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HomeMy WebLinkAbout03.c. Presentation and Acceptance of 2017 Comprehensive Annual Financial Report (CAFR) EXECUTIVE SUMMARY City Council Regular Meeting: June 5, 2018 AGENDA ITEM: Presentation and Acceptance of 2017 Comprehensive Annual Financial Report (CAFR) AGENDA SECTION: Presentations PREPARED BY: Jeff May, Finance Director AGENDA NO.: 3.c. ATTACHMENTS: Resolution, PowerPoint Presentation, CAFR, Management Report, Special Purpose Audit Reports, Opinion APPROVED BY: LJM RECOMMENDED ACTION: Motion to adopt a Resolution Accepting the 2017 Comprehensive Annual Financial Report. ISSUE Review and accept the 2017 CAFR. BACKGROUND A representative from our audit firm, Malloy, Montague, Karnowski, Radosevich, & Co., P.A. (MMKR), will be here on Tuesday evening, June 5th, to review the City of Rosemount’s 2017 CAFR. The representative will give a brief presentation, highlighting items that may be worthy of your attention and will also be available to answer any questions that you may have. SUMMARY Recommend the above motion to accept the 2017 CAFR. CITY OF ROSEMOUNT DAKOTA COUNTY, MINNESOTA RESOLUTION 2018 - A RESOLUTION ACCEPTING THE 2017 COMPREHENSIVE ANNUAL FINANCIAL REPORT WHEREAS, the City of Rosemount has been presented its 2017 Comprehensive Annual Financial Report, prepared with the assistance of the firm of Baker Tilly Virchow Krause, LLP and audited by our audit firm of Malloy, Montague, Karnowski, Radosevich, & Co., P.A. NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Rosemount, accepts its 2017 Comprehensive Annual Financial Report, audited by our audit firm of Malloy, Montague, Karnowski, Radosevich, & Co., P.A. ADOPTED this 5th day of June, 2018. _____________________________ William H. Droste, Mayor ATTEST: __________________________ Jeffrey A. May, Deputy City Clerk CITY OF ROSEMOUNT AUDIT REPORT YEAR ENDED DECEMBER 31, 2017 Aaron J. Nielsen, CPA Opinion on Financial Statements Financial statements are fairly presented in accordance with accounting principles generally accepted in the United States of America Reports on Internal Controls and Compliance Financial Statement Audit MN Legal Compliance Audit AUDITOR’S ROLE Opinion on Financial Statements Unmodified opinion –statements are fairly presented Internal Controls Over Financial Reporting Significant deficiency - City has a limited segregation of duties Legal Compliance Audit Findings Missing Withholding Affidavit – 1 of 1 tested AUDIT OPINIONS AND FINDINGS GOVERNMENTAL FUNDS Increase 2017 2016 (Decrease) Fund balances of governmental funds Total by classification Nonspendable 444$ 10,113$ (9,669)$ Restricted 4,854,162 9,301,251 (4,447,089) Committed 230,162 181,276 48,886 Assigned 13,026,932 11,367,472 1,659,460 Unassigned 7,333,743 6,918,833 414,910 Total – governmental funds 25,445,443$ 27,778,945$ (2,333,502)$ Total by fund General 9,556,250$ 9,888,534$ (332,284)$ Debt Service 2,983,348 4,307,191 (1,323,843) Capital Projects 10,804,425 8,407,771 2,396,654 Port Authority TIF 1,849,055 4,994,060 (3,145,005) Nonmajor funds 252,365 181,389 70,976 Total – governmental funds 25,445,443$ 27,778,945$ (2,333,502)$ as of December 31, Governmental Funds Change in Fund Balance Fund Balance GENERAL FUND FINANCIAL POSITION GENERAL FUND REVENUES GENERAL FUND EXPENDITURES ENTERPRISE FUNDS Increase 2017 2016 (Decrease) Net position of enterprise funds Total by classification Net investment in capital assets 97,328,281$ 98,722,624$ (1,394,343)$ Unrestricted 23,521,090 21,739,120 1,781,970 Total – enterprise funds 120,849,371$ 120,461,744$ 387,627$ Total by fund Water 42,351,012$ 41,926,578$ 424,434$ Sewer 34,585,434 34,875,309 (289,875) Storm Water 42,133,934 41,964,655 169,279 Arena 1,778,991 1,695,202 83,789 Total – enterprise funds 120,849,371$ 120,461,744$ 387,627$ Enterprise Funds Change in Financial Position Net Position as of December 31, WATER FUND SEWER FUND STORM WATER FUND ARENA FUND STATEMENT OF NET POSITION Increase 2017 2016 (Decrease) Net position Governmental activities Net investment in capital assets 74,294,033$ 69,942,544$ 4,351,489$ Restricted 7,151,722 7,113,065 38,657 Unrestricted 14,090,028 13,100,682 989,346 Total governmental activities 95,535,783 90,156,291 5,379,492 Business-type activities Net investment in capital assets 97,328,281 98,722,624 (1,394,343) Unrestricted 23,521,090 21,739,120 1,781,970 Total business-type activities 120,849,371 120,461,744 387,627 Total net position 216,385,154$ 210,618,035$ 5,767,119$ As of December 31, COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2017 CITY OF ROSEMOUNT, MINNESOTA CITY OF ROSEMOUNT, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2017 PREPARED BY THE DEPARTMENTS OF ADMINISTRATION AND FINANCE LOGAN MARTIN, City Administrator JEFFREY A. MAY, Finance Director CITY OF ROSEMOUNT COMPREHENSIVE ANNUAL FINANCIAL REPORT As of and for the Year Ended December 31, 2017 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal i GFOA Certificate of Achievement ix Organizational Chart x City Officials xi FINANCIAL SECTION Independent Auditors' Report xii - xiv Management’s Discussion and Analysis 1 - 10 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 11 Statement of Activities 12 Fund Financial Statements: Balance Sheet – Governmental Funds 13 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 14 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 15 Statement of Net Position – Proprietary Funds 16 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds 17 Statement of Cash Flows – Proprietary Funds 18 - 19 Notes to the Financial Statements 20 - 61 Required Supplementary Information: Schedule of Revenues and Other Sources Compared to Budget (Budgetary Basis) – Budget and Actual – General Fund 62 Schedule of Expenditures and Other Uses (Budgetary Basis) – Budget and Actual – General Fund 63 Schedule of City’s and Nonemployers Proportionate Share of the Net Pension Liability – Public Employees General Employees Retirement Fund 64 Schedule of Employer Contributions – Public Employees General Employees Retirement Fund 64 Schedule of City’s Proportionate Share of the Net Pension Liability – Public Employees Police and Fire Fund 65 Schedule of Employer Contributions – Public Employees Police and Fire Fund 65 Schedule of Changes in the Rosemount Fire Department Relief Association’s Net Pension Asset and Related Ratios 66 Schedule of Employer Contributions – Rosemount Fire Department Relief Association 67 Notes to Required Supplementary Information 68 - 70 Supplementary Information: Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Nonmajor Governmental Funds 71 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 72 Schedules of Revenues, Expenditures and Changes in Fund Balances (Budgetary Basis) – Budget and Actual: Building CIP Capital Project Sub-Fund 73 Street CIP Capital Project Sub-Fund 74 Equipment CIP Capital Project Sub-Fund 75 CITY OF ROSEMOUNT COMPREHENSIVE ANNUAL FINANCIAL REPORT As of and for the Year Ended December 31, 2017 TABLE OF CONTENTS Page STATISTICAL SECTION (Unaudited) Net Position by Component 76 Changes in Net Position 77 – 78 Fund Balances, Governmental Funds 79 Changes in Fund Balances, Governmental Funds 80 Assessed Value (or Tax Capacity) and Estimated Market Value of All Taxable Property 81 Property Tax Rates – All Direct and Overlapping Governmental Units 82 Principal Property Tax Payers 83 Property Tax Levies and Collections 84 Ratios of Outstanding Debt by Type 85 Ratios of Net General Bonded Debt Outstanding 86 Direct and Overlapping Governmental Activities Debt 87 Legal Debt Margin Information 88 Pledged-Revenue Coverage 89 Demographic and Economic Statistics 90 Principal Employers 91 Full-Time/Permanent Part-Time City Government Employees by Function/Program 92 Operating Indicators by Function/Program 93 Capital Asset Statistics by Function/Program 94 ROSE1VlOLINT MINNESOTA May 7, 2018 To the Honorable Mayor, Council Members, and the Citizens of the City of Rosemount: Minnesota statutes require that all cities issue an annual financial report on its financial position and activity prepared in accordance with generally accepted accounting principles (GAAP), and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants or the Office of the State Auditor. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the City of Rosemount(the City) for the fiscal year ended December 31, 2017. This report consists of managemenYs representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the financial information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Rosemount's financial statements have been audited by Malloy Montague Karnowski Radosevich & Co., P.A. (MMKR), a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended December 31, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City's financial statements for the fiscal year ended December 31, 2017, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Rosemount's MD&A can be found immediately following the report of the independent auditors. SPIRIT OF PRIDE AND PROGRESS Rosemount City Hall • 2875 145th Strelet West • Rosemount, MN 55068-4997 651 -423-4411 • TDD/TTY 7-1 -1 • Fax 651 -423-5203 www.ci.rosemount.mn.us Profile of the Government The City was established as a municipal corporation in 1858, and became a statutory City in 1974. The City has a Mayor-Council form of government, with the four Council members being elected to overlapping four-year terms of office and the Mayor serving a four-year term coinciding with the terms of two of the Council members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees and hiring the City's chief administrative officer. The City's chief administrative officer is the City Administrator, who is appointed by and serves at the discretion of the City Council. The City Administrator is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City and for appointing the heads of the City's various departments, with the City Council's final approval. The City of Rosemount is a growing southern suburb in the Minneapolis/St. Paul metropolitan area, located in Dakota County. The City encompasses approximately 36 square miles. The City is one of the fastest growing communities in the seven-county Minneapolis/St. Paul metropolitan area as demonstrated by the following population trend: Population Percent Population Increase Increase 2017 Staff Estimate 24,295 2,421 11% 2010 Census 21,874 7,255 50% 2000 Census 14,619 5,997 70% 1990 Census 8,622 3,539 70% 1980 Census 5,083 1,049 26% 1970 Census 4,034 Rosemount has an extensive system of State and County highways and 113 miles of city streets that continue to contribute to the community's growth. This extensive highway network and large tracts of attractive, developable land have made the City an ideal location for residential development and increasingly commercial/industrial development. There is approximately 720 acres of industrial and commercially zoned property ready for development. There is also slightly less than 868 acres within the Municipal Service Area (MUSA) to permit future residential growth. Rail, air, barge and freeway access provides Rosemount's economic community with an expedient transportation system. Four major highways link Rosemount to Minneapolis, St. Paul and the rest of the metropolitan area. The City provides a full range of services, including police and fire protection; the construction and maintenance of highways, streets, and other infrastructure; water, sewer, and storm water services; and recreational activities and cultural events. Certain economic development services are provided through the Rosemount Port Authority. The Port Authority's financial data has been presented in this financial report as a blended component unit. The annual budget serves as the foundation for the City's financial planning and control. All departments of the City submit requests for appropriation to the City Administrator on or before May 1S'of each year. The City Administrator uses these requests as the starting point for developing a proposed budget. The City Administrator then presents this proposed budget to the Council for review and adoption of a preliminary levy by September 30'h. The council holds a public hearing on the proposed budget and must adopt a final budget and levy by no later than December 20th, prior to the close of the City's fiscal year. ii The appropriated budget is prepared by fund, department and function. The City's department heads may make transfers of appropriations within a department; transfers of appropriation between departments require approval of the City Council. Budget-to-actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund, this comparison is presented on pages 62-63 as part of the Required Supplementary Information. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates. Local economy Rosemount continues to have a significant amount of land available for future development. The western one third of the community is urbanized with new neighborhoods under construction in the central portion of the community. Much of this land has been developed with single family residences and the City is investigating new areas for development as part of the upcoming 2018 Comprehensive Plan update. An Alternative Urban Areawide Review(AUAR), an environmental review was undertaken and approved in 2013 for the 5,000 acres owned by the University of Minnesota (UMore) in Rosemount and to the south, in Empire Township. An industrial developer, OPUS, has control over 160 acres within UMore and will begin marketing the land to large industrial users. The City has also responded to numerous requests for proposals regarding other industrial land available for sale by the University. Late last year the University received proposals from development companies relating to 435 acres within UMore, south and west of Dakota County Technical College. This will be the first phase of significant, orderly development. The land will be master-planned and include all types of residential development along with some commercial and institutional uses. Flint Hills Resources continues to be the largest tax payer with approximately 11% of the City's total local tax capacity. Labor market data is very impressive for the State, Minneapolis/St. Paul metropolitan area and Dakota County, in which Rosemount is located. 2017 labor force numbers were 3,066,881; 1,990,904; and 239,356 respectively with unemployment rates of 3.3%; 2.9% and 2.7% to match. These figures compare quite favorably with national figures. Community leadership has preserved 540 beautiful acres of land for 30 parks. Residents can enjoy a round of golf on a 27-hole public course. Bordered by the scenic Mississippi River, Rosemount also contains 270 acres of the Spring Lake Regional Park Preserve. Rosemount's Community Center, a part of the Army National Guard's regional headquarters, provides a variety of indoor recreation opportunities and meeting spaces, including an ice arena, gymnasium, auditorium and banquet facility. In 2015, the City opened a 10,000 square foot addition to the Steeple Center to house a variety of activities and events. Given the underlying strength of the economy in the seven county metropolitan area, the diversification of tax and employment bases and Rosemount's desirable location, the future outlook is very optimistic. Long-term financial planning Growth and development in the City is guided by the adopted 2030 Comprehensive Plan. The Plan, approved in 2009, has been amended on several occasions to permit new development more reflective of the current market demand than what was envisioned when adopted. The City has started to compile information associated with the 2040 Comprehensive Plan process. The current plan anticipates population growth to 31,700 by 2030 and 38,000 by 2040. The regional forecasts have been reduced due to lagging growth during the economic downturn. However, the City continues to experience residential growth and recently new commercial and industrial development. The City is also preparing for growth in new undeveloped areas and has commissioned several utility studies to itemize costs and infrastructure needs. The population estimate for 2020 is 25,900. iii Other factors New residential units continue at a steady pace. In 2017 there were 135 new residential units permitted, comparable to the 136 in 2016. The majority of new residential development continues to be single family residential, although more attached products were constructed in 2017 than the previous year. Recent approval of an apartment complex will provide another rental multi-family product into the community. Residential development is generally located in the Akron Avenue area with neighborhoods expanding from the initial approvals of Greystone and Prestwick Place. In 2017, Rosemount's building activity was reduced from the high in 2016 although continued to be significantly higher than in the recession years. The total value of construction was estimated at M 74,717,882 with more than half of the valuation coming from residential construction. The remaining amount was almost evenly split between commercial, industrial and institutional growth. Some of the more significant projects included installation of the Flint Hills Co-Generation Plant, construction of a new headquarters for Minnesota Energy Resources, and several school additions to the Rosemount High, Middle and Elementary schools. Mobile Technology In 2017 we completed a significant upgrade to our Cartegraph software. The new Operations Management System (OMS) provides a user-friendly, map-based interface for managing all facets of Public Works operations. The new web-based platform eliminates the connectivity issues we experienced in the past, and the administrative functionality allows us to create a secure, customized environment for each specific user. The new interface provides greater access to information using mobile devices, allowing us to be more efficient and effective with the services we provide. Capital Improvement Projects The Public Works Department coordinated and /or completed several capital improvement projects in 2017: Pump recondition at Well 14 and the Rural Wells Power washing the exterior of Connemara Tower and Bacardi Tower HVAC updates at Well 7 Exterior painting of park shelters at Erickson Park and Jaycee Park Resurface hard courts at Bloomfield Park and Dallara Park Crack seal and fog seal Ailesbury Park and Erickson Park tennis court parking lots Prep for new playgrounds at Connemara, Lions and Chippendale parks in 2018 Drain tile installation at Bloomfield Park soccer field New carpet in parts of Fire Station 1 and City Hall Interior painting of the mechanics' shop and the Public Works truck garage (together, these make up the building we call PW Central) Exterior maintenance and painting (south wall) at PW Central City Construction Projects 2017 Street Improvements—Pavement reclamation of Shannon Parkway between CSAH 42 and CSAH 46, as well as a mill and overlay in the Shannon Hills neighborhoods east of Shannon Parkway between 145th Street and Connemara Trail. Well 16—Construction began on the well house in fall 2017, with completion expected in 2018. Sealing Well 5—Well 5 was drilled out in 2016, and was sealed and capped in 2017. Parking Lot Improvements—Jaycee Park, Connemara Park, City Hall and the Rosemount Community Center parking lots were improved in 2017 with a full-depth reclamation of pavement, as well as spot concrete replacement where needed. Improvements to the City Hall parking lot included a dedicated entrance to the Police garage, as well as increased parking space near the splash pad. CSAH 42 /TH 52 Interchange Improvements—This was a County-led project. It included the widening of CSAH 42 under TH 52, as well as bridge replacement and ramp reconstruction on TH 52. As part of this project, the City upsized the water main in the area to better serve future development to the east. iv Developer Construction Projects Prestwick Place 14'h Addition—This neighborhood includes 38 single-family homes in the Prestwick Place development, located west of Akron Avenue and north of Connemara Trail. Prestwick LLC is the developer. Bella Vista 5th Addition —This neighborhood includes 41 single-family homes in the Bella Vista development located east of Bacardi Avenue and north of Bonaire Path. US Home Corporation is the developer. Greystone 5th and 6th Additions—These neighborhoods together include 66 single-family homes located east of Akron Avenue and south of Bonaire Path. CalAtlantic Group, Inc. is the developer. Rosewood Crossings—This is a new apartment complex on the south side of 145th Street,just east of the railroad tracks. The first phase includes two buildings, each with 32 units. KJ Walk, Inc. is the developer. Harmony Villas—This development is on the north side of Connemara Trail,just east of TH 3 in the Harmony development. It will be completed in two phases, with 16 townhomes in the first phase and 26 townhomes in the second phase (coming in 2018). Mark Elliot Homes is the developer. Dunmore—This neighborhood includes 30 single-family homes located west of TH 3 and south of 132 d Street. Copper Creek is the developer. The Police Department is responsible for policing services to the community to ensure safety and response to service calls. A Community Oriented Policing philosophy is core to all services through partnerships and relationships with citizens, businesses and community organizations. Staffing levels are continually evaluated to meet the needs of a growing community. The specific service functions within the Police Department are described below. Police Administration—This budget provides for the overall leadership, planning, coordination and management of personnel and administration of activities within the Police Department. This includes the collection, preparation and filing of crime data and miscellaneous reports with the State of Minnesota; preparation and oversight of the operating and capital improvements budgets; and strategic planning for the future needs of the Department and the community. Police Department leadership is also involved in many consolidated services governance boards that contribute to policing services for the city. The Dakota Communications Center(DCC), Dakota County Criminal Justice Network (CJN), Local Government Information Systems (LOGIS), Dakota County Drug Task Forces and Dakota County Multi-Agency Assistance Group (MAAG) are consolidated services organizations that contribute to RosemounYs policing services. Records Unit—The Police DepartmenYs Records Unit is responsible for the processing of over 2,200 case reports each year. Reports require transcription and compilation for transmittal to the city or county prosecutor's office or any other agency (e.g., social services, county crises, corrections) requiring information for service to the community. Records staff ensure the Police Department is compliant with all Minnesota Bureau of Criminal Apprehension data management laws, regulations and reporting requirements. Administrative support is provided to the entire Police Department for gun permit applications, criminal background checks and city licensing requirements. Patrol Operations— Uniformed patrol is the core function of the Police Department and the most visible in the community. Through 24-hour daily patrols in marked police vehicles, patrol officers respond to calls for service, investigate traffic accidents, conduct preliminary criminal investigations, enforce traffic laws and enforce criminal laws. Patrol Officers respond to medical calls as trained first responders. Through patrol operations the Police Department meets its goal of the protection of life and property and creating a sense of safety and security in the community. Patrol Officers spend a significant amount of time developing relationships within the community and contacting members of community organizations. Patrol Officers perform additional specialty assignments as Crime Scene Technicians, Use-of-Force Instructors, Multi-Agency Assistance Group (MAAG) Tactical Officers, Drug Recognition Experts, Special Operations Team (SOT), and Field Training Officers. v Criminal Investigations— Patrol Officers and investigators are responsible for the investigation of criminal incidents through evidence gathering and analysis, witness and suspect interviews, and court preparation and testimony. Complex investigations or those requiring a multi-jurisdictional or agency involvement are coordinated by the investigator. This is accomplished by working cooperatively with other police agencies, the County Attorney's Office, Child Protection, victim services and other local, state and federal law enforcement agencies. One investigator is assigned to the Dakota County Drug Task Force, a multi-jurisdictional joint powers entity, whose mission is to investigate drug crimes in the City of Rosemount and throughout Dakota County. Crime Prevention and Community Education—A significant effort is made by the Police Department to inform residents of crime within the community, methods that citizens can take to help prevent crimes and building relationships with community members. While these objectives are part of each officer's daily responsibilities, there are specific programs that are frequently associated with community policing and that emphasize the need for the police and citizens to work together to prevent criminal activity and reduce the opportunities for criminals to commit crimes. School Liaison —Officers serve as a liaison to the Rosemount Middle and the Rosemount High School. One officer is assigned full-time to the High School and a second officer spends one-quarter time at the Middle School. The liaison officers investigate criminal incidents that occur at the schools or that involve students at the schools. In addition, the liaisons work with the school staff to enhance the safety and security for both staff and students, specifically providing school safety planning, and armed intruder prevention and response planning. Presentations on a variety of topics are made by the liaison to classes at all grade levels. The Middle School officer also spends time at each of the elementary schools, working with staff on any issues and making presentations in classes when requested. Community Education — In order to work together with the community, police must share information concerning criminal activity and crime prevention with the community. Officers are available to make presentations to community groups and organizations on a variety of topics. In addition, officers provide prevention tips to persons on a daily basis who report criminal activity. Several events are also held throughout the year in an effort to build relationships with the residents and business persons. These include Night-to-Unite block parties and gatherings, Neighborhood Watch meetings and Public Safety in the Park events. The Rosemount Police Department also utilizes a Facebook page to inform the public of safety concerns as well as safety tips. Reserve Officer Program—Reserve officers are volunteers who supplement the staff of sworn officers of the Department. The reserve officers are utilized to handle traffic and crowd control duties during city festivals and celebrations or emergencies, such as hazardous materials spills or leaks, damage resulting from tornadoes or other severe weather and major criminal incidents. Reserve officers patrol on some evenings and handle service calls; for example, assisting stalled motorists and animal complaints. They are also utilized regularly to provide crime prevention information to citizens at community events or through other programs. Chaplain Program—The Police Chaplains assist in a variety of situations in which individuals or families are having difficulties. Chaplains are able to provide support to persons that are experiencing stress as a result of the death of a loved one, marital or family problems, financial struggles or any other event. By utilizing the chaplains to console and counsel persons in crisis, police officers are able to focus on their primary duties, while the chaplains are able to remain with the persons involved in the crisis. vi Explorer Program— Exploring is a community based, co-educational program supervised by the local police department. The Explorer program is designed for young adults ages 14-21 that want to learn more about law enforcement. The program is part of the Boy Scouts of America and is open to both young men and young women. Membership in the Rosemount Police Department Explorer Post is restricted to those young people that live in Rosemount or attend school in Rosemount. Residents of other communities that do not attend school in Rosemount are turned away. The Rosemount Police Explorer Post was formed in 2014. Explorers meet twice a month under the direction of the two officers that serve as Post advisors. During these meetings they conduct post business and train in law enforcement skills. The Explorers also take part in the statewide Explorer Conference where they compete against other Explorer Posts in law enforcement scenarios including crime scene processing, domestic disturbance calls, building searches, etc. In the past, the Explorers attended the national conference every other year. Several years ago, due to budget constraints, we ended this. Although the Explorers paid their own way to the conference there was a cost associated with sending the two officers that serve as post advisors. The Explorer Post is an opportunity for youth of our community to become exposed to law enforcement. Some just want to learn more about the police department. Others are truly exploring" law enforcement as a potential future career. In either case it brings teenagers closer to the police department in a service capacity. As such it fits with the department's mission of improving quality of life in our community. Adult Citizen Academy Program —The Adult Citizen Academy has been a project of the Rosemount Police Department for the past 8 years. In 2017 the Rosemount Police Department partnered with the Apple Valley Police Department to conduct an Adult Citizen Academy. It is a way to offer those who live or work in Rosemount an inside look at the operation of their police department. It also allows them an opportunity to meet the officers who serve them. The academy covers topics such as recruiting, ethics, criminal investigations, the charging process, drug task force, use of force, traffic enforcement, forensics, and includes a citizen ride-along with a patrol officer. As such it helps fulfill the department's educational mission. Teen Citizen Academy Program—In 2017 the Rosemount Police Department partnered with the Apple Valley Police Department to conduct a Teen Citizen Academy. The academy covers topics similar to the Adult Citizen Academy, but it is geared towards teens. Animal Control—The Police Department is responsible for the enforcement of ordinances related to the control and care of domestic animals. These tasks are mainly handled by Community Service Officers. Their duties include the licensing of dogs and ferrets, assisting in the handling of stray, lost or injured animals and other complaints of animals causing a nuisance by barking, howling or being allowed to roam off the owner's property. Code Enforcement—The Police Department assists the Community Development Department with code enforcement of city ordinances related to property maintenance and outside storage. The Department's Community Service Officers primarily handle this effort. Property owners that are observed to be in violation of an ordinance are notified of the violation and given an explanation of how to remedy the violation. The enforcement of city ordinances is important to maintain community standards, which help the City attain its mission of providing a safe, healthy and pleasant community. Emergency Management—The City has an all-hazards emergency plan and the Chief of Police serves as the City's emergency manager. The emergency manager is responsible for the development of emergency plans in the event of a chemical, technical or natural disaster in the community (e.g. tornado, flooding, school shooting, or hazardous materials release). The Chief of Police represents the City of Rosemount on the Dakota County Domestic Preparedness Committee DCDPC). The DCDPC is comprised of police, fire, dispatch, EMS, public health, and medical facility representatives to aid all Dakota County cities and Dakota County with all-hazards emergency planning and leadership. In 2017 the Chief of Police served as the Vice Chair and is currently the Chair of this governance board. vii In 1999, a Family Resource Center building in Rosemount began operations. The 360° Communities organization (formerly the Community Action Council [CAC]) and other service providers utilize this building to work with families in need in our community. The City constructed the building with funding coming entirely from grants and donations and leases the building to 360° Communities to house their Rosemount operations. City's financial policies During the current year, none of the City's financial polices had a significant impact on the financial statements. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Rosemount for its comprehensive annual financial report(CAFR) for the fiscal year ended December 31, 2016. This was the twenty-first consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report on a timely basis could not have been accomplished without the efficient and dedicated services of the Finance Department. We would like to express our appreciation to all members of City staff who assisted and contributed to the preparation of this report. We would also like to express our appreciation to the Mayor and the members of the City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully s mitt d, ffrey A. May Finance Director viii xi Mayor & City Council City Administrator Finance Director Parks and Recreation Director Community Development Director Director of Public Works / City Engineer Chief of Police Accounting Supervisor Payroll Clerk Accounts Payable Clerk Utility Billing Clerks (2 ) Secretary Customer Service Representative Parks Supervisor Rental Coordinator Recreation Facilities Manager Building Maintenance Workers (3) Inspections Secretaries (2) Planning & Personnel Secretary Senior Planner GIS Analyst Building Official/Fire Marshall Public Works Coordinator Assistant City Engineer PW Supervisor Records Supervisor Secretaries (2 FT) Sergeants (6) Officers (12) Community Resource Officer Detectives (2) School Resource Officer CSOs (2 PT) Reserve Commander Reserve Officers City Attorney Citizen Advisory Commissions Assistant City Administrator City Clerk Communications Coordinator Crew Leads (3) Fac. Maint. Spec PW Maintenance Workers (11) PW Mechanics (2) Fire Chief Safety Coordinator Fire Prevention/ Education Secretary Assistant Fire Chief Training Coordinator Captains Lieutenants Firefighters Building Inspectors (2) Planner Building Attendants Seasonal Workers PW Secretary Recreation Supervisors (2) IT Coordinator City of Rosemount Organizational Chart Recreation Coordinator Accountant Human Resources Coordinator PT IT Coordinator Sr. Engineering Technician x CITY OF ROSEMOUNT CITY OFFICIALS As of and for the Year Ended December 31, 2017 xi Term of Office Term Expires ELECTED OFFICIALS: Mayor Bill Droste Four Years December 31, 2018 Council member Mark DeBettignies Four Years December 31, 2018 Council member Heidi Freske Four Years December 31, 2020 Council member Shaun Nelson Four Years December 31, 2018 Council member Jeff Weisensel Four Years December 31, 2020 APPOINTED OFFICIALS: City Administrator Logan Martin Finance Director Jeffrey A. May Assistant City Administrator Emmy Foster City Engineer/Public Works Director Brian Erickson Community Development Director Kim Lindquist Police Chief Mitchell Scott Fire Chief Richard Schroeder Parks and Recreation Director Dan Schultz CONSULTANTS AND ADVISORS: Legal Kennedy & Graven Fluegel Law Firm, P.A. Auditing Baker Tilly Virchow Krause, LLP Malloy, Montague, Karnowski, Radosevich & Co., PA Fiscal Springsted, Inc. Ehlers & Associates, Inc. Engineering WSB & Associates Short, Elliot, Hendrickson, Inc. KLM Engineering Bolton & Menk, Inc. ISG Oertel Architects, Ltd. Black & Veatch TKDA Barr Engineering Co. Stantec Inc. Donahue & Associates, Inc. SRF Consulting Group, Inc. Houston Engineering, Inc. Sunde Engineering, PLLC Advanced Engineering and Environmental Services, Inc. Emmons & Olivier Resources, Inc. Evergreen Land Services Company Braun Intertec Co. American Engineering Testing, Inc. C ERTIFIED A CCOUNTANTS 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 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 xii INDEPENDENT AUDITOR’S REPORT To the City Council and Management City of Rosemount, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rosemount, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit . We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts an d disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error . In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. (continued) xiii OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of December 31, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof, for the year then ended, in accordance with accounting principles generally accepted in the United States of America. OTHER MATTERS Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the required supplementary information (RSI), as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplementary information, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have 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 them. (continued) xiv OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated May 7, 2018 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Minneapolis, Minnesota May 7, 2018 Page 1 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) As management of the City of Rosemount (the City), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2017. We encourage readers to consider the information presented here in conjunction with the letter of transmittal and the City’s financial statements following this section. Financial Highlights > The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $216,385,154 (net position). Of this amount, $37,611,118 (unrestricted net position) may be used to meet the government's ongoing obligations to citizens and creditors. > The City's total net position increased by $5,767,119. This increase is partially attributable to an increase in capital assets funded by grants or developers. > At year end, unassigned fund balance for the General Fund was $7,333,743, or 56 percent of the total General Fund expenditures budgeted for the upcoming year. Comparison of this balance to prior years’ balances is illustrated on the table on page 7. > The City's total bonded debt decreased by $4,905,000 (approximately 28%) during the current year, however $3,275,000 of that decrease related to a payment to an escrow account in 2017 to refund debt. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial st atements themselves. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City's assets, liabilities, and deferred outflows/inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether t he financial position of the City is improving or deteriorating. The statement of activities presents information showing how the government's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned/vested but unused vacation and sick leave). Page 2 Both the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functi ons that are intended to recover all or a significant portion of their costs through user fees and charges (business - type activities). The governmental activities of the City include general government; public safety; public works; culture, education and recreation; and conservation and economic development. The business - type activities of the City include water, sewer, storm water and an arena. The government-wide financial statements include not only the City itself, but also a legally separate port authority, which functions as the economic development arm of the City, and therefore has been blended in with the primary government. The government-wide financial statements can be found on pages 11-12 of this report. Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and proprietary funds. Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on the near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, debt service fund, capital projects fund, and the Port Authority TIF fund all of which are considered major funds. Data from the four other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is pr ovided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 13-15 of this report. Page 3 Proprietary funds The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its public utilities and ice arena operations. The internal service fund is an accounting device to accumulate and allocate costs internally among the C ity's various functions. The City uses its internal service fund to account for insurance premiums and deductibles and to accumulate resources for the risk of uninsured loss. Because this service predominantly benefits governmental rather than business-type functions, it has been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for each of the public utilities, which are considered to be major funds of the City, and information on the ice arena fund, which is considered a non-major fund. The internal service fund is also presented se parately in the proprietary fund financial statements. The basic proprietary fund financial statements can be found on pages 16-19 of this report. Notes to the financial statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 20-61 of this report. Other information Required supplementary information is included on pages 62-70. The combining statements referred to earlier in connection with nonmajor governmental funds are presented following the basic financial statements. Combining and individual fund statements and schedules can be found on pages 71 -75 of this report. Lastly, the statistical section is included on pages 76-94. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $216,385,154 at the close of the most recent fiscal year. The largest portion of the City's net position (79 percent) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment, infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Page 4 City’s Statement of Net Position Governmental Business-Type 2017 Governmental Business-Type 2016 Activities Activities Totals Activities Activities Totals Current and other assets $ 32,065,803 $ 25,867,407 $ 57,933,210 $ 32,372,351 $ 24,100,925 $ 56,473,276 Capital assets 85,146,896 98,152,008 183,298,904 81,934,294 99,908,372 181,842,666 Total assets 117,212,699 124,019,415 241,232,114 114,306,645 124,009,297 238,315,942 Deferred outflows of resources 4,895,322 275,410 5,170,732 7,995,925 559,009 8,554,934 Long-term liabilities outstanding 17,756,884 2,912,339 20,669,223 28,539,526 3,687,332 32,226,858 Other liabilities 2,277,996 338,443 2,616,439 1,616,686 266,941 1,883,627 Total liabilities 20,034,880 3,250,782 23,285,662 30,156,212 3,954,273 34,110,485 Deferred inflows of resources 6,537,358 194,672 6,732,030 1,990,067 152,289 2,142,356 Net position: Net investment in capital assets 74,294,033 97,328,281 171,623,314 69,942,544 98,722,624 168,665,168 Restricted 7,151,722 - 7,151,722 7,113,065 - 7,113,065 Unrestricted 14,090,028 23,521,090 37,611,118 13,100,682 21,739,120 34,839,802 Total net position $ 95,535,783 $ 120,849,371 $ 216,385,154 $ 90,156,291 $ 120,461,744 $ 210,618,035 An additional portion of the City’s net position ($7,151,722 or 3%) represents resources that are subject to external restrictions on how they may be used. The remaining bal ance representing unrestricted net position ($37,611,118) may be used to meet the government’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business - type activities. Governmental activities Governmental activities increased the City’s net position by $5,379,492, accounting for approximately 93% of the total growth in the government’s net position. This compares to an increase (from governmental activities) of $2,801,834 in 2016. Revenues increased by nearly $1,500,000 mainly related to charges for services, property taxes, and capital grants and con tributions in 2017. Total expenses decreased from 2016 and the net effect was the increase in net position of $5,379,492. Net transfers from business-type activities to governmental activities were $1,041,660 more than the prior year, also attributing to the changes in net position. Business-type activities Business-type activities increased the City’s net position by $387,627 accounting for approximately 7% of the total growth in the government’s net position. This compares to an increase of $3,276,434 in 2016. The primary reason for the change in net position compared to the prior year change was due to significant capital grants and contributions received in prior year. Page 5 Elements of these changes are as follows: City’s Changes in Net Position Governmental Business- Type 2017 Governmental Business- Type 2016 Activities Activities Totals Activities Activities Totals Revenues: Program revenues: Charges for services $ 4,300,745 $ 7,303,317 $ 11,604,062 $ 3,726,535 $ 6,506,790 $ 10,233,325 Operating grants and contributions 436,995 84,042 521,037 635,988 24,248 660,236 Capital grants and contributions 3,578,760 631,370 4,210,130 3,181,711 3,184,415 6,366,126 General revenues: Property taxes 12,317,625 - 12,317,625 11,852,094 - 11,852,094 Other taxes 366,745 - 366,745 354,571 - 354,571 Interest earnings 307,497 295,867 603,364 270,676 339,012 609,688 Change in fair value of investments (20,104 ) (26,236 ) (46,340 ) (147,945 ) (134,583 ) (282,528 ) Other 171,294 - 171,294 103,394 - 103,394 Total revenues 21,459,557 8,288,360 29,747,917 19,977,024 9,919,882 29,896,906 Expenses: General government 3,859,090 - 3,859,090 4,426,817 - 4,426,817 Public safety 5,170,637 - 5,170,637 5,629,866 - 5,629,866 Public works 5,822,738 - 5,822,738 4,765,115 - 4,765,115 Culture, education and recreation 2,042,299 - 2,042,299 1,959,224 - 1,959,224 Conservation and economic development 4,315 - 4,315 3,968 - 3,968 Interest and fiscal charges 308,567 - 308,567 476,121 - 476,121 Water - 2,175,626 2,175,626 - 2,075,460 2,075,460 Sewer - 2,837,550 2,837,550 - 2,742,402 2,742,402 Storm water - 1,275,073 1,275,073 - 1,228,697 1,228,697 Arena - 484,903 484,903 - 510,968 510,968 Total expenses 17,207,646 6,773,152 23,980,798 17,261,111 6,557,527 23,818,638 Increase in net position before transfers 4,251,911 1,515,208 5,767,119 2,715,913 3,362,355 6,078,268 Transfers 1,127,581 (1,127,581 ) - 85,921 (85,921 ) - Increase in net position 5,379,492 387,627 5,767,119 2,801,834 3,276,434 6,078,268 Net position – Beginning of Year 90,156,291 120,461,744 210,618,035 87,354,457 117,185,310 204,539,767 Net position – End of Year $ 95,535,783 $ 120,849,371 $ 216,385,154 $ 90,156,291 $ 120,461,744 $ 210,618,035 Page 6 Expenses and Program Revenues – Governmental Activities Expenses and Program Revenues – Business-Type Activities Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance - related legal requirements. Governmental funds The focus of the City’s governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $25,445,443, a decrease of $2,333,502 in comparison with the prior year. $7,333,743 constitutes unassigned fund balance, which is available for spending at the government’s discretion (this amount is entirely in the General Fund and is typically available to meet cash flow needs). A small amount ($444) is classified as nonspendable in regards to prepaid items, $4,854,162 is classified as restricted to meet debt service requirements or relates to donations for capital projects, and the remainder of the fund balance is considered to be committed or assigned and unavailable for discretionary spending. 0 1 2 3 4 5 6 General Government Public Safety Public Works Recreation Community Development Interest and fiscal charges Millions Expenses Revenue 0 0.5 1 1.5 2 2.5 3 3.5 Water Sewer Storm water Arena Millions Expenses Revenue Page 7 The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $7,333,743, while total fund balance reached $9,556,250. The following table shows year-end General Fund balances as compared to the adopted expenditure budget of the following year: Fund Balance Year Budget Amount Percent of Next Budget 2007 $ 9,181,100 $ 5,747,445 54% 2008 10,574,900 5,688,243 55% 2009 10,384,800 5,693,475 55% 2010 10,466,000 5,731,123 55% 2011 10,480,400 5,700,071 54% 2012 10,531,800 5,905,056 55% 2013 10,728,600 6,001,628 54% 2014 11,098,600 6,288,615 55% 2015 11,423,500 6,506,697 55% 2016 11,835,528 6,918,833 56% 2017 12,392,700 7,333,743 56% 2018 13,086,400 During the current fiscal year, unassigned fund balance in the General Fund increased by $414,910. The increase was intentional as the City has determined, through the adoption of a formal Fund Balance Policy, it would like to maintain an unassigned fund balance of 55 percent of the next General Fund operating expenditure budget. Forty to fifty percent normally provides adequate working capital to finance General Fund operations until property taxes and state aids are received. The desired unassigned fund balance level also provides a certain amount of comfort that unforeseen emergencies can be addressed without causing an immediate financial crisis. As of December 31, 2017, 100 percent of the unassigned fund balance of the General Fund is available to meet working capital needs. The debt service fund balance decreased by $1,323,843 due to accelerated principal payments on the outstanding bonds. The capital projects fund balance increased by $2,396,654 due to debt issues and transfers in compared to actual capital expenditures (mostly related to timing of collections and expenditures). The Port Authority TIF fund balance decreased by $3,145,005 due to the payment to an escrow account to refund debt. Page 8 Revenues by Source – Governmental Funds Proprietary funds The City’s proprietary funds provide the same type of information found in the government -wide statements, but in more detail. Unrestricted net position of the utility funds at the end of the year amounted to $23,172,280 while the arena fund had an unrestricted net position amounting to $348,810. The increase in total net position for the utility funds was $303,838 after $631,370 from private entities (i.e. developers) as well as net transfers out of $1,254,081. The increase in total net position for the arena fund was $83,789 which included net transfers in of $126,500. Revenues by Source – Proprietary Funds Taxes 61.5% Intergovernmental 6.0% Public charges for services 17.1% Licenses and permits 3.7% Fines and forfeitures 0.5% Special assessments 3.6% Investment income and miscellaneous 7.6% Charges for services 72.6% Water meters 0.8% Connection fees 17.4% Intergovernmental 1.1% Investment income 3.5% Surcharges and penalties 4.6% Page 9 General Fund Budgetary Highlights There were a few slight variances between final budgeted revenues and actual amounts. Building permit revenue exceeded budget by approximately $46,000 because of more activity than expected. Public charges for services exceeded budget by approximately $32,000 due mostly to higher than expected collections for highway & street revenues and Park & Rec revenues. State aid intergovernmental revenues exceeded budget by approximately $62,000 mainly due to the collection of several small gran ts. Interest revenues were approximately $33,000 higher than budgeted because of improving market conditions and miscellaneous revenues were approximately $40,000 more than budgeted mainly because of a tree dedication received from Flint Hills. All other revenue areas experienced either small surpluses or deficits that led to the final surplus amount. Overall, total expenditures and other financing uses were slightly less than 2% under budget with most departments being slightly less than budget and a few being just slightly over budget. Capital Asset and Debt Administration Capital assets The City’s investment in capital assets for its governmental and business -type activities as of December 31, 2017, amounts to $183,298,904 (net of accumulated deprec iation). This investment in capital assets includes land, buildings and structures, machinery and equipment, water, sewer, and storm water systems, infrastructure and construction in progress. City of Rosemount’s Capital Assets (net of depreciation) Governmental Business-Type Activities Activities Totals Land $ 7,960,624 $ 2,728,077 $ 10,688,701 Land improvements (not depreciable) 2,647,412 - 2,647,412 Land improvements (depreciable) 4,097,024 - 4,097,024 Buildings 17,358,045 11,085,341 28,443,386 Machinery and equipment 12,290,935 3,625,731 15,916,666 Infrastructure: Other 209,037 - 209,037 Roads 61,178,368 - 61,178,368 Bridges 2,034,591 - 2,034,591 Parking lots 1,298,575 - 1,298,575 Mains and lines and other improvements - 139,540,170 139,540,170 Construction in progress 3,453,157 836,114 4,289,271 Accumulated depreciation (27,380,872 ) (59,663,425 ) (87,044,297) Total capital assets $ 85,146,896 $ 98,152,008 $ 183,298,904 Additional information on the City's capital assets can be found in Note IV.C. on pages 37 -38 of this report. Page 10 Long-term debt At the end of the current fiscal year, the City had total bonded debt outstanding of $12,345,000 (including debt recorded in the Port Authority). Of this amount, $3,460,000 was for general obligation improvement debt which has financed special assessment construction as part the continuing development within the City. An additional $6,025,000 was general obligation debt issued by the Port Authority which financed the City's economic development and redevelopment programs. Another $1,645,000 was general obligation revenue bond debt issued to add to and improve the water and storm water utility systems within the City. The remaining $1,215,000 was general obligation refunding debt (for Fire Station 2). The City's total debt decreased by $4,905,000 (approximately 28%) during the current year, however $3,275,000 of that decrease related to payment of refunded debt to an escrow account in 2017. Cities in Minnesota may issue general obligation debt up to a maximum of three percent of the total estimated market value of property within the City, per state statutes. The current debt limit for the City is $73,042,918. Of the City's $12,345,000 in outstanding general obligation debt at the current fiscal year end, $1,215,000 is subject to the restrictions placed by state statute. The City received a S&P Global Ratings bond rating of AA+ for bonds issued in 2017, which amount to a rating upgrade from our Aa2 Moody’s rating for previously issued debt. These excellent ratings have had a positive effect on the sale of the City’s bonds. Additional information on the City's long-term debt can be found in Note IV.E. on pages 41-43 of this report. Economic Factors > Dakota County's unemployment rate ended the year at 2.7 percent, which compares favorably with the state unemployment rate of 3.3 percent, and the national unemploymen t rate of 3.9 percent. > City building permits were down slightly in quantity and in value in 2017, as compared to 2016. A total of 3,136 permits with a total valuation of $74,717,882 were issued in 2017. Requests for Information This financial report is designed to provide a general overview of the City's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to th e Finance Director, City of Rosemount, 2875 145th Street West, Rosemount, Minnesota 55068-4997. Business- Governmental Type Activities Activities Totals ASSETS Cash and investments 28,053,752$ 23,975,501$ 52,029,253$ Receivables Taxes 676,694 - 676,694 Delinquent taxes 44,119 - 44,119 Accounts 238,485 1,293,791 1,532,276 Special assessments 1,724,204 210,407 1,934,611 Due from other governmental units 11,861 241,190 253,051 Internal balances (22,857) 22,857 - Prepaid items 92,911 123,661 216,572 Net pension asset 1,246,634 - 1,246,634 Capital assets Land 7,960,624 2,728,077 10,688,701 Construction in progress 3,453,157 836,114 4,289,271 Land improvements 6,744,436 - 6,744,436 Buildings 17,358,045 11,085,341 28,443,386 Machinery and equipment 12,290,935 3,625,731 15,916,666 Infrastructure 64,720,571 139,540,170 204,260,741 Less: accumulated depreciation (27,380,872) (59,663,425) (87,044,297) Total Assets 117,212,699 124,019,415 241,232,114 DEFERRED OUTFLOWS OF RESOURCES Pension related amounts 4,895,322 275,410 5,170,732 LIABILITIES Accounts payable 850,754 253,302 1,104,056 Accrued payroll and payroll taxes 255,073 66,485 321,558 Other accrued liabilities and deposits 1,172,169 18,656 1,190,825 Noncurrent liabilities Net pension liability 5,922,358 1,001,327 6,923,685 Due within one year 1,866,198 482,136 2,348,334 Due in more than one year 9,968,328 1,428,876 11,397,204 Total Liabilities 20,034,880 3,250,782 23,285,662 DEFERRED INFLOWS OF RESOURCES Contributions received for subsequent year 1,047,503 - 1,047,503 Pension related amounts 5,489,855 194,672 5,684,527 Total Deferred Inflows of Resources 6,537,358 194,672 6,732,030 NET POSITION Net investment in capital assets 74,294,033 97,328,281 171,622,314 Restricted for debt service 5,883,329 - 5,883,329 Restricted for pension 1,246,634 - 1,246,634 Restricted PEG fees 21,759 - 21,759 Unrestricted 14,090,028 23,521,090 37,611,118 TOTAL NET POSITION 95,535,783$ 120,849,371$ 216,385,154$ CITY OF ROSEMOUNT STATEMENT OF NET POSITION As of December 31, 2017 See accompanying notes to financial statements. Page 11 Program Revenues Operating Capital Charges for Grants and Grants and Governmental Business-Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Totals Primary Government: Governmental activities: General government 3,859,090$ 3,286,273$ 1,509$ -$ (571,308)$ -$ (571,308)$ Public safety 5,170,637 134,893 366,654 6,358 (4,662,732) - (4,662,732) Public works 5,822,738 100,038 42,495 3,538,480 (2,141,725) - (2,141,725) Culture, education and recreation 2,042,299 779,541 1,337 293 (1,261,128) - (1,261,128) Conservation and economic development 4,315 - 25,000 33,629 54,314 - 54,314 Interest and fiscal charges 308,567 - - - (308,567) - (308,567) Total Governmental Activities 17,207,646 4,300,745 436,995 3,578,760 (8,891,146) - (8,891,146) Business-Type activities Water 2,175,626 3,041,642 84,042 216,454 - 1,166,512 1,166,512 Sewer 2,837,550 2,126,771 - 204,114 - (506,665) (506,665) Storm Water 1,275,073 1,693,845 - 210,802 - 629,574 629,574 Arena 484,903 441,059 - - - (43,844) (43,844) Total Business-Type Activities 6,773,152 7,303,317 84,042 631,370 - 1,245,577 1,245,577 Total Primary Government 23,980,798$ 11,604,062$ 521,037$ 4,210,130$ (8,891,146) 1,245,577 (7,645,569) General revenues: Taxes Property taxes, levied for general purposes 11,139,036 - 11,139,036 Property taxes, levied for debt service 1,178,589 - 1,178,589 Other taxes 366,745 - 366,745 Interest earnings 307,497 295,867 603,364 Change in fair value of investments (20,104) (26,236) (46,340) Miscellaneous 171,294 - 171,294 Transfers 1,127,581 (1,127,581) - Total general revenues and transfers 14,270,638 (857,950) 13,412,688 Change in net position 5,379,492 387,627 5,767,119 NET POSITION - Beginning $90,156,291 $120,461,744 $210,618,035 NET POSITION - ENDING 95,535,783$ 120,849,371$ 216,385,154$ Primary Government Changes in Net Position Net (Expense) Revenue and CITY OF ROSEMOUNT STATEMENT OF ACTIVITIES For the Year Ended December 31, 2017 See accompanying notes to financial statements. Page 12 Port Nonmajor Total Authority Governmental Governmental General Debt Service Capital Projects TIF Funds Funds ASSETS Cash and investments 10,130,901$ 3,207,898$ 12,253,924$ 1,847,142$ 247,063$ 27,686,928$ Receivables from: Taxes 718,900 - - 1,913 - 720,813 Accounts 29,468 - 203,857 - 5,160 238,485 Special assessments 3,375 1,181,403 538,339 - - 1,723,117 Delinquent special assessments 70 - 1,017 - - 1,087 Due from other governmental units 11,861 - - - - 11,861 Prepaid items - - - - 444 444 TOTAL ASSETS 10,894,575$ 4,389,301$ 12,997,137$ 1,849,055$ 252,667$ 30,382,735$ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities Accounts payable 488,281$ -$ 288,538$ -$ 302$ 777,121$ Accrued payroll and payroll taxes 255,073 - - - - 255,073 Deposits payable 483,105 - 559,054 - - 1,042,159 Advances from other funds - - 22,857 - - 22,857 Total Liabilities 1,226,459 - 870,449 - 302 2,097,210 Deferred Inflows of Resources Unavailable revenue 111,866 1,181,263 499,450 - - 1,792,579 Contributions received for subsequent year - 224,690 822,813 - - 1,047,503 Total Deferred Inflows of Resources 111,866 1,405,953 1,322,263 - - 2,840,082 Fund Balances Nonspendable - - - - 444 444 Restricted - 2,983,348 - 1,849,055 21,759 4,854,162 Committed - - - - 230,162 230,162 Assigned 2,222,507 - 10,804,425 - - 13,026,932 Unassigned 7,333,743 - - - - 7,333,743 Total Fund Balances 9,556,250 2,983,348 10,804,425 1,849,055 252,365 25,445,443 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES 10,894,575$ 4,389,301$ 12,997,137$ 1,849,055$ 252,667$ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds.85,146,896 Some receivables that are not currently available are reported as deferred inflows of resources in the fund financial statements but are recognized as revenue when earned in the government-wide statements.1,792,579 Internal service funds are reported in the statement of net position as governmental activities.385,658 The net pension asset does not relate to current financial resources and is not reported in the governmental funds.1,246,634 The net pension liability does not relate to current financial resources and is not reported in the governmental funds.(5,922,358) Deferred outflows of resources related to pensions do not relate to current financial resources and is not reported in the governmental funds.4,895,322 Deferred inflows of resources related to pensions do not relate to current financial resources and is not reported in the governmental funds.(5,489,855) Some liabilities, including long-term debt, are not due and payable in the current period and, therefore, are not reported in the funds. See Note II.A.