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HomeMy WebLinkAbout2015 Management Report Management Report for City of Brooklyn Center, Minnesota December 31, 2015 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, 2015. The purpose of this report is to provide comments resulting from our audit process and to communicate information relevant to city finances in Minnesota. We have organized this report into the following sections: Audit Summary Governmental Funds Overview Enterprise Funds Overview Government-Wide Financial Statements Legislative Updates Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the City, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota May 23, 2016 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;T2U.S.CF GAS; OVERNMENT UDITING TANDARDS TATES OF MERICAANDITLEODE OF EDERAL R(CFR)P200, UAR,CP, NIFORMDMINISTRATIVEEQUIREMENTSOSTRINCIPLES AND EGULATIONSART (UG) ARFA UDITEQUIREMENTS FOR EDERALWARDS NIFORM UIDANCE We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended December 31, 2015, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards, and the Uniform Guidance, 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, 2015: We have issued an unmodified opinion on the City’s basic financial statements. Our report included a paragraph emphasizing that the City implemented Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions— an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68, during the year ended December 31, 2015. Our opinion was not modified with respect to this matter. We reported no deficiencies in the City’s internal control over financial reporting that we considered to be material weaknesses. The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. We reported 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 types of compliance requirements that could have a direct and material effect on each of its major federal programs. We reported no deficiencies in the City’s internal controls over compliance that we considered to be material weaknesses with the types of compliance requirements that could have a direct and material effect on each of its major federal programs. We reported no findings based on our testing of the City’s compliance with Minnesota laws and regulations. -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. The City implemented GASB Statement Nos. 68 and 71 during the year ended December 31, 2015. These statements provide new guidance on accounting and financial reporting for pensions accounted for in the financial statements of plan employers. Implementation of these standards resulted in an adjustment to the beginning equity reported in the City’s government-wide and proprietary fund financial statements, as described in Note 1 of the notes to basic financial statements. The application of remaining policies was not changed during the year ended December 31, 2015. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 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: Net Other Post-Employment Benefit (OPEB) and Pension Liabilities – The City has recorded liabilities and activity for other post-employment benefits (OPEB) and pension benefits. These obligations are calculated using actuarial methodologies described in GASB Statement Nos. 45 and 68. These actuarial calculations include significant assumptions, including projected changes, healthcare insurance costs, investment returns, retirement ages, proportionate share, and employee turnover. Depreciation – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets. 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. Where applicable, management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management, when applicable, were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. -2- 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 $492,981 and $51,609, respectively. The City recorded these amounts as revenue or expense in the period of issuance rather than amortizing over the payback period of the bonds. Management has determined that the effects of these items were immaterial, both individually and taken together, to each opinion unit’s financial statements taken as a whole. 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 23, 2016. 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 We applied certain limited procedures to the Management’s Discussion and Analysis 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. -3- We were engaged to report on the combining and individual fund statements and schedules accompanying the financial statements and the separately issued Schedule of Expenditures of Federal Awardswhich are not RSI. With respect to this 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 combining and individual fund statements and schedules and Schedule of Federal Expenditures of Awards to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory section and statistical section which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. -4- GOVERNMENTAL FUNDS OVERVIEW This section of the report provides you with an overview of the financial trends and activities of the City’s governmental funds, which include the General, special revenue, debt service, and capital project funds. These funds are used to account for the basic services the City provides to all of its citizens, which are financed primarily with property taxes. The governmental fund information in the City’s financial statements focuses on budgetary compliance, and the sufficiency of each governmental fund’s current assets to finance its current liabilities. PT ROPERTYAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For the 2014 fiscal year, local ad valorem property tax levies provided 39.0 percent of the total governmental fund revenues for cities over 2,500 in population. Property tax levies certified by Minnesota cities for 2015 increased about 4.0 percent over 2014, compared to an increase of 1.6 percent the prior year. A one-year levy limit imposed on cities over 2,500 in population for the 2014 levy year was lifted for the 2015 levy year. The total market value of property in Minnesota cities increased about 8.5 percent for the 2015 levy year, following a modest increase of 1.1 percent for levy year 2014 and a four-year trend of declining market values for levy years 2010 through 2013. Market values showed increases across all property categories for 2015, with gains in the market values of residential homestead properties (10.0 percent) and non-homestead residential properties (9.7 percent) outpacing the market value gain of commercial/industrial properties (2.2 percent). Because the assessed valuation used for levying property taxes is based on values from the previous fiscal year (e.g., the market value for taxes payable in 2015 is based on estimated values as of January 1, 2014), market value improvement has lagged behind recent upturns in the housing market and the economy in general. The City’s taxable market value decreased 0.7 percent for taxes payable in 2014 and increased 12.1 percent for taxes payable in 2015. 