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2003 Audit Management Letter .-. CITY OF FRIDLEY, MINNESOTA ^ AUDIT MANAGEMENT LETTER — December 31, 2003 .. � .. ^ � ._ .. ^ ... ' � Tautges Redpath, Ltd. -• Certified Public Accountants and Consultants ` To the Honorable Mayor and Members of the City Council City of Fridley, Minnesota We have completed the 2003 audit of the City of Fridley and have issued our report thereon. Our Independent Auditor's Report is included in the City's Comprehensive Annual " Financial Report. — This Audit Management Letter provides a summary of audit results along with comparisons and trend analysis of financial results. Thank you for the opportunity to serve the City. We are available to discuss this report with you. — May 21, 2004 ��/.� �r�,�� /!��;��, �/�r. — HLB TAUTGES REDPATH, LTD. Certified Public Accountants ` ^ � White Bear Lake Office:4810 White Bear Parkway,White Bear Lake, Minnesota 55110, USA Telephone: 651 426 7000 Fax:651 426 5004 Hastings Office:1303 South Frontage Road, Suite 13, Hastings, MN 55033, USA Telephone: 651 480 4990 Fax: 651 426 5004 � HLB Tautges Redpath,Ltd.is a member of�International. A world-wide organization of accounting firms and business advisers. .. • • .. • Audit Management Letter Report Summary _ REPORT SUMMARY — Several reports are issued in conjunction with the audit. A brief summary is as follows: .. - • . . - • . Comp�ehensive Annual Financial • Financial statements • Unqualified("clean")opinion � Report(CAFR) • Foomotes on the Basic Financial • Su lemental information Statements Report on Compliance and Internal Results of testing • No compliance fmdings ,� Control • Internal controls over fmancial • No reportable conditions in reporting internal control � Compliance with laws, regulations,contracts and ""' ants State Legal Compliance Report • Results of testing certain • One fmding: provisions of Minnesota o Collateral for deposits �-- Statutes ... .., .. �.. ^, .. a -� ..� � - • � Audit Management Letter Executive Summary � Executive Summary Several areas highlighted for your reference include the following: ..., The City's property tax collection rate was 99.7% for 2003. Page 8 ^ The fund balance of the General Fund has declined $2.4 million since -, December 31, Z000. At December 31, 2003, the General Fund fund balance , was not sufficient to fulfill reserve requirements. Page 11 -� The Solid Waste Abatement Fund requires an additional annual funding � source. Page 18 ^ The Special Assessment Debt Service Funds are in a strong financial 1 position. Cash and pledged assets exceed debt by over $7 million at December 31, 2003. Page 19 .. The income of the Utility funds has decreased $850,000 since 2000 (from an income of$450,000 in 2000 to a loss of$400,000 in 2003). Page 24 �' The City was awarded the Certificate of Achievement for Excellence in ._ Financial Reporting for its 2002 Comprehensive Annual Financial Report (CAFR). Page 33 „� � � ,., ... � • .... • Audit Management Letter GASB 34— The Reporting Model GASB 34 - THE REPORTfNG MODEL ' The City of Fridley implemented for 2003 the Governmental Accounting Standards Board's Statement No. 34,Basic Financial Statements—and Management's Discussion and �- Analysis—for State and Local Governments. This accounting standard significantly changes how state and local governments report their financial activity to the public. In general, the ,,,,� new standards make government financial reporting more like the private sector. The most significant changes to the financial statements are as follows: • Government-wide financial statements(Exhibits A-1 and A-2 of the Comprehensive .-. Annual Financial Report) are prepared using full accrual accounting for all of the City's activities. " • Fund Financial Statements (Exhibits A-3 through A-9 and the Notes) focus on major funds rather than fund types. � • Bud�etary comparisons (Exhibits B-1 and B-2)includes both original and amended budgets. � • All capital assets are depreciated on the government-wide financial statements. • A Mana�ement's Discussion and Analysis (MD&A) is included in the financial ,.. .. statements. This provides an overview and analysis of the basic financial ,..� statements. � ._ --1 .� • • - • ,,,� Audit Management Letter Financial Statement Analysis � FINANCIAL STATEMENT ANALYSIS ' The basic financial statements of the City of Fridley are presented in Exhibits A-1 --� through A-9 of the 2003 Comprehensive Annual Financial Report. I -, Summary of Financial Activity A summary of financial activity for 2003 is as follows: "^ � Increase in Fund Balance/ Revenues and Expenditures and Transfers Fund Balance/ Net Assets Fund Other Sources Other Uses (Net) Net Assets 12/31/03 � General $10,070,151 $12,042,075 $1,284,089 ($687,835) $4,427,875 Special Revenue: Cable TV ]71,287 124,019 - 47,268 400,353 �-. Grant Management 839,860 862,976 23,116 - - Solid Waste Abatement 277,807 310,833 - (33,026) 19,846 HRA Reimbursement 25,06] 25,476 - (415) - Drug and Gambling Forfeiture 16,944 12,042 - 4,902 51,774 .