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HomeMy WebLinkAbout2017 Audit Report City of St. Joseph Stearns County, Minnesota Financial Statements December 31, 2017 City of St. Joseph Table of Contents Elected Officials and Administration 1 Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 24 Statement of Activities 25 Fund Financial Statements Balance Sheet Governmental Funds 26 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds 27 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds 28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds 29 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund 30 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual State Collected Sales Tax 31 Statement of Net Position Proprietary Funds 32 Reconciliation of the Statement of Net Position Business-Type Activities 33 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds 34 Reconciliation of the Statement of Revenues, Expenses, and Changes in Net Position Business-Type Activities 35 Statement of Cash Flows Proprietary Funds 36 Notes to Financial Statements 37 Required Supplementary Information Schedule of City's Proportionate Share of Net Pension Liability General Employees Retirement Fund 76 Schedule of City's Proportionate Share of Net Pension Liability Public Employees Police and Fire Retirement Fund 76 Schedule of City Contributions General Employees Retirement Fund 77 Schedule of City Contributions Public Employees Police and Fire Retirement Fund 77 Schedule of Changes in the Net Pension Liability and Related Ratios Fire Relief Association 78 Schedule of City Contributions and Non-Employer Contributing Entities Fire Relief Association 79 Notes to Required Supplementary Information 80 City of St. Joseph Table of Contents Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund 84 Combining Balance Sheet Nonmajor Governmental Funds 86 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds 92 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 99 Report on Legal Compliance 101 Schedule of Finding and Response on Internal Control 102 City of St. Joseph Elected Officials and Administration December 31, 2017 Elected OfficialsPositionTerm Expires Rick SchultzMayor January 2019 Robert LosoCouncil MemberJanuary 2021 Troy GorackeCouncil MemberJanuary 2021 Dale WickCouncil MemberJanuary 2019 Matt KillamCouncil MemberJanuary 2019 Administration Judy WeyrensCity AdministratorAppointed Lori BartlettFinance DirectorAppointed 1 Independent Auditor's Report Honorable Mayor and Members of the City Council City of St. Joseph St. Joseph, 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 St. Joseph, Minnesota, as of and for the year ended December 31, 2017, and the related notes to 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. BerganKDV, Ltd. bergankdv.com 2 Auditor's Responsibility (Continued) 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 in the first paragraph 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 St. Joseph, Minnesota, as of December 31, 2017, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, which follows this report letter, and Required Supplementary Information as listed in the Table of Contents 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 (GASB) 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 of St. Joseph's basic financial statements. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 Other Matters (Continued) Other Information (Continued) The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 19, 2018, on our consideration of the City of St. Joseph's internal control over financial reporting and on 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 St. Joseph's internal control over financial reporting and compliance. St. Cloud, Minnesota April 19, 2018 4 City of St. Joseph Management's Discussion and Analysis As management of the City of St. Joseph, we offer readers of the City of St. Joseph's financial statements this narrative overview and analysis of the financial activities of the City of St. Joseph for the fiscal year ended December 31, 2017. FINANCIAL HIGHLIGHTS Key financial highlights for 2017 include the following: The assets and deferred outflows of resources of the City of St. Joseph exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $33,649,854. Of this amount, $2,967,863 may be used to meet government's ongoing obligations to citizens and creditors (unrestricted net position). The government's total net position increased by $1,443,921 from 2016 to 2017. The increase is due to removing the other post-employment benefit liability, paying down bonded debt, realizing significant development activity, and reduction in pension expense for the City's share of the PERA retirement plans. As of the close of the current fiscal year, the City of St. Joseph's governmental funds reported combined ending fund balances of $6,018,275, a decrease of $1,863,216. Of this amount $1,438,837 is unassigned for spending at the government's discretion. The remaining balance of $4,579,438 is set aside for specific future expenditures. At the end of the current fiscal year, unassigned fund balance for the general fund was $1,449,363 or 48% of total general fund expenditures ($1,503,355 or 50% excluding the fire and PEG Access funds). The City of St. Joseph's total long-term debt decreased by $958,861 during the current fiscal year. The City had two debts paid in full in 2017 and issued four new debts. The new debts issued paid for street improvements, government center, water filtration plant improvements and St. Cloud main lift station and biosolids improvements. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of St. Joseph's basic financial statements. The City of St. Joseph's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements. The government-wide financial statements are designed to provide readers with a broader overview of the City of St. Joseph's finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the City of St. Joseph's assets and deferred outflows of resources and liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of St. Joseph's is improving or deteriorating. The Statement of Activities presents information showing how the government's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 5 City of St. Joseph Management's Discussion and Analysis Both of the government-wide financial statements distinguish functions of the City of St. Joseph that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of St. Joseph include general government, public safety, public works, economic development, culture and recreation, and interest on long-term debt. The business-type activities of the City of St. Joseph include water, sanitary sewer, refuse, storm water and street light utility services. The government-wide financial statements include not only the City of St. Joseph itself (known as the primary government), but also a legally separate Economic Development Authority. Financial information for this component unit is blended in the financial information. The government-wide financial statements can be found on pages 24-25 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of St. Joseph, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of St. Joseph can be divided into two categories: governmental funds and proprietary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and government-wide governmental activities. The City of St. Joseph maintains forty-two individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the General fund, State Collected Sales Tax special revenue fund, Government Center capital project fund and Field Street Improvement capital project fund which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City of St. Joseph adopts an annual appropriated budget for its General and State Collected Sales Tax funds. A budgetary comparison statement has been provided for these funds (pages 30-31) to demonstrate compliance with the budgets. The basic governmental fund financial statements can be found on pages 26-29 of this report. 