula that includes separate “need factor”
calculations for cities with populations under 2,500, between 2,500 and 10,000, or over 10,000. The
new formula simplified the LGA calculation, and reduced the volatility of the LGA distribution by
limiting the amount it may decline in a given year. Beginning in 2015, any reduction to a city’s
calculated LGA distribution will be limited to the lesser of $10 per capita, or 5 percent of their
previous year net tax levy. For cities that gain under the new formula, the increases will be distributed
proportionate to their unmet need, as determined by the new “need factor” calculations. The
state-wide LGA appropriation was $516.9 million for fiscal 2015, and is $519.4 million for fiscal
2016 and thereafter.
Sales Tax Exemption – Cities (both home-rule and statutory) were exempted from paying sales tax
on qualifying purchases, effective for purchases made on or after January 1, 2014. Purchases of goods
or services by an exempt local government for a publicly-provided liquor store, gas or electric utility,
golf course, marina, campground, café, laundromat, solid waste hauling or recycling operation, or
landfill will remain taxable.
The 2014 Legislature extended the definition of tax exempt local government to include all special
district; city, county, or township instrumentalities; economic development authorities; housing and
redevelopment authorities; and all joint power boards or organizations. However, the effective date of
this expanded exemption list was delayed until January 1, 2017 by the 2015 Legislature.
Omnibus Bonding Bill – The Legislature approved a scaled-down Omnibus Bonding Bill during the
special session, authorizing approximately $370 million in capital improvements. Included in the
funding approved was $172.5 million for transportation infrastructure, $23.5 million for flood hazard
mitigation, $10 million for Public Financing Agency (PFA) grants to municipalities for wastewater
infrastructure, and $1.5 million to the Metropolitan Council for inflow and infiltration improvement
grants to metro area cities.
Legacy Funding – The Legacy bill included $9.25 million annually to finance grants for city water
infrastructure improvements through the PFA. It also included $17.25 million annually to fund
“SCORE” block grants to counties for recycling and waste reduction (a portion of which is passed
through to cities) and $1 million of annual funding for a new grant program to establish or improve
recycling programs in non-metro area cities.
Broadband Initiative – The Omnibus Jobs and Energy Bill passed in the special session included
$10.6 million to finance the Border-to-Border Broadband Grant Program, a one-time appropriation
available until June 30, 2017.
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Municipal State-Aid Streets – Included in the Omnibus Transportation Bill were annual funding
allocations for municipal state-aid streets of $107.7 million for fiscal 2016 and $178.1 million for
fiscal 2017, which represents an increase of approximately $41 million over the previous biennium.
Small Cities Assistance Account – A one-time appropriation of $12.5 million was provided to create
a new Small Cities Assistance Account to assist with construction and maintenance of roads located
within eligible cities, defined as a statutory or home-rule charter city that does not receive municipal
state aid street financing (generally those with a population under 5,000). The aid will be distributed
to eligible cities biannually in each year funds are available based on the following formula: 5 percent
equally to all eligible cities; 35 percent allocated proportionately on each city’s share of lane miles to
the total for all eligible cities; 35 percent allocated proportionately on each city’s population to the
total for all eligible cities; and 25 percent allocated proportionately on each city’s state-aid adjustment
factor to the total for all eligible cities.
Workforce Housing Grant Program – The Omnibus Jobs and Energy Bill included annual funding
of $2 million for fiscal 2016 and 2017 for a new Workforce Housing Grant Program. Eligible cities
can use the grants to develop “market rate residential rental property” to serve employees of
businesses located in the eligible project areas. The maximum grant award may not exceed 25 percent
of the rental housing development project cost; and awards must be matched by a local unit of
government, business, or nonprofit organization with $1 for each $2 of grant funding.
Automated License Plate Reader (ALPR) Policy – Law enforcement agencies that utilize ALPRs
are required to establish policies governing their use that are consistent with statutory guidelines. The
Legislature placed limitations on the type of data that can be collected using ALPRs, and clarified the
circumstances under which that data is considered public or private. A limitation of 60 days was
established for the retention of data collected by ALPR not related to an active criminal investigation.
Standards were established for the sharing of ALPR data between law enforcement agencies.
Elections – The Elections Omnibus Bill made numerous changes to elections administration laws,
including requirements for filing fees for statutory cities, ballot formatting and marking, absentee
ballots, and election recounts.
Energy Conservation Measures – The Uniform Municipal Contracting Law was amended to add
water metering devices that increase efficiency to the definition of energy conservation measures,
enabling municipalities to enter into guaranteed energy savings contracts for the use of water
metering devices.