-. Housing Revitalization - - (250,000) (250,000) - FCC Donations 1,461 1,882 - (421) 89,022 Police Activity 28,312 - (345,195) (316,883) 1,611,017 Debt Service: ,,,� Special Assessment 580,33D 261,599 (488,005) (169,274) 6,680,867 Taa�Increment 1,636,291 1,637,323 - (1,032) 37,353 Capital Project: Capital Improvemeats 1,009,921 726,339 (349,457) (65,875) 6,782,292 Special Assessment 18,606 721,730 704,561 1,437 (291,864) `� Enterprise: Liquor 5,375,904 5,014,499 (450,500) (89,095) 1,835,577 Water 1,857,614 2,030,654 12,046 (160,994) 10,381,989 Sewer 3,228,732 3,419,100 12,954 (177,414) 8,757,939 '� Storm Sewer 431,523 359,189 (133,609) (61,275) 5,692,169 Internal Service: Employee Benfits 16,957 31,934 (20,000) (34,977) 79,365 .-. Self Insurance 32,406 70,633 - (38,227) 1,978,693 Information Systems 169,863 171,299 - (1,436) 1,150,989 HRA: General 604,673 308,562 (30,173) 265,938 9,185,008 � Revolving Loan 101,193 40,612 84,923 145,504 3,541,492 HousingPrograms 507 15,853 (5) (15,351) 16,IA1 T�Increment 3,932,937 3,878,085 (54,745) 107 2,385,377 .-. Total $30,428,340 $32,066,714 $0 ($1,638,374) $64,813,274 ... .,. • • .. � Audit Management Letter Financial Statement Analysis — Cash and Investments ,_ Cash and investment balances of Minnesota cities are commonly restricted by statutory requirements and long range financial planning objectives. The following schedule illustrates — this point by presenting cash and investment balances by fund type: � Cash and Investment Balances December 31, Increase Fund Type 2002 2003 (Decrease) .,., General $5,332,858 $4,614,211 ($718,647) Special Revenue 2,852,954 2,268,774 (584,180) Debt Service 6,231,507 6,114,215 (117,292) „� Capital Projects 6,491,895 6,547,300 55,405 Enterprise $,077,108 8,035,513 (41,595) Internal Service 3,820,946 3,710,672 (110,274) ` Agency 17,568 20,157 2,589 HRA-in total 13,925,176 15,149,826 1,224,650 $46,750,012 $46,460,668 ($289,344) r Governmental accounting standards require the reporting of investments at fair value (i.e., market value). Therefore, investment income consists of interest, dividends and the change in market value of investments. � w i • --� i .�. • • � . � Audit Management Letter , Financial Statement Analysis _. Investment income of the City for the past three years is as follows: � ., 2001 2002 2003 � Interest and dividends $1,656,405 $796,963 $533,157 Market value change 47,817 110,846 (23,971) .. Total $1,704,222 $907,809 $509,186 -� Mort��e Receivable � The City's Housing and Redevelopment Authority (HRA) has mortgages receivable '� which have been used to provide assistance to residents and developers. A summary of mortgages receivable is as follows: ~ � Balance Loans Principal Balance Description 1/1/2003 Issued Repayments 12/31/2003 .. Home Improvement Loan Program $1,411,033 $6,000 $700,740 $716,293 , ACCAP 52,961 - 959 52,002 Sheet Metal Connectors 14,945 - 14,945 - � AGRO-K 59,841 - 3,413 56,428 Industrial Equities 78,714 - 18,245 60,469 Tamarisk 9,072 - 1,836 7,236 ,,,� Total $1,626,566 $6,000 $740,138 892,428 Less allowance for uncollectible accounts (29,600) ^ Total $g62�g2g The Home Improvement Loan Program was started in 1996. This program is being _-. funded in part by a $LS million loan to the HRA from the City made in 1997. The balance of the loan at December 31, 2003 was $599,420. .. ._ ... • • .. • Audit Management Letter Financial Statement Analysis Property Taxes Receivable ... A schedule of property tax activity for the past three years is as follows: � 2001 2002 2003 Delinquent taxes-January 1 $118,399 $132,403 $112,252 ,,,� Tax levy 4,205,000 5,613,132 5,825,855 Total collectible 4,323,399 5,745,535 5,938,107 Collections 4,156,425 5,589,654 5,809,800 Less adjustments 34,571 43,629 47,983 �` Delinquent taxes-December 31 $132,403 $112,252 $80,324 Total collections as a percent "' of current levy 98.8% 99.6% 99.7% As presented above, the City is experiencing a consistently solid collection rate for — property taxes. r ^ � �� • � --� � � . Audit Management Letter ^ Financial Statement Analysis � Tax Increments � A schedule of tax increment revenues by district is as follows: ,,,� Delinquent Delinquent � District Balance 2003 2003 Balance � No. Name U1/03 Levy Collections Adjustment 12/31/03 � 1 Center Ciry(A-2,A-8) $5,328 $346,023 ($343,057) ($1,453) $6,841 2 Moor�e Lake(A-5,A-9) 601 392,335 (387,408) (1,458) 4,070 3 North Area(B-2,B3,D-3,D-5) 21,268 951,972 (896,160) (30,126) 46,954 4 Johnson/Skywood(B-9,G1)-Decertified - - - _ _ ,,,,� 5 Paschke(C-6)-Decertified - - _ _ _ 6 Lake Pointe(E-8) 263 1,360,266 (1,353,665) (4,956) 1,908 ` I 7 Winfield(G-3) 27 34,152 (34,011) {127) 41 8 Shorewood(G-4)-Decertified - - - _ _ ..