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 $– 2006200720082009201020112012201320142015 -5- 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 0.8 percent for taxes payable in 2014 and increased 5.3 percent for taxes payable in 2015. 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 $– 2006200720082009201020112012201320142015 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. Rates expressed as a percentage of net tax capacity All CitiesSeven-CountyCity of Brooklyn Center State-WideMetro Area 201420152014201520142015 Average tax rate City48.8 46.9 46.0 43.4 70.074.1 46.450.0 County47.6 44.7 46.6 42.9 36.939.8 School28.9 27.1 30.9 28.3 11.212.2 Special taxing7.3 6.9 9.5 8.8 164.5176.1 Total132.6 125.6133.0123.4 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. -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 Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as the City’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year due to the effect of inflation and changes in the City’s operation. Also, certain data on these tables may be classified differently than how they appear on the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of your city. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the Management’s Discussion and Analysis. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Governmental Funds Revenue per Capita With State-Wide Averages by Population Class City of Brooklyn Center State-Wide YearDecember 31, 2014201320142015 20,000–100,00030,42629,88929,889 Population2,500–10,00010,000–20,000 $ 496427$ 503$ 506$ Property taxes427$ 396$ 10446 127 123 Tax increments26 37 5037 52 58 Franchise fees and other taxes32 42 6264 60 57 Special assessments59 51 Licenses and permits28 27 3641 34 29 104166 91 159 Intergovernmental revenues298 264 Charges for services105 82 3590 41 32 2265 30 31 Other66 72 $ 909936$ 938$ 995$ Total revenue1,041$ 971$ 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 2015 was $995, an increase of about 6.1 percent from the prior year. This was primarily due to an increase in intergovernmental revenues, which increased $68 per capita as a result of increased Municipal State Aid (MSA) revenue received in the current year. -7- The expenditures of governmental funds will also vary from state-wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows: Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues. Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects. Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with state-wide averages, are presented in the following table: Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class State-WideCity of Brooklyn Center 201320142015 YeaDecember 31, 2014 r Population2,500–10,00010,000–20,00020,000–100,00030,42629,88929,889 Current General government131$ 104$$ 10087$ 106$ 98$ Public safet 237248 300254 322 335 y 65114 71 68 Street maintenance121 119 Parks and recreatio 10186 8292 82 93 n 11998 113 196 All othe 8969 r $ 650655$$ 666645$ 694$ 790$ Capital outla y and construction357$ 278$$ 284276$ 132$ 350$ Debt service Principal180$ 163$$ 87115$ 64$ 101$ 2934 27 32 Interest and fiscal54 40 $ 203234$$ 116149$ 91$ 133$ Total expenditures1,246$ 1,131$$ 1,0661,070$ 917$ 1,273$ 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 public safety and all other costs. The City’s per capita current expenditures increased $96 per capita in 2015 mainly due to the $83 per capita increase in the all other category. This increase was due to increased tax increment financing activity and the write-off of a forgivable loan. Capital outlay costs per capita increased $218 as a result of the 63rd Avenue Street Improvement Project, Freeway Park Area Street Improvement Project, and the capital building maintenance program project in the current year. Debt service costs per capita increased $42 as a result of scheduled bond payments. -8- GFB OVERNMENTAL UNDALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2015, presented both by fund balance classification and by fund: Governmental Funds Change in Fund Balance Fund Balance as of December 31,Increase 20152014(Decrease) Fund balances of governmental funds Total by classification Nonspendable80,359$ 21,967$ 58,392$ 3,931,298 Restricted30,365,411 26,434,113 (1,208,647) Committed9,306,224 10,514,871 (103,946) Assigned804,815 908,761 (463,297) Unassigned7,862,179 8,325,476 $ 46,205,18848,418,988$ 2,213,800$ Total – governmental funds Total by fund General11,170,917$ 11,020,081$ 150,836$ (701,990) Tax Increment District No. 317,196,759 17,898,749 (941,607) Tax Increment District No. 5(2,241,466) (1,299,859) 6,838,473 Debt Service8,747,914 1,909,441 (2,100,351) Capital Improvements4,408,879 6,509,230 (1,606,569) Municipal State Aid for Construction223,531 1,830,100 280,048 Infrastructure Construction(183,145) (463,193) 294,960 Nonmajor funds9,095,599 8,800,639 $ 46,205,18848,418,988$ 2,213,800$ Total – governmental funds In total, the fund balances of the City’s governmental funds increased by $2,213,800 during the year ended December 31, 2015. The majority of the increase was in restricted fund balances offset by a decrease in committed fund balances. Fund balances restricted for debt services increased $6,837,648 mainly due to the issuance of $6,600,000 of refunding bonds, which increased assets held in escrow in the Debt Service Fund. Committed fund balances decreased $1,208,647, mainly in the committed fund balance in the Capital Improvements Fund, as a result of capital building maintenance program improvements. -9- 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 10 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, $20,000,000 $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 $– 2006200720082009201020112012201320142015 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, 2015 was $11,602,236, which decreased $152,541 from 2014. Total fund balance at December 31, 2015 was $11,170,917, an increase of $150,836 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, 2015, the City’s General Fund had an unassigned fund balance of 52 percent of the subsequent year’s budgeted expenditures. -10- The following graph reflects the City’s General Fund revenue sources for 2015 compared to budget: General Fund Revenue Taxes Licenses and Permits Intergovernmental Charges for Services Other BudgetActual Total General Fund revenues for 2015 were $19,173,263, which was $79,338 (0.4 percent) under the final budget. The majority of this variance was from taxes, licenses and permits, and charges for services. Tax revenue was $219,494 under budget mainly due to less than anticipated excess tax increment revenue and less than anticipated delinquent collections. Licenses and permits revenue was $131,419 over budget from more than anticipated building-related activities. Charges for services revenue was $105,431 under budget due to the closure of the Community Center for improvements. 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 virtual elimination 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 20112012201320142015 Overall, General Fund revenues increased $307,641 (1.6 percent) from the previous year. Tax revenue increased $540,258, mainly due to the increased levy in the current year. This increase was offset by a decrease in other revenue of $241,865, mainly in licenses and permits. Licenses and permits revenue decreased as the prior year had several high dollar permits compared to the current year. -11- The following graph illustrates the components of General Fund spending for 2015 compared to budget: General Fund Expenditures General Government Public Safety Public Works Parks and Recreation Other BudgetActual Total General Fund expenditures for 2015 were $18,047,798, which was $1,167,414 (6.1 percent) less than budget. The largest areas under budgeted amounts were public safety expenditures ($627,116), general government expenditures ($281,926), and public works expenditures ($215,538). Public safety expenditures were under budget in the police protection department and protective inspection department due to open staff positions during the year. General government expenditures were under budget in the government buildings department mainly due to fewer repair and maintenance projects than anticipated and a budgeted software purchase that was delayed until 2016. Public works expenditures were under budget due to savings in fuel costs, central garage repair charges, and open staff positions in engineering 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 20112012201320142015 General Fund expenditures increased by $544,124, or 3.1 percent, from the prior year, mainly due to the $364,739 increase in the public safety function and $152,097 increase in the other function. Public safety expenditures increased mainly due to increased personal services, which included the addition of the Assistant Fire Chief position. The other function increased mainly due to increases in economic development expenditures and nondepartmental expenditures. -12- 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, 2015, presented both by classification and by fund: Enterprise Funds Change in Financial Position Net Position as of December 31,Increase 20152014(Decrease) Net position of enterprise funds Total by classification Net investment in capital assets47,201,239$ 48,537,132$ (1,335,893)$ Unrestricted10,438,971 7,164,916 3,274,055 $ 55,702,04857,640,210$ 1,938,162$ Total – enterprise funds Total by fund Municipal Liquor2,574,111$ 2,512,431$ 61,680$ Golf Course738,801 751,336 (12,535) Earle Brown Heritage Center5,447,526 5,519,579 (72,053) Water Utility12,646,350 12,120,465 525,885 Sanitary Sewer Utility14,109,468 13,668,175 441,293 Storm Drainage Utility20,872,042 20,086,788 785,254 Street Light Utility1,149,177 963,994 185,183 Recycling Utility102,735 79,278 23,457 $ 55,702,04657,640,210$ 1,938,164$ Total – enterprise funds In total, the net position of the City’s enterprise funds increased by $1,938,164 during the year ended December 31, 2015. 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. -13- Water Fund The following graph presents 10 years of operating results for the Water Fund: Water Fund Year Ended December 31, $2,750,000 $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 $– 2006200720082009201020112012201320142015 Operating Revenue Operating Expenses Project Costs Operating Income (Loss), Excluding Project Costs The Water Fund ended 2015 with a net position of $12,646,350, an increase of $525,885 from the prior year. Of this, $13,558,518 represents the investment in utility distribution system capital assets, leaving a deficit of ($912,168) in unrestricted net position. Water Fund operating revenue was $2,573,493 for 2015, an increase of $367,182 (16.6 percent) from the prior year due to an increase in consumption and an increase in rates in the current year. Operating expenses of $2,008,333 were $169,492 (9.2 percent) more than last year due to additional staffing allocated to this fund as a result of the water treatment plant construction in the current year and an increase in depreciation expense. -14- Sanitary Sewer Fund The following graph presents 10 years of operating results for the Sanitary Sewer Fund: Sanitary Sewer Fund Year Ended December 31, $4,200,000 $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) 2006200720082009201020112012201320142015 Operating Revenue Operating Expenses Project Costs Operating Income (Loss), Excluding Project Costs The Sanitary Sewer Fund ended 2015 with a net position of $14,109,468, an increase of $441,293 from the prior year. Of this, $10,396,599 represents the investment in the sanitary sewer capital assets, leaving $3,712,869 of unrestricted net position. Sanitary Sewer Fund operating revenues for 2015 were $4,093,725, which was an increase of $148,610 (3.8 percent) from the prior year, due to an approved rate increase offset by a decrease in consumption. Operating expenses for 2015 were $3,656,994, which was an increase of $160,930 (4.6 percent) from the prior year. The largest operating expense of this