HomeMy WebLinkAbout2022 Management Letter
Management Report
for
City of Gem Lake, Minnesota
December 31, 2022
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To the City Council and Management
City of Gem Lake, Minnesota
We have prepared this management report in conjunction with our audit of the City of Gem Lake,
Minnesota’s (the City) financial statements for the year ended December 31, 2022. We have organized this
report into the following sections:
•Audit Summary
•Governmental Funds Overview
•Enterprise Funds Overview
•Government-Wide Financial Statements
•Accounting and Auditing Updates
We would be pleased to further discuss any of the information contained in this report or any other concerns
that you would like us to address. We would also like to express our thanks for the courtesy and assistance
extended to us during the course of our audit.
The purpose of this report is solely to provide those charged with governance of the City, management, and
those who have responsibility for oversight of the financial reporting process comments resulting from our
audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable
for any other purpose.
Minneapolis, Minnesota
June 5, 2023
C E R T I F I E D
A C C O U N T A N T S
P UBLIC
PRINCIPALS
Thomas A. Karnowski, CPA
Paul A. Radosevich, CPA
William J. Lauer, CPA
James H. Eichten, CPA
Aaron J. Nielsen, CPA
Victoria L. Holinka, CPA/CMA
Jaclyn M. Huegel, CPA
Kalen T. Karnowski, CPA
Malloy, Montague, Karnowski, Radosevich & Co., P.A.
5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com
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AUDIT SUMMARY
The following is a summary of our audit work, key conclusions, and other information that we consider
important or that is required to be communicated to the City Council, administration, or those charged with
governance of the City.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES
OF AMERICA AND GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the governmental activities, the business-type activities, and
each major fund of the City as of and for the year ended December 31, 2022. Professional standards require
that we provide you with information about our responsibilities under auditing standards generally accepted
in the United States of America and Government Auditing Standards, as well as certain information related
to the planned scope and timing of our audit. We have communicated such information to you verbally, in
our audit engagement letter. Professional standards also require that we communicate the following
information related to our audit.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously discussed and coordinated
in order to obtain sufficient audit evidence and complete an effective audit.
AUDIT OPINION AND FINDINGS
Based on our audit of the City’s financial statements for the year ended December 31, 2022:
•We have issued an unmodified opinion on the City’s basic financial statements.
•We reported one matter involving the City’s internal control over financial reporting that we
considered to be a material weakness:
1.Due to the limited size of the City’s office staff, the City has limited segregation of duties
in certain areas.
•The results of our testing disclosed no instances of noncompliance required to be reported under
Government Auditing Standards.
•We reported no findings based on our testing of the City’s compliance with Minnesota laws and
regulations:
FOLLOW-UP ON PRIOR YEAR FINDINGS AND RECOMMENDATIONS
As a part of our audit of the City’s financial statements for the year ended December 31, 2022, we performed
procedures to follow-up on the findings and recommendations that resulted from the prior year audit. We
reported the following findings that are no longer findings in the current year audit of the City:
•Minnesota Statutes require the person claiming payment, prepare the claim in writing. The prior
year audit reported 1 of 28 disbursements we tested did not have a claim in writing to support the
payment made. This is not a finding in the current year.
•Minnesota Statutes require prompt payment of local government bills within a standard payment
period of 35 days from the receipt of goods and services for governing boards that meet at least
once a month. If such obligations are not paid within the appropriate time period, local governments
must pay interest on the unpaid obligations at the rate of 1.5 percent per month or part of a month.
The prior audit reported 1 of 25 disbursements tested was not paid within the statutory time limit.
This is not a current year finding.
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OTHER OBSERVATIONS AND RECOMMENDATIONS
Deposit Sweep Account
Minnesota Statutes § 118A.03 requires banks holding local government entity deposits to protect the
deposits from custodial credit risk (the risk of loss in the event of a bank failure) by providing adequate
insurance, bond, or pledged collateral to cover amounts “on deposit at the close of the financial institution’s
banking day.” Some banks utilize arrangements under which governmental entities’ deposit balances in
excess of Federal Deposit Insurance Corporation limits are swept out of their depository accounts daily into
other investments or to depository accounts at other banks.