� 9 Onan/Old Central(K-1) 639 438,936 (435,693) (1,574) 2,308 j 11 University/Osborne(L-6,L-7) - 27,353 (27,255) (98} - 12 McGlynn Bakery(L-9,M-1) - 39,931 (39,787) (]44) - 13 Satellite Ln Apts(N-1) 9 33,456 (33,343) (122) - �"� 14 North Park Business Ctr(N-6) 65 43,728 (43,555) (173) 65 I S MN Comm Rail(P-7)-Decertified - - - _ _ � 16 57th Ave Replace(P-8) - 14,668 (14,616) (52) - 17 Gateway East(R-9) - 2,835 (2,480) - 355 ^ HRl Housing Repl(O-4,O-5,0-6,Q-2,Q-4) 16 16,265 (16,217) (10) 54 Total $28,216 $3,701,920 ($3,627,247) ($40,293) $62,596 � As shown above, the HRA has 17 tax increment districts. Reporting requirements .. implemented by the Office of the State Auditor(OSA)require reporting of tax increment activity by district. During 1998 the City/HRA created a separate fund for each tax increment ,� district to facilitate reporting requirements. ,.. .. � .� � • � ... • Audit Management Letter General Fund GENERAL FUND — The fund balance of the General Fund decreased by $687,835 in 20Q3 as follows: 2003 V ariance „� Favarable Budget Actual (Unfavorable) Revenues: ... Taxes $5,246,655 $5,219,547 ($27,108) Special assessments 7,800 2,942 (4,858) Licenses and permits 422,800 557,920 135,120 _ Intergovernmental revenue 3,183,108 2,500,6$8 (682,420) Charges far services 1,380,225 1,275,512 (104,713) Fines and forfeits 190,500 203,533 13,033 Investment income 400,000 87,349 (312,651) �` Miscellaneous 184,146 222,660 38,514 Total revenues 11,015,234 10,070,151 (945,083) "' Expenditures: Current: General government 2,515,871 2,331,581 184,290 — Public safety 5,165,788 4,925,525 240,263 Public works 2,875,638 2,675,740 199,898 Community development 762,147 742,592 19,555 ,..� Recreation and naturalist 1,240,609 1,068,875 171,734 Capital outlay 327,980 297,762 30,218 Total expenditures 12,888,033 12,042,075 845,958 Revenues over(under)expenditures (1,872,799) (1,471,924) (99,125) Other fmancing sources(uses): Transfers in 1,048,095 1,298,595 250,500 Transfers out � (101,651) (14,506) 87,145 Total other financing sources(uses) 946,444 1,284,089 337,645 Net increase(decrease)in fund balance ($926,355) ($687,835) $238,520 � �... 1 ... -�. •�, � • ,..� Audit Management Letter General Fund � The City's December 31, 2003 General Fund balance totaled $4,427,875. The City's � general fund balance has been as follows for the past four years: .... $8,000,000 General Fund Balance ^ $7,000>000 — — — __ __ —_ —— - _ __ _ �::,;::,.,::.:,>::» <:.::::.::.:.:.. -. .�.� l �� . $6�� _ � ��;,::: — _ ✓ / . . ..c . . _ . .. .. ... > > o ..�!. . '.':`'�'�f` �� ,... :, if::'�:::<; ::::.�°'a"gf� ��:>::is.z:«» .: :.:: '�:'�� ..::::. ,,., F � :. ,. ;::l . ..... , :.:: ::::::: —_. _. $5�0�� ,• ; ,�:�.�� _ — ""1 I %'�'�'�;�f;=: :<�%�,;� `>��y: :/,<�,�' �i,�.".>�. <.�::;>� ...... �:j�:l'�l�' o.l.�/ ;.',,.�t•:.;� ;%.�::•,f.;.�`:::'ts:ii:!'t� _ . . . _ � :.. ::::::: .�. ;o:,v,v .�. ,,:.. ...::::.: �.:..... o; ,>:::::', .::.. Q� :::. >:::::, r ;�,:: . � �D4��0� _ '��'.�:.1 ...... .: ::.. . . �. .. .__... , ,��:::;<. �;< <::�%::.::�� ::f�:>",. ' ..,:,",, `:;/.<;. %/ �_°_��':: ;��i.,.. `:;�..� �:.��..:. ..:;> r�..� >.:;�,:*;.,;; /.:::.,� ;,:,..,..:, >��.`'%� <::f '>�..: :i<:::::i': /si::''` ..� ,.�'/.'<:� s�':i .�%. �:�s;»:>:>:� - _ ,�,�r,::t>:>;, — �:;-. Q� _ . / . �„!%<, _ . _— . 3.�:��:.� .�:.o,.::� r �D3�� ';;�"j.5.. ��' .i:'SS ,,:7::s'r';�::`;,.� f'��:. > > .:r,f �/ .;:/:;.::g•�y �...� . '�l� �,;; i �'<. ,,,��,.>>... .� >, <;�� , .,; .�.,,:: ,..� �� .�.> i:�� :�_�� /�.: �� : �i.. '�f�.. ��::».,,. j.,' .��:;;>� �`:��.: ,�_� �,''� ,.:�..�,� . „ .:... . ,�/ �. »;_:./. ,.;i __ .l:::.>.:: �. . ,.:. . $2,000,000 ,.. ' ,:>::>. ;:%,/// �� r..;<<,;,:�' — � :��:. :�f/ y.>l;.£::>`%e:: �� ..:F..., `� :�.::.,:.-`: :.I/>, .;:,::.: -. � .�.., f..I � �,. .,,�:: ,. �:,. . ��. �.. ,,.�, .;�. :�. .:�.�:: ,,. :.,;. , . :.. : ... , «; , „ , , . � .. �: , �, .:.,. _ . . ,: : .,. , ; � o00 000 . : : :. $ , , ,,..,::.:::::::. . : .::,:; ::�,..: �.::::,; ;::,. ;,_; .,:�; :..,.., . <;�� ;,. �, ;..��<,�<,�%; �,�.�<::::� , ,w;.�:..... >,,.��',<�'.::. ;;�.:.::::..:.::<, .:::y�. ��,/1,�:`3:.�'.�" </,:. / �'... '�.»:. ;;;,.:�: �,::`::<.::::3 ` ,/:>�:>:>::�:> �,/,/> :f;::i.�.:`:::: ',/.,;•?.':':.>..:>,;,:: �... �� ... <i Q 'r:... :.:�...:.: ��:::: .o..� � :.;:::<: ' �� O ::.:. :... r:.. ...... ..:.::: :.::::: . •D � 2000 2001 2002 2003 2004 Budgeted ..r As shown above, the fund balance of the General Eund has decreased approximately $2,000,000 since 2000. The 2004 budget anticipates a further decrease of$940,000. � .. � � .