06-28-10 CC Reg AgP 2 4,
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CITY OF SHOREWOOD
SHOREWOOD, MINNESOTA
27 5 MANAGEMENT LETTER
8
' YEAR ENDED
6 . DECEMBER 31, 2009
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Certified Public Accountants & Consultants
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Cert Pied Public Accountants & Consultants May 25, 2010
5201 Eden Avenue
Suite .370
Edina, MN 55436
Management, Honorable Mayor and City Council
City of Shorewood, Minnesota
We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major
fund, the fiduciary fund, and the aggregate remaining fund information of the City of Shorewood, Minnesota (the City) for the year
ended December 31, 2009 and have issued our report thereon dated May 25, 2010. Professional standards also require that we
communicate to you the following information related to our audit.
Our Responsibility Under Auditing Standards Generally Accepted in the United States of America
As stated in our engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to
obtain reasonable, but not absolute, assurance that the fmancial statements are free of material misstatement and are fairly
presented in accordance with accounting principles generally accepted in the United States of America. Because an audit is
designed to provide reasonable, but not absolute, assurance and because we did not perform a detailed examination of all
transactions, there is a risk that material errors, fraud or illegal acts may exist and not be detected by us.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements
are free of material misstatement. As part of our audit, we considered the internal control over fmancial reporting of the City.
Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning
such internal control over fmancial reporting. We are responsible for communicating significant matters related to the audit that
are, in our professional judgment, relevant to your responsibilities in overseeing the fmancial reporting process. However, we are
not required to design procedures specifically to identify such matters.
Significant Audit Findings
In planning and performing our audit, we considered the City's internal control over fmancial reporting as a basis for designing
our auditing procedures 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 over financial reporting. Accordingly, we do not express
an opinion on the effectiveness of the City's internal control over fmancial reporting.
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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a
material misstatement of the entity's fmancial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies,
significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting
that we consider to be material weaknesses, as defined above.
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r
May 25, 2010
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Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed
tests of compliance with certain provisions of Minnesota statutes. However, the objective of our tests was not to provide an
opinion on compliance with such provisions. We noted no instances of noncompliance with Minnesota statutes.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing.
Qualitative Aspects of Accounting Practices
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 to the financial statements. No new accounting policies were adopted and the application of
existing policies was not changed during the year ended December 31, 2009. We noted no transactions entered into by the
governmental unit 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 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 fmancial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was
capital asset basis and depreciation.
Management's estimate of these accounting estimates is based on estimated or actual historical cost and the estimated useful lives
of capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it
is reasonable in relation to the financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly
sensitive because of their significance to fmancial statement users.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
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Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those
that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements.
In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either
individually or in the aggregate, to each opinion unit's financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a fmancial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the fmancial 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 25, 2010.
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
governmental unit'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 governmental unit's auditors. However, these discussions occurred in the normal
course of our professional relationship and our responses were not a condition to our retention.
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cez City of Shorewood
May 25, 2010
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4,0
Financial Position and Results of Operations
Our principal observations and recommendations are summarized below. These recommendations resulted from our observations
made in connection with our audit of the City's financial statements for the year ended December 31, 2009.
General Fund
The General fund is used to account for resources traditionally associated with government, which are not required legally or
by sound principal management to be accounted for in another fund. The General fund balance decreased $152,385 from
2008; planned use of resources was less than expected. The City Council budgeted for the use of $160,000 of resources. The
fund balance of $3,555,724 is 66 percent of the 2010 budgeted expenditures. We recommend the fund balance be maintained
at a level sufficient to fund operations until the major revenue sources are received in June. We feel a reserve of approximately
50 percent of planned expenditures and transfers out is adequate to meet working capital and small emergency needs. The City
adopted a fund balance policy in 2007 with an objective of 55 -60 percent of the next year's budget.
