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HomeMy WebLinkAbout2013 Management Report Management Report for City of Brooklyn Center, Minnesota December 31, 2013 THIS PAGE INTENTIONALLY LEFT BLANK To the City Council and Management City of Brooklyn Center, Minnesota We have prepared this management report in conjunction with our audit of the City of Brooklyn Center, Minnesota’s (the City) financial statements for the year ended December 31, 2013. The purpose of this report is to provide comments resulting from our audit process and to communicate information relevant to city finances in Minnesota. We have organized this report into the following sections: Audit Summary Governmental Funds Overview Enterprise Funds Overview Government-Wide Financial Statements Legislative Updates Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the City, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota May 8, 2014 THIS PAGE INTENTIONALLY LEFT BLANK 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. ORUASGAU URESPONSIBILITY NDERUDITING TANDARDS ENERALLY CCEPTED IN THE NITED SA,,U.S.O GAS OVERNMENT UDITING TANDARDS TATES OF MERICA AND THE FFICE OF MB(OMB)CA-133 ANAGEMENT AND UDGETIRCULAR 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, 2013, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards, and OMB Circular A-133, 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. PSTA LANNEDCOPE AND IMING OF THE UDIT We performed the audit according to the planned scope and timing previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. AOF UDITPINION AND INDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2013: We have issued an unmodified opinion on the City’s basic financial statements. We reported no deficiencies in the City’s internal control over financial reporting that we considered to be material weaknesses. The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. We reported that the Schedule of Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial statements. The results of our tests indicate that the City has complied, in all material respects, with the requirements that could have a direct and material effect on each major federal program. We reported no deficiencies in the internal controls over compliance and its operation that we consider to be material weaknesses in our testing of major federal programs. We reported two findings based on our testing of the City’s compliance with Minnesota laws and regulations. These findings relate to invoices that were not paid on a timely basis and withholding affidavits that were not obtained for completed projects. These findings are further detailed in the Schedule of Findings and Questioned Costs as items 2013-001 and 2013-002. -1- SAP IGNIFICANT CCOUNTING OLICIES 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. For the fiscal year ended December 31, 2013, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 65, “Items Previously Reported as Assets and Liabilities,” which identifies specific items previously presented as assets that will now be presented as either deferred outflows of resources or outflows (expenses/expenditures), and items previously reported as liabilities that will now be presented as deferred inflows of resources or inflows (revenues). 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. AEMJ CCOUNTING STIMATES AND ANAGEMENT UDGMENTS 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. Net Other Post-Employment Benefit (OPEB) Liabilities – Actuarial estimates of the net OPEB obligation is based on eligible participants, estimated future health insurance premiums, and estimated retirement dates. Compensated Absences – Management’s estimate is based on current rates of pay and sick leave balances. Land Held for Resale – Management’s estimates of this asset are based on net realizable value (lower of cost or estimated sales price). We evaluated the key factors and assumptions used to develop these accounting estimates in determining that they are reasonable in relation to the basic financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. CUM ORRECTED AND NCORRECTEDISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We proposed one uncorrected audit adjustment to the financial statements for the reporting of governmental activities and business-type activities unamortized premiums and discounts on bond proceeds totaling $198,657 and $18,800, respectively. Management has determined that the effects of these items are immaterial, both individually and taken together, to each opinion unit’s financial statements taken as a whole. -2- DEPA IFFICULTIES NCOUNTERED IN ERFORMING THE UDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. DWM ISAGREEMENTSITHANAGEMENT For purposes of this report, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. MR ANAGEMENTEPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated May 8, 2014. MCWOIA ANAGEMENTONSULTATIONS ITH THERNDEPENDENTCCOUNTANTS 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. OAFI THERUDIT INDINGS OR SSUES 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. OM THERATTERS With respect to the combining and individual fund statements and schedules accompanying the financial statements, and the separately issued Schedule of Expenditures of Federal Awards, 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 combining and individual fund statements and schedules and Schedule of Federal Expenditures of Awards to the underlying accounting records used to prepare the basic financial statements or to the basic financial statements themselves. With respect to the introductory section and statistical section accompanying the financial statements, our procedures were limited to reading this other information, and in doing so we did not identify any material inconsistencies with the audited financial statements. -3- 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 Fund, 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. PT ROPERTYAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. In recent years this dependence has been heightened, as economic conditions have resulted in reductions to other revenue sources such as state aids and fees generated from property development or redevelopment. Despite these conditions, property taxes levied by Minnesota cities increased a record low 0.9 percent state-wide for 2012, and 2.27 percent for 2013. Almost one-third of Minnesota cities kept their 2013 levy at the same level as the previous year, while another 13 percent reduced their levies for 2013. Economic conditions have also had a profound effect on the tax base of Minnesota cities