� ,•. ... • .. • Audit Management Letter General Fund The continuing reduction in fund balance has not allowed the City to maintain General — Fund reserves as provided by Resolution 96-1991. A comparison of reserves established by Resolution 96-1991 and the amount of fund balance available is as follows: .. .� General Fund Fund Balance Reserves Reserve Per Policy Amount Designation (Res 96-1991) Available Deficiency — Inventory $43,502 $43,502 $ - Long-term receivables 45,910 45,910 - Working capital 4,455,470 4,338,463 (117,007) .-. Ensuing year's budget 704,780 - (704,780) Capital asset replacement 426,826 - (426,826) Contingency 1,224,624 - (1,224,624) Total reserved/designated $6,901,112 $4,427,875 ($2,473,237) � ... ..., ... .... - � --• • • ..ti Audit Management Letter General Fund -� Working Capital Reserve � Approximately 75% of the General Fund's revenue sources are from property taxes and ,.., state aids. These revenue sources are not received until the second half of the fiscal year. As such, a working capital reserve at December 31 is required to finance operations for the first —. six months of the year. For the City of Fridley, the required working capital reserve is computed as follows: `"' I -, 20041oca1 government aid $942,038 2004 property tax levy(includes HACA) 6,483,745 Total $7,425,783 -� Required working capital reserve (sixty percent of total) $4,455,470 .. .� As shown above, the required reserve of$4,455,470 is $117,007 greater than the amount available to be designated. .. � � .. � .. • ... • Audit Management Letter General Fund The following graph of monthly General Fund cash balances illustrates the impact of .ti receiving property t�es and state aids in the second half of the year: "` s6,000,000 $5,000,000 __ __. .. . .._------. . . ..._ ..- � -- - __. ._._—. __. $2.9 rtilllion � -�--.... r decrease $4,000.000 .. _. _ . ....._— —. . ._... .. . ._. .. $3,000,000 ._...__—.. .. _ ._.. _ ... _ .___ _. $2,000,000 _ . . _ _ . . _---.._— _ _._--- .._ _ ._ . __.... . .� $1,000,000 ... . .--- - - ---_. ._ —... . _.. $0 __ - -- ---._. . ._ __... .... ... ... .. _..._---. —.. ._ —... 1/7/2003 1/31/2003 2/28/2003 3/37/2003 M30/2003 5/31/2003 fiJ30/2003 7/31/2003 $/37/2003 9/3W2003 10/31/2003 11/30/2003 1?J31/2003 -�Sefiesl $b.332,850 $4,606.565 $4,055,972 $3,381,473 �$2,864.813 $2,402,886 $3,449,487 $5,263,973 $4,415,301 $2,602,322 $2,472,750 $1,966,808 $4.709.521 � As shown above, the cash balance decreased $2.9 million between January 1 and May ^ 31, illustrating the need for a cash flow reserve. � � .� �-. ^ • • • -� Audit Management Letter General Fund -, Contingency Reserve ', The City's established formula for the calculation of the contingency designation is ten ,ry percent of the ensuing years' budgeted expenditures as follows: � � 2004 budgeted expenditures $12,246,241 Applicable percentage 10% ^ Contingency reserve $1,224,624 Fund balance available amount ^ for contingency reserve $ - ... The General Fund balance at December 31, 2003 was not sufficient to fulfill this ., requirement. -� Subsequent Years' Expenditures Reserve �, This designation is an amount of fund balance needed to balance the ensuing years' -, budget. The amount needed to balance the 2004 budget is $704,780. ; .� Fixed Asset Rellacement Reserve ' This reserve is an amount equal to 10% of the General Fund's investment in general ,^ fixed assets. The amount needed at December 31, 2003 was $426,826. However, at � December 31, 2003, there was not sufficient fund balance to fulfill this requirement. � ., --. � � ,— � ,,,, - • . Audit Management Letter General Fund A summary of the purposes of General Fund reserve balances is as follows: .., , �'�� '�� :�� a��:�� Cash Flow Timing ; ; ' ; ; ::.. Difference ' ; — Intergovemmental � Capital Outlay ;; .. Revenue Cutbacks ;; ; � ;; , ,,. Replacement ... �,� �"�"` ' '"�'�w�, " °: 'r�"""°� ; ! ` <.. �`"�+�k;s '� ; �"''�w�"� ;. '"£'�►�,�""� ' ' ""�""�' : ; � Emergency or Unanticipated Special Expenditures , P � cts ro'e --� ^-. • • • —� Audit Management Letter Special Revenue Funds � SPECIAL REVENUE FUNDS � Special Revenue Funds are a classification of funds to account for revenues (and -, expenditures related thereto) segregated by City policy or Federal or State Statutes for specific purposes. The City maintained eight Special Revenue Funds during 2003 as follows: -- -� Fund Balance December 31, Increase Fund 2002 2003 (Decrease) —. Grant Management $ - $ - $ - Cable TV 353,085 400,353 47,268 ,..