The Office of the State Auditor (the OSA) has issued a Statement of Position relating to fund balance stating "a local
government should identify fund balance separately between reserved and unreserved fund balance. The local government
may assign and report some or all of the fund balance as designated and undesignated." The Office OSA also recommends
local governments adopt a formal policy on the level of unreserved fund balance that should be maintained in the general and
special revenue funds. This helps address citizen concerns as to the use of fund balance and tax levels. The City adopted a
policy in 2007.
The purposes and benefits of a strong fund balance are as follows:
• Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not
received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the
governmental fund expenditures.
• The City is vulnerable to legislative actions at the State and Federal level. The State imposed reductions of market
value credit aid and local government aid for some cities for 2009 and 2010. The Governor has recently presented
increased reductions of 2010 funding as well as reductions of 2011 funding. Levy limits have also been implemented
for municipalities in past legislative sessions. An adequate fund balance will provide a temporary buffer against those
aid adjustments and levy limits.
• Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These
would include capital outlay, replacement, lawsuits and other items. An adequate fund balance will provide the
fmancing needed for such expenditures.
• A strong fund balance will assist the City in maintaining, improving or obtaining its bond rating. The result will be
better interest rates in future bond sales.
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City of Shorewood , 2010
May 25,
� ►' Page 5
A table summarizing the General fund balance in relation to budget follows:
Percent
General of Fund
Fund Balance Budget Fund Balance to
Year December 31 Year Budget Budget
2005 2,993,181 2006 $ 4,740,495 63 %
2006 3,383,906 2007 5,130,958 66
2007 3,761,509 2008 5,319,145 71
2008 3,708,109 2009 5,488,562 68
2009 3,555,724 2010 5,375,404 66
Fund Balance as a Percent of Next Year's Budget
$6,000,000 -
$4,740,495
$5,000,000 -
$5,130,958 $5,319,145 $5,488,562 $5,375,404
$4,000,000 —
•
• $3,000,000 71% 68% 66/0
63% 66%
$2,000,000
$1,000,000
$- 1 I 1 1 1
2005 2006 2007 2008 2009 2010
—4—Fund Balance --IM— Budget
We have compiled peer group average fund balance information from approximately 120 fourth class cities (populations of
2,500 — 10,000). The peer group average is derived from information available on the website of the Office of the State
Auditor. In 2008, the average General fund balance as a percentage of expenditures was 55 percent. Based on comparison to
the peer groups, the City's General fund balance is higher than average.
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• City of Shorewood
May 25, 2010
Page 6
A LI IP,
The 2009 operations are summarized as follows:
Variance with
Final Final Budget -
Budgeted Actual Positive
Amounts Amounts (Negative)
Revenues $ 5,288,562 $ 5,075,037 $ (213,525)
Expenditures 4,358,442 4,247,649 110,793
Excess of revenues
over expenditures 930,120 827,388 (102,732)
Other financing sources (uses)
Transfers in 40,000 40,000 -
Transfers out (1,130,120) (1,019,773) 110,347
Total other fmancing sources (uses) (1,090,120) (979,773) 110,347
Net change in fund balances (160,000) (152,385) 7,615
Fund balances, January 1 3,708,109 3,708,109 -
Fund balances, December 31 $ 3,548,109 $ 3,555,724 $ 7,615
• The General fund balance decreased $152,385 during the year ended December 31, 2009. More detailed information of
the variances is as follows:
• Revenues were $213,525 under budget due to all of the General funds' revenue sources being under budget.
The largest revenue variance was related to licenses and permits which were under budget by $68,387.
• Expenditures were $110,793 under budget. Many of the functions of the General fund were under budget; the
two largest positive variances were in public works and general government which were under budget by
$108,587 and $57,373, respectively. The largest negative variance was in culture and recreation which was
$65,197 over budget.
