ITEM 1 End year financesITEM I
CITY OF
0 t
MINNESOTA
MEMORANDUM
TO: Mayor and City Council
FROM: Lori Johnson, City Administrator
DATE: April 4, 2013
SUBJECT: Preliminary 2012 Financial Review and 2013 Market Rate Adjustment
At the November 26, 2012, Council meeting, the Council reviewed the 2013 budget and
discussed 2013 pay. At that time, the Council directed staff to bring the pay item back to the
Council in March when the end of year fund financial information was available. In addition,
the Council requested a history of market rate adjustments.
Attached is a memo from Finance Director Gary Groen outlining the estimated end of year
balances along with the preliminary and unaudited Review of Financial Position and Results of
Operations for the year ended December 31, 2012. The main focus of the financial review for
the purposes of this item is the General Fund end of year variance from budget and the excess
of revenue over expenditures. The 2013 levy did not include funding for a pay adjustment
because the Council indicated a desire to use the end of year excess of revenues over
expenditures, if one existed, to fund a market rate adjustment.
That end of year information is now available. The projected excess of revenues over
expenditures for 2012 is $182,267. Of that amount $43,267 'is needed to meet the fund
balance policy of maintaining a fund balance of 45 pet -cent of the subsequent year's operating
budget. The balance of $139,000 is available for use or for transfer to a reserve fund at the
Council's discretion in accordance with the fund balance policy.
Next the Council requested a recent history of market rate adjustments. For- the years 2009 to
2011 no market rate adjustments were made. For 2012 a 1,5 percent adjustment was made to
the pay plan. Data prior to 2009 is not relevant as a new pay plan was adopted in 2009 and the
pay plan was readjusted to market or a percentage of average market according to the
Council's direction at that time based on a comparison of comparable cities.
A survey of the comparable cities indicated that based on 2011 pay rates tsego's pay plan was
comparable to the average pay of those cities for the most part and only slightly below for the
higher pay grades. Although I do not know the Council's full intent when the pay plan was
revised in 2009, 1 assume it was to create a pay plan that was in the middle range of the
comparable cities and to maintain that position on an annual basis thus eliminating the need
for larger one-time adjustments in the future. A review of 2012 and 2013 pay adjustments for
similar cities indicates that most cities gave an increase of two percent for 2013. Of course,
there were a handful of cities on either end of that some giving less, including a few that gave
no increase and a few giving up to three percent. As I stated earlier, Otsego approved a 1.5
percent market rate adjustment in 2012 which was close to the average for other cities. If the
Council's intent is to maintain a position in the middle of the pay for comparable cities, an
increase comparable to the other cities is warranted.
Finally, the total cost of each percent of market rate adjustment, including PERA and FICA, is
approximately $9,500. As I stated earlier, funding for a market rate adjustment was planned to
come from the $x.39,000 end of year balance.
0
CITY OF
Ot e 0
MINNESOTA'g
MEMORANDUM
TO: Mayor and City Council
FROM: Gary goer, Finance Director
DATE: April 4, 2013
SUBJECT: Preliminary 2012 Financial Review
During the budget process, the Council discussed whether the compensation plan should
include a market value adjustment for 2013. The decision on a market value adjustment was
deferred until the preliminary 2012 financial information was available. The Council directed
the finance department to provide the Council with preliminary 2012 financial information in
March 2013. The process was slightly delayed with the implementation of the new finance
software system. The preliminary information is unaudited and is provided in accordance with
your request.
The preliminary report on the December 31, 2012 financial position and results of operations
includes an overview of all funds except the debt service funds. The General Fund is
presented in greater detail than the other funds of the City. Page Two includes a statement of
the revenue, expenditures and changes in fund balance for the year ended December 31,
2012. The budget and actual expenditures are summarized by department to provide an
overview of the variances, both favorable and unfavorable. I have briefly explained some of
the more significant variances.
