HomeMy WebLinkAbout2020-02-13 Council Work Session AgendaCouncil Work Session Agenda
February 13, 2020 - 5:00 pm
1. Call to Order / Roll Call
2. Financial Management Plan Review*
3. Unscheduled Items
4. Adjournment
*Includes Materials - Materials relating to these agenda items can be found in the House Agenda Packet
by Door.
1
8200 County Road 116 Corcoran, MN 55340
763-420-2288 www.ci.corcoran.mn.us
MEMO
Meeting Date: February 13, 2020
To: City Council
From: Brad Martens, City Administrator
Re: Financial Management Plan Review
____________________________________________________________________
The purpose of the work session is to review the prepared 2020 Financial Management
Plan. This plan was substantially updated compared to previous years and includes
vastly escalated growth as compared to previous assumptions. Tammy Omdal from
Northland Securities will present the report and assist an answering any questions.
It should be noted that the document is for planning purposes only. Actual impacts will
be determined by decisions made by the City Council in the future.
Attachments:
1. 2020 Financial Management Plan
Northland Securities, Inc.
150 South Fifth Street, Suite 3300
Minneapolis, MN 55402
(800) 851-2920
Member FINRA and SIPC
Registered with SEC and MSRB
Letter of Transmittal
Introduction and Summary 1
Introduction and Summary............................................................................................................1
Study Approach ..................................................................................................................................1
Revenue Suffi ciency...........................................................................................................................2
Rate Calculations................................................................................................................................3
City Tax Rate.................................................................................................................................3
Utility Rates ..................................................................................................................................4
Organization of the Plan .................................................................................................................6
TABLE 1 - Property Tax Levy and Tax Rate................................................................................7
CHART 1 - Annual Change in Property Tax Levy and Rate.................................................8
CHART 2 - City Tax Capacity (Tax Base)......................................................................................8
CHART 3 - Fund Balance..................................................................................................................9
CHART 4 - Cash Balances................................................................................................................9
CHART 5 - Water Fund Cash Balances....................................................................................10
CHART 6 - Sewer Fund Cash Balances....................................................................................10
CHART 7 - CIP Use of Funds.......................................................................................................11
CHART 8 - CIP Source of Funds.................................................................................................11
Background 12
Summary.............................................................................................................................................12
TABLE 2 - Customer Units and Water Volume Sold...........................................................13
CHART 9 - New Construction and Connection to Municipal Utilities.........................15
CHART 10 - Acres of Land Platted............................................................................................15
Capital Improvement Plan and Debt 16
Overview of Plan..............................................................................................................................16
Equipment and Vehicles.......................................................................................................16
Water Improvements.............................................................................................................16
Sewer Improvements.............................................................................................................16
Street Improvements.............................................................................................................16
Facility and Parks.....................................................................................................................17
Bond Issuance...................................................................................................................................17
TABLE 3 -Capital Improvement Plan........................................................................................19
TABLE 4 - Debt Service..................................................................................................................21
TABLE 5 - Bonds Outstanding....................................................................................................22
CHART 11 - CIP Use of Funds.....................................................................................................23
CHART 12 - CIP Source of Funds...............................................................................................23
CHART 13 - Annual Debt Service..............................................................................................24
CHART 14 - Bonds Outstanding................................................................................................24
CHART 15 - Debt Outstanding by Type..................................................................................25
CHART 16 - Bonds Outstanding Existing and New............................................................25
Financial Plans 26
Background........................................................................................................................................26
Summary of Key Factors and Assumptions...........................................................................26
Total Governmental Funds Combined ....................................................................................28
CHART 17 - Total Sources and Uses of Funds................................................................29
CHART 18 - Cash Balance and Fund Balance.................................................................29
TABLE 6 - Finance Plan............................................................................................................30
General Fund Financial Plan........................................................................................................31
Figure 2 - Tax Levy Revenue..................................................................................................31
CHART 19 - Cash Balance and Fund Balance.................................................................33
CHART 20 - Source and Use of Funds...............................................................................33
CHART 21 - % Change in Source and Use of Funds....................................................33
CHART 22 - Use of Funds by purpose ..............................................................................33
TABLE 7 - Finance Plan............................................................................................................34
Debt Service Funds Financial Plan............................................................................................35
CHART 23 - Cash Balance and Fund Balance.................................................................37
CHART 24 - Source and Use of Funds...............................................................................37
CHART 25 - % Change in Source and Use of Funds....................................................37
CHART 26 - Use of Funds by purpose ..............................................................................37
TABLE 8 - Finance Plan............................................................................................................38
Special Revenue Funds Financial Plan.....................................................................................39
TABLE 9 - Finance Plan............................................................................................................40
Capital Projects Funds Financial Plan......................................................................................41
TABLE 10 - Finance Plan .........................................................................................................42
Capital Equipment Fund Financial Plan..................................................................................43
TABLE 11 - Finance Plan .........................................................................................................44
Facilities Fund....................................................................................................................................45
TABLE 12 - Finance Plan .........................................................................................................46
Water Fund Financial Plan............................................................................................................47
CHART 27 - Cash Balance by Purpose..............................................................................49
CHART 28 - Ending Unrestricted Net Assets..................................................................49
CHART 29 - Revenue and Expense.....................................................................................49
CHART 30 - Customers and Volume..................................................................................49
TABLE 13 - Finance Plan .........................................................................................................50
TABLE 14 - Projected Water Revenues..............................................................................54
TABLE 15 - Cash Balances......................................................................................................57
Sewer Fund Financial Plan...........................................................................................................59
CHART 31 - Cash Balance by Purpose..............................................................................61
CHART 32 - Ending Unrestricted Net Assets..................................................................61
CHART 33 - Revenue and Expense.....................................................................................61
CHART 34 - Customers and Volume..................................................................................61
TABLE 16 - Finance Plan .........................................................................................................62
TABLE 17 - Projected Water Revenues..............................................................................66
TABLE 18 - Cash Balances......................................................................................................69
Appendix 71
TABLE A - Utility Fee Schedule...................................................................................................71
TABLE B - Property Tax Levy for Debt Service......................................................................73
TABLE C - Special Assessments..................................................................................................74
TABLE D - Planned Staff Additions ...........................................................................................75
TABLE E - City Taxes Payable by Example Properties.........................................................76
The Financial Management Plan (the “Plan”) is intend-
ed to serve as a guide for the on-going fi nancial man-
agement of the City of Corcoran (the “City”). The Plan
was fi rst prepared in year 2012 and has been updated
annually.
The Plan contains proposed strategies and identifi ca-
tion of key factors and objectives to monitor with re-
spect to future fi nancial performance.
The Plan includes information on projected property
tax levies and fees and charges to fund city services,
capital improvement plans, and debt service.
