Loading...
2022 Management Report Management Report for City of Golden Valley, Minnesota December 31, 2022 THIS PAGE INTENTIONALLY LEFT BLANK To the City Council and Management City of Golden Valley, Minnesota We have prepared this management report in conjunction with our audit of the City of Golden Valley, Minnesota’s (the City) financial statements for the year ended December 31, 2022. We have organized this report into the following sections: •Audit Summary •Governmental Funds Overview •Enterprise Funds Overview •Government-Wide Financial Statements •Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the City, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota August 3, 2023 C E R T I F I E D A C C O U N T A N T S P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Jaclyn M. Huegel, CPA Kalen T. Karnowski, CPA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com Standard Letterhead-r2.qxp_167639 Letterhead-RV1 9/7/18 6:34 PM Page 1 THIS PAGE INTENTIONALLY LEFT BLANK -1- AUDIT SUMMARY The following is a summary of our audit work, key conclusions, and other information that we consider important or that is required to be communicated to the City Council, administration, or those charged with governance of the City. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS. We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended December 31, 2022. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information to you verbally and in our audit engagement letter. Professional standards also require that we communicate the following information related to our audit. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. However, the completion of our audit was later than anticipated, due to finance department turnover delaying the preparation of the City’s year-end cash reconciliations and certain other information necessary for the audit process. AUDIT OPINION AND FINDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2022: • We issued an unmodified opinion on the City’s basic financial statements. • We reported two matters involving the City’s internal control over financial reporting that we consider to be material weaknesses: o Due to the limited size of the City’s office staff, the City has limited segregation of duties in certain areas. o Due to turnover in the finance department, the City had not completed its monthly cash reconciliation process in a timely manner throughout the year, and the year-end reconciliation was not fully completed until well after year-end. • The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. • We reported no findings based on our testing of the City’s compliance with Minnesota laws and regulations. FOLLOW-UP ON PRIOR YEAR FINDINGS AND RECOMMENDATIONS As a part of our audit of the City’s financial statements for the year ended December 31, 2022, we performed procedures to follow-up on the findings and recommendations that resulted from our prior year audit. We reported the following findings that were corrected by the City in the current year: • In the prior year we reported an internal control weakness related to a material audit adjustment necessary to record additional construction in progress identified during the audit as capital assets. There was no similar finding in the current year. -2- • In the prior year we reported that 1 of 25 disbursement claims tested had not been paid within 35 days of receiving the goods or services, or the invoice for goods or services, as required by state statutes. All disbursement claims tested in the current year were paid within the statutory time limit. OTHER OBSERVATIONS AND RECOMMENDATIONS Deposit Sweep Account Minnesota Statutes § 118A.03 requires banks holding local government entity deposits to protect the deposits from custodial credit risk (the risk of loss in the event of a bank failure) by providing adequate insurance, bond, or pledged collateral to cover amounts “on deposit at the close of the financial institution’s banking day.” Some banks utilize arrangements under which governmental entities’ deposit balances in excess of Federal Deposit Insurance Corporation limits are swept out of their depository accounts daily into other investments or to depository accounts at other banks. An issue has arisen with some sweep account arrangements, caused by a lag between the timing of when the primary bank’s records show the funds being swept out of its account and when the receiving bank’s records acknowledge receipt of the funds. If the receiving bank’s records do not show the transferred funds arriving the same business day as the primary bank shows them being swept out, the funds in transit would legally still be considered in the custody of the primary depository at the end of the banking day. This would potentially subject any excess deposits to custodial credit risk and not complying with statutory requirements. The Minnesota Office of the State Auditor (OSA) has added audit requirements to test such sweep arrangements in their Legal Compliance Audit Guide. In addition, recent bank failures have placed additional emphasis