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2016 Comp. Annual Financial ReportCITY OF SHOREWOOD SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2016 GREG LERUD, CITY ADMINISTRATOR REPORT PREPARED BY SHOREWOOD’S FINANCE DEPARTMENT MEMBER OF GOVERNMENT FINANCE OFFICERS ASSOCIATION OF THE UNITED STATES AND CANADA THIS PAGE IS LEFT BLANK INTENTIONALLY CITY OF SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2016 Exhibit Page No. INTRODUCTORY SECTION Elected and Appointed Officials 4 Organization Chart 5 Letter of Transmittal 7 Certification of Achievement for Excellence in Financial Reporting 12 FINANCIAL SECTION Independent Auditor’s Report 15 Management’s Discussion and Analysis 19 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 1 33 Statement of Activities 2 34 Fund Financial Statements Governmental Funds Balance Sheet 3 38 Reconciliation of the Balance Sheet to the Statement of Net Position 4 41 Statement of Revenues, Expenditures and Changes in Fund Balances 5 42 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 6 44 General Fund Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 7 45 Proprietary Funds Statement of Net Position 8 46 Statement of Revenues, Expenses and Changes in Net Position 9 47 Statement of Cash Flows 10 48 Fiduciary Fund Statement of Net Position 11 50 Notes to the Financial Statements 51 Required Supplementary Information Schedule of Employer’s Share of Public Employees Retirement Association Net Pension Liability - General Employees Retirement Fund 78 Schedule of Employer’s Public Employees Retirement Association Contributions - General Employees Retirement Fund 78 Combining and Individual Fund Financial Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet A-1 82 Combining Statement of Revenues, Expenditures and Changes in Fund Balances A-2 83 Nonmajor Capital Projects Funds Combining Balance Sheet B-1 86 Combining Statement of Revenues, Expenditures and Changes in Fund Balances B-2 87 General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual C-1 88 Debt Service Funds Combining Balance Sheet D-1 92 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances D-2 93 Agency Fund Combining Statement of Changes in Assets and Liabilities E-1 94 Summary Financial Report Revenues and Expenditures for General Operations - Governmental Funds F-1 95 -1- CITY OF SHOREWOOD, MINNESOTA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 Table Page No. STATISTICAL SECTION (UNAUDITED) Net Position by Component 1 100 Changes in Net Position 2 102 Fund Balances of Governmental Funds 3 106 Changes in Fund Balances of Governmental Funds 4 108 Tax Capacity, Market Value and Estimated Actual Value of Taxable Property 5 110 Property Tax Capacity Rates - Direct and Overlapping Governments 6 112 Principal Taxpayers 7 114 Property Tax Levies and Collections 8 115 Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 9 116 Computation of Direct and Overlapping Debt 10 117 Legal Debt Margin Information 11 118 Pledged-Revenue Coverage 12 120 Demographic and Economic Statistics 13 121 Principal Employers 14 122 Full-Time Equivalent City Government Employees by Function 15 123 Operating Indicators by Function 16 124 Capital Asset Statistics by Function 17 125 -2- INTRODUCTORY SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -3- CITY OF SHOREWOOD, MINNESOTA ELECTED AND APPOINTED OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2016 Name Title Term Expires Scott Zerby Mayor 12/31/20 Patrick Johnson Council Member 12/31/20 Jennifer Labadie Council Member 12/31/18 Debbie Siakel Council Member 12/31/18 Kristine Sundberg Council Member 12/31/20 Name Title Greg Lerud City Administrator Joe Rigdon Interim Finance Director ELECTED APPOINTED -4- City of Shorewood Organizational Chart Residents Council Administrator Advisory Boards Plan Commission Park Commission Joint Powers Agencies Police Fire LMCD LMCC Plan/Zone DirFinance Dir City Clerk Pub Works Dir Planning Asst Contracted Services IT/Phones Mound Fire Assessor Recycling Attorney Engineer Bldg Official Recep- tionist Comm Coord Park/Rec Coord Utiliites Parks Maint. Streets Sr Acct Clerk -5- THIS PAGE IS LEFT BLANK INTENTIONALLY -6- -7 - -8 - -9 - -1 0 - -1 1 - -12- FINANCIAL SECTION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -13- THIS PAGE IS LEFT BLANK INTENTIONALLY -14- INDEPENDENT AUDITOR’S REPORT Honorable Mayor and City Council City of Shorewood, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Shorewood, Minnesota (the City), as of and for the year ended December 31, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial 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, 2016, and the respective changes in financial position and, where applicable, cash flows thereof and the budgetary comparison for the General fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. -15- THIS PAGE IS LEFT BLANK INTENTIONALLY -16- Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis starting on page 19 and the Schedule of Employer’s Share of the Net Pension Liability and the Schedule of Employer’s Contributions on page 78 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual fund financial statements and schedules and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota June 20, 2017 -17- THIS PAGE IS LEFT BLANK INTENTIONALLY -18- Management’s Discussion and Analysis As management of the City of Shorewood, Minnesota, (the City), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2016. Financial Highlights •The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $31,698,561 (net position). Of this amount, $12,533,541 (unrestricted net position) may be used to meet the City’s ongoing obligations to residents and creditors. •The City’s total net position increased $1,300,071, which is due to revenues associated with land development exceeding expenses in the governmental activities. •As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $6,911,594, a decrease of $926,442 in comparison with the prior year. This decrease is primarily the result of capital expenditures exceeding current year resources. Approximately 52 percent of the total ending fund balance, $3,625,288, is unassigned and available for spending at the City’s discretion. •At the end of the current fiscal year, unassigned fund balance for the General fund was $4,597,896, or 77.1 percent of total 2016 expenditures and transfers out. The City has a policy to maintain a General fund working capital balance of 55.0 - 60.0 percent of expenditures and transfers. •The City’s total debt decreased $184,957, or 1.7 percent during the current fiscal year. This was the result of regularly schedule principal payments as well as refunding payments on the general obligation revenue bonds and lease revenue bonds. -19- Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. Figure 1 illustrates 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 financial statements and schedules that provide details about nonmajor governmental funds, which are added together and presented in single columns in the basic financial statements. Figure 1 Required Components of the City’s Annual Financial Report Management's Discussion and Analysis Basic Financial Statements Required Supplementary Information Government- wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail -20- Figure 2 summarizes the major features of the City’s financial 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 Statements Governmental Funds Proprietary Funds Scope Entire City government (except fiduciary funds) and the City’s component units The activities of the City that are not proprietary or fiduciary, such as police, fire and parks Activities the City operates similar to private businesses, such as the water and sewer system Required financial statements • Statement of Net Position • Statement of Activities • Balance Sheet • Statement of Revenues, Expenditures, and Changes in Fund Balances • Statements of Net Position • Statements of Revenues, Expenses and Changes in Fund Net Position • Statements of Cash Flows Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, and short-term and long-term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included All assets and liabilities, both financial and capital, and short-term and long-term Type of deferred outflows/inflows of resources information All deferred outflows/inflows of resources, regardless of when cash is received or paid Only deferred outflows of resources expected to be used up and deferred inflows of resources that come due during the year of son thereafter; no capital assets included All deferred outflows/inflows of resources, regardless of when cash is received or paid Type of in flow/out flow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter All revenues and expenses during the year, regardless of when cash is received or paid Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City’s assets and deferred outflows of resources, and liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial 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, stormwater management utility, and recycling. -21- The government-wide financial 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 financial statements start on page 33 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and 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, four 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 for the General, Debt Service, Street Reconstruction funds, and the TIF #2 Oppidan Senior Housing fund which are considered to be major funds. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements or schedules elsewhere in this report. The City adopts an annual appropriated budget for its General fund. A budgetary comparison statement has been provided for the General fund to demonstrate compliance with this budget. The basic governmental fund financial statements start on page 38 of this report. Proprietary funds. The City maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water, sewer, stormwater management utility, and recycling. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for each of the enterprise funds. The Water, Sewer, and Stormwater Management Utility funds are considered to be major funds of the City, while the Recycling fund is a nonmajor fund. The basic proprietary fund financial statements start on page 46 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 50 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements start on page 51 of this report. Other information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented following the notes to the financial statements. Combining and individual fund financial statements and schedules starts on page 82 of this report. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits to its employees. Required supplementary information can be found starting on page 78 of this report. -22- Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City, assets and deferred inflows of resources exceeded liabilities and deferred inflows of resources by $31,698,561 at the close of the most recent fiscal year. By far the largest portion of the City’s net position (60.5 percent) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Shorewood’s Summary of Net Position Increase Increase 20162015 (Decrease)20162015 (Decrease) Assets Cash and temporary investments 7,546,492$ 7,563,089$ (16,597)$ 5,453,811$ 5,970,378$ (516,567)$ Cash with fiscal agent 8,213 - 8,213 273,984 274,646 (662) Receivables 7,044,687 6,907,353 137,334 651,641 676,593 (24,952) Internal balances (1,015,044) - (1,015,044) 1,015,044 - 1,015,044 Prepaids 6,687 99,216 (92,529) - 2,137 (2,137) Land held for resale 150,068 150,068 - - - - Capital assets 12,443,309 10,374,897 2,068,412 9,276,711 9,613,545 (336,834) Total assets 26,184,412 25,094,623 1,089,789 16,671,191 16,537,299 133,892 Deferred outflows of resources 442,017 96,618 345,399 148,073 28,310 119,763 Liabilities Noncurrent liabilities 8,369,901 8,456,831 (86,930) 2,048,601 2,146,628 (98,027) Other liabilities 869,096 410,932 458,164 218,646 70,480 148,166 Total liabilities 9,238,997 8,867,763 371,234 2,267,247 2,217,108 50,139 Deferred inflows of resources 180,440 211,513 (31,073) 60,448 61,976 (1,528) Net position Net investment in capital assets 11,523,309 9,394,897 2,128,412 7,641,711 7,713,545 (71,834) Unrestricted 5,683,683 6,717,068 (1,033,385) 6,849,858 6,572,980 276,878 Total net position 17,206,992$ 16,111,965$ 1,095,027$ 14,491,569$ 14,286,525$ 205,044$ Governmental Activities Business-type Activities The balance of unrestricted net position is $12,533,541. This may be used to meet the City’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in both categories of net position, both for the City as a whole, as well as for its separate governmental and business-type activities. -23- Governmental activities. Governmental activities increased the City’s net position by $1,095,027. Key elements of this increase are as follows: • An overall increase of expenditures offset by an increase in capital grants, contributions and property taxes for the governmental funds. City of Shorewood’s Changes in Net Position Increase Increase 20162015 (Decrease)20162015 (Decrease) Revenues Program revenues Charges for services 1,021,013$ 987,821$ 33,192$ 1,729,640$ 1,785,419$ (55,779)$ Operating grants and contribution 95,802 86,370 9,432 48,724 26,198 22,526 Capital grants and contributions 1,400,957 184,605 1,216,352 388,077 5,706 382,371 General revenues Property taxes 5,127,950 4,931,075 196,875 - - - Grants and contributions not restricted to specific programs 5,844 5,840 4 - - - Unrestricted investment earnings 99,369 60,283 39,086 72,579 68,119 4,460 Gain on disposal of capital assets - 30,000 (30,000) - - - Total revenues 7,750,935 6,285,994 1,464,941 2,239,020 1,885,442 353,578 Expenses General government 1,504,101 1,318,558 185,543 - - - Public safety 2,111,155 2,080,769 30,386 - - - Public works 1,544,264 1,971,483 (427,219) - - - Culture and recreation 476,999 613,494 (136,495) - - - Economic development 682,787 - 682,787 - - - Interest on long-term debt 361,602 318,357 43,245 - - - Water - - - 775,802 721,184 54,618 Sewer - - - 989,147 944,263 44,884 Stormwater Management Utility - - - 111,373 99,312 12,061 Recycling - - - 132,654 131,185 1,469 Total expenses 6,680,908 6,302,661 378,247 2,008,976 1,895,944 113,032 Increase (decrease) in net position before transfers 1,070,027 (16,667) 1,086,694 230,044 (10,502) 240,546 Transfers of capital assets - (245,121) 245,121 - 245,121 (245,121) Transfers 25,000 270,121 (245,121) (25,000) (270,121) 245,121 Change in net position 1,095,027 8,333 1,086,694 205,044 (35,502) 240,546 Net position, January 1 16,111,965 16,103,632 8,333 14,286,525 14,322,027 (35,502) Net position, December 31 17,206,992$ 16,111,965$ 1,095,027$ 14,491,569$ 14,286,525$ 205,044$ Governmental Activities Business-type Activities -24- The following graph depicts various governmental activities and shows the revenue and expenses directly related to those activities. Expenses and Program Revenues - Governmental Activities $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 General government Public safety Public worksCulture and recreation Economic development Interest on long- term debt Expenses Program revenues Revenues by Source - Governmental Activities Charges for services 13.1%Operating grants and contributions 1.2% Capital grants and contributions 18.1% Property taxes 66.2% Grants and contributions not restricted to specific programs 1.3% Unrestricted investment earnings 0.1% -25- Business-type activities. Business-type activities increased the City’s net position by $205,044. Expenses and Program Revenues - Business-type Activities $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Water Sewer Recycling Stormwater management utility Expenses Program revenues Revenues by Source - Business-type Activities Charges for services 77.3% Operating grants and contributions 2.2% Capital grants and contributions 17.3% Unrestricted investment earnings 3.2% -26- Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $6,911,594, a decrease of $926,442 in comparison with the prior year. Approximately 52 percent of this total amount, $3,625,288 constitutes unassigned fund balance, which is available for spending at the City’s discretion. The remaining fund balance is made up of the following: 1) Nonspendable ($6,687), 2) Restricted ($18,449), and 3) Assigned ($3,261,170). The General fund is the chief operating fund of the City. At the end of the current year, the fund balance of the General fund was $4,604,583. As a measure of the General fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures and transfers out. Unassigned fund balance represents 77.1 percent of same year fund expenditures and transfers out, whereas, total fund balance represents 77.2 percent. The fund balance of the City’s General fund increased $102,416 during the current fiscal year. The increase is mainly due to revenues related to licenses and permits and charges for services received in excess of expectation. The Debt Service fund has a total fund balance of $18,449, all of which is restricted for the payment of debt service. The decrease in fund balance of $13,356 was in line with the City’s debt service financing plan. The Street Reconstruction fund has a fund balance of $1,595,274. The fund balance increased by $142,226 during the current fiscal year due to transfers in of $755,000. The TIF #2 Oppidan Senior Housing fund has an ending fund balance deficit of $275,176. The fund was created during the year along with the City’s tax increment district to account for resources and payments related to the senior housing project. The deficit is expected to be paid with future tax increment revenues. 