An issue has arisen with some sweep account arrangements, caused by a lag between the timi ng of when
the primary bank’s records show the funds being swept out of its account and when the receiving bank’s
records acknowledge receipt of the funds. If the receiving bank’s records do not show the transferred funds
arriving the same business day as the primary bank shows them being swept out, the funds in transit would
legally still be considered in the custody of the primary depository at the end of the banking day. This would
potentially subject any excess deposits to custodial credit risk and not complying with statutory
requirements. The Minnesota Office of the State Auditor (OSA) has added audit requirements to test such
sweep arrangements in their Legal Compliance Audit Guide. In addition, recent bank failures have placed
additional emphasis on the importance of protecting local government deposits from custodial credit risk.
We recommend the City review the terms of any sweep arrangement it has in place or is considering and
verify that the financial institutions on both sides of the sweep transaction are recognizing the transfer of
funds the same banking day.
Credit Card Transactions
Minnesota cities have the authority to make purchases using credit cards issued on behalf of their city.
Credit card purchases are becoming more commonplace, especially with the proliferation of e-commerce,
and have consequently been garnering increased scrutiny from oversight agencies. The statutes authorizing
credit card use by cities restrict their use to purchases made on behalf of a city, do not permit personal use
of the credit card by the card user, and specify they should only be used by employees authorized to make
purchases. Employees are personally liable for unauthorized credit card purchases.
Purchases made with credit cards must comply with other applicable state laws, including the requirement
that all claims presented for payment must be in writing and itemized. In its Statement of Position (SOP)
on credit card use, the OSA has clarified that the statement from the credit card company lacks sufficient
detail to comply with this requirement and, therefore, “public entities using credit cards must retain the
invoices and receipts needed to support the items charged in the bill from the credit card company.” The
SOP also states that the individual vendors providing the goods or services should be listed on the claims
list provided to a city council for review and approval, rather than the credit card company.
While the authorized use of a credit card to make small purchases offers advantages, such as convenience
and expedited purchasing, the ability of the credit card users to make a city liable for purchases that are
improper or not in compliance with statutory requirements is an added risk related to such transactions. The
OSA recommends that a robust credit card policy be established by public entities allowing credit card
purchases, which clearly delineates the requirements for use, supporting documentation required, and the
review and approval process for credit card purchases. The OSA also recommends that cities obtain signed
written acknowledgement of the policy from all authorized card users.
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SIGNIFICANT ACCOUNTING POLICIES
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 of the notes to basic financial statements. No
new accounting policies were adopted and the application of existing policies was not changed during the
year ended December 31, 2022.
We noted no transactions entered into by the City during the year for which there is a lack of authoritative
guidance or consensus. All significant transactions have been recognized in the financial statements in the
proper period.
ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS
Accounting estimates are an integral part of the financial statements prepared by management and are based
on management’s knowledge and experience about past and current events and assumptions about future
events. Certain accounting estimates are particularly sensitive because of their significance to the financial
statements and because of the possibility that future events affecting them may differ significantly from
those expected. The most sensitive estimate affecting the financial statements was:
•The depreciation of capital assets involves estimates pertaining to useful lives.
We evaluated the key factors and assumptions used by management 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.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are clearly trivial, and communicate them to the appropriate level of
management. There were no misstatements detected as a result of audit procedures that were material, either
individually or in the aggregate, to each opinion unit’s financial statements taken as a whole.
The City passed on the recording of 2021 franchise fees in the General Fund as a prior period adjustment
totaling $9,558. The City also passed on the recording of state-wide pension liabilities totaling $13,504 on
the Statement of Activities.
DISAGREEMENTS WITH MANAGEMENT
For purposes of this report, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor’s report. We are pleased to report that no such disagreements arose during the
course of our audit.
MANAGEMENT REPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter dated June 5, 2023.
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MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application
of an accounting principle to the City’s financial statements or a determination of the type of auditor’s
opinion that may be expressed on those statements, our professional standards require the consulting
accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge,
there were no such consultations with other accountants.
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards with management each year prior to retention as the City’s auditors. However, these discussions
occurred in the normal course of our professional relationship and our responses were not a condition to
our retention.
OTHER MATTERS
We were not engaged to report on the introductory section, which accompanies the financial statements,
but is not required supplementary information. Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements and, accordingly, we do not express an
opinion or provide any assurance on it.