6 City of St. Joseph Management's Discussion and Analysis Proprietary Funds. The City of St. Joseph maintains proprietary funds that are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of St. Joseph uses proprietary funds to account for its water, sanitary sewer, refuse, storm water and street light utility activities. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water, sanitary sewer, refuse, storm water and street light utility, all of which are considered to be major funds of the City of St. Joseph. The basic proprietary fund financial statements can be found on pages 32-36 of this report. Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to financial statements can be found on pages 37-73 of this report. Other Information. The combining statements referred to earlier in connection with non-major governmental funds can be found on pages 86-98 of this report. Comparative Data. While comparative data is not illustrated in this report, comments throughout this narrative and overview will discuss significant changes from the prior year. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City of St. Joseph, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $33,649,854 at the close of the most recent fiscal year. By far the largest portion of the City of St. Joseph's net position reflects its investment in capital assets (e.g., land, buildings, machinery and equipment) net accumulated depreciation, less any related debt used to acquire those assets that is still outstanding. The City of St. Joseph uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of St. Joseph's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A summary of the City's Net Position is depicted on the following page. 7 City of St. Joseph Management's Discussion and Analysis NET POSITION GovernmentalBusiness-Type ActivitiesActivitiesTotal 201720162017201620172016 Assets Current and other assets$ 8,228,770 $ 10,084,991$ 1,976,036$ 1,092,948$ 10,204,806$ 11,177,939 Capital assets, net 17,472,504 16,434,381 32,381,743 32,307,757 49,854,247 48,742,138 Total assets 25,701,274 26,519,372 34,357,779 33,400,705 60,059,053 59,920,077 Deferred Outflows of Resources Deferred outflows of resources related to pensions 1,292,782 2,018,645 78,580 135,738 1,371,362 2,154,383 Total deferred outflows 1,292,782 2,018,645 78,580 135,738 1,371,362 2,154,383 Liabilities Current liabilities 1,587,142 2,034,698 1,410,513 1,329,746 2,997,655 3,364,444 Long-term liabilities 12,280,610 14,543,892 10,877,865 11,334,423 23,158,475 25,878,315 Total liabilities 13,867,752 16,578,590 12,288,378 12,664,169 26,156,130 29,242,759 Deferred Inflows of Resources Deferred inflows of resources related to lease receivables 173,356 202,925 - - 173,356 202,925 Deferred inflows of resources related to pensions 1,399,302 387,397 51,773 35,446 1,451,075 422,843 Total deferred inflows 1,572,658 590,322 51,773 35,446 1,624,431 625,768 Net Position Invested in capital assets, Net related debt 7,626,612 7,603,491 20,699,611 20,427,682 26,508,482 25,878,291 Restricted 4,173,509 4,503,362 - - 4,173,509 4,503,362 Unrestricted (246,475) (737,748) 1,396,597 409,146 2,967,863 1,824,280 Total net position$ 11,553,646 $ 11,369,105$ 22,096,208$ 20,836,828$ 33,649,854$ 32,205,933 An additional portion of the City of St. Joseph's net position (12%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position is a surplus of $2,967,863, a surplus of $1,150,122 after removing the unrestricted portion of governmental debt for enterprise assets. The surplus is the result of the change in St. Joseph's realized portion of the Minnesota employee's pension liability. The liability fluctuates significantly with changes in amortization assumptions such as the rate of return. The City of St. Joseph also no longer recognizes a net other pension liability for retiree implicit health insurance rates. The City of St. Joseph moved from a large employer to a small employer insurance plan and does not contribute to retiree health insurance premiums. Without the net pension liability, the unrestricted net position would be a surplus of $4,683,159. At the end of the current fiscal year, the City of St. Joseph is able to report positive balances in all three categories of net position for the government as a whole, as well as for its separate business-type activities. The governmental activities had positive balances in all, but the unrestricted net position. 8 City of St. Joseph Management's Discussion and Analysis The governmental activities change in net position balance increased by 2%. The City's governmental operational activity was strong. Development activity was a key factor. The change would have been greater without recording pension expense as required by GASB 68 to recognize a pension liability for the City's portion of contributions to the Public Employees Retirement Association of Minnesota (PERA). The City and employees are affected by funding law changes as a result of PERA's funding performance each year. A net pension liability was recorded for $1,351,208 in the governmental activities. There was a 6% increase (5% increase excluding net pension liability) in the total net position for the business-type activities. The increase is due to paying down bonds, increase utility rates and improved development fees collected. The full value of the assets is netted against the bonds payable. Also, construction in progress includes assets contributed from governmental funds improving the business- type net position. Governmental Activities. Governmental activities improved the City of St. Joseph's total net position by $184,541. The most significant factor for the increase is the significant development fees collected including building permit revenue of $284,277. Also significant was removing the other post- employment benefits liability of $209,053. Business-Type Activities. Business-type activities increased the City of St. Joseph's net position by $1,259,380. The largest contributors were the water and sewer funds. The storm water fund also realized a healthy positive change in net position. The water and sewer funds are combined with the water access (WAC) and sewer access (SAC) funds in the Government-Wide financial statements. The WAC/SAC is intended to charge new development a proportional fee for the asset that they will be utilizing. The connection fees totaled $525,264 for 2017. In addition, city council increased water rates January 2017 and sewer rates in September 2017 (5% and 59%, respectively) to help cover the water and sewer debt costs. The storm water fund's net position increase was due to capital contributions from governmental funds. Without the capital contributions, the storm water fund would have a $59,140 decrease in net position. The graphs and charts on the following pages summarize and graphically depict the changes in net position for the governmental and business-type activities. 