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 position of the enterprise funds at the end of the year amounted to $6,849,858. The total increase in net position for the funds was $205,044. 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 called for the planned use of General fund reserves in the amount of $180,148. Revenues were over budget by $390,158, and expenditures were under budget by $203,406. The actual amounts were different from the final budget mainly due to the following: • The largest revenue variance was in licenses and permits, which were over budget by $170,932 due to building permits received in excess of expectations. Another significant revenue variance was in intergovernmental revenue which had a positive budget variance of $82,055 mainly due to miscellaneous grant receipts over expectation. • The largest expenditure variance was in public works, which was $233,884 under budget mainly due to less than expected general maintenance expenditures. -27- Capital Asset and Debt Administration Capital assets. The City’s investment in capital assets for its governmental and business-type activities as of December 31, 2016, amounts to $21,720,020 (net of accumulated depreciation). This investment in capital assets includes land, structures, improvements, machinery and equipment, park facilities, and roads. Major capital asset events during the current fiscal year included the following: • Acquisition of the Southshore Community Center building • Expenses for the 2016 Mill & Overlay project • Expenses for the Badger Park artificial turf playfield improvements • Expenses for the Smithtown Trail East projects • Completion of the Star Lane & Star Circle Street and Utility projects Additional information on the City’s capital assets can be found in Note 3B starting on page 63 of this report. City of Shorewood’s Capital Assets (net of depreciation) Increase Increase 20162015 (Decrease)20162015 (Decrease) Land 741,826$ 741,826$ -$ 434,113$ 434,113$ -$ Construction in progress 2,046,376 782,626 1,263,750 - 476,899 (476,899) Buildings 2,139,471 1,862,369 277,102 - - - Improvements other than buildings 917,828 239,287 678,541 - - - Infrastructure 6,078,243 6,155,505 (77,262) 8,460,103 8,387,038 73,065 Machinery and equipment 519,565 593,284 (73,719) 382,495 315,495 67,000 Total 12,443,309$ 10,374,897$ 2,068,412$ 9,276,711$ 9,613,545$ (336,834)$ Governmental Activities Business-type Activities Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $8,465,000. Of this amount, $6,830,000 is lease revenue bonds and $1,635,000 is general obligation revenue bonds. While all of the City’s bonds have dedicated revenue streams pledged to repayment, the general obligation revenue bonds are all backed by the full faith and credit of the City. City of Shorewood’s Outstanding Debt Increase Increase 20162015 (Decrease)20162015 (Decrease) General obligation revenue bonds -$ -$ -$ 1,635,000$ 1,900,000$ (265,000)$ Lease revenue bonds 6,830,000 7,400,000 (570,000) - - - Unamortized bond premiums 85,732 - 85,732 - - - Compensated absences payable 219,511 215,129 4,382 - - - Pension liability 1,234,658 841,702 392,956 413,601 246,628 166,973 Total 8,369,901$ 8,456,831$ (86,930)$ 2,048,601$ 2,146,628$ (98,027)$ Governmental Activities Business-type Activities Minnesota statutes limit the amount of net general obligation debt a City may issue to 3 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 3D starting on page 66 of this report. -28- Economic Factors and Next Year’s Budgets and Rates • Property valuations within the City increased 4.7% from 2015 to 2016, and increased 4.2% from 2016 to 2017. • The unemployment rate for Hennepin County is currently (April 2017) 3.1%. This compares favorably to the State of Minnesota’s average unemployment rate of 3.7% and the national average unemployment rate of 4.1%. All of these factors were considered in preparing the City’s budget for the 2017 fiscal year. During the 2016 fiscal year, the fund balance in the General Fund increased by $102,416. For 2017, the City budgeted a $192,785 deficit using fund balance to balance the budget. This planned use of fund balance was in accordance with the fund balance policy adopted by the City Council. Total property taxes levied for 2017 increased by 2.0% from property taxes levied for 2016. The City’s tax capacity rate decreased from 30.23% for 2016 property taxes to 29.45% for 2017 property taxes. Requests for Information This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Shorewood, 5755 Country Club Road, Shorewood, Minnesota 55331. -29- THIS PAGE IS LEFT BLANK INTENTIONALLY -30- GOVERNMENT-WIDE FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -31- THIS PAGE IS LEFT BLANK INTENTIONALLY -32- Exhibit 1 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2016 Governmental Business-type Activities Activities Total ASSETS Cash and temporary investments 7,546,492$ 5,453,811$ 13,000,303$ Cash with fiscal agent 8,213 273,984 282,197 Receivables Accrued interest 77,278 23,681 100,959 Taxes 109,008 - 109,008 Accounts, net 857,084 439,480 1,296,564 Special assessments 1,125 188,480 189,605 Lease 5,996,631 - 5,996,631 Due from other governments 3,561 - 3,561 Internal balances (1,015,044) 1,015,044 - Prepaid items 6,687 - 6,687 Land held for resale 150,068 - 150,068 Capital assets Land and construction in progress 2,788,202 434,113 3,222,315 Depreciable assets (net of accumulated depreciation)9,655,107 8,842,598 18,497,705 TOTAL ASSETS 26,184,412 16,671,191 42,855,603 DEFERRED OUTFLOWS OF RESOURCES Deferred pension resources 442,017 148,073 590,090 LIABILITIES Accounts and contracts payable 785,116 183,679 968,795 Accrued salaries payable 26,296 5,228 31,524 Due to other governments 4,941 21,250 26,191 Accrued interest payable 52,743 8,489 61,232 Noncurrent liabilities Due within one year 1,011,352 265,000 1,276,352 Due in more than one year 7,358,549 1,783,601 9,142,150 TOTAL LIABILITIES 9,238,997 2,267,247 11,506,244 DEFERRED INFLOWS OF RESOURCES Deferred pension resources 180,440 60,448 240,888 NET POSITION Net investment in capital assets 11,523,309 7,641,711 19,165,020 Unrestricted 5,683,683 6,849,858 12,533,541 TOTAL NET POSITION 17,206,992$ 14,491,569$ 31,698,561$ -33- The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 Operating Capital Grants Charges for Grants and and Expenses Services Contributions Contributions Governmental activities General government 1,504,101$ 256,069$ 300$ 22,800$ Public safety 2,111,155 608,410 6,804 - Public works 1,544,264 263 88,022 247,604 Culture and recreation 476,999 156,271 676 1,130,553 Economic development 682,787 - - - Interest on long-term debt 361,602 - - - Total governmental activities 6,680,908 1,021,013 95,802 1,400,957 Business-type activities Water 775,802 421,290 749 279,272 Sewer 989,147 878,999 20,876 108,805 Stormwater management utility 111,373 275,171 138 - Recycling 132,654 154,180 26,961 - Total business-type activities 2,008,976 1,729,640 48,724 388,077 Total 8,689,884$ 2,750,653$ 144,526$ 1,789,034$ General revenues Taxes Property taxes, levied for general purposes Grants and contributions not restricted to specific programs Unrestricted investment earnings Transfers Total general revenues and transfers Change in net position Net position, January 1 Net position, December 31 Functions/Programs Program Revenues -34- The notes to the financial statements are an integral part of this statement. Exhibit 2 Governmental Business-type Activities Activities Total (1,224,932)$ -$ (1,224,932)$ (1,495,941) - (1,495,941) (1,208,375) - (1,208,375) 810,501 - 810,501 (682,787) - (682,787) (361,602) - (361,602) (4,163,136) - (4,163,136) - (74,491) (74,491) - 19,533 19,533 - 163,936 163,936 - 48,487 48,487 - 157,465 157,465 (4,163,136) 157,465 (4,005,671) 5,127,950 - 5,127,950 5,844 - 5,844 99,369 72,579 171,948 25,000 (25,000) - 5,258,163 47,579 5,305,742 1,095,027 205,044 1,300,071 16,111,965 14,286,525 30,398,490 17,206,992$ 14,491,569$ 31,698,561$ Net (Expense) Revenue and Changes in Net Position -35- THIS PAGE IS LEFT BLANK INTENTIONALLY -36- FUND FINANCIAL STATEMENTS CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -37- The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2016 Debt Street General Service Reconstruction ASSETS Cash and temporary investments 3,983,806$ 13,408$ 1,695,726$ Cash with fiscal agent - 8,213 - Receivables Accrued interest 16,360 - 5,604 Taxes 109,008 - - Accounts, net 46,367 - - Special assessments 1,125 - - Lease - 5,910,000 - Due from other governments 3,561 - - Due from other funds 607,530 - - Prepaid items 6,687 - - Land held for resale - - - TOTAL ASSETS 4,774,444$ 5,931,621$ 1,701,330$ LIABILITIES Accounts and contracts payable 85,094$ 2,224$ 106,056$ Accrued salaries payable 25,920 - - Due to other governments 4,941 - - Due to other funds - 948 - Advances from other funds - - - TOTAL LIABILITIES 115,955 3,172 106,056 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - property taxes 52,781 - - Unavailable revenue - assessments 1,125 - - Unavailable revenue - lease receivable - 5,910,000 - TOTAL DEFERRED INFLOWS OF RESOURCES 53,906 5,910,000 - FUND BALANCES Nonspendable prepaid items 6,687 - - Restricted for debt service - 18,449 - Assigned to Street reconstruction - - 1,595,274 Capital outlay - - - Community center operations - - - Unassigned 4,597,896 - - TOTAL FUND BALANCES 4,604,583 18,449 1,595,274 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES 4,774,444$ 5,931,621$ 1,701,330$ -38- The notes to the financial statements are an integral part of this statement. Exhibit 3 TIF 2 Other Total Oppidan Governmental Governmental Senior Housing Funds Funds 471,536$ 1,382,016$ 7,546,492$ - - 8,213 1,668 4,396 28,028 - - 109,008 400,000 410,717 857,084 - - 1,125 - 86,631 5,996,631 - - 3,561 - - 607,530 - - 6,687 - 150,068 150,068 873,204$ 2,033,828$ 15,314,427$ 133,336$ 458,406$ 785,116$ - 376 26,296 - - 4,941 - 606,582 607,530 1,015,044 - 1,015,044 1,148,380 1,065,364 2,438,927 - - 52,781 - - 1,125 - - 5,910,000 - - 5,963,906 - - 6,687 - - 18,449 - - 1,595,274 - 1,596,366 1,596,366 - 69,530 69,530 (275,176) (697,432) 3,625,288 (275,176) 968,464 6,911,594 873,204$ 2,033,828$ 15,314,427$ -39- THIS PAGE IS LEFT BLANK INTENTIONALLY -40- Exhibit 4 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL FUNDS DECEMBER 31, 2016 Amounts reported for the governmental activities in the statement of net position are different because Total fund balances - governmental 6,911,594$ Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Cost of capital assets 42,388,201 Less: accumulated depreciation (29,944,892) 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 (6,830,000) Unamortized premium on bonds (85,732) Compensated absences payable (219,511) Pension liability (1,234,658) Some receivables are not available soon enough to pay for the current period's expenditures, and therefore are reported as unavailable revenue in the funds. Interest on lease receivable 49,250 Taxes receivable 52,781 Special assessments receivable 1,125 Leases receivable 5,910,000 Governmental funds do not report long-term amounts to pensions Deferred outflows of pension resources 442,017 Deferred inflows of pension resources (180,440) Governmental funds do not report a liability for accrued interest until due and payable.(52,743) Total net position - governmental activities 17,206,992$ -41- The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 Debt Street General Service Reconstruction REVENUES Taxes 5,129,620$ -$ -$ Licenses and permits 340,112 - - Intergovernmental 172,806 - - Charges for services 48,049 - - Fines and forfeitures 48,868 - - Interest on investments 59,413 46 19,168 Miscellaneous 243,229 788,980 - TOTAL REVENUES 6,042,097 789,026 19,168 EXPENDITURES Current General government 1,413,329 - - Public safety 1,623,749 - - Public works 771,771 - 15,009 Culture and recreation 283,567 - - Capital outlay General government - - - Public safety 484,952 - - Public works - - 616,933 Culture and recreation - - - Economic development - - - Debt service Principal - 6,480,000 - Interest and service charges - 434,990 - TOTAL EXPENDITURES 4,577,368 6,914,990 631,942 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,464,729 (6,125,964) (612,774) OTHER FINANCING SOURCES (USES) Transfers in 25,000 104,313 755,000 Bonds issued - 5,910,000 - Premium on bonds issued - 98,295 - Transfers out (1,387,313) - - TOTAL OTHER FINANCING SOURCES (USES)(1,362,313) 6,112,608 755,000 NET CHANGE IN FUND BALANCES 102,416 (13,356) 142,226 FUND BALANCES, JANUARY 1 4,502,167 31,805 1,453,048 FUND BALANCES, DECEMBER 31 4,604,583$ 18,449$ 1,595,274$ -42- The notes to the financial statements are an integral part of this statement. Exhibit 5 TIF 2 Other Total Oppidan Governmental Governmental Senior Housing Funds Funds -$ -$ 5,129,620$ - - 340,112 - - 172,806 - 548,666 596,715 - - 48,868 7,611 13,131 99,369 400,000 497,613 1,929,822 407,611 1,059,410 8,317,312 - - 1,413,329 - - 1,623,749 - - 786,780 - 77,561 361,128 - 28,635 28,635 - - 484,952 - 324,783 941,716 - 2,038,983 2,038,983 682,787 - 682,787 - - 6,480,000 - - 434,990 682,787 2,469,962 15,277,049 (275,176) (1,410,552) (6,959,737) - 528,000 1,412,313 - - 5,910,000 - - 98,295 - - (1,387,313) - 528,000 6,033,295 (275,176) (882,552) (926,442) - 1,851,016 7,838,036 (275,176)$ 968,464$ 6,911,594$ -43- Exhibit 6 The notes to the financial statements are an integral part of this statement. 