fund is to Metropolitan Council Environmental Services (MCES) for sewer service charges. MCES disposal charges in 2015 increased by $82,124 from the prior year. The remainder of the increase in operating costs is due to depreciation expense. -15- Storm Drainage Fund The following graph presents 10 years of operating results for the Storm Drainage Fund: Storm Drainage Fund Year Ended December 31, $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) $(400,000) 2006200720082009201020112012201320142015 Operating Revenue Operating Expenses Operating Income (Loss) The Storm Drainage Fund ended 2015 with a net position of $20,872,042, an increase of $785,254 from the prior year. Of this, $17,354,286 represents the net investment in capital assets, leaving $3,517,756 of unrestricted net position. Storm Drainage Fund operating revenues for 2015 were $1,635,555, which was a slight decrease of $2,920 from the prior year. Operating expenses for 2015 were $1,875,824, which was $88,760 higher than the prior year due to increased depreciation expense in the current year. -16- OEF THERNTERPRISE UNDS Liquor Fund The following graph presents 10 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 $– 2006200720082009201020112012201320142015 Sales Cost of Sales Operating Expenses Operating Income (Loss) The Liquor Fund ended 2015 with a net position of $2,574,111, an increase of $61,680 from the prior year. Of the net position balance, $129,667 represents the investment in liquor capital assets, leaving $2,444,444 of unrestricted net position. Liquor sales for 2015 were $6,056,668, which is $204,203 (3.5 percent) more than the prior year. The Liquor Fund generated operating income of $258,117 in 2015, or about 4.3 percent of gross sales, which is an increase from the 3.5 percent of gross sales in fiscal 2014. In 2015, the Liquor Fund transferred $216,455 to the Capital Improvements Fund for future capital projects. The Liquor Fund gross profit margin was 26.83 in fiscal 2015, which is lower than the average gross profit margin of 27.64 seen over the previous five years. -17- Earle Brown Heritage Center Fund The following graph presents 10 years of operating results for the Earle Brown Heritage Center Fund: Earle Brown Heritage Center Fund Year Ended December 31, $4,800,000 $4,400,000 $4,000,000 $3,600,000 $3,200,000 $2,800,000 $2,400,000 $2,000,000 $1,600,000 $1,200,000 $800,000 $400,000 $– $(400,000) $(800,000) 2006200720082009201020112012201320142015 Sales and User Fees Operating Expenses Cost of Sales Operating Income (Loss) The Earle Brown Heritage Center Fund ended 2015 with a net position of $5,447,526, a decrease of $72,053 from the prior year. Of the net position balance, $3,418,198 represents investments in Earle Brown Heritage Center capital assets, leaving $2,029,328 of unrestricted net position. Earle Brown Heritage Center Fund sales and user fees for 2015 were $4,487,260, which is $30,971 (0.7 percent) less than last year. Operating expenses for 2015 were $2,689,723, a decrease of $359,040 from the prior year. The decrease in operating expenses is due to a decrease in repair and maintenance costs, decreased equipment rental, and budgeted capital improvements not completed in 2015. During fiscal 2015, this fund experienced depreciation expense totaling $620,249. -18- Golf Course Fund The following graph presents 10 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) 2006200720082009201020112012201320142015 Operating Revenue Operating Expenses Operating Income (Loss) The Golf Course Fund ended 2015 with a net position of $738,801, a decrease of $12,535 from the prior year. Of this, $1,676,156 represents the investment in golf course land and capital assets, leaving a deficit of ($937,355) in unrestricted net position. Golf Course Fund operating revenues for 2015 were $208,225, which is $24,914 more than last year. Operating expenses for 2015 were $267,627, down $3,602 from the prior year. On an annual basis, this fund has had to borrow from other funds to fund cash flow needs. The interfund borrowing totals $937,470 (including $792,488 in initial funding of the golf course) at December 31, 2015. 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. -19- 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 noncapital-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 the City’s net position as of December 31, 2015 and 2014 for governmental activities and business-type activities: As of December 31,Increase (Decrease) 20152014 Net position Governmental activities Net investment in capital assets47,941,800$ 42,947,577$ 4,994,223$ Restricted36,810,593 28,061,977 8,748,616 Unrestricted(5,495,836) 12,357,196 (17,853,032) Total governmental activities79,256,557 83,366,750 (4,110,193) Business-type activities Investment in capital assets47,201,239 48,537,132 (1,335,893) Unrestricted8,452,630 6,819,765 1,632,865 Total business-type activities55,653,869 55,356,897 296,972 $ 138,723,647134,910,426$ (3,813,221)$ Total net position The City’s total net position at December 31, 2015 was $3,813,221 less than the previous year-end, mainly due to the $4,110,193 decrease in the governmental activities. As discussed earlier, the City recorded a change in accounting principle for reporting its participation in the Public Employees Retirement Association and City of Brooklyn Center Firefighter’s Relief Association pension plans that reduced beginning unrestricted net position by $8,041,229 in the governmental activities and $1,571,633 in the business-type activities. -20- 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 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, 2015 and 2014: 2014 2015 Program ExpensesRevenuesNet ChangeNet Change Net (expense) revenue Governmental activities $ 653,5353,527,323$ (2,873,788)$ (3,085,299)$ General government 1,747,21310,707,602 (8,960,389) (8,317,463) Public safety 5,487,9513,867,406 1,620,545 (1,759,305) Public works 135,604 (135,604)– (145,503) Community service 695,9863,053,328 (2,357,342) (2,300,461) Parks and recreation 1,423,2965,419,304 (3,996,008) (2,335,670) Economic development (723,000) (887,190) 723,000– Interest on long-term debt Business-type activities 6,061,6805,816,363 245,317 170,274 Municipal liquor 215,092270,307 (55,215) 93,799 Golf course 4,649,1624,739,543 (90,381) (559,279) Earle Brown Heritage Center 2,658,4972,179,892 478,605 382,474 Water