In accordance with the fund balance policy the increase in fund balance that exceeds 45% of
the subsequent year's expenditures ($139,000) has been transferred to the Revolving Capital
Improvements Fund. However, the use of that money is at the discretion of the Council.
The debt service funds are not included because the recent agreement with G will greatly
impact those fund balances. The payment of special assessments and general property taxes
will be received from the County in July and updated debt service funds will be provided at that
time.
If you have any questions, please feel free to contact me.
CITY OF OTSEGO
REVIEW OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
PRELIMINARY - UNAUDITED
YEAR ENDED DECEMBER 31, 2012
The following is a preliminary review ew of the unaudited financial position and results of
operations of the various ffinds of the City for the year ended December 31, 2012. Tile
audit will begin oil Monday, April 15. 1 do not expect any significant adjustment to these
balances during the audit.
The preliminary review of the General Fund includes a review of the budget and actual
revenue and expenditures and changes in fund balance. The review of the other funds of
the City will be much more sunuilarized.
General Fund
The City accounts for the general government services provided to the citizens through
the General Fund, These services include public safety, public works, parks and
recreation, and general govermnent.
The services are financed primarily through the general property taxes. The fund balance
is the balance of assets remaining at year end to finance future year's operations and
provide cash flow throughout the year. The Office of State Auditor has suggested that a
fund balance of approximately 40 - 50% of the subsequent year's budgeted expenditures
should be maintained from year to year.
The City Council has adopted a policy that establishes the Rind balance at 45% of the
subsequent year's expenditure budget. The Genet -al Fund fund balance is $1,665,697
and, in accordance with the policy, the additional net revenue totaling $139,000 was
transferred to the Revolving Capital Improvements Fund. The transfer an cunt may be
adjusted based on any unexpected audit adjustments.
The Rind balance amount should be sufficient for cash flow purposes and to absorb
unexpected revenue shortfalls or unexpected expenditures that were not budgeted.
Page Two
A summary of the 2012 revenue, expenditures an changes in ftind balance is as follows:
General Fund
Statement ofl event, Expenditures and Changes in Fund Balance
Budget and. Actual
Year Ended December 31, 2012
Revenue
General Property Taxes
Licenses and Permits
Intergovernmental
Charges for Services
Miscellaneous
Interest on Investments
Gable franchise Fee
Other
Total Revenue
Expenditures
City council
Administration
Elections
Assessor
Finance
Infonnation Technology
Legal Services
General Government Buildings
Police Services
Fire Protection Services
Emergency Management
Animal Control
Streets
Engineering
Street Lights
Park Maintenance
Recreation
IIP+C
Planning Commission
Planner
Economic De elopmeW
Total E Penditures
Excess of Revenue Over ENpendittires
Transfer to l evolving Capital Iinprovement Fend
Net Increase in Fund Balance
Fund Balance, Janauary 1, 2012
Budget Actual Varhmce
3,108,1 5 35139,131 30,966
15P000
33,915
185915
193,872
208,822
14x950
12,500
595995
47,495
1009000
9704
(2531
1002000
106,547
6,547
30,500
35,422
41922
395609037
39681,51
121,479
639627
51,273
12,354
382,210
376,582
51628
119000
241344
13,344)
709000
67,904
2,{19+6
2399185
239,680
(495)
323000
35,108
3} 10
709000
715305
(1,305)
529920
39,850
13,170
875,060
876,417
19357)
3459000
3479922
(23922)
29500
728
15772
14,400
10,915
39485
7965480
7545120
423360
11700
1285713
(115713)
105,000
108,775
(39775)
221,155
193,456
272699
67,500
823018
(14,518)
1,700
15134
566
800
13230
(430)
80,000
853126
(5, 126)
12,500
236149
95851
355603037
3,4992249
605788
18232+67 182,267
(1399000) (139,000)
43,267 43,267
1 611 din
Fund Balance, December 31, 2012 10507
Page Three
The total actual revenue is $3,681,516 compared to the budgeted revenue of $3,560,037,
or about 3.4% more than. budgeted. The variance is spread fluoughout the revenue
categories. The property tax revenue includes nearly $14,000 in penalties and interest.