9 City of St. Joseph Management's Discussion and Analysis CHANGE IN NET POSITION Program Revenues Charges for services$ 892,945 $ 760,364 $ 3,335,861 $ 2,888,146 $ 4,228,806 $ 3,648,510 Operating grants and contributions 150,126 232,268 293 1,313 150,419 233,581 Capital grants and Contributions 966,205 3,187,179 701 495 966,906 3,187,674 General Revenues Property taxes 1,993,743 1,774,928 23,893 73,407 2,017,636 1,848,335 Tax increments 85,216 42,507 - - 85,216 42,507 Sales tax 437,232 432,227 - - 437,232 432,227 Franchise fees 12,595 126,817 - - 12,595 126,817 Lodging tax 129,242 8,046 - - 129,242 8,046 State aids 927,154 921,207 - - 927,154 921,207 Unrestricted investment earnings 52,710 93,662 23,458 25,094 76,168 118,756 Total revenues 5,647,168 7,579,205 3,384,206 2,988,455 9,031,374 10,567,660 Expenses General government 1,080,879 704,096 - - 1,080,879 704,096 Public safety 1,757,471 1,912,915 - - 1,757,471 1,912,915 Public works 1,284,017 1,573,836 - - 1,284,017 1,573,836 Economic development 141,853 207,508 - - 141,853 207,508 Culture and recreation 472,849 495,630 - - 472,849 495,630 Interest on long-term debt 299,612 386,233 - - 299,612 386,233 Water - - 920,296 915,505 920,296 915,505 Sanitary sewer - - 1,106,664 1,037,570 1,106,664 1,037,570 Storm water - - 289,557 282,280 289,557 282,280 Refuse - - 169,389 178,189 169,389 178,189 Street light utility - - 64,866 63,327 64,866 63,327 Total expenses 5,036,681 5,280,218 2,550,772 2,476,871 7,587,453 7,757,089 Increase (decrease) in net position before transfers 610,487 2,298,987 833,434 511,584 1,443,921 2,810,571 Transfers (425,946) (232,669) 425,946 232,669 - - Change in net position 184,541 2,066,318 1,259,380 744,253 1,443,921 2,810,571 Net Position Net Position - beginning 11,369,105 9,302,787 20,836,828 20,092,575 32,205,933 29,395,362 Net Position - ending$ 11,553,646 $ 11,369,105 $ 22,096,208 $ 20,836,828 $ 33,649,854 $ 32,205,933 10 City of St. Joseph Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE CITY'S FUNDS AT THE FUND LEVEL The financial performance of the City of St. Joseph as a whole is reflected in its governmental funds as well. As the City completed the year, its governmental funds reported a combined fund balance of $6,018,275, a decrease of $1,863,216 from 2016. Revenues for the City's governmental funds were $5,752,019, while total expenditures were $8,069,882. The excess of expenditures over revenues is mainly attributed to the City completing construction of the government center and the first phase of Field Street. In addition, projects completed using accumulated local option sales tax reduced the net position by $361,400. To facilitate the City also plans to sell the previous city hall with proceeds going towards the 2017 capital improvement bond issue. Bond proceeds and sale of surplus property are other financing sources not reported in the above operating numbers. A summary of financial highlights for each major governmental fund follows. General Fund The General fund is the chief operating fund of the City of St. Joseph. At the end of the current fiscal year, unassigned fund balance of the general fund was $1,449,363. As a measure of the general fund's liquidity, it may be useful to compare both unassigned fund balance to total fund expenditures. Unassigned fund balance represents 48% of total general fund expenditures, 50% (6 months working capital) after removing the Fire and PEG Access fund. The City Council has adopted a financial policy which includes a goal to maintain the General Fund working capital fund balance equal to 4-6 months of expenditures. The excess unassigned fund balance can be attributed to development related receipts. The City experienced an increase in construction projects in 2017 resulting in permit and plan review fees in excess of budgeted amounts ($199,955 over budgeted amounts). One of the development fees is land use deposits charged to developers for administrative, legal and engineering fees for proposed projects. The City collected $11,000 in deposits during 2017. The funds will be spent down or returned to the developer once their proposed projects are completed. General fund expenditures were less than budgeted by $93,539 and over 2016 expenditures by $180,779. The City of St. Joseph sets funds aside for the street maintenance plan. The street maintenance plan expenditures fluctuate each year, increasing in 2017. The police operational budget was under-spent by $44,277. The department spent conservatively in many line items. One of the largest savings was health insurance. The City budgets insurance benefits as family coverage, not what a person elected in the year prior. The excess budgeted is transferred into the Employee Retirement Reserve fund 102 which is combined with the General fund in the financial statements. The 2016 and 2017 snow seasons were warmer and dryer than other more average years. The ice and snow budget is set to allow for an average temperature and snow season. Culture and recreation operational expenditures are under budget mainly due to budgeting recreational staff at the community center. The School District extended their lease of using a portion of the facility for ECFE and offered to include recreational activities with their community recreation program; therefore, the City opted to delay staffing gym hours until summer 2018. One area shown as over-budget is other general government expenditures. The city council approved a contract to update the comprehensive plan using excess building permit revenues from 2016. As a result of the prudent financial policies of the City, the General fund remained stable. 13 City of St. Joseph Management's Discussion and Analysis The schedule below presents a summary of General fund revenues and expenditures. December 31,December 31,IncreasePercent 20172016(Decrease)Change Revenues Taxes$ 1,255,007$ 1,209,884 $ 45,1234% Special assessment 9,127 3,740 5,387144% Licenses and permits 356,990 270,780 86,21032% Intergovernmental 1,133,362 1,212,746 (79,384)-7% Charges for services 376,946 345,321 31,6259% Fines and forfeitures 55,474 46,747 8,72719% Miscellaneous 71,131 117,470 (46,339)-39% Total General Fund revenue$ 3,258,037$ 3,206,688 $ 51,3492% December 31,December 31,IncreasePercent 20172016(Decrease)Change Expenditures General government$ 749,008$ 623,771 $ 125,23720% Public safety 1,611,596 1,471,657 139,93910% Public works 397,662 433,200 (35,538)-8% Culture and recreation 270,980 319,839 (48,859)-15% Total General Fund expenditures$ 3,029,246$ 2,848,467 $ 180,7796% General Fund Budgetary Highlights Over the course of the year, the City did not amend the annual operating budget. Historically, the City has minimal budget amendments during the budget year. Actual revenues were $197,912 more than expected mainly due to development related revenues. Tax delinquencies were down and a few foreclosed properties sold improving the tax collections. 14 City of St. Joseph Management's Discussion and Analysis General Fund Budgetary Highlights (Continued) Actual expenditures were $93,539 less than budget. The To help minimize fluctuations in the budget, the City budgets family insurance coverage for the majority of the employees even though some elect single and some do not elect coverage. The City's will be faced with a number of retirements in the next five (5) years and along with that comes the payment of unused accumulated benefit hours. Therefore, health insurance savings between budget and actual is transferred into a retirement reserve account for payment of unused benefit hours. In addition, budgeting for the highest insurance cost alleviates budget spikes when employees change from single to family or a new employee is hired with family insurance and the employee they are replacing was at the single rate. The City manages established and adopted a five-year capital equipment plan (CEP) and capital improvement plan (CIP). During the budget process the each year the plans are reviewed and the Council prioritizes which projects/equipment will be funded and funds are sets aside funding for equipment purchases and improvements taking into account the useful life of the equipment and infrastructure. The intent is to incrementally set aside funds to offset the purchase price of large equipment/infrastructure expenditures. Due to the large expenditures associated with some of the needed equipment such as a street sweeper and, fluctuations in budget to actual are realized. Some years will show expenditures lower than budget, some over budget in the years larger pieces are purchased. In 2017, the City updated the pavement management plan. Routine street maintenance is scheduled over the life of a street. Some years are more than others. The City levies funds annually for maintenance with