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2005 Comp. Annual Financial Report CITY OF SHOREWOOD I MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the year ended December 31, 2005 CITY OF SHOREWOOD SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31,2005 CRAIG W. DAWSON, CITY ADMINISTRATOR/CLERK REPORT PREPARED BY BONNIE BURTON, FINANCE DIRECTOR/TREASURER MEMBER OF GOVERNMENT FINANCE OFFICERS ASSOCIATION OF THE UNITED STATES AND CANADA CITY OF SHOREWOOD, MINNESOTA TABLE OF CONTENTS DECEJ\1BER 31,2005 1. INTRODUCTORY SECTION Elected and Appointed Officials Organization Chart Letter of Transmittal from Finance Director/Treasurer Certification of Achievement for Excellence in Financial Reporting II. FINANCIAL SECTION Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements Government-wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet Reconciliation of the Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) to the Statement of Activities General Fund Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Proprietary Fund Statements of Net Assets Statements of Revenues, Expenses and Changes in Fund Net Assets Statements of Cash Flows Fiduciary Fund Statement of Net Assets Notes to the Financial Statements Combining and Individual Fund Financial Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Debt Service Funds Combining Balance Sheet Combining Schedule of Revenues, Expenditures and Changes in Fund Balances Enterprise Funds Liquor Funds Schedules of Assets, Liabilities and Net Assets Schedules of Revenues, Expenses and Changes in Fund Net Assets Schedules of Cash Flows Exhibit Page No. 1 2 I - V 3 4-5 i-xii 1 6 2 7-8 3 9 - 10 4 11 5 12 - 13 6 14 7 15 8 16-18 9 19 - 21 10 22 - 27 11 28 29 - 49 A-I 50 - 51 A-2 52 - 53 B-1 54 - 58 C-l 59 C-2 60 D-l D-2 D-3 61 - 62 63 - 64 65 - 66 CITY OF SHOREWOOD, MINNESOTA TABLE OF CONTENTS-CONTINUED DECEJ\1BER 31,2005 II. FINANCIAL SECTION - CONTINUED Combining and Individual Fund Statements and Schedules Agency Fund Combining Schedule of Changes in Assets and Liabilities Summary Financial Report Revenues and Expenditures for General Operations - Governmental Funds III STATISTICAL SECTION (UNAUDITED) Net Assets by Component Changes in Net Assets General Fund Expenditures and Other Uses by Function General Fund Revenues and Other Sources by Source Property Tax Levies and Collections Estimated Market Value, Assessed Valuation, Tax Levies and Tax Capacity Rates Property Tax Capacity Rates - Direct and Overlapping Governments Principal Taxpayers Special Assessment Levies and Collections Computation of Legal Debt Margin Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Expenditures Computation of Direct and Overlapping Debt Revenue Bond Coverage Property Value and Construction Miscellaneous Statistics Exhibit Page No. E-l 67 F-l 68 Table 1 69 2 70 - 71 3 72 4 73 5 74 6 75 - 76 7 77-78 8 79 9 80 10 81 11 82 12 83 13 84 14 85 15 86 16 87 INTRODUCTORY SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31, 2005 Name C. Woodrow Love Christine Lizee Laura Turgeon Paula Callies Martin Wellens Craig W. Dawson Bonnie Burton CITY OF SHOREWOOD, MINNESOTA ELECTED AND APPOINTED OFFICIALS DECEJ\1BER 31, 2005 ELECTED Title Term Expires Mayor Council Member, Ward 1 Council Member, Ward 2 Council Member, Ward 3 Council Member, Ward 4 12/31/06 12/31/06 12/31/08 12/31/06 12/31/08 APPOINTED City Administrator/Clerk Finance Director/Treasurer -1- CITY OF SHCJREWOOD -) 5755 COUNTRY CLUB ROAD' SHOREWOOD, MINNESOTA 55331~8927' (952) 47413236 FAX (952) 474-01280 www.cLshorewoocj.mn.us 0 cityhall@cLshorewo6d.mn.us Ce/ebra)ing 50 '(ears. 1956 - 2006 . June 1, 2006 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Shore woo a, Minnesota Weare submitting the Comprel1en~ive Annual Financial Report of the City of Shorewo6d, Minnesota, for the fiscal year encied December 31, 2005. Management aSSmnes full I responsibility for the completeness and reliability of all of the in(ormation presented in this . - ,- - report. To the best of our knowledge and belief, the endosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of ol1~ratiolJ.s of the various fund~ and account groups of th~ City. INDEPENDENTAUDIT. Minnesota State. Statutes n~quire an arinual audit of the City's . accounts by. the Minnesgta State Auditor or by independent certifi~d public accoun\ants~~The Giiy of Shorewood's financial statE)ments have bee11 audited by the firm of Abdo; Eick & Meyers, LLP, a firm of . - n_ _ . '-.. - -- .~- independent certified public accountants;., and _they have issued an unqualified ("clean") opirrion on the' City of Shdrewood's financial statements_ for the year ended December 31, 2005. Tl1e mdependent auditor's report is prE:sentedat the front of the financial section of this reQP~. - I INTERNAL CONTROLS - City .management staffhas established a compr~hensive internal control frainework that is designed both to protect. the_govefl1JUent' s assetsJrom1oss, theft, or misuse, ~dto compile sufficient reliable informatio}1 for the preparation of the City / of Shorewoo<l's'financial statements -in conformity with GAAP. Because the cost of internal. controls should not "' ,- ,.- exceed anticipated benefits, the City of Shorewood's compiehensive frainywork of internal controls hasbeendesigned' to provide reasonabl~, rather than absolute, assl1rance that the fmancial statements are free of any ma.t~rial mjsstatements, The internal control system is - evaluated as part of the arinual audit, and changes are recbmmended when needed: l..PRINTED ON FkCYCLED PAPER ..... ... -- ORGANIZATION OF THE REPORT The Comprehensive Annual Financial Report is presented in three sections: Introductory, Financial and Statistical. The Introductory section includes this transmittal letter, the City's organizational chart and a list of City officials. The Financial section includes the independent auditor's report. Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. The general-purpose financial statements follow the MD&A letter. Lastly, the Statistical section includes financial and demographic information, generally presented on a multi-year basis. The organization, form, and contents of this report were prepared in accordance with the standards prescribed by the Governmental Accounting Standards Board, the Government Finance Officers Association of the United States and Canada, the American Institute of Certified Public Accountants, and the Minnesota State Auditor's Office. PROFILE OF THE GOVERNMENT The City of Shorewood was incorporated in 1956 and is a suburb ofthe City of Minneapolis. It is located 20 miles southwest of the Twin Cities on the southern shore of Lake Minnetonka. The City is predominantly a residential community with limited commercial businesses and two commercial shopping malls. The City is 6 square miles in area and had an estimated population of 7,685 as of 2005. The City, which is currently 95% developed, continues to experience growth in its residential base but because of the limited availability of large tracts of land, this growth will come at a reduced rate and will be with much smaller developments than in the past. The City of Shorewood operates under the Council-Administrator form of government. Policy making and legislative authority are vested in a governing council consisting of the mayor and four other members. The governing council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring employees and consulting staff. The City Administrator is responsible for carrying out the policies and ordinances of the governing council, and for overseeing the day-to-day operations of the government. The council is elected on a non-partisan basis. Council members serve four- year staggered terms, with two council members elected every two years. The mayor is elected to serve a two-year term. The City Council transitioned to a ward basis of election for terms beginning in 2005, and proper staggering ofterms will be regained in 2007. The Economic Development Authority (EDA) of the City was created in 2001 pursuant to Minnesota Statutes to carry out economic and industrial development and redevelopment consistent with policies established by the Council. Its board is comprised of members of the City Council. The EDA activities are blended and separate [mancial statements are not issued for this component unit. II The City provides its residents and businesses with a full range of municipal services consisting of police, fire, public works, parks and general administrative services. The City also operates five enterprises: a water utility, sewer utility, recycling utility, storm-water management utility, and an off-sale liquor operation with two store locations during 2004. LOCAL ECONOMY The City of Shorewood displays very strong wealth indices with a per capita income of $44,425 (191.5% of state average) and a median family income of$104,100 (183% of state average). Full value per capita is very healthy at $159,076, and the City's fiscal 2005 full valuation is nearly $1.2 billion. The City maintains stable financial operations due to a history of conservative budgeting, characterized by the maintenance of healthy reserves, as well as the lack of reliance on state aid. The City had a General Fund operating surplus of $51 ,958 and ended FY 2005 with a General Fund balance of $2.9 million. The City's debt burden is expected to remain manageable given expected ongoing tax base growth and limited capital needs. The City's overall debt burden is moderate at 2.43%, with approximately half due to the direct borrowing of the city (direct debt 1.2%). FINANCIAL AND MANAGEMENT EMPHASIS Governance The City Council, in its leadership role, has effectively established a focus for City government in Shorewood. The Council has adopted a Statement of Purpose and has established overall goals and expectations for the City. It has identified issues facing the City and stated priorities so that the staff can efficiently and effectively allocate time and resources. The City Council's calendar consists of three phases. The first phase is Planning: it includes review of the previous year's work plan and the City's Comprehensive Plan. It also includes identification of goals and priorities for the next twelve months. The second phase is that of Programming and Capital Finance Planning: each year the five- year Capital Improvement Program is reviewed and updated based upon priorities established in the first phase. Any changes to the Comprehensive Plan are made based upon the Phase One decisions. The third phase is Budgeting: the operating budget is developed based on decisions made in the first two phases. The budget format provides information and analytical data to the City Council and other readers. It defmes departmental missions and sets objectives for the budget year. III Cooperative Public Service Delivery Shorewood is committed to working cooperatively with other Lake Minnetonka area cities to carefully consider methods to efficiently deliver public services. The City has various contractual arrangements with other governmental jurisdictions and with private entities for providing many of these services. The City is also involved in cooperative employee training, disaster preparedness and other areas of mutual concern as an active participant in the Lake Minnetonka area. The City of Shorewood, along with the cities of Excelsior, Deephaven, Greenwood and Tonka Bay, has been a member ofthe Excelsior Fire District since 2000. The Excelsior Fire District is a joint powers organization and replaces the previous contractual arrangement with the City of Excelsior Fire Department. A combined police and fire public safety building that will serve the South Lake Minnetonka Area cities was completed in late 2003. A fire station to serve the east side of the Excelsior Fire District was also completed in 2004. The City has been a member city of the South Lake Minnetonka Police Department (SLMPD) since its inception in 1973. The other members of this j oint powers organization are the cities of Excelsior, Greenwood, and Tonka Bay. The new police station was completed at the end of2003. LONG-TERM FINANCIAL PLANNING Budgeting Controls The annual budget serves as the foundation of the City of Shorewood's financial planning and control. The City maintains budgetary controls to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. The annual appropriated budget also includes the general fund activities. The legal level of budgetary control is established at the department level, but management control is exercised at the line item level. The City continues meeting its responsibility for sound financial management, as demonstrated by the statements and schedules included in the financial section of this report The City Council continues its plan to accumulate resources for future capital equipment and improvement projects; amounts were transferred to various capital project funds in 2004. Budgeted transfers for capital improvement purposes during 2004 were $323,500. Debt Administration As of December 31, 2005, the City's debt outstanding totaled $14,755,000. Of this total, $12,010,000 is lease revenue bonds issued in 2002 and 2003 by the EDA to finance the construction of Public Safety (police and fire) buildings. General obligation revenue bonds at year end are $2,745,000. The proceeds from these bonds financed water system extensions and improvements and will be repaid from special assessments and Water fund revenues. In addition, the City has a capital lease to fmance its portion of construction of the Southshore Senior Community Center. IV Cash Management The City of Shorewood subscribes to the "pooled cash" concept of investing which means that all funds with cash balances participate in an investment pool. This permits some funds to be overdrawn and other funds to show positive cash balances, with the City overall maintaining a positive cash balance. The pooled cash concept provides for investing of greater amounts of money at more favorable rates and interest earnings are then allocated to the participating funds. Risk Management The City of Shorewood's general property and liability coverage and its workers' compensation insurance are provided through the League of Minnesota Cities Insurance Trust (LMCIT). The LMCIT insurance program is a joint self-insurance plan designed to lower and stabilize cities' insurance rates and to assure that cities have a source of coverage available. The LMCIT reserves and rates are reviewed annually by an actuary to assure that the program remains financially strong. A wards and Acknowledgements The Government Finance Officers Associ.ation of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Shorewood for its comprehensive annual financial report (CAFR) for the fiscal year ended December 31,2004. This was the twelfth consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both GAAP (generally accepted accounting principles) and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current CAFR 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. We would like to express our appreciation to all administrative staff, finance department staff, and the City's independent auditor for their efficient and dedicated services in preparation of the CAFR. Their assistance and cooperation are so important. Thank you also, to Shorewood's Mayor and entire City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Shorewood's finances. ~~ Bonnie Burton Finance Director/Treasurer v I- 0:: <( J: o Z o ~ N - Z <( C) a:: o c o o ~ w a:: o J: CJ) u. o ~ o CJl ~ z w o en w c:: o o o ;;: w c:: o J: CJl ..J (3 Z :::l o o >- ~ (3 l: o l::;::l .~ ~ .! 4l E .. E is 00 Casc;~ w.x:cc: c:: coo ~ U:~~1D UJ O::c02 :!:OO.Eg=s... 00.. Cii::li E .S! o..:iu:l~E~-zl !ZCIlO,"Oj._ -'X...JO C Ow W I C '0 1(,) (,) ~~~ :i 0.......... ~ Ql ~ .~ ~~~O) JJ-i~~:s ~g,E~ C'5,e 'C:E<<I:E.E::iE ~o~t..SQ)g> '5,~~;~,g~ CI..S::tI)Cf.)c w c.. Q) ~ " co " .. ~ ([l ~ E t s~gg~~~ &ii~~~~ -gSSE'"C!~ ~~~~ ~ ~i: .E:E:E1D.9-E..:.:: 'CCD'f~::lO~ ~~~Ci)S"Ci)c.. " ,g co '" ~~ " " ~~S g>~~:g 'gE ~~ (G IS e ~ C:::ND._ ~ ~ g ~ E 0:;0 E :;:; m c: ~ g ~ t ~C)CIlU)-g:s~ lU'=S"Ec..OQl ~~:g g~~~ ~:3[j~~o..o " .. E .. '" '" CO Q) ~ i :o~~ C).~ i ~ - ~~@ g:t~ ~:g~iiS~~E o5i~t)g~ ~o>5oQ.c ~~.E~<(CI)_ ~~~~~ ~::;~o5 O~O~:;; ~iil~oll ii:~~~ ~wO:3 CIlifi 0 W:t: en ~ a: > < ffi 0.. CIl o w b < 0: !z o o ~ ""0 Oz o:=>. I~OU) IC)Oc..-g ~~O:!.!!! CI)...J...J4!..!!! ffi~~:;;w ~~~~~ Certificate of Achievement for Excellence in Financial Reporting Presented to City of Shorewood, Minnesota For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2004 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. {Jw.w tff President ~~~ Executive Director -3- FINANCIAL SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2005 Certified Public Accountants & Consultants Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 INDEPENDENT AUDITOR'S REPORT 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 Shore wood, Minnesota (the City), as of and for the year ended December 31, 2005, which collectively comprise the City's basic fmancial statements as listed in the table of contents. These fmancial statements are the responsibility of the City's management. Our responsibility is to express opinions on these fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the fmancial statements referred to above 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 31,2005, and the respective changes in fmancial position and cash flows, where applicable, thereof and the budgetary comparison for the General fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis on pages I through XII is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Page Two Our audit was conducted for the purpose of forming opinions on the fmancial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical sections are presented for purposes of additional analysis and are not a required part of the basic fmancial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic fmancial statements and, accordingly, we express no opinion on them. (JLb tJ., ~~ Jut April 13, 2006 Minneapolis, Minnesota ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 0 Fax 952.835.3261 www.aemcpas.com CITY OF SHOREWOOD 5755 COUNTRY GLUB ROAD; SHOREWOOD, MINNESOTA 55331-8927' (952) 474-3236 FAX (952) 474-01280 www.cLshorewood.mn.us 0 cityh?lI@cLshorewood.mn.LJs . Ce/ebrating 50 Years. 