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08-07-00 CCr, NAMEYERS LLP Certified Public Accountants & Consultants 7241 Ohms Lane Suite 200 Minneapolis, MN 55439 May 23, 2000 Members of the City Council City of Otsego, Minnesota We have audited the general purpose financial statements of the City of Otsego for the year ended December 31, 1999 and have issued our report thereon dated May 23, 2000. Professional standards require that we provide you with the following information related to our audit Our Responsibility Under Generally Accepted Auditing Standards and Government Auditing Standards As stated in our engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with generally accepted accounting principles. Because of the concept of reasonable assurance and because we did not perform a detailed examination of all transactions, there is a risk that material errors, fraud or other illegal acts may exist and not be detected by us. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. However, we noted certain matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control that, in out -judgment, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of internal control would not necessarily disclose all matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be a material weakness, as defined above. However, we noted the following reportable condition that we believe is not a material weakness. Segregation of Duties Our study and evaluation disclosed that because of the limited size of your office staff, your organization has limited segregation of duties. A good internal control structure contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organization is not large enough to permit an adequate segregation of duties in all respects, it is important, however, that you be aware of this condition. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance. 612.835.9090 • Fax 612.835.3261 Significant Accounting Policies City of Otsego May 23, 2000 Page Two Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the general purpose financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 1999. We noted no transactions entered into by the City during the year that were both significant and unusual, and of which—under professional standards—we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Accounting Estimates Accounting estimates are an integral part of the general purpose 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 general purpose financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Significant Audit Adjustments For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the general purpose financial statements that, in our judgment, may not have been detected except through our auditing procedures. We proposed no material audit adjustments. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the general purpose financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. 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 general purpose 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. Issues Discussed Prior to Retention of Independent Auditors 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. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit. Other Matters The following are items that came to our attention during the audit that we feel should be reviewed. City of Otsego May 23, 2000 Page Three Financial Position and Results of Operations General Fund The fund balance increased $212,814 to finish at $800,718. The increase related mainly to favorable budget variances in revenue. Actual revenue was $183,659 above budget and expenditures were $208,155 below budget. Favorable variances allowed for transfers out of $179,000 above budget. The City should maintain reserves at a level sufficient to provide working capital until major revenue sources are received in July. The level needed equates to about 40% of planned expenditures. An adequate fund balance based on the 1999 expenditures and transfers out of $1,252,267 is approximately $501,000. Based on this level, the City has an adequate reserve. An adequate fund balance is necessary for the following reasons: Purposes and Benefits of a Fund Balance • Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the General Fund expenditures. • The City is vulnerable to legislative actions at the State and Federal level. The State continually adjusts the local government aid and property tax credit formulas. State imposed levy limits have also affected some cities. An adequate fund balance will provide a temporary buffer against those aid adjustments and levy limits. • Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These would include capital outlay replacement, lawsuits and other items. An adequate fund balance will provide the financing needed for such expenditures. • The City's bond rating is affected by its reserves. An adequate fund balance will help the City maintain or improve its bond rating. The 1999 operations are summarized as follows: Revenue Expenditures Excess of Revenue Over Expenditures Other Financing Sources (Uses) Variance - Favorable Budget Actual (Unfavorable) $ 1,281,422 $ 1,465,081 $ 183,659 1,270,822 1,062,667 208,155 10,600 402,414 391,814 Operating transfers out (10,600) (189,600) (179,000) Excess (Deficiency) of Revenue and Other Financing Sources Over Expenditures and Other Financing Uses $ - 212,814 2 2 14 Fund Balance, January 1 587,904 Fund Balance, December 31 $ 800.718 A more detailed comparison of General Fund revenues and expenditures follows: 1999 Revenue Taxes 55.13% Charges for Services 2.78% Miscellaneous Licenses and Permits 4.99% 12.18% Intergovernmental 24.92% City of Otsego May 23, 2000 Page Four Percent Increase of (Decrease) Revenue Source 1999 Total 1998 From 1998 Property Taxes $ 807,753 55.13% $ 767,583 $ 40,170 Licenses and Permits 178,495 12.18 103,473 75,022 Intergovernmental 365,074 24.92 375,652 (10,578) Charges for Services 40,668 2.78 46,105 (5,437) Miscellaneous 73,091 4.99 53,512 19,579 Transfers In - - 47,074 (47,074) Total Revenue 1 4 1 1 .00% IIJ22,2991 2 1999 Revenue Taxes 55.13% Charges for Services 2.78% Miscellaneous Licenses and Permits 4.99% 12.18% Intergovernmental 24.92% City of Otsego May 23, 2000 Page Four City of Otsego May 23, 2000 Page Five Total Expenditures 1 2 2 2 100.00% $1.310.339 $ (58.072) Public Works 19.79% Publi., oaicty 17.52% 1999 Expenditures Culture and Capital Recreation Outlay Sanitation 2.88% o Transfers out 2.53% 1.43/0 15.14% -neral Government 40.71% Special Revenue Funds The following table shows the special revenue funds, their fund balances for the last two years and the change: Fund Balance Percent Increase 12/31/98 Decrease of $ 116,774 (Decrease) Expenditure Programs 1999 Total 1998 From 1998 General Government $ 509,821 40.71% $ 543,894 $ (34,073) Public Safety 219,356 17.52 154,749 64,607 Public Works 247,792 19.79 307,852 (60,060) Sanitation 31,718 2.53 32,506 (788) Culture and Recreation 36,071 2.88 45,160 (9,089) Capital Outlay 17,909 1.43 24,110 (6,201) Transfers out 189,600 15.14 202,068 (12,468) Total Expenditures 1 2 2 2 100.00% $1.310.339 $ (58.072) Public Works 19.79% Publi., oaicty 17.52% 1999 Expenditures Culture and Capital Recreation Outlay Sanitation 2.88% o Transfers out 2.53% 1.43/0 15.14% -neral Government 40.71% Special Revenue Funds The following table shows the special revenue funds, their fund balances for the last two years and the change: Fund Balance Increase 12/31/99 12/31/98 Decrease Fire $ 116,774 $ 83,932 $ 32,842 Park Development 117,148 9,651 107,497 Self Funding Insurance 19,852 16,960 2,892 Capital Equipment 108,549 119,468 (10,919) Park and Recreation 2,345 - 2,345 Park Shelter 5,375 5,101 274 Park Tree 133 133 - Total 7Q,17 2 245 S 134,931 The Park Development fund increased due to park dedication fees. This fund receives its resources mainly from interest on investments. The Park and Recreation fund is new in 1999 and was funded with transfers. City of Otsego May 23, 2000 Page Six Debt Service Fund The Debt Service Funds are used to account for the revenue received for the payment of bond principal and interest. The following is a recap of the cash, total assets and bonds outstanding for each issue of the City. Total Capital Projects Funds S 1.466.575 12,321,222 $ 9,5_15,000 The following summarizes each fund and their fund balances for the previous two years: Cash Total Bonds Fund Balance Assets Outstanding $ 156,335 G.O. Improvement Bonds of 1987 and 1991 $ 107,858 $ 149,879 $ 100,000 G.O. Bonds