some funding set aside for future years with the intent of preventing large spikes and dips in the levy. As with equipment, some years may show over-spent form the current year budget as previous year's reserves are spent down. Snow and ice removal was under budget by $59,208 mainly due to less snow and ice events during 2017 compared to some other years. State Collected Sales Tax Special Revenue State Collected Sales Tax special revenue fund began in 2006. The State of Minnesota and voters in the St. Cloud area approved a 0.5% local option sales tax to fund regional projects such as a community center, transportation needs, parks and trails, and facilities. As of December 31, 2017, the City of St. Joseph collected $3,820,999; $761,223 more than originally budgeted. The City spent $2,774,810 on facility, trails and park projects for a total restricted fund balance of $1,046,189. State Collected Sales Tax Fund Budgetary Highlights The City Council adopts a budget for the State Collected Sales Tax fund through the five-year capital improvement plan. Budgets were not amended during the year. The fund ended the year $255,650 over budget. Sales tax revenues were $28,147 over the budgeted amount and capital outlay came in under budget by $112,453. Sales tax revenues continue to exceed original expectations when the State approved the local option collection. The City budgets conservatively to avoid over-committing available funds for project planning. Government Center Capital Project Fund The Government Center capital project fund was established in 2016 for the construction of the Government Center. The Government Center includes the police department, administrative and financial services, planning and building, council chambers and a multi-purpose community room. The Government Center was constructed on the western end of the community center land. The project was completed in 2017. 15 City of St. Joseph Management's Discussion and Analysis Field Street Improvement Capital Project Fund The Field Street Improvement capital project fund was established in 2016 to construct the first phase of th the City's east/west Collector Street extending from County Road 121 to 7 Avenue SE. Minnesota State Aid in the amount of $1,438,537 was received to cover a portion of the cost. Construction was completed in 2017. Proprietary Funds. The City of St. Joseph's proprietary fund statements provide the same type of information found in the government-wide financial statements, but in more detail. The unrestricted net position of the proprietary funds increased $755,514 overall. The paragraphs on the following pages provide a brief financial overview of each major proprietary fund that supported in the increase. Water Enterprise Fund The Water fund is used to account for the operations of the City's water utility. In 2017, the water fund's net position increased $473,391. Before transfers and capital contributions, the net position would show an increase of $146,682. The net position includes depreciation of $417,012. The water operating revenues are covering over 100% of the depreciation. Bonded debt payments in the water fund totaled $622,096. Debt payments are covered by water rates, debt levy, water connection and trunk fees, and transfers from the sewer fund. Water rates have been and are projected to continue to be incrementally increased to cover operational costs as well as any water related debt. As the City was facing large rate increases and projected future projects that would require funding, the City hired a consultant to review the water rates in 2015 and provide a five (5) to ten (10) year perspective. After reviewing the consultant report and verifying potential projects requiring funding, the council approved a 5% increase in water rates for 2017 to reduce the dependency on debt levies and transfers from other funds to cover operational and non-operational expenses. Since the rate increases are based on projected growth and operational costs, it is anticipated that the rates will increase approximately 5% in the future years. The actual increase will be based on the annual review of growth and operational costs. Sanitary Sewer Enterprise Fund The Sanitary Sewer fund is used to account for the operations of the City's sanitary sewer utility. In 2017, the sanitary sewer fund's net position increased $389,833. Before transfers and capital contributions, the net position would show an increase of $195,214. As a contract user of the St. Cloud Wastewater Treatment Facility, St. Joseph is obligated to pay a portion of the costs to maintain the St. Cloud treatment facility and conveyance system. St. Joseph issued six notes with St. Cloud for various conveyance and treatment facility projects. In addition, St. Joseph issued bonds to rehabilitate the Sauk River manhole feed from the St. Joseph force main into St. Cloud, rehabilitate St. Joseph's Main lift station and sewer mains under CSAH 75, and purchased capacity in the St. Cloud Treatment Plant. The large debt costs are partially paid with reserved SAC fees, trunk fees and sewer usage rates. The development fees have been minor prior to 2016 and 2017. The City of St. Joseph experienced a larger increase in connection (SAC) fees to assist in paying debts. As stated above in the water fund, the City hired a consultant to review the sewer rates in 2015 to conduct the same analysis as for water. That is, reviewing current operational expenses, debt and future projects. After reviewing the consultant report, the council approved 16% (spring) and 59% (fall) increases in sewer rates for 2016; with no additional increase in 2017 due to the SAC fees received 2017. The report suggests that sewer rates increase 19% to assist with debt payments, less if significant SAC fees are collected. Operational revenues are covering 100% of the $481,406 depreciation. 16 City of St. Joseph Management's Discussion and Analysis Refuse Enterprise Fund The Refuse fund is used to account for the contract services to provide residential refuse, recycling and compost services. The refuse fund has a net position balance increased $3,478. Council opted to maintain refuse and compost rates to allow for larger increases in other utility funds. The current rates are covering the contracted expenses. Storm Water Enterprise Fund The Storm Water fund is used to account for the operations of the City's storm water utility. In 2017, the storm water fund's net position increased $160,498, a decrease of $39,890 before capital contributions and transfers. The storm water fund had an operating loss of $42,222 or, $62,991 surplus after removing depreciation expense. The deficit is consistent with previous years and expected with the decision to maintain storm water rates. The city council chose to maintain the fees while still covering some depreciation to allow for larger increases in other utility funds. The decision was based on the fund having a healthy net position balance. In addition, the storm water fund collected $26,948 in development fees included in the fund's charges for services. Street Light Utility Enterprise Fund The Street Light Utility fund is used to account for the operations of the City's street lighting. In 2013, the City Council voted to create a street light utility fee to pay for operations of the street lights, removing the expenditure from the general fund levy. The street light user fee allows the City to capture revenue from tax exempt properties to help pay for the service provided to them. The City of St. Joseph is somewhat unique in that over 36% of the City property is classified as tax exempt. To be fair to all users benefiting from street lighting, the city council determined a user fee was a more equitable method to charge for street lighting. The net position change of the street light utility fund was an increase of $243 at December 31, 2017. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City of St. Joseph's investment in capital assets for its governmental and business-type activities as of December 31, 2017, amounts to $49,854,247 (net of accumulated depreciation), an increase of $1,112,109. The investment in capital assets includes land, intangible assets, buildings, improvements, machinery and equipment, furniture and office equipment, infrastructure, intangible assets, and construction in progress. Net investment in capital assets increased $630,191. The increase is attributable to capital asset construction in progress for the street improvements and St. Cloud area sewer improvements, and the completion of the government center, Millstream park shelter and first phase of Field Street. The assets disposed were much smaller than the value of the improvements added. The City of St. Joseph issued four debts in 2017 for street improvements, government center, water plant improvements and two St. Cloud area sewer improvements. The bond issues were less than what was paid off in 2017. The overall debt related to capital assets decreased $958,861. The table on the following page is a summary of the City of St. Joseph's capital assets. 17 City of St. Joseph Management's Discussion and Analysis CAPITAL ASSETS Governmental ActivitiesBusiness-Type ActivitiesTotal 201720162017201620172016 Land$ 874,133 $ 874,133 $ 377,882 $ 377,882 $ 1,252,015 $ 1,252,015 Easements 175,873 175,873 67,915 67,915 243,788 243,788 Construction in progress 465,006 4,633,084 705,096 714,700 1,170,102 5,347,784 Improvements 1,369,201 1,356,427 - - 1,369,201 1,356,427 Infrastructure 20,176,666 18,830,234 - - 20,176,666 18,830,234 Buildings 9,540,762 4,746,527 8,797,686 8,797,686 18,338,448 13,544,213 Intangible assets 200,000 - - - 200,000 - Plant and lines - - 24,275,118 23,679,159 24,275,118 23,679,159 Sewer rights - - 9,068,746 8,569,212 9,068,746 8,569,212 Machinery and equipment 3,677,400 3,468,207 778,232 787,554 4,455,632 4,255,761 Less: Accumulated Depreciation (19,006,537) (17,650,104) (11,688,932) (10,686,351) (30,695,469) (28,336,455) Total$ 17,472,504 $ 16,434,381 $ 32,381,743 $ 32,307,757 $ 49,854,247 $ 48,742,138 Additional information on the City of St. Joseph's capital assets can be found in Note 5 on page 50 of this report. Total depreciation expense for 2017 was $2,556,050. Long-Term Liabilities At the end of the current fiscal year, the City of St. Joseph had total net bonded debt outstanding of $23,398,061, a decrease of $958,861. Of this amount, $11,715,929 comprises debt backed by the full faith and credit of the government. The remainder of the City of St. Joseph's debt represents bonds and notes secured by specified revenue sources (i.e. utility bonds). Other long-term debt includes compensated absences payable and net pension liabilities. The liability for other post-employment benefits no longer exists as a result of the City opting small group health insurance. Under the current medical plan the implicit rate for retirees went away. The liability was removed through operational activity in 2017. An illustration of the City's long-term liabilities is included in the table on the following page. 18 City of St. Joseph Management's Discussion and Analysis OUTSTANDING LONG-TERM LIABILITIES Percent 20172016Change Governmental Activities General Obligation Bonds$ 4,958,545$ 5,083,650-2% General Obligation Special Assessment Bonds 5,107,149 5,630,929-9% General Obligation Abatement Bonds 1,650,235 1,762,268-6% Compensated Absences Payable 452,500 402,18613% Net Other Post Employment Benefits - 209,053-100% Net Pension Liability 1,351,208 2,936,834-54% Total governmental activities$ 13,519,637$ 16,024,920-16% Business-Type Activities General Obligation Revenue Bonds$ 6,959,071$ 7,285,026-4% Notes Payable 4,723,061 4,595,049100% Compensated Absences Payable 143,239 130,78210% Net Other Post Employment Benefits - 61,124-100% Net Pension Liability 284,375 326,413100% Total business-type activities$ 12,109,746$ 12,398,394-2% The City of St. Joseph issued $337,000 General Obligation Capital Improvement Bonds, Series 2017A in August 2017. The bond issue funds the balance of the Government Center construction. The bonds will be called once proceeds from the sale of the previous city hall are received. In addition, the City issued $697,000 General Obligation Bonds, Series 2017B in August 2017. These bonds have two projects funded: 2017 alley and water treatment plant improvements. The City of St. Joseph also issued two Public Facilities Notes with the City of St. Cloud for Main lift station and biosolids improvements in the amount of $508,878. The City decreased the net bonded debt by $760,918 in the governmental activities to end the year. The business-type activities realized a decrease in bonded debt of $325,955 and an increase of $128,012 in St. Cloud notes payables. In 2017, two governmental bonds were paid in full resulting in reducing bonded debt in the governmental-type activities. The bonded business-type activities bonds spent down more of the debt liability than was added for the water treatment plant improvements. The City of St. Joseph maintained their bond rating AA-/Stable from Standard & Poor's for the general obligation debts issued in 2017. The debt issues in 2017 were under the threshold to receive a bond rating; therefore, a bond rating update was not piloted. Minnesota state statutes limit the amount of net general obligation debt a governmental entity may issue to 3% of its taxable market value. Net general obligation debt is debt solely paid for, with limited exceptions, by ad valorem taxes. The current debt limitation for the City of St. Joseph is $8,771,335 which significantly exceeds of the City of St. Joseph's outstanding pure general obligation debt of $470,000. Additional information on the St. Joseph's long-term liabilities can be found in Note 6 on pages 52-56. 19 City of St. Joseph Management's Discussion and Analysis The City also anticipates commercial/industrial development with the expansion of the Industrial Park, development to the west along Interstate 94, and planning initiatives for downtown revitalization. The first downtown project began construction in 2006 with completion in 2009. The project consists of a commercial and residential mixed-use facility and is known as the Millstream Shops and Lofts. All units are occupied. In 2014 city council approved another redevelopment TIF to add a mixed use facility in downtown. The project is entitled 24 College North (formerly known as Bayou Blues and Alley Flats). The proposed development will include two floors of residential living units, office space and restaurant. The Alley Flats consists of a four-unit two-story condominium living space, complete with roof top decks. Construction of 24 College North began early 2018 and is expected to be completed by December 2018. Also, in the downtown area, the City Council accepted a purchase agreement from Bad Habit Brewing Company for the previous city hall/police station located at 25 College Ave N, St. Joseph. In 2009 the Coborn's PUD was approved which contained three commercial development sites. The PUD is located on CSAH 75 and CR 133, one of the major commerce corridors in St. Joseph. CentraCare medical clinic, Coborn's Superstore (including grocery and liquor stores) and Central MN Credit Union currently occupy the development site. A recent market study of the St. Joseph area indicated that the trade area of St. Joseph would increase by 150% if a grocery store was added to the landscape of the City. In 2012, McDonald's opened in the adjacent area, followed by Central Minnesota Credit Union constructing their call center. In late 2017, O'Reilly's auto parts store opened on the north of McDonald's. The St. Joseph Economic Development Authority (EDA) identified the need for industrial lots. A 20 acre parcel on the north side of the current industrial park was