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2007 Comp. Annual Financial Report I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the year ended December 31, 2007 www.ci.shorewood.mn.us I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2007 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 SHOREWOOD, MINNESOTA MINNESOTA LEGAL COMPLIANCE YEAR ENDED DECEMBER 31, 2007 Certified Puhlic Accountants & Consultants . I CITY OF SHOREWOOD, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2007 I I 1. INTRODUCTORY SECTION Elected and Appointed Officials Organization Chart Letter of Transmittal from Finance Director/Treasurer Certification of Achievement for Excellence in Financial Reporting I I II. FINANCIAL SECTION Independent Auditor's Report I I 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 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances 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 I I I I I I Combining and Individual Fund Financial Statements and Schedules I Nonmajor Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) I General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual I Debt Service Funds Combining Balance Sheet Combining Schedule of Revenues, Expenditures and Changes in Fund Balances I 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 I I Exhibit Page No. 1 2 I - V 3 4-5 i-xi 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 - 50 A-I 51 - 52 A-2 53 - 54 B-1 55 - 60 C-l 61 C-2 62 D-l D-2 D-3 63 - 64 65 - 66 67 - 68 I CITY OF SHOREWOOD, MINNESOTA TABLE OF CONTENTS - CONTINUED DECEMBER 31, 2007 I I II. FINANCIAL SECTION - CONTINUED I Combining and Individual Fund Statements and Schedules Agency Fund Combining Schedule of Changes in Assets and Liabilities I Summary Financial Report Revenues and Expenditures for General Operations - Governmental Funds I I III STATISTICAL SECTION (UNAUDITED) I Net Assets by Component Changes in Net Assets Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Tax Capacity, Market Value and Estimated Actual Value of Taxable Property Property Tax Capacity Rates - Direct and Overlapping Governments Principal Taxpayers Property Tax Levies and Collections Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita Ratios of General Bonded Debt Outstanding Computation of Direct and Overlapping Debt Legal Debt Margin Information Pledged-Revenue Coverage Demographic and Economic Statistics Principal Employers Full-Time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function I I I I I I I I I I I Exhibit E-1 F-1 Table 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Page No. 69 70 71 72 - 73 74 - 75 76 - 77 78 - 79 80- 81 82 - 83 84 85 86 87 88 - 89 90 - 91 92 93 - 94 95 96 97 I I I I I I I I I I I I I I I I I I I INTRODUCTORY SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31, 2007 I I I Name I Christine Lizee Richard Woodruff Laura Turgeon Paula Callies I Martin Wellens I Craig W. Dawson I Bonnie Burton I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA ELECTED AND APPOINTED OFFICIALS DECEMBER 31,2007 ELECTED Title Term Expires Mayor Council Member, Ward 1 Council Member, Ward 2 Council Member, Ward 3 Council Member, Ward 4 12/31/08 12/31/10 12/31/08 12/31/10 12/31/08 APPOINTED City Administrator/Clerk Finance Director/Treasurer -1- - - - - - - - - - - - - - - - - - - - CITY OF SHOREWOOD ORGANIZATION CHART I SHOREWOOD RESIDENTS I CITY COUNCIL JOINT POWERS ORGANIZATIONS ADVISORY BOARDS POLICE - SLMPD PARK COMMISSION FIRE - EXCELSIOR FIRE DISTRICT I CITY I PLANNING COMMISSION LMCC - Lake M'tka Communication ADMINISTRATOR Commission LMCD - Lake M'tka Conservation CITY ATTORNEY I District I I I I I FINANCE I I ADMINISTRATION I I PLANNING/ZONING I I PUBLIC WORKS I I I I FINANCE I EXEC. SECRETARY' I PLANNING DIRECTOR OF DIRECTOR' DEPUTY CLERK DIRECTOR PUBLIC WORKS TREASURER I I RECEPTIONISTI SECRETARY' I CITY I PARK SECRETARY RECEPTIONIST ENGINEER I LIGHT EQPT. , I SR. ACCOUNTING I COMMUNICATIONS PLANNING BUILDING I UTILITY MAINT. ENGINEERING I CLERK TECHNICIAN ASSISTANTS OFFICIAL OPERATORS TECHNICIAN ------------------------. ------------------ ------------------ -------------- ------------ Personnel' HR Budgeting General Government Planning Building and Ground: Engineering Sves Accounting Payroll Licensing Zoning Administration Tree Maintenance Project Mgmt Investments Purchasing Elections Properly Records Park Maintenance Waler Maintenance Utility Billing MIS Records Inspection Street Maintenance Sewer Maintenance Acets. Receivable Accts. Payable legal Publications Equipment Mainlenat SanilationlWeeds Special Assessments Public Information Stormwater System Street Lighting Insurance/Risk Management Cable TV Franchise Park Planning IRecreation Programs CONTRACTED SERVICES ASSESSOR - HENNEPIN COUNTY RECYCLING - VEOLIA ANIMAL CONTROL- SLMPD FIRE (Islands) - MOUND I- I I I I I I I I I I I 1 I, 1 I 1 1 1 CITY OF SHOREWOOD 5755 COUNTRY CLUB ROAD. SHOREWOOD, MINNESOTA 55331-8927. (952) 474-3236 FAX (952) 474-0128 . www.cLshorewood.mn.us . cityhall@cLshorewood.mn.us May 5,2008 Honorable Mayor and Members o(the City Council, City of Shorewood, Minnesota Mayor and City Council Members: The_ Comprehensive Annual Financial Report of the City of Shorewood, Minnesota for the fiscal year ended December 31, 2007, is hereby submitted. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. INTERNAL CONTROLS Management staff has established a comprehensive internal control framework designed to protect the government's assets from loss, theft, or misuse, and to compile sufficient reliable irifot:mation for the preparation ofthe City of Shorewood's financial statements. The cost of internal controls should not exceed anticipated benefits; therefore, the City o[Shorewood's comprehen~ive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that_the financial statements are free of any material . misstatements. The internal control system is evaluated as part of the annual audit. INDEPENDENT AUDIT Minnesota Statutes require an annual financial audit by the Minnesota State Auditor or by independent certified public accountants. The City of Shorewood's financial statements have been audited by the firm of Abdo, Eick & Meyers, LLP: a firm of independent certified public accountants, and they have issued an unqualified ("clean") opinion on the City of Shorewood's financial statements for the year ended December 31, 2007. The independent auditor's report i? presented at the front of the financial section of this report. ... I 'o.J PRINTED ON RECYCLED PAPER I I I I I I 1 I 1 1 I 1 I 1 I 1 I 1 I, ORGANIZATION OF THE REPORT The Comprehensive Annual Financial Report is presented in three sections: Introductory, Finan~ial 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. - PROFILE OF THE GOVERNMENT The City of Shore wood was incorporated in 1956 and is a suburb of the 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 7,499 as of 2007. 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, elected from four wards on a non-partisan basis. Council members serye four-year staggered terms, with two council members elected every two years. The mayor is elected to serve a two-year term'. 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 financial statements are not issued for this component unit. 1 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. During 2007, the Ci~y operated five enterprises: a water utility; sanitary sewer; recycling; and storm- water management utilities. In addition, the City operated an off-sale liquor operation with two store locations; this municipal liquor operation was discontinued during' 2007 and the business and stores sold to private investors. I II I I I I I I I I' 1 1 I. I I I I I I I I LOCAL ECONOMY The City of Shorewood displays very strong wealth indices with a per 'capita income of $49,566 (191.5% of state average) and a median family income of 183% of state average. Full value per capita is very healthy at $206,107, and the City's fiscal 2007 full property valuation is over $1.5 billion. . " The City maintains stable financial operations d_ue to a history of conservative budgeting, characterized by the maintenance of healthy reserves, as well as the lack of reliance on state aid. In addition, the City's debt burden is expected to remain manageable given expected ongoing tax base growth and limited capital needs. I FINANCIAL AND MANAGEMENT EMPHASIS Governance The City Council, in its leadership role, has effectively established a focus for government in Shorewood apd has established overall goals and expectations for the City. The Council's calendar consists of'three phases. The first, phase is planning; it includes review of the previous year's work plan and periodic review of the City's Comprehensive Plan. It also includes identification of goals and priorities'for the next twelve months. The second phase is programming and capital finance planning; each year the five-year Capital Improvement Program is reviewed imd updated based-upon priorities established in the first phase. The third phase is budgeting; the annual operating budget is developed based on decisions made in-the first two phases. The Council is required to adopt a preliminary budget by September 15th of each year and a final budget by no later than the end of the fiscal year. . The budget is prepared by fund, function, and department.- Cooperative Public Service Delivery Shorewood is committed to working cooperatively with other Lake Minnetoilka area cities to 1 , 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. I I The City of Shorewood, along with the cities of Excelsior, Deephaven, Greenwood and Tonka Bay, has been a member of the Excelsior Fire District since 2000. IThe Ex<:;elsior Fire District is a joint powers organization. A combined police and fire public 'safety building that serves the South Lake Minnetonka Area cities was completed in late 2003. III I, I I I I I- I I I I' I I I 1\ II" I I I I 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 joint powers organization , are the cities of Excelsior, Greenwood, and Tonka Bay. 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 continues meeting its responsibility for sound financial management, as demonstrated by the statements and schedules in the financial section of this report The City Council continues its plan to accumlllate resources for future capital equipment and improvement projects; amounts were transferred to various capital project funds in 2007. Budgeted transfers for capital improvement purposes during 2007 ~ere $670,000. The City Council also adopted a General Fund Balance Policy during 2007 to ensure that General Fund reserves remain at 50-55% of the next year's expenditures. This policy will ensure the long-term economic stability of the organization by providing adequate working capital given the periodic nature of tax receipts and by providing for unexpected shortfalls or emergencIes. Debt Administration As of December 31, 2007, the City's debt outstanding totaled $24,755,000. Of this total, $21,090,000 is combined lease revenue bonds issued in 2002 and 2003 by the EDA to finance the construction of Public Safety (police and fire) buildings and EDA Lease Revenue Advance Refunding Bonds issued in 2007. The City of Shorewood's bond rating of Aa3was reaffirmed in January 2007 by Moody's Investors Service with the issuance of $10 million in Lease Revenue Crossover Refunding Bonds. At that time, Moody's also assigned an initial rating of Aal to the Shorewood Economic Development Authority (EDA), based upon an insurance policy provided by Assured Guaranty Corp. General obligation revenue bonds at year end are $3,665,000. The proceeds from these bonds financed water system extensions 'and improvemehts and will be repaid from special assessments and water rate revenues. Also, in 2007, the City paid in full the capital lease used to finance its portion of construction of the Southshore Senior Community Center. Cash Management The City of Shorewood subscribes to the "pooled cash" concept of investing which means that all funds with cash balances participate in~n investment pool. This permits some funds fo 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. IV I I I I I I I I I I I I I I- I I I I- I 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 reseryes and rates are reviewed annually by an actuary to assure that the program remains financially strong. CERTIFICATE OF ACHIEVEMENT The City of Shorewood was awarded a Certificate of Achievement for Excellence in Financial Reporting for its comprehensive annual financial report (CAFR) for the fiscal year ended December 31, 2006. This award is given by the Government Finance Officers Association of the United States and Canada (GFOA} and this was the fifteenth consecutive year that Shorewood has received this prestigious award. In order to be awarded a Certificate of Achievement, the government had to publish an easily readable and efficiently 9rganized CAFR that satisfied both 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 requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS We wish to express appreciation to the Mayor and City Council for their" continued interest and support in maintaining the highest standards of professionalism in the management of I the City of Shore\yood's financial operations. We also want to express our appreciation to the finance and administrative department staff and the City's independent auditor for their work in preparing this report. Respectfully submitted, ~/4A /,/~ L wrence A. Brown . Acting City Administrator/Clerk L~ Bonnie Burton Finance Director/Treasurer v I I I I I I I I I I I I I I I I I I I 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, 2006 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 fmancial reports (CAFRs) achieve the highest standards in government accounting and fmancial reporting. Cle--e- ~- ax President ~/~ Executive Director I I I I I I I I I I I I I I I I I I I FINANCIAL SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31, 2007 I I I I Certified Public Accountants & Consultants I Grandview Square 5201 Eden Avenue Suile 370 Edina, MN 55436 I INDEPENDENT AUDITOR'S REPORT I Honorable Mayor and Council City of Shorewood, Minnesota I We have audited the accompanying fmancial statements ofthe governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Shorewood, Minnesota (the City), as of and for the year ended December 31, 2007, 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. I I 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audit provides a reasonable basis for our opinions. I I 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, 2007, and the respective changes in financial 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. I The management's discussion and analysis on pages i through xi is not a required part of the basic fmancial 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. I I I I I I 952.835.9090 . Fax 952.835.3261 www.aemcpas.com I Page Two I I I Our audit was conducted for the purpose of forming opinions on the [mancial statements that collectively comprise the City's basic [mancial statements. The introductory section, combining and individual fund [mancial statements and schedules, and statistical sections are presented for purposes of additional analysis and are not a required part of the basic [mancial statements. The combining and individual fund [mancial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic [mancial statements and, in our opinion, are fairly stated in all material respects in relation to the basic [mancial 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 [mancial statements and, accordingly, we express no opinion on them. I I I May 5, 2008 Minneapolis, Minnesota oJJe) ~ q..~, L(,.-~ ABDO, EICK & MEYERS, LLP Certified Public Accountants I I I I I I I I I I I I 952.835.9090 . Fax 952.835.3261 www.aemcpas.com I I I I I I CITY OF SHOREWOOD, MINNESOTA Management's Discussion and Analysis I As management of the City of Shorewood, Minnesota, (the City), we offer readers of the City's [mancial statements this narrative overview and analysis of the [mancial activities of the City for the fiscal year ended December 31, 2007. I Financial Highlights I . The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $33,596,361 (net assets). Of this amount, $16,483,281(unrestricted net assets) may be used to meet the City's ongoing obligations to residents and creditors. I . The City's total net assets increased $666,638. Much of this increase is attributable to the sale of the municipal liquor stores and increased investment earnings. I . As of the close ofthe current fiscal year, the City's governmental funds reported combined ending fund balances of $16,725,162, an increase of $1 0,431 ,451 in comparison with the prior year. This increase is due to the issuance of long- term debt. Approximately 38 percent of this total amount, $6,234,606, is available for spending at the City's discretion, but has been designated for specific purposes. I . At the end of the current fiscal year, unreserved fund balance for the General fund was $3,761,509, or 71 percent of total 2008 budgeted expenditures. While these funds are not legally reserved, they are designated for future purposes. I . The City's total debt increased $9,210,406, or 59 percent during the current fiscal year. The key factor in this increase was the issuance of$10,000,000 of Public Safety Fire and Police Facility Crossover Lease Revenue bonds. I Overview of the Financial Statements I This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic [mancial statements comprise three components: 1) government-wide [mancial statements, 2) fund [mancial statements, and 3) notes to the [mancial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. I I I I -1- I Management Discussion and Analysis - Continued May 5, 2008 I The [mancial statements also include notes that explain some ofthe information in the [mancial 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 I 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 colunms in the basic [mancial statements. I I I Figure 1 Required Components of the City's Annual Financial Report I :................................................................................. I I Management's Discussion and Analysis Basic Financial Statements Required Supplementary Information ..................... ....... ....... ........... ....... ....... ......... ........... ....... I .... ....... ........ I - Government-wide Fund Financial Financial Statements Statements I.................................................................................~ . . . . . ~ I Notes to the Financial Statements I Summary ( ) Detail I I I I I I I -ii- I I I I I I I I I I I I I I I I I I I Management Discussion and Analysis - Continued May 5, 2008 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 [mancial . Statement of Net Assets . Balance Sheet . Statements of Net Assets statements . Statement of Activities . Statement of Revenues, . Statements of Revenues, Expenditures, and Expenses and Changes in Changes in Fund Fund Net Assets Balances . Statements 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-widejinancial statements are designed to provide readers with a broad overview of the City's [mances, 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 financial 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. -iii- I I I I I I I I I I I I I I I I I I I Management Discussion and Analysis - Continued May 5,2008 The government-wide [mancial 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 financially 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 [mancial statements can be found on pages 6 - 8 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with [mance-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 [mancial statements. However, unlike the government-wide [mancial statements, governmental fund financial 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 [mancing requirements. Because the focus of governmental funds is narrower than that of the government-wide [mancial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide [mancial statements. By doing so, readers may better understand the long-term impact by the government's near-term [mancing 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 13 individual governmental funds, three 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 and the Debt Service funds, which are considered to be major funds. Data from the other 9 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 armual 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 [mancial statements can be found on pages 9 - 15 of this report. Proprietary funds. The City maintains one type of proprietary fund Enterprisefunds are used to report the same functions presented as business-type activities in the government-wide [mancial 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 [mancial statements, only in more detail. The proprietary fund [mancial statements provide separate information for each of the enterprise funds which are considered to be major funds of the City. The basic proprietary fund [mancial 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 [mancial 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 [mancial statements can be found on page 28 of this report. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund [mancial statements. The notes to the [mancial statements can be found on pages 29 - 50 of this report. -IV- I I I I I I I I I I I I I I I I I I I Management Discussion and Analysis - Continued May 5, 2008 Other Information The combining statements referred to earlier in connection with nonmajor governmental funds are presented following the notes to [mancial statements. Combining and individual fund [mancial statements and schedules can be found on pages 51 - 70 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's [mancial position. In the case of the City, assets exceeded liabilities by $33,596,361 at the close of the most recent fiscal year. Of the City's net assets (51 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 2007 2006 (Decrease) 2007 2006 (Decrease) Assets Cash and temporary investments $ 6,178,511 $ 5,916,970 $ 261,541 $ 9,365,228 $ 8,330,919 $ 1,034,309 Cash with fiscal agent 10,028,996 10,028,996 110,926 82,751 28,175 Receivables 11,971,013 12,335,689 (364,676) 1,000,939 1,058,154 (57,215) Internal balances (160,000) (210,000) 50,000 160,000 210,000 (50,000) Inventories 240,349 (240,349) Prepaids 11,182 11,930 (748) Deferred charges 143,369 143,369 86,301 94,385 (8,084) Capital assets 10,960,550 11,760,214 (799,664) 9,731,229 9,588,683 142,546 Total assets 39,122,439 29,802,873 9,319,566 20,465,805 19,617,171 848,634 Liabilities Noncurrent liabilities 21,282,411 11,795,192 9,487,219 3,665,000 3,951,867 (286,867) Other liabilities 732,293 576,402 155,891 312,179 166,860 145,319 Total liabilities 22,014,704 12,371,594 9,643,110 3,977,179 4,118,727 (141,548) Net assets Invested in capital assets, net of related debt 10,960,550 11,690,620 (730,070) 6,152,530 5,668,683 483,847 Restricted 24,632 (24,632) Unrestricted 6,147,185 5,716,027 431,158 10,336,096 9,829,761 506,335 Total net assets $ 17,107,735 $ 17,431,279 $ (323,544) $ 16,488,626 $ 15,498,444 $ 990,182 The balance of unrestricted net assets is $16,483,281. This may be used to meet the City's ongoing obligations to citizens and creditors. -v- I Management Discussion and Analysis - Continued May 5, 2008 I Governmental activities. Governmental activities decreased the City's net assets by $323,544. Key elements of this decrease I are attributable to increased expenditures as well as governmental activities transferring $143,728 to business-type activities. Changes in Net Assets I Governmental Activities Business-type Activities Increase Increase 2007 2006 (Decrease) 2007 2006 (Decrease) I Revenues Program revenues Charges for services $ 940,166 $ 1,087,646 $ (147,480) $ 3,658,687 $ 4,445,154 $ (786,467) I Operating grants and contributions 99,800 31,730 68,070 Capital grants I and contributions 132,912 395,229 (262,317) General revenues Property taxes 4,360,254 4,144,543 215,711 Grants and contributions I not restricted to specific programs 37,746 4,925 32,821 Unrestricted investment I earnings 621,234 327,921 293,313 434,072 310,281 123,791 Gain on sale of capital assets 382,890 382,890 I Total revenues 6,192,112 5,991,994 200,118 4,475,649 4,755,435 (279,786) Expenses I General government 1,321,971 1,357,714 (35,743) Public safety 1,819,250 1,806,915 12,335 Public works 1,971,571 2,275,402 (303,831 ) I Culture and recreation 258,906 233,881 25,025 Interest on long-term debt 1,000,230 600,723 399,507 Water 636,506 488,513 147,993 Sewer 952,107 785,638 166,469 I Recycling 91,157 124,354 (33,197) Storm water management utility 63,888 171,190 (107,302) Liquor 1,885,537 2,017,217 (131,680) I Total expenses 6,371,928 6,274,635 97,293 3,629,195 3,586,912 42,283 I Increase (decrease) in net assets before transfers (179,816) (282,641 ) 102,825 846,454 1,168,523 (322,069) Transfers (143,728) 25,000 (168,728) 143,728 (25,000) 168,728 I Change in net assets (323,544) (257,641) (65,903) . 990,182 1,143,523 (153,341) Net assets, January 1 17,431,279 17,688,920 (257,641) 15,498,444 14,354,921 1,143,523 I Net assets, December 31 $ 17,107,735 $17,431,279 $ (323,544) $ 16,488,626 $ 15,498,444 $ 990,182 I I -vi- I Management Discussion and Analysis - Continued May 5, 2008 I I The following graph depicts various governmental activities and shows the revenue and expenses directly related to those activities. Expenses and Program Revenues - Governmental Activities I $2,500,000 I $500,000 I $2,000,000 I $1,500,000 I $1,000,000 I $- General government Public safety Public works Culture and recreation Interest on long- tenn debt I I_ Expenses - Program revenues I I Revenues by Source - Governmental Activities I Unrestricted investment earnings 10.0% Charges for services 15.3% Operating grants and contributions 1.6% I I Grants and contributions not restricted to specific programs 0.6% Capital grants and contributions 2.1% I I I Property taxes 70.4% I For the most part, increases in expenses closely paralleled inflation and growth in the demand for services. I -vii- I I Management Discussion and Analysis - Continued May 5, 2008 I Business-type activities. Business-type activities increased the City's net assets by $990,182. Key elements of this increase are as follows: . The Liquor store inventory and assets were sold, providing $382,890. I . Investment earnings increased $123,791. . Business-type activities received transfers of$143,728 from governmental activities. I Expenses and Program Revenues - Business-type Activities I $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- I I I I I I I I I I I I I Water Sewer Recycling Stormwater management utility I_ Expenses - Program revenues I Liquor -Vlll- I I I I I I I I I I I I I I I I I I I Management Discussion and Analysis - Continued May 5, 2008 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 governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's fmancing 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$16,275,162, an increase of $1 0,431 ,451 in comparison with the prior year. Approximately 38 percent of this total amount $6,234,606 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 to pay debt service in the amount of$1O,040,556. The General fund is the chief operating fund of the City. At the end ofthe current year, the fund balance of the General fund was $3,761,509. 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. Total fund balance represents 92 percent of same year fund expenditures. The fund balance of the City's General fund increased $377,603 during the current fiscal year. The key factor in this increase was: . Revenues in excess of budget of$109,435, mostly due to interest on investments, which was over budget by $137,922. . Capital outlay, general government, culture and recreation and public works functions were all under budget due to services or equipment that were not purchased or required. Major savings included: unspent allocations for a Finance Y2 time position that was unfilled; a postponed Public Works building addition/work bay; and Park & Recreation contractual services savings. The total expenditures provided a positive variance of$368,168. The Debt Service fund has a total fund balance of $ 10,040,556, 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 $9,778,118, which is the result of the issuance of $10 million of refunding bonds. Proprietary funds. The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the enterprise funds at the end of the year amounted to $10,336,096. The total growth in net assets for the funds was $990,182. Other factors concerning the finances of this 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 $109,435 and expenditures were under budget by $368,168. The actual results were significantly different from the fmal budget amounts because of the following: . The interest earned on investments exceeded budget by $137,922. . Several functions of the fund (Capital outlay, general government, public works and culture and recreation) were under budget as a result of savings due to services or equipment that were not purchased or required. Major savings included: unspent allocations for a Finance Y2 time position that was unfilled; Public Works building addition/work bay that was postponed; and Park & Recreation contractual services savings. This provided a positive overall expenditure variance. -IX- I Management Discussion and Analysis - Continued May 5, 2008 I Capital Asset and Debt Administration I Capital Assets. The City's investment in capital assets for its governmental and business type activities as of December 31, 2007, amounts to $20,691,779 (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: I I . Completion of several municipal water projects including the SE Area Well, Woodhaven Well, and Badger Well projects; and significant progress on the installation of the Radio-Read Water Meter Project. I . Upgrade and rehabilitation of several sanitary sewer lift stations projects. Additional information on the City's capital assets can be found in Note 3D on pages 40 - 41 of this report. I Capital Assets Net of Depreciation Governmental Activities Business-type Activities Increase Increase 2007 2006 (Decrease) 2007 2006 (Decrease) Land $ 741,826 $ 741,826 $ $ 404,392 $ 404,392 $ Construction in progress 1,378,581 (1,378,581) 954,258 940,522 13,736 Buildings 1,367,307 1,417,567 (50,260) Improvements other than buildings 214,610 251,088 (36,478) Machinery and equipment 479,017 397,034 81,983 19,663 99,165 (79,502) Infrastructure 8,157,790 7,574,118 583,672 8,352,916 8,144,604 208,312 Total $ 10,960,550 $ 11,760,214 $ (799,664) $ 9,731,229 $ 9,588,683 $ 142,546 I I I I I I I I I I I I -x- I I I I I I I I I I I I I I I I I I I Management Discussion and Analysis - Continued May 5, 2008 Long-term debt. At the end ofthe current fiscal year, the City had total bonded debt outstanding of $24,755,000. Of this amount, $21,090,000 is lease revenue bonds and $3,665,000 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 ofthe City. Outstanding Debt Governmental Activities Business-type Activities Increase Increase 2007 2006 (Decrease) 2007 2006 (Decrease) General obligation revenue bonds $ $ $ $ 3,665,000 $ 3,920,000 $ (255,000) Lease revenue bonds 21,090,000 11,555,000 9,535,000 Capital lease bonds 69,594 (69,594) Compensated absences payable 192,411 170,598 21,813 31,867 (31,867) Total $21,282,411 $11,795,192 $ 9,487,219 $ 3,665,000 $ 3,951,867 $ (286,867) The City's total debt increased $9,210,406 (59 percent) during the current fiscal year. This is primarily due to the issuance of $10,000,000 of crossover refunding bonds. The City maintains an "Aa3" rating from Moody's Investors Services 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 43 - 46 ofthis report. Economic Factors and Next Year's Budgets and Rates . Property valuations within the City remain stable, especially in the desirable lakeshore area. . Inflationary and unemployment trends in the region compare favorably to national indices. . The City takes a responsible long term perspective with fmancial planning and management. Decisions are made to insure ongoing capacity to provide quality services to residents, at a good value. . The 2008 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. All of these factors were considered in preparing the City's budget for the 2008 fiscal year. During the current fiscal year, unreserved fund balance in the General fund increased to $3,761,509. It is intended that this use of available fund balance will be used for special one-time projects as determined by the City Council, in accordance with the General Fund Balance Policy adopted in 2007 by the City Council. Rate increases were implemented in 2007 for the Stormwater Management utility to fund the anticipated projects that will be required to provide for enhancements to the system. The rate increase is expected to provide revenues for these projects. 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 fmances. Questions concerning any of the information provided in this report or requests for additional [mancial information should be addressed to Bonnie Burton, Finance Director/Treasurer, City of Shorewood, 5755 Country Club Road, Shore wood, Minnesota 55331. -xi- I I I I I I I I I I I I I I I I I I I GOVERNMENT -WIDE FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2007 I CITY OF SHOREWOOD, MINNESOTA Exhibit 1 I STATEMENT OF NET ASSETS DECEMBER 31,2007 I Governmental Business-type Activities Activities Total ASSETS I Cash and temporary investments $ 6,178,511 $ 9,365,228 $ 15,543,739 Cash with fiscal agent 10,028,996 110,926 10,139,922 Receivables I Accrued interest 283,419 63,431 346,850 Delinquent taxes 127,756 127,756 Accounts 33,022 388,274 421,296 I Special assessments 6,697 549,234 555,931 Lease 11,090,000 11,090,000 Intergovernmental 430,119 430,119 I Internal balances (160,000) 160,000 Prepaid items 11 , 182 11, 182 Deferred charges 143,369 86,301 229,670 I Capital assets Nondepreciable assets 741,826 1,358,650 2,100,476 Depreciable capital assets, net 10,218,724 8,372,579 18,591,303 I TOTAL ASSETS 39,122,439 20,465,805 59,588,244 I LIABILITIES Accounts and contracts payable 290,580 159,756 450,336 Accrued salaries payable 39,933 2,458 42,391 I Due to other governments 362 2,291 2,653 Accrued interest payable 401,418 68,012 469,430 Unearned revenue 79,662 79,662 I Noncurrent liabilities Due within one year Compensated absences payable 192,411 192,411 I Bonds payable 485,000 250,000 735,000 Due in more than one year I Bonds payable 20,605,000 3,415,000 24,020,000 TOTAL LIABILITIES 22,014,704 3,977,179 25,991,883 I NET ASSETS Invested in capital assets, net of related debt 10,960,550 6,152,530 17,113,080 I Unrestricted 6,147,185 10,336,096 16,483,281 TOTAL NET ASSETS $ 17,107,735 $ 16,488,626 $ 33,596,361 I I The notes to the [mancial statements are an integral part of this statement. I -6- Functions/Programs Governmental activities General government Public safety Public works Culture and recreation Interest on long-term debt Total governmental activities Business-type activities Water Sewer Recycling Storm water management utility Liquor Total business-type activities Total CITY OF SHORE WOOD, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2007 I I Program Revenues Operating Capital Grants Charges for Grants and and Expenses Services Contributions Contributions $ 1,321,971 $ 41,475 $ 1,785 $ 1,819,250 896,731 1,971,571 58,155 124,912 258,906 1,960 39,860 8,000 1,000,230 6,371,928 940,166 99,800 132,912 I I I I 636,506 782,549 952,107 832,956 91,157 89,934 63,888 164,413 1,885,537 1,788,835 3,629,195 3,658,687 $ 10,001,123 $ 4,598,853 $ 99,800 $ 132,912 I I I I 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 I I I Total general revenues and transfers Change in net assets I Net assets, January 1 I Net assets, December 3 1 I I I The notes to the financial statements are an integral part of this statement. -7- I I I I I I I I I I I I I I I I I I I I FUND FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2007 CITY OF SHOREWOOD, MINNESOTA I BALANCE SHEET GOVERNMENTAL FUNDS I DECEMBER 31, 2007 Other I Debt Governmental General Service Funds ASSETS I Cash and temporary investments $ 4,064,136 $ 48,455 $ 2,065,920 Cash with fiscal agent 10,028,996 I Receivables Accrued interest 38,503 83 15,322 Delinquent taxes 127,756 I Accounts 33,022 Special assessments 6,697 Lease 11,090,000 I Due from other governments 430,119 Due from other funds 550,000 TOTAL ASSETS $ 4,270,114 $ 21,167,534 $ 3,061,361 I LIABILITIES AND FUND BALANCES I LIABILITIES Accounts and contracts payable $ 215,338 $ 36,978 $ 38,264 Due to other funds 160,000 550,000 I Due to other governments 362 Salaries and compensated absences payable 39,933 Deferred revenue 92,972 11,090,000 I TOTAL LIABILITIES 508,605 11,126,978 588,264 FUND BALANCES I Reserved for debt service 10,040,556 Umeserved I Designated, reported in General fund 3,761,509 Capital projects funds 2,507,999 I Undesignated, reported in Capital projects funds (34,902) TOTAL FUND BALANCES 3,761,509 10,040,556 2,473,097 I TOTAL LIABILITIES AND I FUND BALANCES $ 4,270,114 $ 21,167,534 $ 3,061,361 I The notes to the fmancial statements are an integral part of this statement. I -9- I I Exhibit 3 I I Total Governmental I Funds $ 6,178,511 I lO,028,996 53,908 I 127,756 33,022 6,697 I 11,090,000 430,119 550,000 I $ 28,499,009 I $ 290,580 I 710,000 362 39,933 I 11,182,972 12,223,847 I 10,040,556 I I 3,761,509 2,507,999 I (34,902) 16,275,162 I $ 28,499,009 I I I -10- I CITY OF SHOREWOOD, MINNESOTA RECONCILIA nON OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS AS OF DECEMBER 31, 2007 Exhibit 4 I I $ 16,275,162 Total fund balances - governmental I Amounts reported for the governmental activities in the statement of net assets are different because: I Capital assets used in governmental activities are not [mancial resources and therefore are not reported as assets in governmental funds. Cost of capital assets Less: accumulated depreciation 32,283,373 (21,322,823) I I 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 Less bond discount net of accumulated amortization Compensated absences (21,090,000) 143,369 (192,411) I I Some receivables are not available soon enough to pay for the current period's expenditures, and therefore are deferred in the funds. Interest on lease receivable Taxes Special assessments Leases 229,511 86,275 6,697 11,090,000 I I I Governmental funds do not report a liability for accrued interest until due and payable. (401,418) I Total net asset - governmental activities $ 17,107,735 I I I I I The notes to the [mancia1 statements are an integral part of this statement. -11- I CITY OF SHOREWOOD, MINNESOTA I STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES I GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2007 Other I Debt Governmental General Service Funds I REVENUES Taxes $ 4,332,741 $ $ Licenses and permits 256,472 I Intergovernmental 95,901 128,385 Charges for services 50,819 Fines and forfeitures 77,777 I Special assessments 418 Interest on investments 257,922 247,996 115,316 Miscellaneous 28,761 1,034,751 13,500 I TOTAL REVENUES 5, I 00,393 1,283,165 257,201 EXPENDITURES I Current General government 1,253,080 143 Public safety 1,263,921 I Public works 718,111 239 Culture and recreation 190,919 12 Capital outlay I General government 54,133 Public safety 554,087 Public works 639 424,514 I Culture and recreation 10,000 80,423 Debt service Principal 33,732 500,862 I Interest and service charges 14,168 942,364 TOTAL EXPENDITURES 4,092,790 1,443,226 505,331 EXCESS (DEFICIENCY) OF REVENUES I OVER (UNDER) EXPENDITURES 1,007,603 (160,061 ) (248,130) OTHER FINANCING SOURCES (USES) I Transfers in 40,000 45,091 685,000 Long-term debt issued 10,000,000 I Discount on long-term debt issued (24,233) Transfers out (670,000) (82,679) (161,140) TOTAL OTHER FINANCING SOURCES (USES) (630,000) 9,938,179 523,860 I NET CHANGE IN FUND BALANCES 377,603 9,778,118 275,730 FUND BALANCES, JANUARY 1 3,383,906 262,438 2,197,367 I FUND BALANCES, DECEMBER 31 $ 3,761,509 $ 10,040,556 $ 2,473,097 The notes to the financial statements are an integral part of this statement. I -12- I I Exhibit 5 I I Total Governmental I Funds $ 4,332,741 I 256,472 224,286 50,819 I 77,777 418 621,234 I 1,077,012 6,640,759 I 1,253,223 I 1,263,921 718,350 190,931 I 54,133 554,087 I 425,153 90,423 I 534,594 956,532 I 6,041,347 599,412 I 770,091 I 10,000,000 (24,233) (913,819) I 9,832,039 10,431,451 I 5,843,711 $ 16,275,162 I I -13- CITY OF SHOREWOOD, MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2007 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 issuance of long-term debt provides current [mancial resources to governmental funds, while the repayment of principal of long-term debt consumes the current [mancial 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 Debt issued or incurred Less discount