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HomeMy WebLinkAbout2023 Management Letter Management Report for City of Gem Lake, Minnesota December 31, 2023 THIS PAGE INTENTIONALLY LEFT BLANK 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, 2023. 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 18, 2024 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 Standard Letterhead-r2.qxp_167639 Letterhead-RV1 9/7/18 6:34 PM Page 1 THIS PAGE INTENTIONALLY LEFT BLANK -1- 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, 2023. 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 OPINIONS AND FINDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2023: • We have issued unmodified opinions 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. 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, 2023. 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. -2- 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 t he 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. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management 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 state-wide pension liabilities, deferred inflows/outflows totaling $31,395 on the Statement of Net Position. 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 18, 2024. 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. -3- 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. THIS PAGE INTENTIONALLY LEFT BLANK -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 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 (the most recent comparative state-wide data available), 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 2023 increased 4.2 percent compared to the prior year, and 7.5 percent for taxes payable in 2024. The taxable net tax capacity value of property in Minnesota cities increased about 17.7 percent for the 2023 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 2023 were based on assessed market values as of January 1, 2022), 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 2.2 percent for taxes payable in 2022 and 3.7 percent for taxes payable in 2023. The following graph shows the City’s changes in taxable market value over the past eight 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 2023 Total Market Value -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 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 11.8 percent and decreased 0.4 percent for taxes payable in 2023 and 2022, respectively. The following graph shows the City’s change in tax capacities over the past eight years: $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 2016 2017 2018 2019 2020 2021 2022 2023 Local Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years: 2021 2022 2023 Average tax rate City 36.3 38.1 40.8 County 47.7 48.1 44.9 School 37.1 34.8 32.4 Special taxing entities 6.0 8.1 7.1 Total 127.1 129.1 125.1 Rates Expressed as a Percentage of Net Tax Capacity City of Gem Lake The increase in the tax levy of the City was the primary cause for the increase in the average tax rates of the City in fiscal 2023. The total average tax rates declined; the result of improved tax capacities as noted earlier on this page. -6- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2023, presented both by fund balance classification and by major fund: 2023 2022 Change Fund balances of governmental funds Total by classification Nonspendable 120,529$ 121,627$ (1,098)$ Restricted 179,652 170,889 8,763 Assigned 250,086 387,961 (137,875) Unassigned 509,715 274,155 235,560 Total governmental funds 1,059,982$ 954,632$ 105,350$ Total by fund General 511,411$ 310,856$ 200,555$ G.O. Capital Improvement Plan Bonds Series 2015A 138,631 134,802 3,829 G.O. Capital Improvement Plan Bonds Series 2018A 108,025 101,772 6,253 Street Improvements Capital Project 250,086 352,691 (102,605) Parks and Playground Capital Project 51,829 54,511 (2,682) Total governmental funds 1,059,982$ 954,632$ 105,350$ 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 $105,350 during the year. Assigned fund balance decreased $137,875, primarily in street improvements and for the fiscal 2023 budgeted deficit. Unassigned fund balance increased $235,560, mainly from the increase in fund balance in the General Fund. -7- GOVERNMENTAL FUNDS REVENUE AND EXPENDITURES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. State-Wide Year 2021 2021 2022 2023 Population 2,000–2,500 534 530 530 Property taxes 581$ 1,002$ 1,032$ 1,255$ Tax increments 26 – – – Franchise and other taxes 30 16 37 18 Special assessments 58 201 188 179 Licenses and permits 36 51 66 46 Intergovernmental revenues 456 91 35 150 Charges for services 172 4 7 10 Other 84 13 (7) 91 Total revenue 1,443$ 1,378$ 1,358$ 1,749$ City of Gem Lake Governmental Funds Revenue per Capita With State-Wide Averages by Population Class The City’s governmental funds revenue for 2023 were $926,817, an increase of $206,644 (28.7 percent), or $391 per capita, from the prior year. The largest changes in the table above occurred in intergovernmental revenues and property taxes. Intergovernmental revenues increased $115 per capita from the prior year, due to the City spending federal COVID-19-related fiscal recovery funds, along with receiving new public safety state aid in the current year. Property taxes increased $223 per capita from the prior year, due to an increase in the tax levy. -8- The expenditures of governmental funds will also vary from state-wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows: • Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues. • Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects. • Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources, such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with comparative state-wide averages, are