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GOVERNMENTAL FUNDS OVERVIEW
This section of the report provides you with an overview of the financial trends and activities of the City’s
governmental funds, which includes the General, special revenue, debt service, and capital project funds.
These funds are used to account for the basic services the City provides to all of its citizens, which are
financed primarily with property taxes. The governmental fund information in the City’s financial
statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current assets
to finance its current liabilities.
PROPERTY TAXES
Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For
the 2021 fiscal year, local ad valorem property tax levies provided 44.0 percent of the total governmental
fund revenues for cities over 2,500 in population, and 35.5 percent for cities under 2,500 in population.
Total property taxes levied by all Minnesota cities for taxes payable in 2022 increased 5.9 percent compared
to the prior year, and 4.2 percent for taxes payable in 2023.
The total tax capacity value of property in Minnesota cities increased about 5.6 percent for the 2022 levy
year. The tax capacity values used for levying property taxes are based on the assessed market values for
the previous fiscal year (e.g., tax capacity values for taxes levied in 2022 were based on assessed market
values as of January 1, 2021), so the trend of change in these tax capacity values lags somewhat behind the
housing market and economy in general.
The City’s taxable market value increased 11.4 percent for taxes payable in 2021 and 2.2 percent for taxes
payable in 2022. The following graph shows the City’s changes in taxable market value over the past
seven years:
$–
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
2016 2017 2018 2019 2020 2021 2022
Total Market Value
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Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s
property classification system to each property’s market value. Each property classification, such as
commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total
tax capacity will change at a different rate than its total market value, as tax capacity is affected by the
proportion of its tax base that is in each property classification from year -to-year, as well as legislative
changes to tax rates. The City’s tax capacity increased 14.3 percent in 2021 and decreased 0.4 percent in
2022.
The following graph shows the City’s change in tax capacities over the past seven years:
$–
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
2016 2017 2018 2019 2020 2021 2022
Local Tax Capacity
The following table presents the average tax rates applied to city residents for each of the last three levy
years:
2020 2021 2022
Average tax rate
City 41.3 36.3 38.1
County 52.3 47.7 48.1
School 36.8 37.1 34.8
Special taxing entities 6.6 6.0 8.1
Total 137.0 127.1 129.1
Rates Expressed as a Percentage of Net Tax Capacity
City of Gem Lake
The improvement in tax capacity values, as previously discussed, contributed to the decrease in the City’s
average tax rate presented in the table above.
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GOVERNMENTAL FUND BALANCES
The following table summarizes the changes in the fund balances of the City’s governmental funds during
the year ended December 31, 2022, presented both by fund balance classification and by major fund:
2022 2021 Change
Fund balances of governmental funds
Total by classification
Nonspendable 121,627$ 122,690$ (1,063)$
Restricted 170,889 155,684 15,205
Assigned 387,961 313,005 74,956
Unassigned 274,155 252,617 21,538
Total governmental funds 954,632$ 843,996$ 110,636$
Total by fund
General 310,856$ 253,845$ 57,011$
G.O. Capital Improvement Plan Bonds Series 2015A 134,802 136,136 (1,334)
G.O. Capital Improvement Plan Bonds Series 2018A 101,772 96,720 5,052
Street Improvements 352,691 313,005 39,686
Parks and Playground 54,511 44,290 10,221
Total governmental funds 954,632$ 843,996$ 110,636$
as of December 31,
Governmental Funds Change in Fund Balance
Fund Balance
In total, the fund balances of the City’s governmental funds increased by $110,636 during the year ended
December 31, 2022. Assigned fund balance increased $74,956, primarily in street improvements and for
the fiscal 2023 budgeted deficit. Unassigned fund balance increased $21,538, mainly from the increase in
fund balance in the General Fund.
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GOVERNMENTAL FUNDS REVENUE AND EXPENDITURES
The following table presents the per capita revenue of the City’s governmental funds for the past three years,
along with state-wide averages.
We have included the most recent comparative state-wide averages available from the OSA to provide a
benchmark for interpreting the City’s data. The amounts received from the typical major sources of
governmental fund revenue will naturally vary between cities based on factors, such as a city’s stage of
development, location, size and density of its population, property values, services it provides, and other
attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation.