(11,964,536) NET POSITION OF GOVERNMENTAL ACTIVITIES 95,535,783$ CITY OF ROSEMOUNT BALANCE SHEET - GOVERNMENTAL FUNDS As of December 31, 2017 See accompanying notes to financial statements. Page 13 Port Nonmajor Total Authority Governmental Governmental General Debt Service Capital Projects TIF Funds Funds REVENUES Taxes 9,750,637$ 346,056$ 1,415,400$ 832,533$ 79,744$ 12,424,370$ Intergovernmental 417,036 - 766,685 - 32,479 1,216,200 Public charges for services 1,369,766 - 2,071,914 - 15,573 3,457,253 Licenses and permits 741,243 - - - - 741,243 Fines and forfeitures 101,327 - - - - 101,327 Special assessments 345 215,395 502,311 - - 718,051 Interest earnings 163,932 14,503 108,370 17,030 - 303,835 Change in fair value of investments (10,444) - (8,843) (817) - (20,104) Donations/contributions - - 855 - - 855 Miscellaneous 136,103 - 1,125,034 - 942 1,262,079 Total Revenues 12,669,945 575,954 5,981,726 848,746 128,738 20,205,109 EXPENDITURES Current: General government 3,035,701 - 8,454 157,733 51,920 3,253,808 Public safety 4,306,808 - - - - 4,306,808 Public works 3,900,699 - 240,476 - - 4,141,175 Parks and recreation 1,546,723 - - - - 1,546,723 Capital Outlay 68,105 - 5,539,699 63,169 5,842 5,676,815 Debt Service: Principal retirement - 2,010,000 - 230,000 - 2,240,000 Interest and fiscal charges - 107,472 9,223 267,849 - 384,544 Total Expenditures 12,858,036 2,117,472 5,797,852 718,751 57,762 21,549,873 Excess (deficiency) of revenues over expenditures (188,091) (1,541,518) 183,874 129,995 70,976 (1,344,764) OTHER FINANCING SOURCES (USES) Issuance of long-term debt - - 1,055,000 - - 1,055,000 Premium on long-term debt - - 61,287 - - 61,287 Payment of refunded debt to escrow agent - - - (3,275,000) - (3,275,000) Sale of capital assets - - 42,394 - - 42,394 Transfers in 3,721 267,695 1,472,329 - - 1,743,745 Transfers out (147,914) (50,020) (418,230) - - (616,164) Total Other Financing Sources (Uses)(144,193) 217,675 2,212,780 (3,275,000) - (988,738) Net Change in Fund Balances (332,284) (1,323,843) 2,396,654 (3,145,005) 70,976 (2,333,502) FUND BALANCES - Beginning 9,888,534 4,307,191 8,407,771 4,994,060 181,389 27,778,945 FUND BALANCES - ENDING 9,556,250$ 2,983,348$ 10,804,425$ 1,849,055$ 252,365$ 25,445,443$ CITY OF ROSEMOUNT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS For the Year Ended December 31, 2017 See accompanying notes to financial statements. Page 14 CITY OF ROSEMOUNT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended December 31, 2017 Net change in fund balances - total governmental funds (2,333,502)$ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of net position the cost of these assets is capitalized and they are depreciated over their estimated useful lives with depreciation expense reported in the statement of activities. Capital outlay is reported as an expenditure in the fund financial statements but is capitalized in the government-wide financial statements 5,676,815 Some items reported as capital outlay but not capitalized (254,198) Capital contributions from external parties 214,616 Depreciation is reported in the government-wide statements (2,357,213) In the statement of activities, the loss of ($25,024) on the disposal of capital assets is reported. In the fund financial statements, proceeds from the sale of capital assets ($42,394) are reported because the proceeds increase financial resources (67,418) Internal service funds are reported in the statement of activities.(180,621) Receivables not currently available are reported as unavailable revenue in the fund financial statements but are recognized as revenue when earned in the government-wide financial statements.695,242 Issuing debt provides current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. This is the amount of debt issued during the year.(1,055,000) Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. This is the amount of principal payments paid.5,515,000 Governmental funds report the effect of premiums and discounts, and similar items when debt is first issued, whereas these amounts were amortized in the statement of activities.13,887 Some expenses in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. This is the change in the following liabilities. Compensated absences 437 Accrued interest on debt 62,090 Net pension liability 6,308,318 Net pension asset 245,144 Deferred outflows of resources related to pensions (3,100,603) Deferred inflows of resources related to pensions (4,003,502) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 5,379,492$ See accompanying notes to financial statements. Page 15 Governmental Activities - Storm Non-major Internal Service Water Sewer Water Arena Totals Fund ASSETS Current Assets Cash and investments 10,130,881$ 6,421,563$ 6,897,231$ 525,826$ 23,975,501$ 366,824$ Accounts receivable 483,284 461,630 323,667 25,210 1,293,791 - Special assessments receivable 84,779 86,466 39,162 - 210,407 - Advance to other funds - 32,381 - - 32,381 - Due from other governments 77,280 - 163,449 461 241,190 - Prepaid and other assets 4,650 117,463 1,117 431 123,661 92,467 Total Current Assets 10,780,874 7,119,503 7,424,626 551,928 25,876,931 459,291 Noncurrent Assets Property and equipment: Land 1,008,628 547,158 1,172,291 - 2,728,077 - Construction in progress 811,114 - - 25,000 836,114 - Buildings 6,794,504 401,414 1,489,523 2,399,900 11,085,341 - Machinery and equipment 1,867,136 754,572 835,135 168,888 3,625,731 - Mains and lines 23,314,052 20,121,631 30,113,198 - 73,548,881 - Other improvements 16,528,701 36,927,459 12,535,129 - 65,991,289 - Less accumulated depreciation (16,506,712) (30,883,431) (11,109,675) (1,163,607) (59,663,425) - Net Property and Equipment 33,817,423 27,868,803 35,035,601 1,430,181 98,152,008 - Total Assets 44,598,297 34,988,306 42,460,227 1,982,109 124,028,939 459,291 DEFERRED OUTFLOWS OF RESOURCES Pension related amounts 93,787 93,769 44,186 43,668 275,410 - LIABILITIES Current Liabilities Accounts payable 189,484 6,643 39,318 17,857 253,302 73,633 Accrued payroll and payroll taxes 36,194 15,756 7,199 7,336 66,485 - Accrued interest 17,518 - 1,138 - 18,656 - Advances from other funds 9,524 - - - 9,524 - Current portion of long term obligations 318,103 33,103 118,037 12,893 482,136 - Total Current Liabilities 570,823 55,502 165,692 38,086 830,103 73,633 Noncurrent Liabilities Net pension liability 339,042 339,031 159,898 163,356 1,001,327 - General obligation debt 1,329,063 - - - 1,329,063 - Accrued compensated absences 35,861 35,861 14,124 13,967 99,813 - Total Noncurrent Liabilities 1,703,966 374,892 174,022 177,323 2,430,203 - Total Liabilities 2,274,789 430,394 339,714 215,409 3,260,306 73,633 DEFERRED INFLOWS OF RESOURCES Pension related amounts 66,283 66,247 30,765 31,377 194,672 - NET POSITION Net investment in capital assets 33,098,696 27,868,803 34,930,601 1,430,181 97,328,281 - Unrestricted 9,252,316 6,716,631 7,203,333 348,810 23,521,090 385,658 TOTAL NET POSITION 42,351,012$ 34,585,434$ 42,133,934$ 1,778,991$ 120,849,371$ 385,658$ CITY OF ROSEMOUNT STATEMENT OF NET POSITION - PROPRIETARY FUNDS As of December 31, 2017 Business-Type Activities - Enterprise Funds See accompanying notes to financial statements. Page 16 Governmental Activities - Storm Non-major Internal Service Water Sewer Water Arena Totals Funds OPERATING REVENUES Charges for services 1,970,499$ 1,853,008$ 1,294,443$ 441,059$ 5,559,009$ -$ Surcharges and penalties 327,849 13,768 10,471 - 352,088 - Water meters 58,045 - - - 58,045 - Total Operating Revenues 2,356,393 1,866,776 1,304,914 441,059 5,969,142 - OPERATING EXPENSES Personnel services 463,400 464,961 217,362 223,790 1,369,513 - Supplies 199,402 20,226 16,155 28,133 263,916 4,946 Professional services and charges 112,970 28,865 47,876 31,512 221,223 99,307 Other services and charges 533,725 113,833 237,464 143,776 1,028,798 339,707 Metro sewer charges - 1,284,546 - - 1,284,546 - Depreciation 815,812 925,119 752,701 57,692 2,551,324 - Total Operating Expenses 2,125,309 2,837,550 1,271,558 484,903 6,719,320 443,960 Operating Income (Loss)231,084 (970,774) 33,356 (43,844) (750,178) (443,960) NONOPERATING REVENUES (EXPENSES) Connection fees 685,249 259,995 388,931 - 1,334,175 - Taxes - - - - - 260,000 Intergovernmental 84,042 - - - 84,042 - Interest earnings 105,647 87,072 100,928 2,220 295,867 3,339 Change in fair value of investments (7,651) (10,121) (7,377) (1,087) (26,236) - Loss from disposal of capital assets (9,885) (4,159) - - (14,044) - Interest expense and fiscal agent fees (36,273) - (3,515) - (39,788) - Total Nonoperating Revenues 821,129 332,787 478,967 1,133 1,634,016 263,339 Income (loss) before contributions and transfers 1,052,213 (637,987) 512,323 (42,711) 883,838 (180,621) Capital contributions, including special assessments 216,454 204,114 210,802 - 631,370 - Transfers in - 217,314 56,000 130,000 403,314 - Transfers out (844,233) (73,316) (609,846) (3,500) (1,530,895) - Change in Net Position 424,434 (289,875) 169,279 83,789 387,627 (180,621) TOTAL NET POSITION - Beginning 41,926,578 34,875,309 41,964,655 1,695,202 120,461,744 566,279 TOTAL NET POSITION - ENDING 42,351,012$ 34,585,434$ 42,133,934$ 1,778,991$ 120,849,371$ 385,658$ Business-Type Activities - Enterprise Funds CITY OF ROSEMOUNT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS For the Year Ended December 31, 2017 See accompanying notes to financial statements. Page 17 Governmental Activities - Storm Non major Internal Water Sewer Water Arena Totals Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers 2,997,901$ 2,022,302$ 1,601,263$ 470,345$ 7,091,811$ -$ Cash paid to suppliers for goods and services (756,601) (1,464,783) (302,143) (204,601) (2,728,128) (360,047) Cash paid for employees (463,400) (464,961) (217,362) (223,031) (1,368,754) - Net Cash Flows From (Used by) Operating Activities 1,777,900 92,558 1,081,758 42,713 2,994,929 (360,047) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Property taxes - - - - - 260,000 Repayment of advance to other funds - 30,839 - - 30,839 - Repayment of advance from other funds (9,070) - - - (9,070) - Repayment of advance to other governmental units - - 54,483 - 54,483 - Transfers from other funds - 217,314 56,000 130,000 403,314 - Transfers to other funds (844,233) (73,316) (609,846) (3,500) (1,530,895) - Net Cash Flows From (Used by) Noncapital Financing Activities (853,303) 174,837 (499,363) 126,500 (1,051,329) 260,000 CASH FLOWS FROM INVESTING ACTIVITIES Marketable securities purchased (4,492,651) (1,845,121) (3,242,377) (270,000) (9,850,149) - Marketable securities sold 2,756,613 1,454,123 2,354,627 - 6,565,363 - Interest earnings 105,647 87,072 100,928 2,220 295,867 3,339 Net Cash Flows From (Used by) Investing Activities (1,630,391) (303,926) (786,822) (267,780) (2,988,919) 3,339 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Debt retired (270,000) - (175,000) - (445,000) - Interest paid (47,648) - (5,192) - (52,840) - Acquisition and construction of capital assets (97,315) (67,310) (119,996) (114,253) (398,874) - Contribution received for construction 30,107 107,888 56,788 - 194,783 - Net Cash Flows From (Used by) Capital and Related Financing Activities (384,856) 40,578 (243,400) (114,253) (701,931) - Net Increase (Decrease) in Cash and Cash Equivalents (1,090,650) 4,047 (447,827) (212,820) (1,747,250) (96,708) CASH AND CASH EQUIVALENTS - Beginning of Year 3,255,434 653,099 476,536 469,733 4,854,802 271,532 CASH AND CASH EQUIVALENTS - END OF YEAR 2,164,784$ 657,146$ 28,709$ 256,913$ 3,107,552$ 174,824$ RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash and Investments per Statement of Net Position 10,130,881$ 6,421,563$ 6,897,231$ 525,826$ 23,975,501$ 366,824$ Less: Non Cash Equivalents (7,966,097) (5,764,417) (6,868,522) (268,913) (20,867,949) (192,000) CASH AND CASH EQUIVALENTS PER STATEMENT OF CASH FLOWS 2,164,784$ 657,146$ 28,709$ 256,913$ 3,107,552$ 174,824$ Business-Type Activities - Enterprise Funds CITY OF ROSEMOUNT STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended December 31, 2017 See accompanying notes to financial statements. Page 18 Governmental Activities - Water Sewer Storm Non major Internal Utility Utility Water Arena Totals Service Funds RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FLOWS FROM (USED BY) OPERATING ACTIVITIES Operating income (loss)231,084$ (970,774)$ 33,356$ (43,844)$ (750,178)$ (443,960) Nonoperating income 769,291 259,995 388,931 - 1,418,217 - Adjustments to Reconcile Operating (Loss) to Net Cash Flows From (Used by) Operating Activities Noncash items included in income Depreciation 815,812 925,119 752,701 57,692 2,551,324 - Change in assets and liabilities Accounts receivable (127,783) (104,469) (92,582) (641) (325,475) - Other receivables - - - 29,927 29,927 - Prepaid items 6,251 360 4,430 4,413 15,454 72,148 Accounts payable 92,452 (12,938) (6,505) (2,277) 70,732 11,765 Other current liabilities (12,340) (7,866) 1,345 (429) (19,290) - Accrued liabilities 7,784 7,787 3,247 (3,433) 15,385 - Pension related deferrals and liabilities (4,651) (4,656) (3,165) 1,305 (11,167) - NET CASH FLOWS FROM (USED BY) OPERATING ACTIVITIES 1,777,900$ 92,558$ 1,081,758$ 42,713$ 2,994,929$ (360,047)$ NONCASH CAPITAL, INVESTING AND FINANCING ACTIVITIES The Water Utility received contributed plant of $110,870 during the year. The Sewer Utility received contributed plant of $117,573 during the year. The Storm Water Utility received contributed plant of $156,804 during the year. Construction in progress included in the Water Utility accounts payable was $24,883. Unrealized loss on investments were $7,651 for the Water Utility, $10,121 for the Sewer Utility, $7,377 for the Storm Water Utility and $1,087 for the Arena for the year. Business-Type Activities - Enterprise Funds See accompanying notes to financial statements. Page 19 CITY OF ROSEMOUNT INDEX TO NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 20 NOTE Page I. Summary of Significant Accounting Policies 21 A. Reporting Entity 21 B. Government-Wide and Fund Financial Statements 22 C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation 24 D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Equity 25 1. Deposits and Investments 25 2. Receivables 26 3. Inventories and Prepaid Items 27 4. Capital Assets 28 5. Deferred Outflows of Resources 28 6. Compensated Absences 29 7. Long-Term Obligations/Conduit Debt 29 8. Deferred Inflows of Resources 29 9. Equity Classifications 30 10. Basis for Existing Rates 31 11. Pension 31 II. Reconciliation of Government-Wide and Fund Financial Statements 32 A. Explanation of Certain Differences Between the Governmental Funds Balance Sheet and the Statement of Net Position 32 III. Stewardship, Compliance, and Accountability 32 A. Budgetary Information 32 IV. Detailed Notes on All Activities and Funds 33 A. Deposits and Investments 33 B. Receivables 36 C. Capital Assets 37 D. Interfund Advances and Transfers 39 E. Long-Term Obligations 41 F. Net Position/Fund Balances 44 V. Other Information 46 A. Employees’ Retirement System 46 B. Risk Management 59 C. Commitments and Contingencies 60 D. Effect of New Accounting Standards on Current-Period Financial Statements 61 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 21 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Rosemount, Minnesota (the “City”) was formed and operates pursuant to applicable Minnesota laws and statutes. The governing body consists of a five-member City Council elected at large by voters of the City. City Council members serve four-year staggered terms and the mayor serves a four-year term coinciding with the terms of two of the Council members. Elections take place every two years. The accounting policies of the City conform to accounting principles generally accepted in the United States of America, as applicable to governmental units. The accepted standard-setting body for establishing governmental accounting and financial reporting principles is the Governmental Accounting Standards Board (GASB). A. REPORTING ENTITY This report includes all of the funds of the City. The reporting entity for the City consists of the primary government and its component unit. Component units are legally separate organizations for which the primary government is financially accountable or other organizations for which the nature and significance of their relationship with the primary government are such that their exclusion would cause the reporting entity’s financial statements to be misleading. The primary government is financially accountable if (1) it appoints a voting majority of the organization’s governing body and it is able to impose its will on that organization, (2) it appoints a voting majority of the organization’s governing body and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government, (3) the organization is fiscally dependent on and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. Certain legally separate, tax exempt organizations should also be reported as a component unit if all of the following criteria are met: (1) the economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents; (2) the primary government or its component units, is entitled to, or has the ability to access, a majority of the economic resources received or held by the separate organization; and (3) the economic resources received or held by an individual organization that the primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to the primary government. Component units are reported using one of two methods, discrete presentation or blending. Generally, component units should be discretely presented in a separate column in the financial statements. A component unit should be reported as part of the primary government using the blending method if it meets any one of the following criteria: (1) the primary government and the component unit have substantially the same governing body and a financial benefit or burden relationship exists, (2) the primary government and the component unit have substantially the same governing body and management of the primary government has operational responsibility for the component unit, (3) the component unit serves or benefits, exclusively or almost exclusively, the primary government rather than its citizens, or (4) the total debt of the component unit will be paid entirely or almost entirely from resources of the primary government. The financial statements include the Rosemount Port Authority as a blended component unit. The Port Authority serves all the citizens of the government and is governed by a board comprised of three of five of the primary government’s elected council and four citizens appointed at large. The bond issuance authorizations are approved by the primary government’s council and the legal liability for the general obligation portion of the Port Authority’s debt remains with the primary government. The Port Authority is reported in a special revenue fund and debt service fund. The Rosemount Port Authority does not issue separate financial statements. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 22 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Government-Wide Financial Statements The statement of net position and statement of activities display information about the reporting government as a whole. They include all funds of the reporting entity. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. The City does not allocate indirect expenses to functions in the statement of activities. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not included among program revenues are reported as general revenues. Internally directed resources are reported as general revenues rather than as program revenues. Fund Financial Statements Financial statements of the City are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self -balancing accounts, which constitute its assets, deferred outflows or resources, liabilities, deferred inflows of resources, net position/fund equity, revenues, and expenditures/expenses. Funds are organized as major funds or nonmajor funds within the governmental and proprietary statements. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the City or meets the following criteria: a. Total assets/deferred outflows of resources, liabilities/deferred inflows of resources, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10% of the corresponding total for all funds of that category or type, and b. The same element of the individual governmental fund or enterprise fund that met the 10% test is at least 5% of the corresponding total for all governmental and enterprise funds combined. c. In addition, any other governmental or enterprise fund that the City believes is particularly important to financial statement users may be reported as a major fund. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 23 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (cont.) Fund Financial Statements (cont.) Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The City reports the following major governmental funds: General Fund – accounts for the City’s primary operating activities. It is used to account for and report all financial resources except those accounted for and reported in another fund. Debt Service Fund – used to account for and report financial resources that are restricted, committed, or assigned to expenditure for the payment of general long-term debt principal, interest, and related costs, other than enterprise debt. Capital Projects Fund – used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets. The capital projects fund consists of one primary fund and three separate internal funds maintained by the City. Port Authority TIF Fund – used to account for and report financial resources that are restricted, committed, or assigned to expenditures related to the activities of the City’s Downtown – Brockway TIF District. The City reports the following major enterprise funds: Water – accounts for operations of the water system. Sewer – accounts for operations of the sewer system. Storm Water – accounts for operations of the storm water drainage system. The City reports the following non-major governmental and enterprise funds: Special Revenue Funds – used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes (other than debt service or capital projects). PEG Fees Fire Safety Education Fund GIS Fund Port Authority General Fund Enterprise Funds – may be used to report any activity for which a fee is charged to external uses for goods or services, and must be used for activities which meet certain debt or cost recovery criteria. Arena Fund – accounts for the activities of the City’s ice arena operations. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 24 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (cont.) Fund Financial Statements (cont.) In addition, the City reports the following fund types: Internal service funds are used to account for the financing of goods and services provided by one department or agency to other departments or agencies of the City on a cost- reimbursement basis. Insurance Fund – accumulates resources to pay deductibles and uninsured claims, and pays for a majority of the general liability insurance and workers compensation insurance premiums for the City. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION Government-Wide Financial Statements The government-wide statement of net position and statement of activities are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider are met. Special assessments are recorded as revenue when levied. Unbilled receivables are recorded as revenues when services are provided. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City’s water and sewer utility and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recorded when they are both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on long-term debt, claims, judgments, compensated absences, and pension expenditures, which are recorded as a fund liability when amounts are due and payable. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 25 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (cont.) Fund Financial Statements (cont.) Property taxes, special assessments, intergovernmental revenues, charges for services and interest associated with the current fiscal period are all considered to susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as described previously in this note. The proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the water, sewer, storm water, and arena funds are charges to customers for sales and services. Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. All Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY 1. Deposits and Investments For purposes of the statement of cash flows, the City considers all highly liquid investments with an initial maturity of three months or less when acquired to be cash equivalents. Investment of City funds is restricted by state statutes. Available investments are limited to: a. Direct obligations or obligations guaranteed by the United States or its agencies, commercial paper, repurchase or reverse repurchase agreements with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. Government Securities to the Federal Reserve Bank of New York or certain Minnesota brokers/dealers. b. General obligations of the State of Minnesota or any of its municipalities. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 26 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 1. Deposits and Investments (cont.) c. Bankers acceptances of United States banks eligible for purchase by the Federal Reserve System. d. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are direct obligations guaranteed by the United States or its agencies. The City has adopted an investment policy. The policy contains the following guidelines: Credit Risk - The policy follows state statutes for allowable investments except that it does not permit the purchase of shares of investment companies registered under the Federal Investment Company Act of 1940 whose only investments are direct obligations guaranteed by the United States or its agencies. Concentration of Credit Risk - The policy does not limit the amount the City may invest in any one issuer. Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy limits the amount of investments with maturities of more than five years to 35% of the City's total investment portfolio (including certificates of deposit). Investments are stated at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair values are based on quoted market prices. No investments are reported at amortized cost. Adjustments necessary to record investments at fair value are recorded in the operating statement as increases or decreases in investment income. The difference between the bank statement balance and carrying value is due to outstanding checks and/or deposits in transit. See Note IV.A. for further information. 2. Receivables Property tax levies are set by the City Council in the fall each year and are certified to Dakota County for collection in the following year. In Minnesota, counties act as collection agents for all property taxes. The County spreads all levies over taxable property. Such taxes become a lien on January 1 and are recorded as receivables by the City at that date. Property taxes are accrued and recognized as revenue in the year collectible, net of delinquencies. Real property taxes may be paid by taxpayers in two equal installments on May 15 and October 15. Personal property taxes may be paid on February 28 and June 30. The County provides tax settlements to the City three times per year, in January, July, and December. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 27 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 2. Receivables (cont.) Taxes which remain unpaid 60 days after year end are classified as delinquent taxes receivable and are fully offset by unavailable revenue (deferred inflow of resources) in the governmental fund financial statements because they are not known to be available to finance current expenditures. Special assessments are levied against the benefited properties for the assessable costs of special assessments improvement projects in accordance with state statutes. The City usually adopts the assessment rolls when the individual projects are complete. The assessments are collectible over a term of years generally consistent with the term of years of the related bond issue. Collection of annual installments (including interest) is handled by the County in the same manner as property taxes. Property owners are allowed to prepay total future installments without interest or prepayment penalties. Special assessments receivable includes the following components:  Current - amount collected by Dakota County and not remitted to the City.  Delinquent - amounts billed to property owners but not paid.  Unavailable - assessment installments, which will be billed to property owners in future years.  Other - assessments for which payment has been postponed based on council action. Accounts receivable are considered to be 100% collectible. During the course of operations, transactions occur between individual funds that may result in amounts owed between funds. Short-term interfund loans are reported as “due to and from other funds.” Long-term interfund loans (noncurrent portion) are reported as “advances from and to other funds.” Interfund receivables and payables between funds within governmental activities are eliminated in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. In the governmental fund financial statements, advances to other funds are offset equally by a nonspendable fund balance account which indicates that they do not constitute expendable available financial resources and, therefore, are not available for appropriation or by a restricted fund balance account, if the funds will ultimately be restricted when the advance is repaid. 3. Inventories and Prepaid Items Governmental fund inventory items are charged to expenditure accounts when purchased. Year-end inventory was not significant. Proprietary fund inventories are generally used for construction and for operation and maintenance work. They are not for resale. They are valued at cost based on weighted average, and charged to construction and/or operation and maintenance expense when used. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements and expensed as the items are used (consumption method). CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 28 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 4. Capital Assets Government – Wide Statements Capital assets, which include property, plant and equipment, are reported in the government-wide financial statements. Capital assets are defined by the government as assets with an initial cost of more than $5,000 for general capital assets and infrastructure assets, and an estimated useful life in excess of one year. All capital assets are valued at historical cost or estimated historical cost if actual amounts are unavailable. Donated capital assets are recorded at their estimated acquisition value at the date of donation. Additions to and replacements of capital assets of business-type activities are recorded at original cost, which includes material, labor, overhead, and an allowance for the cost of funds used during construction when significant. For tax-exempt debt, the amount of interest capitalized equals the interest expense incurred during construction netted against any interest revenue from temporary investment of borrowed fund proceeds. No interest was capitalized during the current year. The cost of renewals and betterments relating to retirement units is added to plant accounts. The cost of property replaced retired or otherwise disposed of, is deducted from plant accounts and, generally, together with removal costs less salvage, is charged to accumulated depreciation. Depreciation of all exhaustible capital assets is recorded as an allocated expense in the statement of activities, with accumulated depreciation reflected in the statement of net position. Depreciation is provided over the assets’ estimated useful lives using the straight-line method of depreciation. The range of estimated useful lives by type of asset is as follows: Buildings 30-65 Years Machinery and equipment 4-20 Years Other improvements 60 Years Utility system 65 Years Infrastructure 35-50 Years Land, some land improvements, and construction work in progress are not depreciated. Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same way as in the government-wide statements. 5. Deferred Outflows of Resources A deferred outflow of resources represents a consumption of net position/fund balance that applies to a future period and will not be recognized as an outflow of resources (expense/expenditure) until that future time. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 29 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 6. Compensated Absences Under terms of employment, employees are granted vacation, sick and comp time benefits in varying amounts. These benefits are based upon union contracts and City actions as applicable. Amounts carried forward for vacation and comp time accruals are governed by these contracts and actions. Sick pay accruals may be carried forward indefinitely. All vested vacation, sick leave and comp time pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements, and are payable with expendable available resources. Payments for vacation, sick and comp time leave will be made at rates in effect when the benefits are used. Accumulated vacation, sick and comp time leave liabilities at December 31, 2017 are determined on the basis of current salary rates and include salary related payments. 7. Long-Term Obligations/Conduit Debt All long-term obligations to be repaid from governmental and business-type resources are reported as liabilities in the government-wide statements. The long-term obligations consist primarily of notes and bonds payable, accrued compensated absences, and net pension liability. Long-term obligations for governmental funds are not reported as liabilities in the fund financial statements. The face value of debts (plus or minus any premiums or discounts) are reported as another financing source and payments of principal and interest are reported as expenditures. The accounting in proprietary funds is the same as it is in the government-wide statements. The City has approved the issuance of industrial revenue bonds (IRB) for the benefit of private business enterprises. IRB's are secured by mortgages or revenue agreements on the associated projects, and do not constitute indebtedness of the City. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. At year end, the aggregate principal amount for the four issues outstanding could not be determined; however, their original issue amounts totaled $13,094,720. 8. Deferred Inflows of Resources A deferred inflow of resources represents an acquisition of net position that applies to a future period and therefore will not be recognized as inflow of resources (revenue) until that future time. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 30 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 9. Equity Classifications Government–Wide Statements Equity is classified as net position and displayed in three components: a. Net investment in capital assets - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances (excluding unspent debt proceeds) of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. b. Restricted net position - Consists of net position with constraints placed on their use either by 1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments or, 2) law through constitutional provisions or enabling legislation. c. Unrestricted net position - All other net positions that do not meet the definitions of “restricted” or “net investment in capital assets.” When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. Fund Statements Governmental fund balances are displayed as follows: a. Nonspendable - Includes fund balance amounts that cannot be spent either because they are not in spendable form or because legal or contractual requirements require them to be maintained intact. b. Restricted - Consists of fund balances with constraints placed on their use either by 1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments or 2) law through constitutional provisions or enabling legislation. c. Committed - Includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision making authority. Fund balance amounts are committed through a formal action (resolution) of the City Council. This formal action must occur prior to the end of the reporting period, but the amount of the commitment, which will be subject to the constraints, may be determined in the subsequent period. Any changes to the constraints imposed require the same formal action of the City Council that originally created the commitment. d. Assigned - Includes spendable fund balance amounts that are intended to be used for specific purposes that do not meet the criteria to be classified as restricted or committed. The City Council has authorized the Finance Director and/or Administrator to assign amounts for a specific purpose. Assignments may take place after the end of the reporting period. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 31 NOTE I – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 9. Equity Classifications (cont.) Fund Statements (cont.) e. Unassigned - Includes residual positive fund balance within the general fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted or committed for those purposes. The City considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents / contracts that prohibit doing this, such as in grant agreements requiring dollar for dollar spending. Additionally, the City would first use committed, then assigned and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City has a formal minimum fund balance policy. That policy is to maintain a working capital fund of 45 to 55 percent of the subsequent year’s general fund budgeted expenditures. The balance at year end was $7,333,743, or 56 percent, and is included in unassigned general fund balance. Proprietary fund equity is classified the same as in the government-wide statements. 10. Basis for Existing Rates Current utility rates were approved by the City Council on December 20, 2016. 11. Pension For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA’s fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA’s fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. The PERA has a special funding situation created by a direct aid contribution made by the state of Minnesota. The direct aid is a result of the merger of the Minneapolis Employees Retirement Fund into the PERA on January 1, 2015. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 32 NOTE II – RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUNDS BALANCE SHEET AND THE STATEMENT OF NET POSITION The governmental fund balance sheet includes a reconciliation between fund balance – total governmental funds and net position – governmental activities as reported in the government-wide statement of net position. One element of that reconciliation explains that “Some liabilities, including long- term debt, are not due and payable in the current period and, therefore, are not reported in the funds”. The details of this $11,964,536 difference are as follows: Long-term liabilities applicable to the City’s governmental activities are not due and payable in the current period, and accordingly, are not reported as fund liabilities. Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. All liabilities - both current and long-term - are reported in the statement of net position. Bonds and notes payable $ 10,700,000 Compensated absences 981,663 Unamortized premium on bonds payable 152,863 Accrued interest 130,010 Combined Adjustment for Long-Term Liabilities $ 11,964,536 NOTE III – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. BUDGETARY INFORMATION Annual budgets have been adopted for the general fund and the capital project fund that is created by the following sub-funds, Building CIP, Street CIP and Equipment CIP. The remaining capital project sub funds adopt project-length budgets and therefore are not included in the annual budgeting process. Formal budgetary integration is not employed for debt service funds because effective budgetary control is alternatively achieved through general obligation bond indenture provisions. The budgeted amounts presented include any amendments made. The appropriated budget is prepared by fund, department and function. The legal level of budgetary control is at the department level. The City Council may authorize department heads to transfer budgeted appropriations within departments. The Council approved several supplemental budgetary appropriations during the year, but they were not considered material. Appropriations lapse at year end unless specifically carried over. Carryovers to the following year were $8,653,858. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 33 NOTE IV – DETAILED NOTES ON ALL FUNDS A. DEPOSITS AND INVESTMENTS The City maintains a cash and investment pool that is available for use by all funds. Each fund type’s portion of this pool is displayed on the statement of net position and balance sheet as cash and investments. In addition, investments are separately held by several of the City’s funds. The City’s cash and investments at year end were comprised of the following: Carrying Value Statement Balances Associated Risks Petty cash and cash on hand $ 2,400 $ 2,400 N/A Demand deposits 17,293,478 18,113,201 Custodial credit risk Negotiable CDs 14,578,280 14,578,280 Custodial credit risk, credit, concentration of credit, interest rate risk US Agencies 20,155,095 20,155,095 Custodial credit, credit, concentration of credit, interest rate risk Total Cash and Investments $ 52,029,253 $ 52,848,976 Reconciliation to the financial statements Per statement of net position Cash and investments $ 52,029,253 Deposits in each local and area bank are insured by the FDIC in the amount of $250,000 for time and savings accounts (including NOW accounts) and $250,000 for demand deposit accounts (interest -bearing and noninterest-bearing). In addition, if deposits are held in an institution outside of the state in which the government is located, insured amounts are further limited to a total of $250,000 for the combined amount of all deposit accounts. The Securities Investor Protection Corporation (SIPC), created by the Securities Investor Protection Act of 1970, is an independent government-sponsored corporation (not an agency of the U.S. government). SIPC membership provides account protection up to a maximum of $500,000 per customer, of which $100,000 may be in cash. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 34 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) A. DEPOSITS AND INVESTMENTS (cont.) The market approach valuation method and matrix pricing techniques are used for recurring fair value measurements of the US Agency bonds and negotiable certificates of deposit. December 31, 2017 Investment Type Level 1 Level 2 Level 3 Total US Agencies $ - $ 20,155,095 $ - $ 20,155,095 Negotiable CDs - 14,578,280 - 14,578,280 Totals $ - $ 34,733,375 $ - $ 34,733,375 Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a financial institution failure, the City’s deposits may not be returned to the City. The City maintains collateral agreements with its banks. At December 31, 2017, the banks had pledged various government securities in the amount of $18,250,425 to secure the City’s deposits. Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. As of December 31, 2017, the City of Rosemount’s investments in U.S. agency obligations received AA+ and/or AAA ratings from Standard & Poor’s and/or Moody’s Investors Service, respectively. The City also had investments in negotiable certificates of deposit which were unrated. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 35 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) A. DEPOSITS AND INVESTMENTS (cont.) Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the City’s investment in a single issuer. As of December 31, 2017, the City of Rosemount’s investment portfolio was concentrated as follows: Issuer Investment Type Percentage of Total Federal Home Loan Bank US Agencies 24% Federal Home Loan Mortgage Corporation US Agencies 11% Federal Farm Credit Bank US Agencies 6% Federal National Mortgage Association US Agencies 13% Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the value of an investment. As of December 31, 2017, the City of Rosemount’s investments were as follows: Investment Maturities (in years) Investment Type Total Fair Value Less than 1 1 - 5 6 - 10 US Agencies $ 20,155,095 $ $ 14,601,152 $ 5,553,943 Negotiable CDs 14,578,280 1,733,280 12,360,000 485,000 Totals $ 34,733,375 $ 1,733,280 $ 26,961,152 $ 6,038,943 At December 31, 2017, the City held $9,006,583 in US Agency Obligations that are callable at increasing stepped interest rates. See Note I.D.1 for further information on deposit and investment policies. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 36 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) B. RECEIVABLES Receivable amounts not expected to be collected within one year are listed below: Governmental Activities General Debt Service Capital Projects Totals Amounts not expected to be collected within one year $ 1,688 $ 590,880 $ 269,251 $ 861,819 Business-Type Activities Water Utility Sewer Utility Storm Water Utility Totals Amounts not expected to be collected within one year $ 42,402 $ 43,246 $ 74,070 $ 159,718 Governmental funds report unavailable or unearned revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable revenue and unearned revenue reported in the governmental funds were as follows: Unavailable Unearned Totals Delinquent property taxes receivable $ 44,119 $ - $ 44,119 Delinquent special assessments 947 - 947 Special assessments not yet due 1,683,211 1,047,503 2,730,714 Donations receivable for future projects 64,302 - 64,302 Total Unearned/Unavailable Revenue for Governmental Funds $ 1,792,579 $ 1,047,503 $ 2,840,082 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 37 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) C. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2017 was as follows: Beginning Ending Balance Additions Deletions Balance Governmental Activities Capital assets not being depreciated Land $ 7,960,624 $ - $ - $ 7,960,624 Land improvements 2,356,397 291,015 - 2,647,412 Construction in progress 1,552,447 3,867,223 1,966,513 3,453,157 Total Capital Assets Not Being Depreciated 11,869,468 4,158,238 1,966,513 14,061,193 Capital assets being depreciated Land improvements 3,891,036 220,785 14,797 4,097,024 Buildings 17,202,617 155,428 - 17,358,045 Machinery and equipment 11,734,309 1,313,507 756,881 12,290,935 Infrastructure: Other 209,037 - - 209,037 Roads 60,166,206 1,012,162 - 61,178,368 Bridges 2,034,591 - - 2,034,591 Parking lots 580,449 743,626 25,500 1,298,575 Total Capital Assets Being Depreciated 95,818,245 3,445,508 797,178 98,466,575 Less: Accumulated depreciation for Land improvements (1,452,854 ) (171,247 ) 14,797 (1,609,304 ) Buildings (5,303,730 ) (343,804 ) - (5,647,534 ) Machinery and equipment (6,765,611 ) (750,170 ) 697,793 (6,817,988 ) Infrastructure: Other (14,592 ) (5,336 ) - (19,928 ) Roads (11,431,313 ) (1,006,908 ) - (12,438,221 ) Bridges (530,700 ) (50,865 ) - (581,565 ) Parking lots (254,619 ) (28,883 ) 17,170 (266,332 ) Total Accumulated Depreciation (25,753,419 ) (2,357,213 ) 729,760 (27,380,872 ) Net Capital Assets Being Depreciated 70,064,826 1,088,295 67,418 71,085,703 Total Governmental Activities Capital Assets, Net of Accumulated Depreciation $ 81,934,294 $ 5,246,533 $ 2,033,931 $ 85,146,896 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 38 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) C. CAPITAL ASSETS (cont.) Depreciation expense was charged to functions as follows: Governmental Activities General government $ 310,634 Public safety 288,030 Public works, which includes the depreciation of roads, bridges and parking lots 1,438,771 Culture, education and recreation 319,778 Total Governmental Activities Depreciation Expense $ 2,357,213 Beginning Ending Balance Additions Deletions Balance Business-Type Activities Capital assets not being depreciated Land $ 2,683,777 $ 44,300 $ - $ 2,728,077 Construction in progress 744,907 560,111 468,904 836,114 Total Capital Assets Not Being Depreciated 3,428,684 604,411 468,904 3,564,191 Capital assets being depreciated Buildings 11,085,341 - - 11,085,341 Machinery and equipment 3,431,509 332,552 138,330 3,625,731 Infrastructure - mains and lines and other improvements 139,199,225 340,945 - 139,540,170 Total Capital Assets Being Depreciated 153,716,075 673,497 138,330 154,251,242 Less: Accumulated depreciation for Buildings (3,644,309 ) (248,615) - (3,892,924 ) Machinery and equipment (2,113,804 ) (167,313) 124,286 (2,156,831 ) Infrastructure - mains and lines and other improvements (51,478,274 ) (2,135,396) - (53,613,670 ) Total Accumulated Depreciation (57,236,387 ) (2,551,324) 124,286 (59,663,425 ) Net Capital Assets Being Depreciated 96,479,688 (1,877,827) 14,044 94,587,817 Total Business-Type Capital Assets, Net of Accumulated Depreciation $ 99,908,372 $ (1,273,416) $ 482,948 $ 98,152,008 Depreciation expense was charged to functions as follows: Business-Type Activities Water $ 815,812 Sewer 925,119 Storm water 752,701 Arena 57,692 Total Business-type Activities Depreciation Expense $ 2,551,324 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 39 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) D. INTERFUND ADVANCES AND TRANSFERS Advances The following is a schedule of interfund advances as of December 31, 2017: Receivable Fund Payable Fund Amount Sewer Capital Projects $ 22,857 Sewer Water 9,524 Subtotal – Fund financial statements 32,381 Less: Fund eliminations (9,524 ) Total – Internal Balances Government-Wide Statement of Net Position $ 22,857 The principal purpose of these interfund loans was to finance the public works building expansion in 1999, and to purchase and renovate a building in the Downtown-Brockway Tax Increment Financing District in 2005. All amounts are due within one year. For the statement of net position, interfund balances which are owed within the governmental activities or business-type activities are netted and eliminated. The sewer fund advanced funds to the water fund and capital projects fund. The sewer fund is charging the other funds interest on the advance based on the average outstanding advance balance during the year at a rate of 5%. Following is a detailed repayment schedule for the sewer fund advance: Principal Interest Totals 2018 $ 32,381 $ 1,619 $ 34,000 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 40 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) D. INTERFUND ADVANCES AND TRANSFERS (cont.) Transfers The following is a schedule of interfund transfers: Fund Transferred To Fund Transferred From Amount Principal Purpose General Arena $ 3,500 Building and grounds maintenance Capital Projects 221 Reimbursement of capital project costs Debt Service Water 67,000 Water share of debt payment Capital Projects 200,695 Reimbursement of capital project costs Capital Projects General 17,914 Share of capital project costs Debt Service 50,020 Close out debt service fund Water 721,233 Share of capital project costs Sewer 73,316 Share of capital project costs Storm Water 609,846 Share of capital project costs Enterprise Sewer Capital Projects 217,314 Reimbursement of capital project costs Storm Water Water 56,000 Water share of debt payment Arena General 130,000 Operating expenses 2,147,059 Less: Fund eliminations (1,019,478 ) Total Transfers – Government-Wide Statement of Activities $ 1,127,581 Generally, transfers are used to (1) move revenues from the fund that collects them to the fund that the budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. For the statement of activities, interfund transfers within the governmental activities or business-type activities are netted and eliminated. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 41 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) E. LONG-TERM OBLIGATIONS Long-term obligations activity for the year ended December 31, 2017 was as follows: Amounts Beginning Ending Due Within Balance Increases Decreases Balance One Year GOVERNMENTAL ACTIVITIES Bonds and Notes Payable General obligation debt $ 15,160,000 $ 1,055,000 $ 5,515,000 $ 10,700,000 $ 1,395,000 Add: Premiums 166,750 61,287 75,174 152,863 - Sub-totals 15,326,750 1,116,287 5,590,174 10,852,863 1,395,000 Other Liabilities Vested compensated absences 982,100 470,971 471,408 981,663 471,198 Net pension liability 12,230,676 249,294 6,557,612 5,922,358 - Total Other Liabilities 13,212,776 720,265 7,029,020 6,904,021 471,198 Total Governmental Activities Long-Term Liabilities $ 28,539,526 $ 1,836,552 $ 12,619,194 $ 17,756,884 $ 1,866,198 BUSINESS-TYPE ACTIVITIES Bonds and Notes Payable General obligation debt $ 2,090,000 $ - $ 445,000 $ 1,645,000 $ 390,000 Add: Premiums 82,292 - 8,229 74,063 - Sub-totals 2,172,292 - 453,229 1,719,063 390,000 Other Liabilities: Vested compensated absences 176,564 100,136 84,751 191,949 92,136 Net pension liability 1,338,476 33,001 370,150 1,001,327 - Total Other Liabilities 1,515,040 133,137 454,901 1,193,276 92,136 Total Business-type Activities Long-Term Liabilities $ 3,687,332 $ 133,137 $ 908,130 $ 2,912,339 $ 482,136 General Obligation Debt All general obligation bonds payable are backed by the full faith and credit of the City. Bonds in the governmental funds will be retired by future property tax levies or tax increments accumulated by the debt service fund. Business-type activities debt is payable by revenues from user fees of those funds or, if the revenues are not sufficient, by future tax levies. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 42 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) E. LONG-TERM OBLIGATIONS (cont.) General Obligation Debt (cont.) Governmental Activities Date of Final Interest Original Balance General Obligation Debt Issue Maturity Rates Indebtedness 12-31-17 Port Authority TIF, Series 2008A 2008 2024 5.0% to 5.5% $ 2,765,000 $ 1,970,000 Port Authority TIF, Crossover Refunding Bonds, Series 2010B 2010 2022 1.2% to 3.7% 1,355,000 720,000 Improvement Bonds, Series 2012A 2012 2018 0.4% to 1.0% 810,000 165,000 Improvement Bonds, Series 2013A 2013 2019 0.5% to 1.65% 1,500,000 615,000 Improvement Bonds, Series 2014A 2014 2025 0.35% to 2.4% 2,400,000 1,625,000 Fire Station Refunding Bonds, Series 2015B 2015 2025 1.5% to 3.0% 1,345,000 1,215,000 Port Authority TIF Crossover Refunding Bonds, Series 2015A 2015 2032 3.0% 3,335,000 3,335,000 Improvement Bonds, Series 2017A 2017 2023 3.0% 1,055,000 1,055,000 Total Governmental Activities – General Obligation Debt $ 10,700,000 Business-type Activities Date of Final Interest Original Balance General Obligation Debt Issue Maturity Rates Indebtedness 12-31-17 Water Revenue Bonds, Series 2007A 2007 2018 4.0% $ 1,210,000 $ 145,000 Utility Rev Refunding Bonds, Series 2010A 2010 2018 0.8% to 2.6% 1,545,000 105,000 Water Revenue Bonds, Series 2015A 2015 2026 1.5% to 3.0% 1,525,000 1,395,000 Total Business-type Activities - General Obligation Debt $ 1,645,000 Debt service requirements to maturity are as follows: Governmental Activities Business-Type Activities General Obligation Debt General Obligation Debt Year Principal Interest Principal Interest 2018 $ 1,395,000 $ 298,816 $ 390,000 $ 39,108 2019 1,445,000 268,513 145,000 31,993 2020 1,190,000 233,730 145,000 28,730 2021 890,000 200,241 150,000 25,043 2022 920,000 166,391 155,000 21,036 2023 - 2027 2,780,00 459,305 660,000 38,860 2028 - 2032 2,080,000 154,200 - - Totals $ 10,700,000 $ 1,781,196 1,78 $ 1,645,000 $ 184,770 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 43 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) E. LONG-TERM OBLIGATIONS (cont.) Other Debt Information Estimated payments of compensated absences and the net pension liability are not included in the debt service requirement schedules. The compensated absences liability and net pension liability attributable to governmental activities will be liquidated primarily by the general fund. There are a number of limitations and restrictions contained in the various bond indentures and loan agreements. The City believes it is in compliance with all significant limitations and restrictions, including federal arbitrage regulations. The water and storm water utilities have pledged future water and storm water revenues, net of specified operating expenses, to repay revenue bonds issued in 2007, 2010, and 2015. Proceeds from bonds provided financing for utility improvements. The bonds are payable solely from water and storm water revenues and are payable through 2026. Annual principal and interest payments on the bonds are expected to require 6% of net revenues. The total principal and interest remaining to be paid on the bonds is $1,829,770. Principal and interest paid for the current year and the gross customer revenues were $497,840 and $4,895,067, respectively. Crossover Refunding On November 19, 2015, the City issued $3,335,000 in general obligation bonds with an average coupon rate of 2.73% to advance refund $3,275,000 of outstanding bonds with an average coupon rate of 4.025%. The net proceeds were used to purchase U.S. government securities. Those securities were deposited in an account to provide for future debt service payments on the new bonds until the crossover date. The cash flow requirements on the refunded debt prior to the advance refunding was $5,014,739 from 2016 through 2032. The cash flow requirements on the refunding bonds are $4,571,096 from 2016 through 2032. The advance refunding resulted in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $373,276. On February 1, 2017, the Port Authority TIF, Series 2008B bonds were called and the balance of $3,275,000 was paid off. The cash and investments held with a fiscal agent from the proceeds of the Port Authority TIF Crossover Refunding Bonds, Series 2015A, were liquidated to pay off the bonds. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 44 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) F. NET POSITION/FUND BALANCES Net position reported on the government-wide statement of net position at December 31, 2017 includes the following: Governmental Activities Net Investment in Capital Assets Land $ 7,960,624 Construction in progress 3,453,157 Other capital assets, net of accumulated depreciation 73,733,115 Less: related long-term debt outstanding (excluding unspent capital related debt proceeds) (10,852,863 ) Total Net Investment in Capital Assets $ 74,294,033 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 45 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) F. NET POSITION/FUND BALANCES (cont.) Governmental Funds Governmental fund balances reported on the fund financial statements at December 31, 2017 include the following: General Fund Debt Service Capital Projects Port Authority TIF Nonmajor Funds Totals Fund Balances Nonspendable: Prepaid items $ - $ - $ - $ - $ 444 $ 444 Restricted for: Debt service - 2,983,348 - - - 2,983,348 Port Authority TIF - - - 1,849,055 - 1,849,055 PEG Fees - - - - 21,759 21,759 Sub-total - 2,983,348 - 1,849,055 21,759 4,854,162 Committed for: Fire safety education - - - - 3,030 3,030 GIS - - - - 42,732 42,732 Port authority – general - - - - 184,400 184,400 Sub-total - - - - 230,162 230,162 Assigned for: Compensated absences 981,663 - - - - 981,663 Health insurance 150,700 - - - - 150,700 Comp plan 10,000 - - - - 10,000 Building maintenance 96,184 - - - - 96,184 Park maintenance 568,544 - - - - 568,544 Election equipment 51,263 - - - - 51,263 Various projects/equipment 364,153 - 7,780,237 - - 8,144,390 Building CIP - - 2,162,123 - - 2,162,123 Street CIP - - 330,748 - - 330,748 Equipment CIP - - 531,317 - - 531,317 Sub-total 2,222,507 - 10,804,425 - - 13,026,932 Unassigned: 7,333,743 - - - - 7,333,743 Total Fund Balances $ 9,556,250 $ 2,983,348 $ 10,804,425 $ 1,849,055 $ 252,365 $ 25,445,443 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 46 NOTE IV – DETAILED NOTES ON ALL FUNDS (cont.) F. NET POSITION/FUND BALANCES (cont.) Business-Type Activities Net Investment in Capital Assets Land $ 2,728,077 Construction in progress 836,114 Other capital assets, net of accumulated depreciation 94,587,817 Less: related long-term debt outstanding (excluding unspent capital related debt proceeds) (823,727 ) Total Net Investment in Capital Assets $ 97,328,281 NOTE V – OTHER INFORMATION A. EMPLOYEES’ RETIREMENT SYSTEM Public Employees Retirement Association (PERA) Plan description. The City participates in the following cost-sharing multiple-employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA’s defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERA’s defined benefit pension plans are tax qualified plans under Section 401 (a) of the Internal Revenue Code. 1. General Employees Retirement Plan All full-time and certain part-time employees of the City are covered by the General Employees Plan. General Employees Plan members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. 2. Public Employees Police and Fire Plan The Police and Fire Plan, originally established for police officers and firefighters not covered by a local relief association, now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the Police and Fire Plan also covers police officers and firefighters belonging to a local relief association that elected to merge with and transfer assets and administration to PERA. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 47 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Benefits. PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state Legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90 percent funded, or have fallen below 80 percent, are given one percent increases. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. 1. General Employees Plan Benefits General Employees Plan benefits are based on a member’s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two metho ds are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first ten years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first ten years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For members hired prior to July 1, 1989 a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989 normal retirement age is the age for unreduced Social Security benefits capped at 66. 2. Police and Fire Plan Benefits Benefits for Police and Fire Plan members first hired after June 30, 2010 but before July 1, 2014 vest on a prorated basis from 50 percent after five years up to 100 percent after ten years of credited service. Benefits for Police and Fire Plan members first hired after June 30, 2014 vest on a prorated basis from 50 percent after ten years up to 100 percent after twenty years of credited service. The annuity accrual rate is 3 percent of average salary for each year of service. For Police and Fire Plan members who were first hired prior to July 1, 1989 a full annuity is available when age plus years of service equal at least 90. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 48 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Contributions. Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state Legislature. 1. General Employees Plan Contributions Basic Plan members and Coordinated Plan members were required to contribute 9.1 percent and 6.5 percent, respectively, of their annual covered salary in calendar year 2017. The City was required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2017. The City’s contributions to the General Employees Plan for the year ended December 31, 2017, were $331,224. The City’s contributions were equal to the required contributions as set by state statute. 