� Solid Waste Abatement 52,872 19,846 (33,026) HRA Reimbursement 415 - (415) Drug and Gambling Forfeiture 46,872 51,774 4,902 � Housing Revitalization 250,000 - (250,000) F.C.C.Donations 89,443 89,022 (421) Police Activity 1,927,900 1,611,017 (316,883) .. Totals $2,720,587 $2,172,012 ($548,575) � Police Activity Fund _. On April 13, 2000 the City received $2,242,586 from the Public Employees Retirement Association (PERA) These monies consist of excess police pension residual assets. The City -, was required to adopt a policy on the use of these monies. This policy provides for funding of police personnel and funding for capital outlay purchases and information technology. ^ � A -, � .., • � - � . Audit Management Letter Special Revenue Funds Housing,Revitalization Fund ,,, This fund was closed in 2003. The remaining fund balance of$250,000 was transferred to the General Fund. � Solid Waste Abatement Fund .- For the past several years, this fund has experienced expenditures in excess of revenues as follows: Net ^ Year Revenue Expenditures Decrease 2000 $283,608 $312,708 ($29,100) — 2001 285,158 317,823 (32,665) 2002 287,319 332,610 (45,291) 2003 277,807 310,833 (33,026) — During 2002, the City transferred into this fund $129,384. However, as shown above, this fund needs an additional annual funding source. We recommend the City determine a ^ funding source for this activity. ^ � � � - - • . Audit Management Letter ^ Debt Service Funds DEBT SERVICE FUNDS Debt Service Funds are a type of governmental fund to account for the accumulation of ^ resources for the payment of interest and principal on debt (other than Enterprise Fund debt). .. Current governmental reporting standards do not provide for the matching of long-term debt with its related financing sources. Although this information can be found in the City's -- CAFR, it is located in several separate sections of the CAFR. The following schedule extracts information from these sections of the CAFR to provide an overview analysis of long-term debt and its related funding. .. The reader is cautioned that 1) future interest revenue from assessments and investments, and 2) future interest expense on bonded debt, is not include in the following '-' schedule. � December 31,2003 Scheduled Final Fund Fund Deferred Outstanding Property Maturity � Description Balance Revenues Total Debt 'Ca�ces Date Ta�c Increment Debt:�� ,� TI temporary bonds of]998 $ - $ - $ - $4,030,000 * 2/1/2012 TI refunding bonds of 1997 37,353 - 37,353 6,675,000 * 8/1/1909 Total tax increment debt 37,353 0 37,353 10,705,000 0 .--� Special Assessment Debt Closed Bond Fund 6,601,043 128,882 6,729,925 - - HRA pass-through 15,876 - 15,876 - - Special assessment bonds of 1991 182,286 94,684 276,970 75,000 - 2/1/2005 —. Special assessment bonds of 1992 84,220 189 84,409 50,000 - 2/1/2004 Special assessment bonds of 1994 62,562 0,351 68,913 70,000 - 2/1/2005 Special assessment bonds of 1996 243,572 73,213 316,785 120,000 - 2/1/2012 Improvement Bonds ofFuture (508,692) 630,034 121,342 - - N/A �-+ Total special assessment debt 6,680,867 933,353 7,614,220 3]5,000 0 Totals-All Debt Service Funds $6,718,220 $933,3�3 $7,651,�73 $11,020,000 $0 �-. '•`Ta�c increment colleetions are subject to future valuations�vithin the District. ��The General Fund of the HRA has$3,000,000 designated for debt service. .. .� • .�. � Audit Management Letter Debt Service Funds .. The previous schedule indicates that the special assessment supported debt of the City is in strong financial position. Cash and pledged assets exceed debt by over $7.6 million at ,� December 31, 2003. ... Closed Bond Fund The Closed Bond Fund has a balance available of approximately $6.7 million. The City — currently has an informal policy regarding the use of this fund. This informal policy provides for inflationary growth in fund balance. Additionally, investment income of this fund is used " as supplemental financing of the General Fund. � ., ^ 1 • � � Audit Management Letter Capital Project Funds ^ CAPITAL PROJECTS FUNDS The fund balances (deficits) of the Capital Projects Funds were as follows at December � 31, 2002 and 2003: ^ Fund Balance(Deficit) December 31, Increase " Fund 2002 2003 (Decrease) Capitallmprovements $6,848,167 $6,782,292 ($65,875) Special Assessments (293,301) (291,864) 1,437 -- Totals $6,554,866 $6,490,428 ($64,438) .� Capital Improvements ^ The Capital Improvements Fund accounts for improvement projects which are funded by: "' ♦ General obligation bond issues ♦ MSA construction allotments ^ ♦ Property taxes � ♦ Donations and other miscellaneous sources � -� � • • - ^ - • . Audit Management Letter Capital Project Funds Financial activity for the past three years of the Capital Improvements Fund is as follows: .. 