with state-wide taxable market values declining each of the last four levy years, including average decreases of 8.8 percent and 4.5 percent for taxes payable in 2012 and 2013, respectively. There is optimism that this trend is reversing, as the market value decline for the 2013 levy year was the smallest of the past four years. However, since the assessed valuation used for levying property taxes is based on values from the previous fiscal year (e.g. the market value for taxes payable in 2013 is based on estimated values as of January 1, 2012), taxable market value improvement has lagged behind recent upturns in the housing market and the economy in general. The City’s taxable market value decreased 13.3 percent for taxes payable in 2012 and 8.8 percent for taxes payable in 2013. The following graph shows the City’s changes in taxable market value over the past 10 years: Taxable Market Value $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 $– 2004200520062007200820092010201120122013 -4- Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s property classification system to each property’s market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of the City’s tax base that is in each property classification from year-to-year, as well as legislative changes to tax rates. The City’s tax capacity decreased 8.6 percent and 7.0 percent for taxes payable in 2012 and 2013, respectively. The following graph shows the City’s change in tax capacities over the past 10 years: Tax Capacity $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $– 2004200520062007200820092010201120122013 The following table presents the average tax rates applied to city residents for each of the last two levy years, along with comparative state-wide and metro area rates. The general increase in rates reflects both the increased reliance of local governments on property taxes and the recent decline in tax capacities. Rates expressed as a percentage of net tax capacity All CitiesSeven-CountyCity of Brooklyn Center State-WideMetro Area 201220132012201320122013 Average tax rate City46.3 48.8 43.4 46.1 71.164.4 County46.8 48.5 45.0 47.1 49.548.2 39.134.7 School27.3 28.5 28.5 30.3 11.311.0 Special taxing6.8 7.2 8.7 9.4 170.9158.3 Total127.2 133.0125.6132.9 Both the City’s portion and the total tax capacity rates for Brooklyn Center residents are significantly higher than the state-wide and metro area averages the last two years. These rates are higher than average due to a combination of factors, including lower than average property values, makeup of residential properties, and the use of tax increments within the City. -5- GFB OVERNMENTAL UNDALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2013, presented both by fund balance classification and by fund: Governmental Funds Change in Fund Balance Fund Balance as of December 31,Increase 20132012(Decrease) Fund balances of governmental funds Total by classification Nonspendable26,139$ 88,952$ (62,813)$ (875,210) Restricted12,037,147 12,912,357 3,927,693 Committed7,579,688 3,651,995 2,754,124 Assigned2,754,124 – 997,012 Unassigned8,169,955 7,172,943 $ 23,826,24730,567,053$ 6,740,806$ Total – governmental funds Total by fund General12,382,713$ 10,686,896$ 1,695,817$ 1,521,713 Tax Increment District No. 34,051,816 2,530,103 2,975,938 Infrastructure Construction970,142 (2,005,796) 547,338 Nonmajor funds13,162,382 12,615,044 $ 23,826,24730,567,053$ 6,740,806$ Total – governmental funds In total, the fund balances of the City’s governmental funds increased by $6,740,806 during the year ended December 31, 2013. The majority of the increase was in committed and assigned fund balances. Fund balances committed for capital improvements, infrastructure improvements, and street improvements increased $2,179,972, $970,142, and $652,549, respectively as approved by City Council resolution. Fund balances assigned for capital improvements increased $2,754,124 as a result of a new Capital Project Funding Policy approved by the City Council to provide a recurring source of funding for the City’s Capital Improvement Plan. -6- GFRAE OVERNMENTAL UNDS EVENUENDXPENDITURES 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 State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as the City’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year due to the effect of inflation and changes in the City’s operation. Also, certain data on these tables may be classified differently than how they appear on the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of your city. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the Management’s Discussion and Analysis. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Governmental Funds Revenue per Capita With State-Wide Averages by Population Class City of Brooklyn Center State-Wide 201120122013 YearDecember 31, 2012 20,000–100,00030,20430,56930,569 Population2,500–10,00010,000–20,000 $ 444416$ 471$ 494$ Property taxes414$ 382$ 8446 88 103 Tax increments32 44 Franchise fees and other taxes29 36 5030 50 50 6562 42 61 Special assessments60 54 3235 28 35 Licenses and permits24 24 Intergovernmental revenues278 279 163138 118 103 3783 35 35 Charges for services104 81 2650 36 22 Other66 58 $ 901860$ 868$ 903$ Total revenue1,007$ 958$ The City relies more on property tax revenue for its governmental funds revenue compared to the average Minnesota city. The City continues to generate significantly more tax increment revenue per capita than average, as it has made extensive use of this tool to finance commercial development. The City’s per capita governmental funds revenue for 2013 was $903, an increase of about 4.0 percent from the prior year. This was primarily due to an increase in property tax and special assessment revenue offset by a decrease in intergovernmental revenue and other revenue. Property tax revenue increased $23 per capita due to the increased levy and increased excess tax increments received. Special assessment revenue increased $19 per capita mainly due to an increase in street and storm projects in the current year compared to the prior year. These increases were offset by decreases in intergovernmental revenue and other revenue. Intergovernmental revenue decreased $15 per capita mainly due to the City receiving a grant for the environmental cleanup of a redevelopment area within the City in the prior year. The decrease in other revenue of $14 per capita is due to one-time payments the City received in the prior year related to projects that were finalized and due to decreased investment earnings. -7- 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: Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class