The objectives of the study for the Plan are as follows:
•Revenue Suffi ciency - develop and populate a
forecasting model that will determine the level
of revenue needed to satisfy general government
and utility enterprises operations, capitalimprove-
ments, and debt service while maintaining ade-
quate reserves for future service and capital needs
of the City.
• Rate Calculations - Model projected future tax ca-
pacity tax rates for the City and prepare proposed
rate structures for water and sanitary sewer ser-
vices (the “Utilities”). Develop proposed modifi ca-
tions to the rates for the Utilities, as appropriate,
to ensure that rates are suffi cient to meet revenue
suffi ciency objectives.
The Plan includes anticipated future capital improve-
ment for years 2020-2025 (the “CIP”). Estimates were
made by the City for capital improvement project
costs and timing of projects. The actual timing for fu-
ture capital improvements will depend in part on the
population growth rate of the City.
While the specifi c timing of future improvements is
uncertain, awareness of the needed funding for proj-
ects is important when considering tax levies, rates for
fees and charges, and level of reserves for future capi-
tal.
Future development will provide increased revenue
to the City from charges for services and tax revenue.
This will include increased revenue to the Utilities,
with revenue from both development fees and us-
age fees. Future development will provide additional
property value to the City and potential for collecting
additional property tax revenue to pay for services.
The rate of future development and addition of cus-
tomers is a signifi cant variable for the Plan and the pro-
jections within. The City should continue to monitor
actual development that occurs against the anticipated
rate of development assumed in the Plan. The rate of
development will impact the projected revenues in-
cluded in the Plan. Detailed information on projected
housing units is included later in the Plan.
Study Approach
The following steps were taken as part of the Study:
• City provided information on customer activity,
including a spreadsheet of historical customer bill-
ings.
•City provided historical fi nancial data along with
current budget plans and capital improvement
plans.
• City provided the assumptions for future residen-
tial units to be constructed in the City and connect-
ed to the City’s Utilities.
• Information provided by the City was organized,
analyzed, and used to support the development of
the Plan.
• The prior year data included in the Plan is recon-
ciled with the City’s annual audited fi nancial state-
ments.
•City staff off ered input and feedback on the as-
sumptions, diff erent options for levies and rates
for the Utilities, and desired outcomes for the Plan.
• The study did not include a review and compari-
son of the City’s tax rate and fees and charges to
other cities.
Revenue Suffi ciency
The Study evaluated the suffi ciency of revenues to
meet current and projected fi nancial requirements for
the City Funds, including the Utilities over the next
eight years (with a longer planning period for the Util-
ities). The Plan determines the tax levies and rates nec-
essary in each year of the projection period to provide
revenue suffi ciency.
Moody’s Investor Service recently upgraded (May
2018) the City’s bond rating to ‘Aa3’ from ‘A1’. In do-
ing so the rating agency recognized the City’s credit
strength and strong fi nancial operations resulting in
growing reserves. The maintenance and continued rel-
ative growth of reserves through revenue suffi ciency
is an important credit factor for the City’s credit rating
going forward.
The City should continue to actively manage its funds
to achieve its policy goals and to maintain suffi cient
balances within the funds to meet City needs includ-
ing the need for reserves.
The City has an adopted policy to maintain a mini-
mum balance in the General Fund equivalent to 35%
of annual expenditures. The goal of the Plan is to iden-
tify revenue suffi cient to meet closer to 50% of annual
expenditures, recognizing the need for the City to cash
fl ow its expenditures between the semi-annual tax dis-
bursements it receives from the County, among other
needs for cash balance.
For purposes of the Plan, the revenue objective for the
Water Fund and the Sewer Fund focused on providing
revenue suffi cient to achieve projected year-end cash
balance to cover the following purposes:
• Three-months of operating expense
• Following-year debt service payments
• Following year capital acquisition (planned to be
paid from cash)
• Reserves for future capital improvements and oth-
er reserve purposes
The graphics and tables that follow in the Introduction
and Summary section of the Plan provide a summary
of key fi nancial information for the City Funds, includ-
ing for the Water Fund and the Sewer Fund.
ȱȱȱǰȱȱĴȱȱȱȱȱ
to replace depreciated infrastructure, is an important
element for establishment of suffi cient rates for the
Utilities. The Study focused on the City’s asset man-
agement practices to maintain and expand infrastruc-
ture at future estimated costs, as provided in the City’s
long-range capital improvements plan.
ȱȱȱȱȃȱȄȱȱȱĴȱȱ
to gain a strong understanding of the expected future
costs and, maybe more importantly, their timing, and
plan for replacement of infrastructure and facilities.
Using a planned schedule for capital improvements
and the incorporation of those plans into the Study
does that. Capital improvement plans combined with
fi nancial management targets are critical element that
ȱȱȱĴȱȱȱȱȱȱ¢ȱǯ
Financial management targets begin with criteria for
evaluating overall fi nancial condition. For instance, do
projections show suffi cient revenues to cover planned
operating and capital improvement expenses? The
ȱȱȱĴȱȱȱȱǰȱȱ¢ȱ ȱ
much?
The Plan helps to answer these question by allocating
projected year-end cash balance to defi ned purposes.
One of the purposes is for planned capital acquisition
and reserves for future capital.
ThePlanprovidesasecondcriteriatoevaluaterevenue
suffi ciency for the Utilities. The second criteria is end-
ing unrestricted net position as a percent of expense.
The unrestricted net assets of the Water Fund and the
Sewer Fund (Proprietary Funds) can be considered a
measure of available fi nancial resources.
The Plan sets a target (a fl oor ) to maintain an unre-
stricted net position in the Water Fund and the Sewer
Fund no lower than 50% of the subsequent year’s esti-
mated expenditures.
The majority of revenue in the Utilities comes from
user charges, maintaining an unrestricted net position
that is equal to at least 50% of expenditures will help
to ensure that suffi cient resources are available to fund
basic functions between receipts of user charges.
The target (or fl oor ) for ending unrestricted net posi-
tion is meant to be an equivalent of the target for an
unrestricted fund balance for the City’s General Fund.
Equity is reported as a fund balance in the General
Fund and as a net asset within the Water Fund and the
Sewer Fund. Fund balance and net assets are the dif-
ference between fund assets and liabilities refl ected on
the balance sheet or statement of net assets.
Rate Calculations
The Study focused on preparing projections for future
annual tax capacity rates for the City, and reviewing
the rates for the fees and charges of the Utilities. The
Study did not include a review and analysis of other
City fees and charges, only the fees of the Utilities was
included.
City Tax Rate
Future tax levies increases are projected to be neces-
saryto fund plannedexpendituresandto maintain ad-
equate cash balances across all City funds.A summary
of the projected City tax levy amounts is shown in the
Figure that follows on the next page, along with the
corresponding estimated City tax rate. The tax rates
are estimated based on assumptions in the Plan for
changes to the City’s tax capacity from growth in the
market value of property within the City.