Responsible Contractor Requirement – The “responsible contractor” law enacted by the 2014
Legislature became effective on January 1, 2015. Contractors who bid on public contracts in excess of
$50,000 are now required to certify that they are a “responsible bidder” in order to be awarded a
contract as the lowest responsible bidder or best value alternative. The 2015 Legislature made several
clarifications and modifications to the law, including: exempting design professionals and materials
suppliers from the requirements; making motor carriers subject to the requirements and establishing a
separate verification standard for them; excluding tax increment financing revenue from the value of
a construction contract under the law; and allowing general contractors to submit bids without
obtaining verification from all subcontractors that bid on the project (the successful prime contractor
must submit a supplemental verification under oath prior to the execution of the contract).
Appraisal Requirements for Eminent Domain – Effective July 1, 2015, the appraisal requirements
for the acquisition of property by eminent domain are changed to require the acquiring entity to
obtain at least one appraisal for the property proposed to be acquired only if the acquisition value is
greater than $25,000. For acquisitions less than $25,000, the acquiring entity may obtain a minimum
damage acquisition report in lieu of an appraisal.
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Firefighter Employment Provisions and Volunteer Benefits – The Omnibus Public Safety Finance
and Policy Bill made a number of changes related to firefighters, including: allowing relief
association dues as a voluntarily payroll deduction, allowing volunteer firefighters to be paid less
frequently than every 31 days, requiring the licensure of all full-time firefighters by the State Board of
Firefighter Training and Education, and expanding “continued employer health insurance benefits” to
include dependents of volunteer firefighters killed in the line of duty.
Police and Firefighter Retirement Supplemental State Aid – The volunteer firefighter portion of
the Police and Firefighter Retirement Supplemental State Aid Program was made permanent. The
minimum obligation of municipalities to an associated relief association special fund is now reduced
by the amount of both fire state aid and police and firefighter retirement supplemental state aid. Police
and firefighter retirement supplemental state aid is also added to the calculation of the exception to
municipal ratification requirement for lump-sum plans.
Pensions – A number of changes to the pension plans administered by the Public Employees
Retirement Association (PERA) were adopted, effective June 30, 2015, including:
The future interest rate actuarial assumption for the PERA General Plan and PERA Police
and Fire Plan are changed from 8.5 percent to 8.0 percent for actuarial valuations prepared
after June 30, 2015.
The refund repayment interest rate and prior service credit purchase payment determination
rate for the PERA General Plan and PERA Police and Fire Plan are also changed from 8.5
percent to 8.0 percent.
The CPI-based post-retirement adjustment mechanism for the PERA Police and Fire Plan is
replaced with a flat 2.5 percent increase when the plan reaches a 90 percent funding level.
The contribution stabilizer mechanisms applicable to the PERA General Plan are revised,
broadening the factors the plan’s Board of Trustees may consider before recommending an
increase in the plan contribution rates.
Definitions of salary, termination of service, allowable service, retirement, and volunteer
firefighter were revised for all applicable PERA plans.
Changes in eligibility, service pension levels, ancillary benefits, and service time calculations
were made to the PERA Statewide Volunteer Firefighter Plan, lump sum retirement division.
A change was also made to create a “monthly benefit retirement division” within this plan to
facilitate the transfer of individual volunteer firefighter association monthly benefit plans to
the statewide plan.
A number of administrative language changes were made to complete the merger of the
Minneapolis Employees Retirement Fund into the PERA General Plan, which was effective
January 1, 2015.
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ACCOUNTING AND AUDITING UPDATES
GASB STATEMENT NO. 72, FAIR VALUE MEASURE AND APPLICATION
The primary objective of this statement is to address accounting and financial reporting issues related to
fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. This statement
provides guidance for determining a fair value measurement for financial reporting purposes. It also
provides guidance for applying fair value to certain investments and disclosures related to all fair value
measurements.
This statement generally requires investments to be measured at fair value. An investment is defined as a
security or other asset that (a) a government holds primarily for the purpose of income or profit and
(b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash.
This statement is effective for financial statements for fiscal years beginning after June 15, 2015. Earlier
application is encouraged.
GASB STATEMENT NO. 73, ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS AND RELATED
ASSETS THAT ARE NOT WITHIN THE SCOPE OF GASB STATEMENT 68, AND AMENDMENTS TO
CERTAIN PROVISIONS OF GASB STATEMENTS 67 AND 68
The objective of this statement is to improve the usefulness of information about pensions included in
financial statements of state and local governments for making decisions and assessing accountability.
This statement also clarifies 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. These changes will improve financial
reporting by establishing a single framework for the presentation of information about pensions,
enhancing comparability for similar information reported by employers and nonemployer contributing
entities.