Also, certain data in these tables may be classified differently than how they appear in the City’s financial
statements in order to be more comparable to the state-wide information, particularly in separating capital
expenditures from current expenditures.
We have designed this section of our management report using per capita data in order to better identify
unique or unusual trends and activities of the City. An inherent difficulty in presenting per capita
information is the accuracy of the population count, which for most years is based on estimates.
Year 2020 2021 2020 2021 2022
Population 2,000–2,500 2,000–2,500 528 534 534
Property taxes 546$ 581$ 1,055$ 1,002$ 1,025$
Tax increments 29 26 – – –
Franchise and other taxes 26 30 – 16 36
Special assessments 50 58 222 201 187
Licenses and permits 24 36 60 51 66
Intergovernmental revenues 541 456 19 91 35
Charges for services 143 172 3 4 7
Other 117 84 36 13 (7)
Total revenue 1,476$ 1,443$ 1,395$ 1,378$ 1,349$
City of Gem Lake
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
State-Wide
The City’s governmental fund revenues for 2022 were $720,552, a decrease of $15,928 (2.2 percent), or
$29 per capita, from the prior year.
The largest changes in the table above occurred in intergovernmental revenues and property taxes.
Intergovernmental revenues decreased $56 per capita from the prior year, due to the City not qualifying for
the small cities assistance aid in the current year. Property taxes increased $23 per capita from the prior
year, due to an increase in franchise fees.
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The expenditures of governmental funds will also vary from state-wide averages and from year-to-year,
based on the City’s circumstances. Expenditures are classified into three types as follows:
• Current – These are typically the general operating type expenditures occurring on an annual basis,
and are primarily funded by general sources, such as taxes and intergovernmental revenues.
• Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more
typically fluctuating significantly from year-to-year. Many of these expenditures are
project-oriented, and are often funded by specific sources that have benefited from the expenditure,
such as special assessment improvement projects.
• Debt Service – Although the expenditures for debt service may be relatively consistent over the
term of the respective debt, the funding source is the important factor . Some debt may be repaid
through specific sources, such as special assessments or redevelopment funding, while other debt
may be repaid with general property taxes.
The City’s expenditures per capita of its governmental funds for the past three years, together with
comparative state-wide averages, are presented in the following table:
Year 2020 2021 2020 2021 2022
Population 2,000–2,500 2,000–2,500 528 534 534
Current
General government 249$ 234$ 268$ 348$ 438$
Public safety 337 355 201 209 226
Streets and highways 177 161 92 127 67
Culture and recreation 106 122 – – –
All other 96 82 111 266 138
Total current 965 954 672 950 869
Capital outlay
and construction 654 634 17 423 13
Debt service
Principal 229 243 170 178 197
Interest and fiscal charges 54 65 83 67 63
Total debt service 283 308 253 245 260
Total expenditures 1,902$ 1,896$ 942$ 1,618$ 1,142$
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
City of Gem LakeState-Wide
Total expenditures in the City’s governmental funds for 2022 were $609,537, a decrease of $254,234
(29.4 percent), or $476 per capita, from the prior year.
Capital outlay and construction expenditures decreased $410 per capita, due to minimal construction
activity in the current year, compared to two large construction projects occurring in the prior year. Total
current expenditures decreased $81 per capita, due to a decrease in expenditures in conservation and
development in the current year.
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GENERAL FUND
The City’s General Fund accounts for the financial activity of the basic services provided to the community.
The primary services included within this fund are the administration of the municipal operation, police
and fire protection, building inspection, streets and highway maintenance, and parks and recreation. The
graph below illustrates the change in the General Fund financial position over the last five years. We have
also included a line representing annual expenditures to reflect the change in the size of the General Fund
operation over the same period.
2018 2019 2020 2021 2022
Fund Balance $394,915 $495,267 $263,187 $253,845 $310,856
Cash (Net)$424,252 $514,910 $294,991 $313,020 $379,587
Expenditures $431,839 $376,034 $353,621 $514,334 $464,669
$–
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
General Fund Financial Position
Year Ended December 31,
The City’s General Fund cash and investments balance at December 31, 2022 was $379,587, an increase
of $66,567 from the previous year. Total fund balance increased $57,011 in 2022, as compared to a balanced
budget projected in the final budget.