on the importance of protecting local government deposits from custodial credit risk. We recommend the City review the terms of any sweep arrangement it has in place or is considering and verify that the financial institutions on both sides of the sweep transaction are recognizing the transfer of funds the same banking day. Credit Card Transactions Minnesota cities have the authority to make purchases using credit cards issued on behalf of their city. Credit card purchases are becoming more commonplace, especially with the proliferation of e-commerce, and have consequently been garnering increased scrutiny from oversight agencies. The statutes authorizing credit card use by cities restrict their use to purchases made on behalf of a city, do not permit personal use of the credit card by the card user, and specify they should only be used by employees authorized to make purchases. Employees are personally liable for unauthorized credit card purchases. Purchases made with credit cards must comply with other applicable state laws, including the requirement that all claims presented for payment must be in writing and itemized. In its Statement of Position (SOP) on credit card use, the OSA has clarified that the statement from the credit card company lacks sufficient detail to comply with this requirement and, therefore, “public entities using credit cards must retain the invoices and receipts needed to support the items charged in the bill from the credit card company.” The SOP also states that the individual vendors providing the goods or services should be listed on the claims list provided to a city council for review and approval, rather than the credit card company. While the authorized use of a credit card to make small purchases offers advantages, such as convenience and expedited purchasing, the ability of the credit card users to make a city liable for purchases that are improper or not in compliance with statutory requirements is an added risk related to such transactions. The OSA recommends that a robust credit card policy be established by public entities allowing credit card purchases, which clearly delineates the requirements for use, supporting documentation required, and the review and approval process for credit card purchases. The OSA also recommends that cities obtain signed written acknowledgement of the policy from all authorized card users. -3- SIGNIFICANT ACCOUNTING POLICIES Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 of the notes to basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2022. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: • Depreciation – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets. • Compensated Absences – Management’s estimates of compensated absences payable are based on current rates of pay and sick leave balances estimated to be paid out as future severance pay. • Other Post-Employment Benefits (OPEB) and Pension Benefits – The City has recorded liabilities and activity for OPEB and pension benefits. These obligations are calculated using actuarial methodologies described in Governmental Accounting Standards Board (GASB) Statement Nos. 68 and 75. These actuarial calculations include significant assumptions, including projected changes, healthcare insurance costs, investment returns, retirement ages, proportionate share, and employee turnover. We evaluated the key factors and assumptions used by management to develop these estimates in determining that they are reasonable in relation to the basic financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The disclosures included in the notes to the basic financial statements related to OPEB and pension benefits are particularly sensitive, due to the materiality of the liabilities, and the large and complex estimates involved in determining the disclosures. The financial statement disclosures are neutral, consistent, and clear. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. There were no misstatements detected as a result of audit procedures that were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. -4- DISAGREEMENTS WITH MANAGEMENT For purposes of this report, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. MANAGEMENT REPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated August 3, 2023. MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. OTHER AUDIT FINDINGS OR ISSUES We generally discuss a variety of matters, including the application of accounting principles and auditing standards with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. OTHER MATTERS We applied certain limited procedures to the management’s discussion and analysis (MD&A) and the pension and OPEB-related required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplementary information, as described in the table of contents, which accompanies the financial statements, but is not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements, but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. -5- GOVERNMENTAL FUNDS OVERVIEW This section of the report provides you with an overview of the financial trends