The key assumptions used for the Study that impact
future City tax rates includes the following:
• Taxable market value will increase by 1.0% annu-
ally for property within the City.
• Fiscal disparities contribution and corresponding
distribution of tax revenue are estimated to remain
constant (at current amounts) over the planning
period. The actual impact of the metro-wide fi scal
disparities program varies from year to year.
• City will increase the tax levy to support addition-
alplanned spending in the General Fund related to
growth of the community. Details on the specifi c
items, which includes staff positions, is included in
the Finance Plan section for the General Fund and
in the Appendix.
• General fund non-tax revenue is estimated to in-
creaseby1.5%andcurrentexpensesby2.0%.There
are no assumed major changes to non-tax revenue.
• City estimates it will average 137 new housing
units (constructed) annually over the next decade
between 2020 and 2029. The Plan assumes more
rapid growth over the near term. For purposes of
estimating market value of property in the City,
the average home price is estimated at $480,000,
infl ated 1.0% annually.
• The Plan assumes the City will not have any new
commercial development during the planning pe-
riod.
• For planning purposes, it is assumed the City will
issue bonds to fi nance a new municipal building
in 2025 with an estimated $10 million project cost.
The Plan anticipates that debt service will be paid
80% by taxes and 10% by water and sewer reve-
nues. This allocation of costs will require further
review in future years. The increase to the City’s
tax levy in year 2025 is approximately $605,000 for
payment of debt service for the project.
The table and graphics that follow provide historical
and projected City property tax levies and tax rates
along with tax capacity (tax base). A detailed break
down of the debt service levy by bond series is pro-
vided in the Appendix.
Utility Rates
The City currently has a two-part rate structure for
charging fees for water and sewer services, comprised
of both a fi xed and variable charges. This two-part
structure is recommended by generally accepted prac-
tices and is a practice followed by most cities within
the Twin Cities metropolitan area. This structure re-
covers a portion of system costs in a fi xed charge, rec-
ognizing that the Utilities have certain fi xed costs and
customer service costs that are incurred year-round. A
provider of municipal utilities incurs these fi xed costs
regardless of the level of water usage by customers.
It is estimated, based on the City’s 2019 budget, that
approximately 34% of the Water Fund expenses, in-
cluding depreciation, are fi xed and for the Sewer Fund
it is approximately 54%. The percentages are projected
to vary somewhat from year to year. Fixed expenses
as a percent of total expenses is projected to decrease
over time for the Utilities as the number of customers
increase and volume of water usage grows.
For usage or metered volume-based rates, based on
the results of the Study there are no recommended
changes in the structure for the volume-based rates.
As the number ofcustomers increases potentialchang-
es to the structure may be needed. Potential future
proposed changes may include the following, for ex-
ample:
• Establish an inclining block sanitary sewer rate
structure, to match the total of four tiers for Wa-
ter, and set the volume for each tier to refl ect sewer
customers’ usage profi les and local data.
The Plan anticipates the City adopts planned increases
to rates for water and sanitary sewer services as pro-
posed in the 2020 budget. This includes increasing the
base fee for water services from $15.00 to $16.00 and
increasing all other water fees by 3.0% annually. There
is an exception to this rate adjustment for the Water
trunk line availability charges (TLAC). For northeast
Corcoran, the plan is to increase the fee from an esti-
mated $6,433 in 2021 to $15,500 in 2022, and then by
3% annually. For southeast Corcoran, the plan is to
increase the fee from $5,948 in 2019 to $6,500 in 2020,
with annual increases of 15% from 2021-2027, and then
dropping down to 3.0% annual increases. The Sewer
TLAC fee is planned to increase by 3.0% annually. The
Appendix includes details on fee amounts by year for
both water and sewer services.
The planned TLAC fees, and annual adjustments, are
needed for the City to fund anticipated improvements
in northeast and southeast Corcoran, respectively. The
improvements include trunk watermain, booster sta-
tions, and a water tower estimated to cost between $12
and $15 million.
If growth from residential development does not oc-
cur as projected, and development fees to support
the Utilities are not collected as anticipated, the City
may need to levy property taxes to pay debt service on
bonds issued to fi nance utility system infrastructure.
At time of issuance of the bonds, the City projected
revenue from future development would be suffi cient
to repay the general obligation revenue bonds (propri-
etary debt) issued without the need for a tax levy. As
projected in the Plan, revenue within the Water Fund
and the Sewer Fund is projected to be suffi cient to
meet all current and future debt obligations.
The City should annually review its utility rates and
the block rate structure to ensure that rates and struc-
ture provide adequate revenues and cash fl ow based
on actual customers and volume activity.
Future rates should be set based on actual data and
performance, which will include impact of future de-
velopment within the City. Eff orts by customers to
conserve and reduce water consumption will have a
direct impact on revenues.
Organization of Plan
The Plan is organized into seven sections:
1. Introduction and Summary provides information
on the Study Approach, Revenue Suffi ciency, and
Rate Calculations.
2. Background provides historical and statistical con-
text for the Utilities.
3. CIP and Debt provides information on the City’s
plans for equipment, facilities, and maintaining
and expanding the water and sanitary sewer sys-
tems. This includes estimates on project costs, tim-
ing, and sources of funds. The time horizon for
the capital plan is years 2020-2025. Information on
outstanding debt obligation and debt service of the
City is included.
4. Financial Plans provides the fi nancial plans (pro
forma) for the City Funds, including the Water
Fund and the Sewer Fund. The fi nancial plans in-
clude historical, current, and projected revenues
and expenses and estimated ending cash balances.
Financial plans take into account capital improve-
ment plans, both existing and planned debt issu-
ance, and proposed rates.
5. Appendix provides additional data and graphics.
The increase in the Water
Fund and Sewer Fund Year-
End Cash Balance is planned.
The TLAC and Connection
Charges the City will collect
asdevelopmentoccurswillbe
needed to pay for future capi-
tal improvements that are not
yet programmed in the City’s
Capital Improvement Plan.
These improvements that
have been identifi ed, but yet
programmed, include trunk
watermain, booster stations,
and a water tower estimated
to cost between $12 and $15
million.
The City of Corcoran is located on the western edge of
the Twin Cities Metropolitan area in Hennepin Coun-
ty. The County estimates the City’s 2018 population at
5,933. Population is anticipated to continue to increase
due to development of residential property within the
City. The land area for the City encompasses just un-
der 36 square miles and includes area for future resi-
dential development.
Commercial and industrial development in the City
has been limited, primarily due to the lack of munici-
pal water and sewer services and the absence of major
transport corridors. n 2012, the City has successfully
fi nanced and implemented major improvement proj-
ect to fi rst bring and then expand municipal water and
sanitary sewer services to the City. The improvement
projects provided for connection to the metropolitan
disposal system. The City forecasts this will continue
to result in increased development both in residential
and commercial.