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, 2016 Amounts reported for governmental activities in the statement of activities are different because Total net change in fund balances - governmental funds (926,442)$ 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 3,181,359 Depreciation expense (1,112,947) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts and similar items when debt is first issued, whereas these amounts are amortized in the statement of activities. Principal repayments 6,480,000 Bonds issued (5,910,000) Premium on bonds issued (98,295) Amortization of bond premium 12,563 Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however interest expense is recognized as the interest accrues, regardless of when it is due.60,825 Long-term pension activity is not reported in governmental funds. Pension expense (21,277) Pension revenue 4,793 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. Taxes (1,670) Special assessments 1,125 Leases (570,625) Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences (4,382) Change in net position - governmental activities 1,095,027$ -44- Exhibit 7 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2016 Actual Variance with Original Final Amounts Final Budget REVENUES Taxes 5,079,408$ 5,079,408$ 5,129,620$ 50,212$ Licenses and permits 169,180 169,180 340,112 170,932 Intergovernmental 90,751 90,751 172,806 82,055 Charges for services 38,700 38,700 48,049 9,349 Fines and forfeitures 60,000 60,000 48,868 (11,132) Interest on investments 35,000 35,000 59,413 24,413 Miscellaneous 178,900 178,900 243,229 64,329 TOTAL REVENUES 5,651,939 5,651,939 6,042,097 390,158 EXPENDITURES Current General government 1,422,074 1,422,074 1,413,329 8,745 Public safety 1,610,428 1,610,428 1,623,749 (13,321) Public works 1,005,655 1,005,655 771,771 233,884 Culture and recreation 241,997 241,997 283,567 (41,570) Capital outlay Public safety 500,620 500,620 484,952 15,668 TOTAL EXPENDITURES 4,780,774 4,780,774 4,577,368 203,406 EXCESS OF REVENUES OVER EXPENDITURES 871,165 871,165 1,464,729 593,564 OTHER FINANCING SOURCES (USES) Transfers in 25,000 25,000 25,000 - Transfers out (1,076,313) (1,076,313) (1,387,313) (311,000) TOTAL OTHER FINANCING SOURCES (USES)(1,051,313) (1,051,313) (1,362,313) (311,000) NET CHANGE IN FUND BALANCES (180,148) (180,148) 102,416 282,564 FUND BALANCES, JANUARY 1 4,502,167 4,502,167 4,502,167 - FUND BALANCES, DECEMBER 31 4,322,019$ 4,322,019$ 4,604,583$ 282,564$ Budgeted Amounts -45- Exhibit 8 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUNDS DECEMBER 31, 2016 Stormwater Management Nonmajor Water Sewer Utility Recycling Totals ASSETS CURRENT ASSETS Cash and temporary investments 1,763,344$ 2,809,803$ 705,073$ 175,591$ 5,453,811$ Cash with fiscal agent 273,984 - - - 273,984 Receivables Accrued interest 9,568 10,949 2,529 635 23,681 Accounts 73,854 244,096 77,185 44,345 439,480 Special assessments 70,055 19,217 5,541 3,595 98,408 TOTAL CURRENT ASSETS 2,190,805 3,084,065 790,328 224,166 6,289,364 NONCURRENT ASSETS Special assessments receivable 81,199 6,045 1,664 1,164 90,072 Advances to other funds 1,015,044 - - - 1,015,044 Capital assets Land - - 434,113 - 434,113 Machinery and equipment 258,110 289,088 - - 547,198 Infrastructure 10,538,269 9,191,567 1,764,392 - 21,494,228 Less accumulated depreciation (5,129,928) (7,670,088) (398,812) - (13,198,828) NET CAPITAL ASSETS 5,666,451 1,810,567 1,799,693 - 9,276,711 TOTAL NONCURRENT ASSETS 6,762,694 1,816,612 1,801,357 1,164 10,381,827 TOTAL ASSETS 8,953,499 4,900,677 2,591,685 225,330 16,671,191 DEFERRED OUTFLOWS OF RESOURCES Deferred pension resources 69,043 61,784 12,708 4,538 148,073 LIABILITIES CURRENT LIABILITIES Accounts and contracts payable 17,582 151,291 14,368 438 183,679 Accrued salaries payable 2,514 2,148 463 103 5,228 Due to other governments 8,511 12,739 - - 21,250 Accrued interest payable 8,489 - - - 8,489 Bonds payable - current 265,000 - - - 265,000 TOTAL CURRENT LIABILITIES 302,096 166,178 14,831 541 483,646 NONCURRENT LIABILITIES Bonds payable 1,370,000 - - - 1,370,000 Pension liability 192,853 172,577 35,496 12,675 413,601 TOTAL NONCURRENT LIABILITIES 1,562,853 172,577 35,496 12,675 1,783,601 TOTAL LIABILITIES 1,864,949 338,755 50,327 13,216 2,267,247 DEFERRED INFLOWS OF RESOURCES Deferred pension resources 28,185 25,222 5,188 1,853 60,448 NET POSITION Net investment in capital assets 4,031,451 1,810,567 1,799,693 - 7,641,711 Unrestricted 3,097,957 2,787,917 749,185 214,799 6,849,858 TOTAL NET POSITION 7,129,408$ 4,598,484$ 2,548,878$ 214,799$ 14,491,569$ Business-type Activities - Enterprise Funds -46- Exhibit 9 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 Stormwater Management Nonmajor Water Sewer Utility Recycling Totals OPERATING REVENUES Charges for services 408,911$ 877,599$ 275,171$ 154,180$ 1,715,861$ OPERATING EXPENSES Personal services 231,458 220,366 27,413 13,872 493,109 Supplies 9,945 2,112 1,908 1,538 15,503 Repairs and maintenance 19,985 2,665 - - 22,650 Depreciation 317,882 88,236 44,110 - 450,228 Professional services 15,454 3,010 32,026 - 50,490 Contracted services 42,666 29,881 5,883 116,967 195,397 Water purchases 29,095 - - - 29,095 Utilities 72,226 2,914 - - 75,140 Disposal charges - 638,002 - - 638,002 Other 18,908 1,961 33 277 21,179 TOTAL OPERATING EXPENSES 757,619 989,147 111,373 132,654 1,990,793 OPERATING INCOME (LOSS)(348,708) (111,548) 163,798 21,526 (274,932) NONOPERATING REVENUES (EXPENSES) Special assessments 9,502 - - - 9,502 Interest on investments 25,815 33,939 10,419 2,406 72,579 Intergovernmental - - - 26,912 26,912 Miscellaneous 3,626 22,276 138 49 26,089 Interest expense (18,183) - - - (18,183) TOTAL NONOPERATING REVENUES (EXPENSES)20,760 56,215 10,557 29,367 116,899 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS (327,948) (55,333) 174,355 50,893 (158,033) CAPITAL CONTRIBUTIONS 279,272 108,805 - - 388,077 TRANSFERS OUT (12,500) (12,500) - - (25,000) CHANGE IN NET POSITION (61,176) 40,972 174,355 50,893 205,044 NET POSITION, JANUARY 1 7,190,584 4,557,512 2,374,523 163,906 14,286,525 NET POSITION, DECEMBER 31 7,129,408$ 4,598,484$ 2,548,878$ 214,799$ 14,491,569$ Business-type Activities - Enterprise Funds -47- Exhibit 10 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 Stormwater Management Nonmajor Water Sewer Utility Recycling Totals CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users 412,797$ 871,203$ 259,368$ 155,709$ 1,699,077$ Other receipts related to operations 3,626 22,276 138 26,961 53,001 Payments to suppliers, contractors and other governments (205,746) (526,104) (25,492) (118,826) (876,168) Payments to employees (208,130) (188,649) (35,707) (13,216) (445,702) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,547 178,726 198,307 50,628 430,208 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (12,500) (12,500) - - (25,000) Increase in advance to other funds (1,015,044) - - - (1,015,044) NET CASH USED BY NONCAPITAL FINANCING ACTIVITIES (1,027,544) (12,500) - - (1,040,044) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Connection fees received 279,272 108,805 - - 388,077 Special assessments received 39,456 - - - 39,456 Acquisition of capital assets (65,013) (70,429) - - (135,442) Principal paid on revenue bonds (265,000) - - - (265,000) Interest paid on revenue bonds (18,845) - - - (18,845) NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES (30,130) 38,376 - - 8,246 CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 34,083 39,008 9,008 2,262 84,361 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,021,044) 243,610 207,315 52,890 (517,229) CASH AND CASH EQUIVALENTS, JANUARY 1 3,058,372 2,566,193 497,758 122,701 6,245,024 CASH AND CASH EQUIVALENTS, DECEMBER 31 2,037,328$ 2,809,803$ 705,073$ 175,591$ 5,727,795$ RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and temporary investments 1,763,344$ 2,809,803$ 705,073$ 175,591$ 5,453,811$ Cash with fiscal agent 273,984 - - - 273,984 TOTAL CASH AND CASH EQUIVALENTS 2,037,328$ 2,809,803$ 705,073$ 175,591$ 5,727,795$ Business-type Activities - Enterprise Funds -48- Exhibit 10 The notes to the financial statements are an integral part of this statement. Stormwater Management Nonmajor Water Sewer Utility Recycling Totals RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss)(348,708)$ (111,548)$ 163,798$ 21,526$ (274,932)$ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities Other income related to operations 3,626 22,276 138 26,961 53,001 Depreciation 317,882 88,236 44,110 - 450,228 (Increase) decrease in assets/deferred outflows of resources Accounts receivable 3,615 (7,628) (16,495) 1,123 (19,385) Special assessments receivable 271 1,232 692 406 2,601 Prepaid items 1,075 422 640 - 2,137 Deferred pension resources (55,952) (51,184) (9,034) (3,593) (119,763) Increase (decrease) in liabilities/deferred inflows of resources Accounts and contracts payable (1,566) 143,740 13,718 (44) 155,848 Due to other governments 3,024 10,279 - - 13,303 Pension liability 78,805 80,234 3,490 4,444 166,973 Accrued salaries payable 949 650 105 21 1,725 Deferred pension resources (474) 2,017 (2,855) (216) (1,528) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,547$ 178,726$ 198,307$ 50,628$ 430,208$ Business-type Activities - Enterprise Funds CITY OF SHOREWOOD, MINNESOTA STATEMENT OF CASH FLOWS - CONTINUED PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 -49- Exhibit 11 The notes to the financial statements are an integral part of this statement. CITY OF SHOREWOOD, MINNESOTA STATEMENT OF NET POSITION FIDUCIARY FUND DECEMBER 31, 2016 Agency ASSETS Cash and temporary investments 249,166$ LIABILITIES Escrow deposits payable 249,166$ -50- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting entity The City of Shorewood, Minnesota (the City), operates under the “Optional Plan A” form of government as defined in the State of Minnesota statutes. Under this plan, the government of the City is directed by a City Council composed of an elected Mayor and four elected City Council members. The City Council exercises legislative authority and determines all matters of policy. The City 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 financially 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 financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization’s governing body, and (1) the ability of the City to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial 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: 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 within the City in accordance with policies established by the City Council. The EDA Board is comprised of the members of the City Council and has a December 31 year end. Because the EDA’s Board is the same as the City Council, and the EDA creates both financial benefits and burdens for the primary government, the EDA is blended and reported in the Debt Service fund. Separate financial statements are not issued for this component unit. B. Government-wide and fund financial statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) 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. 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. Amounts reported as 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 (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial 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 financial statements. -51- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED C. Measurement focus, basis of accounting and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial 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 financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and 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. Unearned 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 unearned revenue. The preparation of financial 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. The City reports the following major governmental funds: The General fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Debt Service fund accounts for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. The Street Reconstruction fund accounts for the resources accumulated and payments made for the periodic reconstruction of City streets and roadways. The TIF #2 Oppidan Senior Housing fund accounts for the resources accumulated and payments made for the senior housing project. -52- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The City reports the following major proprietary funds: The Water fund accounts for the activities of the City’s water distribution system. The Sewer fund accounts for the activities of the City’s sewage collection system. The Stormwater Management Utility fund accounts for the activities of the City’s stormwater collection system. Additionally, the City reports the following fund types: The fiduciary funds account for assets held by the City in a trustee capacity or as an agent on behalf of others. The agency fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. This fund is used to account for assets that the City holds for certain residents, developers, and other parties that are involved with escrow related projects within the City. As a general rule, the effect of interfund activity has been eliminated from government-wide financial statements. Exceptions to this general rule are charges between the City’s water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 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, stormwater management utility, and recycling 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 definition are reported as nonoperating revenues and expenses. -53- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED D.Assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position/fund balance 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. The proprietary funds’ portion in the government-wide cash and temporary investments pool is considered to be cash and cash equivalents for purposes of the statements of cash flows. Cash balances from all funds are pooled and invested, to the extent available, in certificates of deposit and other authorized investments. Earnings from such investments are allocated on the basis of applicable participation by each of the funds. The City may 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 received the highest credit rating, rated in one of the two highest rating categories by a statistical rating agency, and have a final maturity of thirteen months or less. 3.General obligations of a state or local government with taxing powers rated “A” or better; revenue obligations rated “AA” or better. 4.General obligations of the Minnesota Housing Finance Agency rated “A” or better. 5.Obligation of a school district with an original maturity not exceeding 13 months and (i) rated in the highest category by a national bond rating service or (ii) enrolled in the credit enhancement program pursuant to statute section 126C.55. 6.Bankers’ acceptances of United States banks eligible for purchase by the Federal Reserve System. 7.Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less. 8.Repurchase or reverse repurchase agreements and securities lending agreements with financial institutions qualified as a “depository” by the government entity, 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. 9.Guaranteed Investment Contracts (GIC’s) issued or guaranteed by a United States commercial bank, a domestic branch of a foreign bank, a United States insurance company, or its Canadian subsidiary, whose similar debt obligations were rated in one of the top two rating categories by a nationally recognized rating agency. The City’s investment policy has further restricted the City’s investments to items 1, 2, 3, and 7 above. Earnings on investments are allocated to the individual funds based upon the average cash and investment balances. -54- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The City’s recurring fair value measurements are listed in detail on page 61 and are valued using quoted market prices (Level 1 inputs). The City has the following recurring fair value measurements as of December 31, 2016:  US Government Agency Securities of $1,963,383 are valued using quoted market prices (Level 1 inputs)  Municipal bonds of $6,070,649 are valued using a matrix pricing model (Level 2 inputs)  Brokered Certificates of Deposit of $1,190,523 are valued using a matrix pricing model (Level 2 inputs) Property taxes The City 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. Delinquent taxes receivable include the past six years’ uncollected taxes. Delinquent taxes have been offset by a deferred inflow of resources for delinquent taxes not received within 60 days after year end in the governmental fund financial statements. Accounts receivable Accounts receivable include amounts billed for services provided before year end. All trade receivables are shown net of an allowance for uncollectible accounts. The allowance for uncollectible accounts at December 31, 2016 is $27,319. Unbilled utility enterprise fund receivables are also included for services provided in 2016. 