2. Police and Fire Plan Contributions Plan members were required to contribute 10.8 percent of their annual covered salary in calendar year 2017. The City was required to contribute 16.2 percent of pay for members in calendar year 2017. The City’s contributions to the Police and Fire Plan for the year ended December 31, 2017, were $356,264. The City’s contributions were equal to the required contributions as set by state statute. Pension Costs 1. General Employees Fund Pension Costs At December 31, 2017, the City reported a liability of $4,155,941 for its proportionate share of the General Employees Fund’s net pension liability. The City’s net pension liability reflected a reduction due to the State of Minnesota’s contribution of $6 million to the fund in 2017. The State of Minnesota is considered a non-employer contributing entity and the state’s contribution meets the definition of a special funding situation. The State of Minnesota’s proportionate share of the net pension liability associated with the City totaled $52,248. The net pension liability was measured as of June 30, 2017 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City’s proportion of the net pension liability was based on the City’s contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2016 through June 30, 2017 relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2017 the City’s proportion share was 0.0651 percent which was a decrease of 0.0002 percent from its proportion measured as of 2016. For the year ended December 31, 2017, the City recognized pension expense of $544,335 for its proportionate share of the General Employees Plan’s pension expense. In addition, the City recognized an additional $1,509 as pension expense and grant revenue for its proportionate share of the State of Minnesota’s contribution of $6 million to the General Employees Fund. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 49 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Pension Costs (cont.) 1. General Employees Fund Pension Costs (cont.) At December 31, 2017, the City reported its proportionate share of the General Employees Plan’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual economic experience $ 136,967 $ 266,839 Changes of actuarial assumptions 690,707 416,955 Difference between projected and actual investment earnings 24,885 - Changes in proportion 20,730 102,606 Contributions paid to PERA subsequent to measurement date 169,856 - Totals $ 1,043,145 $ 786,400 $169,856 reported as deferred outflows related to pension resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized in pension expense as follows: Year Ended December 31: Pension Expense Amount 2018 $ 99,525 2019 246,126 2020 (83,084 ) 2021 (175,678 ) CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 50 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Pension Costs (cont.) 2. Police and Fire Fund Pension Costs At December 31, 2017, the City reported a liability of $2,767,744 for its proportionate share of the Police and Fire Fund’s net pension liability. The net pension liability was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City’s proportion of the net pension liability was based on the City’s contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2016, through June 30, 2017, relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2017, the City’s proportion was 0.205 percent which was a decrease of 0.001 percent from its proportion measured as of June 30, 2016. For the year ended December 31, 2017, the City recognized pension expense of $687,127 for its proportionate share of the Police and Fire Plan’s pension expense. The City also recognized $18,450 for the year ended December 31, 2017, as pension expense and grant revenue for its proportionate share of the State of Minnesota’s on-behalf contributions to the Police and Fire Fund. Legislation passed in 2013 required the State of Minnesota to begin contributing $9 million to the Police and Fire Fund each year, starting in fiscal year 2014. At December 31, 2017, the City reported its proportionate share of the Police and Fire Plan’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual economic experience $ 63,708 $ 748,770 Changes in actuarial assumptions 3,643,230 3,929,510 Difference between projected and actual investment earnings 44,908 - Changes in proportion 43,201 86,467 Contributions paid to PERA subsequent to measurement date 188,180 - Totals $ 3,983,227 $ 4,764,747 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 51 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Pension Costs (cont.) 2. Police and Fire Fund Pension Costs (cont.) $188,180 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended December 31: Pension Expense Amount 2018 $ 43,141 2019 43,141 2020 (40,682 ) 2021 (235,451 ) 2022 (779,849 ) Actuarial Assumptions The total pension liability in the June 30, 2017, actuarial valuation was determined using the following actuarial assumptions: Inflation 2.50% per year Active Member Payroll Growth 3.25% per year Investment Rate of Return 7.50% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors and disabilitants were based on RP 2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit PERA’s experience. Cost of living benefit increases for retirees are assumed to be one percent per year for the General Employees Plan through 2044 and Police and Fire Plan through 2064 and then 2.5 percent thereafter for both plans. Actuarial assumptions used in the June 30, 2017, valuation were based on the results of actuarial experience studies. The most recent four-year experience study in the General Employees Plan was completed in 2015. The experience study for Police and Fire Plan was completed in 2016. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 52 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Actuarial Assumptions (cont.) The following changes in actuarial assumptions occurred in 2017: General Employees Fund  The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent for vested and non-vested deferred members. The revised CSA loads are now 0.0 percent for active member liability, 15.0 percent for vested deferred member liability and 3.0 percent for non-vested deferred member liability.  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years to 1.0 percent per year through 2044 and 2.5 percent per year thereafter. Police and Fire Fund  Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34 percent lower than the previous rates.  Assumed rates of retirement were changed, resulting in fewer retirements.  The Combined Service Annuity (CSA) load was 30 percent for vested and non-vested deferred members. The CSA has been changed to 33 percent for vested members and 2 percent for non-vested members.  The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees.  Assumed termination rates were decreased to 3.0 percent for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall.  Assumed percentage of married female members was decreased from 65 percent to 60 percent.  Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older to the assumption that males are two years older than females. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 53 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Actuarial Assumptions (cont.) Police and Fire Fund (cont.)  The assumed percentage of female members electing Joint and Survivor annuities was increased.  The assumed post-retirement benefit increase rate was changed from 1.00 percent for all years to 1.00 percent per year through 2064 and 2.50 percent thereafter.  The single discount rate changed from 5.60 percent to 7.50 percent. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Long-Term Expected Real Rate of Return Target Allocation Domestic Stocks 5.10% 39% International Stocks 5.30 19 Bonds 0.75 20 Alternative Assets 5.90 20 Cash 0.00 2 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 54 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Public Employees Retirement Association (PERA) (cont.) Discount rate. The discount rate used to measure the total pension liability in 2017 was 7.50%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the General Employees Fund and the Police and Fire Fund was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long- term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Pension Liability Sensitivity. The following presents the City’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: 1% Decrease to Discount Rate Current Discount Rate 1% Increase to Discount Rate City’s proportionate share of the General Employees Fund net pension liability $6,466,173 $4,155,941 $2,280,970 City’s proportionate share of the Police and Fire Fund net pension liability $5,212,469 $2,767,744 $749,488 Pension Plan Fiduciary Net Position. Detailed information about each pension plan’s fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 55 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Rosemount Fire Department Relief Association-Defined Benefit Pension Plan Plan Description. The City of Rosemount contributes to the Rosemount Fire Department Relief Association Pension Plan; a single-employer retirement system administered by the Rosemount Fire Department Relief Association. The Rosemount Fire Department Relief Association provides a lump-sum benefit to its members upon retirement, total disability or death. These benefit provisions are established and can be amended by the Rosemount Fire Department Relief Association’s Board of Trustees with approval by the Rosemount City Council. Benefits. Individuals with at least 20 years of service who have reached age 50 are entitled to a lump-sum payment of $7,100 per year of service plus a Supplemental Benefit of 10% of the regular lump sum distributions, but not more than $1,000. In the event an otherwise qualified member has less than 20 years of service, the member is eligible for a pension payment of 60 percent after 10 years of service, increasing 4 percent for each year of service after 10 years to a maximum of 100 percent. Members retiring before 50 do not receive distributions until age 50, but interest at 5% per year is added to their retirement benefit until paid. Employees covered by benefit terms. At December 31, 2016, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits - Inactive employees entitled to but not yet receiving benefits 7 Active members 52 59 Contributions. The contribution requirements are established and may be amended by the Minnesota State Legislature. The Rosemount Fire Department Relief Association is comprised of volunteers. Therefore, there are no covered payroll amounts or member contributions required. Pension Costs. At December 31, 2017, the City reported a net pension asset of $1,246,634 for the plan. The net pension asset was measured as of December 31, 2016. The total pension liability used to calculate the net pension asset in accordance with GASB 68 was determined by applying an actuarial formula to specific census data certified by the Department as of December 31, 2016. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 56 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Rosemount Fire Department Relief Association-Defined Benefit Pension Plan (cont.) The following table presents the changes in net pension asset during the year. Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (Asset) (a-b) Beginning balance, January 1, 2017 $ 2,445,579 $ 3,447,069 $ (1,001,490 ) Changes for the year Service cost 133,433 - 133,433 Interest on pension liability 148,293 - 148,293 Differences between expected and actual experience (76,515 ) - (76,515 ) Changes of assumptions (68,607 ) - (68,607 ) Changes of benefit terms 52,512 - 52,512 Contributions (state and local) - 170,901 (170,901 ) Contributions - donations and other income - 277 (277 ) Net investment income - 271,652 (271,652 ) Benefit payments, including member contribution refunds - (8,570 ) 8,570 Total net changes 189,116 434,260 (245,144 ) Ending balance, December 31, 2017 $ 2,634,695 $ 3,881,329 $ (1,246,634 ) For the year ended December 31, 2017, the City recognized pension expense of $167,528. At December 31, 2017, the City reported deferred inflows of resources and deferred outflows of resources, its contributions subsequent to the measurement date, related to pension from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ - $ 70,324 Change in actuarial assumptions 25,540 63,056 Net differences between projected and actual earnings on pension plan investments 88,820 - Employer contributions subsequent to the measurement date 30,000 - Totals $ 144,360 $ 133,380 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 57 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Rosemount Fire Department Relief Association-Defined Benefit Pension Plan (cont.) Deferred outflows of resources totaling $30,000 related to pensions resulting from the City's contributions to the plan subsequent to the measurement date will be recognized as a reduction of the net pension liability (asset) in the year ended December 31, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized in pension expense as follows: Year Ended December 31: Future Recognition 2018 $ 25,578 2019 25,579 2020 26,627 2021 (22,632 ) 2022 (8,417 ) Thereafter (65,755 ) Actuarial assumptions. The total pension liability at December 31, 2016 was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Fifty (50) percent of active members will retire when reaching retirement eligibility (later of age 50 and 20 years of service); then fifty (50) percent retire each subsequent year until one hundred (100) percent retirement at the earlier of age 65 or 30 years of service. Actuarial Valuation Date: December 31, 2016 Measurement Date of Net Pension Asset: December 31, 2016 Actuarial Cost Method: Entry Age Index rate for 20-year, tax exempt municipal bonds 3.78% Long-Term Expected Rate of Return: 6.75% Discount Rate: 6.75% Inflation: 2.75% CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 58 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Rosemount Fire Department Relief Association-Defined Benefit Pension Plan (cont.) Mortality rates were based on the July 1, 2016 Minnesota Public Employees’ Retirement Association Police and Fire Plan actuarial valuation as described below: Healthy Pre-Retirement – RP 2000 non-annuitant generational mortality, white collar adjustment, male rates set back two years, female rates set back two years. Healthy Post-Retirement – RP 2000 non-annuitant generational mortality, white collar adjustment, without age adjustment. The actuarial assumptions used in the December 31, 2016 valuation were based on the results of an actuarial experience study for the period January 1, 2016–December 31, 2016. The discount rate was updated from 5.75 % to 6.75%. The benefit lump-sum payment per year of service increased from $7,000 to $7,100. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimates for expected future real rates of return (expected returns, net of pension plan investment expense and inflation) were developed for each major asset class. The asset class estimates were combined to produce the portfolio long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage and by adding expected inflation (2.75%). All results are then rounded to the nearest quarter percentage point. The best estimates of geometric real and nominal rates of return for each major asset class are summarized in the following table: Asset Class Allocation at Measurement Date Long-Term Expected Real Rate of Return Long-term Expected Nominal Rate of Return Domestic equity 60.64% 5.58% 8.33% International equity 1.94 5.71 8.46 Fixed income 13.59 2.27 5.02 Real estate and alternatives 0.51 4.44 7.19 Cash and cash equivalents 23.32 0.84 3.59 Total 100.00 % 7.09% Reduced for assumed investment expense (0.41%) Net assumed investment return (weighted avg, rounded to ¼%) 6.75% CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 59 NOTE V – OTHER INFORMATION (cont.) A. EMPLOYEES’ RETIREMENT SYSTEM (cont.) Rosemount Fire Department Relief Association-Defined Benefit Pension Plan (cont.) Discount rate. The discount rate used to measure the total pension liability was 6.75 percent. The discount rate was developed using the alternative method. Considering the plan’s current overfunded status, combined with statutory funding requirements, it is assumed the projected plan assets will be adequate to pay future retiree benefits. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Net pension asset sensitivity. The following presents the City’s net pension asset for the plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s net pension asset would be if it were calculated using a discount rate 1 percent lower or 1 percent higher than the current discount rate: 1 Percent Decrease Current 1 Percent Increase Net pension asset $ 1,176,319 $ 1,246,634 $ 1,314,602 Pension plan fiduciary net position. The Rosemount Fire Department Relief Association issues a publicly available financial report that includes financial statements and required supplementary information for the Rosemount Fire Department Relief Association Pension Plan. That report may be obtained by writing to City of Rosemount, 2875 145th Street West, Rosemount, Minnesota 55068-4997, or by calling 651 423 4411. B. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors and omissions; workers’ compensation; and health care of its employees. The City purchases commercial insurance and participates in a public entity risk pool called the Minnesota League of Cities Insurance Trust to provide coverage for these various risks of loss. Settled claims have not exceeded coverage in any of the past three years. There were no significant reductions in coverage compared to the prior year. The City has established an internal service fund (Insurance Fund) to account for and finance uninsured risks of loss related to torts, theft of, damage to and destruction of assets, including deductibles. The majority of the City’s general liability and workers’ compensation insurance premiums are paid for by this fund. At December 31, 2017, there are no claims liabilities in the Insurance Fund based on the requirements of Governmental Accounting Standards Board Statement Number 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 60 NOTE V – OTHER INFORMATION (cont.) C. COMMITMENTS AND CONTINGENCIES Claims and judgments are recorded as liabilities if all the conditions of Governmental Accounting Standards Board pronouncements are met. The liability and expenditure for claims and judgments are only reported in governmental funds if it has matured. Claims and judgments are recorded in the government-wide statements and proprietary funds as expenses when the related liabilities are incurred. From time to time, the City is party to various pending claims and legal proceedings. Although the outcome of such matters cannot be forecasted with certainty, it is the opinion of management and the City attorney that the likelihood is remote that any such claims or proceedings will have a material adverse effect on the City's financial position or results of operations. The City has received federal and state grants for specific purposes that are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursements to the grantor agency for expenditures disallowed under terms of the grants. Management believes such disallowances, if any, would be immaterial. The City has active construction projects as of December 31, 2017. Work that has been completed on these projects but not yet paid for (including contract retainages) is reflected as accounts payable and expenditures. $1,680,484 remains on commitments on signed contracts that were not year complete as of year-end. In 2007, the City, through the Port Authority TIF (Authority) which was established under Minnesota Statutes Chapter 469.0813, entered into an agreement with 146th Street Partners, Limited Partnership (Developer) in the form of a tax incremental revenue note to stimulate economic development. The amount of the obligation is $1,500,000, and is payable to the developer solely from available tax increments collected from a specific portion of the development. Payments are scheduled through the year 2032, and carry an interest rate of 4.96%. The agreement is authorized through the Contract for Private Redevelopment between the Authority and Developer. The Developer pays property taxes as they become due, and since meeting the criteria established in the development agreement, is entitled to incentive payments that directly correlate to the taxes paid. The incentive is based on the repayment schedule in the tax incremental revenue note but only to the extent of available tax increment, defined as 90% of the tax increment that is received by the Authority in the six-month period immediate before each payment date. The obligation does not constitute a charge upon any funds of the City. In the event that future tax increments are not sufficient to pay off the obligation, the obligation terminates with no further liability to the City. Since the amount of future payments is contingent on the collection of future TIF increments, the obligation is not reported as a liability in the accompanying financial statements. Incentive payments for the year ended December 31, 2017 were $144,735 CITY OF ROSEMOUNT NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2017 Page 61 NOTE V – OTHER INFORMATION (cont.) D. EFFECT OF NEW ACCOUNTING STANDARDS ON CURRENT-PERIOD FINANCIAL STATEMENTS The Governmental Accounting Standards Board (GASB) has approved the following:  Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions  Statement No. 83, Certain Asset Retirement Obligations  Statement No. 84, Fiduciary Activities  Statement No, 85, Omnibus 2017  Statement No. 86, Certain Debt Extinguishment Issues  Statement No. 87, Leases When they become effective, application of these standards may restate portions of these financial statements. R E Q U I R E D S U P P L E M E N T A R Y I N F O R M A T I O N Variance with REVENUES Original Final Actual Final Budget TAXES General property tax 8,172,869$ 8,172,869$ 8,220,879$ 48,010$ Fiscal disparities 1,175,131 1,175,131 1,175,131 - Other 356,000 356,000 354,627 (1,373) Total Taxes 9,704,000 9,704,000 9,750,637 46,637 INTERGOVERNMENTAL REVENUES State aid - police 172,500 172,500 186,837 14,337 State aid - general government 46,000 46,000 89,415 43,415 State aid - highway 41,300 41,300 42,495 1,195 Other 94,800 94,800 92,408 (2,392) Total Intergovernmental Revenues 354,600 354,600 417,036 62,436 PUBLIC CHARGES FOR SERVICES General government 1,028,900 1,028,900 991,270 (37,630) Public safety 35,700 35,700 33,566 (2,134) Highways and streets 55,700 55,700 96,112 40,412 Parks and recreation 214,100 214,100 244,892 30,792 SAC 3,500 3,500 3,926 426 Total Charges for Services 1,337,900 1,337,900 1,369,766 31,866 LICENSES AND PERMITS Business 60,500 60,500 59,420 (1,080) Non-business 635,400 635,400 681,823 46,423 Total Licenses and Permits 695,900 695,900 741,243 45,343 FINES AND FORFEITURES County 120,000 120,000 101,327 (18,673) SPECIAL ASSESSMENTS - - 345 345 INVESTMENT INCOME AND MISCELLANEOUS Interest earnings 120,800 120,800 163,932 43,132 Change in fair value of investments - - (10,444) (10,444) Miscellaneous general revenues 23,000 48,500 88,114 39,614 Donations - 11,399 11,399 - Rents 33,000 33,000 36,590 3,590 Total Investment Income and Miscellaneous 176,800 213,699 289,591 75,892 Total Revenues 12,389,200 12,426,099 12,669,945 243,846 OTHER FINANCING SOURCES Transfers in 3,500 3,500 3,721 221 TOTAL REVENUES AND OTHER FINANCING SOURCES 12,392,700$ 12,429,599$ 12,673,666$ 244,067$ Budgeted Amounts For the Year Ended December 31, 2017 CITY OF ROSEMOUNT GENERAL FUND SCHEDULE OF REVENUES AND OTHER SOURCES COMPARED TO BUDGET (BUDGETARY BASIS) REQUIRED SUPPLEMENTARY INFORMATION BUDGET AND ACTUAL See auditors' report and accompanying notes to required supplementary information. Page 62 Variance with CURRENT EXPENDITURES Original Final Actual Final Budget GENERAL GOVERNMENT Mayor and council 279,000$ 304,500$ 212,319$ 92,181$ Executive 664,700 664,700 618,760 45,940 Elections 20,000 20,000 19,316 684 Finance 528,100 528,100 524,351 3,749 Community development 1,052,500 1,052,500 1,042,468 10,032 General government 323,600 323,600 352,351 (28,751) TOTAL GENERAL GOVERNMENT 2,867,900 2,893,400 2,769,565 123,835 PUBLIC SAFETY Police department 3,929,500 3,935,133 3,944,293 (9,160) Fire department 384,800 384,800 363,515 21,285 TOTAL PUBLIC SAFETY 4,314,300 4,319,933 4,307,808 12,125 PUBLIC WORKS Government building maintenance 575,800 575,800 521,262 54,538 Fleet maintenance 652,000 652,000 539,762 112,238 Street maintenance 1,423,500 1,423,500 1,425,701 (2,201) Park maintenance 940,000 940,000 870,178 69,822 TOTAL PUBLIC WORKS 3,591,300 3,591,300 3,356,903 234,397 PARKS AND RECREATION 1,489,200 1,494,966 1,546,723 (51,757) CAPITAL OUTLAY - - 68,105 (68,105) OTHER FINANCING USES Transfers out 130,000 130,000 147,914 (17,914) TOTAL EXPENDITURES AND OTHER FINANCING USES 12,392,700$ 12,429,599$ 12,197,018 232,581$ Beginning of year budget basis encumbrances 1,997,456 End of year budget basis encumbrances (1,188,524) GAAP basis expenditures and other financing uses 13,005,950$ Budgeted Amounts For the Year Ended December 31, 2017 CITY OF ROSEMOUNT GENERAL FUND SCHEDULE OF EXPENDITURES AND OTHER USES (BUDGETARY BASIS) - BUDGET AND ACTUAL REQUIRED SUPPLEMENTARY INFORMATION See auditors' report and accompanying notes to required supplementary information. Page 63 State's City's and State's City's City's Proportionate Proportionate City's Proportionate Plan Fiduciary Proportion Proportionate Share of the Net Share of the Net Share of the Net Net Position City Fiscal PERA Fiscal of the Net Share of the Pension Liability Pension Liability City's Pension Liability as a as a Percentage Year End Year End Date Pension Net Pension Associated Associated Covered Percentage of Covered of the total Date (Measurement Date)Liability Liability (a)with City (b)with City (a+b)Payroll ** (c)Payroll ((a+b)/c)Pension Liability 12/31/15 6/30/15 0.0645%3,342,725$ n/a 3,342,725$ 3,896,543$ 85.79%78.20% 12/31/16 6/30/16 0.0653%5,302,014 69,191 5,371,205 4,004,601 134.13%68.90% 12/31/17 6/30/17 0.0651%4,155,941 52,248 4,208,189 4,192,648 100.37%75.90% * This schedule is provided prospectively beginning with the fiscal year ended December 31, 2015. **For purposes of this schedule, covered payroll is defined as "pensionable wages." Contributions in Relation to the Contributions City Fiscal PERA Fiscal Statutorily Statutorily Contribution as a Percentage Year End Year End Date Required Required Deficiency Covered of Covered Date (Measurement Date)Contributions (a)Contributions (b)(Excess) (a-b)Payroll ** (d)Payroll (b/d) 12/31/15 6/30/15 292,241$ 292,241$ -$ 3,896,543$ 7.50% 12/31/16 6/30/16 308,184 308,184 - 4,109,750 7.50% 12/31/17 6/30/17 331,224 331,224 - 4,417,884 7.50% * This schedule is presented prospectively beginning with the fiscal year ended December 31, 2015. **For purposes of this schedule, covered payroll is defined as "pensionable wages." CITY OF ROSEMOUNT SCHEDULE OF CITY'S AND NONEMPLOYER PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - PUBLIC EMPLOYEES GENERAL EMPLOYEES RETIREMENT FUND For the Year Ended December 31, 2017 For the Year Ended December 31, 2017 PUBLIC EMPLOYEES GENERAL EMPLOYEES RETIREMENT FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS - REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) See auditors' report and accompanying notes to required supplementary information. Page 64 City's City's City's Proportionate Plan Fiduciary Proportion Proportionate Share of the Net Position City Fiscal PERA Fiscal of the Net Share of the City's Net Pension Liability as a Percentage Year End Year End Date Pension Net Pension **Covered as a Percentage of of the total Date (Measurement Date)Liability Liability (a)Payroll (b)Covered Payroll (a/b)Pension Liability 12/31/15 6/30/15 0.2130%2,420,178$ 1,984,803$ 121.94%86.60% 12/31/16 6/30/16 0.2060%8,267,138 1,895,019 436.26%63.90% 12/31/17 6/30/17 0.2050%2,767,744 2,107,072 131.35%85.40% * This schedule is provided prospectively beginning with the fiscal year ended December 31, 2015. **For purposes of this schedule, covered payroll is defined as "pensionable wages." Contributions in Relation to the Contributions City Fiscal PERA Fiscal Statutorily Statutorily Contribution as a Percentage Year End Year End Date Required Required Deficiency Covered of Covered Date (Measurement Date)Contributions (a)Contributions (b)(Excess) (a-b)Payroll ** (d)Payroll (b/d) 12/31/15 6/30/15 321,538$ 321,538$ -$ 1,984,803$ 16.20% 12/31/16 6/30/16 326,037 326,037 - 2,012,572 16.20% 12/31/17 6/30/17 356,264 356,264 - 2,199,164 16.20% * This schedule is provided prospectively beginning with the fiscal year ended December 31, 2015. **For purposes of this schedule, covered payroll is defined as "pensionable wages." For the Year Ended December 31, 2017 PUBLIC EMPLOYEES POLICE AND FIRE FUND REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) CITY OF ROSEMOUNT SCHEDULE OF CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - PUBLIC EMPLOYEES POLICE AND FIRE FUND For the Year Ended December 31, 2017 SCHEDULE OF EMPLOYER CONTRIBUTIONS - See auditors' report and accompanying notes to required supplementary information.Page 65 City's year end 2015 City's year end 2016 City's year end 2017 Measurement date 2014 Measurement date 2015 Measurement date 2016 Total Pension Liability Service cost 113,354$ 116,471$ 133,433$ Interest 125,956 137,850 148,293 Changes of assumptions - 32,190 (68,607) Differences between expected and actual experience - - (76,515) Changes of benefit terms - 22,230 52,512 Benefit payments, including member contribution refunds - (88,394) - Net change in total pension liability 239,310 220,347 189,116 Total pension liability - beginning 1,985,922 2,225,232 2,445,579 Total pension liability - ending 2,225,232$ 2,445,579$ 2,634,695$ Plan Fiduciary Net Position Contributions - State and local 296,595$ 244,269$ 170,901$ Contributions - donations and other - - 277 Net investment income 186,351 (44,297) 271,652 Benefit payments, including member contribution refunds - (88,394) - Administrative costs (8,300) (13,285) (8,570) Net change in plan fiduciary net position 474,646 98,293 434,260 Plan fiduciary net position - beginning 2,874,130 3,348,776 3,447,069 Plan fiduciary net position - ending 3,348,776$ 3,447,069$ 3,881,329$ Net pension liability/(asset) - ending (1,123,544)$ (1,001,490)$ (1,246,634)$ Plan fiduciary net position as a percentage of the total pension liability 150.49%140.95%147.32% * This schedule is provided prospectively beginning with the fiscal year ended December 31, 2015. CITY OF ROSEMOUNT SCHEDULE OF CHANGES IN THE ROSEMOUNT FIRE DEPARTMENT RELIEF ASSOCIATION'S NET PENSION ASSET AND RELATED RATIOS REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) For the Year Ended December 31, 2017 See auditors' report and accompanying notes to required supplementary information. Page 66 Non-Employer Statutorily Contribution Year End Determined Actual Contribution State 2% Date Contribution Contribution Excess Fire Aid 12/31/15 -$ 109,100$ 109,100$ 135,169$ 12/31/16 - 30,000 30,000 140,901 12/31/17 - 30,000 30,000 140,267 * This schedule is provided prospectively beginning with the fiscal year ended December 31, 2015. City Contributions ROSEMOUNT FIRE DEPARTMENT RELIEF ASSOCIATION REQUIRED SUPPLEMENTARY INFORMATION (Last Ten Years*) For the Year Ended December 31, 2017 CITY OF ROSEMOUNT SCHEDULE OF EMPLOYER CONTRIBUTIONS - See auditors' report and accompanying notes to required supplementary information. Page 67 CITY OF ROSEMOUNT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION As of and for the Year Ended December 31, 2017 See auditors’ report. Page 68 Budgetary Information Budgetary information is derived from the annual operating budget and is presented using generally accepted accounting principles and the modified accrual basis of accounting with departures from generally accepted accounting principles for encumbrances. Public Employees Retirement Association (PERA) The amounts determined for each fiscal year were determined as of the calendar year-end and occurred within the fiscal year. The City is required to present the last ten years of data; however, accounting standards allow the presentation of as many years as are available until ten fiscal years are presented. Changes in benefit terms: There were no changes of benefit terms for any participating employer in the Public Employees Retirement Association. 