and activities of the City’s governmental funds, which includes the General, special revenue, debt service, and capital project funds. These funds are used to account for the basic services the City provides to all of its citizens, which are financed primarily with property taxes. The governmental fund information in the City’s financial statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current assets to finance its current liabilities. PROPERTY TAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For the 2021 fiscal year, local ad valorem property tax levies provided 44.0 percent of the total governmental fund revenues for cities over 2,500 in population, and 35.5 percent for cities under 2,500 in population. Total property taxes levied by all Minnesota cities for taxes payable in 2022 increased 5.9 percent compared to the prior year, and 4.2 percent for taxes payable in 2023. The total tax capacity value of property in Minnesota cities increased about 5.6 percent for the 2022 levy year. The tax capacity values used for levying property taxes are based on the assessed market values for the previous fiscal year (e.g., tax capacity values for taxes levied in 2022 were based on assessed market values as of January 1, 2021), so the trend of change in these tax capacity values lags somewhat behind the housing market and economy in general. The City’s taxable market value increased 4.6 percent for taxes payable in 2021 and 5.0 percent for taxes payable in 2022. The following graph shows the City’s changes in taxable market value over the past 10 years: $– $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 $3,000,000,000 $3,500,000,000 $4,000,000,000 $4,500,000,000 $5,000,000,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Taxable Market Value -6- Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s property classification system to each property’s market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of its tax base that is in each property classification from year-to-year, as well as legislative changes to tax rates. The City’s tax capacity increased 4.8 percent and 4.1 percent for taxes payable in 2021 and 2022, respectively. The following graph shows the City’s change in tax capacities over the past 10 years: $– $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Local Net Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years. The school tax rate represents an average of the rates for Independent School Districts No. 270 – Hopkins and No. 281 – Robbinsdale. 2020 2021 2022 Average tax rate City 53.4 52.4 54.3 County 41.1 38.2 38.5 School 26.9 26.1 26.7 Special taxing 9.1 8.8 9.2 Total 130.5 125.5 128.7 Rates Expressed as a Percentage of Net Tax Capacity City of Golden Valley Both the City’s portion of the tax rate and the total tax rate applied to Golden Valley residents increased for taxes payable in 2022, after steadily declining a number of years. -7- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2022, presented both by fund balance classification and by fund: 2022 2021 Change Fund balances of governmental funds Total by classification Nonspendable 67,927$ 26,653$ 41,274$ Restricted 24,286,876 22,970,466 1,316,410 Committed 169,113 161,790 7,323 Assigned 14,976,099 15,485,383 (509,284) Unassigned 14,682,455 12,511,838 2,170,617 Total governmental funds 54,182,470$ 51,156,130$ 3,026,340$ Total by fund General 17,333,319$ 15,554,908$ 1,778,411$ ARPA Special Revenue 29,433 45 29,388 Street Reconstruction Debt Service 9,987,005 9,730,143 256,862 State Aid Construction Capital Project 4,358,667 3,786,784 571,883 Street Reconstruction Capital Project 6,662,843 6,246,403 416,440 Winnetka/Medicine Lake Tax Increment Capital Project (28,978) (746,918) 717,940 Nonmajor funds 15,840,181 16,584,765 (744,584) Total governmental funds 54,182,470$ 51,156,130$ 3,026,340$ Governmental Funds Change in Fund Balance Fund Balance as of December 31, In total, the fund balances of the City’s governmental funds increased by $3,026,340 during the year ended December 31, 2022. The increase in restricted fund balances is mainly for street improvements in the State Aid Construction, Street Reconstructions, and nonmajor capital projects funds. The decrease in assigned fund balances is primarily due to the spend down of various capital improvement fund balance assignments in the nonmajor capital projects funds. Unassigned fund balances increased $2,170,617, mainly due to the current year operating results in the General Fund. A decrease in deficit fund balance in the Winnetka/Medicine Lake Tax Increment Capital Project Fund also contributed to this increase. The deficit in that fund relates to improvement project costs being funded initially through interfund loans pending the collection of future tax increments. -8- GOVERNMENTAL FUNDS REVENUE AND EXPENDITURES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the OSA to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the MD&A. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Year 2020 2021 2022 Population 10,000–20,000 20,000–100,000 22,552 22,334 22,034 Property taxes 529$ 557$ 1,101$ 1,171$ 1,273$ Tax increments 36 49 66 66 69 Franchise taxes 66 53 33 35 36 Special assessments 41 56 26 35 41 Licenses and permits 46 53 60 71 84 Intergovernmental revenues 293 202 105 37 76 Charges for services 111 110 54 64 86 Other 39 26 66 19 (14) Total revenue 1,161$ 1,106$ 1,511$ 1,498$ 1,651$ December 31, 2021 City of Golden ValleyState-Wide Governmental Funds Revenue per Capita With State-Wide Averages by Population Class The City’s governmental fund revenues for 2022 were $36,368,515, an increase of $2,939,644 (8.8 percent), or $153 per capita from the prior year. The City has historically received more of its governmental fund revenue from property taxes than the average Minnesota city, due to the lower-than-average amount of state aid it typically receives and the levies for its Street Reconstruction Program debt. A property tax levy increase ($102 per capita), higher revenue from licenses and permits from development activity ($13 per capita), an increase in intergovernmental revenue due mainly to state MSA street aid ($39 per capita), and higher charges for services related mainly to recreation programs and the Brookview Community Center ($22 per capita), contributed to the overall revenue increase. Conversely, “other” revenue declined ($33 per capita), due mainly to negative adjustments in the fair value of the City’s investment portfolio holdings, due to changing market conditions recorded as part of current year investment income. -9- The expenditures of governmental funds will also vary from state-wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows: • Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues. • Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects. • Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources, such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with state-wide averages, are presented in the following table: Year 2020 2021 2022 Population 10,000–20,000 20,000–100,000 22,552 22,334 22,034 Current 131$ 116$ 232$ 245$ 280$ 296 327 402 395 404 124 112 117 128 139 124 107 113 118 144 79 77 – – – Total current 754 739 864 886 967 Capital outlay and construction 407 317 98 348 433 Debt service Principal 161 110 226 331 230 Interest and fiscal charges 41 34 86 84 81 Total debt service 202 144 312 415 311 Total expenditures 1,363$ 1,200$ 1,274$ 1,649$ 1,711$ Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class December 31, 2021 City of Golden ValleyState-Wide Public safety Streets and highways Culture and recreation All other General government Total expenditures in the City’s governmental funds for 2022 were $37,698,914, an increase of $836,283 (2.3 percent), or $62 per capita from the prior year. Current governmental expenditures increased $81 per capita, with the increase spread across all categories show above. Capital outlay expenditures were $85 per capita higher than last year, primarily due to increased street improvement projects. Debt service expenditures decreased $104 per capita, returning to a more typical level, after the City used $2.35 million of available General Fund resources to call two outstanding bond issues before their stated maturities in 2021. -10- GENERAL FUND The City’s General Fund accounts for the financial activity of the basic services provided to the community. The primary services included within this fund are the administration of the municipal operation, police and fire protection, building inspection, streets and highway maintenance, and parks and recreation. The graph below illustrates the change in the General Fund financial position over the last five years. We have also included a line representing annual expenditures and operating transfers out to reflect the change in the size of the General Fund operation over the same period. 2018 2019 2020 2021 2022 Fund Balance $13,059,502 $15,152,089 $17,677,049 $15,554,908 $17,333,319 Cash (Net)$13,755,606 $16,425,829 $19,349,725 $17,371,112 $19,401,536 Exp & Trans Out $20,878,477 $20,269,900 $21,651,077 $25,663,828 $23,576,204 $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 General Fund Financial Position Year Ended December 31, The City’s General Fund cash and investments, net of borrowing balance at December 31, 2022 was $19,401,536, an increase of $2,030,424. Total fund balance at December 31, 2022 was $17,333,319, an increase of $1,778,411, compared to a break-even budget. As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels as the volume of financial activity has grown. This is an important factor because a government, like any organization, requires a certain amount of equity to operate. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and is a factor in determining the City’s bond rating and resulting interest costs. A trend that is typical to Minnesota local governments, especially the General Fund of cities, is the unusual cash flow experienced throughout the year. The City’s General Fund cash disbursements are relatively even throughout the year, other than the impact of seasonal services, such as snowplowing, street maintenance, and park activities. Cash receipts of the General Fund are quite a different story. Taxes comprised about 87.7 percent of the fund’s total annual revenue in the current year. Approximately half of these revenues are received by the City in July and the rest in December. Consequently, the City needs to have adequate cash reserves to finance its everyday operations between these payments. The City’s unassigned General Fund balance at the end of the current fiscal year was $14,711,433, which represents 62.4 percent of annual expenditures and transfers out based on 2022 levels. -11- The following graph reflects the City’s General Fund revenue sources for 2022 compared to budget: $(2)$– $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 $22 $24 All Other Licenses and Permits Charges for Services Fines and Forfeits Intergovernmental Taxes Millions General Fund Revenue Budget and Actual Budget Actual General Fund revenue for 2022 was $25,324,615, which was $92,975 under budget. Licenses and permits were $634,419 higher than the City’s conservative budget, mainly in building-related permits. Charges for services were $128,186 under budget, mainly due to recreation program activity not yet fully recovering to pre-COVID levels. Investment income (included in “all other” above) was $662,471 under budget, due to the negative fair value adjustments to the City’s investment portfolio as previously discussed. The following graph presents the City’s General Fund revenues by source for the last five years. The graph reflects the City’s reliance on property taxes and other local sources of revenue. Taxes Intergovernmental Fines and Forfeits Charges for Services Licenses and Permits All Other 2018 $17,181,437 $109,935 $379,708 $1,621,319 $1,778,321 $433,410 2019 $18,166,877 $122,313 $260,565 $1,603,332 $1,705,864 $473,536 2020 $19,410,999 $1,722,668 $148,672 $1,073,666 $1,350,417 $439,615 2021 $20,293,146 $56,964 $127,096 $1,292,454 $1,595,716 $146,311 2022 $22,207,999 $154,084 $81,852 $1,343,314 $1,842,234 $(304,868) $(2) $– $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 $22 $24 MillionsGeneral Fund Revenue by Source Year Ended December 31, Total General Fund revenue for 2022 was $1,812,928 (7.7 percent) higher than last year, mainly due to an increase of $1,914,853 in property tax revenue. Licenses and permits generated $246,518 more revenue than last year, due to continued strong development activity. These increases were partially offset by a $451,179 decrease in “all other” revenue as shown above, caused by the decline in investment income. -12- The following graph illustrates the components of General Fund spending for 2022 compared to budget: $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 Casualty Insurance Parks and Recreation Public Works Community Development Public Safety Administration General Government Millions General Fund Expenditures Budget and Actual Budget Actual General Fund expenditures for 2022 were $20,826,204, which was $1,871,386 (8.2 percent) under budget. Public safety expenditures were $1,418,754 under budget, mainly due to unfilled police positions. Community development expenditures were also $305,770 less than projected, mainly due to more engineering salaries being charged out to capital projects than budgeted. The following graph presents the City’s General Fund expenditures by function for the last five years. General Government Administration Public Safety Community Development Public Works Parks and Recreation Casualty Insurance 2018 $1,321,435 $1,916,030 $6,989,839 $2,112,288 $3,626,641 $1,096,137 $318,934 2019 $1,302,525 $1,967,267 $7,289,352 $2,053,347 $4,051,707 $1,081,916 $316,206 2020 $1,632,356 $2,213,472 $7,797,204 $2,222,461 $3,942,738 $956,364 $318,902 2021 $1,710,541 $2,308,688 $7,612,972 $2,095,315 $4,499,814 $999,498 $269,420 2022 $2,159,937 $2,424,296 $7,602,986 $2,169,560 $4,946,265 $1,245,550 $277,610 $– $1 $2 $3 $4 $5 $6 $7 $8 MillionsGeneral Fund Expenditures by Function Year Ended December 31, Total General Fund expenditures for 2022 were $1,329,956 (6.8 percent) more than the previous year. Higher costs for legal services, fire department personnel and supplies, building inspections, street and park maintenance, and recreation program personnel and supplies contributed to the overall increase. -13- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which include the (Water and Sewer) Utility, Storm Sewer Utility, Brookview (Golf Course) Operating, Motor Vehicle Operating, and Recycling Funds. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2022, presented both by classification and by fund: 2022 2021 Change Net position of enterprise funds Total by classification Net investment in capital assets 45,675,680$ 40,749,737$ 4,925,943$ Unrestricted 32,741,012 34,243,915 (1,502,903) Total enterprise funds 78,416,692$ 74,993,652$ 3,423,040$ Total by fund Utility 35,790,190$ 33,052,222$ 2,737,968$ Storm Sewer Utility 37,396,360 37,090,229 306,131 Brookview Operating 3,474,482 3,116,770 357,712 Motor Vehicle Operating 450,940 464,541 (13,601) Recycling 1,304,720 1,269,890 34,830 Total enterprise funds 78,416,692$ 74,993,652$ 3,423,040$ Enterprise Funds Change in Financial Position Net Position as of December 31, In total, the net position of the City’s enterprise funds increased by $3,423,040 during the year ended December 31, 2022. Most of the increase was in the (Water and Sewer) Utility and the Storm Sewer Utility Funds, due to a combination of positive operating results and $1,500,000 of franchise taxes allocated to that fund. The Brookview (Golf Course) Operating Fund also experienced a $357,712 increase in net position, as revenues from the bar and grill, lawn bowling, and other amenities continued to increase post-COVID. -14- UTILITY FUND The following graph presents five years of comparative operating results for the City’s (Water and Sewer) Utility Fund: 2018 2019 2020 2021 2022 Oper Rev $10,482,578 $10,022,356 $10,621,632 $11,203,708 $11,802,888 Oper Exp $9,351,631 $8,780,766 $9,208,894 $9,775,721 $10,186,518 Inc Before Depr $1,983,660 $2,167,577 $2,377,791 $2,437,963 $2,589,804 Oper Inc $1,130,947 $1,241,590 $1,412,738 $1,427,987 $1,616,370 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 $11,000,000 $12,000,000 Utility Fund Year Ended December 31, The Utility Fund ended 2022 with total net position of $35,790,190, an increase of $2,737,968 from the prior year. Of this, $18,509,360 represents the net investment in water distribution and sewer collection system capital assets, leaving unrestricted net position of $17,280,830. Operating revenue for 2022 was $599,180 (5.4 percent) higher than the prior year, due to a combination of higher consumption and an increase in rates. The City continued to experience high water consumption, due to demand from irrigation during dry summer weather conditions. Utility Fund operating expenses for 2022 were $410,797 (4.2 percent) higher than the previous year, mainly due to increased water purchase and sewer disposal costs. The Utility Fund had net nonoperating revenue of $947,870 in 2022, mainly due to the allocation of $1,500,000 of franchise taxes to this fund for future infrastructure improvements. This was partially offset by negative investment income of $584,347, caused by the fair value adjustments to the City’s investment portfolio. -15- STORM SEWER UTILITY FUND The following graph presents five years of comparative operating results for the City’s Storm Sewer Utility Fund: 2018 2019 2020 2021 2022 Oper Rev $2,446,828 $2,480,095 $2,559,800 $2,592,294 $2,775,129 Oper Exp $1,803,506 $2,253,908 $2,165,598 $1,992,442 $2,201,581 Inc Before Depr $1,510,425 $1,304,144 $1,509,697 $1,730,102 $1,696,245 Oper Inc (Loss)$643,322 $226,187 $394,202 $599,852 $573,548 $– $250,000 $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000 $1,750,000 $2,000,000 $2,250,000 $2,500,000 $2,750,000 $3,000,000 Storm Sewer Utility Fund Year Ended December 31, The Storm Sewer Utility Fund ended 2022 with a total net position of $37,396,360, an increase of $306,131 from the prior year. Of this, $23,898,258 represents the City’s net investment in its storm sewer collection system capital assets, leaving unrestricted net position of $13,498,102. Operating revenue was $182,835 (7.1 percent) higher than the prior year, mainly due to a rate increase implemented during the year. Operating expenses for 2022 were $209,139 (10.5 percent) higher than the previous year, mainly due to increased maintenance costs, some of which were financed by a $143,127 state grant. -16- BROOKVIEW OPERATING FUND The following graph presents five years of comparative operating results for the City’s Brookview (Golf Course) Operating Fund: 2018 2019 2020 2021 2022 Oper Rev $2,956,984 $3,205,252 $2,914,216 $3,927,131 $4,376,050 Oper Exp $3,349,448 $3,138,252 $2,772,685 $3,376,731 $3,955,293 Inc (Loss) Before Depr $(273,955)$191,128 $274,309 $679,050 $542,667 Oper Inc (Loss)$(392,464)$67,000 $141,531 $550,400 $420,757 $(500,000) $– $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 Brookview Operating Fund Year Ended December 31, The Brookview Operating Fund ended 2022 with a total net position of $3,474,482, an increase of $357,712 from the prior year. Of this, $3,268,062 represents the net investment in capital assets, leaving an unrestricted net position of $206,420. Brookview operating revenue increased $448,919 (11.4 percent) from the prior year, mainly in bar and grill sales. Operating expenses were $578,562 (17.1 percent) higher than last year, mainly due to increases in seasonal personnel and operating costs at the grill facility. -17- OTHER ENTERPRISE FUNDS The following graph presents operating revenues over the last five years for the City’s Motor Vehicle Operating and Recycling Funds: 2018 2019 2020 2021 2022 Motor Vehicle $435,698 $477,523 $256,748 $317,229 $418,035 Recycling $391,131 $408,058 $439,160 $501,335 $1,040,416 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 Other Enterprise Funds’ Operating Revenue Year Ended December 31, Motor Vehicle Operating Fund Motor vehicle operating revenue increased $100,806 (31.8 percent) from the previous year, but still