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 in the enterprise funds. Special assessments Special assessments represent the financing 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 inflow of resources in the fund financial statements. Lease receivable The City has a total of five leases receivable. Three of the leases are related to public safety buildings that the City has leased to the Excelsior Fire District and the South Lake Minnetonka Police Department. The other two leases were issued to the Excelsior Fire District for equipment financing assistance. As of December 31, 2016, the City has $5,996,631 of leases receivable outstanding. Prepaid items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaid items of the City are accounted for using the consumption method. -55- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Land held for resale These assets represent land owned by the City with the intent to sell to developers. This land is recorded at the lessor of historical cost or net realizable value. Capital assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value at the date of donation. For financial statement purposes only, a capitalization threshold is established for each capital asset category as follows: Assets Threshold Land and land improvements 10,000$ Other improvements 25,000 Buildings 25,000 Building improvements 25,000 Machinery and equipment 5,000 Vehicles 5,000 Infrastructure 100,000 Other assets 5,000 In the case of initial capitalization of general infrastructure assets (i.e., those reported by governmental activities) the City chose to include items dating back to June 30, 1980. The City was able to estimate the historical cost for the initial reporting of these assets through backtrending (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: Useful Lives Assets in Years Land improvements 15 - 20 Buildings and improvements 7 - 40 System improvements/infrastructure20 - 50 Machinery and equipment 5 - 15 Vehicles 5 - 15 -56- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Deferred outflows of resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has only one item that qualifies for reporting in this category. Accordingly, the item, deferred pension resources, is reported only in the statements of net position. This item results from actuarial calculations and current year pension contributions made subsequent to the measurement date. Compensated absences It is the City’s policy to permit employees to accumulate a portion of earned but unused vacation and sick pay benefits. Accumulated vacation and sick pay are accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. In the case of an employee leaving, the General fund would be responsible for liquidation of the liability. Postemployment benefits other than pensions Under Minnesota statute 471.61, subdivision 2b., public employers must allow retirees and their dependents to continue coverage indefinitely in an employer-sponsored health care plan, under the following conditions: 1) Retirees must be receiving (or eligible to receive) an annuity from a Minnesota public pension plan, 2) Coverage must continue in group plan until age 65, and retirees must pay no more than the group premium, and 3) Retirees may obtain dependent coverage immediately before retirement. All premiums are funded on a pay-as-you-go basis. It was determined, in accordance with GASB Statement 45, at December 31, 2016 that the City has a zero liability. Long-term obligations In the government-wide financial 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 position. The recognition of bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as an expense in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA’s fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA’s fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. -57- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Deferred inflows of resources In addition to liabilities, the statement of net position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The government has only one type of item, which arises only under a modified accrual basis of accounting that qualifies as needing to be reported in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from three sources: property taxes, special assessments, and lease receivables. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The City has an additional item which qualifies for reporting in this category. The item, deferred pension resources, is reported only in the statements of net position and results from actuarial calculations. Fund balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of resources reported in the governmental funds. These classifications are defined as follows: Nonspendable - Amounts that cannot be spent because they are not in spendable form, such as prepaid items, land held for resale, and amounts due from other funds. Restricted - Amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed - Amounts constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council, which is the City’s highest level of decision-making authority. Committed amounts cannot be used for any other purpose unless the City Council modifies or rescinds the commitment by resolution. Assigned - Amounts constrained for specific purposes that are internally imposed. In governmental funds other than the General fund, assigned fund balance represents all remaining amounts that are not classified as nonspendable and are neither restricted nor committed. In the General fund, assigned amounts represent intended uses established by the City Council itself or by an official to which the governing body delegates the authority. The City Council has adopted a fund balance policy which delegates the authority to assign amounts for specific purposes to the City Administrator. Unassigned - The residual classification for the General fund and also negative residual amounts in other funds. The City considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City has formally adopted a fund balance policy for the General fund. The City’s policy is to maintain a minimum unassigned fund balance of 55-60 percent of operating expenditures for cash-flow timing needs. -58- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Net position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. Net position is displayed in three components: a. Net investment in capital assets - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. b. Restricted net position - Consists of net position balances 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 position - All other net position balances that do not meet the definition of “restricted” or “net investment in capital assets”. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the General fund. Annual appropriations lapse at fiscal year end. The City does not use encumbrance accounting. In August of each year, all departments of the City submit requests for appropriations to the City Administrator so that a budget may be prepared. Before September 30th, the proposed budget is presented to the City Council for review. In early December, the City Council holds public hearings and a final budget is prepared and adopted. The appropriated budget is prepared by fund, function and department. The City’s department heads, with the approval of the City Administrator, may make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the City Council. The legal level of budgetary control is the department level. The City’s budget was not amended during the year. B. Deficit fund equity The following funds had a deficit fund balance as of December 31, 2016: Amount Major capital project TIF 2 Oppidan Senior Housing275,176$ Nonmajor capital projet Trail Construction 697,432 Fund The City plans to fund these deficits with future tax increment, miscellaneous revenue and/or interfund transfers. -59- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS A. Deposits and investments Deposits Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the City’s deposits and investments may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the City Council, the City maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota statutes require that all City deposits be protected by insurance, surety bond or collateral. The fair value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. Authorized collateral in lieu of a corporate surety bond includes:  United States government Treasury bills, Treasury notes, Treasury bonds;  Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity;  General obligation securities of any state or local government with taxing powers which is rated “A” or better by a national bond rating service, or revenue obligation securities of any state or local government with taxing powers which is rated “AA” or better by a national bond rating service;  General obligation securities of a local government with taxing powers may be pledged as collateral against funds deposited by that same local government entity;  Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by written evidence that the bank’s public debt is rated “AA” or better by Moody’s Investors Service, Inc., or Standard & Poor’s Corporation; and  Time deposits that are fully insured by any Federal agency. Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the government entity. At year end, the City’s carrying amount of deposits was $1,733,419 and the bank balance was $1,511,851. The entire bank balance was covered by Federal depository insurance or by collateral held by the City’s agent in the City’s name. Investments The Minnesota Municipal Money Market fund (the 4M fund) is a customized cash management and investment program for Minnesota public funds. Sponsored and governed by the League of Minnesota Cities since 1987, the 4M fund is a unique investment alternative designed to address the daily and long-term investment needs of Minnesota cities and other municipal entities. Allowable under Minnesota statutes, the 4M fund is comprised of top quality, rated investments. The Minnesota Municipal Money Market fund and broker money market investment pools operate in accordance with appropriate State laws and regulations. The 4M fund is regulated by Minnesota statutes and the Board of Directors of the League of Minnesota Cities and is an external investment pool not registered with the Securities and Exchange Commission (SEC); however, it follows the same regulatory rules of the SEC under rule 2a7. The reported value of the pool is the same as the fair value of the pool share. Financial statements of the 4M fund can be obtained by contracting RBC Global Asset Management at 100 South Fifth Street, Suite 2300, Minneapolis, MN 55402-1240. -60- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED At year end, the City had the following investments that are insured or registered, or securities held by the City’s agent in the City’s name: CreditSegmented Quality/Time Rating (1)Distribution (2)AmountLevel 1Level 2Level 3 Pooled investments at amortizeds costs Minnesota Municipal Money Market fu N/Aless than 6 months2,078,625$ Broker Money MarketN/Aless than 6 months494,847 Non Pooled investments at fair value U.S. Government Agency SecuritiesN/A6 to 12 months496,775 496,775$ -$ -$ U.S. Government Agency SecuritiesN/A1 to 3 years 492,280 492,280 - - U.S. Government Agency SecuritiesAA-1 to 3 years 474,150 474,150 - - U.S. Government Agency SecuritiesAaamore than 3 years500,178 500,178 - - Municipal Bonds AA1less than 6 months303,264 - 303,264 - Municipal Bonds BAA2less than 6 months801,416 - 801,416 - Municipal Bonds AA6 to 12 months611,220 - 611,220 - Municipal Bonds AA26 to 12 months307,788 - 307,788 - Municipal Bonds BAA16 to 12 months294,282 - 294,282 - Municipal Bonds A+6 to 12 months102,282 - 102,282 - Municipal Bonds AAA1 to 3 years 301,098 - 301,098 - Municipal Bonds AA-more than 3 years255,870 - 255,870 - Municipal Bonds A2more than 3 years571,713 - 571,713 - Municipal Bonds AA2more than 3 years317,977 - 317,977 - Municipal Bonds AA+more than 3 years404,104 - 404,104 - Municipal Bonds A1more than 3 years388,409 - 388,409 - Municipal Bonds Aaamore than 3 years292,008 - 292,008 - Municipal Bonds Aa1more than 3 years613,213 - 613,213 - Municipal Bonds Aa2more than 3 years506,005 - 506,005 - Negotiable Certificates of DepositN/Aless than 6 months245,220 - 245,220 - Negotiable Certificates of DepositN/A1 to 3 years 700,075 - 700,075 - Negotiable Certificates of DepositN/Amore than 3 years245,228 - 245,228 - Total investments 11,798,027$ 1,963,383$ 7,261,172$ -$ Types of Investments Fair Value Measurement Using (1) Ratings are provided by various credit ratings agency 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. -61- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED A reconciliation of cash and temporary investments as shown on the financial statements for the City follows: Carrying amount of deposits 1,733,419$ Investments 11,798,027 Cash on hand 220 Total 13,531,666$ As reported on the financial statements Statement of net position 13,000,303$ Cash with fiscal agent 282,197 Fiduciary fund 249,166 Total 13,531,666$ The investments of the City are subject to the following risks:  Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota statutes and the City’s investment policy limit the City’s investments to the list on page 54 of the notes.  Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. 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 registered, 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 financial institutions.  Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. 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. As of December 31, 2016 the City had invested 5.0 percent or more of its total investment portfolio in the following issuers: Illinois State IL, 6.8 percent, New Hampshire State GO, 5.2 percent, and Northfield MN Water, 5.2 percent.  Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. In accordance with its investment policy and also detailed in the description of concentration of credit risk, the City manages its exposure to declines in fair values by “laddering” their investment maturities to ensure that a portion of the portfolio is maturing monthly, or as needed to meet projected expenditures. The City also permits no more than 30 percent of total investments to extend beyond five (5) years and does not directly invest in securities maturing more than 15 years from the date of purchase. -62- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED B. Capital assets Capital asset activity for the year ended December 31, 2016 was as follows: Beginning Ending BalanceIncreasesDecreasesBalance Governmental activities Capital assets not being depreciated Land 741,826$ -$ -$ 741,826$ Construction in progress 782,626 2,009,680 (745,930) 2,046,376 Total capital assets not being depreciated 1,524,452 2,009,680 (745,930) 2,788,202 Capital assets being depreciated Buildings 3,066,002 374,181 - 3,440,183 Improvements other than buildings 1,039,369 748,553 - 1,787,922 Infrastructure 30,704,836 729,816 - 31,434,652 Machinery and equipment 2,872,183 65,059 - 2,937,242 Total capital assets being depreciated 37,682,390 1,917,609 - 39,599,999 Less accumulated depreciation Buildings (1,203,633) (97,079) - (1,300,712) Improvements other than buildings (800,082) (70,012) - (870,094) Infrastructure (24,549,331) (807,078) - (25,356,409) Machinery and equipment (2,278,899) (138,778) - (2,417,677) Total accumulated depreciation (28,831,945) (1,112,947) - (29,944,892) Total capital assets being depreciated, net 8,850,445 804,662 - 9,655,107 Governmental activities capital assets, net 10,374,897$ 2,814,342$ (745,930)$ 12,443,309$ -63- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Beginning Ending BalanceIncreasesDecreasesBalance Business-type activities Capital assets not being depreciated Land 434,113$ -$ -$ 434,113$ Construction in progress 476,899 - (476,899) - Total capital assets not being depreciated 911,012 - (476,899) 434,113 Capital assets being depreciated Infrastructure 21,017,329 476,899 - 21,494,228 Machinery and equipment 433,804 113,394 - 547,198 Total capital assets being depreciated 21,451,133 590,293 - 22,041,426 Less accumulated depreciation for Infrastructure (12,630,291) (403,834) - (13,034,125) Machinery and equipment (118,309) (46,394) - (164,703) Total accumulated depreciation (12,748,600) (450,228) - (13,198,828) Total capital assets being depreciated, net 8,702,533 140,065 - 8,842,598 Business-type activities capital assets, net 9,613,545$ 140,065$ (476,899)$ 9,276,711$ Depreciation expense was charged to functions/programs of the City as follows: Governmental activities General government 70,595$ Public works 932,344 Culture and recreation 110,008 Total depreciation expense - governmental activities1,112,947$ Business-type activities Water 317,882$ Sewer 88,236 Stormwater management utility44,110 Total depreciation expense - business-type activities450,228$ -64- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Construction commitments The City has active construction projects as of December 31, 2016. At year end, the commitment with the contractors for these projects is as follows: SpentRemaining to dateCommitment 2016 Water Main Extension597,532$ 531,411$ Smithtown Trail East825,039 34,005 Total 1,422,571$ 565,416$ Project C. Interfund receivables, payables and transfers Interfund balances The composition of interfund balances as of December 31, 2016, is as follows: Purpose Amount Major governmental Nonmajor governmental General 2016B Public Safety BuildingCash flow 948$ General Trail Construction Cash flow 577,249 General Community Infrastructure Cash flow 29,333 Water TIF 2 Oppidan Senior HousingProject funding 1,015,044 Payable FundReceivable Fund Interfund transfers The City made transfers during the fiscal year 2016 as shown and described below: StreetNonmajor GeneralDebt ServiceReconstructionGovernmentalTotal Transfers out General -$ 104,313$ 755,000$ 528,000$ 1,387,313$ Water12,500 - - - 12,500 Sewer12,500 - - - 12,500 Total 25,000$ 104,313$ 755,000$ 528,000$ 1,412,313$ Fund Transfers in The City annually budgets transfers for specific purposes. Annual transfers are made for administrative costs, part of capital improvement plans, as well as annual budgets. For the year ended December 31, 2016, the City made the following significant one-time transfers:  The General fund transferred $755,000 to the Street Reconstruction fund for future capital purchases.  The General fund also transferred $147,000 to Nonmajor Governmental funds for future capital.  The General fund transferred a total of $381,000 to the Nonmajor Governmental funds for operational cash flow purposes ($70,000) and for the acquisition of the Southshore Community Center ($311,000). -65- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED D. Long-term debt General obligation bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. These bonds are reported in the proprietary funds if they are expected to be repaid from proprietary fund revenues. In addition, general obligation bonds have been issued to refund special assessments related bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the City. The City has the following general obligation debt: General obligation revenue bonds The following bonds were issued to finance capital improvements in the enterprise funds. They will be repaid from future net revenues pledged from the Water fund and are backed by the taxing power of the City. Annual principal and interest payments on the bonds are expected to require less than 69 percent of the net revenues from the Water fund. Principal and interest paid for the current year and total customer net revenues for the Water fund were $283,845 and $408,911, respectively. Authorized IssueMaturityBalance at and Issued Date DateYear End G.O. Water Revenue Bonds of 2013 2,260,000$ 0.25 - 1.45%03/01/1301/01/221,635,000$ Rate Interest Description Annual debt service requirements to maturity for general obligation revenue bonds are as follows: Year Ending December 31,PrincipalInterest Total 2017265,000$ 16,182$ 281,182$ 2018270,000 14,375 284,375 2019270,000 12,080 282,080 2020275,000 9,216 284,216 2021275,000 5,848 280,848 2022280,000 2,030 282,030 Total1,635,000$ 59,731$ 1,694,731$ G.O. Revenue Bonds Business-type Activities -66- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Lease revenue bonds The City also issues bonds through the EDA, where the City pledges income derived from the leasing of the acquired or constructed assets to pay debt service. Revenue bonds outstanding at year end are as follows: Authorized IssueMaturityBalance at and Issued Date DateYear End Public Safety Fire Facility, Refunding Series 2016A2,470,000$ 2.00%01/07/1602/01/232,470,000$ Public Safety Police Facility, Refunding Series 2016B2,565,000 2.0001/07/1602/01/232,565,000 Public Safety Fire Facility, Refunding Series 2016C875,000 2.0001/07/1602/01/22875,000 Public Project Lease Revenue Bonds, Series 2008A 1,310,000 2.85 - 4.8008/19/0812/01/28920,000 Total Lease Revenue Bonds 6,830,000$ Interest RateDescription The Public Safety Fire Facility Refunding Series 2016A, 2016B and 2016C were issued for construction of the public safety building, which there is a lease receivable from the South Lake Minnetonka Police and Excelsior Fire District. This debt is excluded from the calculation of net investment in capital assets as the building is reported on the South Lake Minnetonka Police and Excelsior Fire District as a capital asset. Refer to Note 5A and B for further information. Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending December 31,PrincipalInterestTotal 2017865,000$ 152,062$ 1,017,062$ 2018890,000 133,192 1,023,192 2019920,000 113,823 1,033,823 2020935,000 93,795 1,028,795 2021950,000 73,300 1,023,300 2022 - 20262,080,000 136,095 2,216,095 2027 - 2028190,000 13,680 203,680 Total6,830,000$ 715,947$ 7,545,947$ Governmental Activities Lease Revenue Bonds -67- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED Changes in long-term liabilities Long-term liability activity for the year ended December 31, 2016, was as follows: Beginning EndingDue Within BalanceIncreasesDecreasesBalanceOne Year Governmental activities Bonds payable Lease revenue bonds 7,400,000$ 5,910,000$ (6,480,000)$ 6,830,000$ 865,000$ Unamortized premium on bonds - 98,295 (12,563) 85,732 - Pension liability GERF 841,702 506,200 (113,244) 1,234,658 - Compensated absences 215,129 147,812 (143,430) 219,511 146,352 Governmental activity long-term liabilities 8,456,831$ 6,662,307$ (6,749,237)$ 8,369,901$ 1,011,352$ Business-type activities General obligation revenue bonds 1,900,000$ -$ (265,000)$ 1,635,000$ 265,000$ Pension liability GERF 246,628 201,385 (34,412) 413,601 - Business-type activity long-term liabilities 2,146,628$ 201,385$ (299,412)$ 2,048,601$ 265,000$ Current refunding bonds On January 7th, 2016, the Economic Development Authority (the EDA) of the City issued $2,470,000 of Public Safety Fire Facility Lease Revenue Refunding Bonds, 2016A, $2,565,000 of Public Safety Police Facility Lease Revenue Refunding Bonds, 2016B, and $875,000 of Public Safety Fire Facility Lease Revenue Refunding Bonds, 2016C. The proceeds of the bonds were deposited in an escrow account and were used to current refund the 2007A, 2007B, and 2007C bonds. As a result of the refunding issue, the EDA will save $390,277 in debt service payments and achieve an economic gain (the present value of the difference between the old and the new debt service) of $375,210. -68- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE A. Plan description The City participates in the following cost-sharing multiple-employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA’s defined benefit pension plans are established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERA’s defined benefit pension plans are tax qualified plans under Section 401(a) of the Internal Revenue Code. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City are covered by the General Employees Retirement Fund (GERF). GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. B. Benefits provided PERA provides retirement, disability and death benefits. Benefit provisions are established by Minnesota statute and can only be modified by the state legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90 percent funded, or have fallen below 80 percent, are given 1 percent increases. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. GERF benefits Benefits are based on a member’s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first ten years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first ten years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. C. Contributions Minnesota statutes chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state legislature. GERF contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.50 percent, respectively, of their annual covered salary in calendar year 2016. The City was required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2016. The City’s contributions to the GERF for the years ending December 31, 2016, 2015 and 2014 were $96,454, $93,614 and $89,427, respectively. The City’s contributions were equal to the contractually required contributions for each year as set by Minnesota statute. -69- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED D. Pension costs GERF pension costs At December 31, 2016, the City reported a liability of $1,648,259 for its proportionate share of the GERF’s net pension liability. The City’s net pension liability reflected a reduction due to the State of Minnesota’s contribution of $6 million to the fund in 2016. The State of Minnesota is considered a non-employer contributing entity and the State’s contribution meets the definition of a special funding situation. The State of Minnesota’s proportionate share of the net pension liability associated with the City totaled $21,459. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City’s proportion of the net pension liability was based on the City’s contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2015 through June 30, 2016 relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2016, the City’s proportionate share was 0.0203 percent which was a decrease of 0.0007 percent from its proportion measured as of June 30, 2015. For the year ended December 31, 2016, the City recognized pension expense of $160,611 for its proportionate share of GERF’s pension expense. In addition, the City recognized an additional $6,398 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota’s contribution of $6 million to the GERF. At December 31, 2016, the City reported its proportionate share of GERF’s deferred outflows of resources and deferred inflows of resources, and its contributions subsequent to the measurement date, from the following sources: DeferredDeferred OutflowsInflows of Resourcesof Resources Differences between expected and actual experience5,544$ 130,673$ Changes in actuarial assumptions354,393 - Net difference between projected and actual earnings on plan investments180,947 - Changes in proportion- 110,215 Contributions to GERF subsequent to the measurement date49,206 - Total 590,090$ 240,888$ Deferred outflows of resources totaling $49,206 related to pensions resulting from the City’s contributions to GERF subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2017. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will be recognized in pension expense as follows: 2017 64,725$ 2018 25,790 2019 149,939 2020 59,542 -70- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED E. Actuarial assumptions The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.50% per year Active member payroll growth3.25% per year Investment rate of return 7.50% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors and disabilitants were based on RP-2014 tables for the GERF for males or females, as appropriate, with slight adjustments. Cost of living benefit increases for retirees are assumed to be: 1 percent per year for all future years for the GERF. Actuarial assumptions used in the June 30, 2016 valuation were based on the results of actuarial experience studies. The most recent four-year experience study in the GERF was completed in 2015. The following changes in actuarial assumptions occurred in 2016: GERF  The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035 and 2.5 percent per year thereafter to 1.0 percent per year for all future years.  The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent.  Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Domestic stocks45.00 %5.50 % International stocks15.00 6.00 Bonds 18.00 1.45 Alternative assets20.00 6.40 Cash 2.00 0.50 Total 100.00 % TargetExpected Real AllocationRate of Return Long-term -71- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED F. Discount rate The discount rate used to measure the total pension liability was 7.50 percent, a reduction from the 7.90 percent used in 2015. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota statutes. Based on these assumptions, the fiduciary net position of the GERF was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension liability sensitivity The following presents the City’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1 Percent 1 Percent Decrease (6.50%)Current (7.50%)Increase (8.50%) GERF 2,341,017$ 1,648,259$ 1,077,616$ City Proportionate Share of NPL H. Pension plan fiduciary net position Detailed information about each pension plan’s fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. Note 5: JOINT VENTURES A. South Lake Minnetonka Police Department The City participates in a joint powers agreement with the cities of Excelsior, Greenwood and Tonka Bay, which establishes the South Lake Minnetonka Police Department (the 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 five-year average demand for service in each City. Any budget shortfall is made up first from department reserves, with any excess shortfall assessed to each participating community according to the formula. The most recent year of audited information is December 31, 2016. Separate financial statements can be obtained by writing to the South Lake Minnetonka Police Department, 24150 Smithtown Road, Shorewood, Minnesota 55331. -72- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 5: JOINT VENTURES - CONTINUED The following is a summary of the Department’s Statements of Net Position as of December 31, 2016 and 2015: SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY OF STATEMENTS OF NET POSITION DECEMBER 31, 2016 AND 2015 2016 2015 Assets 4,885,721$ 4,933,813$ Deferred outflows of resources 3,653,168 370,165 Total assets and deferred outflows of resources 8,538,889$ 5,303,978$ Liabilities 7,953,009$ 4,717,104$ Deferred inflows of resources 691,931 312,158 Net position (106,051) 274,716 Total liabilities, deferred inflows of resources, and net position 8,538,889$ 5,303,978$ The following is a summary of the Department’s statements of activities for the years ended December 31, 2016 and 2015: SOUTH LAKE MINNETONKA POLICE DEPARTMENT SUMMARY STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 Revenues 2,949,600$ 2,863,327$ Expenses 3,351,688 2,830,418 Net revenues (402,088) 32,909 General revenues 21,321 18,558 Change in net position (380,767) 51,467 Net position, January 1 274,716 223,249 Net position, December 31 (106,051)$ 274,716$ B. Excelsior Fire District In August of 2000, 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 of ten 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 financial statements can be obtained by writing to the Excelsior Fire District, 24100 Smithtown Road, Shorewood, Minnesota 55331. -73- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 5: JOINT VENTURES - CONTINUED The following is a summary of the District’s Statements of Net Position as of December 31, 2016 and 2015: EXCELSIOR FIRE DISTRICT SUMMARY OF STATEMENTS OF NET POSITION DECEMBER 31, 2016 AND 2015 2016 2015 Assets 8,549,042$ 8,918,967$ Deferred outflows of resources 1,001,398 202,136 Total assets and deferred outflows of resources 9,550,440$ 9,121,103$ Liabilities 4,272,946$ 4,156,120$ Deferred inflows of resources 85,188 210,985 Net position 5,192,306 4,753,998 Total liabilities, deferred inflows of resources, and net position 9,550,440$ 9,121,103$ The following is a summary of the District’s statements of activities for the years ended December 31, 2016 and 2015: EXCELSIOR FIRE DISTRICT SUMMARY STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 Revenues 1,711,606$ 1,588,403$ Expenses 1,275,891 1,345,611 Net revenues 435,715 242,792 General revenues 2,593 4,921 Change in net position 438,308 247,713 Net position, January 1 4,753,998 4,506,285 Net position, December 31 5,192,306$ 4,753,998$ According to a formula in the agreement, the City’s share of the District’s budget is 37.63 percent. Payments to the District in 2016 totaled $615,334. The District issues a publicly available financial report that includes financial statements and required supplementary information. The report may be obtained by writing to the Excelsior Fire District, 24100 Smithtown Road, Shorewood, Minnesota 55331. -74- CITY OF SHOREWOOD, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2016 Note 6: OTHER INFORMATION A. Risk management 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. 