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City of Shorewood
May 25, 2010
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4 ale
A more detailed comparison for the last five years General fund revenues and transfers as follows:
Percent
of Per
Source 2005 2006 2007 2008 2009 Total Capita
Property taxes $ 3,750,633 $ 4,141,539 $ 4,332,741 $ 4,582,602 $ 4,703,368 92.0 % $ 620
Licenses and permits 334,720 382,408 256,472 195,419 127,883 2.5 17
Intergovernmental 64,480 4,925 95,901 78,155 66,411 1.3 9
Charges for services 50,752 45,450 50,819 50,753 41,649 0.8 5
Fines and forfeitures 90,149 79,040 77,777 53,369 52,968 1.0 7
Interest on investments 107,787 183,076 257,922 161,862 58,627 1.1 8
Miscellaneous 96,845 12,020 28,761 14,675 24,131 0.5 3
Transfers in 50,000 50,000 40,000 40,000 40,000 0.8 5
Total revenues and
transfers in $ 4,545,366 $ 4,898,458 $ 5,140,393 $ 5,176,835 $ 5,115,037 100.0 % $ 674
The sources of revenues and transfers from the past five years are presented graphically below. Property taxes have been
excluded from the graph to better illustrate the fluctuation in the General funds other revenue sources.
Revenues and Transfers
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000 a
$150,000 - - -.
$100,000 i w
$50,000 • • •
2005 2006 2007 2008 2009
-11-- Licenses and permits -- Charges for services Fines and forfeitures
-9f- Interest on investments -0-Other
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City of Shorewood
May 25, 2010
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A more detailed comparison for the last five years General fund expenditures and transfers as follows:
Percent Peer Group
of Per Per
Program 2005 2006 2007 2008 2009 Total Capita Capita
General government $ 1,169,096 $ 1,264,509 $ 1,253,080 $ 1,430,354 $ 1,384,712 26.3 % $ 183 $ 141
Public safety 1,124,620 1,257,998 1,263,921 1,352,254 1,392,139 26.4 184 205
Public works 570,080 626,048 718,111 760,272 669,578 12.7 88 115
Culture and recreation 167,519 169,411 190,919 229,252 267,407 5.1 35 52
Capital outlay 859,689 529,401 618,859 565,213 528,388 10.0 70 25
Debt service 43,404 50,366 47,900 7,890 5,425 0.1 1 -
Transfers out 559,000 610,000 670,000 885,000 1,019,773 19.4 134 -
Total expenditures and
transfers out $ 4,493,408 $ 4,507,733 $ 4,762,790 $ 5,230,235 $ 5,267,422 100.0 % $ 695 $ 538
The above chart compares the amount the City spends per capita, in comparison to a peer group. We have compiled peer
group average fund balance information from approximately 120 fourth class cities (populations of 2,500 to 10,000). The
peer group average is derived from information available on the website of the Office of the State Auditor.
The functional expenditures and transfers from the past five years are presented graphically as follows:
Expenditures and Transfers
$1,600,000 -
$1,400,000
$1,200,000
$1,000,000 -
$800,000 - X
$600,000`
$400,000 —
$200,000
$- — ,
2005 2006 2007 2008 2009
--0— General government -f Public safety Public works —44—Transfers out .Other
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Debt Service Funds
Debt service funds are a type of governmental fund to account for the accumulation of resources for the payment of interest
and principal on debt (other than enterprise fund debt).
Debt service funds may have one or a combination of the following revenue sources pledged to retire debt as follows:
• Property taxes - Primarily for general City benefit projects such as parks and municipal buildings. Property taxes
may also be used to fund special assessment bonds which are not fully assessed.
• Tax increments - Pledged exclusively for tax increment/economic development districts.
• Capitalized interest portion of bond proceeds - After the sale of bonds, the project may not produce revenue (tax
increments or special assessments) for a period of one to two years. Bonds are issued with this timing difference
considered in the form of capitalized interest.
• Special assessments - Charges to benefited properties for various improvements.