utility 4,100,9613,694,880 406,081 443,734 Sanitary sewer utility 1,635,6551,883,154 (247,499) (146,332) Storm drainage utility 315,434292,282 23,152 15,422 Recycling utility 464,258281,661 182,597 209,532 Street light utility $ 30,108,72046,591,649$ (16,482,929) (18,221,267) Total net (expense) revenue General revenues 14,988,00715,320,998 Property taxes 3,790,3633,805,367 Tax increments 914,6511,075,425 Lodging taxes Grants and contributions not 1,499,0151,670,928 restricted to specific programs 345,586382,052 Unrestricted investment earnings 27,10027,800 Gain on disposal of capital assets Total general revenues22,282,570 21,564,722 3,343,4555,799,641 Change in net position 135,380,192138,723,647 Net position – beginning, as previously stated (9,612,862) – Change in accounting principle 135,380,192129,110,785 Net position – beginning, restated $ 138,723,647134,910,426$ Net position – ending 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. -21- LEGISLATIVE UPDATES Despite the 2015 legislative session beginning with a projected budget excess of $1.87 billion for the 2016–2017 biennium, the most favorable budget forecast in over a decade, little was accomplished during the regular legislative session due to partisan disagreement. The regular session adjourned without the Legislature bringing forth a number of significant funding bills, including the Omnibus Legacy Bill (funding for outdoor heritage, clean water, parks and trails, arts, and cultural heritage) and a bonding bill for capital projects. The Governor subsequently vetoed a number of other funding bills, including the Omnibus E–12 Education Bill due to the Legislature not addressing his demand for a universal preschool provision. Eventually, a one-day special session produced funding bills for E–12 education, jobs and energy, Legacy programs, environment and agriculture, and capital investment. The following is a summary of recent legislation affecting Minnesota cities in 2015 and into the future: Local Government Aid (LGA) – The Legislature completely overhauled the LGA formula for fiscal year 2014 and thereafter, creating a three-tiered formula that includes separate “need factor” calculations for cities with populations under 2,500, between 2,500 and 10,000, or over 10,000. The new formula simplified the LGA calculation, and reduced the volatility of the LGA distribution by limiting the amount it may decline in a given year. Beginning in 2015, any reduction to a city’s calculated LGA distribution will be limited to the lesser of $10 per capita, or 5 percent of their previous year net tax levy. For cities that gain under the new formula, the increases will be distributed proportionate to their unmet need, as determined by the new “need factor” calculations. The state-wide LGA appropriation was $516.9 million for fiscal 2015, and is $519.4 million for fiscal 2016 and thereafter. Sales Tax Exemption – Cities (both home-rule and statutory) were exempted from paying sales tax on qualifying purchases, effective for purchases made on or after January 1, 2014. Purchases of goods or services by an exempt local government for a publicly-provided liquor store, gas or electric utility, golf course, marina, campground, café, laundromat, solid waste hauling or recycling operation, or landfill will remain taxable. The 2014 Legislature extended the definition of tax exempt local government to include all special district; city, county, or township instrumentalities; economic development authorities; housing and redevelopment authorities; and all joint power boards or organizations. However, the effective date of this expanded exemption list was delayed until January 1, 2017 by the 2015 Legislature. Omnibus Bonding Bill – The Legislature approved a scaled-down Omnibus Bonding Bill during the special session, authorizing approximately $370 million in capital improvements. Included in the funding approved was $172.5 million for transportation infrastructure, $23.5 million for flood hazard mitigation, $10 million for Public Financing Agency (PFA) grants to municipalities for wastewater infrastructure, and $1.5 million to the Metropolitan Council for inflow and infiltration improvement grants to metro area cities. Legacy Funding – The Legacy bill included $9.25 million annually to finance grants for city water infrastructure improvements through the PFA. It also included $17.25 million annually to fund “SCORE” block grants to counties for recycling and waste reduction (a portion of which is passed through to cities) and $1 million of annual funding for a new grant program to establish or improve recycling programs in non-metro area cities. Broadband Initiative – The Omnibus Jobs and Energy Bill passed in the special session included $10.6 million to finance the Border-to-Border Broadband Grant Program, a one-time appropriation available until June 30, 2017. -22- Municipal State-Aid Streets – Included in the Omnibus Transportation Bill were annual funding allocations for municipal state-aid streets of $107.7 million for fiscal 2016 and $178.1 million for fiscal 2017, which represents an increase of approximately $41 million over the previous biennium. Small Cities Assistance Account – A one-time appropriation of $12.5 million was provided to create a new Small Cities Assistance Account to assist with construction and maintenance of roads located within eligible cities, defined as a statutory or home-rule charter city that does not receive municipal state aid street financing (generally those with a population under 5,000). The aid will be distributed to eligible cities biannually in each year funds are available based on the following formula: 5 percent equally to all eligible cities; 35 percent allocated proportionately on each city’s share of lane miles to the total for all eligible cities; 35 percent allocated proportionately on each city’s population to the total for all eligible cities; and 25 percent allocated proportionately on each city’s state-aid adjustment factor to the total for all eligible cities. Workforce Housing Grant Program – The Omnibus Jobs and Energy Bill included annual funding of $2 million for fiscal 2016 and 2017 for a new Workforce Housing Grant Program. Eligible cities can use the grants to develop “market rate residential rental property” to serve employees of businesses located in the eligible project areas. The maximum