considered for expansion in 2008. The development did not happen at that time due to the Great Recession. The property is bank owned. A local developer is considering development of the property, partnering with the City to request State BDPI funding through the Minnesota Department of Employment and Economic Development. There has been some interest for potential businesses to build on this site. The project will proceed in 2018 if funding is approved. Other developments include a second Kwik Trip convenience store adjacent to the industrial park, athletic fields and recreational facilities for the College of St. Benedicts, and the College of St. Benedicts renovating three buildings previously owned by the Monastery of St. Benedict for a Welcome Center and Administration Building. The City of St. Joseph is in the process of updating the Comprehensive Plan. In fact, the Plan is being completely re-written. Through the public engagement process, the new plan will identify ideas for future growth and identify opportunities. In 2017 the Community Center Task Force group completed their study and formalized a recommendation for the City Council for a building concept plan for the Community Center. As stated earlier, the City purchased the former Colts Academy building from ISD 742 to create a community center. Initial concept plans for the Community Center includes the addition of gym space and conversion of the existing space for items such as historical society, food shelf, activity rooms for youth and seniors, and banquet facilities. 21 City of St. Joseph Management's Discussion and Analysis In December 2017 the City of St. Joseph notified St. Joseph Township the City would be exercising their rights to annex all properties listed in the Orderly Annexation Agreement (OAA), effective April 1, 2018. Through negotiations between the City and Township, the City agreed to reconsider the area to be annexed and the effective date. The City and Township continue to develop the revised annexation area along with the new regulations and tax sharing agreements. It is anticipated that the City and Township will notify the Minnesota Boundary and Adjustment Board on July 1, 2018 of the annexation. The St. Joseph EDA has identified the need to locate a hotel in St. Joseph and have been encouraging investors to consider constructing a 40 -70 bed hotel either in the downtown area or on the interstate. The City has received various interests for the hotel and commercial/industrial development. The City submitted three bonding requests for State Legislative consideration. They include: pedestrian crossing under CSAH 75; Jacob Wetterling Recreation Center; and development of East Park. To help facilitate the bonding process the City hired a lobbyist. All the factors were considered in preparing the City of St. Joseph's budget and fee schedule for 2017 and future reporting years. The budget for 2018 was prepared knowing the following projects were anticipated or already in the construction phase: designing the 95 acres natural east park, construction of the final two phases of the County Road 2 bike trail, and improvements to the water treatment plant one. REQUESTS FOR INFORMATION The financial report is designed to provide a general overview of the City of St. Joseph's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, 75 Callaway Street East, St. Joseph, MN 56374. 22 BASIC FINANCIAL STATEMENTS 23 City of St. Joseph Statement of Net Position December 31, 2017 Governmental Business-Type ActivitiesActivitiesTotal Assets Cash and investments (including cash equivalents)$ 5,925,321$ 1,482,643$ 7,407,964 Property tax receivable 16,134 327 16,461 Accounts receivable 32,630 457,945 490,575 Interest receivable 12,477 6,581 19,058 Due from other governments 94,757 383 95,140 Notes receivable 5,025 - 5,025 Lease receivable 173,356 - 173,356 Special assessments receivable Delinquent 7,323 605 7,928 Deferred 1,706,107 27,552 1,733,659 Prepaid items 25,712 - 25,712 Net pension asset 229,928 - 229,928 Capital assets Land 874,133 377,882 1,252,015 Easements 175,873 67,915 243,788 Construction in progress 465,006 705,096 1,170,102 Buildings 9,540,762 8,797,686 18,338,448 Infrastructure 20,176,666 - 20,176,666 Improvements 1,369,201 - 1,369,201 Intangible asset 200,000 - 200,000 Plant and lines - 24,275,118 24,275,118 Machinery and equipment 3,677,400 778,232 4,455,632 Sewer rights 9,068,746 9,068,746 - Less accumulated depreciation (19,006,537) (11,688,932) (30,695,469) Capital assets (net of accumulated depreciation) 17,472,504 32,381,743 49,854,247 25,701,274 34,357,779 60,059,053 Total assets Deferred Outflows of Resources Deferred outflows of resources related to pensions 1,292,782 78,580 1,371,362 $ 26,994,056$ 34,436,359$ 61,430,415 Total assets and deferred outflows of resources Liabilities Accounts payable$ 101,050$ 45,932$ 146,982 Contracts payable 86,960 - 86,960 Due to other governments 10,822 62,534 73,356 121,869 15,383 137,252 Salaries and benefits payable Interest payable 27,414 54,783 82,197 Bond principal payable (net) Payable within one year 1,158,000 756,000 1,914,000 Payable after one year 10,557,929 6,203,071 16,761,000 Notes payable (net) Payable within one year - 455,101 455,101 Payable after one year - 4,267,960 4,267,960 Compensated absences payable Payable within one year 81,027 20,780 101,807 Payable after one year 371,473 122,459 493,932 Net pension liability 1,351,208 284,375 1,635,583 Total liabilities 13,867,752 12,288,378 26,156,130 Deferred Inflows of Resources 173,356 - 173,356 Deferred inflows of resources related to lease receivables Deferred inflows of resources related to pensions 1,399,302 51,773 1,451,075 Total deferred inflows of resources 1,572,658 51,773 1,624,431 Net Position 7,626,612 20,699,611 26,508,482 Net investment in capital assets Restricted for 2,706,373 - 2,706,373 Debt service Other purposes 1,467,136 - 1,467,136 Unrestricted (246,475) 1,396,597 2,967,863 Total net position 11,553,646 22,096,208 33,649,854 Total liabilities, deferred inflows of resources, and net position$ 26,994,056$ 34,436,359$ 61,430,415 See notes to financial statements.24 - 42 2,034 85,21612,59576,168 (42,204) 515,997310,214786,083437,232129,242927,154 (949,291) (946,838)(360,282)(129,789)(341,593)(299,612) 2,017,6363,685,2431,443,921 Total (3,027,405) (2,241,322) 32,205,93333,649,854 $ $ ------------ 42 2,034 23,89323,458 (42,204) 515,997310,214786,083786,083425,946473,297 1,259,380 20,836,82822,096,208 Activities Business-Type $ $ Net (Expense) Revenue and Changes in Net Position ------ 85,21612,59552,710 437,232129,242927,154184,541 (949,291) (946,838) (360,282) (129,789) (341,593) (299,612) (425,946) 1,993,7433,211,946 (3,027,405) (3,027,405) 11,369,10511,553,646 Activities Governmental $ $ ------ 701701 3,171 17,51750,728 894,789966,205966,906 Capital Grants $ $ and Contributions --- 48 85 18 19 752123293 1,975 147,399150,126150,419 $ $ Operating Grants and Contributions Program Revenues City of St. Joseph - Statement of Activities 28,94612,06479,77664,889 Year Ended December 31, 2017 112,096660,063892,945291,506127,167 1,435,5441,416,7553,335,8614,228,806 Services Charges for $ $ 64,866 Total general revenues and transfers 141,853472,849299,612920,296289,557169,389 1,080,8791,757,4711,284,0175,036,6811,106,6642,550,7727,587,453 Property taxesTax incrementsSales taxesLodging taxesFranchise feesState aidsUnrestricted investment earnings Expenses $ $ General revenuesTransfersChange in net positionNet position - beginningNet position - ending Total governmental activitiesTotal business-type activitiesTotal governmental and business-type activities See notes to financial statements. General governmentPublic safetyPublic worksEconomic developmentCulture and recreationInterest on long-term debtWaterSanitary sewerRefuseStorm waterStreet light utility 25 Functions/ProgramsGovernmental activitiesBusiness-type activities