of 1996 226,214 499,700 520,000 G.O. Water and Sewer Bonds of 1998 and 1999A 821,196 846,059 7,095,000 G.O. Improvement Bonds of 1999B 311,307 835,584 1,800,000 Total Capital Projects Funds S 1.466.575 12,321,222 $ 9,5_15,000 The following summarizes each fund and their fund balances for the previous two years: The Municipal Building Construction Fund was established to account for the costs incurred for land acquisition and construction of the City office building. The fund was established with advances from the General Fund. The project is complete and the balance remaining could be transferred to the General Fund for repayment of the lease with the EDA. The Island View fund should be closed and the remaining funds should be transferred to the G.O. Bonds of 1996 Debt Service fund. Any other fund that has completes its purpose should be closed to its original funding source. The remaining balance is to be used for a reserve for future expansion and remodeling. Fund Balance Increase 12/31/99 12/31/98 (Decrease) Municipal Building $ 156,335 $ 149,668 S 6,667 MSA Construction 30,075 18,193 11,882 Island View 58,870 56,364 2,506 Watershed Project 147,927 64,473 83,454 1998 Odean Project (403,948) (63,326) (340,622) Revolving Capital Improvements 269,787 2741343 (4,556) Water and Sewer Construction 844,595 3,506,007 (2,661,412) Bituminous 78`h Street Sewer and Water 995,111 (137,038) - - 995,111 (137,038) 78a' Street Construction (168,561) - (168,561) Page Avenue Street Construction (109) - (109 ) 1999 Equipment Certificates (1,545) - (1,545) Total S 1.791.499 $4.005.722 $(2.214.223 ) The Municipal Building Construction Fund was established to account for the costs incurred for land acquisition and construction of the City office building. The fund was established with advances from the General Fund. The project is complete and the balance remaining could be transferred to the General Fund for repayment of the lease with the EDA. The Island View fund should be closed and the remaining funds should be transferred to the G.O. Bonds of 1996 Debt Service fund. Any other fund that has completes its purpose should be closed to its original funding source. The remaining balance is to be used for a reserve for future expansion and remodeling. MIA City of Otsego May 23, 2000 F04-1 Page Seven Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments GASB Statement No. 34 is the result of an almost decade-long effort by GASB to reexamine the financial reporting model for state and local governments. The most notable change is the presentation of a set of highly aggregated, "full accrual" financial statements. At the same time, however, the Statement retains many familiar features of current governmental financial reporting, in particular fund -based financial statements. State and local governmental financial statement preparers and auditors will need to comprehend and implement a vast number of changes in accounting and financial reporting. They will have to explain those changes to persons who are unfamiliar with the particulars of accounting, much less the unique area of state and local governmental accounting. The following are some specific areas that need to be addressed with the implementation of this new statement: Timeline GASB Statement No. 34 is effective in three phases based on the total annual revenues of the primary government's governmental and proprietary funds, although earlier application is encouraged. The City is considered to be phase 3. Therefore, the City is required to implement GASB Statement No. 34 for the calendar year ending 2004. Management's Discussion and Analysis (MD&A) MD&A gives an objective and easily readable analysis of a government's financial activities based on currently known facts, decisions, or conditions. It presents short- and long-term analyses of the government's activities, compares current -year results with those of the prior year, and discusses the positive and negative aspects of that comparison. Government -wide Financial Statements The government -wide financial statements are (1) a statement of net assets and (2) a statement of activities. The statement of net assets presents the government's financial position at a point in time (like a balance sheet does); the statement of activities presents its activities during a period (like an operating statement does). These statements present highly aggregated information for the overall government; they do not display individual funds or fund types. They also present financial information in separate rows and columns for the (1) primary government's aggregate governmental activities, (2) primary government's aggregate business -type activities, (3) total primary government, and (4) discretely presented component units. Capital Assets Capital assets are tangible and intangible assets that are used in operations that have initial useful lives longer than one year. They include land and improvements, easements, buildings and improvements, equipment, and works of art and historical treasures. Capital assets also include infrastructure assets — normally stationary capital assets that can be preserved for significantly greater number of years than most capital assets. Infrastructure assets include roads, bridges and tunnels; water, sewer and drainage systems; dams; lighting systems; and buildings that are an ancillary part of a network of infrastructure assets. Capital assets are reported in the statement of net assets at historical cost (or estimated fair value, if donated) and net of accumulated depreciation. They are depreciated in the statement of activities over their estimated useful lives. Infrastructure Assets GASB Statement No. 34 applies prospectively to all general infrastructure assets beginning at the effective dates of the Statement (or earlier, if the statement is implemented earlier). Governments are also encouraged to apply the Statement retroactively to all existing major general infrastructure assets at that time. However, phase 1,2 governments need not retroactively report those assets until calendar year 2006, 2007 — four years after their required implementation of Statement No. 34. Phase 3 governments are encouraged but not required to report major general infrastructure assets retroactively. If there are inadequate records of the actual historical cost of existing general infrastructure assets, governments can estimate historical cost. They also may limit retroactive application to only those major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after June 30, 1980. City of Otsego May 23, 2000 C Page Eight The above gives you some general information on GASB Statement No. 34 implementation. We intend to educate and work with all of our clients in developing a plan to implement this new statement. As a result of implementing this statement, there will no doubt be additional fees for our services. These expected increases will most likely result from additional time spent in the areas of (1) training, (2) account structure modifications to provide information necessary to prepare financial statements, (3) accounting for fixed assets, infrastructure assets and related depreciation, and (4) financial statement preparation. The more that the City staff can do in the areas of fixed asset accounting and proper account structure will help in reducing these costs. We will help you as much as possible to accomplish this. This report is intended solely for the use of management and Council. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation extended to us by your staff. May 23, 2000 Minneapolis, Minnesota �XL I LLO ABDO, ABDO, EICK & MEYER9, LLP - Certified Public Accountants CITY OF OTSEGO OTSEGO, MINNESOTA ANNUAL FINANCIAL REPORT YEAR ENDED DECEMBER 31, 1999 CITY OF OTSEGO, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 1999 I. INTRODUCTORY SECTION City Council and Officials II. FINANCIAL SECTION Independent Auditors' Report Paee No. General Purpose Financial Statements 3 - 4 Combined Balance Sheet - All Fund Types and Account Group 22-26 Combined Statement of Revenue, Expenditures and Changes in Fund Balance - 5 - 6 All Governmental Fund Types Statement of Revenue, Expenditures and Changes in Fund Balance - Budget 7 and Actual - General Fund 29-30 Combined Statement of Revenue, Expenses and Changes in Retained Earnings - 8 Proprietary Fund Type 9 Combined Statement of Cash Flows - Proprietary Fund Type 10-20 Notes to Financial Statements 38-40 Combining and Individual Fund Statements General Fund 21 Comparative Balance Sheets Statement of Revenue, Expenditures and Changes in Fund Balance - Budget 22-26 and Actual Special Revenue Funds 27-28 Combining Balance Sheet Combining Statement of Revenue, Expenditures and Changes in Fund Balance 29-30 Debt Service Funds 31 -32 Combining Balance Sheet Combining Statement of Revenue, Expenditures and Changes in Fund Balance 33-34 Capital Projects Funds 35-37 Combining Balance Sheet Combining Statement of Revenue, Expenditures and Changes in Fund Balance (Deficit) 38-40 III. OTHER REPORTS Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government 41-42 Government Auditing Standards 43 Independent Auditors' Report on Legal Compliance INTRODUCTORY SECTION CITY OF OTSEGO OTSEGO, MRTNESOTA YEAR ENDED DECEMBER 31, 1999 CITY OF OTSEGO, MINNESOTA CITY COUNCIL AND OFFICIALS DECEMBER 31, 1999 Term Expires Larry Fournier Mayor 2000 Virginia Wendel Council Member 2000 Mark Beming Council Member 2000 Vern Heidner Council Member 2002 Suzanne Ackerman Council Member 2002 Mike Robertson City Administrator Judy Hudson Deputy Clerk/Treasurer Elaine Beatty City Clerk/Zoning Administrator FINANCIAL SECTION CITY OF OTSEGO OTSEGO, MINNESOTA YEAR ENDED DECEMBER 31, 1999 � �ABDO ABDO EICK & 1V1EY El S LLP CerryW Public ,4ccountants & Consultants 7241 Ohms Lane Suite 200 Minneapolis MN 55439 INDEPENDENT AUDITORS' REPORT Honorable Mayor and City Council City of Otsego, Minnesota We have audited the accompanying general purpose financial statements of the City of Otsego, Minnesota, as of and for the year ended December 31, 1999 as listed in the table of contents. These general purpose financial statements are the responsibility of the City of Otsego, Minnesota's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. Except as discussed in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose fmancial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The general purpose financial statements referred to above do not include the General Fixed Assets Account Group. The City does not maintain detailed fixed asset records and the amount that should be recorded in the General Fixed Assets Account Group is not known. In our opinion, except for the effects on the general purpose financial statements of such adjustments, if any, as might have been determined to be necessary had we audited the General Fixed Assets Account Group, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Otsego, Minnesota as of December 31, 1999 and the results of its operations and the cash flows of its proprietary fund type for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated May 23, 2000 on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining and individual fund financial statements listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the general purpose financial statements of the City of Otsego, Minnesota. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. May 23, 2000 Minneapolis, Minnesota 612.835.9090 • Fax 612.835.3261 ABDO, ABDO, EICK & MEYER , LLP Certified Public Accountants GENERAL PURPOSE FINANCIAL STATEMENTS CITY OF OTSEGO OTSEGO, MINNESOTA YEAR ENDED DECEMBER 31, 1999 CITY OF OTSEGO, MINNESOTA COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUP DECEMBER 31, 1999 (With comparative totals for December 31, 1998) ASSETS AND OTHER DEBITS ASSETS Cash and temporary investments Accrued interest receivable Delinquent taxes receivable Accounts receivable Special assessments receivable Due from other governments Fixed assets, net OTHER DEBITS Amount available in the debt service fund Amount to be provided for debt retirement TOTAL ASSETS AND OTHER DEBITS LIABILITIES, EQUITY AND OTHER CREDITS LIABILITIES Accounts payable Accrued salaries and benefits payable Deferred revenue Capital lease payable Bonds payable TOTAL LIABILITIES EQUITY AND OTHER CREDITS Contributed Capital Retained earnings Unreserved Fund balance Reserved Unreserved Undesignated TOTAL EQUITY AND OTHER CREDITS TOTAL LIABILITIES, EQUITY AND OTHER CREDITS See Notes to Financial Statements. -3- Governmental Fund Types Special Debt Capital General Revenue Service Projects $ 798,436 $ 360,744 $ 1,466,575 $ 2,394,719 23,625 - _ _ 57,650 1,219 - - 3,570 - - _ 725 105,122 839,784 16,702 2,807 - 24,863 - $ 886,813 $ 467,085 $ 2,331,222 $ 2,411,421 $ 35,714 $ 382 $ - $ 603,934 9,430 _ _ - 40,951 96,527 838,457 15,988 86,095 96,909 838,457 619,922 - - 1,492,765 - 800,718 370,176 - 1,791,499 800,718 370,176 1,492,765 1,791,499 $ 886,813 3 467,085 $2,331,222 . $ 2,411,421 Proprietary Fiduciary Account Totals Fund Types Fund Type Group (Memorandum Only) General Long-term Enterprise Agency Debt 1999 1998 $ 25,617 $ 38,830 $ $ 5,084,921 $ 5,622,790 - - - 23,625 69,470 1,848 - - 60,717 58,491 209 - - 3,779 4,285 - 962,333 527,180 - - - 27,670 7,640 6,236,347 - - 6,236,347 813,688 - 1,492,765 1,492,765 649,673 8,310,235 8,310,235 4,944,266 $ 6,264,021 $ 38,830 $ 9,803,000 $ 22,202,392 $ 12,697,483 $ 172 $ 38,830 $ $ 679,032 $ 227,751 - - 9,430 6,271 1,139 - - 993,062 551,735 - - 288,000 288,000 323,939 120,000 - 9,515,000 9,635,000 5,410,000 121,311 38,830 9,803,000 11,604,524 6,519,696 6,055,365 - 6,055,365 627,535 87,345 - - 87,345 71,668 - - - 1,492,765 649,673 - - 2,962,393 4,828,911 6,142,710 - - 10,597,868 6,177,787 $ 6,264,021 $ 38,830 $ 9,803,000 $ 22,202,392 $ 12,697,483 -4- CITY OF OTSEGO, MINNESOTA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE ALL GOVERNMENTAL FUND TYPES YEAR ENDED DECEMBER 31, 1999 (With comparative totals for the year ended December 31, 1998) See Notes to Financial Statements. -5- Special Debt Capital General Revenue Service Projects REVENUE Property taxes $ 807,753 $ 334 $ - $ - Licenses and permits 178,495 - - - Intergovemmental 365,074 1,405 - 925,454 Charges for services 40,668 93,563 363,264 - Special assessments 1,332 - 203,108 34,884 Interest on investments 27,037 10,732 28,051 197,109 Miscellaneous 44,722 110,142 419,348 105,288 TOTAL REVENUE 1,465,081 216,176 1,013,771 1,262,735 EXPENDITURES Current General government 509,821 176 - - Public safety 219,356 64,271 - Public works 247,792 - Sanitation 31,718 - - Culture and recreation 36,071 11,667 - Capital outlay 17,909 15,731 - 7,646,800 Debt service Principal - - 150,000 - Interest and other - - 347,804 - TOTAL EXPENDITURES 1,062,667 91,845 497,804 7,646,800 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES 402,414 124,331 515,967 (6,384,065) OTHER FINANCING SOURCES (USES) Operating transfers in - 10,600 179,000 - Bond proceeds - - 148,125 4,169,842 Operating transfers out (189,600) - - - TOTAL OTHER FINANCING SOURCES (USES) (189,600) 10,600 327,125 4,169,842 EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES 212,814 134,931 843,092 (2,214,223) FUND BALANCE, JANUARY 1 587,904 235,245 649,673 4,005,722 FUND BALANCE, DECEMBER 31 $ 800,718 $ 370,176 $1,492,765 $1,791,499 See Notes to Financial Statements. -5- Totals (Memorandum Only) 1999 1998 $ 808,087 $ 782,704 178,495 103,473 1,291,933 376,747 497,495 138,419 239,324 160,422 262,929 147,183 679,500 59,852 3,957,763 1,768,800 509,997 543,894 283,627 222,064 247,792 307,852 31,718 32,506 47,738 85,384 7,680,440 823,960 150,000 135,000 347,804 119,657 9,299,116 2,270,317 (5,341,353) (501,517) 189,600 387,160 4,317,967 4,430,193 (189,600) (387,160) 4,317,967 4,430,193 (1,023,386) 3,928,676 5,478,544 1,549,908 $ 4,455,158 $ 5,478,584 -6- CITY OF OTSEGO, MINNESOTA STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 1999 See Notes to Financial Statements. -7- Variance - Favorable Budget Actual (Unfavorable) REVENUE Property taxes $ 799,563 $ 807,753 $ 8,190 Licenses and permits 72,350 178,495 106,145 Intergovernmental 349,509 365,074 15,565 Charges for services 24,000 40,668 16,668 Special assessments - 1,332 1,332 Interest on investments 18,000 27,037 9,037 Miscellaneous 18,000 44,722 26,722 TOTAL REVENUE 1,281,422 1,465,081 183,659 EXPENDITURES Current General government 615,282 509,821 105,461 Public safety 173,310 219,356 (46,046) Public works 412,703 247,792 164,911 Sanitation 32,000 31,718 282 Culture and recreation 37,527 36,071 1,456 Capital outlay - 17,909 (17,909) TOTAL EXPENDITURES 1,270,822 1,062,667 208,155 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES 10,600 402,414 391,814 OTHER FINANCING SOURCES (USES) Operating transfers out (10,600) (189,600) (179,000) TOTAL OTHER FINANCING SOURCES (USES) (10,600) (189,600) (179,000) EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES $ 212,814 $ 212,814 FUND BALANCE, JANUARY 1 587,904 FUND BALANCE, DECEMBER 