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. B. Legal debt margin The City’s statutory debt limit is $45,734,777 computed as three percent of $1,524,492,565 which is the taxable market value of property within the City. Long-term debt issued and financed 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. C. Southshore Community Center After years of unsuccessful negotiations between the City of Shorewood and the other four cities (Deephaven, Excelsior, Greenwood, and Tonka Bay) with ownership interest in the Southshore Center (SSC), in September, 2015, the City of Shorewood commenced an action in district court requesting the partition of the interest in the real estate of the Southshore Center. The District Court issued an order on May 3, 2016, granting the defending four cities their request for a summary judgment that the Shorewood partition request required that the City of Shorewood acquire the interests of the other four cities in the amount of $311,000. Effective January, 2017, the city completed the full purchase of the SSC from the other four cities. Day-to-day management and programming of the SSC is provided by City of Shorewood staff and volunteers. The Shorewood City Council is presently determining marketing and branding options for SSC. Note 7: SUBSEQUENT EVENT On May 2, 2017 the City issued $950,000 of Lease Revenue Refunding Bonds, Series 2017A.The bonds were issued to refund Lease Revenue Bonds, Series 2008A. The interest rate on the future revenue bonds is 2.7 percent with a maturity date of December 1, 2028. -75- THIS PAGE IS LEFT BLANK INTENTIONALLY -76- REQUIRED SUPPLEMENTARY INFORMATION CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -77- CITY OF SHOREWOOD, MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2016 Schedule of employer’s share of PERA net pension liability - General Employees Retirement Fund State's Proportionate City'sShare of Proportionatethe Net Pension Share ofLiability City's Fiscal the Net PensionAssociated with Covered Year Liabilitythe CityTotalPayroll Ending (a)(b)(a+b)(c) 06/30/160.0203 %1,648,259$ 21,459$ 1,669,718$ 1,257,395$ 132.8 %68.9 % 06/30/150.0210 1,088,330 - 1,088,330 1,233,860 88.2 78.2 the Net Pension Payrollof the Total Liability ((a+b)/c)Pension Liability Plan Fiduciary City's Liability as a Net Position Proportion of Percentage of as a PercentageCovered Required Supplementary Information City's Proportionate Share of the Net Pension Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available. Schedule of employer’s PERA contributions - General Employees Retirement Fund Contributions in Relation to the StatutorilyStatutorilyContributionCity's RequiredRequiredDeficiencyCovered YearContributionContribution(Excess)Payroll Ending(a)(b)(a-b)(c) 12/31/1696,454$ -$ (96,454)$ 1,286,047$ 7.5 % 12/31/1593,614 - (93,614) 1,248,187 7.5 (b/c) Required Supplementary Information Contributions as a Percentage of Covered Payroll Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available. -78- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -79- THIS PAGE IS LEFT BLANK INTENTIONALLY -80- NONMAJOR GOVERNMENTAL FUNDS NONMAJOR SPECIAL REVENUE FUNDS Special revenue funds are used to account for revenue derived from specific taxes or other earmarked revenue sources. They are usually required by Minnesota statute or local ordinances to finance particular functions or other activities of government. Southshore Community Center - This fund was established to account for the resources accumulated from events and activities held at the City’s community center, and the payment of expenditures related to operations of the community center. The City has committed charges for services revenues for operations. -81- Exhibit A-1CITY OF SHOREWOOD, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2016 Special Revenue Southshore Total Community Capital Nonmajor Center Projects Funds ASSETS Cash and temporary investments 383,438$ 998,578$ 1,382,016$ Receivables Accrued interest 237 4,159 4,396 Accounts - 410,717 410,717 Lease - 86,631 86,631 Land held for resale - 150,068 150,068 TOTAL ASSETS 383,675$ 1,650,153$ 2,033,828$ LIABILITIES Accounts and contracts payable 313,769$ 144,637$ 458,406$ Accrued salaries payable 376 - 376 Due to other funds - 606,582 606,582 TOTAL LIABILITIES 314,145 751,219 1,065,364 FUND BALANCES Assigned to capital outlay - 1,596,366 1,596,366 Assigned to community center operations 69,530 - 69,530 Unassigned - (697,432) (697,432) TOTAL FUND BALANCES 69,530 898,934 968,464 TOTAL LIABILITIES AND FUND BALANCES 383,675$ 1,650,153$ 2,033,828$ -82- Exhibit A-2CITY OF SHOREWOOD, MINNESOTA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2016 Special Revenue Southshore Total Community Capital Nonmajor Center Projects Funds REVENUES Charges for services 46,280$ 502,386$ 548,666$ Interest on investments 809 12,322 13,131 Miscellaneous Contributions and donations 426 203,167 203,593 Refunds and reimbursements - 293,546 293,546 Other 474 - 474 TOTAL REVENUES 47,989 1,011,421 1,059,410 EXPENDITURES Current Culture and recreation 77,561 - 77,561 Capital outlay General government - 28,635 28,635 Public works - 324,783 324,783 Culture and recreation 335,277 1,703,706 2,038,983 TOTAL EXPENDITURES 412,838 2,057,124 2,469,962 DEFICIENCY OF REVENUES UNDER EXPENDITURES (364,849) (1,045,703) (1,410,552) OTHER FINANCING SOURCES Transfers in 381,000 147,000 528,000 NET CHANGE IN FUND BALANCES 16,151 (898,703) (882,552) FUND BALANCES, JANUARY 1 53,379 1,797,637 1,851,016 FUND BALANCES, DECEMBER 31 69,530$ 898,934$ 968,464$ -83- THIS PAGE IS LEFT BLANK INTENTIONALLY -84- NONMAJOR CAPITAL PROJECTS FUNDS Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by enterprise funds. 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. 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. Trail Construction - This fund was established to accounts for the resources accumulated and payments made for trail improvements and construction. Community Infrastructure - This fund was established for the purpose of funding future improvements in the City. -85- Exhibit B-1CITY OF SHOREWOOD, MINNESOTA NONMAJOR CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2016 Park Capital Equipment MSA Trail Community Improvement Replacement Construction Construction Infrastructure Total ASSETS Cash and temporary investments 408,583$ 461,769$ 128,226$ -$ -$ 998,578$ Receivables Accrued interest 2,132 1,419 516 - 92 4,159 Accounts 203,167 - - - 207,550 410,717 Lease - 86,631 - - - 86,631 Land held for resale - - - - 150,068 150,068 TOTAL ASSETS 613,882$ 549,819$ 128,742$ -$ 357,710$ 1,650,153$ LIABILITIES Accounts and contracts payable 1,065$ 1,325$ -$ 120,183$ 22,064$ 144,637$ Due to other funds - - - 577,249 29,333 606,582 TOTAL LIABILITIES 1,065 1,325 - 697,432 51,397 751,219 FUND BALANCES Assigned to capital outlay 612,817 548,494 128,742 - 306,313 1,596,366 Unassigned - - - (697,432) - (697,432) TOTAL FUND BALANCES 612,817 548,494 128,742 (697,432) 306,313 898,934 TOTAL LIABILITIES AND FUND BALANCES 613,882$ 549,819$ 128,742$ -$ 357,710$ 1,650,153$ -86- Exhibit B-2CITY OF SHOREWOOD, MINNESOTA NONMAJOR CAPITAL PROJECTS FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2016 Park Capital Equipment MSA Trail Community Improvement Replacement Construction Construction Infrastructure Total REVENUES Charges for services 502,386$ -$ -$ -$ -$ 502,386$ Interest on investments 7,122 8,469 1,723 (4,560) (432) 12,322 Miscellaneous Contributions and donations 203,167 - - - - 203,167 Refunds and reimbursements 25,000 22,800 - - 245,746 293,546 TOTAL REVENUES 737,675 31,269 1,723 (4,560) 245,314 1,011,421 EXPENDITURES Capital outlay General government - 28,635 - - - 28,635 Public works - 74,576 - - 250,207 324,783 Culture and recreation 709,136 - - 994,570 - 1,703,706 TOTAL EXPENDITURES 709,136 103,211 - 994,570 250,207 2,057,124 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 28,539 (71,942) 1,723 (999,130) (4,893) (1,045,703) OTHER FINANCING SOURCES Transfers in 42,000 105,000 - - - 147,000 NET CHANGE IN FUND BALANCES 70,539 33,058 1,723 (999,130) (4,893) (898,703) FUND BALANCES, JANUARY 1 542,278 515,436 127,019 301,698 311,206 1,797,637 FUND BALANCES, DECEMBER 31 612,817$ 548,494$ 128,742$ (697,432)$ 306,313$ 898,934$ -87- Exhibit C-1CITY OF SHOREWOOD, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED ON THE FOLLOWING PAGES FOR THE YEAR ENDED DECEMBER 31, 2016 (With comparative actual amounts for the year ended December 31, 2015) 2015 Actual Variance with Actual Original Final Amounts Final Budget Amounts REVENUES Taxes General property taxes 4,975,882$ 4,975,882$ 5,010,215$ 34,333$ 4,825,492$ Fiscal disparities 103,526 103,526 119,405 15,879 123,634 Total 5,079,408 5,079,408 5,129,620 50,212 4,949,126 Licenses and permits Business 6,930 6,930 5,919 (1,011) 6,189 Nonbusiness 162,250 162,250 334,193 171,943 269,378 Total 169,180 169,180 340,112 170,932 275,567 Intergovernmental Federal FEMA - - 1,858 1,858 - State Property tax credits - - 49 49 49 Other 78,751 78,751 93,817 15,066 89,997 Other local governments Other 12,000 12,000 77,082 65,082 13,749 Total 90,751 90,751 172,806 82,055 103,795 Charges for services General government 5,200 5,200 13,603 8,403 14,251 Culture and recreation 33,500 33,500 34,446 946 41,208 Total 38,700 38,700 48,049 9,349 55,459 Fines and forfeitures 60,000 60,000 48,868 (11,132) 65,234 Interest on investments 35,000 35,000 59,413 24,413 35,182 Miscellaneous revenue Refunds and reimbursements 10,000 10,000 61,590 51,590 63,574 Contributions and donations 3,500 3,500 3,819 319 3,570 Other 165,400 165,400 177,820 12,420 180,105 Total 178,900 178,900 243,229 64,329 247,249 TOTAL REVENUES 5,651,939 5,651,939 6,042,097 390,158 5,731,612 2016 Budgeted Amounts -88- Exhibit C-1CITY OF SHOREWOOD, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 (With comparative actual amounts for the year ended December 31, 2015) 2015 Actual Variance with Actual Original Final Amounts Final Budget Amounts EXPENDITURES Current General government Mayor and City Council Personal services 22,600$ 22,600$ 22,176$ 424$ 22,176$ Supplies 2,000 2,000 1,330 670 1,751 Other services and charges 133,500 133,500 138,634 (5,134) 67,618 Total 158,100 158,100 162,140 (4,040) 91,545 Administrative Personal services 414,154 414,154 262,431 151,723 249,239 Supplies 20,900 20,900 17,298 3,602 13,288 Other services and charges 42,550 42,550 153,463 (110,913) 146,504 Total 477,604 477,604 433,192 44,412 409,031 Finance Personal services 142,273 142,273 146,398 (4,125) 143,248 Supplies 14,600 14,600 14,980 (380) 19,253 Other services and charges 15,900 15,900 19,965 (4,065) 21,018 Total 172,773 172,773 181,343 (8,570) 183,519 Professional services Other services and charges 226,400 226,400 252,052 (25,652) 200,096 Planning and zoning Personal services 178,797 178,797 183,617 (4,820) 184,405 Supplies 300 300 407 (107) 423 Other services and charges 12,000 12,000 11,934 66 28,125 Total 191,097 191,097 195,958 (4,861) 212,953 Municipal building Supplies 21,300 21,300 33,850 (12,550) 54,591 Other services and charges 174,800 174,800 154,794 20,006 95,370 Total 196,100 196,100 188,644 7,456 149,961 Total general government 1,422,074 1,422,074 1,413,329 8,745 1,247,105 Budgeted Amounts 2016 -89- Exhibit C-1CITY OF SHOREWOOD, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 (With comparative actual amounts for the year ended December 31, 2015) 2015 Actual Variance with Actual Original Final Amounts Final Budget Amounts Budgeted Amounts 2016 EXPENDITURES - CONTINUED Current - continued Public safety Police protection Other services and charges 1,106,165$ 1,106,165$ 1,113,021$ (6,856)$ 1,082,129$ Fire protection Other services and charges 369,714 369,714 368,468 1,246 360,644 Protective inspection Personal services 126,299 126,299 134,511 (8,212) 126,667 Supplies 200 200 245 (45) 73 Other services and charges 8,050 8,050 7,504 546 9,887 Total 134,549 134,549 142,260 (7,711) 136,627 Total public safety 1,610,428 1,610,428 1,623,749 (13,321) 1,579,400 Public works General maintenance Personal services 509,365 509,365 318,688 190,677 350,006 Supplies 163,000 163,000 143,135 19,865 103,882 Other services and charges 131,100 131,100 134,259 (3,159) 103,058 Total 803,465 803,465 596,082 207,383 556,946 Snow and ice removal Personal services 61,465 61,465 27,921 33,544 25,274 Supplies 44,000 44,000 23,008 20,992 16,229 Total 105,465 105,465 50,929 54,536 41,503 Sanitation and waste removal Personal services 7,000 7,000 24,199 (17,199) 23,187 City engineer Other services and charges 89,725 89,725 100,561 (10,836) 91,100 Total public works 1,005,655 1,005,655 771,771 233,884 712,736 -90- Exhibit C-1CITY OF SHOREWOOD, MINNESOTA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 (With comparative actual amounts for the year ended December 31, 2015) 2015 Actual Variance with Actual Original Final Amounts Final Budget Amounts Budgeted Amounts 2016 EXPENDITURES - CONTINUED Current - continued Culture and recreation Personal services 156,597$ 156,597$ 193,762$ (37,165)$ 192,106$ Supplies 31,000 31,000 37,317 (6,317) 23,588 Other services and charges 54,400 54,400 52,488 1,912 40,132 Total culture and recreation 241,997 241,997 283,567 (41,570) 255,826 Total current 4,280,154 4,280,154 4,092,416 187,738 3,795,067 Capital outlay Public safety 500,620 500,620 484,952 15,668 501,336 TOTAL EXPENDITURES 4,780,774 4,780,774 4,577,368 203,406 4,296,403 EXCESS OF REVENUES OVER EXPENDITURES 871,165 871,165 1,464,729 593,564 1,435,209 OTHER FINANCING SOURCES (USES) Transfers in 25,000 25,000 25,000 - 25,000 Transfers out (1,076,313) (1,076,313) (1,387,313) (311,000) (1,043,513) TOTAL OTHER FINANCING SOURCES (USES)(1,051,313) (1,051,313) (1,362,313) (311,000) (1,018,513) NET CHANGE IN FUND BALANCES (180,148) (180,148) 102,416 282,564 416,696 FUND BALANCES, JANUARY 1 4,502,167 4,502,167 4,502,167 - 4,085,471 FUND BALANCES, DECEMBER 31 4,322,019$ 4,322,019$ 4,604,583$ 282,564$ 4,502,167$ -91- Exhibit D-1CITY OF SHOREWOOD, MINNESOTA DEBT SERVICE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 2016 2016A 2016B 2016C 2008 Public Safety Public Safety