2001 2002 2003 Fund balance-January 1 $4,971,191 $3,981,883 $6,848,167 Revenues and other sources: Property taxes and special assessments 76,047 83,297 87,005 Intergovernmental revenue 15,000 502,290 684,841 �' Investment income 224,402 193,153 106,709 Donations and other 34,265 7,051 131,366 Transfer from Capital Improvement Fund 205,654 - - ,.., Transfer from Enterprise Fund - ]00,000 100,000 Transfer from Special Assessment Debt Service Funds - 2,587,443 30,543 Total revenues and other sources 555,368 3,473,234 1,140,464 "' Expenditures and other uses: Genera(government - - 3,880 Public works 99,177 252,840 - _ Capital outlay 537,844 225,529 722,459 Transfer to Special Assessment Capital Projects Fund 907,655 128,581 480,000 Total expenditures and other uses 1,544,676 606,950 1,206,339 .... Fund balance-December 31 $3,981,883 $6,848,167 $6,782,292 • - • . Audit Management Letter � Capital Project Funds The City has designated the fund balance of this fund as follows: _. Designation Amount -� Capital asset replacement $286,987 Park improvements 1,787,902 Street improvements 4,707,403 ^ Total $6,782,292 _.. Special Assessments .. This fund accounts for assessable construction projects. The City maintains separate sub-funds for each bond issue or project grouping. .. At December 31, 2003 this fund had a fund deficit of$291,864. The December 31, —. 2003 fund balance consists of the following sub-funds: .. Increase Transfers (Decrease)in Fund Balance � Sub-Fund Project Revenue Expenditures Net Fund Balance (Deficit) 351 Revolving $9,465 $16,831 $ - ($7,366) $122,107 � 501 Curb Construction 7,780 7,780 - - (11,178) 503 Driveway Construction 1,164 - - 1,164 (6,303) ^ 561 2002 Streets - 5,225 409,354 404,129 - 562 2003 Streets 197 690,403 295,207 (394,999) (394,999) 563 2004 Streets - 1,491 - (1,491) (1,491) � -•. Total $18,606 $721,730 $704,561 $1,437 ($291,864) ^ .... ... � .. ' Audit Management Letter Enterprise Operating Funds ^ ENTERPRISE OPERATING FUNDS — The City maintains four Enterprise Operating Funds. The financial statements for these funds are presented in Exhibits A-6 through A-8 of the 2003 Comprehensive Annual ^ Financial Report. " Summary The City's utility operations continue to report a decline in earnings. A history of — income (loss) is as follows: Storm Year Water Sewer Water Total — 2000 $48,430 $240,726 $164,256 $453,412 2001 (49,395) 53,552 47,908 52,065 ' 2002 (221,095) 61,198 (87,230) (247,127) 2003 (160,994) (177,414) (61,275) (399,683) ... • - • . ,-. 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Audit Management Letter ^ Enterprise Operating Funds Storm Water Operations The Storm Water Operations Fund is designed to accumulate resources for future storm r water systems and/or improvements to existing systems. Operating expenses consist primarily of maintenance costs. -. A chart of net income from operations is presented below. ,_„ Storm Water Operations � $41N1�0(Nl — . ------ -- -- --- $M�,IXNI � $360,(Nttl — $3W,IX1U .. .....:.....::>;:;:;,,:,: � _; ......... .. $320(Hb ----- --- ��::,,.x:>;<•;:.;:�s. .��•� >�..��;:. , — :�/�:: y�;y,. :�: t�.��:,E $320�(NNI .,/.;< �:::"" ;,;�>.:�:� �.., >�.;. ::.s.;> s:`�r'� :.a."��: 'F,�%i'F ;`tl:i �2..a4` ""�:: '"1/'i'':� e.<.f% ...7 r.... r'l:: �l ,.�1. ...f:i: .../,.: H'. �:.1� ii��::1"{.: '3n:.. i�'S J3 � �:> o>s.. z;:I::ff..s�.'..�'. >:>A`� :`::�!: ::�zE .i..:.:i;;> %,• ;�1�''%'' — i i ::>.:, z �cxx� z�u ax �c s <.`:":: ::;;.,:., .;v �:s::»„ s , , ,:�.�' ......::,:;,.;.>;«;>;;: .:%r<::;::s,. ;<..;:.>:,;::::::>:».<..,, . ,,.....::.::::...:.:: ;.. ,, . ... .. �.-:;,:::�<... .:..,:..: . ,,, ..>:, ,:..::.:>....:,z;.,,;..:<.::.>:::.: ...;r:::.;::...::::.::.::::.:.. ,::::.>;:>;.: ..:,. � �� ..,i;;:::<;:::»:;:<:<::z<:>:: s,;::::,::.... .:::.::.. ,. ., :;: �;<.if> f.,•:.: �:... ;:/. ::.f „�:.. f.,, ":�i::£ �.i.. s�...f•�<i''�'�'::. 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':� l�`'": :<�f �'.'YfFf :"I.:��n /Ef;:'.` ''�Y.: •r in Ex n:cs f.G<:.�:;'s �v�/�ar.; ::kC.../ :.:/:..' .zl:: :fi. :i.�. �O at 5 /. � :�i ��. Iw B F� ,/` ,.y,., i/ .i.,. <:.i:: .� /`:;� i. �'f: F...s: ,... ��i>,.... „i. ..f... .n�`::.:`�`:��y �/:i%; .,/ .i i.i. ./. :.f... ::�,. >�,i.,./ «i.c..,�,�F �::>i.. /f..i::... 1600W ::�%'r: �xr:....�/..: :��.,y`- ::i." E..f.: i.,. 160(NNl $ � '�o. �.:.5:.. ',/i«f;; ..ss:> $ . � �>.i. i<i.:i.. f/,E �. — :%�' :•.1. 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"ix•,: �:<'><�: .j<i:%Y :::;ii'��:::'.::��,?:::�,�`J� s% l,.i%.�i s::ii��: '::3%./::,;i '�'/ :::::'�i':� .::/': :.'i.. .i,:i":�'� i.» :,. .::::,,,,,,: .ii :. :i'/� `i�i: i:: iii ../.. ./�.vGi$' '�'��::r..., b'l.. ../. .,z.i ..l, :�.:: .../,F :3:.�../..3i::::��;:r� ti(1 IXNl �::/.., ::`�, ./. �<%;�'> $k10IXNl $ , ,��... :�i,rac..ii>�:'::?,:;'�G/' '�:./�'i.i i..:/�%'r%::i.ti.�L f . /,.�n.rNdlr<''l �rT:: 'r:i�.%�o .,!/� r/.r�..fS�:,,iF .�..:. �::./:.o�/:`::>f.../., ..:.�,. ..,,//i; ��. :/. :>�. :.i. ;;�ts >:./ :.a.:::... :.�/:: ..i./: .../ ::f»f.r.. ..i�. ,.�, ,./'.l.•.o .� �f. ,�i,.� f..� ./:.'.` ..+/ ..I::i v:'/.f �.r ./ !''i..,C'.../f::'F..3`:'%?`{ .: :.::.:: ... �,...,:,.,.,:>:::r:: �»»� <;::...::,�.::>. ,::�::, »'>::.>.<°:.' '..u•f.>;:::�::�:i':.: .,:>.;..,::,::3>:s._:>:>;E<?%, /„ ,.��?:: s:f�.; g:?f ,.i. �...'.•i$r:i!::i:6ij8�:'i�, .r.u<2:;.