1956 -2006 Management's Discussion and Analysis As lnanagement ofthe City of Shorewood, Minnesota, (the City), we offer readers of the City's financial statements this narrative overview and analysis of the fmandaI activities of the City for the fiscal yearended December 3 r, 2005. Financial Highlights . The assets ofthe City exceeded its liabilities ~t the c;lose of the most recent fiscal year by $32,043,841 (net assets ).'Of this amount, $14,499,319 (unrestricted net assets) maybe used to meet the City's ongoing obligations t6residents and creditors. . The CitY's total net assets deC:reased"bY $690,13 L Much of this decrease is attributable to reduction in the EDA project fund 1:>alance used for cons1;ruction payme,nts for the new public safetyouildmg, Shorewood's share of the construction cost of the new County Road) 9 intersection, and depreciati()n expense as defined in the Capitalization Policy adopted by the City Councir.' . . As of the close of the current fiscal year, the City's governmental :fmigs reported combined ending fund balances of $6,348,491, a de.crease of $350,945 in comparison with the, prior year.\ Approximately 95 percent ofthis.Jotal amoUnt, $6,061,025, is available for spending at the City's discretion, but has been designated for specific purposes. At the end of the currentfiscal year, unreserved fund balance for the General fund was $2,944,588, or 63 percentClftotal 2006 budgeted expenditures. While these funds are not legally reserved, they are designated fo~"futurepurp?ses, The City's total debt increased by$190,158, or1 percent during tneeurrent fiscal year. The key factor in this increase was the issuance of General Obligation Water'Revenue bonds for $1,525,000 and the full remaining redemption of .. General Obligation Water Revenue.bonds in the amoupt of$895,000. . . Overview of the Financial Statements This discussion andanalysis is intended to serve as au introduction to the City's basic fmanciaI statements. The City's pa.sic fmancial statements comprise three compone]).ts: 1) goyernrrient-wide fmancial statements, 2) fund fmancial statemimts, and 3) notes to the fmancial statements. This report also contains other supplementalinfonnation in addition to the basic fmancial statements themselves. - l.. PRINTED ON-~'!oCYCLED PAPER .." . . Management Discussion and Analysis - Continued April 13, 2006 The fInancial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of combining and individual fund [mancial statements and schedules that further explains and supports the information in the [mancial statements. Figure 1 shows how the required parts of this annual report are arranged and relate to one another. In addition to these required elements, we have included a section with combining and individual fund [mancial statements and schedules that provide details about nonmajor governmental funds, which are added together and presented in single columns in the basic financial statements. Figure 1 Required Components of the City's Annual Financial Report :.................................................................................. Management's Discussion and Analysis Basic Financial Statements Required Supplementary Information ........... ....... .......... ....... ................... ........... ........ ..... ................ ............. ........ .... I................................................................................... . . . . . . Government-wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary ( ) Detail -11- Management Discussion and Analysis - Continued Apri113, 2006 Figure 2 summarizes the major features of the City's [mancial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of the statements. Figure 2 Major features of the Government-wide and Fund Financial Statements Fund Financial Statements Government-wide Governmental Funds Proprietary Funds Statements Scope Entire City government The activities of the City that Activities the City operates (except fiduciary funds) and are not proprietary or similar to private businesses, the City's component units fiduciary, such as police, fIre such as the water and sewer and parks system Required financial . Statement of Net Assets . Balance Sheet . Statement of Net Assets statements . Statement of Activities . Statement of Revenues, . Statement of Revenues, Expenditures, and Expenses and Changes in Changes in Fund Fund Net Assets Balances . Statement of Cash Flows Accounting Basis and Accrual accounting and Modified accrual accounting Accrual accounting and measurement focus economic resources focus and current [mancial economic resources focus resources focus Type of asset/liability All assets and liabilities, both Only assets expected to be All assets and liabilities, both information [mancial and capital, and used up and liabilities that [mancial and capital, and short-term and long-term come due during the year or short-term and long-term soon thereafter; no capital assets included Type of in flow/out flow All revenues and expenses Revenues for which cash is All revenues and expenses information during year, regardless of received during or soon after during the year, regardless of when cash is received or paid the end of the year; when cash is received or paid expenditures when goods or services have been received and payment is due during the year or soon thereafter 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 assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the [mancial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets 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 but unused vacation leave). Both of the government-wide [mancial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenue (governmental activities) from other functions 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 and recreation, and interest on long-term debt. The business-type activities of the City include water, sewer, recycling, stormwater management utility and liquor operation. -111- Management Discussion and Analysis - Continued April 13, 2006 The government-wide fmancial statements include not only the City itself (known as the primary government), but also a legally separate Economic Development Authority (EDA) for which the City is fmancially accountable. The EDA, although legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government. The government-wide fmancial statements can be found on pages 6-8 of this report. Fund Financial Statements Afund 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 fmance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmentalfunds. Governmentalfunds are used to account for essentially the same functions reported as governmental activities in the government-wide fmancial statements. However, unlike the government-wide fmancial statements, governmental fund fmancial statements focus on 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 fmancial statements. By doing so, readers may better understand the long-term impact by the government's near-term fmancing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains 12 individual governmental funds, 3 of which are Debt Service funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances (deficits) for the General, the Debt Service, MSA Construction, and the Street Reconstruction, all of which are considered to be major funds. Data from the other 6 governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements or schedules elsewhere in this report. The City adopts an annual appropriated budget for its General fund. A budgetary comparison statement has been provided for the General fund to demonstrate compliance with this budget. The basic governmental fund fmancial statements can be found on pages 9 - 15 of this report. Proprietary funds. The City maintains one type of proprietary fund. 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 water, sewer, recycling, stormwater management utility and liquor operation. Proprietary funds provide the same type of information as the government-wide fmancial statements, only in more detail. The proprietary fund fmancial statements provide separate information for each of the enterprise funds which are considered to be major funds of the City. The basic proprietary fund financial statements can be found on pages 16 - 27 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund fmancial statements can be found on page 28 of this report. -lV- Management Discussion and Analysis - Continued April 13, 2006 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 fmancial statements. The notes to the fmancial statements can be found on pages 29 - 49 of this report. Other Information The combining statements referred to earlier in connection with nonmajor governmental funds are presented following the notes to fmancial statements. Combining and individual fund fmancial statements and schedules can be found on pages 50 - 68 of this report. -v- Management Discussion and Analysis - Continued April 13, 2006 Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator ofa government's financial position. In the case of the City, assets exceeded liabilities by $32,043,841 at the close of the most recent fiscal year. By far, the largest portion of the City's net assets (55 percent) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment), 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 its 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. Summary of Net Assets Governmental Activities Business-type Activities Increase Increase 2005 2004 (Decrease) 2005 2004 (Decrease) Assets Cash and temporary investments $ 6,878,784 $ 7,218,547 $ (339,763) $ 7,345,892 $ 6,772,174 $ 573,718 Cash with fiscal agent 103,601 103,601 Receivables 12,462,697 12,748,673 (285,976) 694,177 712,162 (17,985) Internal balances (260,000) (260,000) 260,000 260,000 Inventories 239,755 242,156 (2,401) Prepaids 48,593 48,593 6,803 8,982 (2,179) Deferred charges 64,251 23,546 40,705 Capital assets 11,473,535 12,298,433 (824,898) 8,917,309 8,597,358 319,951 Total assets 30,603,609 32,265,653 (1,662,044) 17,631,788 16,356,378 1,275,410 Liabilities Noncurrent liabilities 12,210,499 12,111,322 99,177 2,762,073 1,990,000 772,073 Other liabilities 704,190 1,317,989 (613,799) 514,794 468,748 46,046 Tota11iabilities 12,914,689 13,429,311 (514,622) 3,276,867 2,458,748 818,119 Net assets Invested in capital assets, net of related debt 11 ,372,213 12,167,269 (795,056) 6,172,309 6,427,358 (255,049) Umestricted 6,316,707 6,669,073 (352,366) 8,182,612 7,470,272 712,340 Total net assets $ 17,688,920 $ 18,836,342 $ (1,147,422) $ 14,354,921 $ 13,897,630 $ 457,291 The remaining balance of unrestricted net assets is $14,499,319. This may be used to meet the City's ongoing obligations to citizens and creditors. At the end ofthe current fiscal year, the City is able to report positive balances in total net assets, both for the City as a whole, as well as for its separate governmental and business-type activities. -Vl- Management Discussion and Analysis - Continued April 13, 2006 Governmental activities. Governmental activities decreased the City's net assets by $1,147,422. Key elements of this decrease are attributable to reduction in the EDA project fund balance used for construction payments for the new public safety building, Shorewood's share of the construction cost of the new County Road 19 intersection, and depreciation expense as defmed in the Capitalization Policy adopted by the City Council. Changes in Net Assets Governmental Activities Business-type Activities Increase Increase 2005 2004 (Decrease) 2005 2004 (Decrease) Revenues Program revenues Charges for services $ 1,169,440 $ 1,035,833 $ 133,607 $ 3,743,191 $ 3,886,643 $ (143,452) Operating grants and contributions 100,910 119,594 (18,684) Capital grants and contributions 2,404,367 996,967 1,407,400 General revenues Property taxes 3,770,702 3,345,326 425,376 Grants and contributions not restricted to specific programs 4,785 4,723 62 Unrestricted investment earnings 201,024 127,853 73,171 190,943 144,163 46,780 Loss on sale of capital assets (5,500) 5,500 Gain on sale of capital assets 4,300 4,300 Total revenues 7,655,528 5,624,796 2,030,732 3,934,134 4,030,806 (96,672) Expenses General government 1,222,510 1,074,028 148,482 Public safety 1,690,903 2,972,094 (1,281,191) Public works 5,019,967 2,446,325 2,573,642 Culture and recreation 246,381 254,081 (7,700) Interest on long-term debt 606,189 607,862 (1,673) Water 567,854 591,858 (24,004) Sewer 740,174 735,480 4,694 Recycling 105,823 106,933 (1,110) Stormwater management utility 73,885 106,757 (32,872) Liquor 2,006,107 2,152,411 (146,304) Total expenses 8,785,950 7,354,390 1,431,560 3,493,843 3,693,439 (199,596) Increase (decrease) in net assets before transfers (1,130,422) (1,729,594) 599,172 440,291 337,367 102,924 Transfers (17,000) 5,000 (22,000) 17,000 (5,000) 22,000 Change in net assets (1,147,422) (1,724,594) 577,172 457,291 332,367 124,924 Net assets, January 1 18,836,342 20,560,936 (1,724,594) 13,897,630 13,565,263 332,367 Net assets, December 31 $ 17,688,920 $ 18,836,342 $ (1,147,422) $ 14,354,921 $ 13,897,630 $ 457,291 -Vll- Management Discussion and Analysis - Continued April 13, 2006 The following graph depicts various governmental activities and shows the revenue and expenses directly related to those activities. Expenses and Program Revenues - Governmental Activities $6,000,000 $3,000,000 I L 1 $5,000,000 $4,000,000 $1,000,000 I $2,000,000 $- I General government Public safety Public works Culture and recreation Interest on long- term debt I_ Expenses - Program revenues I Revenues by Source - Governmental Activities Umestricted investment earnings 2.6% Gain on sale of capital assets 0.1% Charges for services 15.3% Operating grants and contributions 1.3% Property taxes 49.3% Capital grants and contributions 31.4% Grants and contributions not restricted to specific programs 0.1% For the most part, increases in expenses closely paralleled inflation and growth in the demand for services. -Vlll- Management Discussion and Analysis - Continued April 13, 2006 Business-type activities. Business-type activities increased the City's net assets by $457,291. Key elements of this increase are as follows: . Recent rate increases in the Water fund in anticipation of capital improvements authorized by the City Council. Revenues also increased as a result of a modest increase in demand. . Liquor Operations sales remained stable, resulting in the high sales for the last two years. . The Recycling Fund receives a County recycling grant, which when combined with operating income realized increases in cash. Expenses and Program Revenues - Business-type Activities $2,500,000 $500,000 $2,000,000 $1,500,000 $1,000,000 $- Water Sewer Recycling Stormwater management utility Liquor I_ Expenses - Program revenues I -lX- Management Discussion and Analysis - Continued April 13, 2006 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. Governmentalfunds. The focus of the City's governmentalfunds 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, unreservedfund balance may serve as a useful measure ofa 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$6,348,491, a decrease of$350,945 in comparison with the prior year. Approximately 95 percent of this total amount $6,061,025 constitutes unreservedfund balance, which is available for spending at the City's discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed for prep aids and to pay debt service in the amount of $287,466. The General fund is the chief operating fund of the City. At the end of the current year, the fund balance of the General fund was $2,993,181. As a measure of the General fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 75 percent of fund expenditures, while total fund balance is 76 percent of fund expenditures. The fund balance of the City's General fund increased by $51,958 during the current fiscal year. The key factor in this increase was: . Greater than anticipated building permit activity and revenue ($138,335). . Several departments with less than anticipated expenditures (Mayor and Council, General Government Professional Services, and Public Works General Maintenance.) The Debt Service fund has a total fund balance of$238,873, all of which is reserved for the payment of debt service. The net increase in fund balance during the current year in the Debt Service fund was $47,463. The MSA Construction fund had a