In addition to the above pledged assets, other funding sources may be received by Debt Service funds as follows:
• Residual project proceeds from the related capital projects fund
• Investment earnings
• State or federal grants
• Transfers from other funds
The following summarizes the assets of each Debt Service fund with the bonds payable at year end:
Final
Cash and Total Bonds Maturity
Debt Description Investments Assets Outstanding Date
Waterford III Tax Increment $ 11,985 $ 12,021 $ -
2002 /2003 Public Safety Building 1,917,081 12,027,081 12,010,000 2023
2008 Lease Revenue Bond 3,189 3,189 1,285,000 2028
Total $ 1,932,255 $ 12,042,291 $ 13,295,000
The remaining funds in the Waterford III Tax Increment fund should be used for a purpose consistent with the tax increment
financing plan or closed out and returned to the County.
The 2002/2003 Public Safety Building bonds funds issued $10,000,000 of refunding bonds during 2007. The cash and
investment balance includes cash with fiscal agent, which will pay the debt service on the new bonds until the crossover
refunding date, at which point the old bonds will be defeased. During 2009, $8,100,000 of the 2002 bond series was
refunded.
The 2008 Lease Revenue bonds were issued to finance construction and remodeling of the City Hall.
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411 Capital Projects Funds
Capital projects funds account for the acquisition of capital assets or construction of major capital projects not being financed
by proprietary funds. A summary of year end fund balances (deficits) for all capital projects funds follows:
Fund Balances (Deficits)
December 31, Increase
Fund 2009 2008 (Decrease)
Major
Street Reconstruction $ 1,619,643 $ 1,625,965 $ (6,322)
Nonmajor
Public Facilities 227,762 226,755 1,007
Park Capital Improvement 293,430 262,710 30,720
Equipment Replacement 842,786 671,447 171,339
MSA Construction 127,671 117,810 9,861
City Hall Construction (26,255) 626,410 (652,665)
Technology 104,525 103,500 1,025
Community Infrastructure 1,000,000 - 1,000,000
EDA Public Safety Facilities Project 68,356 67,653 703
Senior Community Center (2,711) 41,730 (44,441)
Total $ 4,255,207 $ 3,743,980 $ 511,227
We recommend the City monitor the fund balances of these funds. The significant increase Community Infrastructure fund
was the result of an interfund transfer. The large decrease in the City Hall Construction was due to the capital outlay
expenditures incurred for the project during 2009.
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A 14
Enterprise Funds
Liquor Funds
The inventory balance and the assets of the liquor stores were sold in December 2007. As of December 31, 2009, the
balances of assets and liabilities remaining in the liquor funds are as follows:
2009
Shorewood Waterford Total
ASSETS
Cash and temporary investments $ 641,911 $ 220,498 $ 862,409
Receivables
Accrued interest 1,922 780 2,702
NET ASSETS
Unrestricted $ 643,833 $ 221,278 $ 865,111
We recommend the City evaluate its long -term plans and goals to determine what should be done with the remaining
funds.
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May 25, 2010
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Water Fund
The results of the operations and cash position of the Water fund for the past three years are as follows:
2007 2008 2009
Total Percent Total Percent Total Percent
Operating revenues $ 580,158 100 % $ 606,593 100 % $ 577,565 100 %
Operating expenses 464,456 80 515,187 85 525,061 91
Operating income 115,702 20 91,406 15 52,504 9
Nonoperating
revenues 213,509 37 108,708 18 110,161 19
Income before transfers 329,211 57 200,114 33 162,665 28
Transfers in 82,679 - - - - -
Change in net assets $ 411,890 57 % $ 200,114 33 % $ 162,665 28 %
Cash and cash equivalents $ 3,740,051 $ 3,774,597 $ 3,557,705
Bonds payable $ 3,665,000 $ 3,415,000 $ 3,165,000
Water Fund
$4,000,000
$3,500,000 III $3,000,000 ■
$2,500,000 ■
$2,000,000 -- , ■
$1,500,000 III $1,000,000 ■
$500 > 0 $ • P
III.