Cit of Brookln Center State-Wideyy 201120122013 YearDecember 31, 2012 20,000–100,00030,20430,56930,569 Population2,500–10,00010,000–20,000 Current $ 11484$ 116$ 119$ General government127$ 101$ Public safet 229234 287241 297 298 y 7992 69 78 Street maintenance114 105 8086 83 81 Parks and recreation82 95 6292 162 87 All other73 75 $ 622595$ 727$ 663$ $ 605630$ Capital outla y $ 184221$ 23$ 283$ and construction315$ 313$ Debt service $ 98103$ 87$ 87$ Principal187$ 135$ 3039 26 29 Interest and fiscal58 46 $ 128142$ 113$ 116$ $ 181245$ The City’s governmental funds current per capita expenditures are higher than state-wide averages for cities in the same population class. The City’s current operating costs are higher than average due to above average general government and public safety costs. The City’s per capita current expenditures decreased $64 per capita in 2013 as a result of the developer note receivable in Tax Increment District No. 5 being forgiven in the prior year. Capital outlay costs per capita increased $260 as a result of the Kylawn Project in the current year. Debt service costs per capita increased $3. -8- GF ENERALUND 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 nine years. We have also included a line representing annual expenditures to reflect the change in the size of the General Fund operation over the same period. General Fund Financial Position Year Ended December 31, $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $– 200520062007200820092010201120122013 Fund Balance Cash and Investments (Net of Interfund Borrowing) Expenditures The City’s General Fund cash and investments balance (net of interfund borrowing) at December 31, 2013 was $13,037,962, which increased $1,890,649 from 2012. Total fund balance at December 31, 2013 was $12,382,713, up $1,695,817 from the prior year. Having an appropriate fund balance is an important factor in assessing the City’s financial health because a government, like any organization, requires a certain amount of equity to operate. Generally, the amount of equity required typically increases as the size of the operation increases. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and can be a factor in determining the City’s bond rating and resulting interest costs. The City has an approved fund balance policy that states the General Fund will manage its cash flow by having a year-end target unassigned fund balance of between 50 percent and 52 percent of next year’s General Fund budgeted expenditures. At December 31, 2013, the City’s General Fund had an unassigned fund balance of 52 percent of the subsequent year’s budgeted expenditures. -9- The following graph reflects the City’s General Fund revenue sources for 2013 compared to budget: General Fund Revenue Taxes Licenses and Permits Intergovernmental Charges for Services Other BudgetActual Total General Fund revenues for 2013 were $18,765,710, which was $1,236,721 (7.1 percent) over the final budget. The majority of this variance was from taxes and licenses and permits. Tax revenue was $601,560 over budget mainly due to the excess tax increments that were recognized in the current year and not included in the budget. Licenses and permits were over budget by $442,795 from more than anticipated building-related activities. 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, and shows the lack of general state aid revenue in recent years. General Fund Revenue by Source Year Ended December 31, $16,500,000 $15,000,000 $13,500,000 $12,000,000 $10,500,000 $9,000,000 $7,500,000 $6,000,000 $4,500,000 $3,000,000 $1,500,000 $– TaxesIntergovernmentalOther 20092010201120122013 Overall, General Fund revenues increased $894,133 (5.0 percent) from the previous year. Tax revenue increased $750,630 due to an increase in the tax levy in the current year and an increase in excess tax increments received. Intergovernmental revenue increased $119,683 due to increased police pension aid, PERA aid, and FEMA storm recovery aid. -10- The following graphs illustrate the components of General Fund spending for 2013 compared to budget: General Fund Expenditures General Government Public Safety Public Works Parks and Recreation Other BudgetActual Total General Fund expenditures (excluding administrative services reimbursement) for 2013 were $18,088,281, which was $412,106 (2.2 percent) less than budget. The largest area that was under budgeted amounts was public safety expenditures totaling $465,246. Public safety expenditures were under budget in the police protection department due to open staff positions during the year. The following graph presents the City’s General Fund expenditures by function for the last five years. General Fund Expenditures by Function Year Ended December 31, $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $– GeneralPublic SafetyPublic WorksParks andOther GovernmentRecreation 20092010201120122013 General Fund expenditures increased by $644,917, or 3.7 percent, from the prior year, mainly due to the $277,023 increase in the public works function, the $153,572 increase in public safety expenditures, and the $120,049 increase in other expenditures. The increase in public works expenditures is due to increased personal services in the engineering department and street department. Public safety expenditures increased mainly due to increased personal services in the police protection and protective inspection departments. Other expenditures increased due to increased supplies and insurance costs. -11- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which includes the Municipal Liquor, Golf Course, Earle Brown Heritage Center, Water Utility, Sanitary Sewer Utility, Storm Drainage Utility, Street Light Utility, and Recycling Utility Funds. The utility funds comprise a considerable portion of the City’s activities. These funds significantly help to defray overhead and administrative costs and provide additional support to general government operations by way of annual transfers. We understand that the City is proactive in reviewing these activities on an ongoing basis and we want to reiterate the importance of continually monitoring these operations. Over the years, we have emphasized to our city clients the importance of these utility operations being self-sustaining, preventing additional burdens on general government funds. This would include the accumulation of net position for future capital improvements and to provide a cushion in the event of a negative trend in operations. EFFP NTERPRISEUNDSINANCIAL OSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2013, presented both