fund deficit of$121,782, a decrease of $776,331. The Street Reconstruction fund had a fund balance of $2,217,595, an increase of $277 ,332. Proprietary funds. The City's proprietary funds provide the same type of information found in the government-wide fmancial statements, but in more detail. Unrestricted net assets of the enterprise funds at the end of the year amounted to $8,182,612. The total growth in net assets for the funds was $457,291. Other factors concerning the fmances ofthis fund have already been addressed in the discussion of the City's business-type activities. General Fund Budgetary Highlights The City's General fund budget was not amended during the year. The budget was a balanced budget. Revenues exceeded expectations by $174,345 and expenditures were over budget by $62,387. The actual results were significantly different from the fmal budget amounts because of the following: . The building permits and fees revenue was approximately $138,000 higher than budgeted due to many more siding and roofmg permits than expected due to hail storms in the area, and due to new residential construction values in the $1 million plus range. . The City also received $56,000 as an unexpected refund from Shorewood's vested portion from the sale of the old South Lake Minnetonka Police Department building. . Several departments (Mayor and Council, Government Professional Services and Public Works General Maintenance) had savings due to equipment and services that were not purchased or required. However, this savings was offset somewhat by the unexpected opportunity to purchase residential property adjacent to the City Hall for approximately $310,000. The net result was that expenditures exceeded budget by $62,387. -x- Management Discussion and Analysis - Continued April 13, 2006 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, 2005, amounts to $20,390,844 (net of accumulated depreciation). This investment in capital assets includes land, structures, improvements, machinery and equipment, park facilities, and roads. Major capital asset events during the current fiscal year included the following: . Completion of the new Public Safety (Police and Fire) Buildings. . Purchase of the residential property adjacent to the City Hall. Additional information on the City's capital assets can be found in Note 3C on pages 39 - 41 of this report. Capital Assets Net of Depreciation Governmental Activities Business-type Activities Increase Increase 2005 2004 (Decrease) 2005 2004 (Decrease) Land $ 741,826 $ 741,826 $ $ 404,392 $ 404,392 $ Construction in progress 762,669 762,669 Buildings 1,468,186 1,209,333 258,853 Improvements other than buildings 274,630 312,100 (37,470) Machinery and equipment 375,659 333,136 42,523 139,062 181,134 (42,072) Infrastructure 8,613,234 9,702,038 (1,088,804) 7,611,186 8,011,832 (400,646) Total $ 11,473,535 $ 12,298,433 $ (824,898) $ 8,917,309 $ 8,597,358 $ 319,951 Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of$14,755,000. Of this amount, $12,010,000 is lease revenue bonds and $2,745,000 is general obligation revenue bonds. While all of the City's bonds have revenue streams, they are all backed by the full faith and credit of the City. Outstanding Debt Governmental Activities Increase 2005 2004 (Decrease) General obligation revenue bonds $ $ $ Lease revenue bonds 12,010,000 12,365,000 (355,000) Capital lease bonds 101,322 131,164 (29,842) Compensated absences payable 99,177 87,650 11,527 Total $ 12,210,499 $ 12,583,814 $ (373,315) Business-type Activities Increase 2005 2004 (Decrease) $ 2,745,000 $ 2,170,000 $ 575,000 17,073 14,953 2,120 $ 2,762,073 $ 2,184,953 $ 577,120 This is primarily due to the issuance of a new The City's total debt increased $203,805 (1 percent) during the current fiscal year. bond and scheduled principal payments. The City maintains an "Aa3" rating from Moody's for general obligation debt. Minnesota statutes limit the amount of net general obligation debt a City may issue to 2 percent of the market value of taxable property within the City. Net debt is debt payable solely from ad valorem taxes. Additional information on the City's long-term debt can be found in Note 3F on pages 42 - 45 of this report. -Xl- Management Discussion and Analysis - Continued April 13, 2006 Economic Factors and Next Year's Budgets and Rates . Property valuations within the City remain strong and growing, especially in the desirable lake shore area. . Inflationary and unemployment trends in the region compare favorably to national indices. All of these factors were considered in preparing the City's budget for the 2006 fiscal year. During the current fiscal year, unreserved fund balance in the General fund increased to $2,993,181. It is intended that this use of available fund balance will be used for special one-time projects as determined by the City Council. Rate increases were approved for the Water utility to fund the debt service that will be required in 2006 to provide for enhancements to the system. The rate increase is expected to provide for the repayment of the debt issue for the project. The largest single factor affecting the 2006 budget will be the State's response to its budget deficit. However the 2006 budget was developed to insulate the City from revenue changes at the state level. Actions by the State should have minimal impact on City activities. Requests for Information This fmancial report is designed to provide a general overview of the City's fmances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional fmancial information should be addressed to Bonnie Burton, Finance Director/Treasurer, City of Shore wood, 5755 Country Club Road, Shorewood, Minnesota 55331. -Xll- 435,486 399,590 835,076 20,013 6,164 26,177 3,103 25,380 28,483 245,588 52,980 298,568 30,680 30,680 585,905 292,073 877 ,978 11,624,594 2,470,000 14,094,594 12,914,689 3,276,867 16,191,556 11,372,213 6,172,309 17,544,522 6,316,707 8,182,612 14,499,319 $ 17,688,920 $ 14,354,921 $ 32,043,841 CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET ASSETS DECEMBER 31, 2005 Governmental Activities Business-type Activities ASSETS Cash and temporary investments Cash with fiscal agent Receivables Accrued interest Delinquent taxes Accounts Special assessments Lease Internal balances Inventories Prepaids items Deferred charges Capital assets Land Construction in progress Depreciable capital assets, net $ 6,878,784 $ 7,345,892 103,601 299,143 49,999 91,678 47,615 365,648 14,261 278,530 12,010,000 (260,000) 260,000 239,755 48,593 6,803 64,251 741,826 404,392 762,669 10,731,709 7,750,248 30,603,609 17,631,788 TOTAL ASSETS LIABILITIES Accounts and contracts payable Accrued salaries payable Due to other governments Accrued interest payable Unearned revenue Noncurrent liabilities Due within one year Due in more than one year TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS The notes to the [mancial statements are an integral part of this statement. -6- Exhibit 1 Total $ 14,224,676 103,601 349,142 91,678 413,263 292,791 12,010,000 239,755 55,396 64,251 1,146,218 762,669 18,481,957 48,235,397 CITY OF SHOREWOOD, MINNESOTA STATEMENT OF ACTDnTIES FOR THE YEAR ENDED DECEMBER 31, 2005 Program Revenues Operating Capital Grants Charges for Grants and and FunctionslPrograms Expenses Services Contributions Contributions Governmental activities General government $ 1,222,510 $ 112,107 $ 1,000 $ Public safety 1,690,903 1,055,758 Public works 5,019,967 59,695 2,364,367 Culture and recreation 246,381 1,575 40,215 40,000 Interest on long-term debt 606,189 Total governmental activities 8,785,950 1,169,440 100,910 2,404,367 Business-type activities Water 567,854 649,772 Sewer 740,174 833,939 Recycling 105,823 116,517 Stormwater management utility 73,885 102,649 Liquor 2,006,107 2,040,314 Total business-type activities 3,493,843 3,743,191 Total $ 12,279,793 $ 4,912,631 $ 100,910 $ 2,404,367 General revenues Taxes Property taxes, levied for general purposes Grants and contributions not restricted to specific programs Unrestricted investment earnings Gain on sale of capital assets Transfers Total general revenues and transfers Change in net assets Net assets, January 1 Net assets, December 31 The notes to the [mancial statements are an integral part of this statement. -7- Exhibit 2 Net (Expense) Revenue and Changes in Net Assets Governmental Business-type Activities Activities Total $ (1,109,403) $ $ (1,109,403) (635,145) (635,145) (2,595,905) (2,595,905) (164,591) (164,591) (606,189) (606,189) (5,111,233) (5,111,233) 81,918 81,918 93,765 93,765 10,694 10,694 28,764 28,764 34,207 34,207 249,348 249,348 (5,111,233) 249,348 (4,861,885) 3,770,702 3,770,702 4,785 4,785 201,024 190,943 391,967 4,300 4,300 (17,000) 17,000 3,963,811 207,943 4,171,754 (1,147,422) 457,291 (690,131) 18,836,342 13,897,630 32,733,972 $ 17,688,920 $ 14,354,921 $ 32,043,841 -8- FUND FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2005 CITY OF SHOREWOOD, MINNESOTA BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31,2005 Debt MSA General Service Construction ASSETS Cash and temporary investments $ 3,152,572 $ 238,059 $ 607,968 Receivables Accrued interest 32,594 814 1,811 Delinquent taxes 91,678 Accounts 47,615 Special assessments 12,704 1,557 Lease 12,010,000 Due from other funds Prepaid items 48,593 TOTAL ASSETS $ 3,385,756 $ 12,250,430 $ 609,779 LIABILITIES AND FUND BALANCES (DEFICITS) LIABILITIES Accounts and contracts payable $ 40,997 $ $ 381,561 Due to other funds 260,000 350,000 Due to other governments 3,103 Salaries and compensated absences payable 20,013 Deferred revenue 68,462 12,011,557 TOTAL LIABILITIES 392,575 12,011,557 731,561 FUND BALANCES (DEFICITS) Reserved for debt service 238,873 Reserved for prepaid items 48,593 Unreserved Designated, reported in General fund 2,944,588 Capital projects funds Undesignated, reported in Capital proj ects funds (121,782) TOTAL FUND BALANCES (DEFICITS) 2,993,181 238,873 (121,782) TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 3,385,756 $ 12,250,430 $ 609,779 The notes to the fmancial statements are an integral part of this statement. -9- Exhibit 3 Other Total Street Governmental Governmental Reconstruction Funds Funds $ 1,854,781 $ 1,025,404 $ 6,878,784 15,101 5,861 56,181 91,678 47,615 14,261 12,010,000 350,000 350,000 48,593 $ 2,219,882 $ 1,031,265 $ 19,497,112 $ 2,287 $ 10,641 $ 435,486 610,000 3,103 20,013 12,080,019 2,287 10,641 13,148,621 238,873 48,593 2,944,588 2,217,595 1,020,624 3,238,219 (121,782) 2,217,595 1,020,624 6,348,491 $ 2,219,882 $ 1,031,265 $ 19,497,112 -10- CITY OF SHOREWOOD, MINNESOTA RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS AS OF DECEMBER 31,2005 Exhibit 4 Total fund balances - governmental $ 6,348,491 Amounts reported for the governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not fmancia1 resources and therefore are not reported as assets in governmental funds. Cost of capital assets Less: accumulated depreciation 30,403,660 (18,930,125) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bonds payable Compensated absences (12,111,322) (99,177) Some receivables are not available soon enough to pay for the current period's expenditures, and therefore are deferred in the funds. Interest Taxes Special assessments Leases 242,962 55,758 14,261 12,010,000 Governmental funds do not report a liability for accrued interest until due and payable. (245,588) Total net asset - governmental activities $ 17,688,920 The notes to the fmancial statements are an integral part of this statement. -11- CITY OF SHOREWOOD, Mll\TNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2005 Debt MSA General Service Construction REVENUES Taxes $ 3,750,633 $ $ Licenses and permits 334,720 Intergovernmental 64,480 2,368,176 Charges for services 50,752 Fines and forfeitures 90,149 Special assessments 6,928 Interest on investments 107,787 3,047 16,094 Miscellaneous 96,845 990,284 TOTAL REVENUES 4,495,366 1,000,259 2,384,270 EXPENDITURES Current General government 1,169,096 Public safety 1,124,620 Public works 570,080 Culture and recreation 167,519 Capital outlay General government 359,267 Public safety 490,083 Public works 350 3,160,601 Culture and recreation 9,989 Debt service Principal 29,842 355,000 Interest and service charges 13,562 597,796 TOTAL EXPENDITURES 3,934,408 952,796 3,160,601 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 560,958 47,463 (77 6,331) OTHER FINANCING SOURCES (USES) Transfers in 50,000 Transfers out (559,000) TOTAL OTHER FINANCING SOURCES (USES) (509,000) NET CHANGE IN FUND BALANCES 51,958 47,463 (776,331) FUND BALANCES, JANUARY 1 2,941,223 191,410 654,549 FUND BALANCES (DEFICITS), DECEMBER 31 $ 2,993,181 $ 238,873 $ (121,782) The notes to the fmancia1 statements are an integral part of this statement. -12- Exhibit 5 Street Reconstruction Other Governmental Funds Total Governmental Funds $ $ $ 3,750,633 334,720 2,432,656 50,752 90,149 6,928 49,437 24,659 201,024 47,300 1,134,429 49,437 71,959 8,001,291 1,169,096 1,124,620 570,080 167,519 4,035 363,302 75,383 565,466 83,105 105,651 3,349,707 19,257 29,246 384,842 611,358 83,105 204,326 8,335,236 (33,668) (132,367) (333,945) 311,000 181,000 542,000 (559,000) 311,000 181,000 (17,000) 277,332 48,633 (350,945) 1,940,263 971,991 6,699,436 $ 2,217,595 $ 1,020,624 $ 6,348,491 -13- CITY OF SHOREWOOD, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTDnTIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2005 Total net change in fund balances - governmental funds Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital outlays Depreciation expense The statement of activities reports gains arising form the trade-in of existing capital assets to aquire new capital assets. Conversly the governmental funds do not report any gain or loss on a trade- in of capital assets The issuance of long-term debt provides current fmancial resources to governmental funds, while the repayment of principal oflong-term debt consumes the current fmancial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Principal repayments Interest on long-term debt in the statement of activities differs from the amount reported in the governmental fund because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however interest expense is recognized as the interest accrues, regardless of when it is due. Certain revenues are recognized as soon as it is earned. Under the modified accrual basis of accounting certain revenues cannot be recognized until they are available to liquidate liabilities of the current period. Property taxes Special assessments Leases Some expenses reported in the statement of activities do not require the use of current fmancial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences Change in net assets - governmental activities The notes to the fmancial statements are an integral part of this statement. -14- Exhibit 6 $ (350,945) 470,738 (1,299,936) 4,300 384,842 5,169 20,069 (10,737) (359,395) (11,527) $ (1,147,422) CITY OF SHOREWOOD, MINNESOTA Exhibit 7 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED DECEMBER 31,2005 Variance with Budgeted Amounts Final Budget - Actual Positive Original Final Amounts (Negative) REVENUES Taxes $ 3,830,656 $ 3,830,656 $ 3,750,633 $ (80,023) Licenses and permits 196,100 196,100 334,720 138,620 Intergovernmental 65,000 65,000 64,480 (520) Charges for services 42,265 42,265 50,752 8,487 Fines and forfeitures 62,000 62,000 90,149 28,149 Interest on investments 94,800 94,800 107,787 12,987 Miscellaneous 30,200 30,200 96,845 66,645 TOTAL REVENUES 4,321,021 4,321,021 4,495,366 174,345 EXPENDITURES Current General government 1,262,365 1,262,365 1,169,096 93,269 Public safety 1,113,371 1,113,371 1,124,620 (11,249) Public works 666,281 666,281 570,080 96,201 Culture and recreation 209,127 209,127 167,519 41,608 Capital outlay 577,473 577,473 859,689 (282,216) Debt service 43,404 43,404 43,404 TOTAL EXPENDITURES 3,872,021 3,872,021 3,934,408 (62,387) EXCESS OF REVENUES OVER EXPENDITURES 449,000 449,000 560,958 111,958 OTHER FINANCING SOURCES (USES) Transfers in 50,000 50,000 50,000 Transfers out (499,000) (499,000) (559,000) (60,000) TOTAL OTHER FINANCING SOURCES (USES) (449,000) (449,000) (509,000) (60,000) NET CHANGE IN FUND BALANCES 51,958 51,958 FUND BALANCES, JANUARY 1 2,941,223 2,941,223 2,941,223 FUND BALANCES, DECEMBER 31 $ 2,941,223 $ 2,941,223 $ 2,993,181 $ 51,958 The notes to the financial statements are an integral part of this statement. -15- CITY OF SHOREWOOD, MINNESOTA Exhibit 8 STATEMENTS OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2005 AND 2004 Business-type Activities - Enterprise Funds Water Sewer 2005 2004 2005 2004 ASSETS CURRENT ASSETS Cash and temporary investments $ 3,043,864 $ 2,466,910 $ 3,550,499 $ 3,548,050 Cash with fiscal agent 103,601 Receivables Accrued interest 20,583 12,710 24,348 18,871 Accounts 100,767 96,061 215,180 210,388 Special assessments 1,543 1,354 3,659 3,209 Due from other funds 350,000 120,000 Inventories, at cost Prepaid items 4,416 4,709 406 TOTAL CURRENT ASSETS 3,274,774 2,581,744 4,143,686 3,900,924 NONCURRENT ASSETS Special assessments receivable 254,508 302,437 15,184 15,656 Deferred charges 64,251 23,546 Capital assets Land Construction in progress 542,761 219,908 Machinery and equipment 59,802 59,802 70,690 70,690 Infrastructure 7,050,734 7,050,734 7,896,525 7,896,525 Less accumulated depreciation (2,282,251 ) (2,100,107) (5,921,131) (5,717,348) TOTAL CAPITAL ASSETS (Net of accumulated depreciation) 5,371,046 5,010,429 2,265,992 2,249,867 TOTAL NONCURRENT ASSETS 5,689,805 5,336,412 2,281,176 2,265,523 TOTAL ASSETS 8,964,579 7,918,156 6,424,862 6,166,447 LIABILITIES CURRENT LIABILITIES Accounts and contracts payable 322,065 21,144 33,842 29,095 Due to other funds Due to other governments 1,636 1,609 4,307 4,010 Accrued interest payable 52,980 37,116 Salaries and compensated absences payable 1,106 540 1,043 425 Deferred revenue 30,680 29,219 Current portion oflong-term debt 275,000 180,000 TOTAL CURRENT LIABILITIES 683,467 269,628 39,192 33,530 NONCURRENT LIABILITIES Bonds payable less current portion above 2,470,000 1,990,000 TOTAL LIABILITIES 3,153,467 2,259,628 39,192 33,530 NET ASSETS Invested in capital assets, net of related debt 2,626,046 2,840,429 2,265,992 2,249,867 Unrestricted 3,185,066 2,818,099 4,119,678 3,883,050 TOTAL NET ASSETS $ 5,811,112 $ 5,658,528 $ 6,385,670 $ 6,132,917 The notes to the financial statements are an integral part of this statement. -16- Business-type Activities - Enterprise Funds - Continued Recycling Stormwater Management Utility Liquor 2005 2004 2005 2004 2005 2004 $ 61,905 $ 51,760 $ 300,316 $ 292,084 $ 389,308 $ 413,370 424 237 2,059 1,841 2,585 2,710 18,562 16,485 23,790 18,733 7,349 7,445 557 290 313 203 239,755 242,156 2,387 3,867 81,448 68,772 326,478 312,861 641,384 669,548 1,630 2,293 1,136 1,239 404,392 404,392 793,313 793,313 316,182 316,182 (81,212) (61,379) (152,404) (115,446) 1,116,493 1,136,326 163,778 200,736 1,630 2,293 1,117,629 1,137,565 163,778 200,736 83,078 71,065 1,444,107 1,450,426 805,162 870,284 1,900 90,000 21,425 120,000 41,783 107,099 19,437 19,112 57 21,031 17,954 91,957 141,425 82,251 144,165 91,957 141,425 82,251 144,165 1,116,493 1,136,326 163,778 200,736 83,078 71,065 235,657 172,675 559,133 525,383 $ 83,078 $ 71,065 $ 1,352,150 $ 1,309,001 $ 722,911 $ 726,119 -17- Exhibit 8 CITY OF SHOREWOOD, MINNESOTA STATEMENTS OF NET ASSETS - CONTINUED PROPRIETARY FUNDS DECEMBER 31, 2005 AND 2004 ASSETS CURRENT ASSETS Cash and temporary investments Cash with fiscal agent Receivables Accrued interest Accounts Special assessments Due from other funds Inventories, at cost Prepaid items TOTAL CURRENT ASSETS NONCURRENT ASSETS Special assessments receivable Deferred charges Capital assets Land Construction in progress Machinery and equipment Infrastructure Less accumulated depreciation TOTAL CAPITAL ASSETS (Net of accumulated depreciation) TOTAL NONCURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Accounts and contracts payable Due to other funds Due to other govemments Accrued interest payable Salaries and compensated absences payable Deferred revenue Current portion of long-term debt TOTAL CURRENT LIABILITIES NONCURRENT LIABILITIES Bonds payable less current portion above TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS The notes to the financial statements are an integral part of this statement. -18- Exhibit 8 Totals 2005 2004 $ 7,345,892 $ 6,772,174 103,601 49,999 36,369 365,648 349,112 6,072 5,056 350,000 120,000 239,755 242,156 6,803 8,982 8,467,770 7,533,849 272,458 321,625 64,251 23,546 404,392 404,392 762,669 130,492 130,492 16,056,754 16,056,754 (8,436,998) (7,994,280) 8,917,309 8,597,358 9,254,018 8,942,529 17,721,788 16,476,378 399,590 178,763 90,000 120,000 25,380 24,731 52,980 37,116 23,237 18,919 30,680 29,219 275,000 180,000 896,867 588,748 2,470,000 1,990,000 3,366,867 2,578,748 6,172,309 6,427,358 8,182,612 7,470,272 $ 14,354,921 $ 13,897,630 CITY OF SHOREWOOD, MINNESOTA Exhibit 9 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 Business-type Activities - Enterprise Funds Water Sewer 2005 2004 2005 2004 OPERATING REVENUES Sales $ $ $ $ Less cost of sales GROSS PROFIT Charges for services 511,486 494,024 815,886 815,920 Permits and connection fees 41,989 45,985 18,053 50,430 GROSS PROFIT AND REVENUES 553,475 540,009 833,939 866,350 OPERATING EXPENSES Personal services 76,394 75,789 66,486 63,543 Supplies 11,730 10,576 3,199 2,968 Repairs and maintenance 25,446 60,965 10,679 19,349 Depreciation 182,145 184,468 203,783 203,394 Professional services 86,651 49,108 3,837 31,912 Contracted services 8,225 28,723 4,446 3,891 Insurance 7,665 5,909 1,966 2,018 Water purchases 14,054 13,903 Utilities 60,098 60,436 7,915 7,884 Disposal charges 435,084 398,778 Rent Advertising Other 10,595 9,104 2,779 1,743 TOTAL OPERATING EXPENSES 483,003 498,981 740,174 735,480 OPERATING INCOME (LOSS) 70,472 41,028 93,765 130,870 NONOPERATING REVENUES (EXPENSES) Special assessments 22,088 25,374 Interest on investments 70,666 56,098 98,988 70,952 Antenna lease Other income (expense) 74,209 54,806 Interest expense (84,851) (92,877) TOTAL NONOPERATING REVENUES (EXPENSES) 82,112 43,401 98,988 70,952 INCOME (LOSS) BEFORE TRANSFERS 152,584 84,429 192,753 201,822 TRANSFERS Transfers in 60,000 Transfers out CHANGE IN NET ASSETS 152,584 84,429 252,753 201,822 NET ASSETS, JANUARY 1 5,658,528 5,574,099 6,132,917 5,931,095 NET ASSETS, DECEMBER 31 $ 5,811,112 $ 5,658,528 $ 6,385,670 $ 6,132,917 The notes to the financial statements are an integral part of this statement. -19- Exhibit 9 Business-type Activities - Enterprise Funds - Continued Recycling Stormwater Management Utility Liquor 2005 2004 2005 2004 2005 2004 $ $ $ $ $ 2,035,480 $ 2,198,739 (1,476,866) (1,608,759) 558,614 589,980 95,039 93,403 69,637 63,826 95,039 93,403 69,637 63,826 558,614 589,980 9,439 9,244 241,038 259,236 2,328 979 2,021 9,818 10,013 19,833 19,832 36,958 39,057 32,700 22,020 4,286 7,466 103,341 106,742 3,704 45,122 1,645 1,736 14,202 14,454 23,254 20,430 149,689 134,213 11,718 12,152 154 191 1,312 1,121 36,633 42,472 105,823 106,933 67,967 99,360 529,241 541,229 (10,784) (13,530) 1,670 (35,534) 29,373 48,751 -20- CITY OF SHOREWOOD, MINNESOTA STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2005 AND 2004 Exhibit 9 Totals 2005 2004 OPERATING REVENUES Sales $ 2,035,480 $ 2,198,739 Less cost of sales (1,476,866) (1,608,759) GROSS PROFIT 558,614 589,980 Charges for services 1,492,048 1,467,173 Permits and connection fees 60,042 96,415 GROSS PROFIT AND REVENUES 2,110,704 2,153,568 OPERATING EXPENSES Personal services 393,357 407,812 Supplies 28,054 25,578 Repairs and maintenance 36,125 80,314 Depreciation 442,719 446,751 Professional services 127,474 110,506 Contracted services 121,361 186,214 Insurance 23,833 22,381 Water purchases 14,054 13,903 Utilities 91,267 88,750 Disposal charges 435,084 398,778 Rent 149,689 134,213 Advertising 11,718 12,152 Other 51,473 54,631 TOTAL OPERATING EXPENSES 1,926,208 1,981,983 OPERATING INCOME (LOSS) 184,496 171,585 NONOPERATING REVENUES (EXPENSES) Special assessments 22,088 25,374 Interest on investments 190,943 144,163 Antenna lease 22,973 21,879 Other income (expense) 110,560 74,640 Interest expense (90,769) (100,274) TOTAL NONOPERATING REVENUES (EXPENSES) 255,795 165,782 INCOME (LOSS) BEFORE TRANSFERS 440,291 337,367 TRANSFERS Transfers in 67,000 25,000 Transfers out (50,000) (30,000) CHANGE IN NET ASSETS 457,291 332,367 NET ASSETS, JANUARY 1 13,897,630 13,565,263 NET ASSETS, DECEMBER 31 $ 14,354,921 $ 13,897,630 The notes to the financial statements are an integral part of this statement. -21- CITY OF SHOREWOOD, MINNESOTA Exhibit 10 STATEMENTS OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2005 AND 2004 Business-type Activities - Enterprise Funds Water Sewer 2005 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 548,769 $ 527,506 $ 829,169 $ 864,660 Other receipts and payments, net 75,670 42,469 Payments to suppliers, contractors and other governments (214,666) (235,159) (464,455) (456,299) Payments to employees (75,828) (75,795) (65,868) (63,399) NET CASH PROVIDED BY OPERATING ACTIVITIES 333,945 259,021 298,846 344,962 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES (Increase) decrease in due from other funds (230,000) 30,000 Transfers in 60,000 Interest paid on interfund loan Increase (decrease) in due to other funds Transfers out NET CASH PROVIDED (USED) BY NON CAPITAL FINANCING ACTIVITIES (170,000) 30,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Bond proceeds 1,479,643 Principal paid on revenue bonds (950,000) (190,000) Interest paid on revenue bonds (64,335) (93,285) Acquisition of capital assets (251,319) (219,908) Special assessments collected 69,828 73,051 NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES 283,817 (210,234) (219,908) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 62,793 51,798 93,511 68,508 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 680,555 100,585 2,449 443,470 CASH AND CASH EQUIVALENTS, JANUARY 1 2,466,910 2,366,325 3,548,050 3,104,580 CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 3,147,465 $ 2,466,910 $ 3,550,499 $ 3,548,050 The notes to the financial statements are an integral part of this statement. -22- Business-type Activities - Enterprise Funds - Continued Recycling Stormwater Management Utility Liquor 2005 2004 2005 2004 2005 2004 $ 93,358 $ 92,504 $ 64,573 $ 60,899 $ 2,035,576 $ 2,221,294 21,478 21,584 33,012 22,152 4,834 (2,023) (105,823) (106,944) (58,220) (49,860) (1,789,221) (1,833,342) (9,382) (9,244) (237,961) (258,087) 9,013 7,144 29,983 23,947 13,228 127,842 1,132 853 7,167 5,517 12,710 10,358 10,145 7,997 8,232 17,067 (24,062) 108,200 51,760 43,763 292,084 275,017 413,370 305,170 $ 61,905 $ 51,760 $ 300,316 $ 292,084 $ 389,308 $ 413,370 -23- Exhibit 10 CITY OF SHOREWOOD, MINNESOTA Exhibit 10 STATEMENTS OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2005 AND 2004 Totals 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 3,571,445 $ 3,766,863 Other receipts and payments, net 134,994 84,182 Payments to suppliers, contractors and other governments (2,632,385) (2,681,604) Payments to employees (389,039) (406,525) NET CASH PROVIDED BY OPERATING ACTIVITIES 685,015 762,916 CASH FLOWS FROM NON CAPITAL FINANCING ACTIVITIES (Increase) decrease in due from other funds (230,000) 30,000 Transfers in 67,000 25,000 Interest paid on interfund loan (5,918) (7,397) Increase (decrease) in due to other funds (30,000) (30,000) Transfers out (50,000) (30,000) NET CASH PROVIDED (USED) BY NON CAPITAL FINANCING ACTIVITIES (248,918) (12,397) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Bond proceeds 1,479,643 Principal paid on revenue bonds (950,000) (190,000) Interest paid on revenue bonds (64,335) (93,285) Acquisition of capital assets (471,227) Special assessments collected 69,828 73,051 NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES 63,909 (210,234) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 177,313 137,034 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 677,319 677,319 CASH AND CASH EQUIVALENTS, JANUARY 1 6,772,174 6,094,855 CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 7,449,493 $ 6,772,174 The notes to the financial statements are an integral part of this statement. -24- CITY OF SHOREWOOD, MINNESOTA Exhibit 10 STATEMENTS OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 Business-type Activities - Enterprise Funds Water Sewer 2005 2004 2005 2004 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss) $ 70,472 $ 41,028 $ 93,765 $ 130,870 Adjustments to reconcile operating income (loss) to net cash provided by operating activities Other income (loss) related to operations 75,670 42,469 Depreciation 182,145 184,468 203,783 203,394 (Increase) decrease in assets: Accounts receivable (4,706) (12,503) (4,792) 4,775 Special assessments receivable 22 (6,465) Inventories Prepaid items 293 (461 ) 406 312 Increase (decrease) in liabilities: Accounts payable 9,478 4,000 4,747 15,496 Due to other governments 27 26 297 (3,564) Salaries and compensated absences payable 566 (6) 618 144 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 333,945 $ 259,021 $ 298,846 $ 344,962 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Amortization of bond discount $ 4,652 $ 3,301 $ $ Bond discount issued $ 45,357 $ $ $ Capital assets purchased on account $ 291,443 $ $ $ The notes to the financial statements are an integral part of this statement. -25- Business-type Activities - Enterprise Funds - Continued Recycling Stormwater Management Utility Liquor 2005 2004 2005 2004 2005 2004 $ $ $ $ $ $ $ $ $ $ $ $ -26- $ $ $ $ $ $ Exhibit 10 CITY OF SHOREWOOD, MINNESOTA STATEMENTS OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities Other income (loss) related to operations Depreciation (Increase) decrease in assets: Accounts receivable Special assessments receivable Inventories Prepaids Increase ( decrease) in liabilities: Accounts payable Due to other governments Salaries and compensated absences payable NET CASH PROVIDED BY OPERATING ACTIVITIES NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Amortization of bond discount Bond discount issued Capital assets purchased on account The notes to the financial statements are an integral part of this statement. -27- Exhibit 10 Totals 2005 2004 $ 184,496 $ 171,585 134,994 84,182 442,719 446,751 (16,536) 13,298 411 (8,762) 2,401 6,393 2,179 3,331 (70,616) 50,141 649 (5,290) 4,318 1,287 $ 685,015 $ 762,916 $ 4,652 $ 45,357 $ 291,443 $ $ $ 3,301 CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET ASSETS FIDUCIARY FUND DECEMBER 31,2005 Exhibit 11 Agency ASSETS Cash and ternporary investments $ 125,815 LIABILITIES Escrow deposits payable $ 125,815 The notes to the fmancial statements are an integral part of this statement. -28- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Shorewood, Minnesota (the City), operates under the "Optional Plan A" form of government as defined in the State of Minnesota statutes. Under this plan, the government of the City is directed by a Council composed of an elected Mayor and four elected Council members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The City has considered all potential units for which it is fmancially accountable, and other organizations for which the nature and significance oftheir relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining fmancia1 accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the City to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific fmancia1 burdens on the City. Blended component units, although legally separate entities are, in substance, part of the City's operations and so data frorn these units are combined with data of the City. The City has the following component unit: Blended Component Unit The Economic Development Authority (EDA) of the City was created pursuant to Minnesota statutes 469.090 through 469.108 to carry out economic and industrial development and redevelopment consistent with policies established by the Council. It is comprised of the members of the Council and has a December 31 year end. The EDA activities are blended and reported in the Debt Service and capital projects funds. Separate fmancial statements are not issued for this component unit. B. Government-wide and Fund Financial Statements The government-wide fmancial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the City and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately frorn business-type activities, which rely to a significant extent on fees and charges for support. 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. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit frorn 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 properly included among program revenues are reported instead as general revenues. Separate fmancial statements are provided for governmental funds, proprietary funds and fiduciary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund fmancial statements. -29- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTThTlJED C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund fmancial staternents. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. 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 have been met. Governmental fund fmancial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter 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 generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, licenses and interest associated with the current fiscal period are all considered to be 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. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and becorne available. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, grants, entitlement and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is fIrst permitted, matching requirernents, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions rnust also be available before it can be recognized. Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirernents are met are also recorded as deferred revenue. On the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue in the fund fmancia1 statements. The preparation of fmancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -30- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The City reports the following major governmental funds: The General fimd is the City's primary operating fund. It accounts for all fmancial resources of the general government, except those required to be accounted for in another fund. The Debt Service fund accounts for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. The MSA Construction fund accounts for the accumulation of Municipal State Aid (MSA) to fund the periodic reconstruction ofMSA designated roads. The Street Reconstruction fund was established for the purpose of funding the periodic reconstruction of City streets and roadways. The City reports the following major proprietary funds: The Water fund accounts for the activities of the City's water distribution system. The Sewer fund accounts for the activities of the City's sewage collection system. The Recyclingfund accounts for the activities of the City recycling program. The Stormwater Management Utility fund accounts for the activities of the City stormwater management system. The Liquor fund is used to account for the activities of the City's off-sale liquor operation. The operation consists of two off-sale liquor store sites. A portion of the net income generated by the operation, if any, is used to fund General fund activities. Additionally, the City reports the following fund types: The Fiduciary funds account for assets held by the City in a trustee capacity or as an agent on behalf of others. The Agency fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. This fund is used to account for assets that the City holds for others, developer escrow accounts, in an agency capacity. Private-sector standards of accounting and fmancial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. As a general rule the effect of interfund activity has been eliminated from government-wide fmancial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to custorners or applicants for goods, services, or privileges provided, 2) operating grants and contribution, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. -31- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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, and liquor enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not rneeting this definition are reported as nonoperating revenues and expenses. 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. D. Assets, Liabilities and Net Assets or Equity Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash balances from all funds are pooled and invested, to the extent available, in certificates of deposit and other authorized investments. Earnings from such investments are allocated on the basis of applicable participation by each ofthe funds. The City may also invest idle funds as authorized by Minnesota statutes, as follows: 1. Direct obligations or obligations guaranteed by the United States or its agencies. 2. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities in (a) above. 3. General obligations of the State of Minnesota or any of its municipalities. 4. Bankers acceptances of Unites States banks eligible for purchase by the Federal Reserve System. 5. Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality, and maturing in 270 days or less. 6. 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 securities broker-dealers. 7. Guaranteed investment contracts (GIC's) issued or guaranteed by United States cornmercial banks or domestic branches of foreign banks or United States insurance companies if similar debt obligations of the issuer or the collateral pledged by the issuer is in the top two rating categories, or in the top three rating categories for long-term GIC's issued by Minnesota banks. Investments for the City are reported at fair value. Earnings on investments are allocated to the individual funds based upon the average cash and investment balances. The Minnesota Municipal Money Market Fund (4M) investment pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool share. Financial statements of the 4M fund can be obtained by contacting Voyageur Asset Management at 100 South Fifth Street Suite 2300, Minneapolis, MN 55402-1240. -32- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Property Taxes The Council annually adopts a tax levy in December and certifies it to the County for collection in the following year. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property within the City on January 1 and are payable by the property owners in two installments. The taxes are collected by the County Auditor and tax settlements are made to the City during January, July and December each year. Taxes payable on homestead property, as defined by Minnesota statutes, were partially reduced by a market value credit aid. The credit is paid to the City by the State of Minnesota (the State) in lieu of taxes levied against the homestead property. However, in 2005 the City received an aid reduction which eliminated their market value credit aid. Delinquent taxes receivable include the past six years' uncollected taxes. Delinquent taxes have been offset by a deferred revenue liability for delinquent taxes not received within 60 days after year end in the fund fmancial statements. Accounts Receivable Accounts receivable include amounts billed for services provided before year end. Unbilled utility enterprise fund receivables are also included for services provided in 2005. The City annually certifies delinquent water and sewer accounts to the County for collection in the following year. Therefore, there has been no allowance for doubtful accounts established. Special Assessments Special assessments represent the fmancing for public improvements paid for by benefiting property owners. These assessments are recorded as receivables upon certification to the County. Special assessments are recognized as revenue when they are received in cash or within 60 days after year end. All governmental assessments receivable are offset by a deferred revenue liability in the fund fmancia1 statements.. Interfund Receivables and Payables Transactions between funds that are representative of lendinglborrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non-current portion of inter fund loans). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities area reported in the government-wide fmancial statements as "internal balances." Advances between funds, as reported in the fund fmancial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. Inventories and Prepaid Items The inventories are stated at average cost, which approximates market using the fIrst-in, fIrst-out (FIFO) rnethod. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund fmancial statements. -33- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide fmancial staternents. Capital assets are defmed by the City as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. For fmancial statement purposes only, a capitalization threshold is established for each capital asset category as follows: Assets Threshold Land and land improvements Other improvements Buildings Building improvements Machinery and equipment Vehicles Infrastructure Other assets $ 10,000 25,000 25,000 25,000 5,000 5,000 100,000 5,000 In the case of initial capitalization of general infrastructure assets (i.e., those reported by governmental activities) the City chose to include items dating back to June 30, 1980. The City was able to estimate the historical cost for the initial reporting of these assets through backtracking (i.e., estimating the current replacement cost of the infrastructure to be capitalized and using an appropriate price-level index to deflate the cost to the acquisition year or estimated acquisition year). As the City constructs or acquires capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially arnounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Property, plant and equipment of the City, are depreciated using the straight-line method over the following estimated useful lives: Assets Useful Lives in Years Land improvements Buildings and improvements System improvements/infrastructure Machinery and equipment Vehicles 15 - 20 7 - 40 20 - 50 5 - 15 5 - 15 -34- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Compensated Absences It is the City's policy to permit employees to accumulate a portion of earned but unused vacation and sick pay benefits. Accumulated vacation and sick pay are accrued when incurred in the government-wide, proprietary, and fiduciary 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. Long-term Obligations In the government-wide fmancia1 statement and proprietary fund types in the fund fmancial statements, long- term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. In the fund fmancia1 statements, governmental fund types recognized bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other fmancing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other fmancing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Equity In the fund fmancial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subj ect to change. Net Assets Net assets represent the difference between assets and liabilities. Net assets are displayed in three components: a. Invested in capital assets, net of related debt - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. b. Restricted net assets - Consist of net assets restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws or regulations of other governments. c. Unrestricted net assets - All other net assets that do not meet the defmition of "restricted" or "invested in capital assets, net ofrelated debt". Comparative DatalReclassifications Cornparative total data for the prior year have been presented only for individual enterprise funds in the fund financial statements in order to provide an understanding of the changes in the [mancial position and operations of these funds. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. -35- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the General fund. All annual appropriations lapse at fiscal year end. The City does not use encumbrance accounting. In August of each year, all departments of the City submit requests for appropriations to the City Administrator so that a budget may be prepared. Before September 15th, the proposed budget is presented to the Council for review. In early December, the Council holds public hearings and a fmal budget is prepared and adopted. The appropriated budget is prepared by fund, function and department. The City's department heads, with the approval of the City Administrator, may make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the Council. The legal level of budgetary control is the department level. Budgeted amounts are as originally adopted. B. Excess of Expenditures over Appropriations For the year ended December 31, 2005, expenditures exceeded appropriations in the General fund by $62,387. This variance was funded by revenues in excess of budget and available fund balance. C. Deficit Fund Equity The MSA Construction fund had a deficit fund balance of $121,782 as of December 31, 2005. Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Deposits Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the City's deposits and investments may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the Council, the City maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota statutes require that all City deposits be protected by insurance, surety bond or collateral. The market value of collateral pledged must equal 11 0 percent of the deposits not covered by insurance or bonds (140 percent in the case of mortgage notes pledged). Authorized collateral includes the legal investments described below, as well as certain fIrst mortgage notes, and certain other State or local government obligations. Minnesota statutes require that securities pledged as collateral be held in safekeeping by the City or in a fmancial institution other than that furnishing the collateral. At year end, the City's carrying arnount of deposits was $2,412,838 and the bank balance was $2,699,758. $2,616,924 was cover by federal depository insurance and the remaining balance of $82,834 was covered by pledged collateral. -36- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Investments The 4M fund is a customized cash management and investment program for Minnesota public funds. Sponsored and governed by the League of Minnesota Cities since 1987, the 4M fund is a unique investment alternative designed to address the daily and long-term investment needs of Minnesota cities and other municipal entities. Allowable under Minnesota statutes, the 4M fund is comprised of top quality, rated investments. At year end, the City's investment balances were as follows: Types of Investments Credit Quality/ Ratings (1) Pooled investments Government securities Government securities Government securities Government securities Commercial paper Commercial paper Broker money market 4M fund AAA AAA AAA AAA A-1+/P-1 A-I N/A P-1 Total pooled investments At year end, the City's cash and investment balances were as follows: Carrying amount of deposits Investments Cash on hand Total As reported on the fmancial statements Statement of net assets Cash with fiscal agent Fiduciary fund Total Segmented Time Distribution (2) less than 6 months 6 to 12 months 1 to 3 years more than 3 years less than 6 months less than 6 months N/A < 6 months Fair Value and Carrying Amount $ 3,345,508 99,320 475,071 6,505,519 545,160 246,290 392,863 430,223 $ 12,039,954 $ 2,412,838 12,039,954 1,300 $ 14,454,092 $ 14,224,676 103,601 125,815 $ 14,454,092 Concentration of credit risk/interest rate risk: It is the policy of the City to diversify its investment portfolio to eliminate the risk of loss resulting from over-concentration of assets in a specific rnaturity, a specific issuer or a specific class of securities. The maturities selected shall provide for stability of income and reasonable liquidity. Custodial credit risk - investments. In accordance with the City's investment policy, the investment officer shall structure all investments, deposits and repurchase agreements so that the custodial risk is categorized as either insured or register, or securities held by the City or its agent in the City's name or uninsured and unregistered, with securities held by the counterparty's trust department or agent in the City's name. All investments are placed in safekeeping at fmancial institutions. -37- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED B. Deferred Revenue Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities ofthe current period. Governmental and business-type funds 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 deferred revenue and unearned revenue reported in the governmental funds and business-type funds were as follows: Unavailable Unearned Governmental activities General fund Taxes Special assessments 1993 Improvement and Refunding Special assessments 2002 Public Safety Buildings Lease receivable 2003 Public Safety Buildings Lease receivable $ 55,758 12,704 $ 1,557 9,605,000 2,405,000 Total $ 12,080,019 $ Business-type activities Water fund Rent $ $ 30,680 -38- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED C. Capital Assets Capital asset activity for the year ended December 31, 2005 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities Capital assets not being depreciated Land $ 741,826 $ $ $ 741,826 Capital assets being depreciated Buildings 1,707,901 307,868 2,015,769 Improvements other than buildings 719,514 719,514 Infrastructure 24,841,273 24,841,273 Machinery and equipment 1,952,696 167,170 (34,588) 2,085,278 Total capital assets being depreciated 29,221,384 475,038 (34,588) 29,661,834 Less accumulated depreciation Buildings (498,568) (49,015) (547,583) Improvements other than buildings (407,414) (37,470) (444,884) Infrastructure (15,139,235) (1,088,804) (16,228,039) Machinery and equipment (1,619,560) (124,647) 34,588 (1,709,619) Total accumulated depreciation (17,664,777) (1,299,936) 34,588 (18,930,125) Total capital assets being depreciated, net 11,556,607 (824,898) 10,731,709 Governmental activities capital assets, net $ 12,298,433 $ (824,898) $ $ 11,473,535 -39- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Beginning Ending Balance Increases Decreases Balance Business-type activities Capital assets not being depreciated Land $ 404,392 $ $ $ 404,392 Construction in progress 762,669 762,669 Total capital assets not being depreciated 404,392 762,669 1,167,061 Capital assets being depreciated Infrastructure 15,796,357 15,796,357 Machinery and equipment 390,889 390,889 Total capital assets being depreciated 16,187,246 16,187,246 Less accumulated depreciation for Infrastructure (7,784,525) (400,646) (8,185,171) Machinery and equipment (209,755) (42,072) (251,827) Total accumulated depreciation (7,994,280) (442,718) (8,436,998) Total capital assets being depreciated, net 8,192,966 (442,718) 7,750,248 Business-type activities capital assets, net $ 8,597,358 $ 319,951 $ $ 8,917,309 Depreciation expense was charged to functions/programs of the City as follows: Governmental activities General government Public works Culture and recreation $ 36,509 1,190,116 73,311 Total depreciation expense - governmental activities $ 1,299,936 Business-type activities Water Sewer Stormwater management utility Liquor $ 182,144 203,783 19,833 36,958 Total depreciation expense - business-type activities $ 442,718 -40- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Construction Commitments The City has active construction projects as of December 31,2005. The projects include street construction in areas with newly developed housing and widening and construction of existing streets and bridges. The County Road 19 project is a multi-government project and the construction costs are shared by Hennepin County and the cities of Tonka Bay and Shorewood. At year end the commitments with contractors for these projects are as follows: Spent