The City’s development plan for its downtown area
provides an opportunity for additional economic de-
velopment. In recent years the City completed con-
structionofstreetimprovementsandutilityinfrastruc-
ture in the downtown area.
The table that follows provides the estimated number
of housing units along with municipal utility connec-
tions units for commercial property in the downtown
areatheCityprojectstobeaddedoverthenexttwenty-
years. The assumptions on units is an important input
to the Plan and is updated on annual basis by the City.
The City is in the process of planning for water service
to serve northeast Corcoran, as access to water from
Maple Grove is limited. A test well is currently in the
process and the City is planning on investments for a
water treatment plant and water tower.
The City annually reviews its plans for capital acqui-
sition and improvements and updates its multi-year
plan. The CIP in the Plan provides details on costs by
year and proposed funding sources. The debt service
study, included in the Plan, provides information on
current debt service and estimated future debt.
The CIP provides an important input into preparing
the fi nancial plans for the City funds. The fund level
reports in the Financial Plans section are inclusive of
all sources and uses of funds, both operating and non-
operating, which includes capital expense. The table
that follows on page 19 provides details by project of
the City’s capital acquisition and improvement plans.
Equipment and Vehicles
Over the next fi ve years the City anticipates spend-
ing an average of approximately $530,000 per year on
equipment and vehicles capital needs. The Plan in-
cludes anticipated bonding in year 2020 and 2022 for
equipment and vehicles. The City has been incremen-
tally increasing tax levy revenue in the General Fund
to support a transfer to the Equipment Fund, but the
rate of increase in planned spending has outpaced the
planned annual tax levy support therefore bonding
will be needed to provide proceeds for the planned
purchases. Annual sale of capital assets is estimated
to provide approximately $50,000 annually for new
equipment and vehicles.
Water Improvements
Water improvements are included in the CIP for the
County Road 116 (2020 Trunk Watermain Improve-
ments) project and implementation of a water system
for the northeast area of the City.
TheCityplanstospend$100,000peryearbetween2019
and 2020 to plan for a $7,000,000 construction project
in 2021 to build out a city-owned municipal water sys-
tem to provide water to the northeast area of the City.
The Plan anticipates the southeast area of the City will
continue to be served under terms of an agreement
with Maple Grove for purchase of municipal water
until demand passes capacity. Future improvements
in southeast Corcoran will need to be undertaken at
some point in the future.
The CIP does not include water improvement projects
that are anticipated to be constructed and fi nanced
by private development and contributed to the City.
These projects will be paid entirely by private funds
with infrastructure then contributed to the City.
Sewer Improvements
A project to extend sanitary sewer in the northeast
area of the City was constructed in 2019 paid entirely
by private funds from a developer of property. This
project is not included in the CIP as the City will not
be paying for the improvements from city revenue
sources.
Street Improvements
The CIP includes street improvements for Hackamore
Road (CR116/CSAH101). The City’s share of the Hack-
amore Road improvements (project is a cooperative
project with other jurisdictions) will be funded from
a payment from the benefi ting residential developer
and special assessments to other benefi ting properties.
The CIP does not anticipate any property tax levy sup-
port for this project or other street improvement proj-
ects in the CIP. The project is anticipated to commence
in 2021 with completion in 2022.
Facility and Parks
The CIP includes improvements to City Hall in 2020
and a new municipal building or signifi cant expansion
in 2025.
City hall improvements in the amount of $607,000 will
be paid from existing revenue sources with no bond-
ing. The following sources of revenue will fund the
improvements:
• $425,000 from the City’s long-range planning fund
(an assigned fund) and the 2018-2019 CIP
• $120,0000 from the General Fund
• $62,000 to from the Water Fund, which will be paid
by a reimbursement from the General Fund to the
Water Fund
A future municipal building or expansion of the ex-
isting building is planned for approximately $10 mil-
lion in year 2025. The Plan anticipates that the debt
on the building will be paid 80% from tax levy and
20% for water and sewer revenues. The annual debt
service expense is included in the fi nancial plans for
the Debt Service Fund, Water Fund, and Sewer Fund,
respectively. The annual debt service is estimated at
approximately $630,000 for a $10.425 million bond is-
suance, which includes $10.0 million for the project
construction and funds for cost of issuance and capi-
talized interest fund. The annual tax levy for debt ser-
vice, beginning in year 2026 is estimated at $590,000.
Bond Issuance
The City’s outstanding general obligation bonds are
rated as ‘Aa3’ by Moody’s Investors Service. The City’s
rating was upgraded in May 2018 by Moody’s from
‘A1’ to ‘Aa3’. The positive credit strengths supporting
this upgrade included strong fi nancial operations re-
sulting in growing reserves. The strong bond rating
means a lower cost of borrowing for the City.
The City anticipates the issuance of bonds to fi nance
certain capital improvements. The tables and graphics
that follows provide a summary of existing and future
estimated debt service payments (principal and inter-
est) and funding sources, along with a summary of
debt outstanding by year.
The annual debt service on future “new” bonds to be
issued is also included in the fi nancial plans for the
Debt Service Fund, Water Fund, and the Sewer Fund.
The preliminary estimates for debt service are based
on the following estimated new bond issues:
•Year 2020, G.O. Bonds, $830,000 to fi nance equip-
ment and vehicle acquisition over a 10 year term
payable from tax levy.
•Year 2020, G.O. Bonds, $1,445,000 to fi nance water
system improvements over a 10 year term payable
from net revenues of the Water Fund.
•Year 2021, G.O. Bonds, $7,210,000 to fi nance water
system improvements over a 25 year term payable
from net revenues of the Water Fund.
•Year 2022, G.O. Bonds, $835,000 to fi nance equip-
ment and vehicle acquisition over a 10 year term
payable from tax levy.
•Year 2022, G.O. Bonds, $1,105,000 to fi nance street
improvements over a 4 year term payable from
special assessments levied against benefi ting prop-
erty.
•Year 2025, G.O. Bonds $10,425,000 to fi nance mu-
nicipal buildings over a 25 year term payable from
tax levy and net revenues of the Water Fund and
the Sewer Fund. The estimated split is 80% pay-
able fromtax levy and20% payable fromthe utility
revenues.
The fi nal sizing, structuring, and interest rates will
depend on project specifi cs and market conditions at
time of issuance. The amounts shown in the Plan are
preliminaryand for planning purposes only.Thebond
issuancesizesincludecapitalacquisitionandconstruc-
tion costs, cost of issuance of bonds, and capitalized
interest funds. The debt service for the new bonds is
based on the termsstated aboveandan estimated3.5%
interest rate on the bonds.
Background
Financial plans have been prepared for each of the fol-
lowing type of funds:
Governmental Funds
• General Fund
• Debt Service Funds
• Special Revenue Funds
• Capital Projects Funds
Proprietary Funds
• Water Fund
• Sewer Fund
GovernmentalFunds are used to account for mosttyp-
ical municipal functions of the City. The acquisition,
use, and balances of the City’s expendable fi nancial re-
sources and the related current liabilities (except those
accounted for in Proprietary Funds), are accounted for
through the Governmental Funds.