and issuance costs on bonds issued 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 [mancial 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 [mancial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences Change in net assets - governmental activities The notes to the [mancial statements are an integral part of this statement. -14- Exhibit 6 I I I $ 10,431,451 I I 363,534 (1,163,198) I I I 534,594 (10,000,000) 152,330 I I I (171,795) I 27,513 (3,891) (472,269) I I (21,813) I $ I (323,544) I I I I CITY OF SHOREWOOD, MINNESOTA Exhibit 7 I STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND I FOR THE YEAR ENDED DECEMBER 31, 2007 Variance with I Budgeted Amounts. Final Budget - Actual Positive Original Final Amounts (Negative) I REVENUES Taxes $ 4,363,313 $ 4,363,313 $ 4,332,741 $ (30,572) Licenses and permits 256,650 256,650 256,472 (178) I Intergovernmental 97,995 97,995 95,901 (2,094) Charges for services 43,000 43,000 50,819 7,819 Fines and forfeitures 80,000 80,000 77,777 (2,223) I Interest on investments 120,000 120,000 257,922 137,922 Miscellaneous 30,000 30,000 28,761 (1,239) I TOTAL REVENUES 4,990,958 4,990,958 5,100,393 109,435 EXPENDITURES I Current General government 1,415,386 1,415,386 1,253,080 162,306 Public safety 1,250,715 1,250,715 1,263,921 (13,206) I Public works 726,948 726,948 718,111 8,837 Culture and recreation 237,380 237,380 190,919 46,461 Capital outlay 782,629 782,629 618,859 163,770 I Debt service 47,900 47,900 47,900 TOTAL EXPENDITURES 4,460,958 4,460,958 4,092,790 368,168 I EXCESS OF REVENUES OVER EXPENDITURES 530,000 530,000 1,007,603 477,603 I OTHER FINANCING SOURCES (USES) Transfers in 140,000 140,000 40,000 (100,000) I Transfers out (670,000) (670,000) (670,000) TOTAL OTHER FINANCING I SOURCES (USES) (530,000) (530,000) (630,000) (100,000) I NET CHANGE IN FUND BALANCES 377,603 377,603 FUND BALANCES, JANUARY 1 3,383,906 3,383,906 3,383,906 I FUND BALANCES, DECEMBER 31 $ 3,383,906 $ 3,383,906 $ 3,761,509 $ 377,603 I The notes to the [mancial statements are an integral part of this statement. I -15- CITY OF SHOREWOOD, MINNESOTA Exhibit 8 I STATEMENTS OF NET ASSETS - CONTINUED ON THE FOLLOWING PAGES PROPRIETARY FUNDS I DECEMBER 31,2007 AND 2006 Business-type Activities - Enterprise Funds I Water Sewer 2007 2006 2007 2006 ASSETS I CURRENT ASSETS Cash and temporary investments $ 3,629,125 $ 3,650,102 $ 4,387,059 $ 3,958,626 Cash with fiscal agent 110,926 82,751 I Receivables Accrued interest 27,720 25,949 30,082 30,326 Accounts 94,917 105,823 218,815 217,733 I Special assessments 11,159 3,061 5,688 3,421 Due from other funds 160,000 260,000 Inventories, at cost Prepaid items 6,826 4,635 4,356 3,390 I TOTAL CURRENT ASSETS 3,880,673 3,872,321 4,806,000 4,473,496 NONCURRENT ASSETS I Special assessments receivable 504,299 603,186 22,322 18,373 Deferred charges 86,301 94,385 Capital assets I Land Construction in progress 804,051 929,740 150,207 10,782 Machinery and equipment 59,802 59,802 70,690 70,690 Infrastructure 8,421,029 7,726,550 8,155,713 8,155,714 I Less accumulated depreciation (2,671,756) (2,466,356) (6,335,333) (6,125,195) Total capital assets (Net of accumulated depreciation) 6,613,126 6,249,736 2,041,277 2,111,991 I TOTAL NONCURRENT ASSETS 7,203,726 6,947,307 2,063,599 2,130,364 TOTAL ASSETS 11,084,399 10,819,628 6,869,599 6,603,860 I LIABILITIES CURRENT LIABILITIES Accounts and contracts payable 60,222 42,036 69,809 9,891 I Due to other funds Due to other goverrunents 2,291 2,000 1,504 Accrued interest payable 68,012 29,517 I Salaries and compensated absences payable 828 1,756 1,504 772 Deferred revenue 79,662 27,825 Current portion of bonds payable 250,000 255,000 I TOTAL CURRENT LIABILITIES 461,015 358,134 71,313 12,167 NONCURRENT LIABILITIES Bonds payable less current portion above 3,415,000 3,665,000 I TOTAL LIABILITIES 3,876,015 4,023,134 71,313 12,167 NET ASSETS I Invested in capital assets, net of related debt 3,034,427 2,424,121 2,041,277 2,111,991 Unrestricted 4,173,957 4,372,373 4,757,009 4,479,702 TOTAL NET ASSETS $ 7,208,384 $ 6,796,494 $ 6,798,286 $ 6,591,693 I The notes to the financial statements are an integral part of this statement. -16- I I CITY OF SHOREWOOD, MINNESOTA Exhibit 8 STATEMENTS OF NET ASSETS - CONTINUED I PROPRIETARY FUNDS DECEMBER 31,2007 AND 2006 I Business-type Activities - Enterprise Funds - Continued Totals 2007 2006 I ASSETS CURRENT ASSETS Cash and temporary investments $ 9,365,228 $ 8,330,919 I Cash with fiscal agent 110,926 82,751 Receivables Accrued interest 63,431 62,003 I Accounts 388,274 363,360 Special assessments 18,106 7,213 Due from other funds 160,000 260,000 I Inventories, at cost 240,349 Prepaid items 11,182 11,930 TOTAL CURRENT ASSETS 10,117,147 9,358,525 I NONCURRENT ASSETS Special assessments receivable 531,128 625,578 Deferred charges 86,301 94,385 I Capital assets Land 404,392 404,392 Construction in progress 954,258 940,522 I Machinery and equipment 130,492 130,492 Infrastructure 17,370,054 16,991,758 Less accumulated depreciation (9,127,967) (8,878,481 ) I Total capital assets (Net of accumulated depreciation) 9,731,229 9,588,683 TOTAL NONCURRENT ASSETS 10,348,658 10,308,646 I TOTAL ASSETS 20,465,805 19,667,171 LIABILITIES CURRENT LIABILITIES I Accounts and contracts payable 159,756 81,006 Due to other funds 50,000 Due to other goverrunents 2,291 21,723 I Accrued interest payable 68,012 29,517 Salaries and compensated absences payable 2,458 38,656 Deferred revenue 79,662 27,825 I Current portion of bonds payable 250,000 255,000 TOTAL CURRENT LIABILITIES 562,179 503,727 NONCURRENT LIABILITIES I Bonds payable less current portion above 3,415,000 3,665,000 TOTAL LIABILITIES 3,977,179 4,168,727 I NET ASSETS Invested in capital assets, net ofrelated debt 6,152,530 5,763,068 Unrestricted 10,336,096 9,735,376 I TOTAL NET ASSETS $ 16,488,626 $ 15,498,444 The notes to the financial statements are an integral part of this statement. I -18- CITY OF SHOREWOOD, MINNESOTA Exhibit 9 I STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS - CONTINUED OF THE FOLLOWING PAGES I PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 Business-type Activities - Enterprise Funds I Water Sewer 2007 2006 2007 2006 I OPERATING REVENUES Sales $ $ $ $ Less cost of sales I GROSS PROFIT Charges for services 580,158 582,572 823,293 807,598 I GROSS PROFIT AND REVENUES 580,158 582,572 823,293 807,598 OPERATING EXPENSES I Personal services 86,676 75,164 85,256 46,26 I Supplies 15,151 11,576 3,866 3,932 Repairs and maintenance 5,052 10,807 7,694 13,932 I Depreciation 205,400 184,105 210,138 204,064 Professional services 2,000 2,000 2,000 2,000 Contracted services 43,570 12,836 21,665 12,594 Insurance 7,135 6,917 5,642 4,878 I Water purchases 22,780 19,691 Utilities 65,750 69,027 9,058 9,412 Disposal charges 604,067 486,873 I Rent Advertising Other 10,942 15,225 2,721 1,692 I TOTAL OPERATING EXPENSES 464,456 407,348 952,107 785,638 OPERATING INCOME (LOSS) 115,702 175,224 (128,814) 21,960 I NONOPERATING REVENUES (EXPENSES) Special assessments 45,167 457,171 Permits and connection fees 55,277 209,003 9,663 28,577 I Interest on investments 183,168 123,854 213,244 155,486 Gain on sale of capital assets Other income 101,947 101,295 Interest expense (172,050) (81,165) I TOTAL NONOPERATING REVENUES (EXPENSES) 213,509 810,158 222,907 184,063 INCOME (LOSS) BEFORE TRANSFERS 329,211 985,382 94,093 206,023 I TRANSFERS Transfers in 82,679 112,500 Transfers out I TOTAL TRANSFERS 82,679 112,500 CHANGE IN NET ASSETS 411,890 985,382 206,593 206,023 I NET ASSETS, JANUARY 1 6,796,494 5,811,112 6,591,693 6,385,670 NET ASSETS, DECEMBER 31 $ 7,208,384 $ 6,796,494 $ 6,798,286 $ 6,591,693 I The notes to the financial statements are an integral part of this statement. -19- I I CITY OF SHOREWOOD, MINNESOTA Exhibit 9 I STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31,2007 AND 2006 I Business-type Activities - Enterprise Funds - Continued I Totals 2007 2006 OPERATING REVENUES I Sales $ 1,784,266 $ 1,978,051 Less cost of sales (1,300,438) (1,442,802) GROSS PROFIT 483,828 535,249 I Charges for services 1,636,726 1,582,790 GROSS PROFIT AND REVENUES 2,120,554 2,118,039 I OPERATING EXPENSES Personal services 448,297 411,233 Supplies 28,848 26,328 I Repairs and maintenance 12,746 114,795 Depreciation 467,491 441,483 Professional services 71,245 51,152 I Contracted services 158,114 153,324 Insurance 27,509 23,979 Water purchases 22,780 19,691 Utilities 96,195 101,528 I Disposal charges 604,067 486,873 Rent 154,662 154,984 Advertising 7,680 14,284 I Other 54,607 58,853 TOTAL OPERATING EXPENSES 2,154,241 2,058,507 I OPERATING INCOME (LOSS) (33,687) 59,532 NONOPERATING REVENUES (EXPENSES) Special assessments 45,167 457,171 I Permits and connection fees 64,940 237,580 Interest on investments 434,072 310,281 Gain on sale of capital assets 382,890 I Other income 127,588 189,562 Interest expense (174,516) (85,603) TOTAL NONOPERATING REVENUES (EXPENSES) 880,141 1,108,991 I INCOME (LOSS) BEFORE TRANSFERS 846,454 1,168,523 TRANSFERS I Transfers in 236,228 25,000 Transfers out (92,500) (50,000) TOTAL TRANSFERS 143,728 (25,000) I CHANGE IN NET ASSETS 990,182 1,143,523 NET ASSETS, JANUARY 1 15,498,444 14,354,921 I NET ASSETS, DECEMBER 31 $ 16,488,626 $ 15,498,444 The notes to the financial statements are an integral part of this statement. I -21- I CITY OF SHOREWOOD, MINNESOTA Exhibit 10 STATEMENTS OF CASH FLOWS - CONTINUED I PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 3 I, 2007 AND 2006 I Business-type Activities - Enterprise Funds - Continued Totals I 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 3,388,846 $ 3,559,064 I Other receipts and payments, net 179,425 186,707 Payments to suppliers, contractors and other governments (2,303,464) (2,715,569) Payments to employees (484,495) (395,814) I NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 780,312 634,388 I CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES (Increase) decrease in due from other funds 100,000 90,000 I Transfers in 236,228 25,000 Interest paid on interfund loan (2,466) (4,438) Increase (decrease) in due to other funds (50,000) (40,000) I Transfers out (92,500) (50,000) NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES 191,262 20,562 I CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES I Permits and connection fees received 64,940 237,580 Bond proceeds 1,414,043 Principal paid on revenue bonds (255,000) (275,000) I Interest paid on revenue bonds (125,471) (98,805) Acquisition of capital assets (643,226) (1,373,844) Proceeds from sale of capital assets 481,067 I Special assessments collected 135,956 106,975 NET CASH PROVIDED (USED) BY CAPITAL I AND RELATED FINANCING ACTIVITIES (341,734) 10,949 CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 432,644 298,278 I NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,062,484 964,177 I CASH AND CASH EQUIVALENTS, JANUARY 1 8,413,670 7,449,493 I CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 9,476,154 $ 8,413,670 I The notes to the financial statements are an integral part of this statement. I -24- CITY OF SHOREWOOD, MINNESOTA Exhibit 10 STATEMENTS OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 Business-type Activities - Enterprise Funds Water Sewer 2007 2006 2007 2006 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ 115,702 $ 175,224 $ (128,814) $ 21,960 Adjustments to reconcile operating income (loss) to net cash provided by operating activities Other income related to operations 153,784 98,440 Depreciation 205,400 184,105 210,138 204,064 (Increase) decrease in assets: Accounts receivable 10,906 (5,056) (1,082) (2,553) Special assessments receivable (6,216) (2,951 ) Inventories Prepaid items (2,191 ) (219) (966) (3,390) Increase (decrease) in liabilities: Accounts payable 12,305 (19,043) 811 (23,951 ) Due to other governments 291 364 (1,504) (2,803) Salaries and compensated absences payable (928) 650 732 (271) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 495,269 $ 434,465 $ 73,099 $ 190,105 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Retirement of capital assets $ $ $ $ Amortization of bond discount $ 8,084 $ 5,823 $ $ Bond discount issued $ $ 35,957 $ $ Capital assets purchased on account $ 36,338 $ 30,457 $ 59,107 $ I I I I I I I I I I I I I I I I I The notes to the financial statements are an integral part of this statement. -25- I I I CITY OF SHOREWOOD, MINNESOTA STATEMENTS OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 I I I RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities Other income 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 I I I I I I NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES I NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Retirement of capital assets Amortization of bond discount Bond discount issued Capital assets purchased on account I I I I I I I The notes to the financial statements are an integral part of this statement. -27- I Totals Exhibit 10 2006 2007 $ (33,687) $ 59,532 179,425 186,707 467,491 441,483 (24,914) 2,288 (7,232) (4,065) 240,349 (594) 748 (5, I 27) 13,762 (57,598) (19,432) (3,657) (36,198) 15,419 $ 780,312 $ 634,388 $ $ $ $ 98,177 8,084 95,445 $ $ $ $ 5,823 35,957 30,457 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET ASSETS FIDUCIARY FUND DECEMBER 31, 2007 Exhibit 11 Agency ASSETS Cash and temporary investments $ 127,374 LIABILITIES Escrow deposits payable $ 127,374 The notes to the fmancial statements are an integral part ofthis statement. -28- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I A. Reporting Entity I The City of Shorewood, Minnesota (the City), operates under the "Optional Plan A" form of government as defmed in the State of Minnesota statutes. Under this plan, the government ofthe 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 of their relationship with the City are such that exclusion would cause the City's fmancial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GAS B) has set forth criteria to be considered in determining fmancial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability ofthe City to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific fmancial burdens on the City. Blended component units, although legally separate entities are, in substance, part of the City's operations and so data from these units are combined with data of the City. The City has the following component unit: I I I I 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 financial statements are not issued for this component unit. I I B. Government-wide and Fund Financial Statements The government-wide fmancial statements (Le., 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. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. I I The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is 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 from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. I I 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. I I I I I -29- I I I Note 1: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide [mancial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund [mancial statements. 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 [mancial statements are reported using the currentfinancial resources measurementfocus 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 become 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 requirements, 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 must 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 requirements 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 [mancial statements. The preparation of [mancial 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 31,2007 I Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED I The City reports the following major governmental funds: The General fund is the City's primary operating fund. It accounts for all [mancial resources of the general government, except those required to be accounted for in another fund. I 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. I The City reports the following major proprietary funds: I The Water fund accounts for the activities of the City's water distribution system. I 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. I The Stormwater Management Utility fund accounts for the activities of the City storm water management system. I 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, ifany, is used to fund General fund activities. I 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. I 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. I Private-sector standards of accounting and [mancial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund [mancial 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. I I As a general rule the effect of interfund activity has been eliminated from government-wide [mancial 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 ofthese charges would distort the direct costs and program revenues reported for the various functions concerned. I Amounts reported as program revenues include 1) charges to customers 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. I I I I -31- I I I Note 1: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 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, recycling, stormwater management utility 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 meeting this de[mition are reported as nonoperating revenues and expenses. When both restricted and umestricted resources are available for use, it is the City's policy to use restricted resources frrst, then umestricted 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 certifrcates of deposit and other authorized investments. Earnings from such investments are allocated on the basis of applicable participation by each of the 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 (1) 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 commercial banks or domestic branches of foreign banks or United States insurance companies if similar debt obligations ofthe 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 ofthe 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, 2007 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 2006 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 2007. 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 fmancial statements. Interfund Receivables and Payables Transactions between funds that are representative of lending/borrowing 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 interfund 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 fmancial resources. Inventories and Prepaid Items The inventories are stated at average cost, which approximates market using the fIrst-in, fIrst-out (FIFO) method. 