Remaining Project to date Commitment County Road 19 and Smithtown Intersection $ 3,435,327 $ 199,394 Badger Field Wellhouse 355,999 158,202 Lift station #8 and # 18 rehabilitation 215,845 Total $ 4,007,171 $ 357,596 D. Interfund Receivables, Payables and Transfers The composition of interfund balances as ofDecernber 31, 2005, is as follows: Receivable Fund Payable Fund Purpose Amount $ 90,000 260,000 350,000 $ 700,000 Enterprise Sewer Sewer Street reconstruction Enterprise Stormwater management General MSA Construction To purchase land To purchase land For construction of a county road Total Interfund transfers Fund Transfers out General Liquor Transfers in Nonrnajor Street General governmental Reconstruction fund funds fund $ $ 181,000 $ 311,000 50,000 $ 50,000 $ 181,000 $ 311,000 Transfers in Enterprise Enterprise Stormwater Sewer Management fund Total $ 7,000 $ 60,000 $ 559,000 50,000 $ 7,000 $ 60,000 $ 609,000 Fund Transfers out General Liquor Total Total All interfund transfers were for capital improvements and purchases. -41- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED E. Leases Operating Leases The City leases space for liquor store operations. These leases are considered, for accounting purposes, to be operating leases. Lease expense for the year ended December 31, 2005 amounted to $149,689. Future minimum lease payments for all leases are as follows: Year Ending Shorewood Waterford December 31, Plaza Center Total 2006 $ 57,410 $ 55,000 $ 112,410 2007 59,603 13,750 73,353 2008 10,239 10,239 Total $ 127,252 $ 68,750 $ 196,002 F. Long-term Debt General Obligation Bonds. The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. These bonds are reported in the proprietary funds if they are expected to be repaid from proprietary fund revenues. In addition, general obligation bonds have been issued to refund special assessments related bonds. General Obligation Bonds General obligation bonds are direct obligations and pledge the full faith and credit of the City. The City has the following general obligation debt: General Obligation Revenue Bonds The following bonds were issued to fmance capital improvernents in the enterprise funds. They will be retired from net revenues of the enterprise funds. Balance Authorized Interest Issue Maturity at Description and Issued Rate Date Date Year End G.O. Water Revenue Bonds of 2005 $ 1,525,000 3.00-4.25 % 06/01/05 01/01/25 $ 1,525,000 G.O. Water Revenue Bonds of 1996 860,000 4.95-5.4 11/01/96 02/01/12 405,000 G.O. Water Refunding Bonds of 2003 815,000 1.50-3.00 08/01/03 02/01/11 815,000 Total G.O. Revenue Bonds $ 2,745,000 -42- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Annual debt service requirements to maturity for general obligation revenue bonds are as follows: G.O. Revenue Bonds Year Ending Business-type Activities December 31, Principal Interest Total 2006 $ 275,000 $ 98,055 $ 373,055 2007 255,000 86,055 341,055 2008 250,000 78,636 328,636 2009 250,000 70,770 320,770 2010 250,000 62,332 312,332 2011 - 2015 570,000 220,233 790,233 2016 - 2020 400,000 144,891 544,891 2021 - 2025 495,000 54,084 549,084 Total $ 2,745,000 $ 815,056 $ 3,560,056 Lease Revenue Bonds The City also issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. Revenue bonds outstanding at year end are as follows: Balance Authorized Interest Issue Maturity at Description and Issued Rate Date Date Year End Public Safety Fire Facility, Series 2002A $ 3,865,000 3.00-5.50 % 09/01/02 02/01/23 $ 3,730,000 Public Safety Police Facility, Series 2002B 4,025,000 3.00-5.50 09/01/02 02/01/23 3,885,000 Public Safety Fire Facility, Series 2002C 2,060,000 3.00-5.50 09/01/02 02/01/23 1,990,000 Public Safety Fire Facility, Series 2003A 1,195,000 2.35-5.10 04/15/03 02/01/23 1,190,000 Public Safety Police Facility, Series 2003B 1,220,000 2.35-5.10 04/15/03 02/01/23 1,215,000 Total Lease Revenue Bonds $ 12,010,000 -43- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Annual debt service requirements to maturity for revenue bonds are as follows: Lease Revenue Bonds Year Ending Governmental Activities December 31, Principal Interest Total 2006 $ 455,000 $ 575,691 $ 1,030,691 2007 465,000 559,550 1,024,550 2008 485,000 541,240 1,026,240 2009 495,000 521,290 1,016,290 2010 525,000 499,608 1,024,608 2011 - 2015 2,980,000 2,109,890 5,089,890 2016 - 2020 3,805,000 1,270,773 5,075,773 2021 - 2023 2,800,000 233,365 3,033,365 Total $ 12,010,000 $ 6,311 ,407 $ 18,321,407 Capital Lease Payable During 1996, the City entered into a lease, with option to purchase, agreement as lessee for fInancing the South Shore Senior Center project. Title remains with the City so long as they are not in default of terms in the lease agreement. Balance Original Interest Issue Maturity at Description Asset Amount Rate Date Date Year End Southshore Center $ 311,000 6.22 % 05/30/96 08/01/08 $ 101,322 The lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the date of its inception. Capital Leases Payable Year Ending Governmental Activities December 31, Principal Interest Total 2006 $ 31,728 $ 5,816 $ 37,544 2007 33,732 3,812 37,544 2008 35,862 1,682 37,544 Total $ 101,322 $ 11 ,31 0 $ 112,632 -44- CITY OF SHOREWOOD, Mll\TNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Changes in Long-term Liabilities Long-term liability activity for the year ended December 31,2005, was as follows: Beginning Ending Due Within Balance Increases Decreases Balance One Year Governmental activities Lease revenue bonds $ 12,365,000 $ $ (355,000) $ 12,010,000 $ 455,000 Capital leases payable 131,164 (29,842) 101,322 31,728 Compensated absences 87,650 99,177 (87,650) 99,177 99,177 Total $ 12,583,814 $ 99,177 $ (472,492) $ 12,210,499 $ 585,905 Business-type activities General obligation revenue bonds $ 2,170,000 $ 1,525,000 $ (950,000) $ 2,745,000 $ 275,000 Compensated absences 14,953 17,073 (14,953) 17,073 17,073 Total $ 2,184,953 $ 1,542,073 $ (964,953) $ 2,762,073 $ 292,073 G. Fund Balance Reservations/Designations The City has made the following reservations and designations of fund balance. Fund Purpose Amount $ 48,593 238,873 $ 287,466 $ 2,944,588 2,217,595 1,020,624 $ 6,182,807 Fund balance - Reserved General Debt Service Prep aids Debt service on bonds issued Total reserved fund balance Fund balance - Unreserved - Designated General Street Reconstruction Other governmental Working capital Capital outlay Capital outlay Total designated fund balance -45- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2005 Note 4: DEFINED BENEFIT PENSION PLAN - STATEWIDE A. Plan Description All full-time and certain part-time employees of the City are covered by defmed benefit plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Fund (PERF), which is a cost-sharing, multiple-employer retirement plan. This plan is established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERF rnembers belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by Minnesota statute, and vest after three years of credited service. The defmed retirement 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 methods are used to compute benefits for PERF's Coordinated and Basic Plan members. The retiring rnember 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 10 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 10 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. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A normal annuity is a lifetime annuity that ceases upon the death of the retiree-no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will reduce the monthly normal annuity amount, because the annuity is payable over joint lives. Members may also leave their contributions in the fund upon termination of public service, in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous 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. PERA issues a publicly available fmancia1 report that includes financial staternents and required supplementary information for PERF. That report may be obtained on the web at rnnpera.org, by writing to PERA, 60 Empire Drive, Suite 200, St. Paul, Minnesota 55103-1855 or by calling 651-296-7460 or 800-652-9026. B. Funding Policy Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the State legislature. The City makes annual contributions to the pension plans equal to the amount required by Minnesota statutes. PERF Basic Plan members and Coordinated Plan members are required to contribute 9.10 percent and 5.1 0 percent, respectively, oftheir annual covered salary. The City is required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan PERF members, and 5.53 percent for Coordinated Plan PERF members. The City's contributions to the PERF for the years ending December 31,2005,2004 and 2003 were $65,563, $68,440 and $63,294, respectively. The City's contributions were equal to the contractually required contributions for each year as set by Minnesota statute. -46- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 5: JOINT VENTURES A. South Lake Minnetonka Police Department The City participates in a joint powers agreement with the cities of Excelsior, Greenwood and Tonka Bay, which establishes the South Lake Minnetonka Police Department (Department) for the purpose of providing police protection within the four communities. The agreernent creates a coordinating committee, comprised of the Mayors of each participating community, as the governing body, which meets quarterly. Each year, the coordinating committee adopts an operating budget, which is approved by all participating cities. The cost of the operating budget is divided between the participating cities based upon a fixed percentage of the total municipal revenue allocated to each city. Any budget shortfall is made up first from department reserves, with any excess shortfall assessed to each participating community according to the formula. The most recent year of audited information is December 31, 2005. The Department had accounts payable, accrued interest, accrued payroll and compensated absences, and bonds payable of $5,411 ,790. Separate fInancial statements can be obtained by writing to the South Lake Minnetonka Police Department, 24150 Smithtown Road, Shorewood, Minnesota 55331.The following is a summary of the Department's Statement of Net Assets as of December 31, 2005 and 2004: SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY OF STATEMENT OF NET ASSETS DECEMBER 31, 2005 AND 2004 2005 2004 Assets $ 6,036,233 $ 5,983,700 Liabilities Net assets $ 5,411,790 624,443 $ 5,539,239 444,461 Total liabilities and net assets $ 6,036,233 $ 5,983,700 The following is a summary of the Department's staternent of activities for the years ended Decernber 31, 2005 and 2004: SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY STATEMENT OF ACTDnTES YEARS ENDED DECEMBER 31,2005 AND 2004 2005 2004 Expenses $ 2,026,891 $ 1,996,960 Revenues 173,368 130,286 Net expenses (1,853,523) (1,866,674) General revenues 2,033,505 1,956,288 Change in net assets 179,982 89,614 Net assets, January 1 444,461 354,847 Net assets, December 3 1 $ 624,443 $ 444,461 -47- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 5: JOINT VENTURES - CONTINUED B. Southshore Community Center The City participates in a joint venture with the cities of Deep haven, Excelsior, Greenwood and Tonka Bay, which establishes the Southshore Community Center (Senior Center) to provide senior citizens educational and recreational activities. Upon completion of the facility, the rnember cities will lease the Southshore Center to the Friends of the Southshore Senior Community Center (Community Center). The term of the lease shall be 25 years at a rental rate of $1 per year. In addition to the rental rate, the Community Center is required to pay all operating costs of the Southshore Center. The mernber cities are responsible for a proportionate share of the building construction. Shorewood fmanced its obligation by issuing a lease purchase note. The remaining balance on the lease is $101,322 and is reflected in the government-wide statements. This will be paid out of the General fund. In the event operating costs are not covered by revenue, each member is responsible for their proportionate share oflosses. The building is recorded in the capital asset section on the Statement of Net Assets. The ownership interest of each city is proportionate to each city's investment in the Southshore Center. Separate financial statements are issued for the Community Center and can be obtained at the City offices. C. Excelsior Fire District In August of 2000, the cities of Deep haven, Excelsior, Greenwood, Shorewood and Tonka Bay entered a joint powers agreement to provide fIre protection and medical response service to their residents and created an entity called the Excelsior Fire District (the District). The Board of Directors is comprised often members and five alternate members. Each member city appoints two representatives on the Board of Directors and one alternate. The City is billed for service based on a formula that determines its share of the total expenditures. Separate [mancial statements can be obtained by writing to the Excelsior Fire District, 24100 Smithtown Road, Shorewood, Minnesota 55331. Selected financial information is shown below for the most recent year of audited information, which is December 31,2005: Governmental Funds Special Capital General Revenue Proj ects Total $ 253,956 $ 73,429 $ 310,749 $ 638,134 90,673 266 3,961 94,900 163,283 73,163 306,788 543,234 1,197,201 152,263 16,163 1,365,627 594,767 77 ,968 759,192 1,431,927 (624,785) (28,500) 653,285 Total assets Total liabilities Total equity Total revenues Total expenditures Total other fmancing sources (uses) Government- wide Total assets Total liabilities Total net assets Total expenses Total charges for services Total unrestricted investment earnings $ 8,594,690 7,387,467 1,207,223 1,289,045 1,356,067 9,560 -48- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2005 Note 6: OTHER INFORMATION A. Risk Management The City is exposed to various risks ofloss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the City carries insurance. The City obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT) which is a risk sharing pool with approximately 800 other governmental units. The City pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the City's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The City's rnanagement is not aware of any incurred but not reported claims. B. Legal Debt Margin The City's statutory debt limit is $23,543,186 computed as two percent of the taxable market value of property within the City. Long-term debt issued and fmanced partially or entirely by special assessments, tax increments or the net revenues of enterprise fund operations is excluded from the debt limit computation. The City has no debt that is subject to the statutory debt limit. -49- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31, 2005 NONMAJOR GOVERNMENTAL FUNDS CITY OF SHOREWOOD, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET DECEMBER 31,2005 Capital Projects Funds Public F acilities/ Park Office Capital Equipment Equipment Improvement Replacement ASSETS Cash and temporary investments $ 196,176 $ 285,245 $ 327,361 Receivables Accrued interest 1,342 1,953 2,244 TOTAL ASSETS $ 197,518 $ 287,198 $ 329,605 LIABILITIES AND FUND BALANCES LIABILITIES Accounts and contracts payable $ $ $ FUND BALANCES Unreserved Designated for capital outlay 197,518 287,198 329,605 TOTAL LIABILITIES AND FUND BALANCES $ 197,518 $ 287,198 $ 329,605 -50- Exhibit A-I Capital Projects Funds - Continued EDA Public Safety Senior Land and Facilities Community Open Space Proj ect Center Total $ 10,047 $ 169,664 $ 36,911 $ 1,025,404 69 253 5,861 $ 10,116 $ 169,664 $ 37,164 $ 1,031,265 $ $ 10,641 $ $ 10,641 10,116 159,023 37,164 1,020,624 $ 10,116 $ 169,664 $ 37,164 $ 1,031,265 -51- CITY OF SHOREWOOD, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2005 Capital Projects Funds Public F acilities/ Park Office Capital Equipment Equipment Improvement Replacement REVENUES Interest on investments $ 3,846 $ 6,129 $ 7,827 Miscellaneous Park dedication fees 40,000 Contributions and donations 6,000 Other 1,300 TOTAL REVENUES 3,846 53,429 7,827 EXPENDITURES Capital outlay General government 3,939 96 Public safety Public works 105,651 Culture and recreation 19,220 TOTAL EXPENDITURES 3,939 19,220 105,747 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (93) 34,209 (97,920) OTHER FINANCING SOURCES Transfers in 50,000 10,000 116,000 NET CHANGE IN FUND BALANCES 49,907 44,209 18,080 FUND BALANCES, JANUARY 1 147,611 242,989 311,525 FUND BALANCES, DECEMBER 31 $ 197,518 $ 287,198 $ 329,605 -52- Exhibit A-2 Capital Projects Funds - Continued EDA Public Safety Senior Land and Facilities Community Open Space Project Center Total $ 143 $ 5,816 $ 898 $ 24,659 40,000 6,000 1,300 143 5,816 898 71,959 4,035 75,383 75,383 105,651 27 10 19,257 27 75,383 10 204,326 116 (69,567) 888 (132,367) 5,000 181,000 5,116 (69,567) 888 48,633 5,000 228,590 36,276 971,991 $ 10,116 $ 159,023 $ 37,164 $ 1,020,624 -53- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2005 (With comparative actual amounts for the year ended December 31, 2004) 2005 2004 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts REVENUES Taxes General property taxes $ 3,830,656 $ 3,830,656 $ 3,637,087 $ (193,569) $ 3,227,422 Fiscal disparities 113,546 113 ,546 117,020 Total 3,830,656 