grant award may not exceed 25 percent of the rental housing development project cost; and awards must be matched by a local unit of government, business, or nonprofit organization with $1 for each $2 of grant funding. Automated License Plate Reader (ALPR) Policy – Law enforcement agencies that utilize ALPRs are required to establish policies governing their use that are consistent with statutory guidelines. The Legislature placed limitations on the type of data that can be collected using ALPRs, and clarified the circumstances under which that data is considered public or private. A limitation of 60 days was established for the retention of data collected by ALPR not related to an active criminal investigation. Standards were established for the sharing of ALPR data between law enforcement agencies. Elections – The Elections Omnibus Bill made numerous changes to elections administration laws, including requirements for filing fees for statutory cities, ballot formatting and marking, absentee ballots, and election recounts. Energy Conservation Measures – The Uniform Municipal Contracting Law was amended to add water metering devices that increase efficiency to the definition of energy conservation measures, enabling municipalities to enter into guaranteed energy savings contracts for the use of water metering devices. Responsible Contractor Requirement – The “responsible contractor” law enacted by the 2014 Legislature became effective on January 1, 2015. Contractors who bid on public contracts in excess of $50,000 are now required to certify that they are a “responsible bidder” in order to be awarded a contract as the lowest responsible bidder or best value alternative. The 2015 Legislature made several clarifications and modifications to the law, including: exempting design professionals and materials suppliers from the requirements; making motor carriers subject to the requirements and establishing a separate verification standard for them; excluding tax increment financing revenue from the value of a construction contract under the law; and allowing general contractors to submit bids without obtaining verification from all subcontractors that bid on the project (the successful prime contractor must submit a supplemental verification under oath prior to the execution of the contract). Appraisal Requirements for Eminent Domain – Effective July 1, 2015, the appraisal requirements for the acquisition of property by eminent domain are changed to require the acquiring entity to obtain at least one appraisal for the property proposed to be acquired only if the acquisition value is greater than $25,000. For acquisitions less than $25,000, the acquiring entity may obtain a minimum damage acquisition report in lieu of an appraisal. -23- Firefighter Employment Provisions and Volunteer Benefits – The Omnibus Public Safety Finance and Policy Bill made a number of changes related to firefighters, including: allowing relief association dues as a voluntarily payroll deduction, allowing volunteer firefighters to be paid less frequently than every 31 days, requiring the licensure of all full-time firefighters by the State Board of Firefighter Training and Education, and expanding “continued employer health insurance benefits” to include dependents of volunteer firefighters killed in the line of duty. Police and Firefighter Retirement Supplemental State Aid – The volunteer firefighter portion of the Police and Firefighter Retirement Supplemental State Aid Program was made permanent. The minimum obligation of municipalities to an associated relief association special fund is now reduced by the amount of both fire state aid and police and firefighter retirement supplemental state aid. Police and firefighter retirement supplemental state aid is also added to the calculation of the exception to municipal ratification requirement for lump-sum plans. Pensions – A number of changes to the pension plans administered by the Public Employees Retirement Association (PERA) were adopted, effective June 30, 2015, including: The future interest rate actuarial assumption for the PERA General Plan and PERA Police and Fire Plan are changed from 8.5 percent to 8.0 percent for actuarial valuations prepared after June 30, 2015. The refund repayment interest rate and prior service credit purchase payment determination rate for the PERA General Plan and PERA Police and Fire Plan are also changed from 8.5 percent to 8.0 percent. The CPI-based post-retirement adjustment mechanism for the PERA Police and Fire Plan is replaced with a flat 2.5 percent increase when the plan reaches a 90 percent funding level. The contribution stabilizer mechanisms applicable to the PERA General Plan are revised, broadening the factors the plan’s Board of Trustees may consider before recommending an increase in the plan contribution rates. Definitions of salary, termination of service, allowable service, retirement, and volunteer firefighter were revised for all applicable PERA plans. Changes in eligibility, service pension levels, ancillary benefits, and service time calculations were made to the PERA Statewide Volunteer Firefighter Plan, lump sum retirement division. A change was also made to create a “monthly benefit retirement division” within this plan to facilitate the transfer of individual volunteer firefighter association monthly benefit plans to the statewide plan. A number of administrative language changes were made to complete the merger of the Minneapolis Employees Retirement Fund into the PERA General Plan, which was effective January 1, 2015. -24- ACCOUNTING AND AUDITING UPDATES GASBSN.72, FVMA AIRALUE EASURE AND PPLICATION TATEMENT O The primary objective of this statement is to address accounting and financial reporting issues related to fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement provides guidance for determining a fair value measurement for financial reporting purposes. It also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. This statement generally requires investments to be measured at fair value. An investment is defined as a security or other asset that (a) a government holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash. This statement is effective for financial statements for fiscal years beginning after June 15, 2015. Earlier application is encouraged. GASBSN.73, AFRPR CCOUNTING AND INANCIAL EPORTING FOR