by classification and by fund: Enterprise Funds Change in Financial Position Net Position as of December 31,Increase 20132012(Decrease) Net position of enterprise funds Total by classification Net investment in capital assets42,466,488$ 42,406,210$ 60,278$ Unrestricted12,546,185 12,202,397 343,788 $ 54,608,60755,012,673$ 404,066$ Total – enterprise funds Total by fund Municipal Liquor2,685,412$ 2,490,774$ 194,638$ Golf Course657,068 753,672 (96,604) Earle Brown Heritage Center6,065,638 6,604,837 (539,199) Water Utility11, 11,386,122709,616 323,494 Sanitary Sewer Utility 12,909,16313,204,689 295,526 Storm Drainage Utility 19,816,53719,874,022 57,485 Street Light Utility752,477 592,612 159,865 Recycling Utility63,751 54,890 8,861 $ 54,608,60755,012,673$ 404,066$ Total – enterprise funds In total, the net position of the City’s enterprise funds increased by $404,066 during the year ended December 31, 2013. As noted above, all of the City’s enterprise funds had positive operating results with the exception of the Golf Course and Earle Brown Heritage Center Funds. -12- Water Fund The following graph presents nine years of operating results for the Water Fund: Water Fund Year Ended December 31, $2,500,000 $2,250,000 $2,000,000 $1,750,000 $1,500,000 $1,250,000 $1,000,000 $750,000 $500,000 $250,000 $– $(250,000) 200520062007200820092010201120122013 Operating Revenue Operating Expenses Project Costs Operating Income (Loss), Excluding Project Costs The Water Fund ended 2013 with a net position of $11,709,616, an increase of $323,494 from the prior year. Of this, $9,469,643 represents the investment in utility distribution system capital assets, leaving $2,239,973 of unrestricted net position. Water Fund operating revenue was $2,275,767 for 2013, a decrease of $21,573 (0.9 percent) over the prior year. Operating expenses of $1,966,957 were $177,741 (9.9 percent) more than last year due to costs associated with a manganese action plan and increased water main breaks during the current year. -13- Sanitary Sewer Fund The following graph presents nine years of operating results for the Sanitary Sewer Fund: Sanitary Sewer Fund Year Ended December 31, $4,000,000 $3,800,000 $3,600,000 $3,400,000 $3,200,000 $3,000,000 $2,800,000 $2,600,000 $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $– $(200,000) 200520062007200820092010201120122013 Operating Revenue Operating Expenses Project Costs Operating Income (Loss), Excluding Project Costs The Sanitary Sewer Fund ended 2013 with a net position of $13,204,689, an increase of $295,526 from the prior year. Of this, $10,766,979 represents the investment in the sanitary sewer capital assets, leaving $2,437,710 of unrestricted net position. Sanitary Sewer Fund operating revenues for 2013 were $3,675,936, which was an increase of $83,507 (2.3 percent) from the prior year, due to an approved rate increase offset by a decrease in consumption. Operating expenses for 2013 were $3,368,520, which was an increase of $73,724 (2.2 percent) from the prior year due to an increased depreciation expense of $63,066. -14- Storm Drainage Fund The following graph presents nine years of operating results for the Storm Drainage Fund: Storm Drainage Fund Year Ended December 31, $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $– 200520062007200820092010201120122013 Operating Revenue Operating Expenses Operating Income (Loss) The Storm Drainage Fund ended 2013 with a net position of $19,874,022, an increase of $57,485 from the prior year. Of this, $15,419,178 represents the investment in capital assets, leaving $4,454,844 of unrestricted net position. Storm Drainage Fund operating revenues for 2013 were $1,621,912, which was a slight decrease of $15,574 from the prior year. Operating expenses for 2013 were $1,556,358, which was $56,223 higher than the prior year due to increased personal services and supplies. -15- OEF THERNTERPRISE UNDS Liquor Fund The following graph presents nine years of operating results for the Liquor Fund: Liquor Fund Year Ended December 31, $6,500,000 $6,000,000 $5,500,000 $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $– 200520062007200820092010201120122013 Sales Cost of Sales Operating Expenses Operating Income (Loss) The Liquor Fund ended 2013 with a net position of $2,685,412, an increase of $194,638 from the prior year. Of the net position balance, $198,471 represents the investment in liquor capital assets, leaving $2,486,941 of unrestricted net position. Liquor sales for 2013 were $6,063,231, which is $99,323 (1.7 percent) higher than the prior year. Other than the slight decrease in 2010, sales have steadily increased over the last several years, increasing by about 10.6 percent since 2008. The Liquor Fund generated operating income of $389,258 in 2013, or about 6.4 percent of gross sales, which is a slight increase from the 6.3 percent of gross sales in fiscal 2012. The Liquor Fund gross profit margin was 28.40 in fiscal 2013 which is higher than the average gross profit margin of 27.48 seen over the previous five years. -16- Earle Brown Heritage Center Fund The following graph presents nine years of operating results for the Earle Brown Heritage Center Fund: Earle Brown Heritage Center Fund Year Ended December 31, $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $– $(500,000) $(1,000,000) 200520062007200820092010201120122013 Sales and User Fees Operating Expenses Cost of Sales Operating Income (Loss) The Earle Brown Heritage Center Fund ended 2013 with a net position of $6,065,638, a decrease of $539,199 from the prior year. Of the net position balance, $4,499,353 represents investments in Earle Brown Heritage Center capital assets, leaving $1,566,285 of unrestricted net position. Earle Brown Heritage Center Fund sales and user fees for 2013 were $4,271,578, which is $186,494 (4.2 percent) less than last year. The decrease is due to the decreased number of events held at the facility in 2013 compared to the prior year. Operating expenses for 2013 were $2,696,297, a decrease of $64,903 from the prior year. The decrease in operating expenses is directly related to the decreased revenues in the current year. During fiscal 2013, this fund experienced a decrease in cash of $15,258. The majority of the difference between the operating income (loss) in the table above and this decrease in cash is depreciation expense totaling $672,394. -17- Golf Course Fund The following graph presents nine years of operating results for the Golf Course Fund: Golf Course Fund Year Ended December 31, $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $– $(50,000) $(100,000) $(150,000) 200520062007200820092010201120122013 