As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels.
This is an important factor because a government, like any organization, requires a certain amount of equity
to operate. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the
impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and
unexpected costs; and is a factor in determining the City’s bond rating and resulting interest costs.
Maintaining an adequate fund balance has become increasingly important given the fluctuations in state
funding for cities in recent years.
A trend that is typical to Minnesota local governments, especially the General Fund of cities, is the unusual
cash flow experienced throughout the year. The City’s General Fund cash disbursements are made fairly
evenly during the year, other than the impact of seasonal services, such as snowplowing, street maintenance,
and park activities. Cash receipts of the General Fund are quite a different story. Taxes comprise about
88.8 percent of the fund’s total annual revenue. Approximately half of these revenues are received by the
City in July and the rest in December. Consequently, the City needs to have adequate cash reserves to
finance its everyday operations between these payments.
The City’s unassigned General Fund balance at the end of the 2022 fiscal year represents approximately
59.0 percent of annual expenditures, based on 2022 levels.
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The following graph reflects the City’s General Fund revenue sources for 2022 compared to budget:
All Other
Licenses and Permits
Charges for Services
Fines and Forfeits
Intergovernmental
Taxes
General Fund Revenue
Budget and Actual
Budget Actual
General Fund revenue for 2022 was $541,680, which was $18,402 (3.5 percent) more than budget.
Intergovernmental revenues were over budget, due to the City not budgeting for the charitable gambling
contributions and receiving approximately $17,000 in the current year. The City also budgeted for small
cities assistance aid, but did not qualify for this type of aid in the current year. Licenses and permits were
$9,122 higher than budget estimates.
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 tax sources of revenue.
Taxes Intergovernmental Fines and Forfeits Charges for
Services
Licenses and
Permits All Other
2018 $379,124 $15,817 $1,145 $48,650 $50,362 $22,515
2019 $370,729 $16,759 $1,769 $21,817 $96,742 $18,820
2020 $472,092 $9,885 $620 $1,662 $31,439 $15,843
2021 $453,686 $48,782 $267 $1,957 $27,109 $(1,809)
2022 $481,016 $18,573 $970 $3,942 $35,072 $2,107
$(100,000)
$–
$100,000
$200,000
$300,000
$400,000
$500,000
General Fund Revenue by Source
Year Ended December 31,
Total General Fund revenue for 2022 was $11,688 (2.2 percent) higher than last year. Taxes increased by
$27,330, due to an increase in franchise fees. Intergovernmental revenues were $30,209 less than the prior
year, due to the City not qualifying for the small cities assistance funding, as previously mentioned.
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The following graph illustrates the components of General Fund spending for 2022 compared to budget:
All Other
Public Works
Public Safety
General Government
General Fund Expenditures
Budget and Actual
Budget Actual
General Fund expenditures for 2022 were $464,669, which was $38,609 (7.7 percent) under budget.
Public works expenditures were $71,336 under budget, due to the City experiencing savings on snow
plowing, salt for roads, and tree trimming. General government expenditures were $30,629 over budget,
due to an increase in salaries and benefits expense.
The City transferred out $20,000 to other funds as planned in the budget for completing upcoming capital
projects.
The following graph presents the City’s General Fund expenditures by function for the last five years:
General
Government Public Safety Public Works All Other
2018 $148,709 $80,122 $71,983 $131,025
2019 $151,038 $85,725 $54,687 $84,584
2020 $141,395 $106,319 $48,720 $57,187
2021 $185,608 $111,465 $67,942 $149,319
2022 $233,886 $120,607 $35,642 $74,534
$–
$25,000
$50,000
$75,000
$100,000
$125,000
$150,000
$175,000
$200,000
$225,000
$250,000
General Fund Expenditures by Function
Year Ended December 31,
Total General Fund expenditures for 2022 were $49,665 (9.7 percent) less than the previous year, mainly
due to decreases in building improvements, public works costs, and a storm water system engineering study
performed in the prior year. General government increases were mainly in salaries and benefits.
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ENTERPRISE FUNDS OVERVIEW
The City maintains two enterprise funds to account for services the City provides that are financed primarily
through fees charged to those utilizing the service. This section of the report provides you with an overview
of the financial trends and activities of the City’s enterprise funds, which include the Water Fund and Sewer
Fund.