have not fully rebounded to pre-COVID levels. Operating expenses were $45,698, or 9.3 percent, higher than last year, mainly in personnel costs. This fund also transferred out $30,000 to support General Fund operations in 2022. Total net position decreased $13,601 in 2022, ending the year at $450,940. Recycling Fund Recycling Fund operating revenue and expenditures increased by $539,081 (107.5 percent) and $532,985 (101.2 percent), respectively, due to a new organics recycling program started by the City in 2022. Total net position increased $34,830, ending the year at $1,304,720. THIS PAGE INTENTIONALLY LEFT BLANK -18- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide financial statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what the City owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, net position is divided into three components: net investment in capital assets, restricted, and unrestricted. The following table presents the components of the City’s net position as of December 31, 2022 and 2021, for governmental activities and business-type activities: 2022 2021 Change Net position Governmental activities Net investment in capital assets 33,605,654$ 32,036,524$ 1,569,130$ Restricted 31,050,961 29,277,763 1,773,198 Unrestricted 20,618,692 19,676,353 942,339 Total governmental activities 85,275,307 80,990,640 4,284,667 Business-type activities Net investment in capital assets 45,675,680 40,749,737 4,925,943 Unrestricted 30,587,263 32,328,662 (1,741,399) Total business-type activities 76,262,943 73,078,399 3,184,544 Total net position 161,538,250$ 154,069,039$ 7,469,211$ As of December 31, The City’s total net position at December 31, 2022 was $7.5 million higher than the previous year-end, consisting of a $4.3 million increase from governmental activities and a $3.2 million increase from business-type activities. The governmental activities net investment in capital assets increased $1.6 million during the year. Changes in this component of net position typically reflect the relationship between the rate at which capital assets are depreciating and the rate at which the debt used to finance the assets is repaid. The increase in 2022 is larger than usual, due to the City using nondebt sources, including grants and internal resources, to finance a portion of the capital asset additions. The increase of $1.8 million in restricted net position is mainly due to an increase in resources restricted for street improvement projects. The increase in unrestricted net position relates primarily to the improved financial position of the General Fund. The increase in business-type activities net position was explained in the preceding discussion of the activities of the enterprise funds. -19- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net position. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2022 and 2021: 2021 Program Expenses Revenues Net Change Net Change Governmental activities General government 5,359,991$ 287,974$ (5,072,017)$ (3,473,948)$ Public safety 8,919,678 896,646 (8,023,032) (7,218,461) Community development 3,014,245 1,734,969 (1,279,276) (398,339) Public works 11,003,765 3,389,262 (7,614,503) (6,686,078) Parks and recreation 2,764,425 1,599,932 (1,164,493) (1,506,219) Interest on long-term debt 1,608,289 – (1,608,289) (1,587,120) Business-type activities Water and sewer 10,222,237 11,976,616 1,754,379 1,559,945 Storm sewer 2,270,408 2,960,725 690,317 601,414 Golf course 4,096,568 4,377,030 280,462 745,435 Motor vehicle licensing 573,795 560,970 (12,825) (126,172) Recycling 1,059,807 1,141,432 81,625 27,463 Total net (expense) revenue 50,893,208$ 28,925,556$ (21,967,652) (18,062,080) General revenues Property taxes, tax increments, and franchise taxes 31,861,949 29,624,279 Investment earnings (charges)(2,869,339) (255,375) Unrestricted grants and contributions 239,785 16,398 Other revenues 204,468 202,075 Total general revenues 29,436,863 29,587,377 Change in net position 7,469,211$ 11,525,297$ Net (expense) revenue 2022 One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the way the City’s governmental and business-type operations are financed. The table clearly illustrates the dependence of the City’s governmental operations on general revenues, such as property taxes and unrestricted grants. It also shows which of the City’s business-type activities are generating sufficient program revenues (service charges and program-specific grants) to cover expenses. Increased pension and OPEB plan costs contributed to higher expenditures in a number of the governmental activities. The difference in the year-to-year net change in the community development function was also impacted by an increase in HRA redevelopment activity. Investment earnings (charges) were $2.6 million lower than the prior year, due to fluctuations in the fair values of the City’s pooled investments caused by less favorable market conditions, as previously discussed. -20- ACCOUNTING AND AUDITING UPDATES The following is a summary of Governmental Accounting Standards Board (GASB) standards expected to be implemented