Public Safety Lease Revenue Building Building Building Bond Total ASSETS Cash and temporary investments 9,545$ -$ 2,064$ 1,799$ 13,408$ Cash with fiscal agent 2,253 1,758 4,202 - 8,213 Lease receivable 2,470,000 2,565,000 875,000 - 5,910,000 TOTAL ASSETS 2,481,798$ 2,566,758$ 881,266$ 1,799$ 5,931,621$ LIABILITIES Accounts payable 556$ 556$ 556$ 556$ 2,224$ Due to other funds - 948 - - 948 TOTAL LIABILITIES 556 1,504 556 556 3,172 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - lease receivable 2,470,000 2,565,000 875,000 - 5,910,000 FUND BALANCES Restricted for debt service 11,242 254 5,710 1,243 18,449 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES 2,481,798$ 2,566,758$ 881,266$ 1,799$ 5,931,621$ -92- Exhibit D-2CITY OF SHOREWOOD, MINNESOTA DEBT SERVICE FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2016 2016A 2016B 2016C 2008 Public Safety Public Safety Public Safety Lease Revenue Building Building Building Bond Total REVENUES Miscellaneous Lease payments 317,993$ 329,070$ 129,917$ -$ 776,980$ Interest on investments 19 20 7 - 46 Other 4,000 4,000 4,000 - 12,000 TOTAL REVENUES 322,012 333,090 133,924 - 789,026 EXPENDITURES Debt service Principal 2,685,000 2,785,000 950,000 60,000 6,480,000 Interest and service charges 153,667 162,025 73,509 45,789 434,990 TOTAL EXPENDITURES 2,838,667 2,947,025 1,023,509 105,789 6,914,990 DEFICIENCY OF REVENUES UNDER EXPENDITURES (2,516,655) (2,613,935) (889,585) (105,789) (6,125,964) OTHER FINANCING SOURCES Transfers in - - - 104,313 104,313 Long-term debt issued 2,470,000 2,565,000 875,000 - 5,910,000 Bond premium 40,677 42,212 15,406 - 98,295 TOTAL OTHER FINANCING SOURCES 2,510,677 2,607,212 890,406 104,313 6,112,608 NET CHANGE IN FUND BALANCES (5,978) (6,723) 821 (1,476) (13,356) FUND BALANCES, JANUARY 1 17,220 6,977 4,889 2,719 31,805 FUND BALANCES, DECEMBER 31 11,242$ 254$ 5,710$ 1,243$ 18,449$ -93- Exhibit E-1CITY OF SHOREWOOD, MINNESOTA AGENCY FUND COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED DECEMBER 31, 2016 Balance Balance January 1 Additions Deductions December 31 Developer Escrow Accounts ASSETS Cash and temporary investments 119,669$ 115,918$ (124,810)$ 249,166$ LIABILITIES Escrow deposits payable 119,669$ 115,918$ (124,810)$ 249,166$ -94- Exhibit F-1CITY OF SHOREWOOD, MINNESOTA SUMMARY FINANCIAL REPORT REVENUES AND EXPENDITURES FOR GENERAL OPERATIONS GOVERNMENTAL FUNDS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 REVENUES Taxes 5,129,620$ 4,949,126$ 3.65 % Licenses and permits 340,112 275,567 23.42 Intergovernmental 172,806 156,771 10.23 Charges for services 596,715 116,337 412.92 Fines and forfeits 48,868 65,234 (25.09) Interest on investments 99,369 60,283 64.84 Miscellaneous 1,929,822 1,344,340 43.55 TOTAL REVENUES 8,317,312$ 6,967,658$ 19.37 % Per Capita 1,115$ 938$ 18.89 % EXPENDITURES Current General government 1,413,329$ 1,247,105$ 13.33 % Public safety 1,623,749 1,579,400 2.81 Public works 786,780 726,905 8.24 Culture and recreation 361,128 344,793 4.74 Capital outlay General government 28,635 - 100.00 Public safety 484,952 501,336 (3.27) Public works 941,716 907,830 3.73 Culture and recreation 2,038,983 476,573 327.84 Economic development 682,787 - 100.00 Debt service Principal 6,480,000 735,000 781.63 Interest and service charges 434,990 330,931 31.44 TOTAL EXPENDITURES 15,277,049$ 6,849,873$ 123.03 % Per Capita 2,048$ 923$ 122.04 % Total Long-term Indebtedness 6,830,000$ 7,400,000$ (7.70)% Per Capita 916$ 997$ (8.11) General Fund Balance - December 31 4,604,583$ 4,502,167$ 2.27 % Per Capita 617$ 606$ 1.82 The purpose of this report is to provide a summary of financial information concerning the City of Shorewood to interested citizens. The complete financial statements may be examined at City Hall, 5755 Country Club Road, Shorewood, Minnesota 55331. Questions about this report should be directed to the City of Shorewood at 952-960-7900. Percent Increase (Decrease) Total -95- THIS PAGE IS LEFT BLANK INTENTIONALLY -96- STATISTICAL SECTION (UNAUDITED) CITY OF SHOREWOOD SHOREWOOD, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2016 -97- THIS PAGE IS LEFT BLANK INTENTIONALLY -98- STATISTICAL SECTION (UNAUDITED) This part of the City of Shorewood’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Financial trends These schedules contain trend information to help the reader understand how the government’s financial performance and well- being have changed over time. Revenue capacity These schedules contain information to help the reader assess the government’s most significant local revenue source, the property tax. Debt capacity These schedules present information to help the reader assess the affordability of the government’s current levels of outstanding debt and the government’s ability to issue additional debt in the future. Demographic and economic information These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating information These schedules contain service and infrastructure data to help the reader understand how the information in the government’s financial report relocates to the services the government provides and the activities it performs. -99- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) 2007 2008 2009 2010 Governmental activities Net investment in capital assets 10,960,550$ 9,430,566$ 9,480,314$ 9,525,991$ Unrestricted 6,147,185 7,400,859 7,909,106 8,252,497 Total governmental activities net position 17,107,735$ 16,831,425$ 17,389,420$ 17,778,488$ Business-type activities Net investment in capital assets 6,066,229$ 6,631,854$ 6,482,297$ 6,494,996$ Unrestricted 10,422,397 10,186,824 9,449,210 8,666,149 Total business-type activities net position 16,488,626$ 16,818,678$ 15,931,507$ 15,161,145$ Total primary government Net investment in capital assets 17,026,779$ 16,062,420$ 15,962,611$ 16,020,987$ Unrestricted 16,569,582 17,587,683 17,358,316 16,918,646 Total primary government 33,596,361$ 33,650,103$ 33,320,927$ 32,939,633$ Fiscal Year -100- Table 1 2011 2012 2013 2014 2015 2016 9,223,669$ 8,487,162$ 9,212,415$ 9,754,046$ 9,394,897$ 11,523,309$ 7,964,703 7,979,370 7,138,847 7,317,095 6,717,068 5,683,683 17,188,372$ 16,466,532$ 16,351,262$ 17,071,141$ 16,111,965$ 17,206,992$ 6,675,613$ 6,494,076$ 6,705,907$ 6,718,271$ 7,713,545$ 7,641,711$ 8,186,835 8,148,173 7,951,219 7,890,327 6,572,980 6,849,858 14,862,448$ 14,642,249$ 14,657,126$ 14,608,598$ 14,286,525$ 14,491,569$ 15,899,282$ 14,981,238$ 15,918,322$ 16,472,317$ 17,108,442$ 19,165,020$ 16,151,538 16,127,543 15,090,066 15,207,422 13,290,048 12,533,541 32,050,820$ 31,108,781$ 31,008,388$ 31,679,739$ 30,398,490$ 31,698,561$ Fiscal Year -101- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) CHANGES IN NET POSITION - CONTINUED ON THE FOLLOWING PAGES LAST TEN FISCAL YEARS (accrual basis of accounting) 2007 2008 2009 2010 Expenses Governmental activities General government 1,321,971$ 1,483,913$ 1,486,281$ 1,235,098$ Public safety 1,819,250 1,906,890 1,904,966 1,893,413 Public works 1,971,571 2,485,752 1,941,272 2,231,473 Culture and recreation 258,906 273,054 394,110 452,437 Economic development - - - - Interest on long-term debt 1,000,230 1,002,423 638,768 474,082 Total governmental activities expenses 6,371,928 7,152,032 6,365,397 6,286,503 Business-type activities Water 636,506 657,776 659,113 643,886 Sewer 952,107 921,238 955,956 980,173 Recycling 91,157 96,945 99,286 173,896 Stormwater management utility 63,888 106,143 106,847 131,107 Liquor 1,885,537 16,167 129 25 Total business-type activities expenses 3,629,195 1,798,269 1,821,331 1,929,087 Total expenses 10,001,123$ 8,950,301$ 8,186,728$ 8,215,590$ Program revenues Governmental activities Charges for services General government 41,475$ 32,528$ 34,064$ 53,381$ Public safety 896,731 793,041 634,742 624,330 Public works - - 6,279 - Culture and recreation 1,960 605 35,843 58,661 Economic development - - - - Operating grants and contributions 99,800 90,493 90,681 99,114 Capital grants and contributions 132,912 674,343 43 114,330 Total governmental activities program revenues 1,172,878 1,591,010 801,652 949,816 Business-type activities Charges for services Water 782,549 752,338 784,318 668,676 Sewer 832,956 829,117 802,252 845,043 Recycling 89,934 64,629 65,112 146,002 Stormwater management utility 164,413 204,618 191,157 198,593 Liquor 1,788,835 - - - Operating grants and contributions - 27,950 28,488 28,762 Capital grants and contributions - - - - Total business-type activities program revenues 3,658,687 1,878,652 1,871,327 1,887,076 Total program revenues 4,831,565$ 3,469,662$ 2,672,979$ 2,836,892$ Fiscal Year -102- Table 2 2011 2012 2013 2014 2015 2016 1,405,791$ 1,331,286$ 1,310,296$ 1,277,118$ 1,318,558$ 1,504,101$ 1,960,894 1,947,868 2,010,338 2,036,394 2,080,769 2,111,155 2,031,136 2,162,123 1,884,986 1,991,852 1,971,483 1,544,264 412,257 460,879 471,784 397,365 613,494 476,999 - - - - - 682,787 449,773 428,887 379,685 355,378 318,357 361,602 6,259,851 6,331,043 6,057,089 6,058,107 6,302,661 6,680,908 690,363 689,205 693,193 690,479 721,184 775,802 1,151,626 1,065,926 847,097 873,711 944,263 989,147 174,857 187,713 181,537 178,457 131,185 132,654 233,035 273,846 107,935 203,825 99,312 111,373 - - - - - - 2,249,881 2,216,690 1,829,762 1,946,472 1,895,944 2,008,976 8,509,732$ 8,547,733$ 7,886,851$ 8,004,579$ 8,198,605$ 8,689,884$ 108,394$ 144,883$ 187,628$ 199,394$ 260,440$ 256,069$ 544,749 604,400 599,810 642,680 617,557 608,410 6,293 4,137 226 1,222 940 263 72,678 79,206 120,794 102,985 108,884 156,271 - - - - - - 113,717 102,959 144,112 48,284 86,370 95,802 - - - 811,522 184,605 1,400,957 845,831 935,585 1,052,570 1,806,087 1,258,796 2,517,772 672,793 757,395 537,713 443,467 544,748 421,290 819,496 831,640 834,320 852,254 858,066 878,999 151,894 157,585 165,713 164,666 154,929 154,180 196,070 193,931 194,950 220,658 227,676 275,171 - - - - - - 33,586 23,007 25,830 31,279 26,198 48,724 15,000 22,400 53,200 115,490 5,706 388,077 1,888,839 1,985,958 1,811,726 1,827,814 1,817,323 2,166,441 2,734,670$ 2,921,543$ 2,864,296$ 3,633,901$ 3,076,119$ 4,684,213$ Fiscal Year -103- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) CHANGES IN NET POSITION - CONTINUED LAST TEN FISCAL YEARS (accrual basis of accounting) 2007 2008 2009 2010 Net revenues (expenses) Governmental activities (5,199,050)$ (5,561,022)$ (5,563,745)$ (5,336,687)$ Business-type activities 29,492 80,383 49,996 (42,011) Total primary government (5,169,558)$ (5,480,639)$ (5,513,749)$ (5,378,698)$ General Revenues and Other Changes in Net Position General Revenues Governmental activities Taxes Property taxes, levied for general purpose 4,360,254$ 4,582,909$ 4,743,174$ 4,744,348$ Grants and contributions not restricted to specific programs 37,746 19,957 4,940 4,487 Unrestricted investment earnings 621,234 641,846 333,626 132,359 Gain on sale of capital assets - - - 31,130 Transfers of capital assets - - - - Transfers (143,728) 40,000 1,040,000 813,431 Total governmental activities general revenues 4,875,506 5,284,712 6,121,740 5,725,755 Business-type activities Unrestricted investment earnings 434,072 289,669 102,833 85,080 Gain on sale of capital assets 382,890 - - - Transfers of capital assets - - - - Transfers 143,728 (40,000) (1,040,000) (813,431) Total business-type activities general revenues 960,690 249,669 (937,167) (728,351) Total primary government 5,836,196$ 5,534,381$ 5,184,573$ 4,997,404$ Change in Net Position Governmental activities (323,544)$ (276,310)$ 557,995$ 389,068$ Business-type activities 990,182 330,052 (887,171) (770,362) Total primary government 666,638$ 53,742$ (329,176)$ (381,294)$ Fiscal Year -104- Table 2 2011 2012 2013 2014 2015 2016 (5,414,020)$ (5,395,458)$ (5,004,519)$ (4,252,020)$ (5,043,865)$ (4,163,136)$ (361,042) (230,732) (18,036) (118,658) (78,621) 157,465 (5,775,062)$ (5,626,190)$ (5,022,555)$ (4,370,678)$ (5,122,486)$ (4,005,671)$ 4,733,948$ 4,761,213$ 4,768,989$ 4,854,521$ 4,931,075$ 5,127,950$ 4,751 6,019 5,818 5,848 5,840 5,844 56,705 61,584 37,461 86,530 60,283 99,369 28,500 - 76,981 - 30,000 - - - - - (245,121) - - - - 25,000 270,121 25,000 4,823,904 4,828,816 4,889,249 4,971,899 5,052,198 5,258,163 62,345 64,135 32,913 95,130 68,119 72,579 - - - - - - - - - - 245,121 - - - - (25,000) (270,121) (25,000) 62,345 64,135 32,913 70,130 43,119 47,579 4,886,249$ 4,892,951$ 4,922,162$ 5,042,029$ 5,095,317$ 5,305,742$ (590,116)$ (566,642)$ (115,270)$ 719,879$ 8,333$ 1,095,027$ (298,697) (166,597) 14,877 (48,528) (35,502) 205,044 (888,813)$ (733,239)$ (100,393)$ 671,351$ (27,169)$ 1,300,071$ Fiscal Year -105- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS 2007 2008 2009 2010 General fund Reserved -$ 47,750$ 500$ 49,060$ Unreserved 3,761,509 3,660,359 3,555,224 3,477,932 Nonspendable - - - - Unassigned - - - - Total general fund 3,761,509$ 3,708,109$ 3,555,724$ 3,526,992$ All other governmental funds Reserved 10,040,556$ 10,033,342$ 1,934,628$ 96,333$ Unreserved, reported in Special revenue funds - - - (17,650) Capital project funds 2,473,097 3,743,980 4,252,870 4,520,558 Nonspendable - - - - Restricted - - - - Assigned - - - - Unassigned - - - - Total all other governmental funds 12,513,653$ 13,777,322$ 6,187,498$ 4,599,241$ Fiscal Year Note: The City implemented GASB 54 in fiscal year 2011, resulting in significant reclassification of the components of fund balance. -106- Table 3 2011 2012 2013 2014 2015 2016 -$ -$ -$ -$ -$ -$ - - - - - - 48,000 50,000 33,016 103,996 99,216 6,687 3,440,227 3,574,468 3,943,342 3,981,475 4,402,951 4,597,896 3,488,227$ 3,624,468$ 3,976,358$ 4,085,471$ 4,502,167$ 4,604,583$ -$ -$ -$ -$ -$ -$ - - - - - - - - - - - - 150,068 150,068 150,068 - - - 30,439 17,700 24,450 25,654 31,805 18,449 4,229,528 4,368,656 3,117,434 3,339,005 3,304,064 3,261,170 - (75,325) (52,437) - - (972,608) 4,410,035$ 4,461,099$ 3,239,515$ 3,364,659$ 3,335,869$ 2,307,011$ Fiscal Year -107- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS 2007 2008 2009 2010 Revenues Taxes 4,332,741$ 4,582,602$ 4,703,368$ 4,717,204$ Licenses and permits 256,472 195,419 127,883 154,113 Intergovernmental 224,286 753,605 66,411 173,334 Charges for services 50,819 50,753 41,649 100,899 Fines and forfeitures 77,777 53,369 52,968 55,806 Special assessments 418 - - 333 Interest on investments 621,234 641,846 333,626 132,359 Miscellaneous 1,077,012 1,053,916 1,059,914 1,037,522 Total revenues 6,640,759 7,331,510 6,385,819 6,371,570 Expenditures General government 1,253,223 1,443,549 1,386,614 1,147,198 Public safety 1,263,921 1,352,254 1,392,139 1,392,923 Public works 718,350 760,287 670,954 859,069 Culture and recreation 190,931 229,259 326,502 342,654 Capital outlay 1,123,796 2,164,366 1,953,756 2,075,109 Debt service Principal 534,594 485,000 520,000 600,000 Interest and service charges 956,532 977,957 818,063 516,167 Bond issuance costs - 58,569 - - Total expenditures 6,041,347 7,471,241 7,068,028 6,933,120 Excess (deficiency) of revenues over (under) expenditures 599,412 (139,731) (682,209) (561,550) Other financing sources (uses) Transfers in 770,091 933,366 2,059,773 1,942,550 Sale of capital assets - - - 31,130 Proceeds from sale of bonds 10,000,000 1,310,000 - - Bonds refunded - - (8,100,000) (1,900,000) Discount on long-term debt issued (24,233) - - - Bond premium - - - - Transfers out (913,819) (893,366) (1,019,773) (1,129,119) Total other financing sources (uses)9,832,039 1,350,000 (7,060,000) (1,055,439) Net change in fund balances 10,431,451$ 1,210,269$ (7,742,209)$ (1,616,989)$ Debt service as a percentage of Noncapital expenditures 26.3%23.1%22.4%19.1% Fiscal Year -108- Table 4 2011 2012 2013 2014 2015 2016 4,787,195$ 4,783,939$ 4,764,472$ 4,864,095$ 4,949,126$ 5,129,620$ 174,119 175,087 204,600 270,841 275,567 340,112 72,968 76,102 76,544 891,055 156,771 172,806 102,500 121,625 92,549 90,825 116,337 596,715 52,635 66,230 59,294 64,290 65,234 48,868 - - - - - - 56,705 61,584 37,461 86,530 60,283 99,369 1,032,566 1,115,836 1,234,312 1,185,219 1,344,340 1,929,822 6,278,688 6,400,403 6,469,232 7,452,855 6,967,658 