ENTERPRISE FUNDS FINANCIAL POSITION
The following table summarizes the changes in the financial position of the City’s enterprise funds during
the year ended December 31, 2022, presented both by classification and by fund:
2022 2021 Change
Net position of enterprise funds
Total by classification
Net investment in capital assets 1,232,736$ 1,262,271$ (29,535)$
Unrestricted 420,313 446,631 (26,318)
Total enterprise funds 1,653,049$ 1,708,902$ (55,853)$
Total by fund
Water 568,019$ 603,450$ (35,431)$
Sewer 1,085,030 1,105,452 (20,422)
Total enterprise funds 1,653,049$ 1,708,902$ (55,853)$
Enterprise Funds Change in Financial Position
Net Position
as of December 31,
In total, the net position of the City’s enterprise funds decreased by $55,853 during the year ended
December 31, 2022, due to negative operating results in these funds in the current year.
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WATER FUND
The following graph presents five years of comparative operating results for the City’s Water Fund:
2018 2019 2020 2021 2022
Oper Rev $10,040 $37,538 $16,042 $33,051 $26,330
Oper Exp $21,173 $55,212 $73,975 $36,958 $63,955
Oper Inc (Loss)$(11,133)$(17,674)$(57,933)$(3,907)$(37,625)
Inc (Loss) Before Dep $(1,306)$(5,150)$(44,464)$9,562 $(24,156)
$(60,000)
$(40,000)
$(20,000)
$–
$20,000
$40,000
$60,000
$80,000
Water Fund
Year Ended December 31,
The Water Fund ended 2022 with a total net position of $568,019, a decrease of $35,431 from the prior
year. Of this, $658,953 represents the investment in capital assets, leaving unrestricted net position of
($90,934).
Operating revenue in the Water Fund decreased $6,721 from the prior year. The decrease is due to a
decrease in consumption in the current year.
Water Fund operating expenses for 2022 increased $26,997 from the previous year. The increase was
mainly for costs to update the water supply plan in the current year.
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SEWER FUND
The following graph presents five years of comparative operating results for the City’s Sewer Fund:
2018 2019 2020 2021 2022
Oper Rev $58,137 $65,428 $61,943 $55,823 $61,942
Oper Exp $92,067 $56,516 $60,903 $54,102 $64,472
Oper Inc (Loss)$(33,930)$8,912 $1,040 $1,721 $(2,530)
Inc Before Dep $(13,917)$33,889 $18,147 $17,787 $13,536
$(50,000)
$(25,000)
$–
$25,000
$50,000
$75,000
$100,000
Sewer Fund
Year Ended December 31,
The Sewer Fund ended 2022 with a total net position of $1,085,030, a decrease of $20,422 from the prior
year. Of this, $573,783 represents the investment in capital assets, leaving unrestricted net position of
$511,247.
Operating revenue in the Sewer Fund increased $6,119 from the prior year. The increase is mainly due to
an increase in commercial consumption.
Sewer Fund operating expenses for 2022 increased $10,370 from the previous year. The increase is due to
higher Metropolitan Council Environmental Services charges in the current year related to increased
consumption.
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GOVERNMENT-WIDE FINANCIAL STATEMENTS
In addition to fund-based information, the current reporting model for governmental entities also requires
the inclusion of two government-wide financial statements designed to present a clear picture of the City
as a single, unified entity. These government-wide financial statements provide information on the total
cost of delivering services, including capital assets and long-term liabilities.
STATEMENT OF NET POSITION
The Statement of Net Position essentially tells you what the City owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to
use for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, net position is
divided into three components: net investment in capital assets, restricted, and unrestricted.
The following table presents the components of the City’s net position as of December 31, 2022 and 2021,
for governmental activities and business-type activities:
2022 2021 Change
Net position
Governmental activities
Net investment in capital assets 591,629$ 462,018$ 129,611$
Restricted 726,801 751,623 (24,822)
Unrestricted 900,318 946,198 (45,880)
Total governmental activities 2,218,748 2,159,839 58,909
Business-type activities
Net investment in capital assets 1,232,736 1,262,271 (29,535)
Unrestricted 420,313 446,631 (26,318)
Total business-type activities 1,653,049 1,708,902 (55,853)
Total net position 3,871,797$ 3,868,741$ 3,056$
As of December 31,
The City’s total net position at December 31, 2022 was $3,056 higher than the previous year-end.