31 $ 800,718 See Notes to Financial Statements. -7- CITY OF OTSEGO, MINNESOTA COMBINED STATEMENT OF REVENUE, EXPENSES AND CHANGES IN RETAINED EARNINGS PROPRIETARY FUND TYPE YEAR ENDED DECEMBER 31, 1999 Enterprise OPERATING REVENUE Charges for services $ 2,625 OPERATING EXPENSES Other services and charges Utilities Depreciation TOTAL OPERATING EXPENSES OPERATING LOSS NONOPERATING REVENUE (EXPENSE) Interest on investments Property taxes Interest expense TOTAL NONOPERATING REVENUE (EXPENSE) NET INCOME RETAINED EARNINGS, JANUARY 1 RETAINED EARNINGS, DECEMBER 31 See Notes to Financial Statements, -8- 2,707 640 5,171 8,518 (5,893) 1,118 28,502 (8,050) 21,570 15,677 71,668 $ 87,345 CITY OF OTSEGO, MINNESOTA COMBINED STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPE YEAR ENDED DECEMBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Other income related to operations Depreciation (Increase) decrease in assets: Delinquent taxes Accounts Receivable Due from other governments Increase (decrease) in liabilities: Accounts and contracts payable Deferred revenue NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on revenue bonds Interest paid on revenue bonds NET CASH USED BY CAPITAL AND RELATED FINANCIAL ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, JANUARY 1 CASH AND CASH EQUIVALENTS, DECEMBER 31 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Property and equipment acquired from other funds See Notes to Financial Statements. -9- Enterprise $ (5,893) 28,502 5,171 901 868 (2,243) (570) 26,736 (20,000) (8,050) (28,050) 1,636 322 25,295 $ 25,617 $ 5,422,659 CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Otsego operates under "Optional Plan A" as defined in the State of Minnesota statutes. The City is governed by an elected mayor and four -member council The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. As required by generally accepted accounting principles, these financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City's operations and so data from these units are combined with data of the primary government. The blended component unit has a December 31 year end. Blended Component Unit The Economic Development Authority of the City was created pursuant to Minnesota Statutes 469.090 through 469.108 to carry out economic and industrial development and redevelopment consistent with policies established by the City Council. The five member board consists of four Council Members and the Mayor. The Authority may not exercise any of the powers enumerated by the authorizing statutes without prior approval of the City Council. The activities of this fund are blended within the general fund. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. The City has the following fund types and account groups: Governmental funds are used to account for the City's general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined, and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Property taxes, franchise taxes, licenses, interest and special assessments are susceptible to accrual. Other receipts and taxes become measurable and available when cash is received by the government and are recognized as revenue at that time. The preparation of general purpose financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The general fund is the City's primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. -10- CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The special revenue funds account for revenue sources that are legally restricted to expenditures for specified purposes (not including major capital projects). The debt service funds account for the servicing of general long-term debt not being financed by proprietary funds. The capital projects funds account for the acquisition of fixed assets or construction of major capital projects not being financed by proprietary funds. Proprietaryfunds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City applies all applicable FASB pronouncements issued on or before November 30, 1989 in accounting and reporting for its proprietary operations. Proprietary funds include the following fund type: Enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the Council has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. Fiduciaryfunds account for assets held by the government in a trustee capacity or as an agent on behalf of others. The agency fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. This fund is used to account for assets that the government holds for others in an agency capacity. Account Group. The general long-term debt account group is used to account for general long-term debt and certain other liabilities that are not specific liabilities of proprietary funds. C. Assets, Liabilities and Equity Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the City to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds, repurchase agreements and shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are obligations guaranteed by the United States or its agencies. Investment cost was not materially different from fair value in either 1999 or 1998. As a result, investments are stated at cost. Property Taxes The City Council annually adopts a tax levy and certifies it to the County for collection. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property within the City on January 1 and are payable by the property owners in two installments. The taxes are collected by the County Treasurer and tax settlements are made to the City during January, July, and December each year. Taxes payable on homestead property, as defined by State statutes, are partially reduced by a homestead and agricultural credit aid. The credit is paid to the City by the State of Minnesota in lieu of taxes levied against homestead property. The State remits this credit in two equal installments in July and December each year. Delinquent taxes receivable include the past six years' uncollected taxes. Delinquent taxes have been offset by a deferred revenue liability for delinquent taxes not received within 60 days after year end. CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Special Assessments Special assessments represent the financing for public improvements paid for by benefiting property owners. These assessments are recorded as receivables upon certification to the County. Special assessments are recognized as revenue when they are received in cash or within 60 days after year end. All special assessments receivable are offset by a deferred revenue liability. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Fixed Assets Property, plant and equipment in the proprietary funds of the City are recorded at cost. Property, plant and equipment donated to these proprietary fund type operations are recorded at their estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized in the proprietary funds. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Property and equipment of the enterprise funds are stated at cost. When assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any gain or loss on disposition is included in operations. Repair and maintenance expenditures are charged against operations while expenditures which increase the useful life of the asset are capitalized and depreciated. The property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets which are as follows: Estimated Assets Useful Life Municipal well 40 years Compensated Absences Accumulated unpaid vacation pay at year end was not material and therefore, is not recorded as a liability in the general long-term debt account group. Unused sick leave earned is not payable upon separation from the City. Therefore, there is no liability for compensated absences at year end. Long-term Obligations The City reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. -12- CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, other than those withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts are deferred and amortized over the life of the bonds using the straight line method. Issuance costs are reported as expense in the year incurred. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Memorandum Only - Total Columns Total columns on the general purpose financial statements are captioned as "memorandum only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results of operations or cash flows in accordance with generally accepted accounting principles. Interfund eliminations have not been made in the aggregation of this data. Comparative Data/Reclassifications Comparative total data for the prior year have been presented in the selected sections of the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the general fund. In August of each year, all departments of the City submit requests for appropriations to the City Administrator so that a budget may be prepared. Before October 31, the proposed budget is presented to the City's council for review. The council holds public hearings and a final budget is prepared and adopted in early December. The appropriated budget is prepared by fund, function and department. The City's department heads may make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the City Administrator. The legal level of budgetary control is the department level. B. Deficit Fund Equity The following funds had deficit fund balances as of December 31, 1999. The deficit in each fund will be eliminated by future revenue sources. Capital Projects Fund 1998 Odean Project S 403,948 78`6 Street Sewer and Water 137,038 78`s Street Construction 168,561 Page Avenue Street Construction 109 1999 Equipment Certificates 1,545 -13- Note 3: CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Deposits and Investments Cash balances of the City's funds are combined (pooled) and invested to the extent available in various investments authorized by Minnesota State Statutes. Each fund's portion of this pool (or pools) is displayed on the financial statements as "cash and investments." For purposes of identifying the risk of investing public funds, the balances are categorized as follows: Deposits In accordance with Minnesota Statutes and as authorized by the City Council, the City maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds (140% in the case of mortgage notes pledged). Authorized collateral includes the legal investments described below, as well as certain first mortgage notes, and certain other State or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City or in a financial institution other than that furnishing the collateral. At year end, the City's carrying amount of deposits was $2,518,766 and the bank balance was $2,714,538. The bank balance was covered by federal depository insurance and by collateral held by the City's agent in the City's name. Investments Investments are categorized into these three categories of credit risk: 1. Insured or registered, or securities held by the City or its agent in the City's name. 2. Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the City's name. 3. Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the City's name. At year end, the City's investment balances were as follows: Category Carrying and 1 2 3 Fair Value U.S. Government Securities $ 65,331 $ - $ - $ 65,331 Commercial Paper 1,872,016 - - 1,872,016 Total 1.937.347 $ - $ - $ 1.937,347 Investments not subjected to categorization: Broker Money Market 628,808 Total $ 2.566.155 -14- CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 3: DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS - CONTINUED A reconciliation of cash and temporary investments as shown on the Combined Balance Sheet for the City follows: Checking $ (52,336) Savings 1,061,938 Certificates of Deposit 1,509,164 Total deposits 2,518,766 Investments 2,566,155 Total cash and temporary investments $ 5.084.921 B. Accounts Receivable Accounts receivable include amounts billed for services provided before year end. Unbilled utility enterprise fund receivables are also included for services provided in 1999. C. Due From Other Governments The General Fund has $969 due from local governments and $1,838 due from Wright County. The debt service funds have $24,863 due from the City of Dayton. D. Fixed Assets A summary of the Proprietary Fund Type property, plant and equipment at December 31, 1999 follows: Municipal well $ 206,836 Work in process 6,055,365 Total fixed assets 6,262,201 Less accumulated depreciation (25,854) Net fixed assets $ 6 236.347 E. Deferred Revenue Deferred revenue at December 31, 1999 is comprised of the following: F. Long-term Debt General Obligation Bonds. The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both general government and proprietary activities. These bonds are reported in the proprietary funds if they are expected to be repaid from proprietary fund revenues. General obligation bonds are direct obligations and pledge the full faith and credit of the government. General obligation bonds currently outstanding are as follows: -15- Special Debt Capital General Revenue Service Proiects Enterprise Total Taxes - delinquent 40,226 1,088 - - 1,139 42,453 Special assessments Delinquent 725 9,063 16,555 - - 26,343 Deferred 86,376 821,902 15,988 - 924,266 Total $ 4 Q5 $=$3� L_L5 $ F. Long-term Debt General Obligation Bonds. The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both general government and proprietary activities. These bonds are reported in the proprietary funds if they are expected to be repaid from proprietary fund revenues. General obligation bonds are direct obligations and pledge the full faith and credit of the government. General obligation bonds currently outstanding are as follows: -15- CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 3: DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS — CONTINUED General Long -Term Debt General Obligation Improvement Bonds The following bonds were issued to finance various improvements and will be repaid primarily from special assessments levied on the properties benefiting from the improvements. Some issues, however, are partly financed by ad valorem tax levies. All special assessment debt is backed by the full faith and credit of the City. Each year the combined assessment and tax levy equals 105% of the amount required for debt service. The excess of 5% is to cover any delinquencies in tax or assessment payments. Authorized Balance at and Issued Interest Rate Issue Date Maturity Date Year End G.O. Improvement Bonds of 1991 $ 210,000 6.25% 8-26-91 8-01-03 $ 100,000 G.O. Improvement Bonds of 1996 665,000 4.90-5.60 8-01-96 2-01-07 520,000 G.O. Improvement Bonds of 1999 B 1,800,000 4.25-4.75 7-01-99 12-01-09 1,800,000 Total General Obligation Improvement Bonds $ 2,420,000 General Obligation Revenue Bonds The following bonds were issued to finance the city water and sewer system. It will be repaid primarily through connection, user changes and tax levies. The bonds are backed by the full faith and credit of the City. G.O. Water Revenue Bonds of 1994 $ 210,000 5.75% 10-01-94 10-01-04 120,000 G.O. Water and Sewer Revenue Bonds of 1998, Series A 4,500,000 6.50-4.50 8-01-98 12-01-20 4,500,000 G.O. Sewer and Water Bonds Series 1999 A 2,595,000 5.20-5.25 7-01-99 12-01-20 2,595.000 Total General Obligation Revenue Bonds 7,215,000 Total General Obligation Bonds $ 9.635.000 Other General Long-term Debt Capital Leases During 1992, the City entered into a lease with option to purchase, agreement as lessee for financing a building project in accordance with Minnesota Statutes 469.001 through 469.048. This agreement is with the Otsego Economic Development Authority. The lease period is for a 15 year period through the year 2006. After the fmal lease payment, the title to the building will transfer to the City. The City is responsible for all operating expenses, insurance, etc. The lease has been recorded at the present value of the future minimum lease payments as of the date of its inception. In addition, $156,335 remains in the Municipal Building Capital Projects Fund. To the extent the proceeds are not expended for the project, they may be used to reduce the future lease payments. The lease payments are recorded in the City Hall department of the general fund as rent payments. Authorized Balance at and Issued Interest Rate Issue Date Maturity Date Year End Municipal building lease $ 450,000 6.00% 12-01-92 12-01-07 $ 288,000 -16- .cote 3: CITY OF OTSEGO, MINNESOTA NOTES TDO FINANCIAL STATEMENTS 31, 999 DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS - CONTINUED Changes in General Long-term Liabilities During the year ended December 31, 1999, the following changes occurred in liabilities reported in the General Long-term Debt Account Group: Balance Jan�- Capital leases $ 323,939 General Obligation Bonds 5,270,000 Total 593,232 Balance Reductions Dec -ember Additions �-- $ _ $ 35,939 $ 288,000 00 150,0 9,515,000 4 395,000 -L1,3&95,000 LJ 85,932 9803.00 3 The annual requirements to amortize all debt outstanding as of December 315 1999 are as follows: -17- Enterprise General Long-term Debt D_ ebtG.O. G.O. Year Ending Improvement G.O'ital Revenue Bonds Ca P L. eases Revenue Bonds -� Total December 31' Bonds $ 41,840 $ 27,900 $ 920,302 2000 $ 714,997 724,975 $ 135,565 135,565 40,410 28,692 28,370 929,642 940,908 2001 2002 737,993 135,565 135,565 38 980 53550 27,990 927,102 896,168 2003 709,997 2004 680,810 135,565 51,240 139,860 28,553 - 10 639,733 Thereafter 6,396,673 4103,200 - - _- 141,505 15,253,855 Total 9,965,445 4,781,025 (2 186.025) 365,880 77 880 (__ 21,505) (5,330,855) Less interest (3 045,445) --�-�--) 288,000 s 9,923,000 Principal $92�- 0 Q00 S 2 595,QQQ S Available for Long-term Debt. Available fund balance in the debt service funds for repayment of Amounts long-term debt totaled $1,492,765 at year to be Provided for Long-term Debt. This represents future revenue ated for debt to be generspecial assessment deferred (future) Amounts payments, generally including interest earnings, scheduled tax levies and levies. -17- Note 3: Note 4: CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS — CONTINUED G. Contributed Capital The changes in the government's contributed capital account for its proprietary fund were as follows: Enterprise Water Sources and Sewer Beginning balance, contributed capital $ 627,535 Contributed assets from other funds 5.427.830 Ending balance, contributed capital S. 6,055,365 H. Fund Equity Reservations and Designations The following amounts have been reserved in the appropriate funds: Purpose Amount Reserved Debt Service Funds Debt service 4 2 DEFINED BENEFIT PENSION PLANS - STATEWIDE A. Plan Description All full-time and certain part-time employees of the City are covered by defined benefit plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Fund (PERF) which is a cost-sharing, multiple -employer retirement plan. This plan is established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by State Statute and vest after three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age and years of credit at termination of service Two methods are used to compute benefits for PERF's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For members whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. A reduced retirement annuity is also available to eligible members seeking early retirement. -18- CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 to 4: DEFINED BENEFIT PENSION PLANS — STATEWIDE — CONTINUED There are different types of annuities available to members upon retirement. A normal annuity is a lifetime annuity that ceases upon the death of the retiree -- no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will reduce the monthly normal annuity amount, because the annuity is payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for PERF. That report may be obtained by writing to PERA, 514 St. Peter Street, #200, St. Paul, Minnesota 55102 or by calling (651) 296-7460 or 1-800-652-9026. B. Funding Policy Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the state legislature. The City makes annual contributions to the pension plans equal to the amount required by state statutes. PERF Basic Plan members and Coordinated Plan members are required to contribute 8.75 and 4.75 percent, respectively, of their annual covered salary. The City is required to contribute the following percentages of annual covered payroll; 11.43 percent for Basic Plan PERF members and 5.18 percent for Coordinated Plan PERF members. The City's contributions to the Public Employees Retirement Fund for the years ending December 31, 1999, 1998 and 1997 were $10,277, $9,796 and $10,783, respectively. The City's contributions were equal to the contractually required contributions for each year as set by state statute. )te 5: OTHER INFORMATION A. Legal Debt Margin In accordance with Minnesota Statutes, the City may not incur or be subject to net debt in excess of two percent of the market value of taxable property within the City. Net debt is payable solely from ad valorem taxes and therefore, excludes debt financed partially or entirely by special assessments, enterprises fund revenues or tax increments. B. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT) which is a risk sharing pool with approximately 800 other governmental units. The City pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's management is not aware of any incurred but not reported claims. -19- )te 5: CITY OF OTSEGO, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 OTHER INFORMATION - CONTINUED C. Segment Information for Enterprise Funds The City provides water which is accounted for in an Enterprise Fund. The segment information for the Enterprise Fund for the year ended December 31, 1999 is as follows: Water Operating revenue $ 2,625 5,171 Depreciation expense 5,893 Operating loss 15,677 Net income Net working capital 26,363 Total assets 6,264,021 6,142,710 Total equity Fixed asset addition 5,427,830 Contributed capital 6,055,365 120,000 Bonds payable 28,502 Property tax revenue D. Subsequent Events In January of 2000, the City issued $112,480 General Obligation Equipment Certificates, Series 1999. -20- THIS PAGE IS LEFT BLANK INTENTIONALLY COMBINING AND INDIVIDUAL FUND STATEMENTS CITY OF OTSEGO OTSEGO, MINNESOTA YEAR ENDED DECEMBER 31, 1999 CITY OF OTSEGO, MINNESOTA GENERAL FUND COMPARATIVE BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS Cash and temporary investments Accrued interest receivable Delinquent taxes receivable Special assessments receivable Delinquent Deferred Accounts receivable Due from other governments TOTAL ASSETS LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Accrued salaries and benefits Deferred revenue TOTAL LIABILITIES FUND BALANCE Unreserved Undesignated TOTAL LIABILITIES AND FUND BALANCE -21- 1999 1998 $ 798,436 $ 594,562 23,625 10,902 57,650 54,654 725 - - 1,006 3,570 3,208 2,807 7,640 $ 886,813 $ 671,972 $ 35,714 $ 43,950 9,430 6,271 40,951 33,807 86,095 84,028 800,718 587,944 $ 886,813 $ 671,972 CITY OF OTSEGO, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1999 (With comparative actual amounts 'for the year ended December 31, 1998) -22- 1999 1998 Variance - Favorabie Budget Actual (Unfavorable) Actual REVENUE Property taxes $ 799,563 $ 807,753 $ 8,190 $ 767,583 Licenses and permits Business 4,500 4,805 305 4,725 Nonbusiness 67,850 173,690 105,840 98,748 Total 72,350 178,495 106,145 103,473 Intergovernmental Federal FEMA - - - 2,672 State Local government aid 112,921 110,576 (2,345) 121,018 Property tax credits 146,780 146,780 - 146,799 Police aid 8,000 8,091 91 6,718 State aid for streets 74,000 76,592 2,592 77,001 Other state grants 7,808 23,035 15,227 21,444 Total 349,509 365,074 15,565 375,652 Charges for services General government 18,000 30,118 12,118 40,486 Culture and recreation 3,000 3,356 356 1,556 Recycling 3,000 7,194 4,194 4,063 Total 24,000 40,668 16,668 46,105 Miscellaneous Interest on investments 18,000 27,037 9,037 24,052 Special assessments - 1,332 1,332 811 Rent 9,500 21,443 11,943 16,428 Franchise fees 8,500 18,718 10,218 8,846 Refunds and reimbursements - 3,452 3,452 3,273 Other - 1,109 1,109 102 Total 36,000 73,091 37,091 53,512 TOTAL REVENUE 1,281,422 1,465,081 183,659 1,346,325 -22- CITY OF OTSEGO, MINNESOTA GENERALFUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1999 (With comparative actual amounts'for the year ended December 31, 1998) EXPENDITURES Current General Government Mayor and council Personal services Other services and charges Total Administration Personal services Supplies Other services and charges Total Planning commission Personal services Supplies Other services and charges Total Assessor Personal services Other services and charges Total Engineer Other services and charges Planner Other services and charges Clerk/Treasurer Supplies Other services and charges Total 1999 Variance - Favorable Budget Actual (Unfavorable) $ 35,360 $ 26,944 $ 8,416 $ 30,750 22,454 8,296 66,110 49,398 16,712 1998 30,453 194,925 181,723 13,202 149,054 29,650 24,574 5,076 33,087 30,950 25,731 5,219 60,733 255,525 232,028 23,497 242,874 3,300 2,339 961 3,445 100 - 100 - 300 169 131 - 3,700 2,508 1,192 3,445 17,300 20,347 (3,047) 18,623 200 598 (398) 157 17,500 20,945 (3,445) 18,780 52,000 38,180 13,820 40,466 54,000 25,144 28,856 45,523 500 388 112 708 23,100 21,826 1,274 26,204 23,600 22,214 1,386 26,912 -23- CITY OF OTSEGO, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1999 (With comparative actual amounts:for the year ended December 31, 1998) 1999 EXPENDITURES - CONTINUED Current - Continued General Government Legal Other