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9.a City of Scandia 2016 Audited Financial StatementsSCHLENNER WENNER&CO. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS CONSULTANTS April 13, 2017 Neil Soltis, City Administrator City of Scandia 14727 209th Street North Scandia, MN 55073 Dear Mr. Soltis: In accordance with your request, we are attaching the accompanying PDF file, which contains an electronic final version of the financial statements of the City of Scandia as of December 31, 2016. We understand that your request for the electronic copy has been made as a matter of convenience. You understand that electronic transmissions are not entirely secure and that it is possible for confidential financial information to be intercepted by others. These financial statements and our report(s) on them are not to be modified in any manner. This final version supersedes all prior drafts. Any preliminary draft version of the financial statements previously provided to you in an electronic format should be deleted from your computer, and all printed copies of any superseded preliminary draft versions should likewise be destroyed. Professional standards and our firm policies require that we perform certain additional procedures whenever our reports are included, or we are named as accountants, auditors, or "experts," in a document used in a public or private offering of equity or debt securities. Accordingly, as provided for and agreed to in the terms of our arrangement letter, the City of Scandia will not include our reports, or otherwise make reference to us, in any public or private securities offering without first obtaining our consent. Any request to consent is also a matter for which separate arrangements will be necessary. After obtaining our consent, the City of Scandia also agrees to provide us with printer's proofs final reproduced material for our approval before it is distributed. In the event our auditor/client relationship has been terminated when the City of Scandia seeks such consent, we will be under no obligation to grant such consent or approval. Thank you for the opportunity to serve you. Sincerely, SCHLENNER WENNER & CO. An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud Little Falls Albany Maple Lake Monticello 320.251.0286 320.632.6311 320.845.2940 320.963.5414 763.295.5070 CITY OF SCANDIA, MINNESOTA AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2016 SCHLENNER WENNER & CO. Certified Public Accountants & Business Consultants CITY OF SCANDIA, MINNESOTA TABLE OF CONTENTS INTRODUCTORY SECTION: CITY COUNCIL AND OFFICIALS ................................................................................................................................ I FINANCIAL SECTION: INDEPENDENT AUDITORS' REPORT......................................................................................................................... 2 REQUIRED SUPPLEMENTARY INFORMATION: Management's Discussion and Analysis ....................................................................................................................... 4 BASIC FINANCIAL STATEMENTS: Government -wide Financial Statements Statementof Net Position ..................................................................................................................................... 14 Statementof Activities ......................................................................................................................................... 15 Fund Financial Statements Balance Sheet -Governmental Funds ..................................................................................................................... 16 Reconciliation of the Balance Sheet -Governmental Funds to the Statement of Net Position .................................................................................................................... 17 Statement of Revenues, Expenditures, and Changes in Fund Balances -Governmental Funds .......................................................................................... 18 Reconciliation of Changes in Fund Balance of Governmental Funds to the Statement of Activities .............................................................................................................. 19 Statement of Net Position -Proprietary Funds ....................................................................................................... 20 Statement of Revenues, Expenses, and Changes in Net Position -Proprietary Funds .................................................................................................. 21 Statement of Cash Flows -Proprietary Funds ........................................................................................................ 22 Statement of Fiduciary Net Position ..................................................................................................................... 23 Notes to the Basic Financial Statements ...................................................................................................................... 24 REQUIRED SUPPLEMENTARY INFORMATION: Budgetary Comparison Schedule -General Fund .......................................................................................................... 48 Schedule of City's Proportionate Share of Net Pension Liability ................................................................................ 49 Scheduleof City Contributions ................................................................................................................................... 49 Schedule of Changes in Net Pension Liability (Asset) ................................................................................................ 50 OTHER SUPPLEMENTARY INFORMATION: Supplemental Combining Balance Sheet - Major Governmental Fund - Debt Service Fund ...................................... 51 Supplemental Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance - Major Governmental Fund - Debt Service Fund ...................................................... 52 Combining Balance Sheet - All Nom-najor Governmental Funds ................................................................................ 53 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - All Nonmajor Governmental Funds ........................................................................ 54 OTHER REPORTS: Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .......................................................................................................................... 55 Schedule of Findings and Responses ........................................................................................................................... 57 Independent Auditors' Report on Minnesota Legal Compliance ................................................................................. 58 INTRODUCTORY SECTION CITY OF SCANDIA, MINNESOTA CITY COUNCIL AND OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2016 CITY COUNCIL Term Expires Randall Simonson Mayor January 1, 2017 Bob Hegland Council Member January 1, 2019 Dan Lee Council Member January 1, 2017 Chris Ness Council Member January 1, 2017 Jim Schneider Council Member January 1, 2019 CITY OFFICIALS Neil Soltis City Administrator Colleen Firkus Treasurer FINANCIAL SECTION SCHLENNER WENNELR&CO. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT April 13, 2017 Honorable Mayor and City Council City of Scandia, 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 Scandia, Minnesota 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 and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts 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 of Scandia, Minnesota, as of December 31, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud Little Falls Albany Maple Lake Monticello 320.251.0286 320.632.6311 320.845.2940 320.963.5414 763.295.5070 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, Budgetary Comparison information, Schedule of City's Proportionate Share of Net Pension Liability, Schedule of City Contributions, and Schedule of Changes in Net Pension Liability (Asset) 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, supplementary combining debt service fund schedules, and combining and individual nonmajor fund financial statements, as listed in the table of contents, are presented for the purposes of additional analysis and are not a required part of the basic financial statements. The introductory section, supplementary combining debt service fund schedules, and combining and individual nonmajor fund financial statements have not been subject 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 13, 2017 on our consideration of the City of Scandia's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Scandia's internal control over financial reporting and compliance. Report on Other Legal and Regulatory Requirements In accordance with Minnesota Statutes, we have also issued our report dated April 13, 2017, on our consideration of the City of Scandia's compliance with provisions of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statute Section § 6.65. The purpose of the report is to determine if the City has complied with Minnesota laws and regulations. That report is an integral part of an audit performed in the State of Minnesota. S we/lwq- ('0 SCHLENNER WENNER & CO. St. Cloud, Minnesota REQUIRED SUPPLEMENTARY INFORMATION CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 Our discussion and analysis of the City of Scandia's financial performance provides an overview of the City's financial activities for the year ended December 31, 2016. Please read it in conjunction with the independent auditor's report on page two and the City's financial statements, which begin on page fourteen. FINANCIAL HIGHLIGHTS • The City's net position increased $684,872 compared to the prior year, primarily due to the City's investment of revenues into infrastructure/assets, net of depreciation, in the amount of approximately $526,000. This has contributed to the current year increase in net position because these new assets will be depreciated (expensed) over future years. In addition, there was a net reduction in the City's outstanding debt of $168,000. • The City's General Fund generated more revenue than budgeted of $89,481. Expenditures were less than budgeted by $290,601, including transfers to other funds which did not exceed budgeted amounts. • The unassigned fund balance in the General Fund of $1,759,867 is 84% of the 2016 General Fund budgeted expenditures. • In the City's Sewer utility funds, revenues increased $8,033 (or 8.61 percent), while operating expenses decreased $13,981 (or 11.85 percent). The City's utility funds operated at a net loss of $40,761, with the cash position increased $19,807, due to fewer capital improvements during in 2016. USING THIS ANNUAL REPORT This annual report consists of series of financial statements. The Statement of Net Position and the Statement of Activities (on pages fourteen and fifteen) provide information about the activities of the City as a whole and present a longer-term view of the City's finances. Fund financial statements start on page sixteen. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City's operations in more detail than the government -wide statements by providing information about the City's most significant funds. The remaining statements provide financial information about activities for which the City acts solely as an agent for the benefit of those outside of the government. Reporting the City as a Whole Our analysis of the City as a whole begins on page six. One of the most important questions asked about the City's finances is, "Is the City as a whole better off or worse off as a result of the year's activities?" The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets, liabilities and deferred outflows/inflows of resources using the accrual basis of accounting, which is similar to the accounting used by most private -sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City's net position and changes net position. You can think of the City's net position (the difference between assets and liabilities, adjusted for deferred outflows/inflows) as one way to measure the City's financial health, or financial position. Over time, increases or decreases in the City's net position are one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the City's property tax base and the condition of the City's roads, to assess the overall health of the City. CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 USING THIS ANNUAL REPORT (Continued) Reporting the City as a Whole (Continued) In the Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities: • Governmental Activities — Most of the City's basic services are reported here, including law enforcement, fire, public works, parks, planning, and general administration. Property taxes, special assessments, licenses, permits and fees, and state aids finance most of these activities. • Business -type Activities — The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City's 201 sewer and Uptown sewer systems are reported here. Reporting the City's Most Significant Funds Our analysis of the City's major funds begins on page eight. The fund financial statements begin on page sixteen and provide detailed information about the most significant funds -not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, the City Council may establish other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City's three kinds of funds (governmental, proprietary, and fiduciary) use different accounting approaches. Governmental Funds — Most of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in reconciliations following the fund financial statements. • Proprietary Funds — When the City charges customers for the services it provides these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City's proprietary funds are the same as the business -type activities we report in the government -wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. • Fiduciary Fund — This fund is used to account for resources held for the benefit of parties outside of the City. Accounting for fiduciary funds is much like that used for proprietary funds. CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY AS A WHOLE The City's combined net position increased $684,872 from a year ago. Our analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the City's governmental and business -type activities. Table 1 Net Position The net position of the City's governmental activities increased by $715,543 (or 6.12 percent) as a result of the investment in capital assets and other factors previously discussed. Unrestricted net position (the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements) increased by $50,197 (or 1.81 percent) compared to the prior year. The net position of the City's business -type activities decreased by $30,671 (or 2.90 percent), while the unrestricted net position increased from $19,909 to $32,378 due to fewer unrestricted funds used for capital outlays. Operations were comparable to the prior year. R Governmental Business -Type Total Activities Activities Government 2016 2015 2016 2015 2016 2015 Assets Current and Other Assets 3,455,810 $ 3,450,395 67,579 39,548 $ 3,523,389 $ 3,489,943 Net Capital Assets 9,981,972 9,456,193 993,252 1,036,390 10,975,224 10,492,583 Total Assets 13,437,782 12,906,588 1,060,831 1,075,938 14,498,613 13,982,526 Deferred Outflows of Resources 203,774 39,424 18,568 3,210 222,342 42,634 Liabilities Current & Other Liabilities 595,264 475,490 49,383 21,844 644,647 497,334 Long -Term Debt Outstanding 577,000 745,000 - - 577,000 745,000 Total Liabilities 1,172,264 1,220,490 49,383 21,844 1,221,647 1,242,334 Deferred Inflows of Resources 67,659 39,430 4,386 1,005 72,045 40,435 Net Position Net Investment in Capital Assets 9,404,972 8,711,193 993,252 1,036,390 10,398,224 9,747,583 Restricted 166,691 195,126 - - 166,691 195,126 Unrestricted 2,829,970 2,779,773 32,378 19,909 2,862,348 2,799,682 Total Net Position $12,401,633 $11,686,092 $ 1,025,630 $ 1,056,299 $13,427,263 $12,742,391 The net position of the City's governmental activities increased by $715,543 (or 6.12 percent) as a result of the investment in capital assets and other factors previously discussed. Unrestricted net position (the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements) increased by $50,197 (or 1.81 percent) compared to the prior year. The net position of the City's business -type activities decreased by $30,671 (or 2.90 percent), while the unrestricted net position increased from $19,909 to $32,378 due to fewer unrestricted funds used for capital outlays. Operations were comparable to the prior year. R CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY AS A WHOLE (Continued) Program Revenues Charges for Services Gants and Contributions Taxes Intergovernmental Investment Income Other Total Revenues Program Expenses General Government Public Safety Public Works Parks and Recreation Economic Development Debt Service 201 Sewer Uptown Sewer Total Expenses Change in Net Position Table 2 Changes in Net Position Governmental Business -Type Total Activities Activities Government 2016 2015 2016 2015 2016 2015 $ 245,302 $ 227,132 $ 91,220 $ 86,213 $ 336,522 $ 313,345 133,109 55,628 9,688 6,721 142,797 62,349 2,267,065 2,264,524 - - 2,267,065 2,264,524 25,669 87,236 175 - 25,844 87,236 11,828 9,875 227 343 12,055 10,218 66,556 23,652 - - 66,556 23,652 2,749,529 2,668,047 101,310 93,277 2,850,839 2,761,324 488,880 499,996 - - 488,880 499,996 368,621 340,909 - - 368,621 340,909 967,057 1,050,232 - - 967,057 1,050,232 103,303 94,646 - - 103,303 94,646 90,811 365 - - 90,811 365 15,314 26,972 - - 15,314 26,972 - - 110,202 101,179 110,202 101,179 - - 21,779 I'll nos 16,821 21,779 16,821 'I 14C nc-7 1) n11 noc 1) nil] i in i i o nnn 1121 i l)n $ 715,543 $ 654,927 $ (30,671) $ (24,723) $ 684,872 $ 630,204 The City's total revenues increased by $89,515 (or 3.24 percent), largely due to an increase in charges for services and by various increases in other areas. Significant changes included: • Building permits increased by $21,394 over 2015 (17%). • Property taxes increased by $2,541 (0.11%) from 2015. • Contractual road maintenance expenditures decreased by $38,451 (14%) in 2016. • State grants received increased by $77,481 (139%) over 2015 due to a $90,486 grant received for the construction of storm shelters at the Oakhill Cottages which are owned and operated by the Washington County HRA. The total cost of all programs and services increased by $34,847 (or 1.64 percent), primarily due to expenses incurred by reimbursing the Washington County HRA for construction costs with the proceeds from the grant discussed above. 7 CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY AS A WHOLE (Continued) Our analysis below separately considers the operations of governmental and business -type activities: Governmental Activities Revenue for the City's governmental activities increased $81,482 (or 3.05 percent), while total expenses also increased by $20,866 (or 1.04 percent). Revenues and expenses were generally consistent year to year, with the exception of the matters previously noted. Table 3 presents the cost of each of the City's programs (general government, public safety, public works, parks and recreation, economic development, and debt service) as well as each program's net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the City's taxpayers by each of these functions. Activities, net of capital outlay which is excluded from Table 3, were generally comparable to the prior year as operations remained fairly consistent with the prior year, with the exception of the fluctuation in expenses for economic development previously mentioned. Table 3 Governmental Activities Business -type Activities Revenues of the City's business -type activities (see Table 2) increased by $8,033 (or 8.61 percent). Expenses increased by $13,981 (or 11.85 percent). Operations were comparable to those of the prior year. THE CITY'S FUNDS Governmental Funds As the City completed the year, its governmental funds (as presented in the balance sheet on page sixteen) reported a combined fund balance of $3,138,893. This is an increase of $63,841 (or 2.08 percent) from the prior year. This increase in fund balance is the net result of a multitude of transactions, but a few of the largest contributing factors unique to the current year's operations are as follows: • Revenue from building permits issued by the City exceeded budgeted amounts by $72,361 (96%). 8 Total Cost Net Cost of Services of Services 2016 2015 2016 2015 General Government $ 488,880 $ 499,996 $ 311,603 $ 331,753 Public Safety 368,621 340,909 300,483 262,823 Public Works 967,057 1,050,232 957,608 1,044,870 Parks and Recreation 103,303 94,646 70,242 63,577 Economic Development 90,811 365 325 365 Debt Service 15,314 26,972 15,314 26,972 Totals $ 2,033,986 $ 2,013,120 $ 1,655,575 $ 1,730,360 Business -type Activities Revenues of the City's business -type activities (see Table 2) increased by $8,033 (or 8.61 percent). Expenses increased by $13,981 (or 11.85 percent). Operations were comparable to those of the prior year. THE CITY'S FUNDS Governmental Funds As the City completed the year, its governmental funds (as presented in the balance sheet on page sixteen) reported a combined fund balance of $3,138,893. This is an increase of $63,841 (or 2.08 percent) from the prior year. This increase in fund balance is the net result of a multitude of transactions, but a few of the largest contributing factors unique to the current year's operations are as follows: • Revenue from building permits issued by the City exceeded budgeted amounts by $72,361 (96%). 8 CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY'S FUNDS (Continued) Governmental Funds (Continued) • During 2016, the City received an insurance dividend of approximately $17,144, an increase of $5,796 (51%) from 2015. • Expenditures for planning and buildings services exceeded budgeted amounts by $16,397 (17%), a decrease of $7,397 (7%) from 2015. • Revenues for zoning and planning services decreased by $9,424 (76%) from 2015, and were $4,105 (59%) less than budgeted amounts for 2016. • In 2016, property tax revenues and capital expenditures from the Local Road Improvement Fund exceeded 2015 amounts by $236,142 (68%) and $338,649 (54%), respectively. These funds were used to fund the 2016 road reconstruction proj ects. Other operations were comparable to the prior year. The following is a summary of the City's major governmental funds: Major Funds General Fund Balance December 31 2016 2015 Increase (Decrease) 1,771,828 1,746,587 $ 25,241 The fund balance of the General Fund increased by $25,241 as a result of current year operations. In comparison to the prior year, revenues and expenditures decreased approximately 5.16 and 5.53 percent, respectively. Ww"IL 1 �. I General Fund Revenue ■ Taxes ■ Licenses, Permits, and Fees ■ Intergovernmental ■ Charges for Services ■ Fines ■ Investment Income ■ Miscellaneous The City receives the majority of its funding in the General Fund in the form of taxes (82 percent) and licenses, permits, and fees (9 percent). Overall, the City's General Fund revenues were comparable to the prior year. CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY'S FUNDS (Continued) Governmental Funds (Continued) General Fund Expenditures ■ General Government ■Public Safety ■ Public Works v Parks and Recreation ■ Capital Outlay A significant portion of the City's General Fund expenditures are used for public works (41 percent). Remaining expenditures are used primarily on public safety (22 percent) and general government operations (31 percent). Overall, the City's General Fund expenditures were comparable to the prior year. General Fund Budgetary Highlights The City's General Fund generated more revenue than budgeted of $89,481. Expenditures were less than those budgeted by $290,601. See additional detail pertaining to differences between budgeted and actual amounts within the General Fund previously discussed and at the Budgetary Comparison Schedule on page forty-eight. Fund Balance December 31, Increase Major Funds 2016 2015 (Decrease) Debt Service 113,621 $ 113,260 $ 361 The subfunds that comprise the Debt Service Fund had a cash balance of $113,587 at December 31, 2016. The Council has designated the cash balance of $79,283 and the deferred special assessments receivable of $46,061 in the 2007 Road Reconstruction project subfund be utilized to fund future road improvement projects. The fund balance of the Debt Service Fund increased by $361. Equipment Replacement Fund 501,061 $ 470,608 $ 30,453 At December 31, 2016 the Equipment Replacement Fund has a cash balance of $501,061. The fund balance of the Equipment Replacement Fund increased by $30,453, primarily due to the sale of capital assets. Significant activity in this fund during 2016 includes the sale of an old fire and rescue truck for $28,650. 