City of St. Joseph Balance Sheet - Governmental Funds December 31, 2017 Special Revenue General Fund Other Total (101, 102, State Collected Governmental Governmental 105, 108)Sales Tax (200)FundsFunds Assets Cash and investments$ 2,507,026 $ 961,315$ 2,704,590$ 6,172,931 Taxes receivable - delinquent 9,572 - 6,562 16,134 Special assessments receivable Delinquent - - 7,323 7,323 Deferred 13,972 - 1,692,135 1,706,107 Accounts receivable 30,784 - 1,846 32,630 Interest receivable 6,193 - 6,753 12,946 Due from other funds - - 13,700 13,700 Due from other governments 5,731 85,753 3,273 94,757 Notes receivable - - 5,025 5,025 Lease receivable 173,356 - - 173,356 Prepaid items 25,712 - - 25,712 Total assets$ 2,772,346 $ 1,047,068$ 4,441,207$ 8,260,621 Liabilities Accounts payable$ 90,397 $ 879 $ 9,774$ 101,050 Contracts payable - - 86,960 86,960 Due to other funds - - 13,700 13,700 Due to other governments 8,768 - 2,054 10,822 Salaries and benefits payable 120,458 - 1,411 121,869 Total liabilities 219,623 879 113,899 334,401 Deferred Inflows of Resources Unavailable revenue - property taxes 9,572 - 6,562 16,134 Unavailable revenue - special assessments 13,972 - 1,699,458 1,713,430 Unavailable revenue - notes receivable - - 5,025 5,025 Unavailable revenue - leases receivable 173,356 - - 173,356 196,900 - 1,711,045 1,907,945 Total deferred inflows of resources Fund Balances Nonspendable 25,712 - - 25,712 Restricted 34,370 1,046,189 1,547,008 2,627,567 Committed - - 39,774 39,774 Assigned 846,378 - 1,040,007 1,886,385 Unassigned 1,449,363 - (10,526) 1,438,837 Total fund balances 2,355,823 1,046,189 2,616,263 6,018,275 Total liabilities, deferred inflows of resources, and fund balances$ 2,772,346 $ 1,047,068$ 4,441,207$ 8,260,621 See notes to financial statements. 26 City of St. Joseph Reconciliation of the Balance Sheet to The Statement of Net Position - Governmental Funds Year Ended December 31, 2017 Total fund balances - governmental funds$ 6,018,275 Amounts reported for governmental activities in the Statement of Net Position are different because Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Cost of capital assets 36,479,041 Less accumulated depreciation (19,006,537) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of (11,715,929) Bond principal payable, net of premiums and discounts (452,500) Compensated absences payable Delinquent receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. 16,134 Property taxes 7,323 Special assessments Other long-term assets are not available to pay for current expenditures and, therefore, are deferred in the funds. 1,706,107 Deferred special assessments 5,025 Notes receivable Deferred outflows of resources and deferred inflows of resources are created as a result of various differences related to pensions that are not recognized in the governmental funds. Deferred inflows of resources related to pensions (1,399,302) Deferred outflows of resources related to pensions 1,292,782 Fire relief net pension asset 229,928 Net pension liability (1,351,208) The water access capital project fund is proprietary in nature and, therefore, (241,721) included in the business-type activities in the Statement of Net Position. The sewer access capital project fund is proprietary in nature and, therefore, (6,358) included in the business-type activities in the Statement of Net Position. Governmental funds do not report a liability for accrued interest (27,414) due and payable. Total net position - governmental activities $ 11,553,646 See notes to financial statements. 27 City of St. Joseph Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended December 31, 2017 Special RevenueCapital Projects 2016 Field General Fund Street Other Total (101, 102, 105, State Collected Government Improvements Governmental Governmental 108)Sales Tax (200)Center (401)(404)FundsFunds Revenues Property taxes$ 1,124,680$ -$ - $ - $ 865,781$ 1,990,461 Tax increments - - - - 85,216 85,216 Sales taxes 1,085 436,147 - - - 437,232 Lodging taxes - - - 12,595 12,595 Special assessments 9,127 - - - 399,609 408,736 Franchise fees 129,242 - - - - 129,242 Licenses and permits 356,990 - - - - 356,990 Intergovernmental 1,133,362 - 14,017 - - 1,147,379 Charges for services 376,946 - - - 560,291 937,237 Fines and forfeitures 55,474 - - - - 55,474 Miscellaneous Investment income 20,686 - - - 25,464 46,150 Contributions and donations 5,094 40,000 - - 8,999 54,093 Revolving loan repayments - - - - 34,785 34,785 Other 45,351 - - - 11,078 56,429 Total revenues 3,258,037 476,147 14,017 - 2,003,818 5,752,019 Expenditures Current General government 749,008 - - - - 749,008 Public safety 1,537,183 - - - - 1,537,183 Public works 342,806 - - - - 342,806 Culture and recreation 270,555 - - - 5,390 275,945 Economic development - - - - 133,485 133,485 Debt service Principal - - - - 1,425,000 1,425,000 Interest and other charges - - - - 316,153 316,153 Capital outlay General government - - 507,242 - 1,411 508,653 Public safety 74,413 - 250,000 - 17,546 341,959 Public works 54,856 - - 1,033,923 425,046 1,513,825 Culture and recreation 425 837,547 55,828 - 32,065 925,865 Total expenditures 3,029,246 837,547 813,070 1,033,923 2,356,096 8,069,882 Excess of revenues over (under) expenditures 228,791 (361,400) (799,053) (1,033,923) (352,278) (2,317,863) Other Financing Sources (Uses) Insurance recoveries 1,470 - - - - 1,470 Sale of property 275 - 1,069 - 23,483 24,827 Bonds issued - - 325,747 - 355,253 681,000 Transfers in 13,896 - 6,176 - 1,078,767 1,098,839 Transfers out (250,548) (162,000) (2,177) (199,566) (737,198) (1,351,489) Total other financing sources (uses) (234,907) (162,000) 330,815 (199,566) 720,305 454,647 Net change in fund balances (6,116) (523,400) (468,238) (1,233,489) 368,027 (1,863,216) Fund Balances Beginning of year2,361,939 1,569,589 468,238 1,233,489 2,248,236 7,881,491 End of year$ 2,355,823$ 1,046,189$ - $ - $ 2,616,263$ 6,018,275 See notes to financial statements. 28 City of St. Joseph Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities - Governmental Funds Year Ended December 31, 2017 Total net change in fund balances - governmental funds$ (1,863,216) Amounts reported for governmental activities in the Statement of Activities are different because Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. 3,065,444 Capital outlays 5,546 Capital contributions (1,545,813) Depreciation expense (18,758) Loss on disposal (468,296) Transferred to proprietary funds Principal payments on long-term debt are recognized as expenditures in the governmental 1,425,000 funds but as an increase in net position in the Statement of Activities. 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. (377) Accrued interest payable 16,918 Amortization of bond discounts, premiums and issuance charges Proceeds from long-term debt are recognized as an other financing source in the governmental (681,000) funds but as a decrease in net position in the Statement of Activities. Compensated absences and OPEB payments are recognized as paid in the 158,739 governmental funds but recognized as the expense is incurred in the Statement of Activities. Delinquent receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are not revenues in the funds. 1,904 Delinquent special assessments 3,282 Delinquent property taxes Certain revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. 