Proprietary Funds are used to account for the City’s
ongoing municipal utility operations that are similar
to businesses found in the private sector. These funds
are considered self-supporting in that the services
rendered by them are fi nanced through user charges.
The fi nancial plans, for the Proprietary Funds, include
assets and liabilities in addition to the revenues and
expenditures. The Proprietary Funds are presented on
an accrual basis. There is a recognition of expenditures
when incurred and the subsequent amortization of
the deferred outfl ows. Revenues are recognized when
earned. There is a capitalization of certain expenses
and the subsequent depreciation of the capitalized
costs. For the Proprietary Funds there is accruals of
revenues earned and expenses incurred.
Summary of Key Factors and Assumptions
The key factors or assumptions used to develop the
fi nancial plans are as follows:
• General Fund expense budget for year 2020 will be
set based on a level, when combined with the debt
service levies, will achieve a reduction in the City
tax rate from tax year 2019 to 2020. Future year tax
expense budgets will be based on the assumptions
in the Plan.
• 2.0% annual increase in operating expense for the
Governmental Funds.
• 1.5% annual increase in non-property tax revenue
for the Governmental Funds.
• 3.0% average annual rate increase for water ser-
vices (base and usage fees, and connection charge),
with the exception of TLAC for southeast Corco-
ran, which is planned at 15.0% average annual rate
increase between years 2021-2027. The annual rate
increases is approximate and refl ects the antici-
pated cost increases for the Water Fund. The high-
er increase for the water TLAC (for property in
southeast Corcoran) refl ects the cost of providing
the needed infrastructure to this area over time,
distributed across property that will be developed
in this area.
• 2.0% and 3.0% average annual increase in sanitary
sewer fees for connection and TLAC, respectively.
• 1.0% annual investment income rate for all City
Funds.
• Annual projected increase in property tax levies to
be set at a level suffi cient to fund cash fl ow require-
ments and to maintain suffi cient fund balance lev-
els per City Policy.
• Fiscaldisparitiesdistributionofpropertytaxesand
contribution of property tax capacity is assumed to
be at the same levels as estimated for Pay 2020. The
actual amounts will vary by year and will impact
the projections shown in the Plan.
• Maintain a minimum balance in the General Fund
equivalent to 35% ofannualexpenditures and with
plans to achieve closer to approximately 50% rec-
ognizing the need for cash fl ow and contingency.
• Maintain cash in the Water Fund and Sewer Fund
suffi cient to achieve projected year-end cash bal-
ance to cover the following purposes:
-Three-months of operating expense
-Following-year debt service payments
-Following year capital acquisition (planned
to be paid from cash)
-Reserves for future capital improvements
and other reserve purposes
• Maintain positive balances in all other City funds
and amounts suffi cient to meet specifi c cash fl ow
requirements of the funds.
Expense
Personnel and other operating costs overall have been
and are projected to remain stable in the near term
with planned increases in the future to address the de-
mands of a growing community.
The fi nancial plans anticipate includes projected staff -
ing increases in the General Fund. These increases are
detailed in the General Fund fi nancial plan that fol-
lows and in the Appendix. A total of 21.5 new FTE’s
are planned to be added between years 2021-2025.
Transfers To and From Other Funds
Transfers between funds for future years include the
following:
• Transfers from the Water Fund and Sewer Fund to
the General Fund to pay an allocated share of op-
erating costs.
• Transfer from the Water Fund and Sewer Fund to
the Debt Service Fund to pay an allocated share
of the debt services for the 2016A Bonds and the
bonds anticipated to be issued in 2025 to pay for
municipal building improvements.
• Other changes to transfers from Pay 2020 to Pay
2021 refl ect the City’s anticipated plan to eliminate
interfund transfer of tax levy and instead levy di-
rectly in the respective funds. This includes elimi-
nating the transfer from the General to the Equip-
ment Fund, for example. Instead the City will levy
a property tax that will be deposited directly into
the Equipment Fund.
The table that follows provides total sources and uses
of funds for the following Governmental Funds com-
bined. Individual fi nancial plans are then provided for
each of the following fi ve funds:
• General Fund
• Debt Service Funds
• Special Revenue Funds
• Capital Projects Fund
• Capital Equipment Fund
The City’s annual fi nancial statements includes a
break-down of individual funds for the Debt Service
Fund, Special Revenue Fund, and Capital Projects
Fund. For example, the City maintains separate debt
service funds for each bond series issued. And, for
capital projects, the City establishes a specifi c “Capital
Projects Fund” for each individual project. For pur-
poses of the Plan, this level of detail is not included.
Revenue
Annual source of funds from non-property tax levy
sources has been stable for the City and is expected to
remain so in the future. The City did not receive local
government aid (LGA) from the State in 2019 and does
not anticipate receipt in 2020 or future years.
Property tax levy increases will be needed to pay for
increased operating costs and debt service related to
planned capital improvements.
The General Fund is the primary fund used by the
City. This fund is used to record all resource infl ows
and outfl ows that are not associated with special-pur-
pose funds. The activities being paid for through the
General Fund constitute the core administrative and
operational tasks of the City.
Revenue
Annual source of non-tax revenue for the General
Fund has been stable and is projected to remain stable.
Intergovernmental revenue payments for municipal
state aid for street maintenance provides the single
largest source of non-tax revenue to the General Fund.
The City does not receive local government aid (LGA)
from the State. The second largest source of non-tax
revenue is charges for services and the next largest is
fi nes and forfeitures.
Tax Levy Revenue
Property tax levy revenue is estimated to increase each
year. In addition to funding general city operations,
property tax levy provides revenue to meet fund bal-
ance goals for contingency. The adjacent Figure 2 pro-
vides the projected General Fund property tax levy by
year, along with the annual and cumulative percent
increase.
Non-Tax Revenue
The fi nancial plan for the General Fund is based on the
following key assumptions for non-tax revenues:
• Non-tax revenues increase of 1.0% annually.
• Annual investment income rate of 1.0%.
The City recorded revenue from receipt of deferred
special assessments in 2018 related to road improve-
ments.ThePlan doesnotanticipate futurecollectionof
any deferred special assessments in the General Fund.
The 2018 receipt of Intergovernmental revenue in 2018
was higher than average due to draw of Municipal
State Aid funds. Future years are projected based on
historical average.
Expense
The General Fund is used to account for the expense
of providing general government services for the City.
The largest use of funds is for the cost of personnel, in-
cluding salary and wages and benefi ts (52% of total ex-
penses). Other costs including operating materials and
supplies, equipment, and other professional services.
The fi nancial plan for the General Fund is based on the
following key assumptions:
• Current expenditures (includes personnel costs)
increase by 2.0% annually for infl ation.