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, and the
requirements of this statement that address financial reporting for assets accumulated for purposes of
providing those pensions are effective for fiscal years beginning after June 15, 2015. The requirements of
this statement for pension plans that are within the scope of GASB Statement No. 67 or for pensions that
are within the scope of GASB Statement No. 68 are effective for fiscal years beginning after June 15,
2015. Earlier application is encouraged.
GASB STATEMENT NO. 74, FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFIT PLANS OTHER
THAN PENSION PLANS
The objective of this statement is to improve the usefulness of information about post-employment
benefits other than pensions (other post-employment benefits [OPEB]). This statement replaces 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. 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.
-24-
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.
GASB STATEMENT NO. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT
BENEFITS OTHER THAN PENSIONS
The primary objective of this statement is to improve accounting and financial reporting by state and local
governments for post-employment benefits other than pensions (OPEB). It also improves information
provided by state and local governmental employers about financial support for OPEB that is provided by
other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. GASB
Statement No. 74 establishes new accounting and financial reporting requirements for OPEB plans.
This statement establishes standards for recognizing and measuring liabilities, deferred outflows of
resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this
statement identifies the methods and assumptions that are required to be used to project benefit payments,
discount projected benefit payments to their actuarial present value, and attribute that present value to
periods of employee service. 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.
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.
GASB STATEMENT NO. 77, TAX ABATEMENT DISCLOSURES
This statement requires disclosure of tax abatement information about (1) a reporting government’s own
tax abatement agreements, and (2) those that are entered into by other governments and that reduce the
reporting government’s tax revenues. Tax abatements are widely used by state and local governments,
particularly to encourage economic development. For financial reporting purposes, this statement defines
a tax abatement as resulting from an agreement between a government and an individual or entity in
which the government promises to forgo tax revenues and the individual or entity promises to
subsequently take a specific action that contributes to economic development or otherwise benefits the
government or its citizens.
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The requirements of this statement improve financial reporting by giving users of financial statements
essential information that is not consistently or comprehensively reported to the public at present.
Disclosure of information about the nature and magnitude of tax abatements will make these transactions
more transparent to financial statement users. As a result, users will be better equipped to understand
(1) how tax abatements affect a government’s future ability to raise resources and meet its financial
obligations, and (2) the impact those abatements have on a government’s financial position and economic
condition. The requirements of this statement are effective for financial statements for periods beginning
after December 15, 2015. Earlier application is encouraged.
GASB STATEMENT NO. 78, PENSIONS PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED
BENEFIT PENSION PLANS
The objective of this statement is to address a practice issue regarding the scope and applicability of
GASB Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB
Statement No. 27. This issue is associated with pensions provided through certain multiple-employer
defined benefit pension plans and to state or local governmental employers whose employees are
provided with such pensions. Prior to the issuance of this statement, the requirements of GASB Statement
No. 68 applied to the financial statements of all state and local governmental employers whose employees
are provided with pensions through pension plans that are administered through trusts that meet the
criteria in paragraph 4 of GASB Statement No. 68.
This statement amends the scope and applicability of GASB Statement No. 68 to exclude pensions
provided to employees of state or local governmental employers through a cost-sharing,
multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan,
(2) is used to provide defined benefit pensions both to employees of state or local governmental
employers and to employees of employers that are not state or local governmental employers, and (3) has
no predominant state or local governmental employer (either individually or collectively with other state
or local governmental employers that provide pensions through the pension plan). This statement
establishes requirements for recognition and measurement of pension expense, expenditures, and
liabilities; note disclosures; and RSI for pensions that have the characteristics described above. The
requirements of this statement are effective for reporting periods beginning after December 15, 2015.
Early application is encouraged.
GASB STATEMENT NO. 79, CERTAIN EXTERNAL INVESTMENT POOLS AND POOL PARTICIPANTS
This statement establishes criteria for an external investment pool to qualify for making the election to
measure all of its investments at amortized cost for financial reporting purposes. An external investment
pool qualifies for that reporting if it meets all of the applicable criteria established in this statement. The
specific criteria address (1) how the external investment pool transacts with participants; (2) requirements
for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a
shadow price. Significant noncompliance prevents the external investment pool from measuring all of its
investments at amortized cost for financial reporting purposes. If an external investment pool meets the
criteria in this statement and measures all of its investments at amortized cost, the pool’s participants also
should measure their investments in that external investment pool at amortized cost for financial reporting
purposes. If an external investment pool does not meet the criteria in this statement, the pool’s
participants should measure their investments in that pool at fair value.