Operating Revenue Operating Expenses Operating Income (Loss) The Golf Course Fund ended 2013 with a net position of $657,068, a decrease of $96,604 from the prior year. Of this, $1,537,254 represents the investment in golf course land and capital assets, leaving a deficit of ($880,186) in unrestricted net position. Golf Course Fund operating revenues for 2013 were $167,280, which is $40,547 less than last year. Operating expenses for 2013 were $264,259, down $8,023 from the prior year. On an annual basis, this fund has had to borrow from other funds to fund cash flow needs. This interfund borrowing totals $869,301 at December 31, 2013. We recommend that the City continue to monitor the financial results in this fund. We also recommend that the City continue to update the long-range financial plan for this fund, including considering alternate plans for financing the payback of the interfund borrowing in this fund. -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. SNP TATEMENT OF ETOSITION The Statement of Net Position essentially tells you what your city owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, the Statement of Net Position divides the net position into three components: Net Investment in Capital Assets – The portion of net position reflecting equity in capital assets (i.e. capital assets minus related debt). Restricted Net Position – The portion of net position equal to resources whose use is legally restricted minus any non-capital-related liabilities payable from those same resources. Unrestricted Net Position – The residual balance of net position after the elimination of net investment in capital assets and restricted net position. The following table presents the components of City’s net position as of December 31, 2013 and 2012 for governmental activities and business-type activities: As of December 31,Increase (Decrease) 20132012 Net position Governmental activities Net investment in capital assets42,281,203$ 45,261,629$ (2,980,426)$ Restricted27,219,086 24,259,292 2,959,794 Unrestricted11,205,288 5,875,289 5,329,999 Total governmental activities80,705,577 75,396,210 5,309,367 Business-type activities Net investment in capital assets42,466,488 42,406,210 60,278 Unrestricted12,208,126 11,856,924 351,202 Total business-type activities54,674,614 54,263,134 411,480 $ 129,659,344135,380,191$ 5,720,847$ Total net position The City’s total net position at December 31, 2013 was $5,720,847 higher than previous year-end. Of the increase, $5,309,367 came from governmental activities and $411,480 came from business-type activities. The increase in both of these is due to the positive operating results of the City. -19- SA TATEMENT OF CTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net positions. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2013 and 2012: 20132012 Program ExpensesRevenuesNet ChangeNet Change Net (expense) revenue Governmental activities General government3,165,401$ 790,316$ (2,375,085)$ (2,163,274)$ Public safety9,618,906 1,931,275 (7,687,631) (7,319,319) Public works4,215,855 4,355,559 139,704 (2,698,898) Community service149,203 7,772 (141,431) (141,505) Parks and recreation2,752,539 906,277 (1,846,262) (1,886,469) Economic development3,833,915 1,857,580 (1,976,335) (3,249,480) Interest on long-term debt490,162 – (490,162) (768,241) Business-type activities Municipal liquor5,674,937 6,072,334 397,397 381,750 Golf course263,425 167,655 (95,770) (64,996) Earle Brown Heritage Center4,835,131 4,294,723 (540,408) (475,333) Water utility2,025,496 2,357,757 332,261 466,194 Sanitary sewer utility3,382,810 3,689,130 306,320 275,103 Storm drainage utility1,552,327 1,622,012 69,685 159,197 Recycling utility289,043 297,870 8,827 4,884 Street light utility257,079 417,470 160,391 131,986 $ 28,767,73042,506,229$ (13,738,499) (17,348,401) Total net (expense) revenue General revenues Property taxes 14,943,008 14,307,993 Tax increments3,098,620 2,751,249 Lodging taxes881,252 882,620 Grants and contributions not restricted to specific programs590,916 496,679 Unrestricted investment earnings(108,661) 118,558 Gain on disposal of capital asset54,211 113,976 Total general revenues19,459,346 18,671,075 $ 1,322,6745,720,847$ Change in net position 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 that, for the most part, the City’s business-type activities are generating sufficient program revenues (service charges and program-specific grants) to cover expenses. This is critical given the current downward pressures on the general revenue sources. -20- LEGISLATIVE UPDATES Despite an improving economy, the 2013 Legislature faced the familiar prospect of having to address a significant projected deficit in order to adopt a balanced budget for the next biennium. The November 2012 financial forecast projected a deficit of $1.1 billion in the state General Fund for the 2014–2015 biennium, which was revised down to a $627 million deficit in the February 2013 forecast. Even with this challenge, there was an expectation that with one political party holding the Governor’s office and majorities in both the House and Senate, this biennial budget agreement would be reached more quickly and easily than the previous one, which featured numerous vetoes, a special session, and the longest shutdown of non-essential state government services in Minnesota history. While in the end there was no special session or government shutdown, the 2013 session still stretched until the final day allowable under the state constitution, with the last bill passed at midnight. The following is a summary of recent legislative activity affecting the finances of Minnesota cities in 2013 and into the future: Local Government Aid (LGA) – The state-wide LGA appropriation for fiscal 2013 was set to increase about 2.8 percent to $426.4 million. However, the 2012 Legislature froze 2013 LGA payments at 2012 levels for cities with a population of 5,000 or more. For cities with populations below 5,000, 2013 LGA was the greater of their 2012 aid or the amount they would have received for 2013 under existing law. The 2013 Legislature completely overhauled the LGA formula for fiscal year 2014 and thereafter, creating a three-tiered formula that includes separate “need factor” calculations for cities with populations under 2,500, between 2,500 and 10,000, or over 10,000. The new formula simplifies the LGA calculation, and is designed to reduce the volatility of the LGA distribution by limiting the amount it may decline in a given year. Under the new formula, each city’s LGA distribution for 2014 will be no less than their 2013 LGA. Beginning