in the next few years. GASB Statement No. 96, Subscription-Based Information Technology Arrangements This statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This statement (1) defines an SBITA; (2) establishes that an SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of an SBITA; and (4) requires note disclosures regarding an SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. An SBITA is defined as a contract that conveys control of the right to use another party’s (an SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction. Under this statement, a government generally should recognize a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability. This statement provides an exception for short-term SBITAs with a maximum possible term under the SBITA contract of 12 months, including any options to extend, regardless of their probability of being exercised. Subscription payments for short-term SBITAs should be recognized as outflows of resources. This statement requires a government to disclose descriptive information about its SBITAs other than short-term SBITAs, such as the amount of the subscription asset, accumulated amortization, other payments not included in the measurement of a subscription liability, principal and interest requirements for the subscription liability, and other essential information. The requirements of this statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. GASB Statement No. 99, Omnibus 2022 The objectives of this statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB statements and (2) accounting and financial reporting for financial guarantees. The practice issues addressed by this statement are as follows: • Classification and reporting of derivative instruments within the scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment derivative instrument or a hedging derivative instrument. • Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a short-term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives. • Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public-private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset. -21- • Clarification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the SBITA term, classification of an SBITA as a short-term SBITA, and recognition and measurement of a subscription liability. • Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt. • Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP). • Disclosures related to nonmonetary transactions. • Pledges of future revenues when resources are not received by the pledging government. • Clarification of provisions in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, related to the focus of the government-wide financial statements. • Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. • Terminology used in Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, to refer to resource flows statements. The requirements of this statement that are effective are as follows: • The requirements related to extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement No. 34, as amended, and terminology updates related to Statement No. 53 and Statement No. 63 are effective upon issuance. • The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. • The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement No. 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. GASB Statement No. 100, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62 The primary objective of this statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The requirements of this statement will improve the clarity of the accounting and financial reporting requirements for accounting changes and error corrections, which will result in greater consistency in application in practice. In turn, more understandable, reliable, relevant, consistent, and comparable information will be provided to financial statement users for making decisions or assessing accountability. In addition, the display and note disclosure requirements will result in more consistent, decision useful, understandable, and comprehensive information for users about accounting changes and error corrections. The requirements of this statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. -22- GASB Statement No. 101, Compensated Absences The objective of this statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. This statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used, but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. This statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. This statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements. A liability for leave that has been used, but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. With respect to financial statements prepared using the current financial resources measurement focus, this statement requires that expenditures be recognized for the amount that normally would be liquidated with expendable available financial resources. The requirements of this statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. THIS PAGE INTENTIONALLY LEFT BLANK