3,830,656 3,750,633 (80,023) 3,344,442 Licenses and permits Business 13,100 13,100 13,385 285 20,170 Nonbusiness 183,000 183,000 321,335 138,335 289,885 Total 196,100 196,100 334,720 138,620 310,055 Intergovernmental State Property tax credits 34 34 Other 65,000 65,000 64,446 (554) 73,065 Total 65,000 65,000 64,480 (520) 73,065 Charges for services General government 17,265 17,265 16,262 (1,003) 13,159 Parks and recreation 25,000 25,000 34,490 9,490 31,010 Total 42,265 42,265 50,752 8,487 44,169 Fines and forfeitures 62,000 62,000 90,149 28,149 81,841 Interest on investments 94,800 94,800 107,787 12,987 58,564 Miscellaneous revenue Refunds and reimbursements 8,600 8,600 90,309 81,709 11,682 Contributions and donations 1,000 1,000 1,000 Other 21,600 21,600 5,536 (16,064) 32,430 Total 30,200 30,200 96,845 66,645 45,112 TOTAL REVENUES 4,321,021 4,321,021 4,495,366 174,345 3,957,248 -54- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31,2005 (With comparative actual amounts for the year ended December 31,2004) 2005 2004 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES Current General government Mayor and Council Personal services $ 16,793 $ 16,793 $ 16,794 $ (1) $ 13,733 Supplies 1,200 1,200 1,411 (211 ) 1,183 Other services and charges 95,500 95,500 41,502 53,998 45,457 Total 113,493 113,493 59,707 53,786 60,373 Administrative Personal services 129,344 129,344 120,964 8,380 108,416 Supplies 400 400 262 138 Other services and charges 12,700 12,700 9,809 2,891 2,242 Total 142,444 142,444 131,035 11,409 110,658 City clerk Personal services 141,875 141,875 139,868 2,007 152,577 Supplies 27,950 27,950 20,579 7,371 25,226 Other services and charges 23,710 23,710 16,551 7,159 15,446 Total 193,535 193,535 176,998 16,537 193,249 Finance Personal services 163,684 163,684 153,459 10,225 136,486 Supplies 18,000 18,000 5,056 12,944 4,722 Other services and charges 10,500 10,500 8,497 2,003 7,035 Total 192,184 192,184 167,012 25,172 148,243 Professional services Other services and charges 192,000 192,000 162,271 29,729 142,061 Planning and zoning Personal services 143,468 143,468 154,669 (11,201) 148,955 Supplies 1,475 1,475 707 768 916 Other services and charges 14,510 14,510 7,915 6,595 8,332 Total 159,453 159,453 163,291 (3,838) 158,203 -55- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31,2005 (With comparative actual amounts for the year ended December 31, 2004) 2005 2004 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES - CONTINUED Current - Continued General government - Continued Municipal building Supplies $ 15,865 $ 15,865 $ 16,472 $ (607) $ 13,536 Other services and charges 115,600 115,600 139,914 (24,314) 93,443 Total 131,465 131,465 156,386 (24,921) 106,979 City engineer Personal services 122,891 122,891 111,604 11,287 101,301 Supplies 1,350 1,350 907 443 839 Other services and charges 13,550 13,550 39,885 (26,335) 15,136 Total 137,791 137,791 152,396 (14,605) 117,276 Total general government 1,262,365 1,262,365 1,169,096 93,269 1,037,042 Public safety Police protection Other services and charges 722,050 722,050 727,725 (5,675) 671,401 Fire protection Other services and charges 256,418 256,418 263,107 (6,689) 235,010 Animal control Other services and charges 24,000 24,000 24,673 (673) 20,971 Protective inspection Personal services 99,783 99,783 101,925 (2,142) 95,455 Supplies 300 300 162 138 777 Other services and charges 10,820 10,820 7,028 3,792 5,075 Total 110,903 110,903 109,115 1,788 101,307 Total public safety 1,113,371 1,113,371 1,124,620 (11,249) 1,028,689 Public works General maintenance Personal services 281,335 281,335 219,118 62,217 178,293 Supplies 44,500 44,500 51,557 (7,057) 39,150 Other services and charges 29,950 29,950 29,406 544 28,851 Total 355,785 355,785 300,081 55,704 246,294 -56- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2005 (With comparative actual amounts for the year ended December 31, 2004) 2005 2004 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES - CONTINUED Current - Continued Public works Streets and highways Personal services $ 122,000 $ 122,000 $ 87,337 $ 34,663 $ 74,773 Supplies 43,000 43,000 59,856 (16,856) 42,282 Other services and charges 9,000 9,000 13,994 (4,994) 9,402 Total 174,000 174,000 161,187 12,813 126,457 Snow and ice removal Personal services 34,817 34,817 24,475 10,342 21,211 Supplies 30,000 30,000 20,864 9,136 15,490 Total 64,817 64,817 45,339 19,478 36,701 Traffic control Supplies 6,000 6,000 4,662 1,338 1,980 Other services and charges 34,000 34,000 31,457 2,543 31,672 Total 40,000 40,000 36,119 3,881 33,652 Sanitation and waste removal Personal services 633 633 594 (2,869) Supplies 400 400 400 Other services and charges 4,100 4,100 3,502 3,506 2,876 Total 5,133 5,133 4,096 1,037 2,876 Tree maintenance Personal services 11,396 11,396 15,011 (3,615) 18,881 Supplies 1,800 1,800 479 1,321 1,048 Other services and charges 13,350 13,350 7,768 5,582 11,688 Total 26,546 26,546 23,258 3,288 31,617 Total public works 666,281 666,281 570,080 96,201 477,597 -57- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2005 (With comparative actual amounts for the year ended December 31, 2004) 2005 2004 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES - CONTINUED Current - Continued Culture and recreation Personal services $ 130,527 $ 130,527 $ 109,304 $ 21,223 $ 104,075 Supplies 14,600 14,600 10,025 4,575 11,341 Other services and charges 64,000 64,000 48,190 15,810 52,862 Total culture and recreation 209,127 209,127 167,519 41,608 168,278 Total current expenditures 3,251,144 3,251,144 3,031,315 219,829 2,711,606 Capital outlay General government 88,900 88,900 359,267 (270,367) 5,878 Public safety 464,788 464,788 490,083 (25,295) 512,232 Public works 23,410 23,410 350 23,060 3,152 Culture and recreation 375 375 9,989 (9,614) (1,415) Total capital outlay 577,473 577,473 859,689 (282,216) 519,847 Debt service Principal 29,842 29,842 29,842 28,069 Interest and other 13,562 13,562 13,562 9,475 Total debt service 43,404 43,404 43,404 37,544 TOTAL EXPENDITURES 3,872,021 3,872,021 3,934,408 (62,387) 3,268,997 EXCESS OF REVENUES OVER EXPENDITURES 449,000 449,000 560,958 111,958 688,251 OTHER FINANCING SOURCES (USES) Transfers in 50,000 50,000 50,000 30,000 Transfers out (499,000) (499,000) (559,000) (60,000) (323,500) TOTAL OTHER FINANCING SOURCES (USES) (449,000) (449,000) (509,000) (60,000) (293,500) NET CHANGE IN FUND BALANCES 51,958 51,958 394,751 FUND BALANCES, JANUARY 1 2,941,223 2,941,223 2,941,223 2,546,472 FUND BALANCES, DECEMBER 31 $ 2,941,223 $ 2,941,223 $ 2,993,181 $ 51,958 $ 2,941,223 -58- CITY OF SHOREWOOD, MINNESOTA Exhibit C-l DEBT SERVICE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2005 1993 Improvement Waterford 2002/2003 and III Tax Public Safety Refunding Increment Building Total ASSETS Cash and ternporary investments $ 110,076 $ 10,526 $ 117,457 $ 238,059 Receivables Accrued interest 742 72 814 Special assessments Deferred 1,557 1,557 Lease 12,010,000 12,010,000 TOTAL ASSETS $ 112,375 $ 10,598 $ 12,127,457 $ 12,250,430 LIABILITIES AND FUND BALANCES LIABILITIES Deferred revenue $ 1,557 $ $ 12,010,000 $ 12,011,557 FUND BALANCES Reserved for Debt service 110,818 10,598 117,457 238,873 TOTAL LIABILITIES AND FUND BALANCES $ 112,375 $ 10,598 $ 12,127,457 $ 12,250,430 -59- CITY OF SHOREWOOD, MINNESOTA Exhibit C-2 DEBT SERVICE FUNDS COMBll\TING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31,2005 1993 Improvement Waterford 2002/2003 and III Tax Public Safety Refunding Increment Building Total REVENUES Special assessments $ 6,928 $ $ $ 6,928 Lease payments 948,384 948,384 Interest on investments 2,510 256 281 3,047 Miscellaneous 41,900 41,900 TOTAL REVENUES 9,438 256 990,565 1,000,259 EXPENDITURES Debt service Principal 355,000 355,000 Interest and service charges 30 " 597,763 597,796 .) TOTAL EXPENDITURES 30 3 952,763 952,796 EXCESS OF REVENUES OVER EXPENDITURES 9,408 253 37,802 47,463 FUND BALANCES, JANUARY 1 101,410 10,345 79,655 191,410 FUND BALANCES, DECEMBER 31 $ 110,818 $ 10,598 $ 117,457 $ 238,873 -60- CITY OF SHOREWOOD, MINNESOTA LIQUOR FUNDS SCHEDULES OF ASSETS, LIABILITIES AND NET ASSETS DECEMBER 31,2005 AND 2004 Tonka Bay Waterford Center 2005 2004 2005 2004 ASSETS CURRENT ASSETS Cash and temporary investments (deficit) $ $ 246,813 $ 36,862 $ (162,426) Receivables Accrued interest 1,401 166 Accounts 7,349 7,445 Inventories, at cost 92,813 94,449 Prepaid items 1,162 1,933 TOTAL CURRENT ASSETS 248,214 138,352 (58,599) NONCURRENT ASSETS Capital assets Equipment and furnishings 68,199 68,199 Less accumulated depreciation (56,785) (53,399) TOTAL CAPITAL ASSETS (net of accumulated depreciation) 11,414 14,800 TOTAL ASSETS 248,214 149,766 (43,799) LIABILITIES CURRENT LIABILITIES Accounts and contracts payable 11,045 37,093 Due to other governments 8,166 7,432 Salaries and compensated absences payable 5,337 4,040 TOTAL CURRENT LIABILITIES 24,548 48,565 NET ASSETS Invested in capital assets 11,414 14,800 Unrestricted 248,214 113,804 (107,164) TOTAL NET ASSETS $ $ 248,214 $ 125,218 $ (92,364) -61- Exhibit D-l Shorewood Plaza 2005 2004 Totals 2005 2004 $ 352,446 $ 328,983 $ 389,308 $ 413,370 2,419 1,309 2,585 2,710 7,349 7,445 146,942 147,707 239,755 242,156 1,225 1,934 2,387 3,867 503,032 479,933 641,384 669,548 247,983 (95,619) 247,983 (62,047) 316,182 (152,404) 316,182 (115,446) 152,364 185,936 163,778 200,736 655,396 665,869 805,162 870,284 30,738 70,006 41,783 107,099 11,271 11,680 19,437 19,112 15,694 13,914 21,031 17,954 57,703 95,600 82,251 144,165 152,364 185,936 163,778 200,736 445,329 384,333 559,133 525,383 $ 597,693 $ 570,269 $ 722,911 $ 726,119 -62- CITY OF SHOREWOOD, MINNESOTA LIQUOR FUNDS SCHEDULES OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FOR THE YEARS ENDED DECEMBER 31,2005 AND 2004 Tonka Bay Waterford Center 2005 2004 2005 2004 OPERATING REVENUES Sales $ $ $ 854,693 $ 858,670 Less cost of goods sold (617,873) (628,786) GROSS PROFIT 236,820 229,884 OPERATING EXPENSES Personal services 111,767 113,882 Supplies 5,256 4,584 Depreciation 3,386 5,152 Professional services 2,143 3,733 Contracted services 510 551 Insurance 7,101 7,227 Utilities 8,234 8,467 Rent 67,426 64,010 Advertising 5,859 6,538 Other 72 14,468 14,003 TOTAL OPERATING EXPENSES 72 226,150 228,147 OPERATING INCOME (LOSS) (72) 10,670 1,737 NONOPERATING REVENUES (EXPENSES) Interest on investments 4,752 5,201 Other income (expense) (2,423) 2,465 TOTAL NONOPERATING REVENUES (EXPENSES) 4,752 2,778 2,465 INCOME BEFORE TRANSFERS 4,680 2,778 13,135 1,737 TRANSFERS Transfers in 229,447 Transfers out (252,894) (25,000) (15,000) TOTAL TRANSFERS (252,894) 204,447 (15,000) CHANGE IN NET ASSETS (248,214) 2,778 217,582 (13,263) NET ASSETS, JANUARY 1 248,214 245,436 (92,364) (79,101) NET ASSETS, DECEMBER 31 $ $ 248,214 $ 125,218 $ (92,364) -63- Exhibit D-2 Shorewood Plaza Totals 2005 2004 2005 2004 $ 1,180,787 $ 1,340,069 $ 2,035,480 $ 2,198,739 (858,993) (979,973) (1,476,866) (1,608,759) 321,794 360,096 558,614 589,980 129,271 145,354 241,038 259,236 4,562 5,429 9,818 10,013 33,572 33,905 36,958 39,057 2,143 3,733 4,286 7,466 1,135 1,185 1,645 1,736 7,101 7,227 14,202 14,454 15,020 11,963 23,254 20,430 82,263 70,203 149,689 134,213 5,859 5,614 11,718 12,152 22,093 28,469 36,633 42,472 303,019 313,082 529,241 541,229 18,775 47,014 29,373 48,751 7,833 5,363 12,585 10,564 2,369 400 4,834 (2,023) 10,202 5,763 17,419 8,541 28,977 52,777 46,792 57,292 23,447 252,894 (25,000) (15,000) (302,894) (30,000) (1,553) (15,000) (50,000) (30,000) 27,424 37,777 (3,208) 27,292 570,269 532,492 726,119 698,827 $ 597,693 $ 570,269 $ 722,911 $ 726,119 -64- CITY OF SHOREWOOD, MINNESOTA LIQUOR FUNDS SCHEDULES OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 Tonka Bay Waterford Center 2005 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ $ $ 854,789 $ 851,225 Other receipts and payments, net (2,423) 2,465 Payments to suppliers, contractors and other governments (72) (751,777) (718,132) Payments to employees (110,470) (113,556) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (72) (2,423) (4,993) 19,537 CASH FLOWS FROM NONCAPITAL FINANCING ACTMTIES Transfers in 229,447 Transfers out (252,894) (25,000) (15,000) NET CASH PROVIDED (USED) BY NON CAPITAL FINANCING ACTIVITIES (252,894) 204,447 (15,000) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 6,153 5,096 (166) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (246,813) 2,673 199,288 4,537 CASH AND CASH EQUIVALENTS (DEFICITS), JANUARY 1 246,813 244,140 (162,426) (166,963) CASH AND CASH EQUIVALENTS (DEFICITS), DECEMBER 31 $ $ 246,813 $ 36,862 $ (162,426) RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ (72) $ $ 10,670 $ 1,737 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities Other income (expense) related to operations (2,423) 2,465 Depreciation 3,386 5,152 (Increase) decrease in assets: Accounts receivable 96 (7,445) Inventories 1,636 9,074 Prepaid items 771 1,740 Increase (decrease) in liabilities: Accounts and contracts payable (26,048) 9,402 Due to other governments 734 (449) Salaries and compensated absences payable 1,297 326 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (72) $ (2,423) $ (4,993) $ 19,537 -65- Exhibit D-3 Shorewood Plaza Totals 2005 2004 2005 2004 $ 1,180,787 $ 1,370,069 $ 2,035,576 $ 2,221,294 2,369 400 4,834 (2,023) (1,037,372) (1,115,210) (1,789,221) (1,833,342) (127,491) (144,531) (237,961) (258,087) 18,293 110,728 13,228 127,842 23,447 252,894 (25,000) (15,000) (302,894) (30,000) (1,553) (15,000) (50,000) (30,000) 6,723 5,262 12,710 10,358 23,463 100,990 (24,062) 108,200 328,983 227,993 413,370 305,170 $ 352,446 $ 328,983 $ 389,308 $ 413,370 $ 18,775 $ 47,014 $ 29,373 $ 48,751 2,369 400 4,834 (2,023) 33,572 33,905 36,958 39,057 30,000 96 22,555 765 (2,681 ) 2,401 6,393 709 1,740 1,480 3,480 (39,268) 830 (65,316) 10,232 (409) (1,303) 325 (1,752) 1,780 823 3,077 1,149 $ 18,293 $ 110,728 $ 13,228 $ 127,842 -66- CITY OF SHOREWOOD, MINNESOTA AGENCY FUND COMBINiNG SCHEDULE OF CHANGES m ASSETS AND LIABILITIES FOR THE YEAR ENDED DECEMBER 31,2005 Exhibit E-l Balance Balance January 1 Additions Deductions December 31 Developer Escrow Accounts ASSETS Cash and temporary investments $ 120,665 $ 99,293 $ 94,143 $ 125,815 LIABILITIES Accounts payable $ 120,665 $ 99,293 $ 94,143 $ 125,815 -67- CITY OF SHOREWOOD, MINNESOTA SUMMARY FINANCIAL REPORT REVENUES AND EXPENDITURES FOR GENERAL OPERATIONS GOVERNMENTAL FUNDS FOR THE YEARS ENDED DECEMBER 31,2005 AND 2004 Exhibit F-l Percent Total Total Increase 2005 2004 (Decrease) REVENUES Taxes $ 3,750,633 $ 3,344,442 12.15 % Licenses and permits 334,720 310,055 7.96 Intergovernmental 2,432,656 1,014,410 139.81 Charges for services 50,752 44,169 14.90 Fines and forfeits 90,149 81,841 10.15 Special assessments 6,928 10,737 (35.48) Investment earnings 201,024 127,853 57.23 Miscellaneous 1,134,429 740,030 53.30 TOTAL REVENUES $ 8,001,291 $ 5,673,537 41.03 % Per Capita 1,049.35 738.26 42.14 EXPENDITURES Current General government $ 1,169,096 $ 1,037,043 12.73 % Public safety 1,124,620 1,028,689 9.33 Streets and highways 570,080 477,596 19.36 Culture and recreation 167,519 168,278 (0.45) Capital outlay General government 363,302 16,092 2,157.66 Public safety 565,466 1,942,722 (70.89) Streets and highways 3,349,707 926,446 261.57 Culture and recreation 29,246 11,070 164.19 Debt service Principal 384,842 48,069 700.60 Interest and other charges 611,358 637,397 (4.09) TOTAL EXPENDITURES $ 8,335,236 $ 6,293,402 32.44 % Per Capita 1,093.15 818.92 33.49 Total Long-term Indebteness $12,111,322 $12,496,164 (3.08) % Per Capita 1,588.37 1,626.05 (2.32) General Fund Balance - December 31 $ 2,993,181 $ 2,941,223 1.77 % Per Capita 392.55 382.72 2.57 The purpose of this report is to provide a summary of fmancial information concerning the City of Shorewood to interested citizens. The complete financial statements may be examined at City Hall, 5755 Country Club Road. Questions about this report should be directed to Bonnie Burton, Finance Director at (952)474-3236. -68- SECTION III STATISTICAL SECTION (UNAUDITED) CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2005 CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) NET ASSETS BY COMPONENT LAST TWO FISCAL YEARS Governmental activities Invested in capital assets, net of related debt Unrestricted Total governmental activities net assets Business-type activities Invested in capital assets, net of related debt Unrestricted Total business-type activities net assets Total primary government Invested in capital assets, net of related debt Unrestricted Total primary government Note: Net assets are not available for years prior to 2004 -69- Table 1 Fiscal Year 2005 2004 $ 11,372,213 6,316,707 $ 17,688,920 $ 6,172,309 8,182,612 $ 14,354,921 $ 17,544,522 14,499,319 $ 32,043,841 $ 12,167,269 6,669,073 $ 18,836,342 $ 6,427,358 7,470,272 $ 13,897,630 $ 18,594,627 14,139,345 $ 32,733,972 Expenses Governmental activities General government Public safety Public works Culture and recreation Interest on long-term debt CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) CHANGES IN NET ASSETS LAST TWO FISCAL YEARS Total governmental activities expenses Business-type activities Water Sewer Recycling Stormwater management utility Liquor Total expenses Total business-type activities expenses Program revenues Governmental activities Charges for services General government Public safety Culture and recreation Operating grants and contributions Capital grants