services and charges EDA Personal services Other services and charges Total City hall Personal services Supplies Other services and charges Total Old town hall Other services and charges City clean up day Other services and charges Total General Government Public Safety Police Other services and charges Building inspection Other services and charges Code enforcement Other services and charges Animal control Other services and charges Total Public Safety Variance - Favorable Budget Actual (Unfavorable) 1998 $ 50,000 $ 26,851 $ 23,149 $ 41,303 30,000 84,852 (54,852) 48,010 1,291 280 1,011 320 5,000 5,092 (92) - 173,310 219,356 (46,046) 6,291 5,372 919 320 1,366 2,614 (1,248) 1,806 2,650 418 2,232 2,176 71,540 70,516 1,024 67,643 75,556 73,548 2,008 71,625 - 4,238 (4,238) 14,179 11,000 9,395 1,605 - 615,282 135,310 128,523 6,787 103,806 30,000 84,852 (54,852) 48,010 4,500 4,562 (62) 969 3,500 1,419 2,081 1,964 173,310 219,356 (46,046) 154,749 -24- CITY OF OTSEGO, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1999 (With comparative actual amounts for the year ended December 31, 1998) Rider Transportation Other services and charges 3,195 3,195 - - Total Culture and Recreation 37,527 36,071 1,456 45,160 Total Current Expenditures 1,270,822 1,044,758 226,064 1,084,161 -25- 1999 1998 Variance - Favorable Budget Actual (Unfavorable) Actual EXPENDITURES - CONTINUED Current - Continued Public Works Streets and highways Personal services $ 108,095 $ 106,582 $ 1,513 $ 102,403 Supplies 49,500 54,277 (4,777) 40,500 Other services and charges 239,108 74,280 164,828 151,926 Total 396,703 235,139 161,564 294,829 Street lighting 16,000 12,653 3,347 13,023 Total Public Works 412,703 247,792 164,911 307,852 Sanitation Recycling Professional services 32,000 31,718 282 32,506 Culture and Recreation Community recreation Personal services 19,900 19,882 18 19,003 Parks Personal services 1,291 650 641 610 Other services and charges 9,000 8,026 974 17,072 Total 10,291 8,676 1,615 17,682 Heritage preservation Personal services 1,291 730 561 670 Supplies 800 2,636 (1,836) 231 Other services and charges 2,050 952 1,098 7,574 Total 4,141 4,318 (177) 8,475 Rider Transportation Other services and charges 3,195 3,195 - - Total Culture and Recreation 37,527 36,071 1,456 45,160 Total Current Expenditures 1,270,822 1,044,758 226,064 1,084,161 -25- CITY OF OTSEGO, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1999 (With comparative actual amounts for the year ended December 31, 1998) EXPENDITURES - CONTINUED Capital Outlay General government Public works Total Capital Outlay TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers out TOTAL OTHER FINANCING SOURCES (USES) EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER USES FUND BALANCE, JANUARY 1 FUND BALANCE, DECEMBER 31 S 1999 1996 Variance - Favorable Budget Actual (Unfavorable) Actual $ 2,182 S (2,182) $ 2,620 - 15,727 (15,727) 21,490 17,909 (17,909) 24,110 1,270,822 1,062,667 208,155 1,108,271 10,600 402,414 391,814 238,054 47,074 (10,600) (189,600) (179,000) (202,068) (10,600) (189,600) (179,000) (154,994) S - 212,814 S 212,814 -26- 587,904 S 800,718 83,060 5 04, 844 S 587,904 LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES 139 $ 95,439 1,088 95,439 1,088 139 FUND BALANCE Unreserved 116,774 117,148 19,852 108,549 Undesignated 08,549 TOTAL LIABILITIES AND FUND BALANCE $ 212,213 $ 118,236 $ $$ 1 -27- CITY OF OTSEGO, MINNESOTA SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1999 (With comparative totals for December 31, 1998) Self Park Funding Capital Fire Development insurance Equipment ASSETS $ 107,091 $ 117,017 $ 19,991 $ 108,549 Cash and temporary investments _ _ _ - Accrued interest receivable _ 1,219 ' Delinquent taxes receivable Special assessments receivable 18,746 - Delinquent _ 86,376 - --- - ---- Deferred $ 212,213 $ 118,236 $ 549 $ 1__ 08= TOTAL ASSETS LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES 139 $ 95,439 1,088 95,439 1,088 139 FUND BALANCE Unreserved 116,774 117,148 19,852 108,549 Undesignated 08,549 TOTAL LIABILITIES AND FUND BALANCE $ 212,213 $ 118,236 $ $$ 1 -27- Park and Park Park Totals 370,176 Recreation Shelter Tree 1999 1998 $ 2,588 $ 5,375 $ 133 $ 360,744 $ 251,943 - - - - 4,603 - - - 1,219 1,088 - - - 18,746 18,491 - - - 86,376 85,789 $ 2,588 $ 5,375 $ 133 $ 467,085 $ 361,914 $ 243 $ - $ - $ 382 $ 30,124 - - - 96,527 96,545 243 - - 96,909 126,669 2,345 5,375 133 370,176 235,245 $ 2,588 $ 5,375 $ 133 $ 467,085 $ 361,914 -28- CITY OF OTSEGO, MINNESOTA SPECIAL REVENUE FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE YEAR ENDED DECEMBER 31, 1999 (With comparative totals for the year ended December 31, 1998) REVENUE Property taxes Intergovernmental Charges for services Miscellaneous Park dedication fees Refunds and reimbursements Other Interest on investments TOTAL REVENUE EXPENDITURES Current General Government Public safety Culture and recreation Capital outlay TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers out TOTAL OTHER FINANCING SOURCES (USES) EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND FINANCING OTHER USES FUND BALANCE, JANUARY 1 FUND BALANCE, DECEMBER 31 -29- Self Park Funding Capital Fire Development Insurance Equipment $ - $ 334 $ - $ - 93,563 - - - 107,800 - - - 2,302 - 3,550 1,326 766 4,812 97,113 109,460 3,068 4,812 - - 176 - 64,271 - - - - 1,963 - - - - - 15,731 64,271 1,963 176 15,731 32,842 107,497 2,892 (10,919) 32,842 107,497 2,892 (10,919) 83,932 9,651 16,960 119,468 $ 116,774 $ 117,148 $ 19,852 $ 108,549 Park and Park Park Recreation Shelter Tree 1,405 44 1,449 40 274 Totals 1999 1998 - $ 334 $ 15,121 - 1,405 1,095 - 93,563 92,314 - .107,800 15,100 - 2,302 3,363 - 40 6,001 - 10,732 10,178 216,176 143,172 - - - 176 - - - - 64,271 67,315 9,704 - - 11,667 40,224 - - - 15,731 70,634 9,704 - - 91,845 178,173 (8,255) 274 - 124,331 (35,001) 10,600 - - 10,600 59,032 _ _ _ _ (1,964) 10,600 - - 10,600 57,068 2,345 274 - 134,931 22,067 - 5,101 133 235,245 213,178 $ 2,345 $ 5,375 $ 133 $ 370,176 $ 235,245 -30- CITY OF OTSEGO, MINNESOTA DEBT SERVICE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1999 (With comparative total amounts as of December 31, 1998) ASSETS Cash and temporary investments Accrued interest receivable Special assessments receivable Delinquent Deferred Due from other funds TOTAL ASSETS LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES FUND BALANCE Reserved for debt service TOTAL LIABILITIES AND FUND BALANCE -31- G.O. G.O. G.O. Improvement G.O. Water and Improvement Bonds of Bonds Sewer Bonds of Bonds of 87 and 91 of 1996 1998 and 1999A 1999B $ 107,858 $ 226,214 $ 821,196 $ 311,307 12,486 5,396 - - 29,535 268,090 - 524,277 - - 24,863 - $ 149,879 $ 499,700 $ 846,059 $ 835,584 42,021 272,159 42,021 272,159 524,277 524,277 107,858 227,541 846,059 311,307 $ 149,879 $ 499,700 $ 846,059 $ 835,584 Totals 1999 1998 $ 1,466,575 $ 643,650 - 7,340 17,882 11,105 821,902 381,492 24,863 - $ 2,331,222 $1,043,587 $ - $ 1,500 838,457 392,414 838,457 393,914 1,492,765 649,673 $ 2,331,222 $1,043,587 -32- CITY OF OTSEGO, MINNESOTA DEBT SERVICE FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE YEAR ENDED DECEMBER 31, 1999 (With comparative totals for the year ended December 31, 1998) REVENUE Water and Sewer Availability Charges Special assessments Refunds and reimbursements Interest on investments TOTAL REVENUE EXPENDITURES Debt service Principal Interest and fiscal charges TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES OTHER FINANCING SOURCES Operating transfers in Bond proceeds TOTAL OTHER FINANCING SOURCES EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND FINANCING OTHER USES FUND BALANCE, JANUARY 1 FUND BALANCE, DECEMBER 31 G.O. G.O. G.O. Improvement G.O. Water and Improvement Bonds of Bonds Sewer Bonds of Bonds of 87 and 91 of 1996 1998 and 1999A 1999B $ - $ - $ 363,264 $ - 19,486 95,825 - 87,797 - - 419,348 - 4,431 7,649 14,126 1,845 23,917 103,474 796,738 89,642 75,000 75,000 - - 9,504 29,626 275,515 33,159 84,504 104,626 275,515 33,159 (60,587) (1,152) 521,223 56,483 - - 179,000 72,301 75,824 - - 72,301 254,824 (60,587) (1,152) 593,524 311,307 168,445 228,693 252,535 - $ 107,858 $ 227,541 $ 846,059 $ 311,307 -33- Totals 1999 1998 $ 363,264 $ - 203,108 146,538 419,348 - 28,051 16,230 1,013,771 162,768 150,000 135,000 347,804 119,657 497,804 254,657 515,967 (91,889) 179,000 - 148,125 325,545 327,125 325,545 843,092 233,656 649,673 416,017 $1,492,765 $ 649,673 -34- CITY OF OTSEGO, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1999 (With comparative