10 CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 THE CITY'S FUNDS (Continued) Governmental Funds (Continued) Fund Balance December 31, Increase Major Funds 2016 2015 (Decrease) Capital Improvement Fund 384,831 $ 356,057 $ 28,774 At December 31, 2016 the Capital Improvement Fund has a cash balance of $326,803. The fund balance increased by $28,774, primarily due to the accumulation of funds to be spent for pending capital improvements. Local Road Improvement Fund $ 374,020 $ 402,956 $ (28,936) At December 31, 2016 the Local Road Improvement Fund has a cash balance of $376,379. The fund balance decreased by $28,936, primarily due to the outlay of funds for the City's 2016 Street Improvement Projects including the Streets of 236' and 237" and Avenues of Novak and Oldfield. Public Housing Fund At December 31, 2016 the Public Housing Fund had no cash balance, but consisted only of a FEMA Hazard Mitigation grant receivable of $90,486 and a corresponding payable to the Washington County HRA for reimbursement on the construction for a storm shelter at the Oakhill Cottages. Proprietary Funds As the City completed the year, its business -type activities (as presented in the statement of net position on page twenty) reported a combined net position of $1,025,630. This is a decrease of $30,671 from the prior year. Other operations were comparable to the prior year. The following is a summary of the City's major proprietary funds: Net Position December 31, Increase or Funds 2016 2015 (Decrease) 201 Sewer Fund $ 864,676 $ 892,727 $ (28,051) The 201 Sewer Fund provides sanitary sewer services to customers in the Anderson -Erickson and Bliss subdivisions. At December 31, 2016 the fund had a cash balance of $68,210 with an increase in cash of $17,025 for the year. The increase in cash is attributable to fewer capital assets replaced in the current year. The fund's net position decreased $28,051 during the current year as a result of operating expenses exceeding revenues from charges for services and other activities. Uptown Sewer Fund $ 160,954 $ 163,572 $ (2,618) The Uptown Sewer Fund provides sanitary sewer services to customers near the Olinda Trail / Oakhill intersection. At December 31, 2016 the fund had a cash balance of $2,782 with an increase in cash of $2,782 for the year. The fund's net position decreased $2,618 during the year as a result of operating expenses exceeding revenues from charges for services and other activities. Operations in this fund were comparable to the prior year. 11 CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2016, the City had $10,975,224 invested in a broad range of capital assets, including land, buildings, equipment and vehicles, infrastructure, improvements, and sewer systems. This amount represents a net increase of $482,641 (or 4.60 percent) from last year. Table 4 Net Capital Assets at Year -End Significant capital asset acquisitions during 2016 were: • Reconstruction of 236th Street - $248,779 • Reconstruction of 237' Street - $204,354 • Reconstruction of Novak Avenue - $48,867 • Reconstruction of Oldfield Avenue - $463,806 More detailed information about the City's capital assets is presented in Note 3.13. to the financial statements. Debt In 2016 the City paid off $168,000 of the $745,000 in debt that was outstanding at December 31, 2015. The City did not issue any new debt for 2016. The year-end December 31, 2016 debt outstanding totaled $577,000. See additional information at Note 3.C. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The City's elected and appointed officials considered many factors when setting the year 2017 budget, such as tax rates and fees that will be charged for the business -type activities. The property tax levy for 2017 was not increased over the 2016 levy. The levy amount allocated to the General Fund increased by $47,452 over 2016 (3.2%) in order to provide funding for the Comprehensive Plan update. The General Fund levy increase was offset by decreases in property tax funding for debt service and road improvements. The budget for General Fund revenues increased by $127,428 and expenditures increased $240,370. The largest increases in budgeted General Fund expenditures were for increasing the transfer to the Local Road Improvement Fund ($175,476) and funding the Comprehensive Plan update ($42,000). Sewer rates for the 201 sewer system were increased by 5%. No increase was proposed for the Uptown system. 12 Governmental Business -Type Activities Activities Totals 2016 2015 2016 2015 2016 2015 Land $ 487,735 $ 487,735 $ - $ - $ 487,735 $ 487,735 Construction in Progress - 42,484 - - - 42,484 Buildings 1,314,690 1,364,529 - - 1,314,690 1,364,529 Equipment and Vehicles 1,111,668 1,239,092 112,868 121,130 1,224,536 1,360,222 Infrastructure 7,010,619 6,259,565 - - 7,010,619 6,259,565 Other Improvements 57,260 62,788 - - 57,260 62,788 201 Sewer System - - 690,000 720,000 690,000 720,000 Uptown Sewer - - 190,384 195,260 190,384 195,260 Totals $ 9,981,972 $ 9,456,193 $ 993,252 $ 1,036,390 $ 10,975,224 $ 10,492,583 Significant capital asset acquisitions during 2016 were: • Reconstruction of 236th Street - $248,779 • Reconstruction of 237' Street - $204,354 • Reconstruction of Novak Avenue - $48,867 • Reconstruction of Oldfield Avenue - $463,806 More detailed information about the City's capital assets is presented in Note 3.13. to the financial statements. Debt In 2016 the City paid off $168,000 of the $745,000 in debt that was outstanding at December 31, 2015. The City did not issue any new debt for 2016. The year-end December 31, 2016 debt outstanding totaled $577,000. See additional information at Note 3.C. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The City's elected and appointed officials considered many factors when setting the year 2017 budget, such as tax rates and fees that will be charged for the business -type activities. The property tax levy for 2017 was not increased over the 2016 levy. The levy amount allocated to the General Fund increased by $47,452 over 2016 (3.2%) in order to provide funding for the Comprehensive Plan update. The General Fund levy increase was offset by decreases in property tax funding for debt service and road improvements. The budget for General Fund revenues increased by $127,428 and expenditures increased $240,370. The largest increases in budgeted General Fund expenditures were for increasing the transfer to the Local Road Improvement Fund ($175,476) and funding the Comprehensive Plan update ($42,000). Sewer rates for the 201 sewer system were increased by 5%. No increase was proposed for the Uptown system. 12 CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2016 CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Scandia, 14727 209' Street N, Scandia, MN 55073. 13 BASIC FINANCIAL STATEMENTS The basic financial statements include integrated sets of financial statements as required by the GASB. The sets of statements include: Government -wide financial statements Fund financial statements: Governmental funds Proprietary (enterprise) funds Fiduciary fund In addition, the notes to the financial statements are included to provide information that is essential to a user's understanding of the basic financial statements. CITY OF SCANDIA, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2016 ASSETS Cash and Cash Equivalents Property Taxes Receivable Assessments Receivable Accounts Receivable Due from Other Governments Interest Receivable Prepaids Inventory Internal Balances Noncurrent Assets: Net Pension Asset Capital Assets not Being Depreciated Capital Assets Being Depreciated (Net) TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES Pensions LIABILITIES Accounts Payable Due to Other Governments Accrued Payroll, Taxes, and Benefits Accrued Interest Unearned Revenue Noncurrent Liabilities: Net Pension Liability Compensated Absences Debt Due Within One Year Debt Due After One Year TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Pensions NET POSITION Net Investment in Capital Assets Restricted Unrestricted TOTAL NET POSITION Governmental Business -Type Activities Activities Total $ 3,207,443 $ 70,992 $ 3,278,435 68,677 - 68,677 46,061 10,073 56,134 11,608 14,746 26,354 90,486 - 90,486 496 - 496 51634 796 6,430 6,327 - 6,327 29,028 (29,028) - 80,536 - 80,536 487,735 - 487,735 9,494,237 993,252 10,487,489 13,528,268 1,060,831 14,589,099 203,774 18,568 222,342 122,738 3,835 126,573 90,486 - 90,486 23,658 465 24,123 2,506 - 2,506 3,932 - 3,932 417,729 24,701 98,000 479,000 45,083 462,812 - 24,701 98,000 479,000 1,262,750 49,383 1,312,133 67,659 4,386 72,045 9,404,972 993,252 10,398,224 166,691 - 166,691 2,829,970 32,378 2,862,348 $ 12,401,633 $ 1,025,630 $ 13,427,263 See accompanying notes. 14 CITY OF SCANDIA, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 Functions/Programs Expenses Governmental Activities: 25,669 General Government $ 488,880 $ Public Safety 368,621 Public Works 967,057 Parks and Recreation 103,303 Economic Development 90,811 Debt Service 15,314 _ Total Governmental Activities 2,033,986 Program Revenues Net (Expense) Revenue and Changes in Net Position Operating Capital Primary Government Charges for Grants and Grants and Governmental Business -Type Services Contributions Contributions Activities Activities Total 177,277 $ - $ - $ (311,603) $ 33,216 34,922 - (300,483) 3,532 - 5,917 (957,608) 31,277 1,784 - (70,242) - - 90,486 (325) - - (15,314) _ 245,302 36,706 96,403 (1,655,575) Business -Type Activities: 201 Sewer 110,202 72,103 - 9,688 Uptown Sewer 21,779 19,117 - - Total Business -Type Activities 131,981 91,220 - 9,688 TOTALS $ 2,165,967 $ 336,522 $ 36,706 $ 106,091 General Revenues: Taxes Intergovernmental Investment Income Miscellaneous Net Gain on Disposal of Assets Total General Revenues CHANGE IN NET POSITION NET POSITION -BEGINNING OF YEAR NET POSITION -END OF YEAR $ (311,603) (300,483) - (957,608) (70,242) - (325) (15,314) - (1,655,575) (28,411) (28,411) - (2,662) (2,662) (31,073) (31,073) (1,655,575) (31,073) (1,686,648) 2,267,065 - 2,267,065 25,669 175 25,844 11,828 227 12,055 39,295 - 39,295 27,261 - 27,261 2,371,118 402 2,371,520 715,543 (30,671) 684,872 11,686,090 1,056,301 12,742,391 $ 12,401,633 $ 1,025,630 $ 13,427,263 See accompanying notes. 15 CITY OF SCANDIA, MINNESOTA BALANCESHEET GOVERNMENTAL FUNDS DECEMBER 31, 2016 See accompanying notes. 16 Debt Equipment Capital Local Road Public Total Total General Service Replacement Improvement Improvement Housing Nonmajor Governmental Fund Fund Fund Fund Fund Fund Funds Funds ASSETS Cash and Cash Equivalents $ 1,867,081 $ 113,587 $ 501,061 $ 326,803 $ 376,379 $ $ 22,532 $ 3,207,443 Property Taxes Receivable 68,643 34 - - - - 68,677 Assessments Receivable - 46,061 46,061 Accounts Receivable 11,608 - 11,608 Due from Other Governments - 90,486 90,486 Interest Receivable 496 - 496 Prepaids 5,634 5,634 Inventory 6,327 - 6,327 Advance to Other Fund - - - 58,028 - - - 58,028 TOTAL ASSETS $ 1,959,789 $ 159,682 $ 501,061 $ 384,831 $ 376,379 $ 90,486 $ 22,532 $ 3,494,760 LIABILITIES Accounts Payable $ 120,379 $ $ $ $ 2,359 $ $ $ 122,738 Due to Other Governments - - 90,486 90,486 Accrued Payroll, Taxes, and Benefits 23,658 - 23,658 Unearned Revenue 3,932 - 3,932 Advance from Other Fund - - - 29,000 29,000 Total Liabilities 147,969 2,359 90,486 29,000 269,814 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue: Property Taxes 39,992 - - - - 39,992 Special Assessments - 46,061 - 46,061 Total Deferred Inflows of Resources 39,992 46,061 - 86,053 FUND BALANCES Nonspendable 11,961 - - 58,028 69,989 Restricted - 113,621 9,515 - - - 123,136 Committed - - 326,803 134,443 5,091 466,337 Assigned - 491,546 - 239,577 - 731,123 Unassigned 1,759,867 - - - - (11,559) 1,748,308 Total Fund Balances 1,771,828 113,621 501,061 384,831 374,020 - (6,468) 3,138,893 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 1,959,789 $ 159,682 $ 501,061 $ 384,831 $ 376,379 $ 90,486 $ 22,532 $ 3,494,760 See accompanying notes. 16 CITY OF SCANDIA, MINNESOTA RECONCILIATION OF THE BALANCE SHEET -GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION DECEMBER 31, 2016 Total fund balance for governmental funds Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets (net of accumulated depreciation of $5,872,226) used in governinental activities are not financial resources and, therefore are not reported in the funds. Other long-term assets are not available to pay for current -period expenditures and therefore are reported as unavailable revenue in the funds. 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 the governmental funds. Accrued Interest Compensated Absences Long-tenn liabilities are not due and payable in the current period and, therefore, they are not reported in the governmental funds. Debt Due Within One Year Debt Due After One Year The net pension asset/liability and related deferred outflows/inflows of resources represent the allocation of the pension obligations of the statewide plans to the City. Such balances are not reported in the funds: Net Pension Asset - PERA Volunteer Firefighter Retirement Plan Net Pension Liability - PERA General Employees Retirement Fund Deferred Outflows - Pensions Deferred Inflows - Pensions TOTAL NET POSITION OF GOVERNMENTAL ACTIVITIES 3,138,893 9,981,972 86,053 (2,506) (24,701) (98,000) (479,000) 80,536 (417,729) 203,774 (67,659) $ 12,401,633 See accompanying notes. 