>:i:.;:�:.:,,.:.....::::. :.::� :.:i/.n __ c'z•s" 1 au a� at�ar $ x $ . ,,,:i>. . ':f::<<' €��:; «.::.,.,:.:r;;;��,*. :. .............. . ._.... .....::.... � ,:,.:::..::.:::: .... .. ...----":::::,..�� ....._.. :,,,�»>� :.......:..:::::.:.:.�::,.:;:;::. :. _...._....... .::,...>:.>;::.;s::.; . . :.,,;:..;:.;•;:.. .�<.;.:.;::;o�:..::.,,..;�.:�� :. ::<�:::.�::::::...., ��:.;.;.:...f...: ':i: �: >::::.::......f;,:.;�.;:.;�;,s:�.�::: i....i... //:.f. n:l:... ^\ :..1'.i:<h.::iii': ::?%" :;5�++� �%::�i,��: <,:.�:;'.:::t::H: �.. ;::/. .:'�'.� .::::.::: .._....� :: .......: .::�.::::':: .: ::.::.::..: :::::y�':'..:: ..:.:.f...:. �.:'.':::. � :.::� ...�.::::::.:i::::.::.... . .y.. .::::.:... .:rc.:f..: . �v...:. ::.'.:::::c:: ... ..,.'»i::':':::::::::�:Lj.." �::e:.Fp .n.. .:... ::: ....,:... �:��i: :. :.�i:::' �i ::.G.::if:.`$%:%.:"t:::5::'+,_!.i::..:. $� ^.......:....:.,v.,.:::. :::::::::.... ..:::::.:::!.:: /;::v.::.:::: .,» ...:I.'l.i:::i:i'::riy.:;Yi �� . ...::.::.::... .:::::::'.: .....:!.l.: 2000 2(101 20(12 2003 � � ^ � ^ .. • � � - • . Audit Management Letter Enterprise Operating Funds Municipal Liquor Fund _ The City has two retail liquor operations (off-sale). A summary of operations for the past three years is as follows: .. 20a1 2002 2003 Amount Percent Amount Percent Amount Percent Sales $5,011,326 ]00.0% $5,296,231 100.0% $5,364,588 100.0% Cost of sales 3,907,39'1 78.0% 4,182,313 79.0% 4,214,499 78.6°�0 � Gross profit 1,103,929 22.0% 1,113,918 21.0% 1,15Q089 21.4% Operating expenses: Personal services 410,773 8.2% 420,103 7.9% 416,038 7.8% -- Supplies and other charges 329,193 6.6% 281,153 5.3°l0 312,134 5.8% Depreciation 77,337 1.5% 74,823 1.4% 67,965 1.3% Total operating expense 817,303 16.3% 776,079 14.6% 796,137 14.9% "' Operating income $286,626 5.7% $337,839 6.4% $353,952 6.5°l0 �. • • - • . ^ Audit Management Letter Enterprise Operating Funds A graph of net income from operations for the past four years is as follows: $6,000,000 Liquor Fund .� $5,000,000 , �Y >:.�.:�::.;;::;,>� ��.✓ $ 4 000 000 �y.. . i�i;::: >"3�:. ,:�.;. �:�>`:: y:�:s..:: ,';f i, 3;ki '>�z:«>✓i�£:i l`-"s --- ............... /. <..�..,,, ..�. f.�z::"<::�:�% — �, ._,....,...... : ;/....:. �.:::.......... a...,. �ii":�`:£'f'`�:":t'v?; �O era[in Ex enses F�:li' ;:'9�'.'": <.::e38 P S P ';rn`"yi ✓%,,, %<.�f: s'�'�%`i��'t'`: £::�: �Cost o f Sales >:i�':� :>::s��' ��.''%<;';:%:% l�"y�::� �/.: �l! ',yr<: .gf >,� F.. -^,,i� � �.� r��.%�>:':`£:"':�' �:i:?iE`.'::rJ;,'- ��r, �_ ( �� ;'>'��:�� „� Sa es $3,000,000 »3;�, �,t,:s<,z.,; . v.:z,.�..:�.. . —� ..r.:. >��%;� :�:::��,:i:b_::_z,:,#; :.s j'.;,,c,.. ;::^;:fi:sa :sz.f. .�i'..:'&.:� %:././.,. :`r'�i:: ::r:: ::�o i>.�s::, .:,.i.�'>"`�n:� :>`�!;`> �t i'��E i.:�>::�`u� �.)x%w�"' ../. .::I:i:' ...!.�;. ../. ,::1:: :.:'/:�`�� ..:/: �':�:.: !:�F: i:�%i ��,� «.�,:`;. i.''.S ::./..��: .+ll�:F: .......... ..... ii��' li: t:�:��c..::�. �i� .11... i..�i. :::;.'�"..'.:'. ..:�..' :..s/:`'`: ,.:l;i../� .:�w... �::•.�:, >%., :`:�; ::3� ��:�� i Y ::�� '::�/:::i:�%;':i%> �<:i">.:,>.'��./: l/ .::i:.:; ..:i�. 000 000 �./�>� ?"%'�i $2, , .,a .::�/.�� :8%;: ,.:�.« ..� �:'»� >fyi:�;?E .::�, %"` if%�.,,.' �l!:':.�-� g)%k:; � %i%%i>lli::� `>;��_.:. ;`%:^:s>s%�: .;.i:.. ,.:.�::� >.?;�.�v`` ::iii,:��%i:� <sS�il;>i.��r «:ir•'8�i.3i%�;:✓ F"��: :•.�„r/'.,��?, y/.i.�;;%: ,.,Y»,,:l::i:t:: �%.,/�,.%.:�: �i:�:.� ::�..J,.. :^'4�i:v%�.Y.. :�i;l�:ik 'f� �':, �i_%�:%!;: �::�li;l.;:'.v. ;��:!�a`_'�' 'f�nr �'?%>' y� ,.f�...o�:A �':5!%'ik'{''� :<�'p v'�4:1 ,�r�..:.:�:;:, x,.�i•� ,.:r::��.�3::i::'`�: '�'.c�f5;:i' �<',Ss>!`N:J�i� ,</i %:>/i��:., $1,000,000 gi/: ;i;�'% 7fi�,�:. `:'�,�il/;...::.>;3;. „:>�s ?,�:/�':i ;�:> �;i:5�� 'r"i<�; .��r: a/a../:' %,'./.,'`'"> :ii✓a �<(/<i!?;::: ,,f:i ::�Yi� :�'i::;.>;.. :::4:r.. �. %':/:] /::.... `:<%l,`:;�ii .� :;:'/'�':'�i��'�>'::; .�1,::�,.., ./C.I. ..:.,.:: ...... ..F.... ,./.: /.>. `l{;i" :;1::::'.:, :::::%%':::.3:::. ;'t5�% ..,/. ..y,: .� //.. 'i%Y::�:�:p j +l:: �55.. ;�:j;% r�: <<i �.,:_^. -„i�:;, //,:, i:::.> .f/.::U":: . �� .T. �. —�- —� 2000 2001 2002 2003 Comparison With Other Municipal Liquor Stores .. The Office of the State Auditor(OSA) annually publishes "An Analysis of Minnesota Municipal Liquor Store Operations." The most recent report available is for 2002. The ., following analysis compares Fridley's liquor operations with those reported in the OSA report. ^ There are twenty-one metro area cities that operate liquor operations. The City of —' Fridley ranked eighth in highest sales among metro area cities for 2002. ^ . — • • - ^ - • . Audit Management Letter Enterprise Operating Funds It should be noted that the following comparisons are strictly a comparison of amounts _ reported. There are a number of factors that affect operating results that are not included in this comparison. These factors include the mix of product sold and philosophy regarding „� sales techniques such as high volume/lower margin. ... Gross Mar�in Analysis The gross margin of the liquor operations has averaged 21% over the past four — years. Gross margin measures the sales less the direct cost of products sold. A comparison to state averages for Minnesota municipal off-sale operations is as follows: ^ Cost Gross Margin State Sales of Sales Amount Percent Average�'� ,.., 2000 5,200,127 4,134,935 1,065,192 20.5°/a 24.1% 2001 5,011,326 3,907,397 1,103,929 22.0% 24.3% 2002 5,296,231 4,182,313 1,113,918 21.0°/a 24.4% ... 