presented in the following table: State-Wide Year 2021 2021 2022 2023 Population 2,000–2,500 534 530 530 Current General government 234$ 348$ 441$ 375$ Public safety 355 209 228 276 Streets and highways 161 127 67 89 Culture and recreation 122 – – – All other 82 266 139 146 Total current 954 950 875 886 Capital outlay and construction 634 423 13 402 Debt service Principal 243 178 198 198 Interest and fiscal charges 65 67 63 64 Total debt service 308 245 261 262 Total expenditures 1,896$ 1,618$ 1,149$ 1,550$ Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class City of Gem Lake Total expenditures in the City’s governmental funds for 2023 were $821,467, an increase of $211,930 (34.8 percent), or $401 per capita, from the prior year. General government expenditures were lower in the current year as legal costs were lower in the current year. Public safety costs increased related to increases in outsources service costs. Capital outlay and construction expenditures increased $389 per capita, due to road and pond construction projects and costs for the City’s software improvement project. -9- 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. 2019 2020 2021 2022 2023 Fund Balance $495,267 $263,187 $253,845 $310,856 $511,411 Cash (Net)$514,910 $294,991 $313,020 $379,587 $538,457 Expenditures $376,034 $353,621 $514,334 $464,669 $497,359 $– $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, 2023 was $538,457, an increase of $158,870 from the previous year. The total fund balance of the City’s General Fund increased $200,555 in 2023, as compared to a budget that projected a decline in fund balance of $37,270. As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels as the volume of financial activity has grown. 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 82.3 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 2023 fiscal year represents 98.5 percent of annual expenditures and transfers out based on 2023 levels. -10- The following graph reflects the City’s General Fund revenue sources for 2023 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 2023 was $717,914, which was $78,355 (12.3 percent) more than budget. Intergovernmental revenues were over budget by $71,635, due to the City not budgeting for new public safety state aid received in the current year, as well as the spending of its COVID-19-related federal stimulus dollars in the current year. 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 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 2023 $590,580 $79,647 $902 $5,329 $24,208 $17,248 $(50,000) $– $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000 $650,000 General Fund Revenue by Source Year Ended December 31, Total General Fund revenue for 2023 was $176,234 (32.56 percent) higher than last year. Taxes increased by $109,564, due to an increase in the tax levy. Intergovernmental revenues were $61,074 more than the prior year, due to the City receiving new public safety state aid in the current year, as well as spending COVID-19-related federal stimulus dollars in the current year, as previously mentioned. -11- The following graph illustrates the components of General Fund spending for 2023 compared to budget: All Other Public Works Public Safety General Government General Fund Expenditures Budget and Actual Budget Actual General Fund expenditures for 2023 were $497,359, which was $159,470 (24.3 percent) under budget. Public works expenditures were $57,492 under budget, due to the City experiencing savings on snow plowing, salt for roads, street repairs, and tree trimming. General government expenditures were $47,773 under budget, due to lower than anticipated legal costs. All other expenditures were $50,898 under budget, due to the City budgeting for software purchases that have been deferred into fiscal 2024. 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 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 2023 $198,546 $146,518 $47,128 $105,167 $– $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 2023 were $32,690 (7.0 percent) more than the previous year. General government was lower, related to less legal costs in the current year. Public safety costs were higher, related to increased outsourced public safety costs. All other increased, mainly due to increases in capital outlay for street and pond projects and the City’s software expenditures. -12- ENTERPRISE FUNDS OVERVIEW The City maintains two enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which include the Water Fund and Sewer Fund. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2023, presented both by classification and by fund: 2023 2022 Change Net position of enterprise funds Total by classification Net investment in capital assets 1,193,870$ 1,232,736$ (38,866)$ Unrestricted 455,794 420,313 35,481 Total enterprise funds 1,649,664$ 1,653,049$ (3,385)$ Total by fund Water 557,574$ 568,019$ (10,445)$ Sewer 1,092,090 1,085,030 7,060 Total enterprise funds 1,649,664$ 1,653,049$ (3,385)$ 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 $3,385 during the year ended December 31, 2023, due to negative operating results in the Water Fund in the current year. -13- WATER FUND The following graph presents five years of comparative operating results for the City’s Water Fund: 2019 2020 2021 2022 2023 Operating Revenue $37,538 $16,042 $33,051 $26,330 $43,910 Operating Expenses $55,212 $73,975 $36,958 $63,955 $49,576 Oper Income (Loss)$(17,674)$(57,933)$(3,907)$(37,625)$(5,666) Income (Loss) Before Depreciation $(5,150)$(44,464)$9,562 $(24,156)$15,881 $(60,000) $(40,000) $(20,000) $– $20,000 $40,000 $60,000 $80,000 Water Fund Year Ended December 31, The Water Fund ended 2023 with a total net position of $557,574, a decrease of $10,445 from the prior year. Of this, $637,406 represents