17 CITY OF SCANDIA, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 Debt Equipment Capital Local Road Public General Service Replacement Improvement Improvement Housing Fund Fund Fund Fund Fund Fund REVENUES 2,267,631 - Taxes $ 1,507,907 $ 148,582 $ Special Assessments - 36,157 Licenses, Permits, and Fees 160,513 - Intergovemmental 57,259 - Charges for Services 65,056 - Fines 11,633 - Investment Income 6,891 420 Miscellaneous 34,628 - TOTAL REVENUES 1,843,887 185,159 EXPENDITURES Current: General Government 456,159 - Public Safety 320,972 Public Works 603,019 Parks and Recreation 90,772 Economic Development - - Debt Service: Principal - 168,000 Interest and Other Charges - 16,798 Capital Outlay - - _ TOTAL EXPENDITURES 1,470,922 184,798 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 372,965 361 OTHER FINANCING SOURCES (USES) Proceeds on Sale of Assets - - Operating Transfers In Operating Transfers Out (347,724) TOTAL OTHER FINANCING - $ 30,000 $ 581,142 $ 1,803 1,144 1,490 - - 6,514 1,803 31,144 589,146 Total Total Nonmajor Governmental Funds Funds $ - $ 2,267,631 - 36,157 - 160,513 90,486 - 147,745 - 6,000 71,056 - 11,633 80 11,828 - 2,193 43,335 90,486 8,273 2,749,898 2,370 90,486 - 965,806 - - 2,370 965,806 90,486 1,803 28,774 (376,660) 28,650 - - - - 347,724 SOURCES (USES) (347,724) - 28,650 - 347,724 NET CHANGE IN FUND BALANCES 25,241 361 30,453 28,774 (28,936) FUND BALANCES - BEGINNING 1,746,587 113,260 470,608 356,057 402,956 FUND BALANCES - ENDING $ 1,771,828 $ 113,621 $ 501,061 $ 384,831 $ 374,020 $ - 456,159 - 320,972 - 605,389 - 90,772 325 90,811 168,000 16,798 965,806 325 2,714,707 7,948 35,191 28,650 347,724 (347,724) - 28,650 7,948 63,841 (14,416) 3,075,052 $ (6,468) $ 3,138,893 See accompanying notes. 18 CITY OF SCANDIA, MINNESOTA RECONCILIATION OF CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different due to the following: Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets: Capital Outlay Loss on the Disposal of Assets Depreciation Expense Revenues in Statement of Activities that do not provide current financial resources are not reported as revenues in the funds: Change in Long -Term Receivables Proceeds from the issuance of long-term debt is an other financing source in the governmental funds, while repayment of debt principal is an expenditure in the governmental funds. However, neither transaction has any effect on net position: Bond Payments Net change in accrued interest on bonds is not reported as an expenditure in the funds: 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: Change in Compensated Absences $ 965,806 (1,389) (438,638) Net pension asset/liability balances do not represent the impending use or acquisition of current resources. Therefore, the change in the asset/liability and the related deferrals is not reported in the governmental funds: CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 63,841 525,779 (30,806) 168,000 1,484 (3,401) (9,354) $ 715,543 See accompanying notes. 19 CITY OF SCANDIA, MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUNDS DECEMBER 31, 2016 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable Prepaids Assessments Receivable Total Current Assets Noncurrent Assets Capital Assets Being Depreciated (Net) TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES Pensions LIABILITIES Current Liabilities Accounts Payable Accrued Salaries Total Current Liabilities Noncurrent Liabilities Net Pension Liability Advance from Other Fund Total Noncurrent Liabilities TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Pensions NET POSITION Net Investment in Capital Assets Unrestricted TOTAL NET POSITION 201 Sewer Uptown Sewer Fund Fund Totals $ 68,210 $ 2,782 $ 70,992 10,493 4,253 14,746 716 80 796 10,073 - 10,073 89,492 7,115 96,607 802,868 190,384 993,252 892,360 197,499 1,089,859 14,361 4,207 18,568 3,489 346 3,835 34,869 10,214 45,083 - 29,028 29,028 34,869 39,242 74,111 38,653 39,758 78,411 3,392 994 4,386 802,868 190,384 993,252 61,808 (29,430) 32,378 $ 864,676 $ 160,954 $ 1,025,630 See accompanying notes. 20 CITY OF SCANDIA, MINNESOTA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 201 Sewer Uptown Sewer OPERATING REVENUES Charges for Services $ 72,103 $ 19,117 $ 91,220 OPERATING EXPENSES Wages and Benefits 36,263 11,324 47,587 Materials and Supplies 619 30 649 Professional Services 5,298 204 5,502 Repairs and Maintenance 20,363 2,240 22,603 Other Services and Charges 9,397 3,105 12,502 Depreciation 38,262 4,876 43,138 TOTAL OPERATING EXPENSES 110,202 21,779 131,981 NET OPERATING LOSS (38,099) (2,662) (40,761) NONOPERATING INCOME Special Assessments 9,688 - 9,688 Intergovernmental 136 39 175 Investment Income 222 5 227 TOTAL NONOPERATING INCOME 10,046 44 10,090 CHANGE IN NET POSITION (28,053) (2,618) (30,671) NET POSITION -BEGINNING OF YEAR 892,729 163,572 1,056,301 NET POSITION -END OF YEAR $ 864,676 $ 160,954 $ 1,025,630 See accompanying notes. 21 CITY OF SCANDIA, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers Cash Paid to Suppliers Cash Paid to Employees NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Intergovernmental Cash Receipts Special Assessments Net Advances to/from Other Funds Net Operating Subsidies and Transfers to/from Other Funds NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Investment Income Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents -Beginning of Year Cash and Cash Equivalents -End of Year RECONCILIATION OF NET OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Operating Loss Adjustments to Reconcile Net Operating Loss to Net Cash Provided by Operating Activities Depreciation Expense Change in Assets, Liabilities, and Deferred Outflows/Inflows Accounts Receivable Prepaids Accounts Payable Accrued Wages Deferred Outflows of Resources - Pension Net Pension Liability Deferred Inflows of Resources - Pension NET CASH PROVIDED BY OPERATING ACTIVITIES 201 Sewer Uptown Sewer $ 70,305 $ 19,407 $ 89,712 (34,333) (5,516) (39,849) (25,858) (8,370) (34,228) 10,114 5,521 15,635 136 39 175 6,553 - 6,553 - (143) (143) (2,640) (2,640) 6,689 (2,744) 3,945 17,025 2,782 19,807 51,185 - 51,185 $ 68,210 $ 2,782 $ 70,992 $ (38,099) $ (2,662) $ (40,761) 38,262 4,876 43,138 (1,800) 291 (1,509) (716) (80) (796) 2,061 142 2,203 118 81 199 (11,838) (3,520) (15,358) 19,508 5,630 25,138 2,618 763 3,381 $ 10,114 $ 5,521 $ 15,635 See accompanying notes. 22 CITY OF SCANDIA, MINNESOTA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUND DECEMBER 31, 2016 ASSETS Cash and Cash Equivalents LIABILITIES Accounts Payable Agency Fund $ 26,292 $ 26,292 See accompanying notes. 23 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Scandia (the City) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. The City has a mayor -council form of government that is governed by an elected mayor and four -member council. The City provides the following services: sanitation, recreation, public improvements, public safety, planning and zoning, and general administrative services. LA. FINANCIAL REPORTING ENTITY The City's financial reporting entity is comprised of the primary governmental unit of the City of Scandia, Minnesota. In determining the financial reporting entity, the City complies with the provisions of GASB No. 14, The Financial Reporting Entity, and includes all component units of which the City appointed a voting majority of the units' board; the City is either able to impose its will on the unit or a financial benefit or burden relationship exists. Blended Component Units Blended component units are separate legal entities that meet the component unit criteria describe above and whose governing body is the same or substantially the same as the City Council or the component unit provides services entirely to the City. These component units' funds are blended into those of the City's by appropriate activity type to compose the primary government presentation. The City's blended component units consist o£ Economic Development Authority — The City created an Economic Development Authority (EDA) by resolution of its City Council. The EDA is governed by a five -member board appointed by the City Council. Although it is legally separate from the City, the EDA is reported as if it were part of the primary government because its purpose is to approve the City's redevelopment plans. The EDA cannot issue bonded debt without the City's approval. Discretely Presented Component Units Discretely presented component units are separate legal entities that meet the component unit criteria described above but do not meet the criteria for blending. Currently, the City has no discretely presented component units. LB. BASIS OF PRESENTATION Government -wide Financial Statements The Statement of Net Position and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The fiduciary fund is only reported in the Statement of Fiduciary Net Position at the fund financial statement level. The statements distinguish between governmental and business -type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business -type activities are financed in whole or in part by fees charged to external parties for goods and services. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self -balancing accounts that constitute its assets, deferred outflows, liabilities, deferred inflows, fund equity, revenues, and expenditures/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. 24 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) LB. BASIS OF PRESENTATION (Continued) Fund Financial Statements (Continued) A fund is considered major if it is the primary operating fund of the City or meets the following criteria: • Total assets and deferred outflows, liabilities and deferred inflows, revenues or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and • Total assets and deferred outflows, liabilities and deferred inflows, revenues or expenditures/expenses of that individual governmental or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. The City reports the following major governmental funds: The General Fund is the 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 accumulation of financial resources for the payment of interest and principal on general long-term debt of the City other than debt service payments made by enterprise funds. Ad valorem taxes and special assessments are used for the payment of principal and interest on the City's judgment. The Capital Improvement Fund accounts for financial resources to be used for the acquisition or construction of capital projects (other than those financed by proprietary funds). The Equipment Replacement Fund is a capital project fund used to account for financial resources to be used for the various equipment purchases made by the City. The Local Road Improvement Fund is a capital project fund used to account for financial resources to be used for the construction or improvement of roads within the City. The Public Housing Fund is a special revenue fund used to account for funds received by the City and remitted to the County, for the purpose of financing a storm shelter project being completed by the Washington County HRA. The City reports the following major proprietary funds: The 201 Sewer and Uptown Sewer Funds account for business -like activities related to the operation of sewer systems provided to the general public. These activities are financed primarily by user charges, and the measurement of financial activity focuses on the net income measurement similar to the private sector. Additionally, the government reports the following non -major fund types: The Agency Fund accounts for assets held by the City as an agent for other parties outside the organization. These assets cannot be used to finance the City's own operating programs. The Special Revenue Fund accounts for funds received by the City with a specific purpose. The Capital Projects Fund accounts for financial resources to be used for the acquisition or construction of capital projects (other than funds financed by proprietary funds). 25 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. Measurement Focus On the government -wide Statement of Net Position and the Statement of Activities, both governmental and business -like activities are presented using the "economic resources" measurement focus as defined in the second bullet point below. In the fund financial statements, the "current financial resources" measurement focus or the "economic resources" measurement focus is used as appropriate: • All governmental funds utilize a current financial resources measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. • The government -wide financial statements, proprietary, and fiduciary funds utilize an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position, financial position, and cash flows. All assets, deferred outflows, liabilities, and deferred inflows (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net position. Basis of Accounting In the government -wide Statement of Net Position and Statement of Activities, both governmental and business -like activities are presented using the "accrual' basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the "modified accrual" basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonable estimate the amount. Available means collectible within the current period or within sixty days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due. All proprietary and fiduciary funds utilize the accrual basis of accounting. 