2007 2008 2009
• Operating revenues • Operating expenses • Change in net assets • Cash and cash equivalents
The operating margin decreased during the year. This was primarily due to a decrease in operating revenues. Interest
revenue decreased $68,092. Connection fees increased nearly $28,000. The cash balance of the fund remains strong.
The City should continue to monitor operations to ensure charges are sufficient to cover operating expenses, debt service
and future projects.
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May 25, 2010
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Sewer Fund
The results of the operations and cash position of the Sewer fund for the past three years are as follows:
2007 2008 2009
Total Percent Total Percent Total Percent
Operating revenues $ 823,293 100 % $ 826,867 100 % $ 801,552 100 %
Operating expenses 952,107 116 921,238 111 955,956 119
Operating loss (128,814) (16) (94,371) (11) (154,404) (19)
Nonoperating revenues 222,907 27 141,442 17 50,844 6
Income (loss) before transfers 94,093 11 47,071 6 (103,560) (13)
Transfers in 112,500 14 - - - -
Transfers out - - - - (1,000,000) (125)
Change in net assets $ 206,593 25 % $ 47,071 6 % $ (1,103,560) (138) %
Cash and cash equivalents $ 4,387,059 $ 4,476,799 $ 3,666,489
Sewer Fund
$5,000,000
$4,000,000
$3,000,000 .
$2,000,000 .
$1,000,000 U
� a
$(1,000,000)
$(2,000,000)
2007 2008 2009
"'Operating revenues ■ Operating expenses m Change in net assets s Cash and cash equivalents
The operating margin decreased during the current year. The primary cause of this decrease can be attributed to rising
costs and lower operating revenues. Nonoperating revenues also decreased significantly due to a decrease in investment
income of $89,048. The Sewer fund transferred $1,000,000 to the Community Infrastructure fund, which caused the
decrease in the cash balance. The cash balance remains strong. The City should continue to monitor operations to ensure
charges are sufficient to cover operating expenses, debt service and future projects.
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May 25, 2010
, Page 14
In
Recycling Fund
The results of the operations and cash position of the Recycling fund for the past three years are as follows:
2007 2008 2009
Total Percent Total Percent Total Percent
Operating revenues $ 68,928 100 % $ 64,166 100 % $ 64,992 100 %
Operating expenses 91,157 132 96,945 151 99,286 153
Operating loss (22,229) (32) (32,779) (51) (34,294) (53)
Nonoperating revenues 25,166 37 26,324 41 23,936 37
Change in net assets $ 2,937 5 % $ (6,455) (10) % $ (10,358) (16) %
Cash and cash equivalents $ 94,646 $ 96,842 $ 88,814
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
2007 2008 2009
® Operating revenues ∎ Nonoperatingrevenues --A—Operating expenses
The operations of the fund were fairly consistent with the previous year. There was not sufficient cash generated to cover
operating activities, therefore causing the cash balance to decrease.
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May 25, 2010
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Stormwater Management Utility Fund
The results of the operations and cash position of the Stormwater Management Utility fund for the past three years are as
follows:
2007 2008 2009
Total Percent Total Percent Total Percent
Operating revenues $ 164,347 100 % $ 204,345 100 % $ 191,032 100 %
Operating expenses 61,422 37 106,143 52 106,847 56
Operating income 102,925 63 98,202 48 84,185 44
Nonoperating revenues 12,115 7 17,287 8 10,773 6
Income before transfers 115,040 70 115,489 57 94,958 50
Transfers in 41,049 25 - - - -
Transfers out (52,500) - - - - -
Change in net assets $ 103,589 95 % $ 115,489 57 % $ 94,958 50 %
Cash and cash equivalents $ 322,116 $ 449,792 $ 571,128
Stormwater Management Utility Fund
$600,000
$500,000
$400,000
$300,000
$200,000 • £;
$100,000 •
2007 2008 2009
• Operating revenues • Operating expenses • Cash and cash equivalents
The operating margin of the fund decreased slightly due to decreased charges for services. The cash balance of the fund
is showing significant improvements, which can be attributed to the operating cash flows.