the investment in capital assets, leaving unrestricted net position of ($79,832). Operating revenue in the Water Fund increased $17,580 from the prior year. The increase is due to an increase in consumption in the current year. Water Fund operating expenses for 2023 decreased $14,379 from the previous year. The decrease was mainly for costs to update the water supply plan in the prior year. -14- SEWER FUND The following graph presents five years of comparative operating results for the City’s Sewer Fund: 2019 2020 2021 2022 2023 Operating Revenue $65,428 $61,943 $55,823 $61,942 $58,207 Operating Expenses $56,516 $60,903 $54,102 $64,472 $75,447 Operating Income (Loss)$8,912 $1,040 $1,721 $(2,530)$(17,240) Income Before Depreciation $33,889 $18,147 $17,787 $13,536 $79 $(20,000) $(10,000) $– $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 Sewer Fund Year Ended December 31, The Sewer Fund ended 2023 with a total net position of $1,092,090, an increase of $7,060 from the prior year. Of this, $556,464 represents the investment in capital assets, leaving unrestricted net position of $535,626. Operating revenue in the Sewer Fund decreased $3,735 from the prior year. Sewer Fund operating expenses for 2023 increased $10,975 from the previous year. The increase is due to an increase in Metropolitan Council Environmental Services charges in the current year. THIS PAGE INTENTIONALLY LEFT BLANK -15- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide financial statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what the City owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, net position is divided into three components: net investment in capital assets, restricted, and unrestricted. The following table presents the components of the City’s net position as of December 31, 2023 and 2022, for governmental activities and business-type activities: 2023 2022 Change Net position Governmental activities Net investment in capital assets 734,686$ 591,629$ 143,057$ Restricted 695,979 726,801 (30,822) Unrestricted 958,806 900,318 58,488 Total governmental activities 2,389,471 2,218,748 170,723 Business-type activities Net investment in capital assets 1,193,870 1,232,736 (38,866) Unrestricted 455,794 420,313 35,481 Total business-type activities 1,649,664 1,653,049 (3,385) Total net position 4,039,135$ 3,871,797$ 167,338$ As of December 31, The City’s total net position at December 31, 2023 was $167,338 higher than the previous year-end. Of the increase, $170,723 came from governmental activities, slightly offset by a $3,385 decrease in business-type activities. Governmental activities net investment in capital assets increased, mainly from investments in capital assets and payments on outstanding bonds. Restricted net position decreased, mainly for amounts restricted for debt service. Unrestricted net position increased, mainly form the increase in the General Fund balance. The decrease in business-type activities net position was explained in the preceding discussion of the activities of the enterprise funds. -16- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net position. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2023 and 2022: 2022 Program Expenses Revenues Net Change Net Change Net (expense) revenue Governmental activities General government 229,235$ 49,851$ (179,384)$ (214,794)$ Public safety 146,518 23,368 (123,150) (120,607) Public works 191,910 31,340 (160,570) (59,188) Conservation and development 77,993 1,292 (76,701) (57,923) Interest on long-term debt 31,617 – (31,617) (31,222) Business-type activities Water 49,576 43,910 (5,666) (37,625) Sewer 75,447 58,207 (17,240) (2,530) Total net (expense) revenue 802,296$ 207,968$ (594,328) (523,889) General revenues Property taxes and franchise fees 672,797 572,118 Grants and contributions not restricted 27,334 27 Investment earnings (charges)58,035 (46,172) Other revenues 3,500 972 Total general revenues 761,666 526,945 Change in net position 167,338$ 3,056$ 2023 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 the City’s business-type activities are not generating sufficient program revenues (service charges and program-specific grants) to cover expenses. -17- 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. 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. 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. -18- GASB STATEMENT NO. 102, CERTAIN RISK DISCLOSURES The objective of this statement is to provide users of government financial statements with essential information about risks related to a government’s vulnerabilities due to certain concentrations or constraints. This statement defines a concentration as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. A constraint is a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority. Concentrations and constraints may limit a government’s ability to acquire resources or control spending. A government will be required to assess whether a concentration or constraint makes the primary government reporting unit or other reporting units that report a liability for revenue debt vulnerable to the risk of a substantial impact. Additionally, a government must assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued. If a government determines that those criteria for disclosure have been met for a concentration or constraint, it should disclose information (as outlined in the standard) in the notes to financial statements in sufficient detail to enable users of financial statements to understand the nature of the circumstances disclosed and the government’s vulnerability to the risk of a substantial impact. The requirements of this statement are effective for fiscal years beginning after June 15, 2024, and all reporting periods thereafter. Earlier application is encouraged.