1.D. USE OF ESTIMATES 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 the reported amounts of assets, deferred outflows, liabilities, and deferred inflows, and disclosure of contingencies related to these balances at the date of the financial statements. Estimates also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 26 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.E. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND EQUITY Cash and Cash Equivalents For purposes of the Statement of Net Position, "cash and cash equivalents" includes all demand, savings, and money market accounts for the City. For the purpose of the proprietary fund Statement of Cash Flows, "cash and cash equivalents" include all demand, savings, and money market accounts. See Note 3.A. for additional information related to Cash and Cash Equivalents. Interfund Transactions and Balances During the course of operations, transactions occur between individual funds that may result in amounts owed between funds. Those related to good and services type transactions are classified as "due to and from other fund." Short-term interfund loans are reported as "due to and from other fund." Long-term interfund loans are reported as "advances from and to other funds." Interfund receivables and payables between funds within governmental activities and interfund receivables and payables between funds within business -type activities are eliminated in the Statement of Net Position. See Note 3.D. for details of interfund transactions, including receivables and payables at year-end. Prepaids Prepaids represent costs paid during the current year to be recognized in future periods. Inventories Inventory is valued at the lower of average cost or market based on physical counts. Inventory in the General Fund consists of expendable supplies held for consumption and is equally offset by a nonspendable fund balance classification. The cost of inventory is recorded as an expense when purchased and adjusted at year-end. Receivables In the government -wide statements, receivables consist of all revenues earned at year-end and not yet received. Allowances for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable and are not deemed necessary at year end. Major receivable balances for the governmental activities include charges for services, fines, fees, taxes, and special assessments. Business -type activities report utility charges and assessments as their major receivables. In the fund financial statements, material receivables in governmental funds include revenue accruals such as taxes, franchise fees, fines and charges for service since they are usually both measurable and available. Nonexchange transactions collectible but not available are deferred in the fund financial statements in accordance with modified accrual, but not deferred in the government - wide financial statements in accordance with the accrual basis. Interest and investment earnings are recorded when earned only if paid within 60 days since they would be considered both measurable and available. Proprietary fund material receivables consist of all revenues earned at year-end and not yet received. Utility accounts receivable and assessments compose the majority of proprietary fund receivables. Allowance for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable. No allowances are deemed necessary at year end. Capital Assets The accounting treatment over property, plant and equipment (capital assets) depends on whether the assets are used in governmental or proprietary fund operations and whether they are reported in the government -wide or fund financial statements. 27 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.E. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND EQUITY (Continued) Capital Assets (Continued) Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and must have an estimated useful life in excess of one year. The range of estimated useful lives by type of asset is as follows: Buildings and Structures 40 years Machinery and Equipment 5-25 years Vehicles 25 years Infrastructure 50 years Government -wide Statements In the government -wide financial statements, capital outlay expenditures are accounted for as capital assets. All capital assets are valued at historical cost or estimated historical cost if actual is unavailable, except for donated capital assets which are recorded at their estimated fair value at the date of donation. Depreciation of all exhaustible capital assets is recorded as an allocated expense in the Statement of Activities, with accumulated depreciation reflected in the Statement of Net Position. Depreciation is provided over the assets' estimated useful lives using the straight-line method of depreciation. Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same as in the government -wide statements. Noncurrent Liabilities The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government -wide or fund financial statements. All long-term debt to be repaid from governmental and business -type resources are reported as liabilities in the government -wide statements. The long-term debt consists of general obligation bonds and certificates payable. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal and interest are reported as expenditures. The accounting for proprietary funds is the same in the fund statements as it is in the government -wide statements. Net Pension Asset/Liability The net pension asset represents the City's allocation of its pro -rata share of the Statewide Volunteer Firefighter Fund net pension asset. The net pension liability represents the City's allocation of its pro -rata share of the Statewide General Employees Retirement Fund net pension liability. 28 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.E. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND EQUITY (Continued) Deferred Outflows/Inflows of Resources In addition to assets, the Statements of Net Position report a separate section for deferred outflows of resources. This element represents a consumption of net position that applies to future periods, and therefore, will not be recognized as an outflow of resources (expense) until that time. The City reports deferred outflows of resources in the government -wide and proprietary fund Statements of Net Position in relation to the activity of the pension funds in which City employees participate. In addition to liabilities, the Statements of Net Position and Balance Sheet report a separate section for deferred inflows of resources. This element represents an acquisition of net position or fund balance that applies to future periods, and therefore, will not be recognized as an inflow of resources (revenue) until that time. The City reports property taxes and special assessments as deferred inflows of resources in the governmental fund financial statements, in accordance with the modified accrual basis of accounting. In addition, the City reports deferred inflows of resources in the government -wide and proprietary fund Statements of Net Position in relation to the activity of pension funds in which City employees participate. Accordingly, such amounts are deferred and recognized as inflows of resources in the period that they become available. See Note 4 for additional information pertaining to the deferred outflows and deferred inflows recorded to account for pension activities. Compensated Absences It is the City's policy to permit employees to accumulate a limited amount of earned but unused leave. All leave pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as the result of an employee's resignation or retirement. In the event a liability is recorded in the governmental funds, General Fund resources would be used to liquidate the compensated absences. Equity Classifications Government -wide Statements Equity is classified as net position and displayed in three components: Net Investment in Capital Assets — Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted — Consists of net position with constraints placed on the use either by 1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or 2) law through constitutional provisions or enabling legislation. Unrestricted — Remaining balance of net position that does not meet the definition of "restricted" or "net investment in capital assets." It is the City's policy to consider restricted net position to its depletion before unrestricted net position is applied. 29 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.E. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND EQUITY (Continued) Equity Classifications (Continued) Fund Statements Governmental Fund Financial Statements — In the fund financial statements, governmental funds report fund balances as either nonspendable, restricted, committed, assigned, or unassigned. When the City incurs an expenditure for which it may use either restricted or unrestricted fund balances, it uses restricted fund balances first unless unrestricted fund balances will have to be returned because they were not used. When the City incurs an expenditure for purposes for which amounts in any unrestricted fund balance classification could be used, it uses fund balances in the following order: Committed, assigned, unassigned. Nonspendable — Includes amounts that cannot be spent because they are either not in spendable form, or legally or contractually required to be maintained intact. The nonspendable fund balances at December 31, 2016 consist of inventory, prepaid expenditures, and advances to other funds. Restricted — Includes the portion of fund balance which is not available for appropriation or which has been legally segregated for a specific purpose. Committed — Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action (resolution) of the City Council, which is the 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 that are constrained by the City's intent to be used for specific purposes, but are neither restricted nor committed. The City Administrator or his/her designee shall have the authority to assign fund balance. Unassigned — This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. The City has formally adopted a policy under which it strives to maintain a minimum unassigned general fund balance equal to approximately 35%-50% of annual General Fund operating expenses. See Note 3.E. for additional disclosures. Proprietary Fund Financial Statements — Proprietary fund equity is classified the same as in the government -wide statements, as described on the prior page. 1.F. REVENUES, EXPENDITURES, AND EXPENSES Property Tax Under state law, municipalities are limited in their ability to levy a property tax. The City levies its property tax for the subsequent year during the month of December. The County of Washington is the collecting agency for the levy and remits the collections to the City. In the fund financial statements, property taxes are recorded as revenue in the period levied to the extent they are collected within 60 days of year-end. 30 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I.F. REVENUES, EXPENDITURES, AND EXPENSES (Continued) Property Tax (Continued) December 31 is the last day the City can certify a tax levy to the County for collection the following year. The County creates the tax list for all taxable property in the City and applies the applicable tax rate to the tax capacity of individual properties to arrive at the actual tax for each property. The County also collects all special assessments, except for certain prepayments paid directly to the City. The County collects all taxes and assessments, except as noted above. The County mails copies of all real estate and personal property tax statements. Each year, property owners are required to pay one half of their real estate taxes by May 15 and the balance by October 15. Penalties and interest are assessed to property owners who do not pay their property taxes and special assessments by the due dates. Delinquent taxes receivable include the past six years' uncollected taxes. Delinquent taxes have been offset by deferred inflows of resources for taxes not received within 60 days after year end in the fund financial statements. Operating Revenues and Expenses Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services. It also includes all revenue and expenses not related to capital and noncapital financing or investing activities. Expenditures/Expenses In the government -wide financial statements, expenses are classified by function for both governmental and business -type activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds — By Character Current (further classified by Function) Debt Service Capital Outlay Proprietary Fund — By Operating and Nonoperating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses relating to use of economic resources. Interfund Transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers. For the purpose of the Statement of Activities, all interfund transfers between individual governmental funds, as well as all interfund transfers between individual proprietary funds, have been eliminated. See additional information at Note 3.D. 31 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY 2.A. FUND ACCOUNTING REQUIREMENTS AND DEPOSITS AND INVESTMENTS LAWS AND REGULATIONS By its nature as a local government unit, the City is subject to various federal, state, and local laws and contractual regulations. The City complies with all state and local laws and regulations requiring the use of separate funds. In accordance with state law, all uninsured deposits of municipal funds in financial institutions must be secured with acceptable collateral valued at the lower of market or par. Minnesota Statutes require that all deposits with financial institutions be collateralized in an amount equal to 110% of deposits in excess of FDIC or FSLIC insurance (100% if collateral pledged is irrevocable standby letters of credit issued by the Federal Home Loan Bank). The City complies with such laws. 2.11. BUDGETARY INFORMATION Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. All annual appropriations lapse at fiscal year-end. The City does not use encumbrance accounting. 