in 2015, any reduction to a city’s LGA distribution will be limited to the lesser of $10 per capita, or 5 percent of their previous year net tax levy. For cities that gain under the new formula, the increases will be distributed proportionate to their unmet need, as determined by the new “need factor” calculations. The state-wide LGA appropriation is $507.6 million for fiscal 2014, $509.1 million for 2015, and $511.6 million for fiscal 2016 and thereafter. Levy Limits – A levy limit for city property tax levies payable in 2014 was established for all cities with populations exceeding 2,500. The levy limit base is the certified levy (excluding special levies) plus the certified LGA for taxes payable in fiscal 2012 or 2013, whichever is greater, increased by 3 percent. The levy limit is equal to the base, less the city’s certified LGA for fiscal 2014. Levies for special purposes such as debt service, abatements, or voter-approved purposes, are not subject to this limitation. Market Value Definitions – A number of levy, tax, spending, debt, and similar limits that had previously been computed based on “market value” or “taxable market value” must now be computed based on “estimated market value.” This change was enacted to eliminate the effects of the homestead market value exclusion established in 2011. Levy Authority for Watershed Management Plan – Cites are granted the authority to levy taxes to provide funding for the implementation of a comprehensive watershed management plan. Tax Status of Leased Tax-Exempt Property – Tax-exempt property owned by a political subdivision and held under a lease for a term of at least one year, or under a contract for the purchase thereof, is considered to be the property of the person holding it for all purposes of taxation. This change makes the tax treatment of leased property owned by local governments consistent with leased property owned by the federal government. -21- Tax Increment Financing (TIF) – A number of changes and clarifications were made to rules governing the use of TIF, including: The prohibition on using tax increments for improvements or equipment primarily of a decorative or aesthetic nature, or with costs twice as high due to the selection of materials or designs compared to more commonly used improvements or equipment, is eliminated. The four-year rule originally applying to TIF Districts certified between January 1, 2005 and April 20, 2009 is extended through December 31, 2016. Development authorities may elect to reduce the original net tax capacity of qualifying TIF districts for the effects of the homestead market value exclusion that replaced the homestead tax credit program. Taxes paid by captured tax capacity of TIF districts that are attributable to the new general education levy authorized by the 2013 Legislature, will be paid to the school district that imposes the levy. Park Dedication Fees – A clarification was made to define the basis on which a city calculates a park dedication fee charged to a developer in lieu of dedicating land for park usage. The fee must be calculated on the fair market value of the land as annually determined by the city based on tax valuation or other relevant data. The new law also provides a method for resolving valuation disputes through negotiation or the use of independent appraisals of land in the same land use category. Host Community Economic Development Grants –A new program was created that will provide grants for the acquisition and improvement of publicly owned capital assets for metro-area cities that host waste disposal facilities. No local matching funds are required. Change to Small Cities Development Block Grants –The Minnesota Department of Employment and Economic Development is now allowed to provide a forgivable loan through the Small Cities Development Block Grant Program directly to a private enterprise. The city in which the private enterprise is located is no longer required to submit an application, only a resolution of support. Wastewater and Stormwater Funding – Several changes were made to wastewater and stormwater grant and loan programs administered by the Public Facilities Authority. The changes include expanded eligibility for some programs, and increased grant or loan ceilings for others. Sales Tax Exemption – Cities are exempted from paying sales tax on qualifying purchases, effective for purchases made on or after January 1, 2014. This exemption does not include purchases of goods or services to be used as inputs to goods or services cities provide to the public that are generally provided by a private business, such as liquor stores, golf courses, marinas, or fitness centers. Cities with a population over 500 will be required to include a property tax savings report along with its proposed 2013 payable 2014 property tax levy certification, with the amount of sales or use taxes paid or estimated to have been paid in fiscal 2012. Cities must also discuss the savings resulting from the sales tax exemption at their fall truth-in-taxation public hearings. Organized Solid Waste Collection – The process for imposing the city-organized collection of solid waste was streamlined and better defined. The previous 180-day process for cities to adopt organized collection of solid waste was eliminated. The process now begins with a 60-day period in which cities may negotiate with collectors currently operating in the city, thereby giving them the first opportunity to develop a proposal for organized collection. If the 60-day negotiation period ends without an agreement, a city may continue the process by passing a resolution to form a committee to study the methods of organizing collection and make recommendations. A city must provide public notice and hold at least one public hearing before deciding to implement organized collection. -22- Pensions – An omnibus pension bill was passed that made a number of changes to both state-wide pension plans and single employer relief associations, including: Changes to the Public Employees Retirement Association (PERA) General Plan: The “average salary” for determining surviving spouse and dependent benefits was o redefined. A number of clarifications were made to what constitutes “salary” for plan purposes. o Changes were made to the level of annual post-retirement adjustments, which will o vary based on the funding level of the plan. Changes to the PERA Police and Fire Plan: Increases employee contribution rate from 9.6 percent of salary to 10.2 percent for o fiscal 2014, and 10.8 percent for fiscal 2015 and thereafter. Increases employer contribution rate from 14.4 percent of salary