2017 General Employees Fund Changes: Changes in Actuarial Assumptions:  The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent for vested and nonvested deferred members. The revised CSA loads are now zero percent for active member liability, 15.0 percent for vested deferred member liability, and 3.0 percent for nonvested deferred member liability.  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years to 1.0 percent per year through 2044, and 2.5 percent per year thereafter. 2016 General Employees Fund Changes: Changes in Actuarial Assumptions:  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035, and 2.5 percent per year thereafter, to 1.0 percent per year for all years.  The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent.  Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. CITY OF ROSEMOUNT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION As of and for the Year Ended December 31, 2017 See auditors’ report. Page 69 Public Employees Retirement Association (PERA) (cont.) 2015 General Employees Fund Changes: Changes in Plan Provisions:  On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Retirement Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised. Changes in Actuarial Assumptions:  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2035, and 2.5 percent per year thereafter. 2017 Police and Fire Fund Changes: Changes in Actuarial Assumptions:  Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34 percent lower than the previous rates.  Assumed rates of retirement were changed, resulting in fewer retirements.  The Combined Service Annuity (CSA) load was 30 percent for vested and nonvested deferred members. The CSA has been changed to 33 percent for vested members and 2 percent for nonvested members.  The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 Fully Generational Table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 Disabled Mortality Table to the mortality tables assumed for healthy retirees.  Assumed termination rates were decreased to 3.0 percent for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall.  Assumed percentage of married female members was decreased from 65 percent to 60 percent.  Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two years older than females.  The assumed percentage of female members electing joint and survivor annuities was increased. CITY OF ROSEMOUNT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION As of and for the Year Ended December 31, 2017 See auditors’ report. Page 70 Public Employees Retirement Association (PERA) (cont.) 2017 Police and Fire Fund Changes (cont.): Changes in Actuarial Assumptions (cont.):  The assumed post-retirement benefit increase rate was changed from 1.00 percent for all years to 1.00 percent per year through 2064, and 2.50 percent thereafter.  The single discount rate changed from 5.60 percent to 7.50 percent. 2016 Police and Fire Fund Changes: Changes in Actuarial Assumptions:  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2037, and 2.5 percent thereafter, to 1.0 percent per year for all future years.  The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate changed from 7.9 percent to 5.6 percent.  The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. 2015 Police and Fire Fund Changes: Changes in Plan Provisions:  The post-retirement benefit increase to be paid after attainment of the 90 percent funding threshold was changed, from inflation up to 2.5 percent, to a fixed rate of 2.5 percent Changes in Actuarial Assumptions:  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2037, and 2.5 percent per year thereafter. S U P P L E M E N T A R Y I N F O R M A T I O N Total Fire Nonmajor Safety Port Authority Governmental PEG Fees Education GIS General Funds ASSETS Cash and investments 16,599$ 3,030$ 42,732$ 184,702$ 247,063$ Receivables from: Accounts 5,160 - - - 5,160 Prepaid items - - - 444 444 TOTAL ASSETS 21,759$ 3,030$ 42,732$ 185,146$ 252,667$ LIABILITIES Accounts payable -$ -$ -$ 302$ 302$ FUND BALANCES Nonspendable - - - 444 444 Restricted 21,759 - - - 21,759 Committed - 3,030 42,732 184,400 230,162 Total Fund Balances 21,759 3,030 42,732 184,844 252,365 TOTAL LIABILITIES AND FUND BALANCES 21,759$ 3,030$ 42,732$ 185,146$ 252,667$ CITY OF ROSEMOUNT COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL FUNDS As of December 31, 2017 Special Revenue Funds Page 71 Total Fire Nonmajor Safety Port Authority Governmental PEG Fees Education GIS General Funds REVENUES Taxes 21,744$ -$ -$ 58,000$ 79,744$ Intergovernmental - - - 32,479 32,479 Public charges for services - - 11,863 3,710 15,573 Miscellaneous 15 625 70 232 942 Total Revenues 21,759 625 11,933 94,421 128,738 EXPENDITURES Current General government - - - 51,920 51,920 Capital Outlay - - - 5,842 5,842 Total Expenditures - - - 57,762 57,762 Net change in fund balance 21,759 625 11,933 36,659 70,976 FUND BALANCES - Beginning of Year - 2,405 30,799 148,185 181,389 FUND BALANCES - END OF YEAR 21,759$ 3,030$ 42,732$ 184,844$ 252,365$ For the Year Ended December 31, 2017 Special Revenue Funds CITY OF ROSEMOUNT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS Page 72 Original and Final Budgeted Variance with Amounts Actual Final Budget REVENUES Taxes 24,000$ 24,000$ -$ Public charges for services 1,050,000 1,414,337 364,337 Interest earnings 16,000 35,570 19,570 Total Revenues 1,090,000 1,473,907 383,907 EXPENDITURES Current General government 4,700 4,731 (31) Capital Outlay 2,668,800 2,027,201 641,599 Total Expenditures 2,673,500 2,031,932 641,568 Net Change in Fund Balance (1,583,500) (558,025) 1,025,475 FUND BALANCE - Beginning 671,146 671,146 - FUND BALANCE - ENDING (912,354)$ 113,121$ 1,025,475$ SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES CITY OF ROSEMOUNT For the Year Ended December 31, 2017 IN FUND BALANCE (BUDGETARY BASIS) - BUDGET AND ACTUAL BUILDING CIP CAPITAL PROJECT SUB-FUND Page 73 Original and Final Budgeted Variance with Amounts Actual Final Budget REVENUES Taxes 811,400$ 811,400$ -$ Public charges for services 125,000 125,000 - Special assessments - 501,906 501,906 Interest earnings 2,500 44,173 41,673 Total Revenues 938,900 1,482,479 543,579 EXPENDITURES Current General government 2,500 3,454 (954) Public works - 23 (23) Capital Outlay 2,541,400 207,331 2,334,069 Total Expenditures 2,543,900 210,808 2,333,092 Excess (deficiency) of revenues over expenditures (1,605,000) 1,271,671 2,876,671 OTHER FINANCING SOURCES (USES) Transfers in - 55,882 55,882 Transfers out - (1,625,961) (1,625,961) Total Other Financing Sources (Uses) - (1,570,079) (1,570,079) Net Change in Fund Balance (1,605,000) (298,408) 1,306,592 FUND BALANCE - Beginning 3,782,367 3,782,367 - FUND BALANCE - ENDING 2,177,367$ 3,483,959$ 1,306,592$ SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES CITY OF ROSEMOUNT For the Year Ended December 31, 2017 IN FUND BALANCE (BUDGETARY BASIS) - BUDGET AND ACTUAL STREET CIP CAPITAL PROJECT SUB-FUND Page 74 Original and Final Budgeted Variance with Amounts Actual Final Budget REVENUES Taxes 580,000$ 580,000$ -$ Interest earnings 10,500 12,888 2,388 Miscellaneous - 855 855 Total Revenues 590,500 593,743 3,243 EXPENDITURES Current General government 2,500 2,500 - Capital Outlay 931,600 882,040 49,560 Total Expenditures 934,100 884,540 49,560 Excess (deficiency) of revenues over expenditures (343,600) (290,797) 52,803 OTHER FINANCING SOURCES Sale of capital assets 18,000 42,394 24,394 Net Change in Fund Balance (325,600) (248,403) 77,197 FUND BALANCE - Beginning 1,063,510 1,063,510 - FUND BALANCE - ENDING 737,910$ 815,107$ 77,197$ SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES CITY OF ROSEMOUNT For the Year Ended December 31, 2017 IN FUND BALANCE (BUDGETARY BASIS) - BUDGET AND ACTUAL EQUIPMENT CIP CAPITAL PROJECT SUB-FUND Page 75 STATISTICAL SECTION This part of the City of Rosemount’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Contents Page Financial Trends 76 These schedules contain trend information to help the reader understand how the government’s financial performance and well-being have changed over time. Revenue Capacity 81 These schedules contain information to help the reader assess the government’s most significant local revenue source, the property tax. Debt Capacity 85 These schedules present information to help the reader assess the affordability of the government’s current levels of outstanding debt and the government’s ability to issue additional debt in the future. Demographic and Economic Information 90 These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating Information 92 These schedules contain service and infrastructure data to help the reader understand how the information in the government’s financial report relates to the services the government provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial repor ts for the relevant year. Schedule 1 City of Rosemount Net Position by Component Last Ten Fiscal Years (Accrual Basis of Accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Governmental activities Net investment in capital assets 37,876,848$ 41,347,888$ 49,563,765$ 53,419,036$ 54,828,890$ 57,746,938$ 58,438,402$ 64,684,403$ 69,942,544$ 74,294,033$ Restricted (1)6,621,026 4,637,711 5,361,675 5,764,792 6,608,554 7,148,774 - - - - Restricted for debt service - - - - - - 7,709,903 6,925,597 6,111,575 5,883,329 Restricted donations for future construction - - - - - - 1,988,610 1,589,000 - - Restricted for pension - - - - - - - 1,123,544 1,001,490 1,246,634 Restricted for PEG fees - - - - - - - - - 21,759 Unrestricted 14,114,135 14,979,767 14,089,305 16,772,383 15,970,416 15,883,105 17,913,535 13,031,913 13,100,682 14,090,028 Total governmental activities net position 58,612,009 60,965,366 69,014,745 75,956,211 77,407,860 80,778,817 86,050,450 87,354,457 90,156,291 95,535,783 Business-type activities Net investment in capital assets 89,687,681$ 91,948,323$ 89,025,234$ 90,695,202$ 93,501,405$ 95,770,585$ 98,194,408$ 96,808,557$ 98,722,624$ 97,328,281$ Unrestricted 20,158,226 18,517,148 20,059,049 17,772,742 19,247,600 18,591,663 19,348,437 20,376,753 21,739,120 23,521,090 Total business-type activities net position 109,845,907 110,465,471 109,084,283 108,467,944 112,749,005 114,362,248 117,542,845 117,185,310 120,461,744 120,849,371 Primary government Net investment in capital assets 127,564,529$ 133,296,211$ 138,588,999$ 144,114,238$ 148,330,295$ 153,517,523$ 156,632,810$ 161,492,960$ 168,665,168$ 171,622,314$ Restricted (1)6,621,026 4,637,711 5,361,675 5,764,792 6,608,554 7,148,774 - - - - Restricted for debt service - - - - - - 7,709,903 6,925,597 6,111,575 5,883,329 Restricted donations for future construction - - - - - - 1,988,610 1,589,000 - - Restricted for pension - - - - - - - 1,123,544 1,001,490 1,246,634 Restricted for PEG fees - - - - - - - - - 21,759 Unrestricted 34,272,361 33,496,915 34,148,354 34,545,125 35,218,016 34,474,768 37,261,972 33,408,666 34,839,802 37,611,118 Total primary government net position 168,457,916$ 171,430,837$ 178,099,028$ 184,424,155$ 190,156,865$ 195,141,065$ 203,593,295$ 204,539,767$ 210,618,035$ 216,385,154$ (1) Prior to 2014 "Restricted" was included in one summary line. Source: City of Rosemount Comprehensive Annual Financial Reports Fiscal Years Page 76 Schedule 2 City of Rosemount Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities General government 2,639,752$ 2,754,573$ 2,671,886$ 2,612,911$ 2,701,234$ 2,583,271$ 2,961,500$ 2,878,070$ 4,426,817$ 3,859,090$ Public safety 3,468,249 3,688,658 3,819,520 3,763,742 3,872,633 4,051,642 4,233,610 4,378,347 5,629,866 5,170,637 Public works 5,279,784 4,260,284 4,326,903 4,336,345 4,341,203 5,448,047 5,764,176 4,468,049 4,765,115 5,822,738 Culture, education and recreation 1,417,400 1,378,619 1,477,525 1,496,068 2,405,676 1,586,449 1,613,600 1,643,886 1,959,224 2,042,299 Conservation and economic development 1,956,865 648,476 149,701 9,069 - 3,267 1,032,304 53,040 3,968 4,315 Interest and fiscal charges 958,900 750,226 690,896 637,609 541,386 517,067 501,682 569,722 476,121 308,567 Total governmental activities expenses 15,720,950 13,480,836 13,136,431 12,855,744 13,862,132 14,189,743 16,106,872 13,991,114 17,261,111 17,207,646 Business-Type activities Water Utility 1,893,099 1,878,310 1,861,467 1,792,613 1,827,543 1,903,275 1,962,833 2,219,781 2,075,460 2,175,626 Sewer Utility 2,123,397 2,313,576 2,305,503 2,386,660 2,317,324 2,425,486 2,522,913 2,575,330 2,742,402 2,837,550 Storm Water Utility 988,716 989,808 1,010,678 950,114 968,935 989,574 1,122,839 1,117,526 1,228,697 1,275,073 Arena 537,530 456,706 484,278 479,707 498,118 578,345 493,943 497,838 510,968 484,903 Total Business-Type activities expenses 5,542,742 5,638,400 5,661,926 5,609,094 5,611,920 5,896,680 6,102,528 6,410,475 6,557,527 6,773,152 Total primary government expenses 21,263,692$ 19,119,236$ 18,798,357$ 18,464,838$ 19,474,052$ 20,086,423$ 22,209,400$ 20,401,589$ 23,818,638$ 23,980,798$ Program Revenues Governmental activities Charges for services General government 2,031,866$ 1,501,756$ 1,672,014$ 1,881,337$ 2,286,892$ 2,465,695$ 3,202,744$ 3,182,769$ 3,128,969$ 3,286,273$ Public safety 203,056 169,112 151,802 169,718 184,011 139,432 146,973 151,168 150,571 134,893 Public works 32,160 15,050 20,912 68,166 45,564 53,813 59,417 99,060 54,893 100,038 Culture, education and recreation 403,560 244,374 263,238 272,958 365,486 342,100 571,222 728,567 392,102 779,541 Operating grants and contributions General government 22,580 - - - 46,326 - - - 20,631 1,509 Public safety 233,349 254,175 246,346 249,515 275,114 263,805 283,095 406,657 547,505 366,654 Public works 392,136 380,737 311,630 108,640 53,198 32,790 53,515 41,235 41,235 42,495 Culture, education and recreation 628 659 26,484 33,499 1,275 6,241 3,736 7,347 2,617 1,337 Conservation and economic development 82,803 60,100 20,100 67,400 - 20,635 22,536 23,000 24,000 25,000 Capital grants and contributions General government 1,775 7,118 - - - - 1,988,610 - - - Public safety 337 3,971 697 - - - 18,131 - 3,918 6,358 Public works 3,762,115 1,206,361 5,320,892 4,214,641 3,628,190 3,967,849 4,318,692 1,650,864 3,170,374 3,538,480 Culture, education and recreation 531 4,203 9,218 - - - - - 419 293 Conservation and economic development 522,179 256,357 19,425 - 39,352 322,808 740,660 287,090 7,000 33,629 Total governmental activities program revenues 7,689,075 4,103,973 8,062,758 7,065,874 6,925,408 7,615,168 11,409,331 6,577,757 7,544,234 8,316,500 Fiscal Years Page 77 Schedule 2 (continued) City of Rosemount Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Business-Type activities Charges for services Water Utility 2,027,618 1,764,784 1,952,359 1,983,264 2,406,557 2,167,709 2,379,147 2,552,123 2,692,740 3,041,642 Sewer Utility 1,767,732 1,482,651 1,470,801 1,470,626 1,707,730 1,716,022 1,733,646 1,873,687 1,996,130 2,126,771 Storm Water Utility 1,137,287 852,704 888,995 927,429 1,135,067 1,061,632 1,350,259 1,544,158 1,387,817 1,693,845 Arena 390,631 370,964 406,797 378,046 352,930 376,058 392,631 408,874 430,103 441,059 Operating grants and contributions Water Utility - - - - - - 9,901 - 24,248 84,042 Storm Water Utility - - - - - - 19,680 - - - Capital grants and contributions Water Utility 56,388 70,279 72,960 243,835 168,573 371,582 180,568 75,622 1,041,806 216,454 Sewer Utility 392,757 416,493 71,656 110,538 207,422 83,484 98,863 85,848 1,153,536 204,114 Storm Water Utility 18,165 1,075,041 85,242 190,022 487,082 648,297 193,402 42,708 989,073 210,802 Total Business-Type activities program revenues 5,790,578 6,032,916 4,948,810 5,303,760 6,465,361 6,424,784 6,358,097 6,583,020 9,715,453 8,018,729 Total primary government program revenues 13,479,653 10,136,889 13,011,568 12,369,634 13,390,769 14,039,952 17,767,428 13,160,777 17,259,687 16,335,229 Net (Expense) Revenue Governmental activities (8,031,875) (9,376,863) (5,073,673) (5,789,870) (6,936,724) (6,574,575) (4,697,541) (7,413,357) (9,716,877) (8,891,146) Business-Type activities 247,836 394,516 (713,116) (305,334) 853,441 528,104 255,569 172,545 3,157,926 1,245,577 Total primary government net expense (7,784,039)$ (8,982,347)$ (5,786,789)$ (6,095,204)$ (6,083,283)$ (6,046,471)$ (4,441,972)$ (7,240,812)$ (6,558,951)$ (7,645,569)$ General Revenues and Other Changes in Net Position Governmental activities Property taxes, levied for general purposes 9,437,336$ 9,768,391$ 10,023,255$ 10,266,170$ 10,001,071$ 10,123,158$ 10,328,709$ 10,479,883$ 10,709,952$ 11,139,036$ Property taxes, levied for debt service 2,005,338 1,711,452 1,257,365 936,054 1,038,404 1,037,524 1,022,258 1,094,210 1,142,142 1,178,589 Other taxes 208,667 224,276 264,808 262,783 242,491 259,064 288,425 332,290 354,571 366,745 Investment income 611,533 297,536 164,474 243,193 136,310 121,886 221,243 181,754 270,676 307,497 Change in fair value of investments n/a n/a n/a n/a n/a (458,073) 319,644 (1,788) (147,945) (20,104) Gain (loss) on the sale of assets (2,125,256) (851,439) - 130,114 13,248 12,883 - 7,328 - - Miscellaneous 365,516 340,763 429,150 204,149 127,617 116,123 103,615 104,237 103,394 171,294 Transfers (1,339,200) 239,241 984,000 688,873 (3,170,768) (1,267,033) (2,314,720) (31,534) 85,921 1,127,581 Total governmental activities 9,163,934 11,730,220 13,123,052 12,731,336 8,388,373 9,945,532 9,969,174 12,166,380 12,518,711 14,270,638 Business-Type activities Investment income 726,105 464,289 315,928 377,868 256,852 209,227 333,929 272,336 339,012 295,867 Change in fair value of investments n/a n/a n/a n/a n/a (391,121) 276,379 (24,638) (134,583) (26,236) Transfers 1,339,200 (239,241) (984,000) (688,873) 3,170,768 1,267,033 2,314,720 31,534 (85,921) (1,127,581) Total Business-Type activities 2,065,305 225,048 (668,072) (311,005) 3,427,620 1,085,139 2,925,028 279,232 118,508 (857,950) Total primary government 11,229,239 11,955,268 12,454,980 12,420,331 11,815,993 11,030,671 12,894,202 12,445,612 12,637,219 13,412,688 Change in Net Position Governmental activities 1,132,059 2,353,357 8,049,379 6,941,466 1,451,649 3,370,957 5,271,633 4,753,023 2,801,834 5,379,492 Business-Type activities 2,313,141 619,564 (1,381,188) (616,339) 4,281,061 1,613,243 3,180,597 451,777 3,276,434 387,627 Total primary government 3,445,200$ 2,972,921$ 6,668,191$ 6,325,127$ 5,732,710$ 4,984,200$ 8,452,230$ 5,204,800$ 6,078,268$ 5,767,119$ Source: City of Rosemount Comprehensive Annual Financial Reports n/a - Not Available Fiscal Years Page 78 Schedule 3 City of Rosemount Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Fund Reserved for Prepaid items 34,120$ 78,379$ 33,280$ -$ -$ -$ -$ -$ -$ -$ Encumbrances 524,904 638,254 465,544 - - - - - - - Unreserved Designated 6,480,777 6,536,929 6,653,352 - - - - - - - Undesignated 10,059 15,549 32,941 - - - - - - - Nonspendable - - - 85,067 80,623 67,266 66,238 69,348 - - Assigned - - - 1,894,348 2,319,433 2,292,257 2,808,794 2,981,632 2,969,701 2,222,507 Unassigned - - - 5,700,071 5,905,056 6,001,628 6,288,615 6,506,697 6,918,833 7,333,743 Total General Fund 7,049,860 7,269,111 7,185,117 7,679,486 8,305,112 8,361,151 9,163,647 9,557,677 9,888,534 9,556,250 All Other Governmental Funds Reserved for Debt service 5,582,205 3,854,760 6,173,964 - - - - - - - Special revenue funds - prepaid items - - - - - - - - - - Capital projects funds - encumbrances 331,014 1,118,650 1,061,526 - - - - - - - Unreserved Designated Capital projects funds 5,297,333 4,984,835 3,510,512 - - - - - - - Special revenue funds 15,017 9,374 6,900 - - - - - - - Undesignated Port Authority TIF fund 182,826 262,577 429,284 - - - - - - - Special revenue funds 109,523 125,132 134,919 Nonspendable for Capital projects funds - - - - 10,000 10,000 10,000 10,000 10,000 - Nonmajor governmental funds - - - - - - 549 606 113 444 Restricted for Debt service - - - 4,782,476 4,193,284 4,554,980 4,976,137 5,256,841 4,307,191 2,983,348 Capital Projects - - - - - - 1,988,610 1,589,000 - - Port Authority TIF fund - - - 677,057 887,616 1,046,218 1,021,730 4,534,417 4,994,060 1,849,055 Nonmajor governmental funds - - - - - - - - - 21,759 Committed for Nonmajor governmental funds - - - 159,048 191,307 214,031 290,834 190,941 181,276 230,162 Assigned for Capital projects funds - - - 8,515,086 6,229,951 6,243,406 7,330,501 6,923,755 8,397,771 10,804,425 Total All Other Governmental Funds 11,517,918 10,355,328 11,317,105 14,133,667 11,512,158 12,068,635 15,618,361 18,505,560 17,890,411 15,889,193 Total All Funds 18,567,778$ 17,624,439$ 18,502,222$ 21,813,153$ 19,817,270$ 20,429,786$ 24,782,008$ 28,063,237$ 27,778,945$ 25,445,443$ Source: City of Rosemount Comprehensive Annual Financial Reports Note: Beginning in 2011, the categories of fund balance changed with the implementation of GASB statement No. 54 Fiscal Years Page 79 Schedule 4 City of Rosemount Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Taxes 11,079,607$ 11,049,769$ 10,822,174$ 10,643,333$ 10,376,939$ 10,514,617$ 10,747,756$ 10,940,420$ 11,167,397$ 11,591,837$ Tax increments 296,735 379,351 448,253 576,675 660,056 660,130 646,636 720,963 794,268 832,533 Intergovernmental 1,511,195 947,554 4,051,643 2,394,400 584,381 2,288,281 2,509,924 882,930 674,220 1,216,200 Public charges for services 1,844,648 1,382,597 1,540,191 2,226,976 2,277,051 2,370,562 3,132,556 3,352,219 2,826,231 3,457,253 Licenses and permits 698,756 430,551 453,900 388,615 484,644 522,131 730,765 694,765 792,557 741,243 Fines and forfeitures 129,220 124,068 122,394 124,324 129,343 106,617 116,384 114,580 108,561 101,327 Special assessments 962,950 757,223 832,686 496,386 2,155,618 1,539,059 2,123,199 2,368,403 1,035,044 718,051 Investment income and miscellaneous 3,538,350 1,268,846 1,224,178 1,552,188 1,773,249 650,402 3,135,395 1,240,234 508,130 1,546,665 Total revenues 20,061,461 16,339,959 19,495,419 18,402,897 18,441,281 18,651,799 23,142,615 20,314,514 17,906,408 20,205,109 Expenditures General government 2,579,263 2,522,244 2,368,489 2,382,663 2,569,649 2,506,529 2,752,153 2,841,775 2,977,518 3,253,808 Public safety 3,096,468 3,297,520 3,366,500 3,436,225 3,510,222 3,632,212 3,762,826 4,014,411 4,072,189 4,306,808 Public works 3,105,778 2,687,294 2,805,767 3,078,059 3,032,940 3,285,257 3,192,487 2,957,952 3,005,419 4,141,175 Parks and recreation 1,186,883 1,153,777 1,239,742 1,239,857 1,271,513 1,321,946 1,304,867 1,298,271 1,516,720 1,546,723 Conservation and development 1,944,457 160,445 139,965 - - - 376,496 - - - Capital Outlay 6,689,680 3,835,826 7,808,264 6,185,959 8,096,866 7,628,944 9,470,432 6,831,658 5,087,107 5,676,815 Debt Service Principal retirement 4,300,000 3,645,000 1,840,000 2,225,000 2,405,000 1,545,000 1,580,000 3,470,000 2,165,000 2,240,000 Interest and fiscal charges 843,205 826,350 726,878 677,469 582,377 511,526 508,605 573,607 495,638 384,544 Total expenditures 23,745,734 18,128,456 20,295,605 19,225,232 21,468,567 20,431,414 22,947,866 21,987,674 19,319,591 21,549,873 Excess (deficiency) of revenues over (under) expenditures (3,684,273) (1,788,497) (800,186) (822,335) (3,027,286) (1,779,615) 194,749 (1,673,160) (1,413,183) (1,344,764) Other financing sources (uses) Issuance of long-term debt 6,425,000 - 1,355,000 2,080,000 810,000 1,500,000 2,400,000 4,680,000 - 1,055,000 Payment to escrow agent - - - - - - - - - (3,275,000) Premium on long-term debt - - - - - - - 180,637 - 61,287 Sale of capital assets 4,780 3,000 12,505 10,121 12,740 3,627 348,335 69,578 407,581 42,394 Transfers in 1,366,084 1,639,211 3,089,286 2,847,900 348,663 1,330,491 1,908,755 1,008,983 851,403 1,743,745 Transfers out (1,469,493) (797,053) (2,778,822) (804,755) (140,000) (441,987) (499,617) (984,809) (130,093) (616,164) Total other financing sources (uses)6,326,371 845,158 1,677,969 4,133,266 1,031,403 2,392,131 4,157,473 4,954,389 1,128,891 (988,738) Net change in fund balances 2,642,098$ (943,339)$ 877,783$ 3,310,931$ (1,995,883)$ 612,516$ 4,352,222$ 3,281,229$ (284,292)$ (2,333,502)$ Fund balances - Beginning 15,925,680 18,567,778 17,624,439 18,502,222 21,813,153 19,817,270 20,429,786 24,782,008 28,063,237 27,778,945 Fund balances - Ending 18,567,778$ 17,624,439$ 18,502,222$ 21,813,153$ 19,817,270$ 20,429,786$ 24,782,008$ 28,063,237$ 27,778,945$ 25,445,443$ Debt service as a percentage of noncapital expenditures 30.2%31.3%20.1%22.0%22.3%16.1%15.5%26.7%18.7%16.5% Source: City of Rosemount Comprehensive Annual Financial Reports Fiscal Years Page 80 Schedule 5 City of Rosemount Assessed Value (or Tax Capacity) and Estimated Market Value of All Taxable Property Last Ten Fiscal Years Total Tax Capacity as % of Local Tax Estimated Local Tax Estimated Local Tax Estimated City Estimated State Tax Net Tax Market Net Tax Market Net Tax Market Tax Market Net Tax Pay-Year Capacity (1)Value Capacity (1)Value Capacity (1)Value Rate (2)Value Capacity (1) 2008 26,171,550$ 2,340,595,000$ 479,034$ 25,165,300$ 26,650,584$ 2,365,760,300$ 42.440 1.13%5,661,820$ 2009 26,303,216 2,338,770,100 539,678 28,233,700 26,842,894 2,367,003,800 42.323 1.13%6,048,039 2010 25,067,278 2,209,334,700 566,090 29,516,800 25,633,368 2,238,851,500 43.358 1.14%6,321,515 2011 23,635,880 2,078,373,200 685,721 35,284,800 24,321,601 2,113,658,000 44.661 1.15%6,248,792 2012 21,590,701 1,878,822,866 689,398 35,353,750 22,280,099 1,914,176,616 46.994 1.16%6,203,052 2013 21,076,941 1,829,557,955 728,110 37,319,224 21,805,051 1,866,877,179 48.862 1.17%6,237,507 2014 21,898,381 1,908,586,387 788,742 40,027,970 22,687,123 1,948,614,357 47.676 1.16%6,371,221 2015 23,706,444 2,087,149,995 797,258 40,447,970 24,503,702 2,127,597,965 45.152 1.15%6,429,613 2016 25,325,479 2,241,801,959 893,756 45,278,045 26,219,235 2,287,080,004 43.149 1.15%6,649,004 2017 26,876,375 2,384,213,461 998,770 50,550,481 27,875,145 2,434,763,942 41.832 1.14%6,949,051 Source: Dakota County Assessor's Office, Usage Classification Report - Real Estate and Personal Properties Note: Property values shown are established at January 1 of the year preceding the "Pay-Year" listed. They are the basis of the taxes collected and applied to the "Pay-Year". (1) Beginning with 2011, the State made changes in the valuations by adding a "Market Value Exclusion" for properties valued at less than $414,000 that resulted in large reductions in the Estimated Market Values and the Net Tax Capacity Values. (2) Rates taken from Schedule 6 Real Property Personal Property Total 1.10% 1.11% 1.12% 1.13% 1.14% 1.15% 1.16% 1.17% 1.18% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Tax Capacity as % of Estimated Market Value Total % Page 81 Schedule 6 ISD 196 ISD 199 ISD 200 Dakota Totals City Market School Market School Market School Market County School School School Year Referendum District Referendum District Referendum District Referendum Dakota Referendum Special District District District Collectible City Rates (1)No. 196 Rates (1)No. 199 Rates (1)No. 200 Rates (1)County Rates (1)Districts No. 196 No. 199 No. 200 2008 42.440 0.00623 21.136 0.21274 19.764 0.13159 16.676 0.22733 25.184 0.00471 4.996 93.756 92.384 89.296 2009 42.323 0.00631 21.109 0.21032 19.303 0.13392 16.735 0.22372 25.821 0.00471 4.916 94.169 92.363 89.795 2010 43.358 0.00652 25.391 0.22268 21.795 0.15183 20.206 0.25903 27.269 0.00501 4.987 101.005 97.409 95.820 2011 44.661 0.00697 26.959 0.22601 24.679 0.15606 22.140 0.26626 29.149 0.00537 5.199 105.968 103.688 101.149 2012 46.994 n/a 28.440 0.22131 28.363 0.16428 25.435 0.28618 31.426 0.00551 5.562 112.422 112.345 109.417 2013 48.862 n/a 27.956 0.23542 27.556 0.18354 23.932 0.29483 33.421 n/a 5.884 116.123 115.723 112.099 2014 47.676 n/a 27.606 0.25809 33.418 0.15657 23.052 0.26005 31.827 n/a 5.538 112.647 118.459 108.093 2015 45.152 n/a 23.271 0.25484 34.864 0.16151 20.965 0.25310 29.633 n/a 5.033 103.089 114.682 100.783 2016 43.149 n/a 24.317 0.26999 30.272 0.13929 20.938 0.25990 28.570 n/a 5.063 101.099 107.054 97.720 2017 41.832 n/a 23.336 0.27380 28.572 0.14151 20.305 0.24713 28.004 n/a 4.907 98.079 103.315 95.048 Source: Dakota County Treasurer-Auditor Note: All rates are overlapping rates except for the "City" and the "City Market Referendum Rates" (these two are the City's direct rates). Overlapping rates consist of the "School Districts", "Dakota County" and the "Special Districts". (1) Levies for voter approved referendums are based on market value. Therefore, a separate rate value. Therefore, a separate rate for these market valued leviesis included for the applicable entity for the life of the levies. Since these rates are calculated separately, they are not included in the total tax rates. n/a - Not Applicable (Rate per 1% of Market Value) City of Rosemount Property Tax Rates - All Direct and Overlapping Governmental Units Last Ten Fiscal Years Page 82 2017 2008 Percentage Percentage Local of Total Local of Total Tax Local Tax Tax Local Tax Taxpayer Capacity (1)Rank Capacity Capacity (1)Rank Capacity Flint Hills Resources Pine Bend LLC (Merged w/below)3,105,937$ 1 11.14%995,445$ 2 3.74% Great Northern Oil Company (2008 - Koch Refining)- 1,537,028 1 5.77% Northern States Power Co.363,052 2 1.30%308,239 3 1.16% Northern Natural Gas Co.200,754 3 0.72%- Clarel Corporation (Cub Foods)184,898 4 0.66%221,498 4 146th Street Partners LP (Waterford Commons)179,939 5 0.65%- CF Industries Sales LLC (Cenex)125,838 6 0.45%85,810 10 0.32% Dakota Aggregates 124,746 7 0.45%- Minnesota Energy Resources Corp.113,284 8 0.41%- Rosemount Senior Living Associates 108,909 9 0.39%- Minnesota Pipeline Co.106,138 10 0.38%- Hawkins Inc.101,502 11 0.36%- SKB Environmental Inc.87,550 12 0.31%- Rosemount Crossing LLC (Aldi's)86,962 13 0.31%112,544 5 Francis & Patricia Dolejs (Celtic Crossing)85,408 14 0.31%88,396 9 Proto Labs Inc. (2008 - Webb Properties LLC)84,182 15 0.30%96,812 6 0.36% Bigos - Rosemount LLC (Cannon Equipment)- 91,248 7 0.34% Continental Nitrogen & Resources (CNR)- 90,012 8 0.34% Limerick Way LLC - 85,001 11 0.32% Hidden Valley SPE LLC (Rosemount Woods)- 79,310 12 0.30% Progress Land Company - 62,383 13 0.23% Wensmann Homes Inc.- 45,830 14 0.17% Koch Exploration Properties LLC - 41,017 15 0.15% Principal Taxpayers Total 5,059,099$ 18.15%3,940,573$ 14.79% Total City Tax Capacity 27,875,145$ 26,650,584$ Source: Dakota County Treasurer-Auditor (1) These figures do not include the dollars collected but the tax capacity for each entity. Schedule 7 City of Rosemount Principal Property Tax Payers Current Year and Nine Years Ago Page 83 Ratio of Percent of Delinquent Total Outstanding Total Tax Total Tax Current Tax Current Taxes Tax Tax Delinquent Collections to Year Levy (1)Collections Collected Collections (2)Collections Taxes Total Tax Levy 2008 11,368,729$ 11,202,867$ 98.54%128,875$ 11,331,742$ -$ 100.00% 2009 11,411,690 11,279,747 98.84%144,999 11,424,746 - 100.00% 2010 11,160,169 11,059,249 99.10%161,848 11,221,097 6,196 99.94% 2011 10,985,813 10,898,846 99.21%123,066 11,021,912 292 100.00% 2012 10,490,554 10,418,211 99.31%99,300 10,517,511 362 100.00% 2013 10,750,485 10,667,447 99.23%84,910 10,752,357 1,275 99.99% 2014 11,031,983 10,986,828 99.59%110,510 11,097,338 1,436 99.99% 2015 11,313,577 11,279,075 99.70%43,833 11,322,908 7,120 99.94% 2016 11,465,695 11,417,277 99.58%53,354 11,470,631 47,751 99.58% 2017 11,833,975 11,802,700 99.74%73,494 11,876,194 27,440 99.77% Source: Dakota County Treasurer-Auditor (1) The total tax levy differs from actual levy certified to the County by the City because of fiscal disparity calculations done by the County after certification. (2) Delinquent tax collections are all delinquent collections during that tax year - not just for the delinquent collections of that calendar year. Schedule 8 City of Rosemount Property Tax Levies and Collections Last Ten Fiscal Years Page 84 Schedule 9 Business - Type Activities G.O. and G.O. and G.O. Property G.O. Tax Revenue Special G.O. Municipal G.O.Total Percentage Personal Tax Increment Equipment Supported Assessment State Aid Revenue Primary of Personal Per Year Population(1)Income(1)Supported(2)Supported(2)Certificates(2)(Port Auth.)