2.C. DEFICIT FUND BALANCE At December 31, 2016, the City has a deficit fund balance of $11,559 in its Park Capital Improvement Fund. Such deficit is expected to be covered through future revenues or transfers from other funds. NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS The following notes present detail information to support the amounts reported in the basic financial statements for its various assets, liabilities, deferred outflows/inflows of resources, equity, revenues, and expenditures/expenses. 3.A. CASH, CASH EQUIVALENTS, AND INVESTMENTS Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market 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; • A general obligation of a state or local government, with taxing powers, rated "A" or better; • A revenue obligation of a state or local government, with taxing powers, rated "AA" or better; 32 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.A. CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Deposits (Continued) • Unrated general obligation securities of a local government, with taxing powers, pledged as collateral against funds deposited by that same local government entity; • Irrevocable standby letter of credit issued by a Federal Home Loan Bank accompanied by written evidence that the Federal Home Loan Bank's public debt is rated "AA" or better by Moody's or Standard and Poor's; or • Time deposits 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 City. At December 31, 2016, the City's deposits were not exposed to custodial credit risk. The City's deposits were sufficiently covered by federal depository insurance or by collateral held by the City's agent in the City's name. Investments The City may also invest idle funds as authorized by Minnesota Statutes as follows: direct obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that received the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of 13 months or less; general obligations rated "A" or better; revenue obligations rated "AA" or better; general obligations of the Minnesota Housing Finance Agency rated "A" or better; bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one of the top two highest categories; repurchase or reverse purchase 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. The City does not have any investment policies that would further limit investment choices. At December 31, 2016, the City does not hold any investments. 33 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.B. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2016 is as follows: Balance at Balance at 01/01/16 Additions Disposals Transfers 12/31/16 Governmental Activities: Capital Assets not Being Depreciated Land $ 487,735 $ - $ - $ - $ 487,735 Construction In Progress 42,484 965,806 (1,389) (1,006,901) - Total Capital Assets not Being Depreciated 530,219 965,806 (1,389) (1,006,901) 487,735 Capital Assets Being Depreciated Buildings 2,272,131 - - 2,272,131 Equipment 863,936 - - - 863,936 Vehicles 1,454,751 - (75,500) - 1,379,251 Infrastructure 9,832,185 - (150,589) 1,006,901 10,688,497 Other Improvements 162,648 - - - 162,648 Total Capital Assets Being Depreciated 14,585,651 - (226,089) 1,006,901 15,366,463 Less: Accumulated Depreciation Buildings (907,602) (49,839) - - (957,441) Equipment (452,391) (62,378) - - (514,769) Vehicles (627,205) (65,045) 75,500 - (616,750) Infrastructure (3,572,620) (255,847) 150,589 - (3,677,878) Other Improvements (99,859) (5,529) - - (105,388) Total Accumulated Depreciation (5,659,677) (438,638) 226,089 - (5,872,226) Total Capital Assets Being Depreciated, Net 8,925,974 (438,638) - 1,006,901 9,494,237 Capital Assets, Net $ 9,456,193 $ 527,168 $ (1,389) $ - $ 9,981,972 34 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.B. CAPITAL ASSETS (Continued) Balance at Balance at 01/01/16 Additions Disposals 12/31/16 Business -Type Activities: Capital Assets Being Depreciated Sewer Plant Equipment Uptown Sewer Total Capital Assets Being Depreciated Less: Accumulated Depreciation Sewer Plant Equipment Uptown Sewer Total Accumulated Depreciation Business -Type Activites $ 1,500,000 $ - $ - $ 1,500,000 123,925 - - 123,925 243,827 - - 243,827 1,867,752 - (780,000) (30,000) (2,795) (8,262) (48,567) (4,876) (831,362) (43,138) 1,867,752 (810,000) - (11,057) - (53,443) (874,500) $ 1,036,390 $ (43,138) $ - $ 993,252 Depreciation is charged to governmental activities as follows: General Government $ 16,202 Public Safety 58,870 Public Works 351,651 Parks and Recreation 11,915 Total Depreciation Expense $ 438,638 3.C. NONCURRENT LIABILITIES The reporting the City's long-term debt is segregated between the amounts to be repaid from governmental activities and amounts to be repaid from business -type activities (none). All bonds and certificates set forth below are direct obligations of the City and pledge the full faith and credit of the City. 35 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.C. NONCURRENT LIABILITIES (Continued) Debt Detail As of December 31, 2016, the long-term debt of the financial reporting entity consists of the following: Governmental Activities General Obligation Bonds Bonds Due After One Year Changes in Noncurrent Liabilities The following is a summary of changes in noncurrent liabilities for the year ended December 31, 2016: Type of Debt Governmental Activities General Obligation Bonds Compensated Absences Net Pension Liability Total Long -Term Debt Business -Type Activities Net Pension Liability Balance Balance 1/1/16 Additions Deductions 12/31/16 $ 479,000 Amounts Due Within One Year $ 745,000 $ - $ (168,000) $ 577,000 $ 98,000 21,300 26,868 (23,467) 24,701 - 285,824 131,905 - 417,729 - $ 1,052,124 $ 158,773 $ (191,467) $ 1,019,430 $ 98,000 $ 19,945 $ 25,138 $ - $ 45,083 $ - Interest and other fiscal changes total $15,314 in the Statement of Activities (included in Debt Service line). Interest and other fiscal changes total $16,798 for the Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds (included in the line Interest and Other Charges). Governmental activity debt is typically funded through the Debt Service Fund. Compensated absences and Net Pension Liability are funded through the funds to which the respective employees' wages are allocated. 36 Issue Annual Interest Maturity Original Remaining Type of Debt Date Payment Rate(s) Date Amount Amount 2013 Equipment Certificate 7/13 $50,000 - 65,000 0.80-3.10% 7/23 $ 570,000 $ 405,000 2015 Equipment Certificate 5/15 $43,000 1.40-2.30% 7/20 215,000 172,000 Total Governmental Activities Bonds Payable 577,000 Bonds Due Within One Year 98,000 Bonds Due After One Year Changes in Noncurrent Liabilities The following is a summary of changes in noncurrent liabilities for the year ended December 31, 2016: Type of Debt Governmental Activities General Obligation Bonds Compensated Absences Net Pension Liability Total Long -Term Debt Business -Type Activities Net Pension Liability Balance Balance 1/1/16 Additions Deductions 12/31/16 $ 479,000 Amounts Due Within One Year $ 745,000 $ - $ (168,000) $ 577,000 $ 98,000 21,300 26,868 (23,467) 24,701 - 285,824 131,905 - 417,729 - $ 1,052,124 $ 158,773 $ (191,467) $ 1,019,430 $ 98,000 $ 19,945 $ 25,138 $ - $ 45,083 $ - Interest and other fiscal changes total $15,314 in the Statement of Activities (included in Debt Service line). Interest and other fiscal changes total $16,798 for the Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds (included in the line Interest and Other Charges). Governmental activity debt is typically funded through the Debt Service Fund. Compensated absences and Net Pension Liability are funded through the funds to which the respective employees' wages are allocated. 36 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.C. NONCURRENT LIABILITIES (Continued) Annual Debt Service Requirements At December 31, 2016, the estimated annual debt service requirements to maturity, including principal and interest, areas follows for the City's governmental activities: Years Ending December 31, 2017 2018 2019 2020 2021 Thereafter Governmental Activities Principal $ 98,000 98,000 98,000 103,000 60,000 120,000 Interest Total $ 12,982 $ 110,982 11,282 109,282 9,310 107,310 7,049 110,049 4,500 64,500 3,720 123,720 Totals $ 577,000 $ 48,843 $ 625,843 3.D. INTERFUND TRANSACTIONS AND BALANCES Operating transfers consist of the following for the year ended December 31, 2016: Transfers In Transfers Local Road Major Fund Out Improvement Fund General $ 347,724 $ 347,724 Transfers are used to (a) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget require to expend them and to (b) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. 37 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.D. INTERFUND TRANSACTIONS AND BALANCES (Continued) The interfund balances are as follows: Long -Term Advances Due To Fund Due From Fund Amount Reason Capital Improvement Uptown Sewer $ 29,028 Sewer improvements Capital Improvement Park Capital Improvement 29,000 Finance parking lot Total Interfund Balances $ 58,028 Governmental Fund Elimination (29,000) Government -wide Internal Balances $ 29,028 The Uptown Sewer Fund monies owed to the Capital Improvement Fund will be repaid as future sewer charges are collected and the cash flows become available. The Park Capital Improvement Fund monies owed to the Capital Improvement Fund will be repaid as park dedication fees and donations are received. 3.E. FUND EQUITY At December 31, 2016, governmental fund equity consists of the following: General Fund Nonspendable - Prepaids and Inventory $ 11,961 Unassigned 1,759,867 Total General Fund Balance $ 1,771,828 Debt Service Fund Restricted for Debt Service $ 113,621 Equipment Replacement Fund Restricted for Equipment Replacement $ 9,515 Assigned for Equipment Replacement 491,546 Total Equipment Replacement Fund Balance $ 501,061 38 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 3.E. FUND EQUITY (Continued) Capital Improvement Fund Nonspendable - Advance to Other Fund $ 58,028 Committed for Capital Improvements 326,803 Total Capital Improvement Fund $ 384,831 Local Road Improvement Fund Committed for Local Road Improvements $ 134,443 Assigned for Local Road Improvement 239,577 Total Local Road Improvement Fund $ 374,020 Other Governmental Funds Committed for Economic Development $ 5,091 Unassigned (11,559) Total Other Governmental Funds Balance $ (6,468) NOTE 4 OTHER NOTES 4.A. EMPLOYEE DEFINED BENEFIT PENSION PLANS - STATEWIDE 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 Plan (General Employees Plan (accounted for in the General Employees Fund)) All full-time and certain part-time employees of the City of Scandia are covered by the General Employees Plan. General Employees Plan members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. Benefits Provided PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90% funded for two consecutive years are given 2.50% increases. Members in plans that have not exceeded 90% funded, or have fallen below 80%, are given I% increases. 39 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.A. EMPLOYEE DEFINED BENEFIT PENSION PLANS - STATEWIDE (Continued) Benefits Provided (Continued) 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. General Emnlovees Plan 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 2.20% of average salary for each of the first ten years of service and 2.70% for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.20% of average salary for each of the first ten years and 1.70% for each remaining year. Under Method 2, the annuity accrual rate is 2.70% of average salary for Basic Plan members and 1.70% 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. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the State Legislature. General Emnlovees Fund Contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10% and 6.50%, respectively, of their annual covered salary in calendar year 2016. The City was required to contribute 11.78% of pay for Basic Plan members and 7.50% for Coordinated Plan members in calendar year 2016. The City's contributions to the General Employees Fund for the year ended December 31, 2016 were $24,941. The City's contributions were equal to the required contributions as set by state statute. Pension Costs General Employees Fund Pension Costs At December 31, 2016, the City reported a liability of $462,812 for its proportionate share of the General Employees Fund's net pension liability. The City's net pension liability reflected a reduction due to the State of Minnesota's contribution of $6 million to the fund in 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 $6,071. 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 proportion share was 0.0057%, which was a decrease of 0.0002% from its proportion measured as of June 30, 2015. 40 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.A. EMPLOYEE DEFINED BENEFIT PENSION PLANS - STATEWIDE (Continued) Pension Costs (Continued) For the year ended December 31, 2016, the City recognized pension expense of $61,556 for its proportionate share of the General Employees Fund's pension expense. In addition, the City recognized an additional $1,810 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota's contribution of $6 million to the General Employees Fund. At December 31, 2016, the City reported its proportionate share of the General Employees Fund's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual economic experience Changes in actuarial assumptions Difference between projected and actual investment earnings Changes in proportion Contributions paid to PERA subsequent to the measurement date Total City Deferred Outflows/Inflows Deferred Outflows of Resources 90,619 87,844 12,146 Deferred Inflows of Resources 37,597 7,430 $ 190,609 $ 45,027 A total of $12,146 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2017. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: 2017 2018 2019 2020 Actuarial Assumptions Pension Expense $ 37,251 $ 37,251 $ 42,216 $ 16,718 The total pension liability in the June 30, 2016, actuarial valuation was determined using the following actuarial assumptions: Assumptions Inflation Active Member Payroll Growth Investment Rate of Return Rates 2.50% per year 3.25% per year 7.50% 41 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.A. EMPLOYEE DEFINED BENEFIT PENSION PLANS - STATEWIDE (Continued) Actuarial Assumptions (Continued) 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 males or females, as appropriate, with slight adjustments. Cost of living benefit increases for retirees are assumed to be: 1.00% for all future years. 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 General Employees Plan was completed in 2015. The following changes in actuarial assumptions occurred in 2016: General Employees Fund • The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2035 and 2.5% per year thereafter to 1.0% per year for all future years. • The assumed investment return was changed from 7.9% to 7.5%. The single discount rate was changed from 7.9% to 7.5%. 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% to 3.25% for payroll growth and 2.50% for inflation. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of the long- term expected rate of return on a regular basis 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 arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Domestic Stocks International Stocks Bonds Alternative Assets Cash Discount Rate Target Allocation 45% 15% 18% 20% 2% Long -Term Expected Real Rate of Return 5.50% 6.00% 1.45% 6.40% 0.50% The discount rate used to measure the total pension liability in 2016 was 7.50%, a reduction from the 7.90% used in 2015. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net position of the General Employees Fund was projected to be available to make all projected future benefit payments of current active and inactive employees. 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. 42 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.B. EMPLOYEE DEFINED CONTRIBUTION PENSION PLAN - STATEWIDE 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: Net Pension Liability 1% Decrease in Discount Rate (6.5%) 657,330 Pension Plan Fiduciary Net Position Discount Rate (7.5%) 462,812 1% Increase in Discount Rate (8.5%) $ 305,582 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. Defined Contribution Plan The council members of the City of Scandia are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple - employer deferred compensation plan administered by the Public Employees Retirement Association of Minnesota (PERA). The PEDCP is a tax qualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan provisions, including the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5 percent of salary which is matched by the elected official's employer. Employer and employee contributions are combined and used to purchase shares in one or more of the seven accounts of the Minnesota Supplemental Investment Fund. For administering the plan, PERA receives 2 percent of employer contributions and twenty-five hundredths of one percent of the assets in each member's account annually. Total contributions made by the City during fiscal year 2016 amount to $721. 4.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN Plan Description The Scandia Fire/Rescue participates in the Statewide Volunteer Firefighter Retirement Plan (Volunteer Firefighter Plan accounted for in the Volunteer Firefighter Fund), an agent multiple -employer lump -sum defined benefit pension plan administered by the Public Employees Retirement Association of Minnesota (PERA). The Volunteer Firefighter Plan covers volunteer firefighters of municipal fire departments or independent nonprofit firefighting corporations that have elected to join the plan. As of December 31, 2015, the plan covered 25 active firefighters and 1 vested terminated fire fighters whose pension benefits are deferred. The plan is established and administered in accordance with Minnesota Statutes, Chapter 353 G. 43 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (Continued) Benefits Provided The Volunteer Firefighter Plan provides retirement, death, and supplemental benefits to covered firefighters and survivors. Benefits are paid based on the number of years of service multiplied by a benefit level approved by the City of Scandia. Members are eligible for a lump -sum retirement benefit at 50 years of age with five years of service. Plan provisions include a pro -rated vesting schedule that increases from 5 years at 40% through 20 years at 100%. Contributions The Volunteer Firefighter Plan is funded by fire state aid, investment earnings and, if necessary, employer contributions as specified in Minnesota Statutes, and voluntary City contributions. The State of Minnesota contributed $34,766 in fire state aid to the plan on behalf of the Scandia Fire/Rescue for the year ended December 31, 2015, which was recorded as revenue. Required employer contributions are calculated annually based on statutory provisions. The City of Scandia's statutorily -required contributions to the Volunteer Firefighter Plan for the year ended December 31, 2016, was $0. The City of Scandia contributions were equal to the required contributions as set by state statute. Pension Costs At December 31, 2016, the City of Scandia reported a net pension asset of $80,536 for the Volunteer Firefighter Plan. The net pension asset was measured as of December 31, 2015. The total pension liability used to calculate the net pension asset in accordance with GASB 68 was determined by PERA applying an actuarial formula to specific census data certified by the fire department as of December 31, 2015. The following table presents the changes in net pension asset during the year. Beginning Balance 12/31/14 Service Cost Interest on Pension Liability Actuarial Experience (Gains)/Losses Projected Investment Earnings Contributions (State) Asset (Gain)/Loss Benefit Payouts PERA Administrative Fee Net Changes Balance End of Year 12/31/15 Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) $ 636,294 $730,400 $ (94,106) 23,343 - 23,343 38,665 - 38,665 (13,108) - (13,108) - 43,824 (43,824) - 34,766 (34,766) - (42,457) 42,457 (30,453) (30,453) - - (803) 803 18,447 4,877 13,570 $ 654,741 $ 735,277 $ (80,536) For the year ended December 31, 2016, the City of Scandia recognized pension expense of $24,856. 44 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (Continued) Pension Costs (Continued) At December 31, 2016, the City of Scandia reported deferred inflows of resources and deferred outflows of resources related to the pension from the following sources: Differences between expected and actual economic experience Difference between projected and actual investment earnings Total City Deferred Outflows/Inflows Deferred Outflows of Resources 31,733 Deferred Inflows of Resources $ 27,018 $ 31,733 $ 27,018 Amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: Pension Expense 2017 $ (385) 2018 $ (385) 2019 $ (385) 2020 $ 5,870 Actuarial Assumptions The total pension liability at December 31, 2015, was determined using the entry age normal actuarial cost method and the following actuarial assumptions: • Retirement eligibility at the later of age 50 or 20 years of service • Investment rate of return of 6.00% • Inflation rate of 3.00% There were no changes in actuarial assumptions in 2015. Discount Rate The discount rate used to measure the total pension liability was 6.00%. The projection of cash flows used to determine the discount rate assumed that contributions to the Volunteer Firefighter Plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive 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. 45 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (Continued) Pension Liability Sensitivity The following presents the City's net pension asset for the Volunteer Firefighter Plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension asset would be if it were calculated using a discount rate 1% lower or 1% higher than the current discount rate: Net Pension Asset Plan Investments Investment Policy 1% Decrease in Discount Rate (5.0%) 68,081 Discount Rate (6.0%) $ 80,536 1% Increase in Discount Rate (7.0%) $ 92,710 The Minnesota State Board of Investment (SBI) is established by Article XI of the Minnesota Constitution to invest all state funds. Its membership as specified in the Constitution is comprised of the Governor (who is designated as chair of the Board), State Auditor, Secretary of State and State Attorney General. All investments undertaken by the SBI are governed by the prudent person rule and other standards codified in Minnesota Statutes, Chapter I IA and Chapter 356A. Within the requirements defined by state law, the SBI, with assistance of the SBI staff and the Investment Advisory Council, establishes investment policy for all funds under its control. These investments policies are tailored to the particular needs of each fund and specify investment objectives, risk tolerance, asset allocation, investment management structure and specific performance standards. Studies guide the on-going management of the funds and are updated periodically. Asset Allocation To match the long-term nature of the pension obligations, the SBI maintains a strategic asset allocation for the Statewide Volunteer Firefighter Retirement Plan (VOLP) that includes allocations to domestic equity, international equity, bonds and cash equivalents. The long-term target asset allocation and long-term expected real rate of return is the following: Asset Class Domestic Stocks Target Allocation 35% Long -Term Expected Real Rate of Return 5.50% International Stocks 15% 6.00% Bonds 45% 1.45% Cash 5% 0.50% The 6.00% long-term expected rate of return on pension plan investments was determined using a building-block method. Best estimates for expected future real rates of return (expected returns, net of inflation) were developed for each asset class using both long-term historical returns and long-term capital market expectations. The asset class estimates and the target allocations were then combined to produce a geometric, long-term expected real rate of return for the portfolio. Inflation expectations were applied to derive the nominal rate of return for the portfolio. 46 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 OTHER NOTES (Continued) 4.