totals for December 31, 1998) ASSETS Cash and temporary investments Accrued interest receivable Special assessments receivable Delinquent Deferred TOTAL ASSETS LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES FUND BALANCE Unreserved Undesignated TOTAL LIABILITIES AND FUND BALANCE -35- Municipal MSA Island Watershed Building Construction View Project $ 156,335 $ 29,361 $ 58,870 $ 147,927 - 714 - 15,988 - _ $ 156,335 $ 46,063 $ 58,870 $ 147,927 15,988 - 15,988 - 156,335 30,075 58,870 147,927 S 156,335 $ 46,063 S 58,870 $ 147,927 S 43,545 $ 43,545 2,970 $ 361,923 S 97,076 $ 47,869 $ 49,006 $ - 2,970 361,923 97,076 47,869 49,006 - (403,948) Revolving Water and 995,111 78th Street (168,561) Page Avenue 1998 Odean Capital Sewer 1999 Sewer and 78th Street Street Project Improvements Construction Overlay Water Construction Construction $ (360,403) $ 272,757 $ 1,206,518 $ 1,092,187 $ (89,169) $ (119,555) $ (109) $ (109) $ (119,555) $ (89,169) $ 272,757 $ 1,206,518 S 1,092,187 $ (360,403) S 43,545 $ 43,545 2,970 $ 361,923 S 97,076 $ 47,869 $ 49,006 $ - 2,970 361,923 97,076 47,869 49,006 - (403,948) 269,787 844,595 995,111 (137,038) (168,561) (109) S__(360,403) $ 272,757 $ 1,206,518 S 1,092,187 $ (89,169) S (119,555) $ (109) -36- CITY OF OTSEGO, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1999 (With comparative totals for December 31, 1998) ASSETS Cash and temporary investments Accrued interest receivable Special assessments receivable Delinquent Deferred TOTAL ASSETS LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Deferred revenue TOTAL LIABILITIES FUND BALANCE Unreserved Undesignated TOTAL LIABILITIES AND FUND BALANCE -37- 1999 Equipment Totals Certificates 1999 1998 $ - $ 2,394,719 $ 4,106,493 - - 46,107 714 2,037 15,988 27,260 $ - $ 2,411,421 $ 4,181,897 $ 1,545 $ 603,934 $ 148,915 - 15,988 27,260 1,545 619,922 176,175 (1,545) 1,791,499 4,005,722 $ - $ 2,411,421 $ 4,181,897 CITY OF OTSEGO, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE (DEFICIT) YEAR ENDED DECEMBER 31, 1999 (With comparative totals for the year ended December 31, 1998) EXPENDITURES Capital outlay Public works - 982 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES 6,667 11,882 OTHER FINANCING SOURCES (USES) Operating transfers in - - Bond proceeds - - Operating transfers out - - TOTAL OTHER FINANCING (USES) - - EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES 2,506 83,454 AND OTHER FINANCING USES Municipal MSA Island Watershed FUND BALANCE, JANUARY 1 Building Construction View Project REVENUE FUND BALANCE, DECEMBER 31 $ 156,335 $ 30,075 Intergovernmental $ 147,927 MSA construction proceeds $ - $ - $ - $ - Interest on investments 6,667 940 2,506 3,366 Special assessments - 11,924 - - Miscellaneous - - - 80,088 TOTAL REVENUE 6,667 12,864 2,506 83,454 EXPENDITURES Capital outlay Public works - 982 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES 6,667 11,882 OTHER FINANCING SOURCES (USES) Operating transfers in - - Bond proceeds - - Operating transfers out - - TOTAL OTHER FINANCING (USES) - - EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES 2,506 83,454 AND OTHER FINANCING USES 6,667 11,882 2,506 83,454 FUND BALANCE, JANUARY 1 149,668 18,193 56,364 64,473 FUND BALANCE, DECEMBER 31 $ 156,335 $ 30,075 $ 58,870 $ 147,927 -38- (340,622) (4,556) (2,661,412) 995,111 (137,038) (168,561) (109) (63,326) 274,343 3,506,007 - - - - $ (403,948) $ 269,787 $ 844,595 $ 995,111 $ (137,038) $ (168,561) $ (109) -39- Revolving Water and 78th Street Page Avenue 1998 Odean Capital Sewer 1999 Sewer and 78th Street Street Project Improvements Construction Overlay Water Construction Construction $ 266,888 $ - $ - $ - $ - $ 658,566 $ - - 12,131 139,489 32,010 - - - - - - - - 22,960 - - - - - - 25,200 - 266,888 12,131 139,489 32,010 - 706,726 - 607,510 16,687 5,277,694 729,948 137,038 875,287 109 (340,622) (4,556) (5,138,205) (697,938) (137,038) (168,561) (109) - - 2,476,793 1,693,049 - - - - - 2,476,793 1,693,049 - - - (340,622) (4,556) (2,661,412) 995,111 (137,038) (168,561) (109) (63,326) 274,343 3,506,007 - - - - $ (403,948) $ 269,787 $ 844,595 $ 995,111 $ (137,038) $ (168,561) $ (109) -39- CITY OF OTSEGO, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE (DEFICIT) YEAR ENDED DECEMBER 31, 1999 (With comparative totals for the year ended December 31, 1998) REVENUE Intergovernmental MSA construction proceeds Interest on investments Special assessments Miscellaneous TOTAL REVENUE EXPENDITURES Capital outlay Public works EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Bond proceeds Operating transfers out TOTAL OTHER FINANCING (USES) EXCESS (DEFICIENCY) OF REVENUE AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES FUND BALANCE, JANUARY 1 FUND BALANCE, DECEMBER 31 -40- 1999 Equipment Certificates Totals 1999 1998 $ - $ 925,454 $ - - 197,109 96,723 - 34,884 13,073 - 105,288 6,739 - 1,262,735 116,535 1,545 7,646,800 729,216 (1,545) (6,384,065) (612,681) - - 281,054 - 4,169,842 4,104,648 - - (183,128) - 4,169,842 4,202,574 (1,545) (2,214,223) 3,589,893 4,005,722 415,829 $ (1,545) $ 1,791,499 $ 4,005,722 THIS PAGE IS LEFT BLANK INTENTIONALLY OTHER REPORTS CITY OF OTSEGO OTSEGO, MINNESOTA YEAR ENDED DECEMBER 31, 1999 �ABDO w ABDO C� EICK & MEURS l.C.P Certified Public Accountants & Consultants 7241 Ohms Cane Suite 200 Minneapolis, MN 55439 REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and City Council City of Otsego, Minnesota We have audited the general purpose financial statements of the City of Otsego, Minnesota as of and for the year ended December 31, 1999 and have issued our report thereon dated May 23, 2000. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. In our report, our opinion was qualified because the General Fixed Assets Account Group was not audited. Compliance As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the Utilities' ability to record, process, summarize and report financial data consistent with the assertions of management in the general purpose financial statements. Our study and evaluation disclosed that because of the limited size of your office staff, your organization has limited segregation of duties. A good internal control structure contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organization is not large enough to permit an adequate segregation of duties in all respects, it is important, however, that you be aware of this reportable condition. -41- 612.835.9090 • Fax 612.835.3261 Page Two A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. We also noted other matters involving the internal control over financial reporting that we have reported to management of the City in a separate letter dated May 23, 2000. This report is intended solely for the use of the City Council, management and the Office of the State Auditor and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report, which is a matter of public record. May 23, 2000 Minneapolis, Minnesota -42- ") gab IM�"j Ltr ABDO, ABDO, TICK & MEYERS, LLP Certified Public Accountants THIS PAGE IS LEFT BLANK INTENTIONALLY X /I I"6 — NI 1 Ll W LLP Gntfied Public Accountants & Consultants 7241 Ohms Lane Suite 200 Minneapolis, MN 55439 INDEPENDENT AUDITORS' REPORT ON LEGAL COMPLIANCE Honorable Mayor and City Council City of Otsego, Minnesota We have audited the general purpose financial statements of the City of Otsego, Minnesota as of and for the year ended December 31, 1999, and have issued our report thereon dated May 23, 2000. In our report, our opinion was qualified because the General Fixed Assets Account Group was not audited. We conducted our audit in accordance with generally accepted auditing standards and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government promulgated by the Legal Compliance Task Force pursuant to Minnesota Statute Sec. 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers five main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City complied with the material terms and conditions of applicable legal provisions. Further, for the items not tested, based on our audit and the procedures referred to above, nothing came to our attention to indicate that the City had not complied with such legal provisions. This report is intended solely for the use of the City Council, management and the Office of the State Auditor and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report, which is a matter of public record. May 23, 2000 Minneapolis, Minnesota -43- 612.x35.9090 • Fax 612.835.3261 "JWAJWJI��qWIW ABDO, ABDO, EICK RS, LLP Certified Public Accountants