The licenses and permit revenue includes additional liquor licenses and the 2013 revenue
budget has been adjusted accordingly. The intergovernmental revenue includes nearly
$ 10,000 additional MSA maintenance money. The charges for services include $21,115
of charges from the public works — street department for work projects charged to other
funds. The projects include work completed for the Otsego Creek Watershed, other
Storm Water Districts and Park Development Funds.
The actual expenditures totaled $3,499,249 compared to the budgeted expenditures of
$3,560,037, or 1.7% less than anticipated. Please contact me if you would like additional
explanations or the detail of any of the budget variances.
During the startup of the City's recreation programming, there was discussion about
financing the net cost of the first year's operations with monies from the Council
contingency budget. It was estimated the net cost would be approximately $12,000. The
net recreation expenditures (actual expenditures, $14,040, exceeded the revenue
generated, $8,840) totaled $5,200. This budget transfer of $5,200 from the Council
contingency to the recreation budget should be approved by the Council.
The variances by department are very small and a few of the highlights follow. The more
significant variances include:
City Council — The council budget includes a contingency budget of $31,235. Of
this amount, $16,493 was spent. With the requested transfer to finance the first
year net cost of the recreation program, the total Council unexpended budget
balance totals $7,154.
Elections — The 2012 election expenditures include the purchase of equipment
totaling. $9,191. The County reimbursed the City for 50% of this cost and the
reimbursement is included in the General Fund revenue. In addition, the election
judges pay totaled $9,080 compared to the $6,000 budgeted because of the two
polling locations required for the 2012 election.
Sti-ects - The street department spent $42,360 less than budgeted. The salt and
sand budget was $75,000 and the actual expenditures totaled $24,271. This is a
result of the mild winter frons 2010/2011 and the resulting inventory held over.
However, it should also be noted the 2013 budget is again $75,000 but there is
I ittle or no 'Inventory held over from this past winter's street maintenance.
Reer-eation - The recreation budget includes programming for the first year. This
was discussed in the City Council budget above.
Page Four
Capital ResBei -ve Funds
The Capital Reserve Funds account for specific revenues set aside to finance specific
expenditures. The accounts include monies for pavement and trail management, fire
capital reserve, park development, equipment and other future public improvements. The
capital reserve fund balances are compared to the December 31, 2011 balances and also
are compared to the beginning fund balances in the 2013 CIP. The 2013 CIP beginning
balances (12/31/12 projected balances in September 2012) are provided to also assure the
Council that the CIP projected fund balances are reasonable in comparison with the
actual year end balances.
The Rind balances of the capital resei-ve funds are as follows:
Capital Reserve Funds
Fund Balances
December 31, 2012aTld 2011 and CIP Projected Fund Balan ces
The CIP fund balance of the Otsego Municipal Building Fund has been reduced by the
transfer of $474,500 to the Public Works Facility Debt Service Fund approved in 2012
but is included in the CIP document as a 2013 transfer.
The Revolving Capital Improvements Fund has been reduced by the transfer of $208,825
for the 2004 Quaday Debt Service Fund approved in 2012 but included in the CIP
document as a 2013 transfer. The Revolving Capital Improvements Fund has also been
increased by the $139,000 transfer from the General Fund in accordance with the fund
balance policy.