to 15.3 percent for o fiscal 2014, and 16.2 percent for fiscal 2015 and thereafter. A 20-year proportional vesting period was established for new hires beginning in o 2014, under which the member becomes 50 percent vested after 10 years, and vests an additional 5 percent annually until fully vested at 20 years. The retirement annuity formula calculation was changed to incorporate the effect of o the new 20-year vesting period, and a new cap of 33 years on allowable service time included in the annuity calculation. The early retirement reduction factor was increased from the current 2.4 percent per o year to 5 percent, phased in over a 5-year period beginning July 1, 2014. Changes were made to the level of annual post-retirement adjustments, which will o vary based on the funding level of the plan. Changes to single employer relief associations: The threshold of assets at which police relief associations and salaried or volunteer o fire relief associations must prepare financial statements and have them audited by an independent auditor was raised from $200,000 to $500,000. Volunteer firefighter relief associations are now required to pay a supplemental o survivor benefit whenever it pays a survivor benefit, regardless of whether it is authorized in the association bylaws. Any change to the interest rate paid during the deferral period of lump-sum service o pensions must be approved by the governing body of the city or independent firefighting corporation to which the association is related. In addition, a new supplemental state aid was created to provide funding for pension plans. An annual allotment of $15.5 million will be distributed among the PERA Police and Fire Plan ($9 million), municipal volunteer firefighter associations ($5.5 million allocated based on proportionate share of fire state aid), and the Minnesota State Retirement System State Patrol Plan ($1 million). Expansion of Debt Authority – Several changes were made to expand the allowable uses of certain types of debt, including: Home rule charter city or statutory city capital notes are allowed to be used for the purchase of application development services and training related to the use of computer hardware and software. Capital improvement program (CIP) bonds are allowed to be used for expenditures incurred before the adoption of the CIP, if the expenditures are included in the plan. Street reconstruction bonds are allowed to be used for bituminous overlay projects, which previously had not been included in the definition of reconstruction. -23- Authorized Investments – The list of authorized investments for cities was expanded to include: revenue obligations issued by local governments without levy authority that are rated AA or better; short-term (13 month maturity or less) obligation issued by a school district that is either rated in the highest credit rating category or covered by the State of Minnesota Credit Enhancement Program; and short-term (18 month maturity or less) guaranteed investment contracts when the issuer’s or guarantor’s short-term debt is rated in the highest rating category, even if their long-term debt is rated below the top two rating categories. Elections –The Legislature passed an omnibus elections policy bill that made a number of changes and clarifications to election requirements, including: Establishing “no excuse” absentee balloting; Increasing the time for counting absentee ballots from 4 days prior to the election to 7; Reducing the number of people a voter may vouch for in a polling place from 15 to 8; Eliminating the requirement to have at least one telecommunications device for deaf voter registration in every city of the first, second, or third class; Requiring that the municipal clerk designated to administer absentee ballots also be responsible for the administration of a “ballot board”; Reducing the number of election judges required in a precinct for elections other than a general election from 4 to 3, for precincts with more than 500 voters; and allowing the minimum number of three election judges for all elections including general elections for precincts with less than 500 registered voters; Modifying the vote differentials requiring publically funded recounts to 0.25 percent in elections where more than 50,000 votes are cast, and 0.5 percent for elections in which between 400 and 50,000 votes are cast; Amending the time period in which cities are prohibited from holding a special election from the first 40 days following a general election to the first 56 days; Increasing the number of days’ notice a city clerk must provide to a county auditor before holding a municipal election from 67 to 74 days; and Establishing a pilot program and task force for the use of electronic rosters of voters. Alternative Bid Publication for Projects Funded by Special Assessments – A technical change was made to eliminate duplicative publication requirements for projects funded with special assessments. The definition of “recognized industry trade journal” was broadened to include websites or electronic publications, thereby eliminating circumstances that were forcing cities utilizing an alternative electronic publication method to also publish written notice for certain projects. Met Council Allocated Costs – A change was made to allow cities that are allocated costs by the Met Council to request the cost be deferred, or to be paid over time on a payment schedule with interest as agreed to by the Met Council. Liquor Licensing – An omnibus liquor bill was passed that made several changes to liquor licensing and distribution. Among the changes are: authorizing cities with municipal liquor operations to issue brewer taproom licenses that allow consumption on the premises or adjacent to malt liquor breweries; authorizing cities to issue brewers a license for off-sale of malt liquor packaged by the brewer; providing for the sale of malt-liquor educator licenses that will allow malt liquor tastings and education to be conducted similar to wine tastings; and allowing micro-distilleries to provide product samples on site. Tax-Exempt Holding Period for Development Property – The tax exempt holding period for city-owned land held for development is increased from 9 to 15 years for property acquired between January 1, 2000 and December 31, 2010, or for property located in a city outside of the metro area with a population under 20,000. -24- Citizen Contact Information Classified as Private Data –Citizen contact information submitted to cities in order to receive certain notifications or to subscribe to the city’s electronic publications, such as phone