•Increase in staff (FTE) and position changes as fol-
lows (seeAppendix forfurtherdetails by position):
- 3.0 FTE, $290,000 in 2021
- 4.5 FTE, $362,500 in 2022
- 5.0 FTE, $435,000 in 2023
- 5.0 FTE, $455,000 in 2024
- 3.0 FTE, $290,000 in 2025
• Increase in transfer out to the Equipment Fund to
pay for a portion of planned equipment and ve-
hicle acquisitions as included in the CIP.
Transfers To and From Other Funds
Beginning in 2016, the Water Fund and the Sewer
Fund began to transfer revenue to the General Fund to
pay an allocated share of operating costs. This transfer
is projected to continue, increasing by 2.0% annually.
Other changes to transfers from Pay 2020 to Pay 2021
refl ect the City’s anticipated plan to eliminate inter-
fund transfer of tax levy and instead levy directly in
the respective funds. This includes eliminating the
transfer from the General to the Equipment Fund, for
example. Instead the City will levy a property tax that
will be deposited directly into the Equipment Fund.
The General Fund has included a transfer out to the
Equipment Fund. The transfer started with $25,000
in year 2015, and has been increasing annually. The
City is striving to eliminate future bonding for annual
equipment and vehicle acquisitions. Based on the cur-
rent CIP, bonding is anticipated to be needed in 2020
and 2022 to provide suffi cient cash to pay for planned
items. See the Equipment Find fi nancial plan for fur-
ther details.
Fund Balance
As noted in the CIP and Debt section, the City’s out-
standing general obligation bonds are rated as ‘Aa3’
by Moody’s Investors Service. The positive credit
strengths supporting this upgrade included strong fi -
nancial operations resulting in growing reserves. The
maintenance of the City’s reserves, including growing
fund balance (reserves), is important to the maintain-
ing the City’s credit rating.
Fund balance for the General Fund is projected to re-
main at approximately 50% of expenses. City policy
requires a minimum of 35%. Fund balance in excess of
the minimum is a credit positive with respect to main-
taining the City’s credit rating from Moody’s.
Future year General Fund tax levy are estimated at a
level suffi cient to cover projected expenses less pro-
jected non-tax revenue and provide $75,000 in net rev-
enue to fund reserves in order to maintain a fund bal-
ance that is approximately equal to 50% of the General
Fund expense. The fi nancial plan projects that cash
balance will approximately equal to fund balance with
no projected material change in annual estimated re-
ceivable and payable for the General Fund.
Revenue
The Debt Service Funds include the following source
of funds: special assessments, interest income, trans-
fers in from other funds, property tax levy, and bond
proceeds for any capitalized interest funds.
General obligation equipment certifi cates will be re-
paid from property tax levy. Prior year and future pro-
jected tax levy amounts for repayment of equipment
certifi cates are included in the Plan.
The annual debt service beginning in year 2017, in-
cludespaymenton the 2016A Bonds. TheCitypledged
to the 2016A Bonds the special assessments to be lev-
ied against benefi ting property in the downtown area
for the downtown improvement project. The principal
amount of the special assessments was estimated to be
approximately $1.8 million at time of issuance of the
2016A Bonds.
The Plan anticipates the issuance of general obliga-
tion bonds in 2020, 2021, 2022, and 2025 that will be
accounted for in the Debt Service Funds. Future debt
will be supported by a combination of tax levy, special
assessments, and transfers in of revenue from the Wa-
ter Fund and the Sewer Fund.
Expense
The use of funds is for the payment of debt, including
principal and interest payments.
Transfers From Other Funds
The City records special assessment revenue collect-
ed on the downtown improvement project, fi nanced
with the issuance of the 2016A Bonds, directly into the
debtservice fund.Special assessmentrevenue from as-
The Debt Service Fund includes the combined funds
used to account for all of the City’s governmental debt
service.
At the end of 2018, the City reported total general obli-
gationbondspayable(reportedasGovernmentalDebt)
of $8,722,000. The Water Fund and the Sewer Fund
also report debt outstanding, which is accounted for
separately as a liability for Proprietary Funds. At the
end of 2018, the City reported total general obligation
bonds payable in the proprietary funds of $2,775,000.
In addition to bonds outstanding, the Water Fund re-
ported $383,107 in outstanding notes payable to Maple
Grove for connections to the water system. See the CIP
and Debt section for further information on the debt
outstanding and future debt service.
The year-end cash balance in the Debt Service Funds
fl uctuates due to the timing of collection of revenue,
for example tax levy, in the year prior to debt service
payments coming due.
The City is required to have cash available in the re-
spective debt service funds equal to 105% of the debt
service payments coming due for a specifi c bond se-
ries. For example, the year-end cash balance includes
cash from collection of special assessments and tax
levy in current year to pay the following February 1st
ȱ¢ǯȱȱ¢ȱȱȱ¡ȱĴȱȱȱ
the County in June and December of each year. The
ęȱȱȱ¡ȱĴȱȱȱȱȱȱȱȱ
ŗ ȱȱ¢ȱȱȱȱ¡ȱĴȱȱȱ
available to cover the February 1st payments.
sessments levied to fi nance connection and TLAC for
water and sanitary sewer services will be deposited
directly in the Water and the Sewer Fund, respective-
ly. The Water and Sanitary Sewer Funds will transfer
revenue to the debt service fund for the 2016A Bonds
to cover the utility portion of the 2016A Bonds. The
special assessment revenue deposited into the debt
service funds is pledged to the payment of the 2016A
Bonds.
The fi nancial plan for the Special Revenue Funds as in-
cluded in the Plan provides sources and uses of funds
on a combined basis for the following special revenue
funds. The funds included are as follows:
• Fund 201 Reserve Donation
• Fund 202 Police Donation
• Fund 204 Firearms Safety
• Fund 205 DWI Forfeiture
• Fund 206 Drug Forfeiture
• Fund 207 Truck Safety
• Fund 208 Lawful Gambling
Revenue
The source of funds for the special revenue funds
come from donations, charges for services, and other
miscellaneous revenue sources which are generally
restricted for the purpose they were collected. There
is no property tax levy that is recorded to the special
revenue funds.
Expense
The use of funds is restricted for the purpose of the
funds collected.
Transfers To and From Other Funds
There are no transfers.
intergovernmental, and bond proceeds.
Year 2020 includes collection of the remaining rev-
enue from developer payment for Hackamore Road
improvements. Hackamore Road will be funded from
a combination of developer payments in the total
amount of $1.14 million collected over multiple years,
and bond proceeds supported by special assessments
to other benefi ting properties. The issuance of bonds
for Hackamore Road is shown in year 2021, to be sup-
ported 100% by special assessments payable over the
planned 4 year term of the bonds.