2003 5,364,588 4,214,499 1,150,089 21.4% Not Available ��Source: Minnesota Office ofthe State Auditor-Metropolitan Area Off-Sale Operations ... ... 1 .. • - - � . Audit Management Letter ^ Enterprise Operating Funds Operatin�penses Operating expenses for the past four years have been as follows: -� Percent of Sales Year Amount City State Avg. 2000 926,409 17.8% 15.6% �' 2001 817,303 16.3% 15.9% 2002 776,079 14.7% 16.2% I 2003 796,137 14.8% Not Available "' �.. Operating expenses as a percent of sales increased in 2000 due to the opening of the new location. -. Operatin�Income ^ Operating income for the past four years is as follows: Amount Percent of Sales ^ State State Year City Average City Average .-. 2000 138,783 Not Available 2.7% 8.6% 2001 286,626 Not Available 5.7% 8.4% 2002 337,839 Not Available 6.4% 8.1% 2003 353,952 Not Available 6.6% Not Available .� � • • ... � Audit Management Letter Housing and Redevelopment Authority HOUSfNG AND REDEVELOPMENT AUTHORITY ..,, Financial reporting standards require a City's Comprehensive Annual Financial Report to include all component units of the City. - The definition of a component unit is "a legally separate organization for which the - elected officials of the primary government [City of Fridley] are financially accountable." The Housing and Redevelopment Authority (HRA)is considered a component unit of the "' City for financial reporting purposes. _ Detail of the funds included in the HRA is presented in Exhibits F-1 through F-6. ^ A summary of the individual funds is as follows: ,.., Change in Fund District Fund Balance No. Name Revenue Expenditures Transfers Balance 12/3UO3 I CenterCity $359,793 $494,732 $ - ($134,939) $268,621 2 MooreLake 417,9b6 6,600 (859) 41Q507 1,255,452 3 NorthArea/UniversitylndustrialPark 918,038 1,241,991 (1,121) (325,074) 1,587,656 6 Lake Pointe 1,362,641 1,25Q560 (389) 111,692 (980,416) 7 Winfield 38,540 2,527 (2b8) 35,745 341,753 �^ 9 Onan 441,953 178,318 (303) 263,332 496,837 11 Universiry/Osbome 29,002 9,072 (102) 19,828 132,712 12 McGlynnBakery 4Q281 41,44"l (54) (1,220) 63,216 13 Satellite Lane Apartrnents 41,354 3,123 (138) 38,093 185,645 ,.,, 14 North Park Business Ctr 48,950 2,655 (308) 45,98'l 464,490 IS MI3 Commercial Railway - - (51,071) (51,071) - 16 57th Ave Redevelopment 14,679 19,745 (5) (5,071) (124,914) i7 Gateway East 4,682 3,511 (13) 1,158 (1,024,353) Gateway West 144,ll4 618,718 - (424,604) (428,417) 'r HRl Housing Replacement 20,944 4,816 (114) 16,014 147,095 Subtotal 3,932,937 3,877,815 (54,745) 377 2,385,377 General Fund 604,673 308,562 (30,173) 265,938 9,185,008 � Special Revenue Funds: HousingProgram 507 15,853 (5) (15,351) 16,141 Revolving Loan 101,193 40,612 84,923 145,504 3,541,492 Total $4,639,310 $4,242,842 $0 $396,468 $15,128,018 • • � Audit Management Letter Certificate of Achievement in Excellence CERTIFICATE OF ACHIEVEMENT IN EXCELLENCE The City has been awarded the Certificate of Achievement for Excellence in , Financial Reporting for the last nineteen years. � The Certificate of Achievement is a nationally recognized award, and its attainment represents a significant accomplishment by a government unit and its management. —. Reports qualifying for a Certificate of Achievement provide a detailed vehicle by � which market analysts, investors, potential investors and others may assess the relative attractiveness of a government unit's securities compared to alternative investment " opportunities. .. CAFRs satisfying the Certificate Program's requirements are likely to be free of -. arnbiguities and potentially misleading presentations. � Since CAFRs qualifying for a Certificate of Achievement employ standardized terminology and formatting conventions, comparisons from one year to the next and .. among different government units are facilitated. , The financial statements, supporting schedules, statistical tables and narrative explanation required for a Certificate of Achievement help to assure that all fiscal data are ^ presented that are needed by the many persons and groups with legitimate interest in the financial affairs of a government unit. These groups include governing boards, investors _ and creditors, grantors, resource providers, taxpayers and others.