numbers or email addresses, is now classified as private data. The names of people on such lists remain public information. Criminal History and Background Checks –Cities are authorized to perform criminal history checks on applicants for: city employment, volunteer positions, or a license that does not otherwise subject the applicant to a criminal history check. Such criminal history checks may not be substituted for statutorily mandated background checks. Background checks are now required for all fire department applicants, and are allowed for current fire department employees. The fire chief is also required to perform criminal history record checks of applicants. -25- ACCOUNTING AND AUDITING UPDATES GASBSN.67–FRPP–A TATEMENT OINANCIAL EPORTING FOR ENSION LANS AN MENDMENT OF GASBSN.2550 TATEMENTOS AND The primary objective of this statement is to improve financial reporting by state and local government pension plans. GASB Statement No. 67 replaces the requirements of GASB Statement Nos. 25 and 50 for pension plans that are administered through trusts or equivalent arrangements that meet the following criteria: contributions from employers and nonemployer contributing entities to the pension plan and earnings on those contributions are irrevocable; pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms; and pension plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. The requirements of GASB Statement Nos. 25 and 50 remain applicable to pension plans that are not administered through trusts covered by the scope of this statement and to defined contribution plans that provide post-employment benefits other than pensions.The statement makes a number of changes in the financial statement presentation, measurement, and required disclosures relating to the reporting of these types of pension plans. This statement is effective for financial statements for fiscal years beginning after June 15, 2013. Earlier application is encouraged. GASBSN.68–AFRP– TATEMENT OCCOUNTING AND INANCIAL EPORTING FOR ENSIONS AN AGASBSN.2750 MENDMENT OF TATEMENTOS AND The primary objective of this statement is to improve accounting and financial reporting by state and local governments for pensions.This statement replaces the requirements of GASB Statement Nos. 27 and 50, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria (as described earlier for GASB Statement No. 67). The requirements of GASB Statement Nos. 27 and 50 remain applicable for pensions that are not covered by the scope of this statement. This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. In addition, this statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This statement also addresses circumstances in which a nonemployer entity has a legal requirement to make contributions directly to a pension plan. This statement is effective for financial statements for fiscal years beginning after June 15, 2014. Earlier application is encouraged. Included in this statement are major changes in how employers that participate in cost-sharing pension plans, such as the Teachers’ Retirement Association (TRA) and PERA, account for pension benefit expenses and liabilities. In financial statements prepared using the economic resources measurement focus and accrual basis of accounting (government-wide and proprietary funds), a cost-sharing employer that does not have a special funding situation is required to recognize a liability for its proportionate share of the net pension liability of all employers with benefits provided through the pension plan. A cost-sharing employer is required to recognize pension expense and report deferred outflows of resources and deferred inflows of resources related to pensions for its proportionate share of collective pension expense and collective deferred outflows of resources and deferred inflows of resources related to pensions. In addition, the effects of (1) a change in the employer’s proportion of the collective net pension liability and (2) differences during the measurement period between the employer’s contributions and its proportionate share of the total of contributions from employers included in the collective net pension liability are required to be determined. These effects are required to be recognized in the employer’s pension expense in a systematic and rational manner over a closed period equal to the average of the expected remaining service lives of all active and inactive employees that are provided with pensions through the pension plan. -26- GASBSN.69–GCDG TATEMENT OOVERNMENTOMBINATIONS AND ISPOSALS OF OVERNMENT O PERATIONS This statement provides accounting and financial reporting guidance, including disclosure requirements, for government combinations and disposals of government operations. Government combinations include mergers, acquisitions, and transfers of operations. Included within the scope of this statement are combinations of governmental entities, or combinations of governmental entities with nongovernmental entities (such as a nonprofit entity), as long as the new or continuing organization is a government. This statement does not apply to combinations in which a government acquires an organization that continues to exist as a separate entity, or acquires an equity interest in an organization that remains legally separate from the acquiring government. A disposal of operations occurs when a government either transfers or sells specific operations. The provisions of this statement are effective for financial statements for periods beginning after December 15, 2013. Earlier application is encouraged. CRFG HANGES TO EQUIREMENTS FOR EDERALRANTS In December 2013, the U.S. Office of Management and Budget (OMB) issued “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Audits,” which supersedes all or parts of eight OMB circulars; consolidating federal cost principles, administrative principles, and audit requirements in one document. The “Super Circular” includes a number of significant changes to the federal Single Audit process, including an increase in dollar threshold for requiring a Single Audit, changes to the thresholds and process used for determining major programs, a reduction in the percentage of expenditures required to be covered by a Single Audit, revised criteria for determining low-risk auditees, and an increase in the threshold for reporting questioned costs. The draft version of this guidance also included proposed reductions in the number of compliance requirements to be tested in a Single Audit, but final guidance on those changes will not be available until an updated compliance supplement is issued in 2014. -27-