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City of Shorewood
May 25, 2010
11J I Page 16
4 0
6
Ratio Analysis
The following captures a few ratios from the City's financial statements that give some additional information for trend and peer
group analysis. The peer group average is derived from information available on the website of the Office of the State Auditor for
Cities of the 4 class (population 2,500 — 10,000). The majority of these ratios facilitate the use of economic resources focus and
accrual basis of accounting at the government -wide level. A combination of solvency (ability to pay its long -term obligations),
funding (comparison of financial amounts and economic indicators to measure changes in fmancial capacity over time) and
common -size (comparison of financial data with other cities) ratios are shown below.
Ratio Calculation Source 2006 2007 2008 2009
Debt to assets Total liabilities /total assets Government -wide 33% 44% 45% 35%
35% 36% 34% N/A
Debt service coverage Net cash provided by operations/ Enterprise funds 116% 130% 96% 125%
enterprise fund debt payments 161% 167% 163% N/A
Debt per capita Bonded debt/population Government -wide $ 2,030 $ 3,301 $ 3,328 $ 2,171
$ 2,548 $ 2,750 $ 2,677 N/A
Taxes per capita Tax revenues /population Government -wide $ 544 $ 581 $ 602 $ 626
$ 350 $ 381 $ 401 N/A
Current expenditures per capita Governmental fund current Governmental funds $ 439 $ 457 $ 497 $ 498
expenditures / population N/A $ 553 $ 663 N/A
Capital expenditures per capita Governmental fund capital Governmental funds $ 341 $ 150 $ 284 $ 258
outlay / population N/A $ 409 $ 323 N/A
Capital assets % left to Net capital assets/ Government -wide 37% 34% 32% 31%
depreciate - Governmental gross capital assets 69% 69% 70% N/A
Capital assets % left to Net capital assets/ Government -wide 52% 52% 51% 49%
depreciate - Business -type gross capital assets 67% 67% 67% N/A
Represents the City of Shorewood
Peer Group ratio
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I J1
Debt -to- Assets Leverage Ratio (Solvency Ratio)
The debt -to- assets leverage ratio is a comparison of a city's total liabilities to its total assets or the percentage of total assets that
are provided by creditors. It indicates the degree to which the City's assets are financed through borrowings and other long -term
obligations (i.e. a ratio of 50 percent would indicate half of the assets are fmancing with outstanding debt).
Debt Service Coverage Ratio (Solvency Ratio)
The debt coverage ratio is a comparison of cash generated by operations to total debt service payments (principal and interest) of
enterprise funds. This ratio indicates if there are sufficient cash flows from operations to meet debt service obligations. Except in
cases where other nonoperating revenues (i.e. taxes, assessments, transfers from other funds, etc.) are used to fund debt service
payments, an acceptable ratio would be above 100 percent.
Bonded Debt per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total bonded debt by the population of the city and represents the amount of
bonded debt obligation for each citizen of the city at the end of the year. The higher the amount, the more resources are needed in
the future to retire these obligations through taxes, assessments or user fees. The increase in 2007 is due to the refunding bonds
that were issued in 2007 to refund bonds in 2009.
Taxes per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total tax revenues by the population of the city and represents the amount of taxes
for each citizen of the city for the year. The higher this amount is, the more reliant the city is on taxes to fund its operations.
Current Expenditures per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total current governmental expenditures by the population of the City and
represents the amount of governmental expenditure for each citizen of the City during the year. Since this is generally based on
ongoing expenditures, we would expect consistent annual per capita results.
Capital Expenditures per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total governmental capital outlay expenditures by the population of the City and
represents the amount of capital expenditure for each citizen of the City during the year. Since projects are not always recurring,
the per capita amount will fluctuate from year to year.
