2006-08-23 CC Set Agenda & Handouts

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Ehlers Advisor . August 2006 (continued from page 2) necessary to cover operations and debt service should the sale of the old facility become a reality. The City identified a balance of approximately $690,000 in restricted Sewer Utility funds, the receipt of approximately $279,000 from an earlier loan to the Airport Fund, and approximately $400,000 in the Sewer Fund which could be applied to a refmancing. The City issued $2,015,000 in Refunding Bonds which, together with the funds available, refunded $3,276,000 of outstanding debt. The bonds sold for a net effective rate of 4.55 percent, and the City's annual debt service requirement fell from approximately $235,000 to approximately $160,000 per year. In addition to being able to meet operating costs and debt service without a rate increase, the City will avoid a required transfer of approximately $45,000 per year into a restricted account. Should the sale of the old facility become a reality, the City plans to replenish the fund balance in the sewer utility. Medtronic in Mounds View (continued from page 1) received the needed bond funds from the State as part of the 2005 Bonding Bill and the Legislation was passed by the Minnesota Legislature and signed by the Governor on June 2,2005. OnJune 20, 2005, the City held the final public informational meeting, which was attended by more than 200 residents, business owners and interested persons, to present the terms for redevelopment of The Bridges Golf Course. OnJune 27, 2005, the City approved a development agreement with Medtronic and on August 22,2005, the City held a public hearing to approve establishing a TIF district in order to provide assistance to Medtronic to construct the facility as proposed. In November 2005, after all approvals and legal challenges were fmaIized, Medtronic approached the City to accelerate Phase II of the project and build it in conjunction with Phase I. Phase I was originally going to be 820,000 square feet and Phase II was going to be 320,000 square feet. The new combined Phase I is 1.2 million square feet with the fmal phase consisting of 300,000 square feet to be constructed in the next 5 to 10 years. On February 13, 2006, the City approved an amendment to the development agreement to allow the accelerated construction schedule. What is OPEB and What Can We Do About It? By Ehlers Financial Advisors Joel Sutter and Gary Kawlewski For years, many local governments have provided limited benefits to retired employees. These benefits are referred to in accounting standards as "other post- employment benefits" or OPEB. They usually include health insurance but may include other benefits (e.g., life, dental, vision, or disability insurance or termination benefits based on years of service). Until now, most local governments have financed these benefits on a "pay as you go basis," simply recording an expense when premiums or other payments come due. However, new accounting standards will dramatically change how these benefits are reported. These accounting changes may force some governments to reconsider the level of benefits paid and the methods of funding the benefits. The New Standards In 2004, the Government Accounting Standards Board (GASB) released Statements No. 43 and 45, which will require significant changes in accounting for OPEB. The new standards are based on the principle that these benefits are "compensation" earned during employment, and that the expense should be measured and recognized at that time. Similar standards have been applied to pension benefits for many years. These new standards apply to "defined benefit" plans but not to "defmed contribution" plans. GASB is giving local governments some time to implement the new standards, with the deadline based on the governments' total annual revenues in the first fiscal year ending after June 15, 1999. The table below shows the first year that governments must implement the standards; some may choose to implement earlier. Revenues in Base Year" Cities and Counties (year ending Dec. 31) 2007 2008 2009 School Districts (year ending June 30) 2008 2009 2010 $1 OOmillion or more $10 - $1 00 million Less than $10 million " Base year is calendar year 1999 for cities and counties and fiscal year 1999 for school districts. Implementation Steps Following are some basic steps local governments should follow in implementing the new standards. For more specific details, we urge you to contact your auditing firm and/or an actuarial firm that specializes in this field. 1. Assess which employment contracts and which benefits fall within the new standards. 2. Hire an actuary to do an actuarial analysis of your plans. The actuary will perform complex calculations according to the new standards, to determine your annual required contribution, actuarial accrued liability, net OPEB obligation, and other factors. Once the initial actuarial study is completed, it must be updated every two years (for employers with 200 or more plan members) or every three years (for smaller employers). For plans with fewer than 100 members, the standards allow employers to use simplified methods and assumptions. 3. Work with your accounting firm to add the required information to your balance sheet and the required notes to your fmancial statements. (OPEB continued on page 6) .3.