12/31/2012
Fund
flr(�iected
NUmber
12/31/12
12/31/11
CIP 13('11alice
Street Pavement Management
201
599,767
885,893
$ 595,000
Trail Pavement MaTUDgMICIA
202
15,712
46,696
10,000
Park Development
203
352,617
388,122
340,000
Park EqUipment Capital Reserve
205
102,945
84,381
93,000
Capital Equipment Revolving
206
498,536
4461453
480) 000
Community Facilities
208
752,222
761,202
735,000
Collector Street Reconstruction
209
263,425
263,581
263,000
Fire Capital Reserve
214
11422,751
1)2365862
1,380,00
Collector Roads Fund
403
446,166
473,197
445,000
Watershed Districts
405-410
228,703
238,206
213,682
Revolving Capital Improvements
414
755,339
151579427
615,000
Otsego Municipal Building Fund
441
61,089
535,589
60,500
The CIP fund balance of the Otsego Municipal Building Fund has been reduced by the
transfer of $474,500 to the Public Works Facility Debt Service Fund approved in 2012
but is included in the CIP document as a 2013 transfer.
The Revolving Capital Improvements Fund has been reduced by the transfer of $208,825
for the 2004 Quaday Debt Service Fund approved in 2012 but included in the CIP
document as a 2013 transfer. The Revolving Capital Improvements Fund has also been
increased by the $139,000 transfer from the General Fund in accordance with the fund
balance policy.
Page Five
The Watershed district Rind balance is reduced by the deficit fund balances in the other
watershed districts to make the information comparable.
The Park Equipment Capital Reserve Fund included $15,000 set aside for startup
equipment costs for the park and recreation programs. Of that amount $4,808 was spent
in 2012 (net of the $4,000 donation for movie equipment), leaving a remaining balance of
$10,192 to be spent from this reserve account. The fund balance at December 31, 2012
in the Park Equipment Capital Reserve is $102,945 and includes the remaining startup
monies for recreation equipment.
Building Safety Fund
At December 31, 2011, the Building Safety Fund reported a fund balance deficit of
$693,033. The 2012 revenues totaled $562,460 and the expenditures totaled $204,925,
thereby reducing the deficit by $357,535. The fund balance deficit at December 31, 2012
in the Building Safety Fund is $335,498. The building permit revenue far exceeded
expectations with 140 homes built in 2012 compared to 58 in 2011. In addition, the
allocation of administrative costs from the General Fund to the Building Safety Fund was
reduced from $138,800 in 2011 to $25,000 in 2012. The combination of the increased
revenue and the reduced cost allocation resulted in the Rind balance deficit being reduced
significantly.
Water and Sewer Utility Funds
Debt Service - The biggest concern with the water and sewer utility Rinds has been the
ability of the water and sewer funds to support the future debt service obligations. The
recently completed utility rate study has answered the question.
The water and sewer debt service funds have a combined cash and investment balance of
$5,250,645 at December 31, 2012. The debt service Rinds are used to collect the water
and sewer connection fees generated by new connections to the system. (This is reported
infunds 360and 361). In addition to the money collected from new connections,
additional revenue for debt service is generated by the water and sewer operating Rinds.
Water Operations — The actual 2012 water revenue totaled $1,073,600 and the operating
expenses, excluding depreciation, totaled $413,500. The net revenue from operations
was $6603100 and increased the cash and investment balance in the water fund to
$1,830,,300 at year end.
Sewer Operations - The actual 2012 sewer revenue totaled $1,071,669 and the operating
expenses, excluding depreciation, totaled $764,510. The net revenue frorn operations
was $307,159 and increased the cash and investment balance in the sewer fund to
$1,1325192 at year end.
Page Six
The combined cash and investment balance in the water and sewer operating funds totals
$2,962,492 and the cash and investment balance in the related debt service funds totals
$5,250M5. The total debt outstanding is $27,660,000.
Overall
The City's cash and investment portfolio totals $17,260,663 at year-end. Of this amount
$15,594,479 was invested in certificates of deposit and other authorized investments,
$1,578,222 was invested in money market accounts, and the checking account had a
balance of $87,962. The City earned $355,235 in interest on available funds during 2012
with an estimated overall return of 2.24%. Of the interest earned, the budget allocates the
first $70,000 to the General Fund as an administrative charge and the remaining interest
wined is allocated to the other funds based on their respective average cash balance
throughout the year.