(2)Supported(2)Supported(2)Bonds(2)Government Income Capita 2008 22,750 1,054,621,750$ 3,760,000$ 6,040,000$ 1,775,000$ 3,350,000$ 6,285,000$ -$ 6,850,000$ 28,060,000$ 2.66%1,233$ 2009 23,750 1,053,882,500 3,475,000 6,040,000 1,310,000 1,555,000 5,185,000 - 6,160,000 23,725,000 2.25%999 2010 21,874 988,529,808 3,185,000 6,040,000 760,000 2,820,000 4,275,000 - 6,965,000 24,045,000 2.43%1,099 2011 22,239 1,033,557,525 2,885,000 6,040,000 520,000 2,725,000 4,765,000 - 4,585,000 21,520,000 2.08%968 2012 22,432 1,118,167,904 2,575,000 6,005,000 265,000 1,355,000 5,140,000 - 3,785,000 19,125,000 1.71%853 2013 22,711 1,151,152,457 2,255,000 5,930,000 85,000 1,230,000 5,795,000 - 1,935,000 17,230,000 1.50%759 2014 23,044 1,202,366,788 2,010,000 5,820,000 - 1,105,000 7,180,000 - 1,400,000 17,515,000 1.46%760 2015 23,244 1,248,435,240 3,100,000 9,005,000 - 980,000 5,865,000 - 2,515,000 21,465,000 1.72%923 2016 23,574 1,266,159,540 1,416,281 8,905,469 - 855,000 4,150,000 - 2,172,292 17,499,042 1.38%742 2017 24,295 1,304,884,450 1,278,361 5,394,502 - 720,000 3,460,000 - 1,719,063 12,571,926 0.96%517 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) Population and personal income figures are taken from Schedule 14. (2) Figures taken from City of Rosemount bond documents. Governmental Activities City of Rosemount Ratios of Outstanding Debt by Type Last Ten Fiscal Years Page 85 Schedule 10 Percentage of Estimated Less Restricted Total Estimated Market G.O.Debt Service General Market Per Year Population(1)Value(2)Debt (3)Funds Bonded Debt Value Capita 2008 22,750 2,365,760,300$ 28,060,000$ 866,988$ 27,193,012$ 1.15%1,195$ 2009 23,750 2,367,003,800 23,725,000 2,038,321 21,686,679 0.92%913$ 2010 21,874 2,238,851,500 24,045,000 1,936,318 22,108,682 0.99%1,011$ 2011 22,239 2,113,658,000 21,520,000 1,605,726 19,914,274 0.94%895$ 2012 22,432 1,914,176,616 19,125,000 1,129,632 17,995,368 0.94%802$ 2013 22,711 1,866,877,179 17,230,000 737,907 16,492,093 0.88%726$ 2014 23,044 1,948,614,357 17,515,000 528,504 16,986,496 0.87%737$ 2015 23,244 2,127,597,965 21,465,000 5,151,437 16,313,563 0.77%702$ 2016 23,574 2,287,080,004 17,499,042 3,469,959 14,029,083 0.61%595$ 2017 24,295 2,434,763,942 12,571,926 177,759 12,394,167 0.51%510$ Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) Population figures are taken from Schedule 14. (2) Estimated Market Value figures are taken from Schedule 5. (3) Figures taken from City of Rosemount bond documents. General Bonded Debt Outstanding City of Rosemount Ratios of Net General Bonded Debt Outstanding Last Ten Fiscal Years Page 86 City of Rosemount Governmental Estimated Estimated Activities Percentage Amount Debt Applicable Applicable Governmental Units (1)Outstanding (2)(5)to City (4)to City Direct Debt: City of Rosemount 10,852,863$ 100.00%10,852,863$ Overlapping Debt: School Districts: I.S.D. 196 - Rosemount 170,005,000 14.60%24,820,730 I.S.D. 199 - Inver Grove Heights 60,495,000 5.60%3,387,720 I.S.D. 200 - Hastings 33,990,000 0.10%33,990 Regional: Metropolitan Council 10,910,000 (3)0.70%76,370 Total Overlapping Debt 275,400,000$ 28,318,810$ Total Direct & Overlapping Debt 286,252,863$ 39,171,673$ (1) Only those units with outstanding general obligation debt are shown here. (2) Excludes general obligation tax and aid anticipation certificates and revenue-supported debt. (3) Excludes general obligation debt supported by wastewater revenues and housing rental payments. Includes certificates of participation. (4) Percent of governmental unit within the City of Rosemount's boundaries calculated by the city's Financial Advisors, Springsted Inc. (5) The percentage of overlapping debt applicable is estimated using tax capacity. Applicable percentages were estimated by determining the portion of the governmental unit’s tax capacity that is within the City’s boundaries and dividing it by the governmental unit’s total tax capacity. Schedule 11 Direct and Overlapping Governmental Activities Debt As of December 31, 2017 Page 87 City of Rosemount Legal Debt Margin Calculation for Fiscal Year 2017 Estimated Market Value 2,434,763,942$ Debt Limitation - 3% of Estimated Market Value 73,042,918 Debt Applicable to Limitation: Total Bonded Debt 12,345,000$ Less: Special Assessment Bonds 3,460,000$ Tax Increment Bonds 5,305,000 Revenue Bonds 1,645,000 Port Authority Bonds 720,000 Amount Available for Repayment of G.O. Bonds 177,759 11,307,759 Total Debt Applicable to Limitation 1,037,241 Legal Debt Margin 72,005,677$ 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Estimated Market Value 2,365,760,300$ 2,367,003,800$ 2,238,851,500$ 2,113,658,000$ 1,914,176,616$ 1,866,877,179$ 1,948,614,357$ 2,127,597,965$ 2,287,080,004$ 2,434,763,942$ Debt Limit - 3% of Estimated Market Value 70,972,809 71,010,114 67,165,545 63,409,740 57,425,298 56,006,315 58,458,431 63,827,939 68,612,400 73,042,918 Total Net Debt Applicable to Debt Limit 4,668,012 2,746,679 2,008,682 1,799,274 1,710,368 1,602,093 1,481,496 1,298,857 1,184,483 1,037,241 Legal Debt Margin 66,304,797$ 68,263,435$ 65,156,863$ 61,610,466$ 55,714,930$ 54,404,222$ 56,976,935$ 62,529,082$ 67,427,917$ 72,005,677$ Legal debt margin as a percentage of the debt limit 93.42%96.13%97.01%97.16%97.02%97.14%97.47%97.97%98.27%98.58% Fiscal Year Schedule 12 Legal Debt Margin Information Last Ten Fiscal Years Page 88 Net Revenue Available Special Gross For Debt Assessment Year Revenue Expenses (1)Service Principal (2)Interest Total Coverage Collections Principal (3)Interest Total Coverage 2008 3,327,919$ 2,616,921$ 710,998$ 1,705,000$ 298,025$ 2,003,025$ 35.50%962,950$ 3,420,000$ 330,859$ 3,750,859$ 25.67% 2009 3,379,397 2,744,735 634,662 690,000 256,788 946,788 67.03%757,223 1,100,000 224,448 1,324,448 57.17% 2010 3,543,743 2,771,544 772,199 740,000 230,836 970,836 79.54%832,686 910,000 184,068 1,094,068 76.11% 2011 3,744,722 2,737,918 1,006,804 2,380,000 218,295 2,598,295 38.75%496,386 1,590,000 147,850 1,737,850 28.56% 2012 4,175,312 2,767,111 1,408,201 800,000 133,478 933,478 150.86%2,155,618 435,000 112,512 547,512 393.71% 2013 4,419,729 2,958,568 1,461,161 1,850,000 110,313 1,960,313 74.54%1,539,059 845,000 103,835 948,835 162.21% 2014 4,195,215 3,262,938 932,277 535,000 53,940 588,940 158.30%2,123,199 1,015,000 97,241 1,112,241 190.89% 2015 4,428,925 3,514,975 913,950 410,000 39,921 449,921 203.14%2,368,403 1,315,000 97,562 1,412,562 167.67% 2016 4,778,063 3,587,124 1,190,939 425,000 52,360 477,360 249.48%1,035,044 1,715,000 77,163 1,792,163 57.75% 2017 3,661,307 1,828,354 1,832,953 445,000 50,560 495,560 369.88%718,051 1,745,000 48,140 1,793,140 40.04% Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) Figure does not include depreciation expense. (2) 2008 includes call payments on 1996B & 1999C bonds, 2011 includes call payments on 2001B, 2002B & 2003B bonds and 2013 includes call payment on 2005C bonds. (3) 2008 includes call/defeasance program for 1999B & 2001A bonds and 2011 includes calls for 2002A & 2003A bonds. Debt Service Requirements City of Rosemount G.O. Revenue Bonds Debt Service Requirements Schedule 13 Pledged-Revenue Coverage Last Ten Fiscal Years G.O. Special Assessment Bonds Page 89 Schedule 14 City of Rosemount Demographic and Economic Statistics Last Ten Calendar Years Calendar Per Capita Personal School Unemployment Median Year Population (1)Income (2)Income (3)Enrollment (4)Rate (5)Age (6) 2008 22,750 46,357$ 1,054,621,750$ 4,623 6.1%36.1 2009 23,750 44,374 1,053,882,500 5,266 7.0%36.2 2010 21,874 45,192 988,529,808 5,179 6.3%36.7 2011 22,239 46,475 1,033,557,525 4,745 5.2%37.2 2012 22,432 49,847 1,118,167,904 4,860 4.8%37.5 2013 22,711 50,687 1,151,152,457 4,889 4.1%37.4 2014 23,044 52,177 1,202,366,788 4,910 3.2%36.8 2015 23,244 53,710 1,248,435,240 5,074 3.0%37.3 2016 23,574 53,710 1,266,159,540 5,181 3.4%37.3 2017 24,295 53,710 1,304,884,450 5,066 2.7%37.3 (1) 2010 is a regular decennial census figure. All years from 2008 and on (except for 2010) are the City staff's best estimates as of 12/31 of each year to give a more indicative estimate of the actual population. (2) These figures are provided by and are for Dakota County. These figures usually have a 2 to 3-year lag time so that is why the two most current years use the 2015 figure for computing the "Personal Income" figure. (3) These figures are derived by multiplying the City's population figure times Dakota County's per capita income figures. (4) School enrollment is the total number of students who reside within the Rosemount High School boundaries and go to Independent School District No. 196 schools located in Rosemount. The total school enrollment includes the total number of students with homes in the City of Rosemount. (5) Unemployment rates were compiled by the Minnesota Local Area Unemployment Statistics (LAUS) - for Dakota County. (6) These figures are provided by Dakota County. 2015's median age is the most current information available so 2016 & 2017 shown as the same age. Page 90 2017 2008 Percentage Percentage of Total of Total City City Employer Employees Rank Employment Employees Rank Employment Note: The City of Rosemount does not track this information and there are no sources at the County or State level to provide this information. Current Year and Nine Years Ago Schedule 15 City of Rosemount Principal Employers Page 91 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function/Program General Government Administration 4.50 4.50 4.50 4.50 3.50 3.50 3.50 3.50 4.50 4.50 Finance 4.50 4.30 4.30 4.30 4.30 4.30 4.55 4.55 4.55 4.55 Community Development 10.50 10.50 9.75 9.75 9.50 9.50 9.50 9.50 9.50 9.50 Police Sworn Officers 22.00 22.00 22.00 22.00 22.00 22.00 23.00 23.00 23.00 24.00 Non-Sworn Employees 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.00 3.00 3.00 Fire Firefighters and Officers 43.00 44.00 43.00 43.00 41.00 43.00 42.00 45.00 52.00 47.00 Public Works Building Maintenance - - - - 0.80 0.80 0.80 0.85 0.85 1.25 Fleet Maintenance 2.10 2.10 2.10 2.10 2.20 2.20 2.20 2.30 2.30 2.30 Street Maintenance 6.60 6.60 6.40 6.40 5.80 5.80 5.80 6.00 6.00 6.00 Parks Maintenance 5.60 5.60 5.60 5.60 4.60 4.60 4.60 4.65 4.65 5.00 Parks and Recreation Parks & Rec 9.50 9.50 9.50 9.50 9.50 9.50 9.50 9.50 10.25 10.25 Arena 1.80 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 Utilities Water 5.33 5.13 5.13 4.83 4.68 4.68 4.68 4.88 4.88 4.88 Sewer 5.33 5.13 5.13 4.83 4.68 4.68 4.68 4.88 4.88 4.88 Storm Water 2.25 2.30 2.30 2.10 2.10 2.10 2.10 2.30 2.30 2.55 126.25 126.76 124.81 124.01 119.75 121.75 122.00 125.75 134.50 131.50 Sources: Finance Department Note: Employees listed are full-time and permanent part-time employees. Seasonal and temporary positions are not included. Fiscal Year Schedule 16 City of Rosemount Full-Time/Permanent Part-Time City Government Employees by Function/Program Last Ten Fiscal Years Page 92 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function/Program General Government Total Permits Issued by the Building Department 3,389 2,366 2,400 2,359 2,251 2,471 2,879 2,677 3,033 3,136 Total Number of Inspections Conducted 5,774 4,572 4,311 4,048 3,553 4,296 4,618 5,467 5,927 5,425 Police Number of Calls for Service 16,105 16,354 14,432 14,554 14,346 13,730 15,538 16,894 16,691 16,194 Number of Patrol Miles 209,310 206,619 211,460 152,097 194,764 186,490 195,393 204,226 185,101 186,155 Adult Arrests 646 424 340 432 369 312 230 465 326 406 Juvenile Arrests 239 206 182 146 107 102 101 88 105 85 Traffic Violations 1,522 1,548 1,605 2,232 2,610 2,147 2,452 1,872 1,939 1,372 Parking Violations 160 307 284 296 378 436 197 207 271 88 Fire Number of Calls Answered 769 632 630 690 724 637 715 710 720 744 Fires Extinguished 5 59 34 n/a 34 52 35 38 33 38 60 Public Works Street Resurfacing (Miles)1.20 0.64 10.50 1.30 2.30 1.60 1.20 - 1.20 1.95 Park Acres Mowed 127 127 134 134 154 154 154 154 160 160 Parks and Recreation Overall Program Participation 14,000 14,200 14,500 14,500 14,500 15,000 15,000 15,200 15,200 15,200 Hours of Ice Time Used 2,545 2,466 2,577 2,515 2,577 2,479 2,378 2,670 2,678 2,805 Water Connections 6,188 6,273 6,381 6,431 7,464 7,576 7,701 7,827 7,938 8,107 Water Main Breaks - - - - - 1 1 2 1 1 Average Daily Consumption (In Gallons)2,494,238 2,569,474 2,261,972 2,344,546 2,665,979 2,412,638 2,233,593 2,227,616 2,520,915 2,530,849 Sewer Connections 6,170 6,255 6,363 6,414 6,505 6,614 6,734 6,857 6,968 7,050 Sources: Various City departments. Fiscal Year Schedule 17 City of Rosemount Operating Indicators by Function/Program Last Ten Fiscal Years Page 93 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function/Program General Government City Halls/Other Buildings 1 1 1 1 1 1 1 1 1 1 Police Stations 1 1 1 1 1 1 1 1 1 1 Patrol Units (Marked/Unmarked)9/4 9/4 9/4 9/4 9/4 9/4 8/6 9/6 9/6 10/6 Fire Stations 2 2 2 2 2 2 2 2 2 2 Fire Units (Vehicles & Trailer)14 14 14 14 14 15 15 15 16 16 Public Works Buildings 3 3 3 3 3 3 3 3 3 3 City Maintained Streets (Miles)102 103 103 103 105 106 108 110 110 113 Street Lights 1,300 1,488 1,500 1,500 1,510 1,520 1,539 1,561 1,568 1,599 Parks and Recreation Community Centers 1 1 1 1 1 1 1 1 2 2 Shelters/Other Buildings 3 3 3 3 3 3 3 3 3 3 Acreage 430 440 440 467 467 534 533 533 540 540 Parks 26 27 27 28 28 27 29 29 30 30 Playgrounds 19 20 20 20 20 20 21 21 21 21 Baseball/Softball Diamonds 19 20 20 20 22 23 23 23 24 24 Soccer/Football Fields 13 16 16 16 16 19 19 19 20 20 Tennis Courts 6 8 8 8 8 8 12 12 12 12 Water Water Mains (Miles)119 122 122 125 127 129 130 130 134 140 Wells (Municipal/Rural)7 8 8 8 8 8 8 8 8 8 Water Towers 4 4 4 4 4 4 4 4 4 4 Fire Hydrants 1,279 1,281 1,330 1,342 1,342 1,366 1,412 1,420 1,445 1,458 Storage Capacity 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 Maximum Pumping Capacity 10,994,000 12,096,000 12,096,000 12,096,000 12,096,000 12,096,000 12,096,000 12,384,000 12,384,000 12,384,000 Sewer Sanitary Sewer Mains (Miles)90 91 91 95 97 98 98 98 106 103 Storm Sewer Mains (Miles)81 82 84 84 86 86 88 89 91 105 Public Education Facilities: Number of Elementary Schools 2 2 2 2 2 2 2 2 2 2 Number of Secondary Schools 2 2 2 2 2 2 2 2 2 2 Number of Special Education Schools 1 2 2 2 2 2 2 2 2 2 (Dakota County Technical College) Sources: Various City departments. Fiscal Year Schedule 18 City of Rosemount Capital Asset Statistics by Function/Program Last Ten Fiscal Years Page 94 Management Report for City of Rosemount, Minnesota December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK C ERTIFIED A CCOUNTANTS 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 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 To the City Council and Management City of Rosemount, Minnesota We have prepared this management report in conjunction with our audit of the City of Rosemount, Minnesota’s (the City) financial statements for the year ended December 31, 2017. We have organized this report into the following sections: • Audit Summary • Governmental Funds Overview • Enterprise Funds Overview • Government-Wide Financial Statements • Legislative Updates • Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the City, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota May 7, 2018 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, each major fund, and the aggregate remaining fund information of the City as of and for the year ended December 31, 2017, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America 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 and 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, 2017: • 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 consider to be a significant deficiency. 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 that are required to be reported under Government Auditing Standards. • We reported one finding based on our testing of the City’s compliance with Minnesota laws and regulations. We noted that a withholding affidavit was not obtained from the contractor prior to the final payment being made on one contract as required by Minnesota Statutes § 270C.66. 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, 201 7, we performed procedures to follow-up on the findings and recommendations that resulted from our prior year audit. We reported the following finding that was corrected by the City in the current year: • In the prior year audit, we reported that 1 of 40 claims tested was not paid within 35 days of the receipt of goods or services, or receipt of the invoice for goods or services, as required by state statutes. Based on testing performed, this was not a finding in the current year. -2- 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 the basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2017; however, the City implemented the following governmental accounting standards during the fiscal year: • Governmental Accounting Standards Board (GASB) Statement No. 79, Certain External Investment Pools and Pool Participants, which enhanced disclosures regarding investments. • GASB Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73, which addressed certain issues related to pension reporting and disclosures. 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 estimates affecting the financial statements were: • Depreciation – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets. • Compensated Absences – Management’s estimate is based on current rates of pay and balances for compensated absences. • Pension Benefits – The City has recorded liabilities and activities for pension benefits. Actuarial estimates of the net pension liabilities are calculated using actuarial methodologies described in GASB Statement No. 68. The actuarial calculations include significant assumptions, including projected changes, investment returns, retirement ages, proportionate share, and employee turnover. We evaluated the key factors and assumptions used by management to develop these 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. Where applicable, management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management, when applicable, were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. -3- 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 May 7, 2018. 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 applied certain limited procedures to the management’s discussion and analysis and the remaining required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual fund statements and schedules, reported as supplementary information accompanying the financial statements, which are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements, but are not RSI. 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. -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 2016 fiscal year, local ad valorem property tax levies provided 39.8 percent of the total governmental fund revenues for cities over 2,500 in population, and 36.4 percent for cities under 2,500 in population. The total market value of property in Minnesota cities increased about 5.6 percent for the 2017 levy year, which followed an increase of 5.7 percent for levy year 2016. The market values used for levying property taxes are based on the previous fiscal year (e.g., market values for taxes levied in 2017 were based on assessed values as of January 1, 2016), so the trend of change in these market values lags somewhat behind the housing market and economy in general. The City’s estimated market value increased 7.5 percent for taxes payable in 2016 and increased 6.5 percent for taxes payable in 2017. The following graph shows the City’s changes in estimated market value over the past 10 years: $– $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Estimated 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 7.0 percent for 2016 and 6.3 percent for 2017. The following graph shows the City’s change in tax capacities over the past 10 years: $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Taxable Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years, along with comparative state-wide and metro area average rates from the two most recent years for which the information is available: 2015 2016 2015 2016 2015 2016 2017 Average tax rate City 46.9 46.5 43.4 43.0 45.2 43.1 41.8 County 44.7 44.1 42.9 42.3 29.6 28.6 28.0 School 27.1 27.5 28.3 28.6 24.1 24.7 23.3 Special taxing 6.9 6.9 8.8 8.7 5.0 5.1 4.9 Total 125.6 125.0 123.4 122.6 103.9 101.5 98.0 Note: State-wide and metro area average tax rates are not available for 2017. Rates Expressed as a Percentage of Net Tax Capacity State-Wide Metro Area City of Rosemount All Cities Seven-County The improvement in tax capacity values previously discussed, contributed to the decrease in the City’s average tax rate presented in the table above. -6- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2017, presented both by fund balance classification and by fund: Increase 2017 2016 (Decrease) Fund balances of governmental funds Total by classification Nonspendable 444$ 10,113$ (9,669)$ Restricted 4,854,162 9,301,251 (4,447,089) Committed 230,162 181,276 48,886 Assigned 13,026,932 11,367,472 1,659,460 Unassigned 7,333,743 6,918,833 414,910 Total – governmental funds 25,445,443$ 27,778,945$ (2,333,502)$ Total by fund General 9,556,250$ 9,888,534$ (332,284)$ Debt Service 2,983,348 4,307,191 (1,323,843) Capital Projects 10,804,425 8,407,771 2,396,654 Port Authority TIF 1,849,055 4,994,060 (3,145,005) Nonmajor funds 252,365 181,389 70,976 Total – governmental funds 25,445,443$ 27,778,945$ (2,333,502)$ as of December 31, Governmental Funds Change in Fund Balance Fund Balance In total, the fund balances of the City’s governmental funds decreased by $2,333,502 during the year ended December 31, 2017. The largest changes were in restricted and assigned fund balances as noted in the table above. Fund balances restricted for the Debt Service Fund and the Port Authority TIF Fund decreased by $1,323,843 and $3,145,005, respectively. The City’s use of refunding bond proceeds and scheduled debt payments contributed to the decrease in restricted fund balances. Fund balance assigned for various projects/equipment and building CIP increased by a total of $1,975,182, accounting for a majority of the change in this category. -7- GOVERNMENTAL FUNDS REVENUES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the management’s discussion and analysis. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Year 2015 2016 2017 Population 2,500–10,000 10,000–20,000 20,000–100,000 23,244 23,574 24,295 Property taxes 460$ 432$ 455$ 460$ 463$ 466$ Tax increments 26 26 42 31 34 34 Franchise and other taxes 35 43 45 11 11 11 Special assessments 59 44 59 102 44 30 Licenses and permits 35 33 42 30 34 31 Intergovernmental revenues 313 275 152 38 29 50 Charges for services 110 92 103 144 120 142 Other 91 57 54 58 26 68 Total revenue 1,129$ 1,002$ 952$ 874$ 761$ 832$ December 31, 2016 City of RosemountState-Wide Governmental Funds Revenue per Capita With State-Wide Averages by Population Class The City’s governmental fund revenues for 2017 were $20,205,109, an increase of $2,298,701 (12.8 percent) from the prior year. On a per capita basis, the City received $832 in governmental fund revenue for 2017, an increase of $71 from the prior year. A city’s stage of development, along with the way a city finances various capital projects, will impact the mix of revenue sources it receives. The largest change in the table above occurred in the other category of revenues, which increased $42 per capita from the prior year. Charges for services increased by $22 per capita. The increases in the other and charges for services sources of revenues were primarily in increased activity in the Capital Projects Fund in the current year. Intergovernmental sources increased $21 per capita from the prior year with more municipal state aid construction funds in the current year. Special assessment revenue decreased with less prepayments on assessed projects in the current year compared to the prior year. -8- GOVERNMENTAL FUND EXPENDITURES The expenditures of governmental funds will also vary from state-wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows:  Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources such as taxes and intergovernmental revenues.  Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects.  Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with state-wide averages, are presented in the following table: Year 2015 2016 2017 Population 2,500–10,000 10,000–20,000 20,000–100,000 23,244 23,574 24,295 Current General government 145$ 114$ 97$ 122$ 126$ 134$ Public safety 263 250 273 173 173 177 Streets and highways 126 123 95 127 127 170 Parks and recreation 93 109 95 56 64 64 All other 74 77 91 – – – Total current 701 673 651 478 490 545 Capital outlay and construction 381 370 301 294 216 234 Debt service Principal 196 163 115 149 92 92 Interest and fiscal 48 38 34 25 21 16 Total debt service 244 201 149 174 113 108 Total expenditures 1,326$ 1,244$ 1,101$ 946$ 819$ 887$ December 31, 2016 State-Wide Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class City of Rosemount Total expenditures in the City’s governmental funds for 2017 were $21,549,873, an increase of $2,230,282 (11.5 percent) from the prior year. On a per capita basis, the City expended a total of $887 in 2017, an increase of $68 from the previous year. As the above table reflects, the City’s expenditures per capita have historically been below the state-wide average. The largest changes occurred in streets and highways and capital outlay spending compared to the prior year. Streets and highways spending increased with scheduled wage and benefit increases, street improvement, and maintenance approved for the current year. Capital outlay and construction increased primarily due to the timing of projects that fluctuate from year-to-year. -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 culture 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 revenues to reflect the change in the size of the General Fund operation over the same period. 2013 2014 2015 2016 2017 Fund Balance $8,361,151 $9,163,647 $9,557,677 $9,888,534 $9,556,250 Cash (Net)$8,205,058 $9,145,098 $9,694,642 $10,397,380 $10,130,901 Revenue $10,656,732 $12,016,858 $11,997,352 $12,409,954 $12,669,945 $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 General Fund Financial Position Year Ended December 31, The City’s General Fund cash and investments balance at December 31, 2017 was $10,130,901, a decrease of $266,479 from the previous year. Total fund balance at year-end was $9,556,250, a decrease of $332,284 from the prior year. 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 fluctuated. 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; allo ws 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 77 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 2017 fiscal year represents approximately 56 percent of annual expenditures based on projected 2018 levels. -10- The following graph reflects the City’s General Fund revenue sources for 2017 compared to budget: $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 Taxes Licenses and Permits Intergovernmental Charges for Services Other General Fund Revenue –Budget and Actual (Budgetary Basis) Actual Budget General Fund revenue for 2017 was $12,669,945, which was $243,846 (2.0 percent) more than budget. Favorable variances in every category, due in part to conservative budgeting, contributed to the overall revenue variance. Licenses and permits were over budget with more building permit activity than expected. Intergovernmental revenue exceeded budget with the recognition of various local government grants that were not anticipated in the final budget. The City had more charges for services revenue than expected, with an increase in other highway and street revenue related to volume of activity. Other also ended the year with actual sources coming in over budget ($57,574), as presented in the graph above. The following graph presents the City’s General Fund revenues by source for the last five years . The graph reflects the City’s reliance on property and other taxes, which represented 77 percent of General Fund revenues in 2017: Taxes Intergovernmental All Other 2013 $8,865,223 $318,986 $1,472,523 2014 $9,060,134 $342,158 $2,614,566 2015 $9,185,173 $459,069 $2,353,110 2016 $9,397,523 $596,817 $2,415,614 2017 $9,750,637 $417,036 $2,502,272 $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 General Fund Revenue by Source Year Ended December 31, Total General Fund revenue for 2017 was $259,991 (2.1 percent) more than last year. Taxes increased by $353,114, due to an increase in the approved tax levy. Intergovernmental revenue was $179,781 less than last year with a Safe Routes to School Grant recognized in the prior year. Remaining revenue sources of the General Fund were $86,658 more than 2016, due to increasing charges for services and investment earnings sources. -11- The following graph illustrates the components of General Fund spending for 2017 compared to budget: $– $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 General Government Public Safety Public Works Parks and Recreation Capital Outlay General Fund Expenditures –Budget and Actual (Budgetary Basis) Actual Budget General Fund expenditures for 2017 on a budgetary basis were $12,049,104, which was $250,495 (2.0 percent) less than budget. City efforts to maintain fiscal responsibility and spend within approved appropriations contributed to the expenditure variance. Savings in general government, public safety, and public works, more than offset the parks and recreation and capital outlay spending in excess of budget. The following graph presents the City’s General Fund expenditures by function for the last five years: General Government Public Safety Public Works Parks and Recreation Capital Outlay 2013 $2,311,356 $3,604,213 $3,250,244 $1,321,946 $1,865 2014 $2,509,554 $3,762,826 $3,165,615 $1,304,867 $– 2015 $2,589,416 $4,014,411 $2,940,423 $1,298,271 $146,924 2016 $2,769,172 $4,072,189 $3,002,678 $1,516,720 $591,931 2017 $3,035,701 $4,306,808 $3,900,699 $1,546,723 $68,105 $– $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 General Fund Expenditures by Function Year Ended December 31, Total General Fund expenditures for 2017 on an accounting principles generally accepted in the United States of America-basis were $905,346 (7.6 percent) more than the previous year. Public works increased with increased spending on parking lot improvements. Natural inflationary adjustments also contributed to the overall increase in expenditures. Capital outlay in the General Fund decreased significantly due to one-time grant spending in the prior year. -12- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which include the Water, Sewer, Storm Water, and Arena Funds. The utility funds comprise a considerable portion of the City’s activities . These funds help to defray overhead and administrative costs and provide additional support to general government operations by way of annual transfers. We understand that the City is proactive in reviewing these activities on an ongoing basis and we want to reiterate the importance of continually monitoring these operations. Over the years, we have emphasized to our city clients the importance of these utility operations being self-sustaining, preventing additional burdens on general government funds . This would include the accumulation of net position for future capital improvements and to provide a cushion in the event of a negative trend in operations. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2017, presented both by classification and by fund: Increase 2017 2016 (Decrease) Net position of enterprise funds Total by classification Net investment in capital assets 97,328,281$ 98,722,624$ (1,394,343)$ Unrestricted 23,521,090 21,739,120 1,781,970 Total – enterprise funds 120,849,371$ 120,461,744$ 387,627$ Total by fund Water 42,351,012$ 41,926,578$ 424,434$ Sewer 34,585,434 34,875,309 (289,875) Storm Water 42,133,934 41,964,655 169,279 Arena 1,778,991 1,695,202 83,789 Total – enterprise funds 120,849,371$ 120,461,744$ 387,627$ Enterprise Funds Change in Financial Position Net Position as of December 31, In total, the net position of the City’s enterprise funds increased by $387,627 during the year ended December 31, 2017. The increase in net position is primarily related to connection fees and capital contributions recognized in the current year. -13- WATER FUND At December 31, 2017, the Water Fund had a cash balance (net of borrowing) of $10,121,357 and total net position of $42,351,012. Of this net position total, $33,098,696 is the investment in capital assets, while unrestricted has a balance of $9,252,316. The following graph shows the financial position of the Water Fund over the past five years: $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 2013 2014 2015 2016 2017 Water Fund Financial Position Year Ended December 31, Cash, Net of Interfund Loans Total Net Position Operating Revenue The following graph shows the operating results of the Water Fund over the last five years: $– $250,000 $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000 $1,750,000 $2,000,000 $2,250,000 $2,500,000 2013 2014 2015 2016 2017 Water Fund Operating Results Year Ended December 31, Operating Expenses Operating Revenue The Water Fund maintains a healthy financial position. During fiscal 2017, the Water Fund recognized operating income of $231,084, compared to an operating loss of $138,793 in fiscal 2016. The increase in operating revenue was due to a combination of higher rates and usage in the current year. Consumption will fluctuate from year-to-year based on many factors, including weather patterns and the number of utility customers. The City should continue to review utility rates during its annual budget process to make sure an adequate, yet fair rate is charged for the services provided. -14- SEWER FUND At December 31, 2017, the Sewer Fund had a cash balance (net of borrowing) of $6,453,944 and total net position of $34,585,434. Of this net position total, $27,868,803 is the investment in capital assets, while $6,716,631 is unrestricted. The following graph shows the financial position of the Sewer Fund over the past five years: $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 2013 2014 2015 2016 2017 Sewer Fund Financial Position Year Ended December 31, Cash, Net of Interfund Loans Total Net Position Operating Revenue The following graph shows the operating results of the Sewer Fund for the last five years: $– $250,000 $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000 $1,750,000 $2,000,000 $2,250,000 $2,500,000 $2,750,000 $3,000,000 2013 2014 2015 2016 2017 Sewer Fund Operating Results Year Ended December 31, MCES Costs Other Operating Expenses Operating Revenue The major expense of the sanitary sewer operation is the charge from the Metropolitan Council Environmental Services (MCES). The main cause of the expense fluctuations from year-to-year, shown on the graph above, are generally changes made to the charges from the MCES, reflecting the results of its sewer treatment operations. During fiscal 2017, the Sewer Fund reported an operating loss of $970,774, compared to an operating loss of $1,032,156 in fiscal 2016. An increase in rates and users contributed to the growth in operating revenue in the current year. The City should continue to review utility rates during its annual budget process to make sure an adequate, yet fair rate is charged for the services provided. -15- STORM WATER FUND At December 31, 2017, the Storm Water Fund had a cash balance of $6,897,231 and total net position of $42,133,934. Of this net position total, $34,930,601 is the investment in capital assets, while $7,203,333 is unrestricted. The following graph shows the financial position of the Storm Water Fund over the past five years: $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 2013 2014 2015 2016 2017 Storm Water Fund Financial Position Year Ended December 31, Cash, Net of Interfund Loans Total Net Position Operating Revenue The following graph shows the operating results of the Storm Water Fund for the last five years: $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 2013 2014 2015 2016 2017 Storm Water Fund Operating Results Year Ended December 31, Operating Expenses Operating Revenue The Storm Water Fund has been near break-even operating results most of the past five years, as presented in the table above. The Storm Water Fund maintains a healthy financial position. During fiscal 2017, the Storm Water Fund reported operating income of $33,356, compared to an operating loss of $43,436 in fiscal 2016. An increase in rates and customers contributed to the change in current year operations. -16- ARENA FUND At December 31, 2017, the Arena Fund had a cash balance of $525,826 and total net position of $1,778,991. Of this net position total, $1,430,181 is the investment in capital assets, while $348,810 is unrestricted. The following graph shows the financial position of the Arena Fund over the past five years: $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 2013 2014 2015 2016 2017 Arena Fund Financial Position Year Ended December 31, Cash, Net of Interfund Loans Total Net Position Operating Revenue The following graph shows the operating results of the Arena Fund for the last five years: $– $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000 2013 2014 2015 2016 2017 Arena Fund Operating Results Year Ended December 31, Operating Expenses Operating Revenue During fiscal 2017, the Arena Fund reported an operating loss of $43,844, compared to an operating loss of $80,865 in fiscal 2016. After investment earnings of $1,133 and net transfers in of $126,500, net position increased by $83,789. -17- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government -wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide financial statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what the City owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, net position is divided into three components: net investment in capital assets, restricted, and unrestricted. • Net Investment in Capital Assets – The portion of net position reflecting equity in capital assets (i.e., capital assets minus related debt). • Restricted Net Position – The portion of net position equal to resources whose use is l egally restricted minus any noncapital-related liabilities payable from those same resources. • Unrestricted Net Position – The residual balance of net position after the elimination of net investment in capital assets and restricted net position. The following table presents the components of the City’s net position as of December 31, 2017 and 2016, for governmental activities and business-type activities: Increase 2017 2016 (Decrease) Net position Governmental activities Net investment in capital assets 74,294,033$ 69,942,544$ 4,351,489$ Restricted 7,151,722 7,113,065 38,657 Unrestricted 14,090,028 13,100,682 989,346 Total governmental activities 95,535,783 90,156,291 5,379,492 Business-type activities Net investment in capital assets 97,328,281 98,722,624 (1,394,343) Unrestricted 23,521,090 21,739,120 1,781,970 Total business-type activities 120,849,371 120,461,744 387,627 Total net position 216,385,154$ 210,618,035$ 5,767,119$ As of December 31, The City’s total net position at December 31, 2017 was $5,767,119 more than the previous year. Governmental activities increased $5,379,492 and business-type activities increased $387,627. The change in components of governmental activity net position reflects the City’s continued investment in street infrastructure in the current year. Capital contributions from developers also increased the net investment in capital assets of governmental activities. The increase in business-type activities net position reflects the Enterprise Fund activity previously discussed. At the end of the current fiscal year, the City is able to present positive balances in all categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. -18- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net positions. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2017 and 2016: 2016 Program Expenses Revenues Net Change Net Change Net (expense) revenue Governmental activities General government 3,859,090$ 3,287,782$ (571,308)$ (1,277,217)$ Public safety 5,170,637 507,905 (4,662,732) (4,927,872) Public works 5,822,738 3,681,013 (2,141,725) (1,498,613) Culture, education, and recreation 2,042,299 781,171 (1,261,128) (1,564,086) Conservation and economic development 4,315 58,629 54,314 27,032 Interest and fiscal changes 308,567 – (308,567) (476,121) Business-type activities Water 2,175,626 3,342,138 1,166,512 1,683,334 Sewer 2,837,550 2,330,885 (506,665) 407,264 Storm water 1,275,073 1,904,647 629,574 1,148,193 Arena 484,903 441,059 (43,844) (80,865) 23,980,798$ 16,335,229$ (7,645,569) (6,558,951) General revenues Taxes 12,684,370 12,206,665 Unrestricted investment earnings 557,024 327,160 Other 171,294 103,394 13,412,688 12,637,219 5,767,119 6,078,268 Net position – beginning 210,618,035 204,539,767 Net position – ending 216,385,154$ 210,618,035$ 2017 Total net (expense) revenue Total general revenues Change in net position 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 investment earnings. In contrast, the City’s business-type activities tend to rely more heavily on program revenues like charges for services (sales) and program-specific grants to cover expenses. This is critical given the current downward pressures on the general revenue sources. The change in net (expense) revenue, presented in the table above, when compared to the prior year is primarily due to the amount of developer contributions recognized from year-to-year. These contributions fluctuate with the size and number of completed development projects. -19- LEGISLATIVE UPDATES The 2017 legislative session began with a full agenda, which included adopting a fiscal year 2018–2019 biennial state budget. The February 2017, state budget forecast projected that the state General Fund would end the 2016–2017 biennium with a surplus of $743 million, eliminating the need for budget cuts or transfers to balance the fund. However, the Legislature was expected to address several significant spending areas for which successful funding appropriations had not been passed in recent legislative sessions. The 2017 regular legislative session ended with four omnibus budget bills being vetoed, potentially leaving a number of these same areas without appropriations. After a three-day special session, the Governor and Legislature were able to agree on budget and appropriation bills addressing most of the state budgetary needs for the upcoming biennium, albeit not without se veral line item vetoes invoked by the Governor, including striking the appropriations for operating the House and Senate from the bills. The following is a summary of recent legislation affecting Minnesota cities: Omnibus Bonding Bill – The omnibus bonding bill authorizes financing for approximately $1.1 billion in capital improvements. Included in the approved funding was $255 million for transportation infrastructure, $83 million for economic development, $116 million for Public Financing Agency water infrastructure loans and grants to municipalities, and $4 million for Metropolitan Council inflow and infiltration improvement grants to metro area cities. Omnibus Transportation Bill – The omnibus transportation bill appropriates $2.95 billion in fiscal 2018 and $2.87 billion in fiscal 2019, for a wide variety of transportation related projects. Included in the appropriations are approximately $191 million and $198 million for municipal state aid street fund purposes in fiscal 2018 and fiscal 2019, respectively. Property Tax Relief – The omnibus tax bill contained a number of property tax relief measures, including: • Elimination of the implicit price deflator annual increase for the state general property tax levy, effectively freezing it at the payable 2018 level for many property classes; • Exempting the first $100,000 of each commercial-industrial parcel’s tax capacity from the state general property tax levy; • Expanding eligibility for homestead or agricultural property classification exemptions for certain types of resort and conservation property for general property taxes; and • Increasing the minimum value for a storage shed, deck, or similar structure on a leased mobile home to be considered taxable from $1,000 to $10,000. Local Government Aid – The annual appropriation for Local Government Aid (LGA) for cities was increased $15.0 million to $534.4 million for aid payable in 2018 and thereafter, and the LGA payment schedule was accelerated for fiscal 2019 only. Several corrections were also made to the city LGA formula calculation, and a sparsity adjustment was incorporated for certain medium and small cities beginning in 2018. Minnesota Investment Fund – The omnibus jobs and economic growth bill appropriates $12.5 million for each year of the biennium for the Minnesota Investment Fund, which is available for municipalities to provide loans to assist with the expansion of local businesses. Electronic Funds Transfers – Effective August 1, 2017, home rule charter cities of the second, third, or fourth class are added to the list of local government entities allowed to pay certain claims using electronic funds transfers. To be eligible, local governments must enact specified policy controls governing the initiation, authorization, and documentation of electronic funds transfers. Claims Declaration – The requirement to obtain a specific form of written claim declaration was also repealed based on the understanding that by making the claim, the party making the claim is declaring that the claim is just and correct and has not been paid previously. -20- City E-mail Address Required to Receive State Aid – Effective for state aids payable in 2018 and thereafter, cities will be required to register an official e-mail address with the Commissioner of the state Department of Revenue in order to receive state aid payments. Workforce Housing Tax Increment Financing – The omnibus tax bill created a new authorized use of tax increment financing (TIF), for workforce housing in cities located outside of the statutorily d efined metropolitan area that meet certain criteria. Tax Increment Financing Interfund Loans – Interfund loan provisions for TIF were amended to make it easier for cities and development authorities to make and document interfund loans. Loans may now be made or documented up to 60 days after the actual transfer or expenditure occurs. Interfund loan resolutions may now be passed prior to the final approval of the related TIF plan. Loan terms may be amended after the loan has been made if the TIF district has not been decertified. Public Debt – The Legislature passed several amendments to statutes governing public debt that took effect on July 1, 2017, including: • Allowing both home rule charter and statutory cities to issue 20-year capital notes for projects to eliminate R-22 Freon-based refrigerant; • Increasing the maximum dollar limit on Housing and Redevelopment Authority general obligation bond issues from $3 million to $5 million; and • Modifying the requirements for street reconstruction bonds to be approved by a two-thirds majority of the governing body rather than requiring unanimous approval. Local Housing Trust Funds – The omnibus jobs and economic growth appropriations bill established authority for cities to create a local housing trust fund by ordinance, or to participate in a joint powers agreement to establish a regional housing trust fund. The funds, which may be financed from sources such as local government appropriations or housing and redevelopment authority levies, may be used for grants or loans for development, rehabilitation, financing of housing to match federal or state or private funds for housing, down payment assistance, rental assistance, or homebuyer counseling. Long-Term Equity Investment Authority – Effective July 1, 2017, cities with a population of more than 100,000 or those that had their most recently issued general obligation bonds rated in the highest category, are authorized to invest in an expanded list of authorized investments that includes certain equity-based investments. The amount invested in equity-based investments cannot exceed 15 percent of the sum of a city’s assigned cash, cash equivalents, deposits, and investments. Before investing in the expanded list of authorized investments, the governing body of the municipality must adopt a resolution acknowledging the risks assumed. Border-to-Border Broadband Grants – The Legislature appropriated $20 million in fiscal 2018 for the Border-to-Border Broadband Grant Program. The grants, available through the Office of Broadband Development in the Department of Employment and Economic Development, provide funding to help communities meet state goals for the development of state-wide, high-speed broadband access, focusing on areas currently considered to be underserved or with a high concentration of low-income households. Elections – An omnibus elections law was passed making several modifications to election administration, including: requiring special elections conducted by local governments be held on one of five uniform election dates, clarifying the timeline for municipalities to change from odd to even-year election cycles or vise-versa, allowing municipalities to canvass the results of a primary election on the second or third day after the primary, and appropriating $7 million for grants to replace aging election equipment or purchase electronic poll books. -21- Workers’ Compensation and PERA Retirement Benefits – A statutory change was adopted based on the results of recent court rulings that Public Employees Retirement Association (PERA) retirement benefits should not be offset against workers’ compensation permanent total disability benefits. Under the new law, claimants would receive all past and future permanent and total disability benef its without a PERA retirement offset. Notice of Proposed Ordinances – A new statute was created requiring cities to provide a 10-day notice prior to a scheduled final vote on most new proposed ordinances or amendments to ordinances, and specifying the various acceptable means of providing the required notification. State Building Code Applicability – Construction, additions, and alterations to places of public accommodation; defined as publicly or privately-owned facilities designed for occupancy by 200 or more people as a sports or entertainment arena, stadium, theater, community or convention hall, special event center, indoor amusement facility or water park, or indoor swimming pool; must comply with the state building code. Sunday Liquor Sales – Minnesota Statutes were amended to allow for the sale of intoxicating liquor on Sundays between the hours of 11:00 a.m. and 6:00 p.m. by off-sale licensees, effective July 1, 2017. REAL ID Act – Minnesota Statutes were amended to make the state compliant with federal REAL ID Act requirements, which will change identity verification and security related to state-issued identification cards and driver’s licenses. THIS PAGE INTENTIONALLY LEFT BLANK -22- ACCOUNTING AND AUDITING UPDATES GASB STATEMENT NO. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with other post-employment benefits (OPEB), as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. Similar to changes implemented for pensions, this statement requires the liability of employer and nonemployer contributing entities to employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. Note disclosure and RSI requirements about defined benefit OPEB also are addressed. The requirements for this statement are effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. GASB STATEMENT NO. 83, CERTAIN ASSET RETIREMENT OBLIGATIONS This statement addresses accounting and financial reporting for certain asset retirement obligations (ARO), which are legally enforceable liabilities associated with the retirement of a tangible capital asset. This statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for ARO. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability when it is both incurred and reasonably estimable. The measurement of an ARO is required to be based on the best estimate of the current value of outlays expected to be incurred, and a deferred outflow of resources associated with an ARO is required to be measured at the amount of the corresponding liability upon initial measurement. This statement requires the current value of a government’s AROs to be adjusted for the effects of general inflation or deflation at least annually, and a government to evaluate all relevant factors at le ast annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. A government should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays. Deferred outflows of resources should be reduced and recognized as outflows of resources in a systematic and rational manner over the estimated useful life of the tangible capital asset. If a government owns a minority interest in a jointly owned tangible asset where a nongovernmental entity is the majority owner or has operational responsibility for the jointly owned asset, the government’s minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability measurement and recognition requirements of this statement. -23- The statement also requires disclosures of any funding or financial assurance requirements a government has related to the performance of asset retirement activities, along with any assets restricted for the payment of the government’s AROs. This statement also requires disclosure of information about the nature of a government’s AROs, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor. This statement requires similar disclosures for a government’s minority shares of AROs. The requirements of this statement are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 84, FIDUCIARY ACTIVITIES This statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and post-employment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements, which should present a statement of fiduciary net position and a statement of changes in fiduciary net position. This statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private -purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds. This statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources, defined as when a demand for the resources has been made or when no further action, approval, or c ondition is required to be taken or met by the beneficiary to release the assets. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 85, OMNIBUS 2017 The objective of this statement is to address issues that have been identified during implementation and application of certain GASB statements. The statement addresses a variety of topics, including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits (pensions and OPEB). The statement is meant to enhance consistency in the application of recent accounting and financial reporting standards. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. -24- GASB STATEMENT NO. 86, CERTAIN DEBT EXTINGUISHMENT ISSUES Current GASB guidance requires that debt be considered defeased in substance when the debtor irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. This new standard establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. The primary objective of this statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources—resources other than the proceeds of refunding debt—are placed in an irrevocable trust for the sole purpose of extinguish ing debt. This statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. GASB STATEMENT NO. 87, LEASES A lease is a contract that transfers control of the right to use another entity’s nonfinancial asset as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this statement. Governments enter into leases for many types of assets. Under the previous guidance, leases were classified as either capital or operating depending on whether the lease met any of four tests. In many cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease financing transactions. The goal of this statement is to better meet the information needs of users by improving accounting and financial reporting for leases by governments. It establishes a single model for leas e accounting based on the principle that leases are financings of the right to use an underlying asset. This statement increases the usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. Under this statement, a lessee is required to recognize a lease liability and an intangible right -to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. To reduce the cost of implementation, this statement includes an exception for short-term leases, defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probabil ity of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. THIS PAGE INTENTIONALLY LEFT BLANK CITY OF ROSEMOUNT DAKOTA COUNTY, MINNESOTA Special Purpose Audit Reports Year Ended December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK Page Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 1–2 Independent Auditor’s Report on Minnesota Legal Compliance 3 Schedule of Findings and Responses 4–5 Table of Contents CITY OF ROSEMOUNT Special Purpose Audit Reports Year Ended December 31, 2017 DAKOTA COUNTY, MINNESOTA THIS PAGE INTENTIONALLY LEFT BLANK C ERTIFIED A CCOUNTANTS 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 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 -1- INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the City Council and Management City of Rosemount, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rosemount, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated May 7, 2018. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropri ate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify one deficiency in internal control, described in the accompanying Schedule of Findings and Responses as item 2017-001, that we consider to be a significant deficiency. (continued) -2- COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. CITY’S RESPONSE TO THE FINDING The City’s response to the finding identified in our audit is described in the accompanying Schedule of Findings and Responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota May 7, 2018 C ERTIFIED A CCOUNTANTS 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 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 -3- INDEPENDENT AUDITOR’S REPORT ON MINNESOTA LEGAL COMPLIANCE To the City Council and Management City of Rosemount, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rosemount, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated May 7, 2018. MINNESOTA LEGAL COMPLIANCE The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statutes § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities, except as described in the Schedule of Findings and Responses as item 2017-002. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City’s noncompliance with the above referenced provisions. CITY’S RESPONSE TO THE FINDING The City’s response to the finding identified in our audit is described in the accompanying Schedule of Findings and Responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota May 7, 2018 CITY OF ROSEMOUNT Schedule of Findings and Responses Year Ended December 31, 2017 -4- A. FINDINGS – SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER FINANCIAL REPORTING 2017-001 INADEQUATE SEGREGATION OF DUTIES Criteria – Internal control over financial reporting. Condition – The City of Rosemount, Minnesota (the City) has limited segregation of duties in a number of areas. Context – This is a current year and prior year finding. Cause – The limited segregation of duties is primarily caused by the limited size of the City’s business office staff. Effect – One important element of internal accounting controls is an adequate segregation of duties such that no one individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. A lack of segregation of duties subjects the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. Recommendation – We recommend that the City continue to review its accounting procedures and internal controls and make improvements on an ongoing basis within the limits of the staff available. Management Response – There is no disagreement with the audit finding. The City reviews and makes improvements to its internal control structure on an ongoing basis and attempts to maximize the segregation of duties in all areas within the limits of the staff available. However, the City does not consider it cost beneficial at this time to increase the size of its staff in order to further segregate accounting functions. CITY OF ROSEMOUNT Schedule of Findings and Responses (continued) Year Ended December 31, 2017 -5- B. FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT 2017-002 WITHHOLDING AFFIDAVIT Criteria – Minnesota Statutes § 270C.66. Condition – Before making final settlement with any contractor under a contract requiring the employment of employees for wages by said contractor or subcontractors, the City must obtain a certificate by the Commissioner of Revenue that the contractor or subcontractor has complied with the withholding requirements of Minnesota Statutes § 290.92 (either Form IC-134 or a Contractor’s Withholding Affidavit). The City did not obtain the required certificate for one contract completed in 2017 prior to final settlement being paid. Context – One of one contract tested was not in compliance. This is a current year finding. Cause – This was an oversight by city personnel. Effect – The City did not obtain the required documentation of either a Withholding Affidavit or Commissioner of Revenue Form IC-134. Recommendation – We recommend that the City review purchasing procedures and obtain the required documentation prior to making final payment on all future contracts. Management Response – There is no disagreement with the audit finding. The City will review its procedures in place to ensure future compliance with the statute. THIS PAGE INTENTIONALLY LEFT BLANK C ERTIFIED A CCOUNTANTS 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 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 xii INDEPENDENT AUDITOR’S REPORT To the City Council and Management City of Rosemount, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rosemount, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit . We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts an d disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error . In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. (continued) xiii OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of December 31, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof, for the year then ended, in accordance with accounting principles generally accepted in the United States of America. OTHER MATTERS Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the required supplementary information (RSI), as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplementary information, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have 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 them. (continued) xiv OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated May 7, 2018 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Minneapolis, Minnesota May 7, 2018 THIS PAGE INTENTIONALLY LEFT BLANK