ENSIONS AND ELATED TATEMENT O ATANSGASBS68,A SSETS HAT REOT WITHIN THE COPE OF TATEMENT AND MENDMENTS TO CPGASBS6768 ERTAINROVISIONS OF TATEMENTS AND The objective of this statement is to improve the usefulness of information about pensions included in financial statements of state and local governments for making decisions and assessing accountability. This statement also clarifies the application of certain provisions of GASB Statement Nos. 67 and 68 regarding 10-year schedules of required supplementary information (RSI) and other recognition issues pertaining to employers and nonemployer contributing entities. These changes will improve financial reporting by establishing a single framework for the presentation of information about pensions, enhancing comparability for similar information reported by employers and nonemployer contributing entities. The requirements of this statement that address accounting and financial reporting by employers and governmental nonemployer contributing entities for pensions not within the scope of GASB Statement No. 68 are effective for financial statements for fiscal years beginning after June 15, 2016, and the requirements of this statement that address financial reporting for assets accumulated for purposes of providing those pensions are effective for fiscal years beginning after June 15, 2015. The requirements of this statement for pension plans that are within the scope of GASB Statement No. 67 or for pensions that are within the scope of GASB Statement No. 68 are effective for fiscal years beginning after June 15, 2015. Earlier application is encouraged. GASBSN.74, FRPBPO INANCIALEPORTING FOR OSTEMPLOYMENT ENEFITLANS THER TATEMENT O TPP HANENSION LANS The objective of this statement is to improve the usefulness of information about post-employment benefits other than pensions (other post-employment benefits \[OPEB\]). This statement replaces GASB Statement Nos. 43 and 57. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in GASB Statement Nos. 25, 43, and 50. GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. -25- This statement will improve financial reporting primarily through enhanced note disclosures and schedules of RSI that will be presented by OPEB plans administered through trusts meeting the specified criteria. The new information will enhance the decision-usefulness of the financial reports of those OPEB plans, their value for assessing accountability, and their transparency by providing information about measures of net OPEB liabilities and explanations of how and why those liabilities changed from year-to-year. The net OPEB liability information, including ratios, will offer an up-to-date indication of the extent to which the total OPEB liability is covered by the fiduciary net position of the OPEB plan. The comparability of the reported information for similar types of OPEB plans will be improved by the changes related to the attribution method used to determine the total OPEB liability. The contribution schedule will provide measures to evaluate decisions related to the assessment of contribution rates in comparison with actuarially determined rates, if such rates are determined. In addition, new information about rates of return on OPEB plan investments will inform financial report users about the effects of market conditions on the OPEB plan’s assets over time and provide information for users to assess the relative success of the OPEB plan’s investment strategy and the relative contribution that investment earnings provide to the OPEB plan’s ability to pay benefits to plan members when they come due. This statement is effective for financial statements for fiscal years beginning after June 15, 2016. Earlier application is encouraged. GASBSN.75, AFRP CCOUNTING AND INANCIAL EPORTING FOR OSTEMPLOYMENT TATEMENT O BOTP ENEFITSTHERHAN ENSIONS The primary objective of this statement is to improve accounting and financial reporting by state and local governments for post-employment benefits other than pensions (OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. GASB Statement No. 74 establishes new accounting and financial reporting requirements for OPEB plans. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and RSI requirements about defined benefit OPEB also are addressed. This statement is effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. Similar to changes implemented for pensions, this statement requires the liability of employers and nonemployer contributing entities to employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. GASBSN.77, TAD AXBATEMENTISCLOSURES TATEMENT O This statement requires disclosure of tax abatement information about (1) a reporting government’s own tax abatement agreements, and (2) those that are entered into by other governments and that reduce the reporting government’s tax revenues. Tax abatements are widely used by state and local governments, particularly to encourage economic development. For financial reporting purposes, this statement defines a tax abatement as resulting from an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens. -26- The requirements of this statement improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government’s future ability to raise resources and meet its financial obligations, and (2) the impact those abatements have on a government’s financial position and economic condition. The requirements of this statement are effective for financial statements for periods beginning after December 15, 2015. Earlier application is encouraged. GASBSN.78, PPCM-ED ENSIONSROVIDED THROUGH ERTAINULTIPLEMPLOYEREFINED TATEMENT O BPP ENEFITENSION LANS The objective of this statement is to address a practice issue regarding the scope and applicability of GASB Statement No. 68,Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this statement, the requirements of GASB Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of GASB Statement No. 68. This statement amends the scope and applicability of GASB Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing, multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and RSI for pensions that have the characteristics described above. The requirements of this statement are effective for reporting periods beginning after December 15, 2015. Early application is encouraged. GASBSN.79, CEIPPP ERTAINXTERNALNVESTMENTOOLS AND OOL