8,317,312 1,306,948 1,288,704 1,249,616 1,198,707 1,247,105 1,413,329 1,460,664 1,445,149 1,494,633 1,526,786 1,579,400 1,623,749 866,413 823,234 860,071 743,803 726,905 786,780 343,326 331,524 324,745 310,051 344,793 361,128 1,457,001 1,230,058 2,660,830 2,391,855 1,885,739 4,177,073 625,000 655,000 675,000 705,000 735,000 6,480,000 447,307 439,429 391,213 367,396 330,931 434,990 - - - - - - 6,506,659 6,213,098 7,656,108 7,243,598 6,849,873 15,277,049 (227,971) 187,305 (1,186,876) 209,257 117,785 (6,959,737) 984,541 1,170,216 2,482,650 1,340,120 1,313,634 1,412,313 - - 317,182 - - - - - - - - 5,910,000 - - - - - - - - - - - - - - - - - 98,295 (984,541) (1,170,216) (2,482,650) (1,315,120) (1,043,513) (1,387,313) - - 317,182 25,000 270,121 6,033,295 (227,971)$ 187,305$ (869,694)$ 234,257$ 387,906$ (926,442)$ 18.4%18.3%18.5%18.5%17.9%57.2% Fiscal Year -109- 2007 2008 2009 2010 Taxable market value Personal property 4,591,200$ 4,336,600$ 4,764,900$ 4,629,900$ Real estate 1,475,529,200 1,597,262,400 1,651,054,700 1,631,938,000 Total taxable market value 1,480,120,400$ 1,601,599,000$ 1,655,819,600$ 1,636,567,900$ Estimated actual value of taxable property 1,553,767,900$ 1,645,188,300$ 1,673,720,100$ 1,638,118,400$ Taxable market value as a percentage of estimated actual value 95.26 %97.35 %98.93 %99.91 % Tax capacity Personal property 89,872$ 84,780$ 91,548$ 88,848$ Real estate 16,130,097 17,619,943 18,305,114 18,087,557 Total tax capacity 16,219,969 17,704,723 18,396,662 18,176,405 Contribution to fiscal disparities pool (308,590) (351,789) (396,336) (432,995) Receivable from fiscal disparities pool 407,687 445,780 513,259 526,521 Net tax capacity 16,319,066$ 17,798,714$ 18,513,585$ 18,269,931$ Tax levies General 3,835,173$ 4,056,917$ 4,158,672$ 4,160,292$ Debt service 561,135 555,078 617,620 616,000 Total 4,396,308$ 4,611,995$ 4,776,292$ 4,776,292$ Direct tax rate General 23.501 %22.793 %22.463 %22.771 % Debt service 3.439 3.119 3.336 3.372 Total 26.940 %25.912 %25.799 %26.143 % Note: Property in the county is reassessed annually. The county assesses property at approximately 90 percent of actual value for all types of real and personal property. CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) TAX CAPACITY, MARKET VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY (Shown by year of tax collectability) Source: Hennepin County Assessor -110- Table 5 2011 2012 2013 2014 2015 2016 4,948,300$ 5,291,700$ 6,006,500$ 6,068,600$ 6,348,000$ 6,514,900$ 1,507,900,600 1,430,712,101 1,367,209,584 1,345,804,540 1,449,497,111 1,517,977,665 1,512,848,900$ 1,436,003,801$ 1,373,216,084$ 1,351,873,140$ 1,455,845,111$ 1,524,492,565$ 1,514,456,700$ 1,453,867,700$ 1,392,562,700$ 1,371,752,400$ 1,472,996,800$ 1,539,170,100$ 99.89 %98.77 %98.61 %98.55 %98.84 %99.05 % 95,216$ 102,084$ 113,130$ 114,632$ 122,460$ 125,798$ 16,620,629 15,761,142 15,025,751 14,770,327 15,926,414 16,691,552 16,715,845 15,863,226 15,138,881 14,884,959 16,048,874 16,817,350 (419,002) (389,965) (393,282) (393,620) (399,759) (395,610) 478,935 435,462 368,528 374,494 377,934 376,674 16,775,778$ 15,908,723$ 15,114,127$ 14,865,833$ 16,027,049$ 16,798,414$ 4,158,672$ 4,158,672$ 4,763,319$ 4,858,585$ 4,931,464$ 5,079,408$ 604,647 - - - - - 4,763,319$ 4,158,672$ 4,763,319$ 4,858,585$ 4,931,464$ 5,079,408$ 24.790 %26.141 %31.516 %32.683 %30.770 %30.237 % 3.604 - - - - - 28.394 %26.141 %31.516 %32.683 %30.770 %30.237 % -111- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PROPERTY TAX CAPACITY RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $1,000 OF TAX CAPACITY IN 2006 - 2015) Year Taxes Payable City County No. 276 No. 277 2007 26.940 %39.110 %24.793 %9.911 %1.121 %0.743 %7.310 % 2008 25.912 38.571 17.980 8.521 1.404 1.302 7.397 2009 25.799 40.413 17.186 8.284 1.489 1.246 7.154 2010 26.143 42.640 18.657 9.772 1.511 1.279 8.138 2011 28.394 45.840 21.274 10.900 1.606 1.352 9.172 2012 26.141 48.231 23.015 17.262 1.705 1.387 9.923 2013 31.516 49.461 24.487 18.119 1.769 1.523 10.089 2014 32.683 49.959 24.374 19.075 1.806 1.880 10.561 2015 30.770 46.398 25.093 20.377 1.738 1.855 9.785 2016 30.237 45.356 22.887 19.991 1.724 1.745 9.530 Source: Hennepin County Assessor (1) Includes vocational school Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all City property owners (e.g. the rates for special districts apply only to the proportion of the government's property owners whose property is located within the geographic boundaries of the special district). School District (1) Watershed District Overlapping Rates No. 3 No. 4 Misc. -112- Table 6 99.274 %98.896 %84.392 % 91.264 91.162 81.805 92.041 91.798 83.139 97.089 96.857 88.204 106.286 106.032 95.912 109.015 108.697 103.262 117.322 117.076 110.954 119.383 119.457 114.084 113.784 113.901 109.068 109.734 109.755 106.838 Totals School District No. 276 District School District No. 277 Watershed District Watershed Watershed District No. 3No. 3 No. 4 -113- Table 7CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PRINCIPAL TAXPAYERS CURRENT YEAR AND NINE YEARS AGO Tax Tax Taxpayer Capacity Rank Capacity Rank Kraus-Anderson 153,470$ 1 %0.91 %107,250$ 2 0.66 % Big Box One, LLC 130,310 2 0.77 159,250 1 0.98 Shurgard Storage Center 81,870 3 0.49 77,250 3 0.47 South Lake Office Building LLC 70,490 4 0.42 - - - Mattamy Minneapolis, LLC 68,750 5 0.41 51,890 8 0.32 Xcel Energy 63,888 6 0.38 - - - Alerus (formerly Beacon Bank)56,870 7 0.34 64,250 4 0.39 Stephen R Litman Trustee 52,813 8 0.31 - - - Jack & Gretchen Norqual 52,325 9 0.31 - - - Waterford Center LLP 51,630 10 0.31 56,450 6 0.35 Kimberley & Frank Vennes - - - 62,025 5 0.38 The Mary Sue Simon Qprt - - - 54,713 7 0.34 Luaina Rae Hagen - - - 49,288 9 0.30 Minnetonka Portable Dredging Co.- - - 48,250 10 0.30 Totals 782,416$ 4.65 %730,616$ 4.49 % Source: Hennepin County Assessor Tax Capacity of Total Tax Capacity Percent 2016 2007 Percent of Total -114- Table 8CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (1) Collection Collection Fiscal Total of Current in subsequent Total Year Levy Year's Levy years Collections 2007 4,396,308$ 4,320,289$ 98.27 %75,258$ 4,395,547$ 99.98 % 2008 4,611,995 4,546,899 98.59 61,628 4,608,527 99.92 2009 4,776,292 4,649,904 97.35 121,741 4,771,645 99.90 2010 4,776,292 4,685,060 98.09 88,075 4,773,135 99.93 2011 4,763,319 4,706,900 98.82 56,419 4,763,319 100.00 2012 4,763,319 4,717,658 99.04 45,041 4,762,699 99.99 2013 4,763,319 4,720,748 99.11 41,667 4,762,415 99.98 2014 4,858,585 4,812,478 99.05 35,940 4,848,418 99.79 2015 4,931,464 4,907,222 99.51 14,911 4,922,133 99.81 2016 5,079,408 5,091,851 *100.24 *- 5,091,851 100.24 * Noted collections more than 100 percent of levy due to current year adjustment of market value to one significant parcel. Percent Collections of Total (1) Includes state paid property tax credits. Percentage of Levy Collected to Levy -115- Table 9CITY 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 Activities General Lease General Total Fiscal Obligation Revenue Capital Obligation Primary Per Year Bonds Bonds Leases Revenue Bonds Government Capita 2007 -$ 21,090,000$ -$ 3,665,000$ 24,755,000$ 6.31 %3,301$ 2008 - 21,915,000 - 3,415,000 25,330,000 5.87 3,199 2009 - 13,295,000 - 3,165,000 16,460,000 4.14 2,076 2010 - 10,795,000 - 2,915,000 13,710,000 3.19 1,876 2011 - 10,170,000 - 2,675,000 12,845,000 2.96 1,785 2012 - 9,515,000 - 2,500,000 12,015,000 2.86 1,615 2013 - 8,840,000 - 3,540,000 12,380,000 2.83 1,664 2014 - 8,135,000 - 2,160,000 10,295,000 2.26 1,368 2015 - 7,400,000 - 1,900,000 9,300,000 1.99 1,253 2016 - 6,830,000 - 1,635,000 8,465,000 1.93 1,129 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. See the Demographic and Economic Statistics table on page 121 for personal income and population data. Personal Income Governmental Activities Percentage of -116- Table 10CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) COMPUTATION OF DIRECT AND OVERLAPPING DEBT DECEMBER 31, 2016 Gross Amount Bonded of Debt Used Net Debt For Net Debt Net Applicable Calculation Debt to District Direct Debt City of Shorewood 6,830,000$ 6,830,000$ 100.00 %6,830,000$ Overlapping Debt School District #276 118,782,683$ 118,782,683$ 22.74 %27,011,182$ School District #277 46,160,000 46,160,000 2.27 1,047,832 Hennepin County 838,110,000 838,110,000 1.05 8,800,155 Henn Suburban Park District 52,835,000 52,835,000 1.46 771,391 Henn Regional RR Authority 33,145,000 33,145,000 1.05 348,023 12,625,000 12,625,000 0.48 60,600 Metropolitan Council 193,395,000 193,395,000 0.55 1,063,673 Total Overlapping Debt 1,295,052,683$ 1,295,052,683$ 3.02 %39,102,855$ Total Direct and Overlapping Debt 1,301,882,683$ 1,301,882,683$ 3.53 %45,932,855$ 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. District Applicable to Percentage -117- CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS 2007 2008 2009 2010 Debt limit 29,602,408$ 32,031,980$ 33,116,392$ 32,731,358$ Total net debt applicable to limit - - - - Legal debt margin 29,602,408$ 32,031,980$ 33,116,392$ 32,731,358$ Total net debt applicable to the limit as a percentage of debt limit -$ -$ -$ -$ Note: Under state law, the City's outstanding general obligation debt should not exceed 3 percent of the market value of taxable property. The percentage was changed to 3 percent for fiscal year 2008, prior to that, the percentage was 2 percent. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for the extinguishment of those obligations. Fiscal Year -118- Table 11 2011 2012 2013 2014 2015 2016 30,256,978$ 28,720,076$ 41,196,483$ 40,556,194$ 43,675,353$ 45,734,777$ - - - - - - 30,256,978$ 28,720,076$ 41,196,483$ 40,556,194$ 43,675,353$ 45,734,777$ -$ -$ -$ -$ -$ -$ Legal Debt Margin Calculation for Fiscal Year 2016 Taxable market value 1,524,492,565$ Debt limit (3% of market value)45,734,777 Debt applicable to limit General obligation bonds - Less: amount available in debt service funds - Total net debt applicable to limit - Legal debt margin 45,734,777$ Fiscal Year -119- Table 12CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PLEDGED - REVENUE COVERAGE LAST TEN FISCAL YEARS (1)Net Fiscal Gross (2)Revenue Year Revenue Expenses Available Principal Interest 2007 765,717$ 259,056$ 506,661$ 255,000$ 81,165$ 1.51 % 2008 857,890 278,164 579,726 250,000 172,050 1.37 2009 821,778 250,995 570,783 250,000 142,589 1.45 2010 700,678 238,780 461,898 250,000 125,407 1.23 2011 718,561 299,962 418,599 240,000 116,728 1.17 2012 809,746 313,620 496,126 175,000 100,668 1.80 2013 595,599 300,232 295,367 185,000 75,630 1.13 2014 542,606 401,476 141,130 220,000 19,708 0.59 2015 581,484 412,646 168,838 260,000 18,798 0.61 2016 727,126 439,737 287,389 265,000 18,183 1.01 (1) Including interest and other income (2) Excluding depreciation and interest on bonds Revenue from Fiscal Property Year Taxes Principal Interest 2007 73,406$ 69,594$ 3,812$ 1.00 % 2008 - - - - 2009 - - - - 2010 - - - - 2011 - - - - 2012 - - - - 2013 - - - - 2014 - - - - 2015 - - - - 2016 - - - - Revenue from Fiscal Lease Year Payments Principal Interest 2007 1,034,751$ 465,000$ 941,222$ 0.74 % 2008 1,037,241 485,000 970,065 0.71 2009 992,835 495,000 737,863 0.81 2010 982,037 555,000 457,840 0.97 2011 902,003 575,000 393,357 0.93 2012 978,744 605,000 372,230 1.00 2013 972,513 625,000 335,513 1.01 2014 969,650 650,000 335,513 0.98 2015 958,569 680,000 284,419 0.99 2016 776,980 6,420,000 389,201 0.11 General Obligation Revenue Bonds Coverage Capital Leases Coverage Coverage Lease Revenue Bonds Debt Service Debt Service Debt Service -120- Table 13CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Total Per Capita Fiscal Personal Personal Median Year Population (1)Income (2)Income (2)Age (3) 2007 7,611 392,414,022 49,566 38.7 4.1 % 2008 7,917 431,535,825 54,425 39.0 4.9 2009 7,929 397,683,475 54,425 39.0 7.3 2010 7,307 429,651,600 58,800 39.1 7.0 2011 7,307 433,743,520 59,360 44.2 51.1 %6.1 2012 7,312 420,264,512 57,476 44.1 49.8 5.2 2013 7,438 438,083,324 58,898 43.6 56.4 4.6 2014 7,524 455,961,924 60,601 44.5 61.8 3.8 2015 7,458 466,700,130 61,295 43.7 63.1 3.3 2016 7,496 438,823,336 58,541 45.3 62.8 3.4 Data Sources: (1) Metropolitan Council (2) US Census Bureau (3) US Census Bureau (4) US Census Bureau (5) Minnesota Department of Employment and Economic Development - Hennepin County Graduate Degree (4)Rate (5) Unemployment Note: Population, median age, and education level information are based on surveys conducted during the last quarter of the calendar year. Personal income information is a total for the year. Unemployment rate information is an adjusted yearly average. Percent of Population Which Has a Bachelor's or Post -121- Table 14CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO (1) Employees Rank Employees Rank Minnewashta Elementary School 123 1 9.83 %74 2 N/A % Cub Foods 121 2 9.67 120 1 N/A Xcel Energy 75 3 6.00 60 3 N/A Alerus (formerly Beacon Bank)34 4 2.72 55 4 N/A City of Shorewood 26 *5 2.08 26 6 N/A Park Nicollet Clinic 20 *6 1.60 - N/A Minnetonka Country Club - - 28 5 N/A Total 399 31.89 %363 - % Total City Employment 1,251 N/A Source: City of Shorewood * Includes part-time and temporary seasonal employees. N/A - indicates not available Employer Percentage of Total City Employment 20072016 Percentage of Total City Employment -122- Table 15CITY OF SHOREWOOD, MINNESOTA STATISTICAL SECTION (UNAUDITED) FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General government 13 13 12 12 10 10 9 9 9 10 Public works Engineering - - - - 1 1 - - - - Maintenance 6 6 6 6 5 5 6 6 6 6 Culture and recreation Parks 5 5 5 5 3 3 2 2 2 2 Economic development Water 1.5 1.5 1.5 1.5 1.5 1.5 1 1 1 1 Sewer 1.5 1.5 1.5 1.5 1.5 1.5 2 2 2 1 Municipal Liquor 2 - - - - - - - - - Total 29 27 26 26 22 22 20 20 20 20 Source: City of Shorewood Function -123- Table 16CITY OF SHOREWOOD, MINNESOTA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Building/engineering Permits issued 710 686 603 591 512 585 481 792 684 786 Public works Street sweeping (hours)1,614 1,500 1,550 1,400 1,600 1,600 1,400 1,400 1,400 1,450 Snowplowing (hours)1,394 1,508 765 1,024 895 616 1,403 833 530 400 Equipment repair (hours)2,080 2,080 2,080 1,280 1,591 1,725 1,716 1,542 1,551 1,705 Water New connections 22 13 11 1 2 3 9 - 4 5 Water mains breaks 7 3 3 5 6 7 3 7 6 4 Average daily consumption (thousands of gallons)482,000 482,000 467,600 467,600 465,300 465,300 465,300 465,300 465,300 339,076 Sewer Average daily treatment flow (thousands of gallons)1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Source: City of Shorewood Note: Indicators are not available for the general government function. Function STATISTICAL SECTION (UNAUDITED) -124- Table 17CITY OF SHOREWOOD, MINNESOTA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Public works Highways and streets Streets (miles)51 51 51 51 51 51 51 51 51 51 Street lights 194 194 194 194 194 194 194 194 194 195 Traffic signals 5 5 5 5 5 5 5 5 5 5 Culture and recreation Parks division Parks 7 7 7 7 7 7 7 7 7 7 Parks acreage 102 102 102 102 102 102 102 102 102 102 Baseball diamonds 5 5 5 5 5 5 5 5 5 5 Basketball courts 1 1 1 1 1 1 1 1 1 1 Bike trails (miles)2.45 2.45 2.45 2.45 2.45 2.45 4.00 4.00 5.80 5.80 Hockey rinks/outdoor 3 3 3 3 3 3 3 3 3 2 Softball diamonds 3 3 3 3 3 3 3 3 3 3 Swimming areas 1 1 1 1 1 1 1 1 1 - Tennis courts 5 5 5 5 5 5 5 5 5 5 Volleyball courts 2 2 2 2 2 2 2 2 2 2 Utilities Water Miles of water main 28 28 28 28 28 28 28 28 28 29 Consumers 1,297 1,310 1,321 1,322 1,324 1,327 1,336 1,336 1,340 1,398 Maximum daily capacity (gallons)919,000 919,000 919,000 919,000 919,000 919,000 919,000 919,000 919,000 919,000 Sewer Miles of sanitary sewer 60 60 60 60 60 60 60 60 60 60 Lift stations 14 14 14 14 14 14 14 14 14 14 Maximum daily treatment capacity (gallons)1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Storm sewer Miles of storm sewer 12 12 12 12 12 12 12 12 12 12 Source: City of Shorewood Note: No capital asset indicators are available for the general government function. Function STATISTICAL SECTION (UNAUDITED) -125-