and contributions Total governmental activities program revenues Business-type activities Charges for services Water Sewer Recycling Stormwater management utility Liquor Total business-type activities program revenues Total program revenues Net revenues (expenses) Governmental activities Business-type activities Total primary government -70- Table 2 Fiscal Year 2005 2004 $ 1,222,510 $ 1,074,028 1,690,903 2,972,094 5,019,967 2,446,325 246,381 254,081 606,189 607,862 8,785,950 7,354,390 567,854 591,858 740,174 735,480 105,823 106,933 73,885 106,757 2,006,107 2,152,411 3,493,843 3,693,439 $ 12,279,793 $ 11,047,829 $ 112,107 $ 51,069 1,055,758 983,684 1,575 1,080 100,910 119,594 2,404,367 996,967 3,674,717 2,152,394 649,772 620,189 833,939 866,350 116,517 114,987 102,649 85,978 2,040,314 2,199,139 3,743,191 3,886,643 $ 7,417,908 $ 6,039,037 $ (5,111,233) $ (5,201,996) 249,348 193,204 $ (4,861,885) $ (5,008,792) CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) CHANGES IN NET ASSETS - CONTINUED LAST TWO FISCAL YEARS (accrual basis of accounting) General Revenues and Other Changes in Net Assets General Revenues Governmental activities Taxes Property taxes, levied for general purpose Grants and contributions not restricted to specific programs Unrestricted investment earnings Loss on sale of capital assets Gain on sale of capital assets Transfers Total governmental activities general revenues Business-type activities Unrestricted investment earnings Transfers Total business-type activities general revenues Total primary government Change in Net Assets Governmental activities Business-type activities Total primary government Note: Changes in net assets are not available for years prior to 2004 -71- Table 2 Fiscal Year 2005 2004 $ (1,147,422) 457,291 $ (1,724,594) 332,367 $ (690,131) $ (1,392,227) CITY OF SHOREWOOD, MINNESOTA Table 3 STATISTICAL SECTION (UNAUDITED) GENERAL FUND EXPENDITURES AND OTHER USES BY FUNCTION LAST TEN FISCAL YEARS Culture Fiscal Total General Public Public and Mise.! Debt Year Expenditures Government Safety Works Recreation Transfers Service 1996 $ 2,479,151 $ 782,466 $ 689,904 $ 472,607 $ 109,988 $ 424,186 $ 1997 2,614,217 821,257 744,072 451,756 115,193 444,395 37,544 1998 2,891,689 961,340 788,253 505,240 110,287 489,025 37,544 1999 2,721,371 851,627 799,515 425,450 114,435 492,800 37,544 2000 2,921,715 989,082 827,483 436,915 135,891 494,800 37,544 2001 3,073,887 996,042 893,070 487,092 126,139 534,000 37,544 2002 3,550,223 1,013,522 1,009,079 429,185 451,793 609,100 37,544 2003 3,340,552 1,049,696 1,300,238 423,534 164,540 365,000 37,544 2004 3,592,497 1,042,921 1,540,921 480,748 166,863 323,500 37,544 2005 4,493,408 1,528,363 1,614,703 570,430 177 ,508 559,000 43,404 -72- -73- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Table 5 (1) Percent Collection Percentage Collection of Total Fiscal Total of Current of Levy of Prior Total Collections Year Levy Year's Levy Collected Year's Levy Collections to Levy 1996 $ 1,598,713 $ 1,577,353 98.66 % $ 16,946 $ 1,594,299 99.72 % 1997 1,703,016 1,683,193 98.84 19,982 1,703,175 100.01 1998 1,778,585 1,760,645 98.99 15,694 1,776,339 99.87 1999 1,860,507 1,845,191 99.18 22,439 1,867,630 100.38 2000 1,935,779 1,922,709 99.32 15,035 1,937,744 100.10 2001 2,208,574 2,188,665 99.10 14,813 2,203,478 99.77 2002 2,763,367 2,707,740 97.99 18,749 2,726,489 98.67 2003 3,156,847 3,131,798 99.21 23,113 3,154,911 99.94 2004 3,420,229 3,390,137 99.12 24,794 3,414,931 99.85 2005 3,830,656 3,783,074 98.76 26,118 3,809,192 99.44 (1) Includes state paid property tax credits. -74- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) ESTIMATED MARKET VALUE, ASSESSED V ALUA TION, TAX LEVIES AND TAX CAPACITY RATES (Shown by year of tax collectibility) 2005 2004 2003 2002 Market value Total estimated market value $ 1,177,159,300 $ 1,031,663,400 $ 915,063,800 $ 817,063,900 Tax capacity Tax capacity $ 12,671,623 $ 11,055,767 $ 9,741,599 $ 8,690,552 Contribution to fiscal disparities pool (213,988) (200,062) (184,657) (171,024) Receivable from fiscal disparities pool 379,072 396,666 314,412 Tax increment Taxable valuation/Total tax capacity $ 12,836,707 $ 11,252,371 $ 9,556,942 $ 8,833,940 Tax levies General $ 3,333,864 $ 2,907,997 $ 2,851,847 $ 2,763,367 Debt service 496,792 512,232 305,000 Total $ 3,830,656 $ 3,420,229 $ 3,156,847 $ 2,763,367 Tax capacity rate General 25.971 % 25.843 % 29.841 % 31.923 % Debt service 3.870 4.552 3.191 Total 29.841 % 30.396 % 33.032 % 31.923 % (1) The debt service levy includes $8,508 for 1996, levied for the retirement of Storm Sewer District No.2 improvement bonds. Storm Sewer District No.2 was established by the City of Shorewood in 1991. This portion of the debt service tax levy is only levied within Storm Sewer District No.2 to retire the $31,000 bond issue used to finance the improvements within the district and is not reflected in the tax rates above. Table 7 reports the tax rate of this District separately. -75- Table 6 (1) 2001 2000 1999 1998 1997 1996 $ 769,858,900 $ 680,244,500 $ 626,118,400 $ 595,451,900 $ 560,500,800 $ 517,194,000 $ 11,344,958 $ 10,346,255 $ 9,663,252 $ 9,897,574 $ 9,901,879 $ 9,115,960 (253,832) (201,693) (203,942) (214,901) (202,668) (178,279) 426,424 379,095 342,621 337,116 350,823 332,110 (312,066) (319,186) (294,512) (166,094) $ 11,517,550 $ 10,523,657 $ 9,489,865 $ 9,700,603 $ 9,755,522 $ 9,103,697 $ 2,208,574 $ 1,935,799 $ 1,860,507 $ 1,778,585 $ 1,703,016 $ 1,573,930 24,783 $ 2,208,574 $ 1,935,799 $ 1,860,507 $ 1,778,585 $ 1,703,016 $ 1,598,713 19.208 % 18.340 % 19.573 % 18.317 % 17.479 % 17.252 % 0.179 19.208 % 18.340 % 19.573 % 18.317 % 17.479 % 17.431 % -76- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PROPERTY TAX CAPACITY RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $1,000 OF TAX CAPACITY IN 1996-2005) Storm Year (1) Sewer Taxes School District Watershed District Distri ct Payable City County No. 276 No. 277 No.3 No.4 Misc. No.2 1996 17.431 % 37.270 % 76.340 % 62.418 % 1.533 % 0.864 % 6.390 % 13.956 % 1997 17.479 35.515 78.420 52.223 1.319 0.860 6.149 1998 18.317 38.386 76.408 59.701 0.660 0.843 6.973 1999 19.573 40.994 69.423 67.286 0.825 0.880 8.043 2000 18.340 39.655 59.565 57.711 0.525 0.866 7.916 2001 19.208 37.624 47.155 40.246 1.363 0.946 7.916 2002 33.032 50.409 20.868 25.504 2.461 1.608 7.386 2003 31.923 50.607 24.215 20.758 1.236 1.616 7.757 2004 30.420 47.324 23.125 14.354 0.768 0.732 7.488 2005 29.825 44.172 21.989 16.250 1.276 1.375 7.382 (1) Includes vocational school -77- Table 7 Totals School District No. 276 Watershed School District District No.4 No. 277 Watershed Watershed Sewer Watershed District Di stri ct District District No.3 No.4 No.2 No.3 138.964 % 138.295 % 152.251 % 125.042 % 138.882 138.423 138.423 112.685 140.744 140.927 140.927 124.037 138.858 138.913 138.913 136.721 126.001 126.342 126.342 124.147 112.966 112.549 112.549 106.057 112.355 113.303 113.303 118.792 115.738 116.118 116.118 112.281 109.125 109.089 109.089 100.354 104.644 104.743 104.743 98.905 -78- CITY OF SHOREWOOD, MINNESOTA Table 8 STATISTICAL SECTION (UNAUDITED) PRINCIPAL TAXPAYERS DECEMBER 31, 2005 2005 Percent Tax of Taxpayer Type of Business Capacity Total Big Box One, LLC Commercial $ 92,190 12.35 % Shurgard Storage Centers Inc Commercial 73,610 9.86 Towle Real Estate Commercial 71,790 9.62 Minnetonka Country Club Commercial 51,890 6.95 Kimberly & Frank Vennes Residential/Lakeshore 50,625 6.78 Minnetonka Portable Dredging Co. Commercial 48,250 6.46 The Mary Sue Simon Qprt ResidentiallLakeshore 46,940 6.29 Waterford Center LLP Commercial 45,110 6.04 Beacon Bank Commercial 43,490 5.83 Thomas J & Cynthia J Redmond ResidentiallLakeshore 41,875 5.61 Luaina Rae Hagen ResidentiallLakeshore 39,503 5.29 o Dale Larson Residential/Lakeshore 38,338 5.14 Shurgard Storage Centers Inc Residential/Commercial 37,790 5.06 Matin E & Anne K Davis Residential/Lakeshore 33,149 4.44 Lawrence B & Patricia A Reid ResidentiallLakeshore 32,000 4.29 -79- CITY OF SHOREWOOD, MINNESOTA Table 9 STATISTICAL SECTION (UNAUDITED) SPECIAL ASSESSMENT LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Percent Collection Percentage Collection of Total Fiscal Total of Current of Levy of Prior Total Collections Year Levy Year's Levy Collected Year's Levy Collections to Levy 1996 $ 233,219 $ 197,667 84.76 % $ 6,660 $ 204,327 87.61 % 1997 223,274 204,178 91.45 17,545 221,723 99.31 1998 215,817 190,437 88.24 7,089 197,526 91.52 1999 185,174 172,344 93.07 41,897 214,241 115.70 2000 160,137 155,491 97.10 11,813 167,304 104.48 2001 138,271 133,808 96.78 20,195 154,003 111.3 8 2002 94,544 89,965 95.16 6,750 96,715 102.30 2003 79,327 76,286 96.17 7,399 83,685 105.49 2004 79,290 75,963 95.80 3,032 78,995 99.63 2005 83,900 76,298 90.94 3,916 80,214 95.61 -80- Table 10 CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) COMPUTATION OF LEGAL DEBT MARGIN DECEMBER 31,2005 $1.177.159.300 Market Value 23,543,186 Debt Limit: 2.0% of market value (Note A) Amount of Debt Applicable to Debt Limit: Total Bonded Debt Less, (Note B) Lease Revenue Bonds General Obligation Revenue Bonds Total Debt Applicable to Debt Limit $ 14,755,000 (12,010,000 ) (2,745,000) Legal Debt Margin $ 23.543.186 Note (A): M.S.A. Section 475.53 (Limit on Net Debt) "Subdivision 1. Generally, except as otherwise provided in sections 475.51 to 475.75, no municipality, except a school district or a city of the fIrst class, shall incur or be subject to a net debt in excess of 2.0 percent of the market value of taxable property in the municipality." Note (B): M.S.A. Section 162.18 (Bond: Municipal State Aid) (1) "Subdivision 2. Not included in net debt of municipality for purpose of any statutory or charter limitation. Obligations issued here under may be authorized by resolution of the governing body without authorization by the electors, and shall not be included in the net debt of the municipality for the purpose of any statutory or charter limitation on indebtedness." M.S.A. Section 475.51 (Defmitions:) "Subdivision 4. 'Net Debt' means the amount remaining after deducting from its gross debt the aggregate of the principal of the following: Obligations issued for improvements which are payable wholly or partly from the proceeds of special assessments levied upon property specially benefited thereby, including those which are general obligations of the rnunicipality issuing them, if the municipality is entitled to reimbursement in whole or in part from the proceeds of the special assessments. (2) Warrants or orders having no defmite or fIxed maturity. (3) Obligations payable wholly from the income from revenue-producing conveniences. (4) Obligations issued to create or maintain a permanent improvement revolving fund. (5) Obligations issued for the acquisition and betterment of public water works systems, and public lighting, heating or power systems and of any combination thereof, or for any other public convenience frorn which a revenue is or may be derived. (6) Amount of all money and the face value of all securities held as a sinking fund for the extinguishment of obligations other than those deductible under this subdivision. (7) All other obligations, which under the provisions of the law authorizing their issuance, are not to be included in computing the net debt of the municipality." * After contribution and distribution from "fiscal disparity" legislation; Minnesota laws 1971, Extra Session, Chapter 24. -81- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) RATIO OF NET BONDED DEBT TO ASSESSED VALUE AND NET BONDED DEBT PER CAPITA LAST TEN FISCAL YEARS Table 11 Ratio of Less Net Bonded Amount Debt to (1) Reserved Assessed Net Gross for Net Values/ Bonded Fiscal Estimated Tax Bonded Debt Bonded Tax Debt Year Population Capacity Debt Service Debt Capacity Per Capita 1996 6,794 $ 9,103,697 $ 3,602,500 $ 503,635 $ 3,098,865 .3404:1 $ 456 1997 6,889 9,755,522 3,335,000 478,192 2,856,808 .2928: 1 415 1998 6,955 9,700,603 3,015,000 424,978 2,590,022 .2670:1 372 1999 7,008 9,489,865 2,700,000 376,643 2,323,357 .2448:1 332 2000 7,400 10,218,346 2,380,000 303,858 2,076,142 .2032:1 281 2001 7,400 11,344,958 2,070,000 231,421 1,838,579 .1621:1 248 2002 7,400 8,690,552 11,720,000 208,801 11,511,199 1.325:1 1,556 2003 7,520 9,556,942 12,385,000 205,350 12,179,650 1.274:1 1,620 2004 7,685 11,252,371 12,365,000 191,410 12,173,590 (2) 1.082:1 1,584 2005 7,625 12,836,707 12,010,000 238,873 11,771,127 .917:1 1,544 (1) Gross bonded debt amounts in this table are general obligation special assessment bonds and revenue bonds whose principal source of funding will be sources other than general property taxes. (2) The City's anticipated debt service obligation is estimated at $6,000,000 -82- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT (1) TO TOTAL GENERAL EXPENDITURES* LAST TEN FISCAL YEARS Table 12 Total Percent of Total General Debt Service Fiscal Debt Fund to General Year Principal Interest Service Expenditures * Expenditures 1996 $ 767,000 (3) $ 72,461 $ 839,461 $ 2,479,151 33.86 % 1997 142,500 39,921 182,421 2,614,217 6.98 1998 135,000 33,099 168,099 2,891,689 5.81 1999 135,000 26,645 161,645 2,721,371 5.93 2000 130,000 18,588 148,588 2,921,715 5.09 2001 125,000 11,777 136,777 3,073,887 4.45 2002 115,000 6,133 121,133 3,550,223 3.41 2003 20,000 1,430 21,430 3,340,552 0.64 2004 20,000 480 20,480 3,268,997 0.63 2005 3,934,408 (1) Excludes G.O. Bonds reported in Enterprise Funds (3) Principal included bonds called in 1996 * Includes General fund only -83- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) COMPUTATION OF DIRECT AND OVERLAPPING DEBT DECEMBER 31,2005 Table 13 Gross Amount Bonded of Debt Used Percentage Net Debt For Net Debt Net Applicable to Applicable Calculation Debt District to District Overlapping Debt School District #27 6 $ 86,275,000 $ 45,723,849 23.69 % $ 10,831,980 School District #277 9,460,000 7,105,039 2.00 142,101 Hennepin County 376,230,000 370,442,913 1.15 4,260,093 Henn Suburban Park District 50,660,000 45,571,202 1.51 688,125 Henn Regional RR Authority 46,795,000 46,547,489 1.15 535,296 Metropolitan Council 209,125,000 206,623,754 0.52 1,074,444 Total Overlapping Debt $ 778,545,000 $ 722,014,246 2.43 % $ 17,532,039 -84- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) REVENUE BOND COVERAGE WATER FUND LAST TEN FISCAL YEARS Table 14 (1) Net Ratio of Net Fiscal Gross (2) Revenue Debt Service Revenue to Year Revenue Expenses Available Principal Interest Total Debt Service 1996 $ 272,678 $ 170,485 $ 102,193 $ 15,000 $ 74,473 $ 89,473 1.142:1 1997 252,866 180,601 72,265 125,000 120,737 245,737 .2940: 1 1998 311,925 179,914 132,011 185,000 125,085 310,085 .4257: 1 1999 454,227 201,325 252,902 180,000 117,642 297,642 .8497: 1 2000 465,548 186,696 278,852 190,000 109,736 299,736 .9303:1 2001 398,555 209,332 189,223 185,000 99,739 284,739 .6646:1 2002 287,465 236,575 50,890 185,000 93,280 278,280 .1828:1 2003 539,287 192,689 346,598 185,000 82,904 267,904 1.2937:1 2004 676,287 314,513 361,774 190,000 88,712 278,712 1.2980:1 2005 720,438 300,858 419,580 950,000 84,851 1,034,851 .3179:1 (1) Including interest and other income (2) Excluding depreciation and interest on bonds -85- CITY OF SHOREWOOD, MINNESOTA Table 15 STATISTICAL SECTION (UNAUDITED) PROPERTY VALUE AND CONSTRUCTION LAST TEN FISCAL YEARS (1) Commercial (1) Construction Residential Construction (2) Fiscal Number Property Value Year Value of Units Value Commercial Residential Total 1996 $ 1,350,000 37 $ 9,393,436 $ 10,562,200 $ 517,983,900 $ 528,546,100 1997 695,000 41 11,825,463 13,034,900 542,674,600 555,709,500 1998 1,317,000 35 9,563,920 14,572,900 580,878,400 595,451,300 1999 39 10,673,841 18,097,200 607,425,000 625,522,200 2000 428,000 71 12,151,100 17,487,100 668,078,300 685,565,400 2001 34 11,451,098 21,243,000 774,394,300 795,637,300 2002 1,335,000 10 3,983,587 23,438,500 891,331,300 914,769,800 2003 4,640,000 27 10,607,279 26,475,900 1,006,984,300 1,033,460,200 2004 25 11,672,144 34,366,000 1,380,763,000 1,415,129,000 2005 24 14,066,290 43,575,000 1,506,913,900 1,550,488,900 (1) City Planning and Inspection Department (2) County Assessor's Office -86- Year of incorporation Form of government Fiscal year begins Area of City Population 2000 Census 1990 Census 1980 Census 1970 Census Miles of streets and alleys City streets Municipal state aid streets County roads State highway Sewer Lift stations Sewer rates - residential Miles of sewer lines Number of street lights Building permits issued in 2005 Number of permits Value CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) MISCELLANEOUS STATISTICS DECEMBER 31, 2005 Table 16 1956 Council-Administrator Adopted May 14, 1956 January 1 6.0 square miles 7,400 5,917 4,646 4,223 41.0 9.8 1.7 2.7 14 $70.00/quarter 56.2 177 1,013 $ 15,916,458 Fire protection: Contracted services with Mound and Excelsior Fire District Police protection: Contracted services with South Lake Minnetonka Police Department Parks Number Acres Water Number of connections Average daily consumption Miles of water main Daily capacity - gallons Number of fire hydrants Water rate Employees Regular Part-time/seasonal Total Elections Registered voters last election Number of votes cast last election Percentage of registered voters voting 6 98.8 1,265 418,077 gallons 15.2 4,680,000 gallons 165 $3.50/1000 gallons 21 13 34 4,981 4,521 90.8% -87- GOVERNMENT-WIDE FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2005