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- I I I I I I I I I I I I I I I I I I I I I Note 1: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 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 statements. Capital assets are defined by the City as assets with 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 (Le., 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 amounts 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, 2007 I Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED I Compensated Absences I 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 [mancial 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. I Long-term Obligations I In the government-wide [mancial statement and proprietary fund types in the fund financial 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. I In the fund [mancial 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 [mancing 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. I I Fund Equity I 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 subject to change. I Net Assets Net assets represent the difference between assets and liabilities. Net assets are displayed in three components: I 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. I 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 de[mition of "restricted" or "invested in capital assets, net of related debt". I Comparative DatalRec1assifications I Comparative total data for the prior year have been presented only for individual enterprise funds in the fund fmancial 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. I I I I -35- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY I A. Budgetary Information I 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. I 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 [mal budget is prepared and adopted. I 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. I B. Deficit Fund Equity I The MSA Construction fund had a deficit fund balance of $34,902 as of December 31, 2007. The deficit will be eliminated with future revenue sources or transfers. I Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and Investments I Deposits I 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. I 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. I 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 [mancial institution other than that furnishing the collateral. I At year end, the City's carrying amount of deposits was $2,393,579 and the bank balance was $2,398,156. The entire bank balance was covered by federal depository insurance. I I I I I -36- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Investments I I I 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. I At year end, the City had the following investments that are insured or registered, or securities held by the City's agent in the City's name: I Types of Investments Credit Quality/ Rating (1) Non Pooled investments U.S. Government Securities U.S. Government Securities U.S. Government Securities U.S. Government Securities Commercial Paper AAA AAA AAA AAA A-I Total non pooled Pooled investments Minnesota Municipal Money Market Fund Broker Money Market P-l N/A Total pooled Total investments Segmented Time Distribution (2) less than 6 months 6 to 12 months 1 to 3 years more than 3 years less than 270 days less than 6 months less than 6 months Fair Value and Carrying Amount I I $ 3,379,234 898,595 11,203,088 6,093,754 299,304 I I 21,873,975 I 1,077,919 465,462 I 1,543,381 I $ 23,417,356 1. Ratings are provided by various credit ratings agencies where applicable to indicate associated credit risk. 2. Interest rate risk is disclosed using the segmented time distribution method. N/A Indicates not applicable or available. I -37- I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I At year end, the City's cash and investment balances were as follows: I Carrying amount of deposits Investments Cash on hand $ 2,393,579 23,417,356 100 I Total $ 25,811,035 I As reported on the fInancial statements Statement of net assets Cash with fIscal agent Fiduciary fund $ 15,543,739 10,139,922 127,374 I Total $ 25,811,035 I At December 31, 2007 investments in one issuer (other than investments issued by or explicitly guaranteed by U.S. government, mutual funds, external investment pools and other pooled investments) that represent 5 percent or more of the City's investments are as follows: I Federal National Mortgage Association (FNMA) Federal Home Loan Bank of Chicago (FHLBC) Federal Home Loan Mortgage Corporation (FHLMC) $ 2,141,287 2,041,927 2,822,594 I Concentration of credit risk/interest rate risk: In accordance with the City's investment policy, the City diversifIes its investment portfolio to eliminate the risk of loss resulting from over-concentration of assets in a specifIc maturity, a specifIc issuer or a specifIc class of securities. The maturities selected shall provide for stability of income and reasonable liquidity. I 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. I I B. Intergovernmental Receivables A summary of all amounts due from other governments as of December 31, 2007 is as follows: I Fund Governmental Activities MSA Construction Local County State Total I $ 14,759 $ 328.360 $ 87,000 $ 430,119 I The entire receivable is related to the CSAH 19 at Smithtown Road project. The local balance is due from the City of Tonka Bay. The City is awaiting the project to be approved and closed by Hennepin County and believes there should be no issues with collecting the amounts due from the government entities above. I I I -38- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I C. Deferred Revenue I Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the 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: I Unavailable Unearned I Governmental activities General fund Taxes Special assessments 2002 Public Safety Buildings Lease receivable 2003 Public Safety Buildings Lease receivable $ 86,275 6,697 $ I 8,870,000 I 2,220,000 Total $ 11,182,972 $ I Business-type activities Water fund Rent $ $ 79,662 I I I I I I I I I I -39- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED D. Capital Assets Capital asset activity for the year ended December 31, 2007 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities Capital assets not being depreciated Land $ 741,826 $ $ $ 741,826 Construction in progress 1,378,581 155,646 (1,534,227) Total capital assets not being depreciated 2,120,407 155,646 (1,534,227) 741,826 Capital assets being depreciated Buildings 2,015,769 2,015,769 Improvements other than buildings 733,474 733,474 Infrastructure 24,841,273 1,534,227 26,375,500 Machinery and equipment 2,208,916 207,888 2,416,804 Total capital assets being depreciated 29,799,432 1,742,115 31,541,547 Less accumulated depreciation Buildings (598,202) (50,260) (648,462) Improvements other than buildings (482,386) (36,478) (518,864) Infrastructure (17,267,155) (950,555) (18,217,710) Machinery and equipment (1,811,882) (125,905) (1,937,787) Total accumulated depreciation (20,159,625) (1,163,198) (21,322,823) Total capital assets being depreciated, net 9,639,807 578,917 10,218,724 Governmental activities capital assets, net . $ 11,760,214 $ 734,563 $ . (1,534,227) $ 10,960,550 -40- CITY OF SHOREWOOD, MINNESOTA I NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Beginning Ending I Balance Increases Decreases Balance Business-type activities Capital assets not being depreciated I Land $ 404,392 $ $ $ 404,392 Construction in progress 940,522 277,835 (264,099) 954,258 Total capital assets I not being depreciated 1,344,914 277,835 (264,099) 1,358,650 Capital assets being depreciated I Infrastructure 16,991,758 694,478 (316,182) 17,370,054 Machinery and equipment 130,492 130,492 Total capital assets I being depreciated 17,122,250 694,478 (316,182) 17,500,546 Less accumulated depreciation for I Infrastructure (8,772,642) (462,50 I) 218,005 (9,017,138) Machinery and equipment (105,839) (4,990) (110,829) I Total accumulated depreciation (8,878,481 ) (467,491) 218,005 (9,127,967) Total capital assets I being depreciated, net 8,243,769 226,987 (98,177) 8,372,579 Business-type activities I capital assets, net $ 9,588,683 $ 504,822 $ (362,276) $ 9,731,229 Depreciation expense was charged to functions/programs of the City as follows: I Governmental activities General government $ 50,195 I Public works 1,059,590 Culture and recreation 53,413 Total depreciation expense - governmental activities $ 1,163,198 I Business-type activities I Water $ 205,400 Sewer 210,138 Stormwater management utility 19,833 Liquor 32,120 I Total depreciation expense - business-type activities $ 467,491 I I -41- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I Construction Commitments I The City has active construction projects as of December 31, 2007. At year end the commitments with contractors for these projects are as follows: I Project Spent Remaining to date Commitment $ 184,389 $ 27,736 45,364 59,107 $ 229,753 $ 86,843 Radio Read Water Meter Project Lift Station # 12 I Total I E. Interfund Receivables, Payables and Transfers The composition of inter fund balances as of December 31,2007, is as follows: I Receivable Fund Payable Fund Purpose Amount Sewer General To purchase land $ 160,000 Street reconstruction M SA Construction For construction of a county road 550,000 Total $ 710,000 Interfund transfers Transfers in Other Water Fund General Debt Service governmental Enterprise Transfers out General $ $ $ 585,000 $ Debt service 82,679 Other governmental 45,091 100,000 Stormwater management Liquor 40,000 Total $ 40.000 $ 45,091 $ 685.000 $ 82,679 Transfers in Storm water Sewer Management Fund Enterprise Utility Total Transfers out General $ 60,000 $ 25,000 $ 670,000 Debt service 82,679 Other governmental 16,049 161,140 Stormwater management 52,500 52,500 Liquor 40,000 Total $ 112,500 $ 41.049 $ 1.006.319 Transfers were for capital improvements and purchases. I I I I I I I I I I I -42- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I F. Long-term Debt I 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. I General Obligation Bonds I General obligation bonds are direct obligations and pledge the full faith and credit of the City. The City has the following general obligation debt: I General Obligation Revenue Bonds I The following bonds were issued to fmance capital improvements 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 % 06/0 I/O 5 01/0I/25 $ 1,400,000 G.O. Water Revenue Bonds of 1996 860,000 4.95-5.4 11/0I/96 02/01/12 290,000 G.O. Water Refunding Bonds of 2003 815,000 1.50-3.00 08/0 I/O 3 02/0 I /II 525,000 G.O. Water Revenue Bonds of 2006 1,450,000 4.00 I I/29/06 o I/O I/22 1,450,000 Total G.O. Revenue Bonds $ 3,665,000 I I I I I Armual 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 2008 $ 250,000 $ 136,636 $ 386,636 2009 250,000 128,770 378,770 2010 250,000 120,333 370,333 2011 240,000 111,538 351,538 2012 175,000 103,398 278,398 2013 - 2017 990,000 406,000 1,396,000 2018 - 2022 1,200,000 190,898 1,390,898 2023 - 2025 310,000 19,973 329,973 Total $ 3,665,000 $ 1 ,217,546 $ 4,882,546 I I I I I I -43- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED 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 $ 3,450,000 Public Safety Police Facility, Series 2002B 4,025,000 3.00-5.50 09/01/02 02/01/23 3,590,000 Public Safety Fire Facility, Series 2002C 2,060,000 3.00-5.50 09/01/02 02/01/23 1,840,000 Public Safety Fire Facility, Series 2003A 1,195,000 2.35-5.10 04/15/03 02/01/23 1,095,000 Public Safety Police Facility, Series 2003B 1,220,000 2.35-5.10 04/15/03 02/01/23 1,115,000 Public Safety Fire Facility, Refunding Series 2007 A 4,130,000 3.75-5.00 01/01/07 02/01/23 4,130,000 Public Safety Police Facility, Refunding Series 2007B 4,285,000 3.75-5.00 01/01/07 02/01/23 4,285,000 Public Safety Fire Facility, Refunding Series 2007C 1,585,000 3.75-4.00 01/01/07 02/01/22 1,585,000 Total Lease Revenue Bonds $ 21,090,000 Annual debt service requirements to maturity for revenue bonds are as follows: Lease Revenue Bonds Year Ending Governmental Activities December 31, Principal Interest Total 2008 $ 485,000 $ 953,815 $ 1,438,815 2009 495,000 933,865 1,428,865 2010 970,000 903,839 1,873,839 2011 1,120,000 861,329 1,981,329 2012 1,170,000 812,893 1,982,893 2013 -2017 6,690,000 3,190,185 9,880,185 2018 - 2022 8,390,000 1,454,684 9,844,684 2023 1,770,000 42,985 1,812,985 Total $ 21,090,000 $ 9.153.595 $ 30,243,595 -44- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I Changes in Long-term Liabilities I Long-term liability activity for the year ended December 31, 2007, was as follows: Total Beginning Ending Due Within Balance Increases Decreases Balance One Year $ 11,555,000 $ 10,000,000 $ (465,000) $ 21,090,000 $ 485,000 69,594 (69,594) 170,598 157,161 (135,348) 192,411 192,411 $ 11,795,192 $ 10,157,161 $ (669,942) $ 21,282,411 $ 677,411 I Governmental activities Lease revenue bonds Capital lease Compensated absences I I Business-type activities General obligation revenue bonds Compensated absences $ (255,000) $ 3,665,000 $ 250,000 (31,867) I $ 3,920,000 $ 31,867 I $ 3,951,867 $ $ (286,867) $ 3,665,000 $ 250,000 Total Crossover Refunding I On January 1,2007 the Economic Development Authority (the EDA) ofthe City issued $4,130,000 of Public Safety Fire Facility Lease Revenue Crossover Refunding Bonds, 2007 A. The bonds issued will crossover refund the 2002A and 2003A Public Safety Fire Facility Lease Revenue Bonds. The proceeds of the bonds were deposited in an escrow account and will be used to pay issuance costs and to purchase government obligations. The government obligations will bear interest rates that will provide sufficient funds to refund the old bonds. The 2002A series bonds will be refunded on August 1,2009 and the 2003A series bonds will be refunded on August 1,2010. The escrow account will also provide debt service payments on the new bond until the crossover dates. The old bonds are not considered defeased until the crossover dates, and therefore will not be removed as liabilities. As a result of the crossover refunding issue, the EDA will save $288,277 in debt service payments and achieve an economic gain (the present value of the difference between the old and the new debt service) of$195,442. I I I Crossover Refunding I On January 1,2007 the Economic Development Authority (the EDA) of the City issued $4,285,000 of Public Safety Police Facility Lease Revenue Crossover Refunding Bonds, 2007B. The bonds issued will crossover refund the 2002B and 2003B Public Safety Police Facility Lease Revenue Bonds. The proceeds of the bonds were deposited in an escrow account and will be used to pay issuance costs and to purchase government obligations. The government obligations will bear interest rates that will provide sufficient funds to refund the old bonds. The 2002B series bonds will be refunded on August 1,2009 and the 2003B series bonds will be refunded on August 1, 2010. The escrow account will also provide debt service payments on the new bond until the crossover dates. The old bonds are not considered defeased until the crossover dates, and therefore will not be removed as liabilities. As a result of the crossover refunding issue, the EDA will save $304,293 in debt service payments and achieve an economic gain (the present value of the difference between the old and the new debt service) of $204,501. I I I I I -45- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 I Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED I Crossover Refunding I On January 1,2007 the Economic Development Authority (the EDA) of the City issued $1,585,000 of Public Safety Fire Facility Lease Revenue Crossover Refunding Bonds, 2007C. The bonds issued will crossover refund the 2002C Public Safety Fire Facility Lease Revenue Bond. The proceeds of the bonds were deposited in an escrow account and will be used to pay issuance costs and to purchase government obligations. The government obligations will bear interest rates that will provide sufficient funds to refund the old bond on August 1,2009. The escrow account will also provide debt service payments on the new bond until the crossover date. The old bonds are not considered defeased until the crossover date, and therefore will not be removed as a liability. As a result ofthe crossover refunding issue, the EDA will save $227,700 in debt service payments and achieve an economic gain (the present value of the difference between the old and the new debt service) of$94,873. I I G. Fund Balance ReservationslDesignations I The City has made the following reservations and designations of fund balance. Fund Purpose Amount I Fund balance - Reserved Debt Service Debt service on bonds issued $ 10,040,556 I Fund balance - Unreserved - Designated General Other governmental Working capital Capital outlay $ 3,761,509 2,507,999 I Total designated fund balance $ 6,269,508 I Note 4: DEFINED BENEFIT PENSION PLAN - STATEWIDE A. Plan Description I All full-time and certain part-time employees ofthe 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. I I PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. I 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. I Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher ofa 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 Coordmated 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. I I I -46- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 I Note 4: DEFINED BENEFIT PENSION PLAN - STATEWIDE - CONTINUED I There are different types of annuities available to members upon retirement. A normal annuity is a lifetime annuity that ceases upon the death ofthe 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. I I 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. I PERA issues a publicly available [mancial report that includes [mancial statements and required supplementary information for PERF. That report may be obtained on the Internet at mnpera.org, by writing to PERA, 60 Empire Drive, Suite 200, St. Paul, Mirmesota 55103-1855 or by calling 651-296-7460 or 800-652-9026. I B. Funding Policy I Mirmesota 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 Mirmesota statutes. PERF Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 5.75 percent, respectively, of their annual covered salary in 2007. Contribution rates in the Coordinated Plan will increase in 2008 to 6.0 percent. The City is required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan PERF members, and 6.25 percent for Coordinated Plan PERF members. Employer contribution rates for the Coordinated Plan will increase to 6.50 percent, effective January 1,2008. The City's contributions to the PERF for the years ending December 31,2007,2006 and 2005 were $83,893, $73,993 and $65,563, respectively. The City's contributions were equal to the contractually required contributions for each year as set by Mirmesota statute. I I I I I I I I I I I -47- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2007 I Note 5: JOINT VENTURES I A. South Lake Minnetonka Police Department I 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 agreement 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. I I 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, 2007. I Separate [mancial 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 31,2007 and 2006: I SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY OF STATEMENTS OF NET ASSETS DECEMBER 31,2007 AND 2006 I 2007 2006 I Assets $ 5,925,467 $ 5,939,1 05 I Liabilities Net assets $ 5,083,424 842,043 $ 5,223,057 716,048 I Total liabilities and net assets $ 5,925,467 $ 5,939,1 05 The following is a summary of the Department's statement of activities for the years ended December 31, 2007 and 2006: I I SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY STATEMENTS OF ACTIVITES YEARS ENDED DECEMBER 31, 2007 AND 2006 2007 2006 Expenses $ 2,360,248 $ 2,168,606 Revenues 301,721 236,739 Net expenses (2,058,527) (1,931,867) General revenues 2,184,522 2,023,472 Change in net assets 125,995 91,605 Net assets, January 1 716,048 624,443 Net assets, December 31 $ 842,043 $ 716,048 I I I I I -48- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 5: JOINT VENTURES - CONTINUED I B. Southshore Community Center I The City participates in ajoint 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 member 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 member cities are responsible for a proportionate share of the building construction. Shorewood fmanced its obligation by issuing a lease purchase note. The City retired its portion of the required lease obligations during 2007. In the event operating costs are not covered by revenue, each member is responsible for their proportionate share of losses. 