Governmental activities net investment in capital assets increased, mainly from investments in capital
assets. Restricted net position decreased, mainly for amounts restricted for debt service. Unrestricted net
position decreased $45,880 as a result of continued investment in capital assets.
The decrease in business-type activities net position was explained in the preceding discussion of the
activities of the enterprise funds.
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STATEMENT OF ACTIVITIES
The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions
that increase or reduce total net position. These amounts represent the full cost of providing services. The
Statement of Activities provides a more comprehensive measure than just the amount of cash that changed
hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used,
depreciation of long-lived capital assets, and other accrual-based expenses.
The following table presents the change in the net position of the City for the years ended December 31,
2022 and 2021:
2021
Program
Expenses Revenues Net Change Net Change
Net (expense) revenue
Governmental activities
General government 257,267$ 42,473$ (214,794)$ (167,335)$
Public safety 120,607 – (120,607) (111,465)
Public works 108,020 48,832 (59,188) (89,475)
Conservation and development 74,471 16,548 (57,923) (142,943)
Interest on long-term debt 31,222 – (31,222) (33,633)
Business-type activities
Water 63,955 26,330 (37,625) (3,907)
Sewer 64,472 61,942 (2,530) 1,721
Total net (expense) revenue 720,014$ 196,125$ (523,889) (547,037)
General revenues
Property taxes and franchise fees 572,118 543,912
Grants and contributions not restricted 27 34,012
Investment earnings (charges)(46,172) (6,222)
Other revenues 972 222
Total general revenues 526,945 571,924
Change in net position 3,056$ 24,887$
2022
One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the
way the City’s governmental and business-type operations are financed. The table clearly illustrates the
dependence of the City’s governmental operations on general revenues, such as property taxes and
unrestricted grants. It also shows if the City’s business-type activities are generating sufficient revenues
(service charges and program specific grants) to cover expenses.
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ACCOUNTING AND AUDITING UPDATES
The following is a summary of Governmental Accounting Standards Board (GASB) standards expected to
be implemented in the next few years.
GASB STATEMENT NO. 96, SUBSCRIPTION-BASED INFORMATION TECHNOLOGY ARRANGEMENTS
This statement provides guidance on the accounting and financial reporting for subscription -based
information technology arrangements (SBITAs) for government end users (governments). This statement
(1) defines an SBITA; (2) establishes that an SBITA results in a right-to-use subscription asset—an
intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for
outlays other than subscription payments, including implementation costs of an SBITA; and (4) requires
note disclosures regarding an SBITA. To the extent relevant, the standards for SBITAs are based on the
standards established in Statement No. 87, Leases, as amended.
An SBITA is defined as a contract that conveys control of the right to use anothe r party’s (an SBITA
vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the
underlying IT assets), as specified in the contract for a period of time in an exchange or exchange -like
transaction. Under this statement, a government generally should recognize a right-to-use subscription
asset—an intangible asset—and a corresponding subscription liability.
This statement provides an exception for short-term SBITAs with a maximum possible term under the
SBITA contract of 12 months, including any options to extend, regardless of their probability of being
exercised. Subscription payments for short-term SBITAs should be recognized as outflows of resources.
This statement requires a government to disclose descriptive information about its SBITAs other than
short-term SBITAs, such as the amount of the subscription asset, accumulated amortization, other payments
not included in the measurement of a subscription liability, principal and interest requirements for the
subscription liability, and other essential information.
The requirements of this statement are effective for fiscal years beginning after June 15, 2022, and all
reporting periods thereafter.
GASB STATEMENT NO. 99, OMNIBUS 2022
The objectives of this statement are to enhance comparability in accounting and financial reporting and to
improve the consistency of authoritative literature by addressing (1) practice issues that have been identified
during implementation and application of certain GASB statements and (2) accounting and financial
reporting for financial guarantees. The practice issues addressed by this statement are as follows:
• Classification and reporting of derivative instruments within the scope of Statement No. 53,
Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of
either an investment derivative instrument or a hedging derivative instrument.
• Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination
of the lease term, classification of a lease as a short-term lease, recognition and measurement of a
lease liability and a lease asset, and identification of lease incentives.
• Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships
and Availability Payment Arrangements, related to (a) the determination of the public-private and
public-public partnership (PPP) term and (b) recognition and measurement of installment payments
and the transfer of the underlying PPP asset.
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• Clarification of provisions in Statement No. 96, Subscription-Based Information Technology
Arrangements, related to the SBITA term, classification of an SBITA as a short -term SBITA, and
recognition and measurement of a subscription liability.
• Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered
an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an
interest rate swap that hedges the interest rate risk of taxable debt.
• Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance
Program (SNAP).
• Disclosures related to nonmonetary transactions.
• Pledges of future revenues when resources are not received by the pledging government.
• Clarification of provisions in Statement No. 34, Basic Financial Statements—and Management’s
Discussion and Analysis—for State and Local Governments, as amended, related to the focus of
the government-wide financial statements.
• Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of
Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position.
• Terminology used in Statement No. 53, Accounting and Financial Reporting for Derivative
Instruments, to refer to resource flows statements.
The requirements of this statement that are effective are as follows:
• The requirements related to extension of the use of LIBOR, accounting for SNAP distributions,
disclosures of nonmonetary transactions, pledges of future revenues by pledging governments,
clarification of certain provisions in Statement No. 34, as amended, and terminology updates
related to Statement No. 53 and Statement No. 63 are effective upon issuance.
• The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after
June 15, 2022, and all reporting periods thereafter.
• The requirements related to financial guarantees and the classification and reporting of derivative
instruments within the scope of Statement No. 53 are effective for fiscal years beginning after
June 15, 2023, and all reporting periods thereafter.
GASB STATEMENT NO. 100, ACCOUNTING CHANGES AND ERROR CORRECTIONS – AN AMENDMENT OF
GASB STATEMENT NO. 62
The primary objective of this statement is to enhance accounting and financial reporting requirements for
accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and
comparable information for making decisions or assessing accountability.
The requirements of this statement will improve the clarity of the accounting and financial reporting
requirements for accounting changes and error corrections, which will result in greater consistency in
application in practice. In turn, more understandable, reliable, relevant, consistent, and comparable
information will be provided to financial statement users for making decisions or assessing accountability.
In addition, the display and note disclosure requirements will result in more consistent, decision useful,
understandable, and comprehensive information for users about accounting changes and error corrections.
The requirements of this statement are effective for accounting changes and error corrections made in fiscal
years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged.
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GASB STATEMENT NO. 101, COMPENSATED ABSENCES
The objective of this statement is to better meet the information needs of financial statement users by
updating the recognition and measurement guidance for compensated absences. That objective is achieved
by aligning the recognition and measurement guidance under a unified model and by amending certain
previously required disclosures.
This statement requires that liabilities for compensated absences be recognized for (1) leave that has not
been used and (2) leave that has been used, but not yet paid in cash or settled through noncash means. A
liability should be recognized for leave that has not been used if (a) the leave is attributable to services
already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off
or otherwise paid in cash or settled through noncash means. Leave is attributable to services already
rendered when an employee has performed the services required to earn the leave. Leave that accumulates
is carried forward from the reporting period in which it is earned to a future reporting period during which
it may be used for time off or otherwise paid or settled.
This statement requires that a liability for certain types of compensated absences—including parental leave,
military leave, and jury duty leave—not be recognized until the leave commences. This statement also
requires that a liability for specific types of compensated absences not be recognized until the leave is used.
This statement also establishes guidance for measuring a liability for leave that has not been used, generally
using an employee’s pay rate as of the date of the financial statements. A liability for leave that has been
used, but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement
to be made. Certain salary-related payments that are directly and incrementally associated with payments
for leave also should be included in the measurement of the liabilities.
With respect to financial statements prepared using the current financial resources measurement focus, this
statement requires that expenditures be recognized for the amount that normally would be liquidated with
expendable available financial resources.
The requirements of this statement are effective for fiscal years beginning after December 15, 2023, and all
reporting periods thereafter. Earlier application is encouraged.
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