The $3.6 million of miscellaneous revenue recorded in
2018 was from developer proceeds for the Bellweather
housing development project. The cash proceeds will
be spent by the City in 2019.
Expense
The projected use of funds is for capital projects as in-
cluded in the CIP. This includes construction of street
and facility improvements.
Transfers To and From Other Funds
The Water Fund transferred in $15,000 in 2017 for the
estimated share of the Hackamore road water exten-
sion. In 2018, the General fund transferred in $125,000
for the Asphalt Maintenance Fund for future project
costs.
In 2019, a total of $425,000 will be transferred to the
new Facilities Fund for the municipal building im-
provements, which includes $300,000 from the Long
Range Planning Fund and $125,000 from the 2018-2019
CIP. There are no future transfer anticipated.
The fi nancial plan for the Capital Projects Funds, as in-
cluded in the Plan, provides sources and uses of funds
on a combined basis for the following City’s capital
projects funds. The funds included are as follows:
• Fund 305 Asphalt Maintenance
• Fund 411 Public Works Facility
• Fund 415 Park Capital
• Fund 417 Shannon Lane
• Fund 419 Hackamore Upgrade
• Fund 420 Wetland Restoration
• Fund 422 Downtown Improvements
• Fund 423 Rockford School Land
• Fund 424 CSAH-10 Fir Lane Turn Lane
• Fund 425 Bellwether
• Fund 426 Rolling Hills Larkin Overlay
• Fund 427 Gleason/66th Parkway
For purposes of the Plan, the Capital Equipment Fund
(Fund 416) and the new Facilities Fund the City plans
to establish, are not included as part of the fi nancial
plan for the Capital Projects Funds. Separate plans are
provided for theCapitalEquipment Fund and the new
Facilities Fund.
Revenue
The majority of the source of funds comes from charg-
es for service, special assessments, investment income,
The City uses the Capital Equipment Fund to record
all revenue and expense related to the acquisition of
equipment and vehicles.
Revenue
The source of revenue has historically come from the
issuance of bonds. Beginning in year 2015, the City
implemented a plan to begin to transition to fund
equipment and vehicleacquisition on apay-gobasis to
eliminate the need to borrow (issue bonds) and incur
interest expense.
The Plan assumes the City will continue to incremen-
tally increase the General Fund property tax levy to
support a transfer of funds to the Equipment Fund to
allow the City to transition away from issuing debt for
these types of purchases.
The Plan anticipates a $25,000 annual increase in the
General Fund tax levy to support annual increases to
the transfer to the Equipment Fund.
Other sources of funds includes sale of capital assets,
estimated at $50,000 annually and investment income.
The Plan anticipates issuance of general obligation
bonds (equipment certifi cates) for equipment and ve-
hicle acquisitions in years 2020 and 2022.
Expense
The projected use of funds will be for capital projects
as included in the CIP.
Transfers To and From Other Funds
The transfer in shown in the fi nancial plan comes from
the transfer of cash (tax levy) from the General Fund.
The City will establish a new fund to record transac-
tions related to improvements to City Hall in 2020 and
a new municipal building or signifi cant expansion in
2025.
Revenue
The source of revenue is anticipated to come from
a combination of transfer in of cash from other City
funds and a current tax levy. After completion of the
projects, the current tax levy in the Facilities Fund will
discontinue and instead be used to pay for anticipated
debt service expense on bonds to be issued for the new
municipal building or signifi cant expansion of the ex-
isting building.
Bond proceeds are anticipated in 2025 to pay for the
new municipal building or expansion. The amount
included in the Plan of $10.0 million is a placeholder
amount. The bonding may be less if the Fund has cash
available to reduce the bonding.
Expense
The projected use of funds will be to pay for capital
project spending, including planning for the improve-
ments.
Transfers To and From Other Funds
Transfer in of cash from the General Fund and the
Capital Projects Funds is anticipated in 2019 and 2020.
- 152 residential units added per year on average
between 2020-2027,for acombinedtotal ofapprox-
imately 1,212 new customer units
ȱȱȱȱȱĴȱȱȱ¢ǰȱȬ
dential equivalent units added, including commercial
property in the downtown, is shown in Table 2. The
projected development is needed to provide operating
and non-operating revenue to the Water Fund. With-
out projected growth, the Utility Funds may not be
self-supporting in the future and may require tax levy
support or signifi cant increases in usage and develop-
ment related fees.
The Plan estimates annual rate adjustments of 3.0%.
The prior year Plan anticipated a one time adjustment
to the base fee in year 2019, from $12.73 to $20.00,
which was not adopted. The Plan assumes this base
fee is adopted in 2020. The actual increase that may be
neededinthefuturewilldependon growth in custom-
ers. The rate increase for TLAC for property located
in southeast Corcoran is estimated at 15.0% annually
between years 2021-2027. This is due to projected cost
of build-out of infrastructure in this area of the City.
At the estimated level of rate increases outlined above,
the Water Fund is projected to maintain adequate cash
balance over the planning period. For purposes of the
Plan, the revenue objective for the Water Fund focused
on providing revenue suffi cient to achieve projected
year-end cash balanceto coverthe following purposes:
• Three-months of operating expense
• Following-year debt service payments
• Following year capital acquisition (planned to be
paid from cash)
The Water Fund was established as a Proprietary Fund
for the accounting for costs of providing municipal
water services to residents and businesses.
The Water Fund is considered self-supporting in that
the services rendered are fi nanced through user charg-
es.
The fi nancial plan for the Water Fund includes assets
and liabilities in addition to the revenues and expendi-
tures. The Water Fund ispresented on an accrualbasis.
There is a recognition of expenditures when incurred
and the subsequent amortization of the deferred out-
fl ows. Revenues are recognized when earned. There
is a capitalization of certain expenses and the subse-
quent depreciation of the capitalized costs. For the
Water Fund there is accruals of revenues earned and
expenses incurred.
Revenue
The source of funds for the Water Fund is charges for
services, special assessments, developer fees and pay-
ments, and bond proceeds.
The schedule of planned fees and charges is included
in the Appendix.
Future growth from development, which impacts the
projection of operating and non-operating revenue for
the Water Fund, is assumed to be the following over
the next decade:
Ȭȱ¡¢ȱŝ ŖȱȱĴȱȱȱ¢ȱȱȬ
age between 2020-2027
• Reserves for future capital improvements and oth-
er reserve purposes
The CIP anticipates the issuance of general obligation
bonds in 2020 to provide proceeds for the 2020 Trunk
Watermain Improvements. In addition, the CIP antici-
pates the issuance bonds in 2021 to fi nance water sys-
tem improvements in the northeast area of the City.
Expense
The use of funds is to pay for the operation and capital
improvements, and related debt service, for providing
municipal water services, including depreciation of
capital assets.
The City has an agreement with the City of Maple
Grove which providesforpaymentto MapleGrovefor
water connections and distribution.