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 fmancial statements are issued for the Community Center and can be obtained at the City offices. I I I C. Excelsior Fire District I In August of2000, the cities of Deephaven, 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 fmancial statements can be obtained by writing to the Excelsior Fire District, 24100 Smithtown Road, Shorewood, Mirmesota 55331. I I Selected fmancial information is shown below for the most recent year of audited information, which is December 31, 2007: . I Capital Projects I General Governmental Funds Special Revenue Total Total assets Total liabilities Total equity Total revenues Total expenditures Total other fmancing sources (uses) $ 280,569 74,124 206,445 1,400,778 619,712 (675,190) $ 7,543 $ 317,427 1,737 315,690 46,846 1,146,657 1,000,190 $ 605,539 75,861 529,678 1,450,120 1,766,369 325,000 I 7,543 2,496 I Government- wide I Total assets Total liabilities Total net assets Total expenses Total charges for services Total unrestricted investment earnings $ 8,444,502 6,822,107 1,622,395 1,246,059 1,430,890 19,230 I I I I -49- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 I Note 6: OTHER INFORMATION I A. Risk Management I The City is exposed to various risks of loss 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. I I 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 management is not aware of any incurred but not reported claims. I B. Legal Debt Margin I The City's statutory debt limit is $31,075,358 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. I C. Discontinued Operations I The City discontinued its liquor store operations during December 2007. The liquor stores provided an operating loss of$101,271 for the year ended December 31, 2007. The City sold the liquor stores, applicable capital assets and all remaining inventory. The City received a combined $382,890 for the sale of the two liquor stores. A summary of the remaining assets and liabilities are as follows: I I 2007 Waterford Shorewood Total $ 263,756 $ 668,526 $ 932,282 23 2,726 2,749 1,021 1,021 2,042 264,800 672,273 937,073 I ASSETS Cash and temporary investments Receivables Accrued interest Accounts I TOTAL ASSETS I LIABILITIES Accounts payable 7,131 7,788 14,919 I NET ASSETS Unrestricted $ 257,669 $ 664,485 $ 922,154 I I I -50- I I I I I I I I I I I I I I I I I I I COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31, 2007 I I I I I NONMAJOR GOVERNMENTAL FUNDS I NONMAJOR CAP IT AL PROJECTS FUNDS I Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those fmanced by enterprise funds. Public Facilities - This fund was established to account for capital improvement projects for municipal public facilities. I Park Capital Improvement - This fund accounts for park land acquisition and other capital improvements in the City parks. Equipment Replacement - This fund was established for the purpose of funding the replacement of capital equipment. I Street Reconstruction - This fund was established for the purpose of funding the periodic reconstruction of City streets and roadways. I MSA Construction - This fund was established to account for the accumulation of Municipal State Aid (MSA) to fund the periodic reconstruction of MSA designated roads. I Land and Open Space - This fund was established to accumulate resources for the acquisition of land and open spaces, including conservation easements. I Technolol!V - This fund was established for the replacement of office equipment, computers, and technology for municipal operations at the city offices. I EDA Public Safety Facilities Proiect - This fund was established for the purpose of accounting for construction of the new public safety facility. Senior Comm unity Center - This fund was established to account for the construction of a Senior Community Center. I I I I I I I Exhibit A-I I I Capital Projects Funds - Continued EDA Public I Safety Senior MSA Land and Facilities Community Construction Open Space Technology Project Center Total I $ 84,553 $ $ 100,000 $ 81,507 $ 40,246 $ 2,065,920 I 426 291 15,322 430,119 430,119 550,000 I $ 515,098 $ $. 100,000 $ 81,507 $ 40,537 $ 3,061,361 I $ $ $ $ $ $ 38,264 I 550,000 550,000 550,000 588,264 I I 100,000 81,507 40,537 2,507,999 (34,902) (34,902) I (34,902) 100,000 81,507 40,537 2,473,097 I $ 515,098 $ $ 100,000 $ 81,507 $ 40,537 $ 3,061,361 I I I I I I -52- CITY OF SHOREWOOD, MINNESOTA I NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES I AND CHANGES IN FUND BALANCES (DEFICITS) FOR THE YEAR ENDED DECEMBER 31, 2007 Capital Projects Funds I Park I Public Capital Equipment Street Facilities Improvement Replacement Reconstruction I REVENUES Intergovernmental $ $ $ $ Interest on investments 12,431 16,223 19,821 56,005 Miscellaneous I Park dedication fees 8,000 Contributions and donations 5,500 TOTAL REVENUES 12,431 29,723 19,821 56,005 I EXPENDITURES I Current General government 55 88 Public works I Culture and recreation Capital outlay Public works 89,334 335,180 I Culture and recreation 80,423 TOTAL EXPENDITURES 55 80,423 89,422 335,180 I EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 12,376 (50,700) (69,601) (279,175) I OTHER FINANCING SOURCES (USES) Transfers in 50,000 15,000 175,000 345,000 I Transfers out (100,000) TOTAL OTHER FINANCING SOURCES (USES) (50,000) 15,000 175,000 345,000 I NET CHANGE IN FUND BALANCES (37,624) (35,700) 105,399 65,825 FUND BALANCES (DEFICITS), JANUARY 1 249,068 319,907 393,165 1,225,915 I FUND BALANCES (DEFICITS), DECEMBER 31 $ 211,444 $ 284,207 $ 498,564 $ 1,291,740 I I I -53- I CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 I GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND I CHANGES IN FUND BALANCES - CONTINUED ON THE FOLLOWING PAGES BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2007 I (With comparative actual amounts for the year ended December 31, 2006) 2007 2006 I Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts I REVENUES Taxes General property taxes $ 4,255,069 $ 4,255,069 $ 4,224,497 $ (30,572) $ 4,023,948 I Fiscal disparities 108,244 108,244 108,244 117,591 Total 4,363,313 4,363,313 4,332,741 (30,572) 4,141,539 I Licenses and permits Business 13,150 13,150 21,672 8,522 12,694 I Nonbusiness 243,500 243,500 234,800 (8,700) 369,714 Total 256,650 256,650 256,472 (178) 382,408 I Intergovernmental State I Property tax credits 32,995 32,995 32,995 174 Other 65,000. 65,000 62,906 (2,094) 4,751 Total 97,995 97,995 95,901 (2,094) 4,925 I Charges for services General government 13,000 13,000 15,899 2,899 14,320 I Parks and recreation 30,000 30,000 34,920 4,920 31,130 Total 43,000 43,000 50,819 7,819 45,450 I Fines and forfeitures 80,000 80,000 77,777 (2,223) 79,040 Interest on investments 120,000 120,000 257,922 13 7,922 183,076 I Miscellaneous revenue I Refunds and reimbursements 9,000 9,000 9,561 561 5,180 Contributions and donations 1,785 1,785 1,000 Other 21,000 21,000 17,415 (3,585) 5,840 Total 30,000 30,000 28,761 (1,239) 12,020 I TOTAL REVENUES 4,990,958 4,990,958 5,100,393 109,435 4,848,458 I I -55- I I CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND I SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - CONTINUED BUDGET AND ACTUAL I FOR THE YEAR ENDED DECEMBER 31, 2007 (With comparative actual amounts for the year ended December 31, 2006) I 2007 2006 Variance with Budgeted Amounts Final Budget I Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES I Current Gen(:ral government Mayor and Council I Personal services $ 16,793 $ 16,793 $ 16,794 $ (1) $ 16,794 Supplies 1,000 1,000 1,402 (402) 1,127 Other services and charges 55,100 55,100 45,123 9,977 43,039 I Total 72,893 72,893 63,319 9,574 60,960 Administrative I Personal services 148,689 148,689 144,631 4,058 120,342 Supplies 400 400 400 148 Other services and charges 10,300 10,300 4,549 5,751 5,015 I Total 159,389 159,389 149,180 10,209 125,505 I City clerk / elections Personal services 177 ,224 1 77 ,224 192,733 (15,509) 161,055 Supplies 32,000 32,000 21,293 10,707 21,653 I Other services and charges 40,030 40,030 32,147 7,883 31,505 Total 249,254 249,254 246,173 3,081 214,213 I Finance Personal services 189,212 189,212 139,037 50,175 144,311 Supplies 7,500 7,500 5,338 2,162 5,018 I Other services and charges 13,200 13,200 3,083 10,117 9,367 Total 209,912 209,912 147,458 62,454 158,696 I Professional services Other services and charges 187,600 187,600 196,880 (9,280) 164,864 I Planning and zoning Personal services 175,405 175,405 169,864 5,541 180,557 I Supplies 1,225 1,225 1,659 (434) 789 Other services and charges 15,540 15,540 13,330 2,210 10,125 I Total 192,170 192,170 184,853 7,317 191,471 I -56- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 I GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND I CHANGES IN FUND BALANCES - CONTINUED BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2007 I (With comparative actual amounts for the year ended December 31, 2006) 2007 2006 I Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts I EXPENDITURES - CONTINUED Current - Continued General government - Continued I Municipal building Supplies $ 29,500 $ 29,500 $ 34,518 $ (5,018) $ 22,391 Other services and charges 141,700 141,700 100,227 41,473 130,974 I Total 171,200 171,200 134,745 36,455 153,365 City engineer I Personal services 148,868 148,868 119,803 29,065 111,466 Supplies 1,950 1,950 1,485 465 580 I Other services and charges 22,150 22,150 9,184 12,966 83,389 Total 172,968 172,968 130,472 42,496 195,435 I Total general government 1,415,386 1,415,386 1,253,080 162,306 1,264,509 Public safety I Police protection Other services and charges 819,563 819,563 823,021 (3,458) 782,013 Fire protection I Other services and charges 284,312 284,312 291,368 (7,056) 314,647 Animal control I Other services and charges 24,330 24,330 21,390 2,940 21,845 Protective inspection I Personal services 110,740 110,740 118,166 (7,426) 124,766 Supplies 550 550 291 259 38 I Other services and charges 11,220 11,220 9,685 1,535 14,689 Total 122,510 122,510 128,142 (5,632) 139,493 Total public safety 1,250,715 1,250,715 1,263,921 (13,206) 1,257,998 I I I -57- I I CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 GENERAL FUND I SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - CONTINUED BUDGET AND ACTUAL I FOR THE YEAR ENDED DECEMBER 3], 2007 (With comparative actual amounts for the year ended December 3], 2006) I 2007 2006 Variance with Budgeted Amounts Final Budget I Actual Positive Actual Original Final Amounts (Negative) Amounts EXPENDITURES - CONTINUED I Current - Continued Public works General maintenance Personal services $ 26] ,640 $ 26] ,640 $ 292,023 $ (30,383) $ 266,421 I Supplies 6],750 61,750 70,206 (8,456) 53,501 Other services and charges 44,]75 44,] 75 42,]42 2,033 35,830 I Total 367,565 367,565 404,371 (36,806) 355,752 Streets and highways I Personal services ]09,]08 109,108 87,344 2],764 87,375 Supplies 63,650 63,650 66,260 (2,610) 65,953 Other services and charges 23,500 23,500 17,6] 7 5,883 ] ],379 I Total 196,258 ] 96,258 ] 7] ,22] 25,037 ]64,707 I Snow and ice removal Personal services 34,435 34,435 33,960 475 ]4,467 Supplies 44,500 44,500 35,229 9,271 12,862 I Total 78,935 78,935 69,]89 9,746 27,329 Traffic control I Personal services 355 (355) Supplies 500 500 4,067 (3,567) 1,4]5 Other services and charges 43,200 43,200 34,852 8,348 40,286 I Total 43,700 43,700 39,274 4,426 4],70 ] I Sanitation and waste removal Personal services 757 757 2,667 (] ,034) 608 Supplies 500 500 500 I Other services and charges 5,500 5,500 ],79] 2,833 5,395 Total 6,757 6,757 4,458 2,299 6,003 I I I -58- CITY OF SHOREWOOD, MINNESOTA Exhibit B-1 I GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND I CHANGES IN FUND BALANCES - CONTINUED BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 2007 I (With comparative actual amounts for the year ended December 31, 2006) 2007 2006 Variance with I Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts I EXPENDITURES - CONTINUED Current - Continued Public works - continued I Tree maintenance Personal services $ 15,233 $ 15,233 $ 17,801 $ (2,568) $ 22,123 Supplies 2,950 2,950 502 2,448 1,323 I Other services and charges 15,550 15,550 11,295 4,255 7,110 Total 33,733 33,733 29,598 4,135 30,556 I Total public works 726,948 726,948 718,111 8,837 626,048 Culture and recreation I Personal services 140,530 140,530 126,592 13,938 112,753 Supplies 15,400 15,400 8,836 6,564 6,861 I Other services and charges 81,450 81,450 55,491 25,959 49,797 Total culture and recreation 237,380 237,380 190,919 46,461 169,411 Total current expenditures 3,630,429 3,630,429 3,426,031 204,398 3,317,966 I Capital outlay I General government 27,200 27,200 54,133 (26,933) 18,047 Public safety 560,779 560,779 554,087 6,692 503,886 Public works 189,650 189,650 639 189,011 7,468 I Culture and recreation 5,000 5,000 10,000 (5,000) Total capital outlay 782,629 782,629 618,859 163,770 529,401 I Debt service Principal 33,732 33,732 33,732 31,728 I Interest and other 14,168 14,168 14,168 18,638 Total debt service 47,900 47,900 47,900 50,366 TOTAL EXPENDITURES 4,460,958 4,460,958 4,092,790 368,168 3,897,733 I EXCESS OF REVENUES I OVER EXPENDITURES 530,000 530,000 1,007,603 477,603 950,725 I -59- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA Exhibit B-l GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - CONTINUED BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2007 (With comparative actual amounts for the year ended December 31, 2006) 2007 2006 Variance with Budgeted Amounts Final Budget Actual Positive Actual Original Final Amounts (Negative) Amounts OTHER FINANCING SOURCES (USES) Transfers in $ 140,000 $ 140,000 $ 40,000 $ (100,000) $ 50,000 Transfers out (670,000) (670,000) (670,000) (610,000) TOTAL OTHER FINANCING SOURCES (USES) (530,000) (530,000) (630,000) (I 00,000) (560,000) NET CHANGE IN FUND BALANCES 377,603 377,603 390,725 FUND BALANCES, JANUARY 1 3,383,906 3,383,906 3,383,906 2,993,181 FUND BALANCES, DECEMBER 31 $ 3,383,906 $ 3,383,906 $ 3,761,509 $ 377,603 $ 3,383,906 -60- CITY OF SHOREWOOD, MINNESOTA Exhibit C-l I DEBT SERVICE FUNDS COMBINING BALANCE SHEET I DECEMBER 31, 2007 1993 I Improvement Waterford 2002/2003 and III Tax Public Safety Refunding Increment Building Total I ASSETS Cash and temporary investments $ 36,978 $ 11,477 $ $ 48,455 Cash with fiscal agent 10,028,996 10,028,996 I Receivables Accrued interest 83 83 Lease 11,090,000 11,090,000 I TOTAL ASSETS $ 36,978 $ 11,560 $ 21,118,996 $ 21,167,534 I LIABILITIES AND FUND BALANCES LIABILITIES I Accounts payable $ 36,978 $ $ $ 36,978 Deferred revenue 11,090,000 11,090,000 TOTAL LIABILITIES 36,978 11,090,000 11,126,978 I FUND BALANCES I Reserved for Debt service 11,560 10,028,996 10,040,556 TOTAL LIABILITIES AND I FUND BALANCES $ 36,978 $ 11,560 $ 21,118,996 $ 21,167,534 I I I I I I I -61- I I CITY OF SHOREWOOD, MINNESOTA Exhibit C-2 I DEBT SERVICE FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES I FOR THE YEAR ENDED DECEMBER 31,2007 1993 I Improvement Waterford 2002/2003 and III Tax Public Safety Refunding Increment Building Total I REVENUES Special assessments $ 418 $ $ $ 418 Lease payments 1,034,751 1,034,751 I Interest on investments 3,425 564 244,007 247,996 TOTAL REVENUES 3,843 564 1,278,758 1,283,165 I EXPENDITURES Debt service I Principal 35,862 465,000 500,862 Interest and service charges 1,139 3 941,222 942,364 I TOTAL EXPENDITURES 37,001 3 1,406,222 1,443,226 EXCESS (DEFICIENCY) OF REVENUES I OVER (UNDER) EXPENDITURES (33,158) 561 (127,464) (160,061) OTHER FINANCING SOURCES (USES) I Transfer in 45,091 45,091 Long-term debt issued 10,000,000 10,000,000 Discount on long-term debt issued (24,233) (24,233) I Transfer out (82,679) (82,679) TOTAL OTHER I FINANCING SOURCES (USES) (82,679) 10,020,858 9,938,179 NET CHANGE IN FUND BALANCES (115,837) 561 9,893,394 9,778,118 I FUND BALANCES, JANUARY 1 115,837 10,999 135,602 262,438 I FUND BALANCES, DECEMBER 31 $ $ 11,560 $ 10,028,996 $ 10,040,556 I I I I -62- CITY OF SHOREWOOD, MINNESOTA LIQUOR FUNDS SCHEDULES OF ASSETS, LIABILITIES AND NET ASSETS DECEMBER 31, 2007 AND 2006 2006 I I I I I I I I I I I I I I I I I I I 2007 Waterford Center ASSETS CURRENT ASSETS Cash and temporary investments Receivables Accrued interest Accounts Inventories, at cost Prepaid items TOTAL CURRENT ASSETS NONCURRENT ASSETS Capital assets Equipment and furnishings Less accumulated depreciation TOTAL CAPITAL ASSETS (net of accumulated depreciation) TOTAL ASSETS 264,800 LIABILITIES CURRENT LIABILITIES Accounts and contracts payable Due to other governments Salaries and compensated absences payable 7,131 TOTAL CURRENT LIABILITIES 7,131 NET ASSETS Invested in capital assets Unrestricted 257,669 TOTAL NET ASSETS 257,669 $ -63- 68,199 (59,796) 8,403 112,080 8,446 7,336 14,433 30,215 8,403 73,462 $ 81,865 I Exhibit D-l I I Shorewood Plaza Totals I 2007 2006 2007 2006 I $ 668,526 $ 359,286 $ 932,282 $ 362,687 2,726 2,687 2,749 2,970 I 1,021 2,042 142,308 240,349 1,953 3,905 I 672,273 506,234 937,073 609,911 I 247,983 316,182 I (126,089) (185,885) I 121,894 130,297 672,273 628,128 937,073 740,208 I I 7,788 20,491 14,919 28,937 10,883 18,219 I 21,638 36,071 7,788 53,012 14,919 83,227 I 121,894 130,297 I 664,485 453,222 922,154 526,684 $ 664,485 $ 575,116 $ 922,154 $ 656,981 I I I I -64- CITY OF SHOREWOOD, MINNESOTA I LIQUOR FUNDS SCHEDULES OF REVENUES, EXPENSES AND I CHANGES IN FUND NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 I Waterford Center 2007 2006 I OPERA TING REVENUES Sales $ 792,259 $ 863,424 Less cost of goods sold (572,169) (632,354) I GROSS PROFIT 220,090 231,070 I OPERATING EXPENSES Personal services 112,343 136,553 I Supplies 3,779 4,267 Depreciation 2,982 3,011 Professional services 26,490 2,725 I Contracted services 583 596 Insurance 7,366 6,092 Utilities 9,024 10,088 I Rent 66,938 67,425 Advertising 3,840 7,087 Other 17,724 17,052 I TOTAL OPERATING EXPENSES 251,069 254,896 OPERATING LOSS (30,979) (23,826) I NONOPERATING REVENUES I Interest on investments 419 2,335 Gain on sale of capital assets 225,379 Other income 985 3,138 I TOTAL NONOPERATING REVENUES 226,783 5,473 INCOME (LOSS) BEFORE TRANSFERS 195,804 (18,353) I TRANSFERS I Transfers out (20,000) (25,000) CHANGE IN NET ASSETS 175,804 (43,353) I NET ASSETS, JANUARY 1 81,865 125,218 NET ASSETS, DECEMBER 31 $ 257,669 $ 81,865 I I -65- I I Exhibit D-2 I I I Shorewood Plaza Totals 2007 2006 2007 2006 I $ 992,007 $ 1,114,627 $ 1,784,266 $ 1,978,051 (728,269) (810,448) (1,300,438) (1,442,802) I 263,738 304,179 483,828 535,249 I 137,314 143,062 249,657 279,615 5,303 4,518 9,082 8,785 29,138 30,470 32,120 33,481 I 27,535 2,725 54,025 5,450 1,157 1,115 1,740 1,711 7,366 6,092 14,732 12,184 I 12,363 13,001 21,387 23,089 87,724 87,559 154,662 154,984 3,840 7,197 7,680 14,284 I 22,290 23,780 40,014 40,832 334,030 319,519 585,099 574,415 I (70,292) (15,340) (101,271) (39,166) I 18,566 14,608 18,985 16,943 I 157,511 382,890 3,584 3,155 4,569 6,293 I 179,661 17,763 406,444 23,236 109,369 2,423 305,173 (15,930) I (25,000) (50,000) (20,000) (40,000) I 89,369 (22,577) 265,173 (65,930) I 575,116 597,693 656,981 722,911 $ 664,485 $ 575,116 $ 922,154 $ 656,981 I I -66- CITY OF SHOREWOOD, MINNESOTA I LIQUOR FUNDS SCHEDULES OF CASH FLOWS I FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 Waterford Center I 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES I Receipts from customers and users $ 791,238 $ 870,773 Other receipts and payments, net 985 3,138 Payments to suppliers, contractors and other governments (616,571) (757,133) I Payments to employees (126,776) (127,457) NET CASH PROVIDED (USED) I BY OPERATING ACTIVITIES 48,876 (10,679) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES I Transfers out (20,000) (25,000) CASH FLOWS FROM CAPITAL AND RELATED I FINANCING ACTIVITIES Proceeds from sale of capital assets 230,800 CASH FLOWS FROM INVESTING ACTIVITIES I Interest received on investments 679 2,218 NET INCREASE (DECREASE) IN I CASH AND CASH EQUIVALENTS 260,355 (33,461) CASH AND CASH EQUIVALENTS, JANUARY 1 3,401 36,862 CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 263,756 $ 3,401 I RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) I BY OPERATING ACTIVITIES Operating loss $ (30,979) $ (23,826) Adjustments to reconcile operating income (loss) I to net cash provided (used) by operating activities Other income related to operations 985 3,138 Depreciation 2,982 3,011 I (Increase) decrease in assets: Accounts receivable (1,021) 7,349 Due from other funds I Inventories 98,041 (5,228) Prepaid items 1,952 (790) Increase (decrease) in liabilities: I Accounts and contracts payable (1,315) (2,599) Due to other governments (7,336) (830) Salaries and compensated absences payable (14,433) 9,096 I NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 48,876 $ (10,679) NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES I Retirement of capital assets $ 5,421 $ -67- I I Exhibit D-3 I I Shorewood Plaza Totals 2007 2006 2007 2006 I $ 990,986 $ 1,114,627 $ 1,782,224 $ 1,985,400 3,584 3,155 4,569 6,293 I (775,172) (963,164) (1,391,743) (1,720,297) (158,952) (137,118) (285,728) (264,575) I 60,446 17,500 109,322 6,821 I (20,000) (25,000) (40,000) (50,000) I 250,267 481,067 I 18,527 14,340 19,206 16,558 I 309,240 6,840 569,595 (26,621 ) 359,286 352,446 362,687 389,308 I $ 668,526 $ 359,286 $ 932,282 $ 362,687 I $ (70,292) $ (15,340) $ (101,271) $ (39,166) I 3,584 3,155 4,569 6,293 I 29,138 30,470 32,120 33,481 (1,021) (2,042) 7,349 I 142,308 4,634 240,349 (594) 1,953 (728) 3,905 (1,518) I (12,703) (10,247) (14,018) (12,846) (10,883) (388) (18,219) (1,218) I (21,638) 5,944 (36,071) 15,040 I $ 60,446 $ 17,500 $ 109,322 $ 6,821 $ 92,756 $ $ 98,177 $ I -68- Developer Escrow Accounts ASSETS Cash and temporary investments LIABILITIES Accounts payable CITY OF SHOREWOOD, MINNESOTA AGENCY FUND COMBINING SCHEDULE OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED DECEMBER 31, 2007 Balance January 1 Additions Deductions $ $ $ (26,326) 52,640 101,060 $ $ $ (26,326) 52,640 101,060 -69- Exhibit E-l I I I I I I I I I I I I I I I I I I I Balance December 31 $ 127,374 $ 127,374 I CITY OF SHOREWOOD, MINNESOTA Exhibit F-l I SUMMARY FINANCIAL REPORT REVENUES AND EXPENDITURES FOR GENERAL OPERA nONS . GOVERNMENTAL FUNDS I FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 Percent I Total Increase 2007 2006 (Decrease) REVENUES I Taxes $ 4,332,741 $ 4,141,539 4.62 % Licenses and permits 256,472 382,408 (32.93) Intergovernmental 224,286 365,732 (38.67) I Charges for services 50,819 45,450 11.81 Fines and forfeits 77,777 79,040 (1.60) Special assessments 418 895 (53.30) I Investment earnings 621,234 327,921 89.45 Miscellaneous 1,077,012 1,110,860 (3.05) I TOTAL REVENUES $ 6,640,759 $ 6,453,845 2.90 % Per Capita $ 885.55 $ 854.70 I EXPENDITURES Current General government $ 1,253,223 $ 1,264,509 (0.89) % I Public safety 1,263,921 1,257,998 0.47 Streets and highways 718,350 626,048 14.74 Culture and recreation 190,931 169,411 12.70 I Capital outlay General government 54,133 26,519 104.13 Public safety 554,087 544,084 1.84 I Streets and highways 425,153 1,974,023 (78.46) Culture and recreation 90,423 26,578 240.22 Debt service I Principal 534,594 486,728 9.83 Interest and other charges 956,532 607,727 57.40 I TOTAL EXPENDITURES $ 6,041,347 $ 6,983,625 (13.49) % Per Capita $ 805.62 $ 924.86 I Total Long-term Indebtedness $ 21,090,000 $ 11,624,594 81.43 % Per Capita $ 2,812.37 $ 1,539.48 I General Fund Balance - December 31 $ 3,761,509 $ 3,383,906 11.16 % Per Capita $ 501.60 $ 448.14 I The purpose of this report is to provide a summary of fmancial information concerning the City of Shorewood to interested citizens. The complete fmancial statements may be examined at City Hall, 5755 Country Club Road. Questions I about this report should be directed to Bonnie Burton, Finance Director at (952)474-3236. I -70- I I I I I I I I I I I I I I I I I I I SECTION III STATISTICAL SECTION (UNAUDITED) CITY OF SHOREWOOD SHOREWOOD, MINNESOTA YEAR ENDED DECEMBER 31,2007 I I I I STATISTICAL SECTION I I This part of the City of Shorewood' s comprehensive annual [mancial report presents detailed information as a context for understanding what the information in the [mandai statements, note disclosures, and required supplementary information says about the government's overall [mancial health. I Page Financial Trends I These schedules contain trend information to help the reader understand how the government's [mancial performance and well-being have changed over time. 71 I Revenue Capacity I These schedules contain information to help the reader assess the government's most significant local revenue source, the property tax. 78 Debt Capacity I These schedules present information to help the reader assess the affordability of the government's current levels of outstanding debt and the government's ability to issue additional debt in the future. 