This statement establishes additional note disclosure requirements for qualifying external investment
pools that measure all of their investments at amortized cost for financial reporting purposes and for
governments that participate in those pools. Those disclosures for both the qualifying external investment
pools and their participants include information about any limitations or restrictions on participant
withdrawals. The requirements of this statement are effective for reporting periods beginning after
June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing.
Those provisions are effective for reporting periods beginning after December 15, 2015. Earlier
application is encouraged.
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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.
CHANGES TO REQUIREMENTS FOR FEDERAL GRANTS
In December 2013, the U.S. Office of Management and Budget (OMB) Circular released final guidance
on administrative requirements, cost principles, and audit requirements for federal awards. The final
guidance, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (“Uniform Guidance”), supersedes and streamlines eight existing OMB Circulars into one
document that includes OMB Circulars A-21, A-87, A-89, A-102, A-110, A-122, A-133, and the
guidance in OMB Circular A-50 on Single Audit Act follow-up.
The Uniform Guidance, which is located in Title 2 of the Code of Federal Regulations (CFR),
consolidates previous guidance into a streamlined format that aims to improve both its clarity and
accessibility, lessen administrative burdens for federal award recipients, and reduce the risk of waste,
fraud, and abuse.
The Following is a Summary of Significant Changes for Grant Recipients:
Changes time and effort documentation requirements by providing possibilities for alternative
methods of accounting for salaries and wages based on achievement of performance outcomes.
Non-federal entities must have a financial management system that includes, but is not limited to:
a comparison of expenditures with budget amounts for each federal award, written procedures to
implement the requirements of cash management, and written procedures for determining the
allowability of costs in accordance with Subpart E – Cost Principles.
Governments must comply with the new general procurement standards which include, but are
not limited to: written standards covering conflicts of interest of employees engaged in the
selection, award, and administration of contracts and documented procurement procedures that
include an analysis of lease versus purchase alternatives when appropriate.
Governments will now be required to follow the five procurement methods which include, at
times, more restrictive compliance requirements than Minnesota Statutes. For example: small
purchases (over $3,000 prior to October 1, 2015 and over $3,500 after October 1, 2015) will
require quotes.
There are new requirements for governments with subrecipients (or those making subawards),
which include, but are not limited to: a required written risk assessment of each subrecipient,
which may require you to provide training and on-site reviews of their program operations.
For governments with subrecipients or those that operate as a fiscal host of a federal grant award
and thus provide subawards, payments must be made in advance to the subrecipients, unless
certain requirements are not met, then the reimbursement method can be used.
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Among Other Matters Specifically Applicable to Auditors, Changes to the Uniform Guidance Include:
Raising both the threshold that triggers a Single Audit and the threshold for Type A/B program
determination to $750,000.
Changing the high-risk program criteria for Type A programs.
Reducing the number of high-risk Type B programs that must be tested as major programs.
Revising the Type B small program floor.
Reducing the percentage of coverage requirement to 40 percent for normal auditees and
20 percent for low-risk auditees.
Revising the criteria for low-risk auditee status.
Increasing the threshold for reporting findings to $25,000 in questioned costs and requiring more
detailed information to be reported.
Effective Dates:
Year beginning January 1, 2015 –
All administrative requirements and cost principles will apply to new awards made after
December 26, 2014.
Governmental entities are required to comply with the Uniform Guidance once the new
regulations are in effect at the Federal government level (December 26, 2014).
Any funding drawdowns made after January 1, 2015 must comply with the Uniform Guidance.
Must document whether the entity is in compliance with the old or new procurement standards
listed in Subpart D, Sections 200.317–200.326. The federal government has provided a two-year
grace period for implementing the new procurement standards.
Year beginning January 1, 2016 –
All administrative requirements and cost principles will apply to new awards made after
December 26, 2014.
Subpart F – Audit Requirements are applicable.
Year beginning January 1, 2017 –
Must have implemented the new procurement standards of the Uniform Guidance, if the
government initially elected the two-year grace beginning January 1, 2015.
At this point, all of the new Uniform Guidance at Title 2 CFR 200 is applicable.
Recommended Action Items:
We recommend that award recipients familiarize themselves with the new requirements contained in the
Uniform Guidance and develop a plan to become compliant with the new regulations.
Consider the following –
Attend training on the new uniform administrative requirements.
Identify needed policy and procedure changes, especially in the areas of:
o Financial management
o Payment
o Procurement
o Compensation
o Travel costs
Identify internal controls that might need to be established or modified.
Determine who within your organization is responsible for each action item.
Determine the timing of each action item.
Determine when you will implement the new procurement standards and document in writing.
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