ARTICIPANTS TATEMENT O This statement establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. If an external investment pool meets the criteria in this statement and measures all of its investments at amortized cost, the pool’s participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this statement, the pool’s participants should measure their investments in that pool at fair value. This statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. The requirements of this statement are effective for reporting periods beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions are effective for reporting periods beginning after December 15, 2015. Earlier application is encouraged. -27- GASBSN.80, BRCCU— LENDINGEQUIREMENTS FOR ERTAINOMPONENT NITSAN TATEMENT O GASBSN.14 AMENDMENT OF TATEMENTO The objective of this statement is to clarify the financial statement presentation requirements for certain component units. This statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units—an amendment of GASB Statement No. 14. The requirements of this statement are effective for reporting periods beginning after June 15, 2016. Earlier application is encouraged. CRFG HANGES TO EQUIREMENTS FOR EDERALRANTS In December 2013, the U.S. Office of Management and Budget (OMB) Circular released final guidance on administrative requirements, cost principles, and audit requirements for federal awards. The final guidance, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), supersedes and streamlines eight existing OMB Circulars into one document that includes OMB Circulars A-21, A-87, A-89, A-102, A-110, A-122, A-133, and the guidance in OMB Circular A-50 on Single Audit Act follow-up. The Uniform Guidance, which is located in Title 2 of the Code of Federal Regulations (CFR), consolidates previous guidance into a streamlined format that aims to improve both its clarity and accessibility, lessen administrative burdens for federal award recipients, and reduce the risk of waste, fraud, and abuse. The Following is a Summary of Significant Changes for Grant Recipients: Changes time and effort documentation requirements by providing possibilities for alternative methods of accounting for salaries and wages based on achievement of performance outcomes. Non-federal entities must have a financial management system that includes, but is not limited to: a comparison of expenditures with budget amounts for each federal award, written procedures to implement the requirements of cash management, and written procedures for determining the allowability of costs in accordance with Subpart E – Cost Principles. Governments must comply with the new general procurement standards which include, but are not limited to: written standards covering conflicts of interest of employees engaged in the selection, award, and administration of contracts and documented procurement procedures that include an analysis of lease versus purchase alternatives when appropriate. Governments will now be required to follow the five procurement methods which include, at times, more restrictive compliance requirements than Minnesota Statutes. For example: small purchases (over $3,000 prior to October 1, 2015 and over $3,500 after October 1, 2015) will require quotes. There are new requirements for governments with subrecipients (or those making subawards), which include, but are not limited to: a required written risk assessment of each subrecipient, which may require you to provide training and on-site reviews of their program operations. For governments with subrecipients or those that operate as a fiscal host of a federal grant award and thus provide subawards, payments must be made in advance to the subrecipients, unless certain requirements are not met, then the reimbursement method can be used. -28- Among Other Matters Specifically Applicable to Auditors, Changes to the Uniform Guidance Include: Raising both the threshold that triggers a Single Audit and the threshold for Type A/B program determination to $750,000. Changing the high-risk program criteria for Type A programs. Reducing the number of high-risk Type B programs that must be tested as major programs. Revising the Type B small program floor. Reducing the percentage of coverage requirement to 40 percent for normal auditees and 20 percent for low-risk auditees. Revising the criteria for low-risk auditee status. Increasing the threshold for reporting findings to $25,000 in questioned costs and requiring more detailed information to be reported. Effective Dates: Year beginning January 1, 2015 – All administrative requirements and cost principles will apply to new awards made after December 26, 2014. Governmental entities are required to comply with the Uniform Guidance once the new regulations are in effect at the Federal government level (December 26, 2014). Any funding drawdowns made after January 1, 2015 must comply with the Uniform Guidance. Must document whether the entity is in compliance with the old or new procurement standards listed in Subpart D, Sections 200.317–200.326. The federal government has provided a two-year grace period for implementing the new procurement standards. Year beginning January 1, 2016 – All administrative requirements and cost principles will apply to new awards made after December 26, 2014. Subpart F – Audit Requirements are applicable. Year beginning January 1, 2017 – Must have implemented the new procurement standards of the Uniform Guidance, if the government initially elected the two-year grace beginning January 1, 2015. At this point, all of the new Uniform Guidance at Title 2 CFR 200 is applicable. Recommended Action Items: We recommend that award recipients familiarize themselves with the new requirements contained in the Uniform Guidance and develop a plan to become compliant with the new regulations. Consider the following – Attend training on the new uniform administrative requirements. Identify needed policy and procedure changes, especially in the areas of: Financial management o Payment o Procurement o Compensation o Travel costs o Identify internal controls that might need to be established or modified. Determine who within your organization is responsible for each action item. Determine the timing of each action item. Determine when you will implement the new procurement standards and document in writing. -29- THIS PAGE INTENTIONALLY LEFT BLANK