85 I Demographic and Economic Information I These schedules offer demographic and economic indicators to help the reader understand the environment within which the government's [mancial activities take place. 92 Operating Information I These schedules contain service and infrastructure data to help the reader understand how the information in the government's [mancial report relocates to the services the government provides and the activities it performs. 95 I I I I I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA Table 1 STATISTICAL SECTION (UNAUDITED) NET ASSETS BY COMPONENT LAST FOUR FISCAL YEARS (accrual basis of accounting) Fiscal Year 2004 2005 2006 2007 Governmental activities Invested in capital assets, net of related debt $ 12,167,269 $ 11,372,213 $ 11,690,620 $ 10,960,550 Restricted 24,632 Unrestricted 6,669,073 6,316,707 5,716,027 6,147,185 Total governmental activities net assets $ 18,836,342 $ 17,688,920 $ 17,431,279 $ 17,107,735 Business-type activities Invested in capital assets, net of related debt $ 6,427,358 $ 6,172,309 $ 5,668,683 $ 6,152,530 Unrestricted 7,470,272 8,182,612 9,829,761 10,336,096 Total business-type activities net assets $ 13,897,630 $ 14,354,921 $ 15,498,444 $ 16,488,626 Total primary government Invested in capital assets, net of related debt $ 18,594,627 $ 17,544,522 $ 17,359,303 $ 17,1 13,080 Restricted 24,632 Unrestricted 14,139,345 14,499,319 15,545,788 16,483,281 Total primary government $ 32,733,972 $ 32,043,841 $ 32,929,723 $ 33,596,361 Note: Net assets are not available for years prior to 2004 -71- CITY OF SHOREWOOD, MINNESOTA Table 2 I STATISTICAL SECTION (UNAUDITED) CHANGES IN NET ASSETS I LAST FOUR FISCAL YEARS (accrual basis of accounting) Fiscal Year I 2004 2005 2006 2007 Expenses Governmental activities I General government $ 1,074,028 $ 1,222,510 $ 1,357,714 $ 1,321,971 Public safety 2,972,094 1,690,903 1,806,915 1,819,250 Public works 2,446,325 5,019,967 2,275,402 1,971,571 I Culture and recreation 254,081 246,381 233,881 258,906 Interest on long-term debt 607,862 606,189 600,723 1,000,230 Total governmental activities expenses 7,354,390 8,785,950 6,274,635 6,371,928 I Business-type activities I Water 591,858 567,854 488,513 636,506 Sewer 735,480 740,174 785,638 952,107 Recycling 106,933 105,823 124,354 91,157 Storm water management utility 106,757 73,885 171,190 63,888 I Liquor 2,152,411 2,006,107 2,017,217 1,885,537 Total business-type activities expenses 3,693,439 3,493,843 3,586,912 3,629,195 I Total expenses $ 11,047,829 $ 12,279,793 $ 9,861,547 $ 10,001,123 Program revenues I Governmental activities Charges for services I General government $ 51,069 $ 112,107 $ 25,340 $ 41,475 Public safety 983,684 1,055,758 1,060,506 896,731 Culture and recreation 1,080 1,575 1,800 1,960 Operating grants and contributions 119,594 100,910 31,730 99,800 I Capital grants and contributions 996,967 2,404,367 395,229 132,912 Total governmental activities program revenues 2,152,394 3,674,717 1,514,605 1,172,878 I Business-type activities Charges for services I Water 620,189 649,772 1,350,041 782,549 Sewer 866,350 833,939 836,175 832,956 Recycling 114,987 116,517 144,886 89,934 Stormwater management utility 85,978 102,649 129,708 164,413 I Liquor 2,199,139 2,040,314 1,984,344 1,788,835 Total business-type activities program revenues 3,886,643 3,743,191 4,445,154 3,658,687 I Total program revenues $ 6,039,037 $ 7,417,908 $ 5,959,759 $ 4,831,565 Net revenues (expenses) I Governmental activities $ (5,201,996) $ (5,111,233) $ (4,760,030) $ (5,199,050) Business-type activities 193,204 249,348 858,242 29,492 I Total primary government $ (5,008,792) $ (4,861,885) $ (3,901,788) $ (5,169,558) -72- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA Table 2 STATISTICAL SECTION (UNAUDITED) CHANGES IN NET ASSETS - CONTINUED LAST THREE FISCAL YEARS (accrual basis of accounting) Fiscal Year 2004 2005 2006 2007 General Revenues and Other Changes in Net Assets General Revenues Governmental activities Taxes Property taxes, levied for general purpose $ 3,345,326 $ 3,770,702 $ 4,144,543 $ 4,360,254 Grants and contributions not restricted to specific programs 4,723 4,785 4,925 37,746 Unrestricted investment earnings 127,853 201,024 327,921 621,234 Loss on sale of capital assets (5,500) Gain on sale of capital assets 4,300 Transfers 5,000 (17,000) 25,000 (143,728) Total governmental activities general revenues 3,477,402 3,963,811 4,502,389 4,875,506 Business-type activities Unrestricted investment earnings 144,163 190,943 310,281 434,072 Gain on sale of capital assets 382,890 Transfers (5,000) 17,000 (25,000) 143,728 Total business-type activities general revenues 139,163 207,943 285,281 960,690 Total primary government $ 3,616,565 $ 4,171,754 $ 4,787,670 $ 5,836,196 Change in Net Assets Governmental activities $ (1,724,594) $ (1,147,422) $ (257,641) $ (323,544) Business-type activities 332,367 457,291 1,143,523 990,182 Total primary government $ (1,392,227) $ (690,131) $ 885,882 $ 666,638 Note: Changes in net assets are not available for years prior to 2004 -73- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS Fiscal Year 1998 1999 2000 2001 General fund Reserved $ $ 34,450 $ 35,500 $ 117,760 Umeserved 1,458,046 1,531,901 1,713,680 1,905,309 Total general fund $ 1,458,046 $ 1,566,351 $ 1,749,180 $ 2,023,069 All other governmental funds Reserved $ 426,621 $ 376,643 $ 303,857 $ 231,421 Umeserved, reported in: Debt service funds (1,643) Special revenue funds (8,342) Capital project funds 1,789,052 1,635,871 1,461,012 2,560,347 Total all other governmental funds $ 2,214,030 $ 2,012,514 $ 1,764,869 $ 2,783,426 -74- I I I I I I I I I I I I I I I I I I I I Table 3 I I Fiscal Year 2002 2003 2004 2005 2006 2007 I $ 44,994 $ $ $ 48,593 $ $ 2,112,984 2,546,472 2,941,223 2,944,588 3,383,906 3,761,509 I $ 2,157,978 $ 2,546,472 $ 2,941,223 $ 2,993,181 $ 3,383,906 $ 3,761,509 I $ 246,283 $ 205,350 $ 191,410 $ 238,873 $ 262,438 $ 10,040,556 I (37,482) 10,081,818 4,562,479 3,566,803 3,116,437 2,197,367 2,473,097 I $ 10,290,619 $ 4,767,829 $ 3,758,213 $ 3,355,310 $ 2,459,805 $ 12,513,653 I I I I I I I I I I I -75- CITY OF SHOREWOOD, MINNESOTA I STATISTICAL SECTION (UNAUDITED) CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS I LAST TEN FISCAL YEARS Fiscal Year I 1998 1999 2000 2001 Revenues Taxes $ 2,111,143 $ 2,204,85 I $ 1,938,705 $ 2,206,525 I Licenses and permits 223,248 221,555 346,086 349,515 Intergovernmental 571,824 509,697 725,955 3,104,043 Charges for services 34,296 43,348 29,381 42,222 I Fines and forfeitures 73,337 94,115 76,483 61,243 Special assessments 105,950 95,138 61,713 52,485 Interest on investments 203,456 I 10,500 248,334 225,500 I Miscellaneous 60,938 78,079 144,241 71 ,236 Total revenues 3,384,192 3,357,283 3,570,898 6,112,769 I Expenditures General government 957,685 850,852 984,586 989,502 I Public safety 788,253 799,515 827,483 893,070 Public works 505,240 424,246 435,024 487,092 Culture and recreation 110,287 114,435 135,891 126,139 Capital Outlay 612,691 737,614 1,156,543 2,164,146 I Debt service Principal 334,437 3 I 0,665 151,970 148,358 Interest 213,751 211,567 36,092 27,016 I Total expenditures 3,522,344 3,448,894 3,727,589 4,835,323 Excess (deficiency) of revenues I over (under) expenditures (138,152) (91,611) (156,691) 1,277,446 Other financing sources (uses) I Transfers in 771,275 557,850 589,675 554,000 Proceeds from sale of bonds I Discount on long-term debt issued Transfers out (781,275) (559,450) (497,800) (539,000) Total other financing I sources (uses) (10,000) (1,600) 91,875 15,000 Net change in fund balances $ (148,152) $ (93,211) $ (64,816) $ 1,292,446 I Debt service as a percentage of I Noncapital expenditures 18.8% 19.3% 7.3% 6.6% I I -76- I I Table 4 I I Fiscal Year 2002 2003 2004 2005 2006 2007 I $ 2,658,663 $ 3,071,853 $ 3,344,442 $ 3,750,633 $ 4,141,539 $ 4,332,741 229,234 334,424 310,055 334,720 382,408 256,472 171,783 1,947,484 1,014,410 2,432,656 365,732 224,286 I 46,079 48,689 44,169 50,752 45,450 50,819 89,632 88,949 81,841 90,149 79,040 77,777 9,235 10,217 10,737 6,928 895 418 I 283,024 146,331 127,853 201,024 327,921 621,234 375,510 551,167 740,030 1,134,429 1,110,860 1,077,012 I 3,863,160 6,199,114 5,673,537 8,001,291 6,453,845 6,640,759 I 1,001,921 1,038,909 1,037,043 1,169,096 1,264,509 1,253,223 1,008,792 999,049 1,028,689 1,124,620 1,257,998 1,263,921 428,530 420,608 477,596 570,080 626,048 718,350 I 160,115 164,540 168,278 167,519 169,411 190,931 3,433,022 10,571,521 2,896,330 4,307,721 2,571,204 1,123,796 I 139,833 46,402 48,069 384,842 486,728 534,594 18,844 460,759 637,397 611,358 607,727 956,532 I 6,191,057 13,701,788 6,293,402 8,335,236 6,983,625 6,041,347 I (2,327,897) (7,502,674) (619,865) (333,945) (529,780) 599,412 I 629,100 391,107 328,500 542,000 635,000 770,091 9,950,000 2,368,378 10,000,000 (24,233) I (609,100) (391,107) (323,500) (559,000) (610,000) (913,819) 9,970,000 2,368,378 5,000 (17,000) 25,000 9,832,039 I $ 7,642,103 $ (5,134,296) $ (614,865) $ (350,945) $ (504,780) $ 10,431,451 I 5.8% 16.2% 11.2% 12.7% 20.1% 26.3% I I I -77- CITY OF SHOREWOOD, MINNESOTA I STATISTICAL SECTION (UNAUDITED) TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY I (Shown by year of tax collectability) 1998 1999 2000 2001 I Taxable market value Personal property $ $ $ $ I Real estate Total taxable market value $ 595,451,900 $ 626,118,400 $ 680,244,500 $ 769,858,900 Estimated actual value of taxable property $ 595,451,300 $ 625,522,200 $ 685,565,400 $ 795,637,300 I Taxable market value as a percentage of I estimated actual value 100.00 % 100.10 % 99.22 % 96.76 % Tax capacity I Personal property $ $ $ $ Real estate Tax capacity 9,897,574 9,663,252 10,346,255 11,344,958 I Contribution to fiscal disparities pool (214,901) (203,942) (201,693 ) (253,832) Receivable from fiscal disparities pool 337,116 342,621 379,095 426,424 I Tax increment (319,186) (312,066) Taxable valuationffotal tax capacity $ 9,700,603 $ 9,489,865 $ 10,523,657 $ 11,517,550 I Tax levies General $ 1,778,585 $ 1,860,507 $ 1,935,799 $ 2,208,574 I Debt service Total $ 1,778,585 $ 1,860,507 $ 1,935,799 $ 2,208,574 I Direct tax rate General 18.317 % 19.573 % 18.340 % 19.208 % Debt service I Total 18.317 % 19.573 % 18.340 % 19.208 % Source: Hennepin County Assessor I Note: Property in the county is reassessed annually. The county assesses property at approximately 90 percent of actual value for all I types of real and personal property. Note: Information not available prior to 2003 for the allocation of taxable market value and tax capacity between personal property I and real estate. I I -78- I I Table 5 I I 2002 2003 2004 2005 2006 2007 I $ $ 3,962,200 $ 3,831,300 $ 4,130,300 $ 4,361,600 $ 4,591,200 914,769,800 1,033,460,200 1,173,029,000 1,318,313,000 1,475,529,200 I $ 817,063,900 $ 918,732,000 $ 1,037,291,500 $ 1,177,159,300 $ 1,322,674,600 $ 1,480,120,400 $ 914,769,800 $ 1,066,523,800 $ 1,415,129,000 $ 1,550,488,900 $ 1,416,341,600 $ 1,553,767,900 I 89.32 % 86.14 % 73.30 % 75.92 % 93.39 % 95.26 % I $ $ $ $ 78,073 75,409 81,333 $ 85,635 $ 89,872 I 9,658,728 10,980,358 12,590,290 14,269,195 16,130,097 8,690,552 9,736,801 11,055,767 12,671,623 14,354,830 16,219,969 I (171,024) (184,657) (200,062) (213,988) (276,939) (308,590) 314,412 344,682 396,666 379,072 399,944 407,687 I $ 8,833,940 $ 9,896,826 $ 11,252,371 $ 12,836,707 $ 14,477,835 $ 16,319,066 I $ 2,763,367 $ 2,851,847 $ 2,907,997 $ 3,333,864 $ 3,678,592 $ 3,835,173 305,000 512,232 496,792 511,803 561,135 I $ 2,763,367 $ 3,156,847 $ 3,420,229 $ 3,830,656 $ 4,190,395 $ 4,396,308 I 31.923 % 28.816 % 25.843 % 25.971 % 25.408 % 23.501 % 3.082 4.552 3.870 3.535 3.439 I 31.923 % 31.898 % 30.396 % 29.841 % 28.944 % 26.940 % I I I I I -79- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PROPERTY TAX CAPACITY RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $1,000 OF TAX CAPACITY IN 1998-2007) I I I Overlapping Rates Storm Year (I) Sewer Taxes School District Watershed District District Payable City County No. 276 No. 277 No.3 No.4 Misc. No.2 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 3 1. 923 50.409 20.868 25.504 2.46 I 1.608 7.386 2003 31.898 50.607 24.215 20.758 1.236 1.616 7.757 2004 30.396 47.324 23.125 14.354 0.768 0.732 7.488 2005 29.841 44.172 21.989 16.250 1.276 1.375 7.382 2006 28.944 41.016 22.952 10.522 1.072 0.787 6.998 2007 26.940 39.110 24.793 9.911 1.121 0.743 7.310 I I I I I Source: Hennepin County Assessor I (I) Includes vocational school Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all City property owners (e.g. the rates for special districts apply only to the proportion of the government's property owners whose property is I located within the geographic boundaries of the special district). I I I I I I I I -80- I I Table 6 I I I Totals School District No. 276 Watershed School District District No.4 No. 277 Watershed Watershed Sewer Watershed District District District District No.3 No.4 No.2 No.3 140.744 % 140.927 % 140.927 % 124.037 % 138.858 138.913 138.913 136.721 126.001 126.342 126.342 124.147 I 12.966 112.549 112.549 106.057 112.355 112.367 112.367 II 7.856 115.738 I I 1.308 II 1.308 107.471 109.125 109.089 109.089 100.354 104.644 104.743 104.743 98.905 100.958 100.673 100.673 88.528 99.224 98.846 98.846 84.342 I I I I I I I I I I I I I I I -81- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PRlNCIP AL T AXP AYERS DECEMBER 31,2007 2007 Percent Tax of Total Taxpayer Capacity Rank Tax Capacity Big Box One, LLC $ 159,250 1 0.98 % Towle Real Estate 107,250 2 0.66 Shurgard Storage Centers Inc 77 ,250 3 0.47 Beacon Bank 64,250 4 0.39 Kimberly & Frank Vennes 62,025 5 0.38 Waterford Center LLP 56,450 6 0.35 The Mary Sue Simon Qprt 54,713 7 0.34 Minnetonka Country Club 51,890 8 0.32 Luaina Rae Hagen 49,288 9 0.30 Minnetonka Portable Dredging Co. 48,250 10 0.30 Xcel Energy (formerly Northern States Power Company) First State Bank Excelsior Shorewood ViIlage Shopping Center, Inc. Minnegasco Two S Properties NSP Property Tax Dept. MFT, Inc. Totals $ 730,616 4.48 % -82- I Table 7 I I 1998 Percent I Tax of Total Capacity Rank Tax Capacity I $ % I 57,666 6 0.59 I 33,125 8 0.34 69,838 2 I 75,460 1 0.78 69,150 3 0.71 I 63,850 4 0.66 59,188 5 0.61 38,557 7 0.40 I 32,808 9 0.34 31,738 10 0.33 I $ 531,380 4.76 % I I I I I I I I -83- CITY OF SHOREWOOD, MINNESOTA Table 8 STATISTICAL SECTION (UNAUDITED) PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (1) Percent Collection Percentage Collection of Total Fiscal Total of Current of Levy in subsequent Total Collections Year Levy Year's Levy Collected years Collections to Levy 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 15,306 1,860,497 100.00 2000 1,935,779 1,922,709 99.32 13,056 1,935,765 100.00 2001 2,208,574 2,188,665 99.10 19,594 2,208,259 99.99 2002 2,763,367 2,734,632 98.96 28,193 2,762,825 99.98 2003 3,156,847 3,131,798 99.21 19,868 3,151,666 99.84 2004 3,420,229 3,390,137 99.12 27,949 3,418,086 99.94 2005 3,830,656 3,783,074 98.76 45,000 3,828,074 99.93 2006 4,190,395 4,145,829 98.94 32,957 4,178,786 99.72 2007 4,396,308 4,320,289 98.27 4,320,289 98.27 (1) Includes state paid p~operty tax credits. I I I I I I I I I I I I I I I I I I I -84- - - - - - - - - - - - - - - - - - - - Table 9 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 Business- Type Governmental Activities Activities Percentage of General Tax Lease General Total Estimated Actual Fiscal Obligation Increment Revenue Capital Obligation Primary Value of Per Year Bonds Bonds Bonds Leases Revenue Bonds Government Taxable Property Capita 1998 $ 545,000 $ 440,000 $ $ 276,460 $ 2,470,000 $ 3,731,460 0.63 % $ 537 1999 410,000 285,000 255,795 2,290,000 3,240,795 0.52 462 2000 280,000 233,826 2,100,000 2,613,826 0.38 353 2001 155,000 210,468 1,915,000 2,280,468 0.29 302 2002 40,000 9,950,000 185,635 1,730,000 11,905,635 1.30 1,569 2003 20,000 12,365,000 159,233 2,360,000 14,904,233 1.40 1,962 2004 12,365,000 131,164 2,170,000 14,666,164 1.04 1,923 2005 12,010,000 101,322 2,745,000 14,856,322 0.96 1,967 2006 11,555,000 69,594 3,920,000 15,544,594 1.10 2,073 2007 21,090,000 3,665,000 24,755,000 1.59 3,301 Note: Details regarding the City's outstanding debt can be found in the notes to the [mancial statements. See the Schedule of Demographic and Economic Statistics on page 92 for population data. See the Schedule of Tax Capacity, Market Value and Estimated Actual Value of Taxable Property for property value information. -85- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Table 10 I I I Amounts Percentage of General Available in Net Estimated Actual Obligation Debt Service Bonded Value of Per Bonds Funds Debt Taxable Property Capita $ 545,000 $ 426,621 $ 118,379 0.02 % $ 17 410,000 367,1 11 42,889 0.01 6 280,000 294,605 (14,605) (9.00) (2) 155,000 221,837 (66,837) (0.01) (9) 40,000 116,688 (76,688) (0.0 I) (10) 20,000 108,925 (88,925) (0.01) (12) I Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 I See the Schedule of Demographic and Economic Statistics on page 92 for population data. I I I I I Note: Details regarding the City's outstanding debt can be found in the notes to the [mancial statements. ,:)t:t: U1t: ,:)l:Ilt:UUlt: VI I Cl}\' \...-CljJCll:lLY, IVIClll\.t:l v ClIUt: CllIU C:;lIlIlCllt:U rtl:lUCll v ClIUt: VI I C1lI.ClVlt: r 1 VjJt:llY IVl jJl VjJt:llY VClIUt: ~nf'nrrn."t';nn I I I I I I I -86- I I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA Table 11 STATISTICAL SECTION (UNAUDITED) COMPUTATION OF DIRECT AND OVERLAPPING DEBT DECEMBER 31, 2007 Gross Amount Bonded of Debt Used Percentage Net Debt For Net Debt Net Applicable to Applicable Calculation Debt District to District Direct Debt City of Shorewood $ $ 100.00 % $ Overlapping Debt School District #276 $ 67,340,000 $ 41,681,594 19.76 % $ 8,236,283 School District #277 6,650,000 6,233,005 2.20 137,126 Hennepin County 468,405,000 468,235,504 1.18 5,525,179 Henn Suburban Park District 80,795,000 73,402,105 1.56 1,145,073 Henn Regional RR Authority 44,900,000 44,577,469 1.18 526,014 Metropolitan Council 181,150,000 118,428,506 0.53 627,671 Total Overlapping Debt $ 849,240,000 $ 752,558,183 2.15 % $ 16,197,346 Total Direct and Overlapping Debt $ 849,240,000 $ 752,558,183 2.15 % $ 16,197,346 Sources: Market value data used to estimate applicable percentages provided by the County Board of Equalization and Assessment. Debt outstanding data provided by the county. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City. This process recognized that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. * The percentage of overlapping debt applicable is estimated using taxable market property values. Applicable percentages were estimated by determining the portion of the county's taxable market value that is within the City's boundaries and dividing it by the county's total taxable market value. -87- (0.1 %) (0.4%) I I I I I I I I I I I I I I I I I I I Debt limit CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS Fiscal Year 1998 1999 2000 2001 $ 11,909,038 $ 12,522,368 $ 13,604,890 $ 15,397,178 118,379 42,889 (14,605) (66,837) $ 11,790,659 $ 12,479,479 $ 13,619,495 $ 15,464,015 Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit 1.0% 0.3% Note: Under state law, the City's outstanding general obligation debt should not exceed 2 percent of the market value of taxable property. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. -88- I I I I I I I I I I I I I I I I I I I 2002 $ 16,341,278 (76,688) $ 16,417,966 (0.5%) 2003 $ 18,374,640 (88,925) $ 18,463,565 (0.5%) Fiscal Year 2004 2005 $ 20,745,830. $ 23,543,186 $ 20,745,830 $ 23,543,186 2006 $ 26,453,492 $ 26,453,492 Legal Debt Margin Calculation for Fiscal Year 2006 Taxable market value Debt limit (2% of market value) Debt applicable to limit General obligation bonds Less: amount available in debt service funds Total net debt applicable to limit Legal debt margin -89- Table 12 2007 $ 29,602,408 $ 29,602,408 $ 1,480,120,400 $ 29,602,408 $ 29,602,408 CITY OF SHOREWOOD, MINNESOTA Table 13 STATISTICAL SECTION (UNAUDITED) PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS General Obligation Revenue Bonds (I) Net Fiscal Gross (2) Revenue Debt Service Year Revenue Expenses Available Principal Interest Coverage 1998 $ 311,925 $ 179,914 $ 132,01 I $ 185,000 $ 125,085 0.43 1999 454,227 201,325 252,902 180,000 117,642 0.85 2000 465,548 186,696 278,852 190,000 109,736 0.93 2001 398,555 209,332 189,223 185,000 99,739 0.66 2002 287,465 236,575 50,890 185,000 93,280 0.18 2003 539,287 192,689 346,598 185,000 86,907 1.27 2004 676,287 314,513 361,774 190,000 88,712 1.30 2005 720,438 300,858 419,580 950,000 79,456 0.41 2006 1,264,892 223,243 1,041,649 275,000 81,165 2.92 2007 965,717 259,056 706,661 255,000 172,050 1.65 I I I I I I I I I I Tax Increment Bonds Fiscal Year Revenue from Property Taxes Debt Service Principal Interest Coverage 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 $ 334,290 334,124 $ 180,000 155,000 $ 162,545 168,043 861 0.98 1.03 I I I I I I I (1) (2) Including interest and other income Excluding depreciation and interest on bonds -90- I I I I I Fiscal I Year 1998 I 1999 2000 2001 I 2002 2003 2004 I 2005 2006 2007 I I Fiscal Year I 1998 1999 2000 I 2001 2002 2003 2004 I 2005 2006 2007 I I I I I I I CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PLEDGED-REVENUE COVERAGE - CONTINUED LAST TEN FISCAL YEARS Table 13 Capital Leases Revenue from Property Debt Service Taxes Principal Interest $ 37,544 $ 19,437 $ 18,107 37,544 20,665 16,879 37,544 21,969 15,575 37,544 23,358 14,186 37,544 24,833 12,711 37,544 26,402 11,142 37,544 28,069 9,475 37,544 29,842 7,702 37,544 31,728 5,816 73,406 69,594 3,812 Lease Revenue Bonds Revenue from Lease Debt Service Payments Principal Interest $ $ $ Coverage 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Coverage 447,704 447,704 1.00 620,596 624,650 0.99 948,384 355,000 588,384 1.01 1,040,693 455,000 589,056 1.00 1,034,751 465,000 941,222 0.74 -91- I I CITY OF SHOREWOOD, MINNESOTA Table 14 DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Percent of population Total Per Capita which has a Fiscal Personal Personal Median bachelor's or post Unemployment Year Population (1) Income (2) Income (2) Age (3) graduate degree (4) Rate (5) 1998 6,955 $ 265,910,515 $ 38,233 34.4 2.1 % 1999 7,008 280,866,624 40,078 34.4 2.2 2000 7,400 318,755,000 43,075 38.7 58.8 % 2.7 2001 7,540 328,389,620 43,553 38.7 3.5 2002 7,590 333,254,130 43,907 38.7 4.4 2003 7,595 344,387,680 45,344 38.7 4.7 2004 7,625 366,343,125 48,045 38.7 4.3 2005 7,551 374,272,866 49,566 38.7 3.8 2006 7,499 371,695,434 49,566 38.7 3.3 2007 7,499 371,695,434 49,566 38.7 4.7 I I I I I I I I Data Sources: (1) Metropolitan Council (2) Bureau of Economic Analysis (3) US Census Bureau (4) US Census Bureau 2000 (5) Minnesota Department of Employment and Economic Development I I I Note: Population, median age, and education level information are based on surveys conducted during the last quarter ofthe calendar year. Personal income information is a total for the year. Unemployment rate information is an adjusted yearly average. School enrollment is based on the census at the start of the school year. I I I I I I -92- Employer Employees Rank 120 1 74 2 60 3 55 4 28 5 26 * 6 I I Percentage I of Total City Employment N/A % I N/A N/A I N/A N/A N/A I N/A % I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2007 Cub Foods Minnewashta Elementary School Xcel Energy Beacon Bank Minnetonka Country Club City of Shorewood Driscoll's Supervalu Total 363 Source: Minnesota Department of Employment and Economic Development * Includes part-time and temporary seasonal employees. N/A - indicates not available -93- CITY OF SHOREWOOD, MINNESOTA FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS (1) Table 16 Function 2006 2007 General government 13 13 Public works Maintenance 6 6 Culture and recreation Parks 13 5 Water 1.5 1.5 Sewer 1.5 1.5 Municipal Liquor 3 2 Total 38 29 Source: City of Shorewood (1) Information prior to 2006 was not maintained by the City. The table will be updated on a go-forward basis. -95- I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA OPERATING INDICA TORS BY FUNCTION LAST TEN FISCAL YEARS (1) Table 17 Function 2006 2007 Building/engineering Permits issued Public works Street sweeping (hours) Snowplowing (hours) Equipment repair (hours) Water New connections Water mains breaks Average daily consumption (thousands of gallons) Sewer Average daily treatment flow (thousands of gallons) 1,137 710 1,000 1,614 2,000 1,394 2,080 2,080 24 22 3 7 482,000 482,000 1,000,000 1,000,000 Sources: Various government departments. Note: Indicators are not available for the general government function. (1) Information prior to 2006 was not maintained by the City. The table will be updated on a go-forward basis. -96- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS (1) Table 18 Function 2006 2007 Public Works Highways and streets Streets (miles) Street lights Traffic signals Culture and recreation Parks division Parks Parks acreage Baseball diamonds Basketball courts Bike trails (miles) Hockey rinks/outdoor Softball diamonds Swimming areas Tennis courts Volleyball courts Utilities Water Miles of water main Consumers Maximum daily capacity (gallons) Sewer Miles of sanitary sewer Lift stations Maximum daily treatment capacity (gallons) Storm sewer Miles of storm sewer 50 194 5 51 194 5 7 102 5 1 2.45 3 3 1 5 2 7 102 5 1 2.45 3 3 1 5 2 27 28 1,265 1,297 919,000 919,000 60 60 14 14 1,000,000 1,000,000 12 12 Source: Various city departments Note: No capital asset indicators are available for the general government function. (1) Information prior to 2006 was not maintained by the City. The table will be updated on a go-forward basis. -97- CITY OF SHOREWOOD SHOREWOOD, MINNESOTA MINNESOTA LEGAL COMPLIANCE YEAR ENDED DECEMBER 31, 2007 Certified Public Accountants & Consultants Certified Public Accountants & Consultants May 5,2008 Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 Honorable Mayor and Council City of Shorewood, Minnesota We have audited the accompanying [mancial 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) for the year ended December 31,2007 and have issued our report thereon dated May 5, 2008. Professional standards require that we provide you with the following information related to our audit. Our Responsibility Under Auditing Standards Generally Accepted in the United States of America As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States. Our audit of the [mancial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the [mancial statements are free of material misstatement. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. Significant Audit Findings In planning and performing our audit, we considered the City's internal control over [mancial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the [mancial statements, but not for the purpose of expressing an opinion on the effectiveness ofthe City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over [mancial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report [mancial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's [mancial statements that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the [mancial statements will not be prevented or detected by the entity's internal control. We did not identify any deficiencies in internal control over [mancial reporting that we consider to be material weaknesses, as de[med above. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 2 Compliance As part of obtaining reasonable assurance about whether the [mancial statements are free of material misstatement, we perfonned tests of compliance with certain provisions of Minnesota statutes. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance with Minnesota statutes. Planned Scope and Timing of the Audit We perfonned the audit according to the planned scope and timing. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the tenns of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the [mancial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2007. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the [mancial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the [mandai statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the [mancial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the [mancial statements was capital asset basis and depreciation. Management's estimate of these accounting estimates is based on estimated or actual historical cost and the estimated useful lives of capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in detennining that it is reasonable in relation to the [mancial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Certain [mancial statement disclosures are particularly sensitive because of their significance to [mancial statement users. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in perfonning and completing our audit. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 3 Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In total we prepared 16 journal entries. These entries are necessary to adjust balances to the proper year end amount. It is important that the City understand these entries and prepare to make them in the future. Internal preparation enhances the quality of internal information. A schedule ofthese entries can be provided upon request. Disagreements with Management For purposes of this letter, professional standards defme a disagreement with management as a fmancial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the fmancial statements or the auditor's report. Weare pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated May 5, 2008. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's fmancial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Financial Position and Results of Operations City of Shorewood May 5, 2008 Page 4 Our principal observations and recommendations are summarized below. These recommendations resulted from our observations made in connection with our audit of the City's [mancial statements for the year ended December 31, 2007. General Fund The General fund is used to account for resources traditionally associated with government, which are not required legally or by sound principal management to be accounted for in another fund. The General fund balance increased $377,603 from 2006. The fund balance of$3,761,509 is 71 percent of the 2008 budgeted expenditures. We recommend the fund balance be maintained at a level sufficient to fund operations until the major revenue sources are received in June. We feel a reserve of approximately 50 percent of planned expenditures and transfers out is adequate to meet working capital and small emergency needs. The City adopted a fund balance policy in 2007 with an objective of 55-60 percent of the next year's budget. The Minnesota Office ofthe State Auditor has classified cities' unreserved fund balance levels relative to expenditures as follows: Percent of Planned Expenditures Extremely low Low Acceptable Moderately high High Very high Extremely high Under 20% 21 - 34 35 - 50 51 - 64 65 - 100 100 - 150 Above 150 Months Expenditures on hand Under 2.5 2.5 - 4 4-6 6-7 8 - 12 12-18 Above 18 The State Auditor does group all General, special revenue funds of the government when making this calculation where our calculation is based only on the General fund. The Office of the State Auditor (the OSA) has issued a Statement of Position relating to fund balance stating "a local government should identify fund balance separately between reserved and unreserved fund balance. The local government may assign and report some or all ofthe fund balance as designated and undesignated." The Office OSA also recommends local governments adopt a formal policy on the level of unreserved fund balance that should be maintained in the general and special revenue funds. This helps address citizen concerns as to the use of fund balance and tax levels. The City adopted a policy in 2007. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 5 The purposes and benefits of a strong fund balance are as follows: . Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the governmental fund expenditures. . The City is vulnerable to legislative actions at the State and Federal level. The State continually adjusts the local government aid and property tax credit formulas. We also have seen the State mandate levy limits for cities over 2,500 in population. An adequate fund balance will provide a temporary buffer against those aid adjustments or levy limits. . Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These would include capital outlay, replacement, lawsuits and other items. An adequate fund balance will provide the financing needed for such expenditures. . A strong fund balance will assist the City in maintaining, improving or obtaining its bond rating. The result will be better interest rates in future bond sales. A table summarizing the General fund balance in relation to budget follows: Percent General of Fund Fund Balance Budget Fund Balance to Year December 31 Year Budget Budget 2003 $ 2,546,472 2004 $ 3,921,974 65 % 2004 2,941,223 2005 4,371,021 67 2005 2,993,181 2006 4,740,495 63 2006 3,383,906 2007 5,130,958 66 2007 3,761,509 2008 5,319,145 71 Fund Balance as a Percent of Next Year's Budget $6,000,000 $5,130,958 $5,319,145 $4,740,495 . . $4,371,021 . $3,921,974 . ...- ---+ 71% . . . 6!%" 63% 66% 67% $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2003 2004 2005 2006 2007 2008 I~Fund Balance -Budget I 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 6 The 2007 operations are summarized as follows: Variance with Final Final Budget - Budgeted Actual Positive Amounts Amounts (Negative) $ 4,990,958 $ 5,100,393 $ 109,435 4,460,958 4,092,790 368,168 Revenues Expenditures Excess of revenues over expenditures Total other fmancing sources (uses) 530,000 1,007,603 140,000 40,000 (670,000) (670,000) (530,000) (630,000) 377,603 3,383,906 3,383,906 $ 3,383,906 $ 3,761,509 $ 477,603 Other fmancing sources (uses) Transfers in Transfers out (100,000) (100,000) Net change in fund balances 377,603 Fund balances, January 1 Fund balances, December 31 377,603 . The General fund increased its fund balance $377,603 during the year ended December 31, 2007. This increase is provided by positive budget variances for both revenues and expenditures. More detailed information of the variances is as follows: Revenues were $109,435 in excess of budget. The largest variances were interest on investments and property taxes. Interest on investments provided a positive variance of$137,922 and property taxes provided a negative variance of$30,572. Expenditures were $368,168 under budget. Three of the City's four major governmental functions were under budget, with public safety being the exception with a negative variance of$13,206. Capital outlay and general government expenditures provided the largest variances. These functions were under budget by $163,770 and $162,306 respectively. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 7 A more detailed comparison for the last three years General fund revenues and transfers as follows: Percent of Source 2005 2006 2007 Total Property taxes $ 3,750,633 $ 4,141,539 $ 4,332,741 84.2 % Licenses and permits 334,720 382,408 256,472 5.0 Intergovernmental 64,480 4,925 95,90 I 1.9 Charges for services 50,752 45,450 50,819 1.0 Fines and forfeitures 90,149 79,040 77,777 1.5 Interest on investments 107,787 183,076 257,922 5.0 Miscellaneous 96,845 12,020 28,761 0.6 Transfers in 50,000 50,000 40,000 0.8 Total revenues and transfers in $ 4,545,366 $ 4,898,458 $ 5,140,393 100.0 % The sources of revenues and transfers from the past three years are presented graphically as follows: Revenues and Transfers $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- . . . L () - 2005 2006 2007 ~Property taxes -Licenses and permits ~Interest on investments -Other www.aemcpas.com 952.835.9090 . Fax 952.835.3261 City of Shorewood May 5, 2008 Page 8 A more detailed comparison for the last three years General fund expenditures and transfers as follows: Percent of Program 2005 2006 2007 Total General government $ 1,169,096 $ 1,264,509 $ 1,253,080 26.3 % Public safety 1,124,620 1,257,998 1,263,921 26.5 Public works 570,080 626,048 718,111 15.1 Culture and recreation 167,519 169,411 190,919 4.0 Capital outlay 859,689 529,401 618,859 13.0 Debt service 43,404 50,366 47,900 1.0 Transfers out 559,000 610,000 670,000 14.1 Total expenditures and transfers out $ 4,493,408 $ 4,507,733 $ 4,762,790 100.0 % The functional expenditures and transfers from the past three years are presented graphically as follows: Expenditures and Transfers $1,400,000 $800,000 . . ~ . - .... $1,200,000 $1,000,000 $600,000 $400,000 $200,000 $- 2005 2006 2007 "'-General government -Public safety ---Public works -Transfers out Other 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 9 Debt Service Funds Debt Service funds are used to account for debt not accounted for in proprietary funds. The following summarizes the assets of each Debt Service fund with the bonds payable at year end. Cash and Total Bonds Debt Description Investments Assets Outstanding 1993 Improvement and Refunding $ 36,978 $ 36,978 $ Waterford III Tax Increment 11,477 11,560 2002/2003 Public Safety Building 10,028,996 21,118,996 21,090,000 Total $ 10,077,451 $ 21,167,534 $ 21,090,000 Final Maturity Date 2023 The 1993 Improvement and Refunding Bonds are paid in full and the remaining resources can be used for whatever the Council deems appropriate. The Council approved a transfer of remaining funds in 2007 to close the fund. The remaining funds in the Waterford III Tax Increment fund should be used for a purpose consistent with the tax increment fmancing plan. The 2002/2003 Public Safety Building bonds funds issued $10,000,000 of refunding bonds during 2007. The cash and investment balance includes cash with fiscal agent, which will pay the debt service on the new bonds until the crossover refunding date, at which point the old bonds will be defeased. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 10 Capital Projects Funds Capital projects funds account for the acquisition of capital assets or construction of major capital projects not being fmanced by proprietary funds. A summary of year end fund balances (deficits) for all capital projects funds follows: Fund Balances (Deficits) December 31, Increase Fund 2007 2006 (Decrease) Nonmajor Public Facilities $ 211,444 $ 249,068 $ (37,624) Park Capital Improvement 284,207 319,907 (35,700) Equipment Replacement 498,564 393,165 105,399 Street Reconstruction 1,291,740 1,225,915 65,825 MSA Construction (34,902) (170,209) 135,307 Land and Open Space 15,305 (15,305) Technology 100,000 100,000 EDA Public Safety Facilities Project 81,507 125,645 (44,138) Senior Community Center 40,537 38,571 1,966 Total $ 2,473,097 $ 2,197,367 $ 275,730 All funds except the MSA Construction fund have positive fund balances. We recommend the City monitor this deficit and put a plan in place to eliminate the deficit. The MSA Construction fund also owes $550,000 to another City fund. Many of the funds have significant resources built up for future projects, with the Street Reconstruction fund having the largest fund balance with over 1.2 miIlion dollars. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 11 Enterprise Funds Liquor Funds The City decided to not continue its liquor store operations. As a result, the entire inventory balance and the assets of the liquor stores were sold in December 2007. As of December 31, 2007, the balances of assets and liabilities remaining in the liquor funds are as follows: 2007 Waterford Shorewood Total $ 263,756 $ 668,526 $ 932,282 23 2,726 2,749 1,021 1,021 2,042 264,800 672,273 937,073 ASSETS Cash and temporary investments Receivables Accrued interest Accounts TOTAL ASSETS LIABILITIES Accounts payable 7,131 7,788 14,919 NET ASSETS Unrestricted $ 257,669 $ 664,485 $ 922,154 We recommend the City evaluate its long-term plans and goals to determine what should be done with the remaining funds. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 12 Water Fund The results of the operations and cash position of the Water fund for the past three years are as follows: 2005 2006 2007 Percent of Percent of Percent of Amount Revenues Amount Revenues Amount Revenues Operating revenues $ 511,486 100 % $ 582,572 100 % $ 580,158 100 % Operating expenses 483,003 94 407,348 70 464,456 80 Operating income 28,483 6 175,224 30 115,702 20 Nonoperating revenues 124,101 24 810,158 139 213,509 37 Income before transfers 152,584 30 985,382 169 329,211 57 Transfers in 82,679 14 Change in net assets $ 152,584 30 % $ 985,382 169 % $ 411,890 71 % Cash and cash equivalents $ 3,147,465 $ 3,732,853 $ 3.740,051 Bonds payable $ 2,745,000 $ 3,920,000 $ 3,665,000 Water Fund $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- 2005 2006 2007 . Operating revenues . Operating expenses 1m Change in net assets 0 Cash and cash equivalents Revenues remained consistent with the prior year while operating expenses increased. It is always important for the City to monitor the operations to ensure rates are sufficient to cover operating expenses, debt service and future capital needs. The cash balance remains sufficient and strong as compared to annual operating expenses. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com Sewer Fund The results of the operations and cash position of the Sewer fund for the past three years are as follows: 2005 2006 2007 Percent of Percent of Percent of Amount Revenues Amount Revenues Amount Revenues Operating revenues $ 815,886 100 % $ 807,598 100 % $ 823,293 100 % Operating expenses 740,174 91 785,638 97 952,107 116 Operating income (loss) 75,712 9 21,960 3 (128,814) (16) Nonoperating revenues 117,041 14 184,063 23 222,907 27 Income before transfers 192,753 23 206,023 26 94,093 11 Transfers in 60,000 7 112,500 14 Change in net assets $ 252,753 30 % $ 206,023 26 % $ 206,593 25 % Cash and cash equivalents $ 3,550,499 $ 3,958,626 $ 4,387,059 $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- City of Shorewood May 5, 2008 Page 13 Sewer Fund 2005 2006 2007 . Operating revenues . Operating expenses 1!11 Change in net assets 0 Cash and cash equivalents The fund revenues increased slightly and expenses increased by $166,469, which is primarily due to increased Metropolitan Council Environmental Service fees. With the increase in operating expenses there was an operating loss of $129,814 this year. It is always important for the City to monitor the operations to ensure rates are sufficient to cover operating expenses, debt service and future capital needs. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 14 Recycling Fund The results of the operations and cash position of the Recycling fund for the past three years are as follows: 2005 2006 2007 Percent Percent Percent Amount of Total Amount of Total Amount of Total Operating revenues $ 95,039 100 % $ 123,443 100 % $ 68,928 100 % Operating expenses 105,823 111 124,354 101 91,157 132 Operating loss (10,784) (11) (911) (I) (22,229) (32) Nonoperating revenues 22,797 24 23,650 19 25,166 37 Change in net assets $ 12,013 13 % $ 22,739 18 % $ 2,937 4 % Cash and cash equivalents $ 61,905 $ 83,554 $ 94,646 Recycling Fund $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $- 2005 2006 2007 . Operating revenues . Operating expenses [] Change in net assets 0 Cash and cash equivalents The fund showed a significant decrease in operating revenues and expenses during 2007. This was caused by the City no longer billing citizens for the City Cleanup Day. Residents now are able to participate in the program voluntarily instead of being required. The City noted a significant decrease in participation in the program, however as a result, the cost of offering this service decreased as well. Nonoperating revenues consist primarily of recycling grants received from Hennepin County. The cash balance increased and appears sufficient. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 15 Storm water Management Utility Fund The results ofthe operations and cash position of the Stormwater Management Utility fund for the past three years are as follows: 2005 2006 2007 Percent of Percent of Percent of Amount Revenues Amount Revenues Amount Revenues Operating revenues $ 69,637 100 % $ 69,177 100 % $ 164,347 100 % Operating expenses 67,967 98 166,752 241 61,422 37 Operating income (loss) 1,670 2 (97,575) (141) 102,925 63 Nonoperating revenues 34,479 50 67,884 98 12,115 7 Income (loss) before transfers 36,149 52 (29,691 ) (43) 115,040 70 Transfers in 7,000 10 25,000 36 41,049 25 Transfers out (52,500) (32) Change in net assets $ 43,149 62 % $ (4,69 1) (7) % $ 103,589 63 % Cash and cash equivalents $ 300.316 $ 275,950 $ 322,1 16 Stormwater Management Utility Fund $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- $(50,000) 2005 2006 2007 . Operating revenues . Operating expenses ~ Change in net assets 0 Cash and cash equivalents The City implemented an increase in rates during 2007, resulting in an increase in operating revenues. The decrease in operating expenses was due to repairs and maintenance expenses dropping significantly. It will be important for the City to review operations and effectively budget to ensure operations of the fund are a success in the future, The cash balance increased from the prior year and appears to be sufficient to cover operations. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 16 Ratio Analysis The following captures a few ratios from the City's financial statements that give some additional information for trend and peer group analysis. The peer group average consists of the average of Abdo, Eick & Meyers' client base of approximately 100 cities. The majority of these ratios facilitate the use of economic resources focus and accrual basis of accounting at the government-wide level. A combination ofIiquidity (ability to pay its most immediate obligations), solvency (ability to pay its long-term obligations), funding (comparison of financial amounts and economic indicators to measure changes in financial capacity over time) and common-size (comparison of financial data with other cities regardless of size) ratios are shown below. Ratio Calculation Source 2004 2005 2006 2007 Debt to assets T otalliabilities/total assets Government-wide 33% 34% 33% 44% 34% 33% 34% N/A Debt service coverage Net cash provided by operations/ Enterprise funds 91% 119% 116% 130% enterprise fund debt payments 132% 153% 177% N/A Debt per capita Bonded debt/population Government-wide $ 1,906 $ 1,954 $ 2,030 $ 3,301 $ 2,160 $ 2,264 $ 2,488 N/A Taxes per capita Tax revenues/population Government-wide $ 439 $ 499 $ 544 $ 581 $ 337 $ 364 $ 397 N/A Capital assets % left to Net capital assets/ Government-wide 41% 38% 37% 34% depreciate - Governmental gross capital assets 68% 67% 69% N/A Capital assets % left to Net capital assets/ Government-wide 52% 51% 52% 52% depreciate - Business-type gross capital assets 67% 67% 66% N/A Represents the City of Shorewood Peer Group ratio 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 17 Debt-to-Assets Leverage Ratio (Solvency Ratio) The debt-to-assets leverage ratio is a comparison of a city's total liabilities to its total assets or the percentage oftotal assets that are provided by creditors. It indicates the degree to which the City's assets are financed through borrowings and other long-term obligations (i.e. a ratio of 50 percent would indicate half of the assets are fmancing with outstanding debt). 46% 44% 42% 40% 38% 36% 34% 34% 34% 32% 33% 33% 30% 2004 2005 44% 2006 2007 I"'" City ratio -Peer group average I Debt Service Coverage Ratio (Solvency Ratio) The debt coverage ratio is a comparison of cash generated by operations to total debt service payments (principal and interest) of enterprise funds. This ratio indicates if there are sufficient cash flows from operations to meet debt service obligations. Except in cases where other nonoperating revenues (i.e. taxes, assessments, transfers from other funds, etc.) are used to fund debt service payments, an acceptable ratio would be above 100 percent. 200% 177% 180% . 130% 160% 140% 132% 120% t ~19% 91%~ . 116% 100% 80% 2004 2005 2006 2007 I.....City ratio -Peer group average I 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 18 Bonded Debt per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total bonded debt by the population of the city and represents the amount of bonded debt obligation for each citizen of the city at the end of the year. The higher the amount, the more resources are needed in the future to retire these obligations through taxes, assessments or user fees. The increase in 2007 is due to the refunding bonds that were issued in 2007 to refund bonds in 2009. $3,400 $3,200 $3,000 $2,800 $2,600 $2,400 $2,200 $2,000 $1,800 $1,954 $3,301 $2,264 $2,160 $1,906 $2,030 2004 2005 2006 2007 I.....City ratio -Peer group average I Taxes per Capita (Funding Ratio) This dollar amount is arrived at by dividing the total tax revenues by the population of the city and represents the amount of taxes for each citizen of the city for the year. The higher this amount is, the more reliant the city is on taxes to fund its operations. $600 $550 $500 $450 $400 $350 $337 . $300 2004 $581 $544 $499 . . $364 $397 2005 2006 2007 I.....City ratio -Peer group average I 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 19 Capital Assets Percentage (Common-size Ratio) This percentage represents the percent of governmental or business-type capital assets that are left to be depreciated. The lower this percentage, the older the city's capital assets are and may need major repairs or replacements in the near future. A higher percentage may indicate newer assets being constructed or purchased and may coincide with higher debt ratios or bonded debt per capita. Governmental Activities 90% 68% 67% 69% - - - - - 41% ~ 38% 37% 34% & ..... .... .... ..... , 80% 70% 60% 50% 40% 30% 2004 2005 2007 2006 I~City ratio -Peer group average I Business-Type Activities 80% 75% 70% 65% 60% 55% 50% 45% 40% 67% 67% 66% . . . . . . . 52% 51% 52% 52% 2004 2005 2007 2006 I~City ratio -Peer group average I www.aemcpas.com 952.835.9090 . Fax 952.835.3261 City of Shorewood May 5, 2008 Page 20 Other Items Future Accounting Standard Changes The following Governmental Accounting Standards Board (GASB) Statements and Statements of Auditing Standards (SAS) have been issued and may have an impact on future City financial statements: GASB Statement No. 45 - Accounting and Financial Reporting by Employersfor Post employment Benefits Other Than Pensions This statement is effective in three phases based on a government's total annual revenues in the fIrst fIscal year ending after June 15, 1999: . Governments that were phase 1 governments for the purpose of implementation of Statement No. 34 - those with annual revenues of$100 million or more - are required to implement this statement in fmancial statements for periods beginning after December 15,2006. . Governments that were phase 2 governments for the purpose of implementation of Statement No. 34 - those with total annual revenues of $1 0 million or more but less than $100 million - are required to implement this statement in fmancial statements for periods beginning after December 15,2007. . Governments that were phase 3 governments for the purpose of implementation of Statement No. 34 - those with total annual revenues of less than $10 million - are required to implement this statement in fmancial statements for periods beginning after December 15,2008. Statement No. 45 gives the following summary, "In addition to pensions, many state and local governmental employers provide other post employment benefIts (OPEB) as part of the total compensation offered to attract and retain the services of qualifIed employees. OPEB includes post employment healthcare, as well as other forms of post employment benefIts (for example, life insurance) when provided separately from a pension plan. This statement establishes standards for the measurement, recognition, and display ofOPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the fmancial reports of state and local governmental employers." 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 21 GASB Statement No. 49 - Accounting and Financial Reportingfor Pollution Remediation Obligations This statement was issued November 2007 and is effective for periods beginning after December 15,2007, but liabilities should be measured at the beginning of that period so that beginning net assets can be restated. This standard is intended to ensure that certain cost and long-term obligations related to pollution clean up not specifically addressed by current governmental accounting standards will be included in [mancial reports. The standards set forth the key circumstances under which a government would be required to report a liability related to pollution remediation. A government would have to determine whether one or more components of a pollution remediation liability are recognizable if any of the following five obligating events or triggers occurs: . A government is compelled to take remediation action because pollution creates an imminent endangerment to the public health or welfare or environment, leaving it little or no discretion to avoid remediation action. . A government is in violation of a pollution prevention-related permit or license. . The government is named, or evidence indicates it will be named, by a regulator that has identified the government as a responsible party or potentially responsible party for remediation, or as a government responsible for sharing costs. . A government is named, or evidence indicates that it will be named, in a lawsuit to compel the government to participate in remediation. . A government commences or legally obligates itself to commence clean up activities or monitoring or operation and maintenance of the remediation effort. If any of the above bullets are met, the pollution remediation liabilities should be measured at their current value using the expected cash flow technique, which measures the liability as a sum of probability-weighted amounts in a range of possible estimated amounts. Expected recoveries from other responsible parties and from insurers reduce the amount of remediation expense. Statement No. 49 also specifies criteria for capitalization of some pollution remediation outlays. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 22 GASB Statement No. 50 - Pension Disclosures This statement was issued May 2007 and is effective for periods beginning after June 15,2007, except for requirements related to the use of the entry age actuarial cost method for the purpose of reporting a surrogate funded status and funding progress of plans that use the aggregate actuarial cost method, which are effective for periods for which the fmancial statements and RSI contain information resulting from actuarial valuations as of June 15,2007 or later. This statement more closely aligns the fmancial reporting requirements for pensions with those for OPEB and, in doing so, enhances information disclosed in notes to fmancial statements or presented as required supplementary information (RSI) by pension plans and by employers that provide pension benefits. The reporting changes required by this statement amend applicable note disclosure and RSI requirements of Statement No. 25 , Financial Reporting for Defmed Benefit Pension Plans and Note Disclosures for Defmed Contribution Plans, and No. 27 , Accounting for Pensions by State and Local Governmental Employers, to conform with requirements of Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and 45 , Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement requires defmed benefit pension plans and sole and agent employers present the following information related to note disclosures: . Notes to fmancial statements should disclose the funded status ofthe plan as of the most recent actuarial valuation date. Defmed benefit pension plans also should disclose actuarial methods and significant assumptions used in the most recent actuarial valuation in notes to fmancial statements instead of in notes to RSI. . If the aggregate actuarial cost method is used to determine the annual required contribution of the employer (ARC), notes to fmancial statements should disclose the funded status of the plan, and a schedule of funding progress should be presented as RSI, using the entry age actuarial cost method. Plans and employers also should disclose that the purpose of doing so is to provide information that serves as a surrogate for the funded status and funding progress of the plan. . Notes to fmancial statements should include a reference linking the funded status disclosure in the notes to fmancial statements to the required schedule of funding progress in RSI. . If applicable, notes to fmancial statements should disclose legal or contractual maximum contribution rates. In addition, if relevant, they should disclose that the maximum contribution rates have not been explicitly taken into consideration in the projection of pension benefits for fmancial accounting measurement purposes. . If an actuarial assumption is different for successive years, notes to fmancial statements should disclose the initial and ultimate rates. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com City of Shorewood May 5, 2008 Page 23 GASB Statement No. 51 - Accounting and Financial Reportingfor Intangible Assets This statement was issued in June 2007 and is effective for periods beginning after June 15,2009. The new standard characterizes an intangible asset as an asset that lacks physical substance, is nonfInancial in nature, and has an initial useful life extending beyond a single reporting period. Examples of intangible assets include easements, computer software, water rights, timber rights, patents, and trademarks. This statement requires that intangible assets be classifIed as capital assets (except for those explicitly excluded from the scope of the new standard, such as capital leases). Relevant authoritative guidance for capital assets should be applied to these intangible assets. The statement provides additional guidance that specifIcally addresses the unique nature of intangible assets, including: . Requiring that an intangible asset be recognized in the statement of net assets only if it is considered identifIable . Establishing a specifIed-conditions approach to recognizing intangible assets that are internally generated (for example, patents and copyrights) . Providing guidance on recognizing internally generated computer software . Establishing specifIc guidance for the amortization of intangible assets. * * * * * This report is intended solely for the information and use of the Council, management and the Minnesota OffIce of the State Auditor and is not intended to be and should not be used by anyone other than these specifIed parties. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by your staff. May 5, 2008 Minneapolis, Minnesota d1tJ U ~~~LLjJ ABDO, EICK & MEYERS, LLP Certified Public Accountants 952.835.9090 . Fax 952.835.3261 www.aemcpas.com