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (Continued) Plan Investments (Continued) Description of significant investment policy changes during the ye The SBI made no significant changes to their investment policy during Fiscal Year 2015 for the Statewide Volunteer Firefighter Retirement Plan. Pension Plan Fiduciary Net Position Detailed information about the Volunteer Firefighter Plan's fiduciary net position as of December 31, 2015, 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. 4.D. 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. To manage these risks, the City purchases commercial insurance. The City retains risk for the deductible portions of the insurance. The amounts of these deductibles are considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year settlements in excess of insurance for any of the past two 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. The City's management is not aware of any incurred but unreported claims. 4.E. COMMITMENTS Law Enforcement Services The City receives law enforcement services under an agreement with Washington County. Such agreement automatically renews on an annual basis and calls for the City to compensate the County based on the actual costs incurred while providing services under the agreement. Based on the 2017 contract budget, expenditures anticipated under this agreement for 2017 are estimated at $120,186. 4.17. SUBSEQUENT EVENTS Subsequent to year-end and prior to issuance of these financial statements, the City approved the purchase of a dump truck at a final cost of $159,916, which is net of a $41,000 credit received for the trade-in of an existing dump truck. 47 REQUIRED SUPPLEMENTARY INFORMATION Required supplementary information includes financial information and disclosures that are required by the GASB but are not considered a part of the basic financial statements. Such information includes: Budgetary Comparison Schedule -General Fund Schedule of City's Proportionate Share of Net Pension Liability Schedule of City Contributions Schedule of Changes in Net Pension Liability (Asset) CITY OF SCANDIA, MINNESOTA BUDGETARY COMPARISON SCHEDULE -GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2016 RESOURCES (INFLOWS): Taxes Licenses, Permits, and Fees Intergovernmental Charges for Services Fines Investment Income Miscellaneous AMOUNTS AVAILABLE CHARGES TO APPROPRIATIONS (OUTFLOWS): General Government: Mayor and Council Planning and Buildings Elections General Government Public Safety: Police Fire Public Works Parks and Recreation Capital Outlay Transfers Out TOTAL CHARGES NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING CASH FUND BALANCE - ENDING Budget Actual Variance with Amounts- Amounts Final Budget Original and Budgetary Over Final Basis (Under) $ 1,519,950 $ 1,507,907 $ (12,043) 91,295 160,513 69,218 42,146 57,259 15,113 70,015 65,056 (4,959) 12,000 11,633 (367) 4,500 6,891 2,391 14,500 34,628 20,128 1,754,406 1,843,887 89,481 18,976 17,645 (1,331) 96,206 112,603 16,397 6,150 5,428 (722) 322,849 320,483 (2,366) 116,197 120,696 4,499 238,076 200,276 (37,800) 848,929 603,019 (245,910) 109,140 90,772 (18,368) 5,000 - (5,000) 347,724 347,724 - 2,109,247 1,818,646 (290,601) $ (354,841) 25,241 $ 380,082 1,746,587 $ 1,771,828 48 CITY OF SCANDIA SCHEDULE OF CITY'S PROPORTIONATE SHARE OF NET PENSION LIABILITY LAST TEN YEARS (Presented Prospectively) City's Proportionate SCHEDULE OF CITY CONTRIBUTIONS LAST TEN YEARS (Presented Prospectively) Contributions in Contributions as Relation to the a Percentage of Share of the Net Contribution City's Covered - Proportionate Deficiency Covered -Employee Employee December 31 Contribution Contribution (Excess) Payroll Payroll Pension Liability - $ Share of the Plan 2015 $ - $ - $ City's State's and the State's Net Pension Fiduciary Net Proportionate Proportionate Proportionate Liability Position as a City's Share of the Share of the Net Share of the Net City's as a Percentage Percentage For the Fiscal Portion of the Net Pension Pension Liability Pension Liability Covered- of its Covered- of the Total Year Ended Net Pension Liability Associated with Associated with Employee Employee Pension June 30 Liability (Asset) (Asset) (a) the City (b) the City (a+b) Payroll (c) Payroll ((a+b)/c) Liability General Employees Retirement Fund Pension Plan 2016 0.0057% $ 462,812 $ 6,071 $ 468,883 $ 357,680 131.1% 68.9% 2015 0.0059% $ 305,769 $ - $ 305,769 $ 342,106 89.4% 78.2% SCHEDULE OF CITY CONTRIBUTIONS LAST TEN YEARS (Presented Prospectively) Contributions in Contributions as Relation to the a Percentage of For the Calendar Statutorily Statutorily Contribution City's Covered - Year Ended Required Required Deficiency Covered -Employee Employee December 31 Contribution Contribution (Excess) Payroll Payroll General Employees Retirement Fund Pension Plan 2016 $ 24,941 $ 24,941 $ - $ 334,592 7.5% 2015 $ 25,468 $ 25,468 $ - $ 348,155 7.3% Statewide Volunteer Firefighter Pension Plan 2016 $ - $ - $ - N/A N/A 2015 $ - $ - $ - N/A N/A CLQ CITY OF SCANDIA, MINNESOTA SCHEDULE OF CHANGES IN NET PENSION LIABILITY (ASSET) STATEWIDE VOLUNTEER FIREFIGHTER FUND LAST TEN YEARS (Presented Prospectively) Changes in Total Pension Liability (TPL) Balance at January 1st Service Cost Interest on the TPL Actuarial Experience (Gains)/Losses Benefit Payments Balance at December 31 st Plan Fiduciary Net Position (PFNP) Balance at January 1 st Fire State Aid Fire Supplemental Aid Supplemental Benefit Reimbursement Municipal Contributions Adjustment to Initial Asset Transfer Net Investment Income Total Additions Benefit Payments Administrative Expenses Total Reductions Balance at December 31st Net Pension Liability (Asset) - December 31 st Plan Fiduciary Net Position as a Percentage of Total Pension Liability 2015 2014 $ 636,294 $ 629,967 23,343 22,874 38,665 38,350 (13,108) (27,553) (30,453) (27,344) $ 654,741 $ 636,294 $ 730,400 $ 658,422 27,129 24,368 6,638 5,896 1,000 2,955 - 18,259 - 5,368 1,367 43,226 36,134 100,072 (30,453) (27,344) (804) (750) (31,257) (28,094) $ 735,277 $ 730,400 $ (80,536) $ (94,106) 112% 115% 50 OTHER SUPPLEMENTARY INFORMATION Other supplementary information includes financial statements and schedules not required by GASB, nor a part of the basic financial statements, but are presented for purposes of additional analysis. Such statements and schedules include: Supplemental Combining Schedules — Major Governmental Fund - Debt Service Fund Combining Statements — All Nonmajor Governmental Funds ASSETS Cash and Cash Equivalents Property Taxes Receivable Assessments Receivable TOTAL ASSETS DEFERRED INFLOWS OF RESOURCES Unavailable Revenue: Special Assessments FUND BALANCES Restricted CITY OF SCANDIA, MINNESOTA SUPPLEMENTAL COMBINING BALANCE SHEET MAJOR GOVERNMENTAL FUND - DEBT SERVICE FUND DECEMBER 31, 2016 2007 2010 2011 2013 2015 Total Improvement Equipment Equipment Equipment Equipment Debt Bond Certificates Certificates Certificates Certificates Service $ 79,283 $ 10,177 $ 8,312 $ 13,776 $ 2,039 $ 113,587 34 - - - - 34 46,061 - - - - 46,061 $ 125,378 $ 10,177 $ 8,312 $ 13,776 $ 2,039 $ 159,682 $ 46,061 $ - $ - $ - $ - $ 46,061 79,317 10,177 8,312 13,776 2,039 113,621 TOTAL DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 125,378 $ 10,177 $ 8,312 $ 13,776 $ 2,039 $ 159,682 51 CITY OF SCANDIA, MINNESOTA SUPPLEMENTAL COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE MAJOR GOVERNMENTAL FUND - DEBT SERVICE FUND FOR THE YEAR ENDED DECEMBER 31, 2016 REVENUES Taxes Special Assessments Investment Income TOTAL REVENUES EXPENDITURES Debt Service: Principal Interest and Other Charges TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING USES Operating Transfers Out NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING FUND BALANCE - ENDING 2007 2010 2011 2013 2015 Total Improvement Equipment Equipment Equipment Equipment Debt 32,734 $ 69,092 $ 46,756 $ 148,582 36,157 - - - - 36,157 - 40,000 30,000 55,000 43,000 168,000 - 710 1,185 10,882 4,021 16,798 - 40,710 31,185 65,882 47,021 184,798 36,383 (40,593) 1,577 3,255 (261) 361 - (2,300) - - 2,300 - 36,383 (42,893) 1,577 3,255 2,039 361 42,934 53,070 6,735 10,521 - 113,260 $ 79,317 $ 10,177 $ 8,312 $ 13,776 $ 2,039 $ 113,621 52 CITY OF SCANDIA, MINNESOTA COMBINING BALANCE SHEET ALL NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2016 ASSETS Cash and Cash Equivalents LIABILITIES Advance from Other Funds FUND BALANCES Committed Unassigned Total Fund Balances TOTAL LIABILITIES AND FUND BALANCES Economic Park Development Capital Total Authority Improvement Nonmajor Fund Fund Funds $ 5,091 $ 17,441 $ 22,532 $ - $ 29,000 $ 29,000 5,091 - 5,091 - (11,559) (11,559) 5,091 (11,559) (6,468) $ 5,091 $ 17,441 $ 22,532 53 CITY OF SCANDIA, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES ALL NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 REVENUES Charges for Services Investment Income Miscellaneous TOTAL REVENUES EXPENDITURES Current: Economic Development NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING FUND BALANCES - ENDING Economic Park Development Capital Total Authority Improvement Nonmajor Fund Fund Funds 20 20 325 6,000 $ 6,000 60 80 2,193 2,193 8,253 8,273 325 (305) 8,253 7,948 5,396 (19,812) (14,416) $ 5,091 $ (11,559) $ (6,468) 54 OTHER REPORTS SCHLENNER WENNELt&Q0. CERTIFIED PUBLIC ACCOUNTANTS & BUSI NESS CONSULTANTS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS April 13, 2017 Honorable Mayor and City Council City of Scandia, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Scandia (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 of Scandia's basic financial statements, and have issued our report thereon dated April 13, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Scandia's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Responses, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiency described in the accompanying Schedule of Findings and Responses to be a material weakness: 2013-1. An Independently Owned Member, RSM US Alliance 111111111111111111, , . RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud Little Falls Albany Maple Lake Monticello 320.251.0286 320.632.6311 320.845.2940 320.963.5414 763.295.5070 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City's Response to Findings The City of Scandia's response to the findings identified in our audit is described in the accompanying Schedule of Findings and Responses. The City's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. sj4u,v� w4ely� q (-0 SCHLENNER WENNER & CO. St. Cloud, Minnesota 56 CITY OF SCANDIA, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED DECEMBER 31, 2016 Finding 2013-1 Limited Segregation of Duties Condition: The City has limited segregation of accounting duties. Criteria: The basic premise of proper segregation of duties is that no one employee should have access to both physical assets and the related accounting records or to all phases of the transaction. Cause: There are a limited number of employees. Effect.• The City's lack of adequate segregation of accounting duties could adversely affect the City's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. Recommendation: Although the number of employees may not be large enough to eliminate this deficiency, we recommend that the City evaluate current procedures and segregate where possible and implement compensating controls. Management's Response: Management agrees with our recommendation. CORRECTIVE ACTION PLAN (CAP): 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. 2. Actions Planned in Response to Finding The City will review current procedures and implement additional controls where possible. 3. Office Responsible Neil Soltis, City Administrator, is the official responsible for ensuring corrective action. 4. Planned Completion Date Ongoing. 5. Plan to Monitor Completion Ongoing. 57 SCHLENNER WENNELt&CO. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE April 13, 2017 Honorable Mayor and City Council City of Scandia, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the City) as of and for the year ended December 31, 2016, and the related notes to the financial statements, and have issued our report thereon dated April 13, 2017. The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Stat. § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories, except tax increment financing, since the City has none. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City's noncompliance with the above referenced provisions. This report is intended for the information and use of those charged with governance and management of the City of Scandia and the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. ,_,S-JAA� wel�q to SCHLENNER WENNER & CO. St. Cloud, Minnesota An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud Little Falls Albany Maple Lake Monticello 320.251.0286 320.632.6311 320.845.2940 320.963.5414 763.295.5070