Approximately half of the Water Fund expenses are
estimated to be fi xed costs, this amount fl uctuates
somewhat from year to year.
The City anticipates the addition of 2.5 FTE over the
next fi ve years to support water and sewer operations.
The cost of the FTE’s is included in the fi nancial plans
for the Water Fund and the Sewer Fund.
Annual debt service payments on bonds issued to fi -
nance water improvements are supported by net rev-
enues of the Water Fund. The Water Fund pays a por-
tion of the debt on the 2014B Bonds. The portion of
the 2014B Bonds payable from water revenues is re-
ported as a liability of the Water Fund. As payments
on the debt are made the liability in the Water Fund is
reduced. Interest is recorded as an expense.
In addition to this liability, the Water Fund transfers
revenue to the Governmental Debt Service Funds
to pay a portion of the 2016A Bonds. Beginning in
year 2025, the Sewer Fund is also projected to begin
transferring funds to pay a portion of the debt on the
planned bonds for municipal facilities improvements
anticipated in 2025.
TheWater Fund reports adebt obligation for the Notes
payable to the City of Maple Grove for water connec-
tion charges. As payment is made on the Notes the
liability in the Water Fund is reduced. The interest
expense on the Note issued in 2014 is recorded as an
expense in the Water Fund. There is no interest pay-
able on the Note issued in 2016.
Depreciation is reported as an expense and is adjusted
foranticipatedannualdepreciablecapitalacquisitions.
New capital is depreciated over a 55 year term in the
Plan.
Transfers To and From Other Funds
The Water Fund transfers funds annually to the Gen-
eral Fund to pay for operational support of the Water
Fund.
Special assessment revenue from assessments levied
to fi nance connection fees and TLAC for water ser-
vices are deposited directly in the Water Fund. As
noted above, the Water Fund transfers revenue to the
City’sGovernmentalDebtService Funds for the2016A
Bonds to cover the water utility portion of the 2016A
Bonds. The Plan anticipates the Water Fund will pay
10% of the debt service on planned bonds to be issued
in 2025 for municipal facilities improvements. The Wa-
ter Fund is not projected to provide revenue for these
anticipated bonds until year 2032, after other debt is
repaid.
- 152 residential units added per year on average
between 2020-2027,for acombinedtotal ofapprox-
imately 1,212 new customer units
ȱȱȱȱȱĴȱȱȱ¢ȱȱ
residential equivalent units added is shown in Table 2.
The projected development is needed to provide need-
ed operating and non-operating revenue to the Sewer
Fund. Without projected growth, the Sewer Fund may
not be self-supporting in the future and may require
tax levy support or signifi cant increases in usage and
development related fees.
The Plan estimates annual rate adjustments of 2.0%
for both base and usage fees and connection fees. The
sewer TLAC is estimated to increase by 3.0% annually.
At the estimated level of rate increases outlined above,
the Sewer Fund is projected to maintain adequate cash
balance over the planning period. For purposes of the
Plan, the revenue objective for the Sewer Fund focused
on providing revenue suffi cient to achieve projected
year-end cash balanceto coverthe following purposes:
• Three-months of operating expense
• Following-year debt service payments
• Following year capital acquisition (planned to be
paid from cash)
• Reserves for future capital improvements and oth-
er reserve purposes
There is no anticipated future bonding for sanitary im-
provements at this time.
Use of Funds
The use of funds is to pay for the operation and capital
TheSewerFund was established asaProprietaryFund
for the accounting for costs of providing municipal
water services to residents and businesses.
The Sewer Fund is considered self-supporting in that
the services rendered are fi nanced through user charg-
es.
The fi nancial plan for the Sewer Fund includes assets
and liabilities in addition to the revenues and expendi-
tures.TheSewer Fundispresentedon an accrualbasis.
There is a recognition of expenditures when incurred
and the subsequent amortization of the deferred out-
fl ows. Revenues are recognized when earned. There
is a capitalization of certain expenses and the subse-
quent depreciation of the capitalized costs. For the
Sewer Fund there is accruals of revenues earned and
expenses incurred.
Source of Funds
The source of funds for the Sewer Fund is charges for
services, special assessments, developer fees and pay-
ments, and bond proceeds.
The schedule of planned fees and charges is included
in the Appendix.
Future growth from development, which impacts the
projection of operating and non-operating revenue for
the Sewer Fund, is assumed to be the following over
the next decade (ten years):
Ȭȱ¡¢ȱŝ ŖȱȱĴȱȱȱ¢ȱȱȬ
age between 2020-2027
improvements, and related debt service, for providing
municipal sewer services, including depreciation of
capital assets.
Approximately 40% of the Sewer Fund expenses are
estimated to be fi xed costs, this amount fl uctuates
somewhat from year to year.
The Metropolitan Council (MC) charges the City a fee
for the regionalcollection and treatmentof wastewater
(disposal charges). The City does not have any control
over this operating expense. Future charges payable to
the MC are projected based on total estimated sanitary
sewer volume reported to the MCES with an infl ation-
ary adjustment.
The City anticipates the addition of 2.5 FTE or new
staff over the next fi ve years to support water and
sewer operations. The Sewer Fund is projected to have
revenue suffi cient to cover this personnel expense. The
Appendix includes a table with details on planned
staff additions and funding sources.
Annual debt service payments on bonds issued to fi -
nance sewer related improvements are supported by
net revenues of the Sewer Fund. The Sewer Fund pays
a portion of the debt on the 2014B Bonds. The portion
of the 2014B Bonds payable from sewer revenues is re-
ported as a liability of the Sewer Fund. In addition to
this liability, the Sewer Fund transfers revenue to the
Governmental Debt Service Funds to pay a portion of
the 2016A Bonds. Beginning in year 2025, the Sewer
Fund is also projected to begin transferring funds to
pay aportion ofthedebton theplannedbonds for mu-
nicipal facilities improvements anticipated in 2025.
Depreciation is reported as an expense and is adjusted
foranticipatedannualdepreciablecapitalacquisitions.
New capital is depreciated over a 55 year term in the
Plan.
Transfers To and From Other Funds
The Sewer Fund transfers funds annually to the Gen-
eral Fund to pay for operational support of the Water
Fund.
Special assessment revenue from assessments levied
to fi nance connection fees and TLAC for sewer servic-
es are deposited directly in the Sewer Fund. The Sewer
Fund transfers revenue to the City’s Governmental
Debt Service Funds for the 2016A Bonds to cover the
sewer utility portion of the 2016A Bonds. The Plan
anticipates the Sewer Fund will pay 10% of the debt
service on planned bonds to be issued in 2025 for mu-
nicipal facilities improvements.
Northland Securities, Inc.
150 South Fifth Street , Suite 3300
Minneapolis, MN 55402
Toll Free 1-800-851-2920 Main 612-851-5900
www.northlandsecurities.com
Member FINRA and SIPC | Registered with SEC and MSRB