Capital Assets Percentage (Common - size Ratio)
This percentage represents the percent of governmental or business -type capital assets that are left to be depreciated. The lower
this percentage, the older the city's capital assets are and may need major repairs or replacements in the near future. A higher
percentage may indicate newer assets being constructed or purchased and may coincide with higher debt ratios or bonded debt per
capita.
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City of Shorewood
May 25, 2010
r . Page 18
Future Accounting Standard Changes
GASB Statement No. 51 - Accounting and Financial Reporting for Intangible Assets
This statement was issued in June 2007 and is effective for periods beginning after June 15, 2009.
The new standard characterizes an intangible asset as an asset that lacks physical substance, is nonfinancial in nature, and has an
initial useful life extending beyond a single reporting period. Examples of intangible assets include easements, computer software,
water rights, timber rights, patents, and trademarks.
This statement requires that intangible assets be classified as capital assets (except for those explicitly excluded from the scope of
the new standard, such as capital leases). Relevant authoritative guidance for capital assets should be applied to these intangible
assets. The statement provides additional guidance that specifically addresses the unique nature of intangible assets, including:
• Requiring that an intangible asset be recognized in the statement of net assets only if it is considered identifiable
• Establishing a specified- conditions approach to recognizing intangible assets that are internally generated (for
example, patents and copyrights)
• Providing guidance on recognizing internally generated computer software
• Establishing specific guidance for the amortization of intangible assets.
GASB Statement No. 54 - Fund Balance
This statement was issued in March of 2009 and is effective for periods beginning after June 15, 2010. This new standard is
intended to improve the usefulness of information provided to fmancial report users about fund balance by providing clearer, more
structured fund balance classifications, and clarifying the definitions of existing governmental fund types.
GASB No. 54 distinguishes fund balance between amounts that are considered non - spendable, such as fund balance associated
with inventories, and other amounts that are classified based on the relative strength of the constraints that control the purposes for
which specific amounts can be spent. The following classifications and definitions will be used:
• Restricted - amounts constrained by external parties, constitutional provision, or enabling legislation
• Committed - amounts constrained by a government using its highest level of decision - making authority
• Assigned - amounts a government intends to use for a particular purpose
• Unassigned - amounts that are not constrained at all will be reported in the general fund.
In addition to the classifications of fund balance, the standard clarified the definitions of individual governmental fund types, for
example, special revenue funds, debt service funds, and capital project funds.
952.835.9090 • Fax 952.835.3261
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City of Shorewood
May 25, 2010
Page 19
This report is intended solely for the information and use of the Council, management and the Minnesota Office of the State
Auditor and is not intended to be and should not be used by anyone other than these specified parties.
Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting
records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read
in this context.
If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience. We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by
your staff.
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May 25, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261
www.aemepas.com
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CITY OF SHOREWOOD
SHOREWOOD, MINNESOTA
MINNESOTA LEGAL COMPLIANCE
8 9 > F YEAR ENDED
.ro DECEMBER 31, 2009
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REPORT ON MINNESOTA LEGAL COMPLIANCE
Honorable Mayor and Council
City of Shorewood, Minnesota
We have audited the accompanying fmancial statements of the governmental activities, the business -type activities, each major
fund and the aggregate remaining fund information of the City of Shorewood, Minnesota (the City) as of and for the year ended
December 31, 2009, and have issued our report thereon dated May 25, 2010, which collectively comprise the City's basic
financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the
provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the
State Auditor pursuant to Minnesota statutes, section 6.65. Accordingly, the audit included such tests of the accounting records
and such other auditing procedures as we considered necessary in the circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested:
contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, tax
increment financing and miscellaneous provisions. Our study included all of the listed categories.
The results of our tests indicate that for the items tested, the City complied with the material terms and conditions of applicable
legal provisions.
This report is intended solely for the information and use of management, the Council, others within the City and the Minnesota
Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties.
itheirO
May 25, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261
www.aemcpas.com