438,464 Deferred special assessments (33,799) Notes receivable Governmental funds recognized pension contributions as expenditures at the time of payment whereas the Statement of Activities factors in items related to pensions on a full accrual perspective. (87,560) Pension expense The water access capital project fund is proprietary in nature and, therefore, is reported (200,622) with business-type activities. The sewer access capital project fund is proprietary in nature and, therefore, is reported (31,315) with business-type activities. Change in net position - governmental activities$ 184,541 See notes to financial statements.29 City of St. Joseph Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended December 31, 2017 Variance with Original and Actual Final Budget - Final BudgetAmountsOver (Under) Revenues Property taxes$ 1,128,180$ 1,124,680 $ (3,500) Sales taxes - 1,085 1,085 Special assessments 3,000 9,127 6,127 Franchise fees 126,300 129,242 2,942 Licenses and permits 157,035 356,990 199,955 Intergovernmental 1,155,220 1,133,362 (21,858) Charges for services 361,990 376,946 14,956 Fines and forfeitures 43,000 55,474 12,474 Miscellaneous revenues Investment income 37,000 20,686 (16,314) Contributions and donations 3,550 5,094 1,544 Other 44,850 45,351 501 Total revenues 3,060,125 3,258,037 197,912 Expenditures Current General government 662,175 749,008 86,833 Public safety 1,581,460 1,537,183 (44,277) Public works 403,220 342,806 (60,414) Culture and recreation 299,470 270,555 (28,915) Capital outlay General government 2,760 - (2,760) Public safety 84,100 74,413 (9,687) Public works 89,600 54,856 (34,744) Culture and recreation - 425 425 Total expenditures 3,122,785 3,029,246 (93,539) Excess of revenues over (under) expenditures (62,660) 228,791 291,451 Other Financing Sources (Uses) Insurance recoveries - 1,470 1,470 Sale of property 12,350 275 (12,075) Transfers in - 13,896 13,896 Transfers out (39,000) (250,548) (211,548) Total other financing sources (uses) (26,650) (234,907) (208,257) Net change in fund balances$ (89,310) (6,116)$ 83,194 Fund Balances Beginning of year2,361,939 End of year$ 2,355,823 See notes to the financial statements.30 City of St. Joseph Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - State Collected Sales Tax Year Ended December 31, 2017 Variance with Original and Actual Final Budget - Final BudgetAmountsOver (Under) Revenues Sales taxes$ 408,000 $ 436,147$ 28,147 Miscellaneous revenues Contributions and donations - 40,000 40,000 Total revenues 408,000 476,147 68,147 Expenditures Capital outlay Culture and recreation 950,000 837,547 (112,453) Excess of revenues over (under) expenditures (542,000) (361,400) 180,600 Other Financing Sources (Uses) Transfers out (237,050) (162,000) 75,050 Net change in fund balances$ (779,050) (523,400)$ 255,650 Fund Balances Beginning of year1,569,589 End of year$ 1,046,189 See notes to the financial statements.31 City of St. Joseph Statement of Net Position - Proprietary Funds December 31, 2017 Sanitary Sewer Storm Water Street Light Water (601)(602)Refuse (603)(651)Utility (652)Total Assets Current assets Cash and investments$ 670,382$ 2,346 $ 257,764$ 280,964$ 23,577$ 1,235,033 Taxes receivable - delinquent 327 - - - - 327 Special assessments receivable Delinquent 605 - - - - 605 Deferred 24,557 84 80 2,814 17 27,552 Accounts receivable 159,810 221,288 49,370 16,954 10,523 457,945 Interest receivable 1,650 3,135 621 649 57 6,112 Due from other governments 68 - 315 - - 383 Total current assets 857,399 226,853 308,150 301,381 34,174 1,727,957 Noncurrent assets Capital assets Land 372,941 4,941 - - - 377,882 Easements - - - 67,915 - 67,915 Construction in progress 93,860 451,979 - 159,257 - 705,096 Buildings 7,502,432 1,295,254 - - - 8,797,686 Plants and lines 10,372,479 8,724,026 - 5,178,613 - 24,275,118 Machinery and equipment 199,940 530,068 45,842 2,382 - 778,232 Sewer rights - 9,068,746 - - - 9,068,746 Total capital assets 18,541,652 20,075,014 45,842 5,408,167 - 44,070,675 Less accumulated depreciation (5,270,138) (4,968,606) (32,830) (1,417,358) - (11,688,932) Net capital assets 13,271,514 15,106,408 13,012 3,990,809 - 32,381,743 Total assets 14,128,913 15,333,261 321,162 4,292,190 34,174 34,109,700 Deferred Outflows of Resources Deferred outflows of resources related to pensions 36,428 29,512 3,816 7,298 1,526 78,580 Total assets and deferred $ 14,165,341$ 15,362,773 $ 324,978$ 4,299,488$ 35,700$ 34,188,280 outflows of resources Liabilities Current liabilities Accounts payable$ 18,438$ 2,656 $ 20,583$ 9$ 4,246$ 45,932 Due to other governments 2,238 57,571 2,725 - - 62,534 Salaries and benefits payable 7,229 5,604 810 1,424 316 15,383 Interest payable 12,161 42,622 - - - 54,783 Long-term liabilities due Within one year 584,427 643,528 934 2,619 373 1,231,881 Total current liabilities 624,493 751,981 25,052 4,052 4,935 1,410,513 Noncurrent liabilities Compensated absences 59,620 59,620 8,650 11,890 3,459 143,239 Notes payable, net - 4,723,061 - - - 4,723,061 Bonds payable, net 5,248,737 1,710,334 - - - 6,959,071 Net pension liability 131,829 106,802 13,809 26,411 5,524 284,375 Less amounts due within one year (584,427) (643,528) (934) (2,619) (373) (1,231,881) Total noncurrent liabilities 4,855,759 5,956,289 21,525 35,682 8,610 10,877,865 Total liabilities 5,480,252 6,708,270 46,577 39,734 13,545 12,288,378 Deferred Inflows of Resources Deferred inflows of resources related to pensions 24,001 19,444 2,514 4,808 1,006 51,773 Net Position Net investment in capital assets 8,022,777 8,673,013 13,012 3,990,809 - 20,699,611 Unrestricted 638,311 (37,954) 262,875 264,137 21,149 1,148,518 Total net position 8,661,088 8,635,059 275,887 4,254,946 21,149 21,848,129 Total liabilities, deferred inflows of resources, and net position$ 14,165,341$ 15,362,773 $ 324,978$ 4,299,488$ 35,700$ 34,188,280 See notes to financial statements.32 City of St. Joseph Reconciliation of the Statement of Net Position - Business-Type Activities December 31, 2017 Total net position - proprietary funds$ 21,848,129 Amounts reported for business-type activities in the Statement of Net Position are different because The water access capital project fund is proprietary in nature and relates to water improvements for the applicable funds. Therefore, 241,721 it is included as a business-type activity. The sewer access capital project fund is proprietary in nature and relates to sewer improvements for the applicable funds. Therefore, 6,358 it is included as a business-type activity. Total net position - business-type activities $ 22,096,208 See notes to financial statements. 33 City of St. Joseph Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds Year Ended December 31, 2017 Sanitary Storm Water Street Light Water (601)Sewer (602)Refuse (603)(651)Utility (652)Total Operating revenues Charges for services$ 968,823 $ 1,271,765$ 288,151 $ 127,167 $ 61,359 $ 2,717,265 Operating Expenses Wages and salaries 165,607 135,543 20,621 34,581 8,748 365,100 Materials and supplies 59,424 35,280 2,790 252 - 97,746 Repairs and maintenance 26,374 31,785 2,225 17,042 10,996 88,422 Professional services 33,437 18,121 4,061 10,695 - 66,314 Insurance 11,690 10,653 - - - 22,343 Utilities 68,613 17,610 578 - 44,771 131,572 Depreciation 417,012 481,406 6,606 105,213 - 1,010,237 Contracted services - 220,528 251,100 - - 471,628 Equipment - 6,152 - - - 6,152 Miscellaneous 9,622 2,070 1,576 1,606 351 15,225 Total operating expenses 791,779 959,148 289,557 169,389 64,866 2,274,739 Operating income (loss) 177,044 312,617 (1,406) (42,222) (3,507) 442,526 Nonoperating revenues (expenses) Investment income 5,882 11,174 2,214 2,314 201 21,785 Special assessments 701 84 80 8 17 890 Loss on disposal of asset (1,458) (208) - - - (1,666) Property taxes 23,893 - - - - 23,893 Interest expense (133,955) (151,289) - - - (285,244) Amortization of bond premium 6,896 3,981 - - - 10,877 Other income 67,679 18,855 3,360 10 3,532 93,436 Total nonoperating revenues (expenses) (30,362) (117,403) 5,654 2,332 3,750 (136,029) Income (loss) before capital contributions and transfers 146,682 195,214 4,248 (39,890) 243 306,497 Capital contributions 104,499 144,159 - 219,638 - 468,296 Transfers in 263,980 95,000 - - - 358,980 Transfers out (41,770) (44,540) (770) (19,250) - (106,330) Change in net position 473,391 389,833 3,478 160,498 243 1,027,443 Net position Beginning of year 8,187,697 8,245,226 272,409 4,094,448 20,906 20,820,686 End of year$ 8,661,088 $ 8,635,059$ 275,887 $ 4,254,946 $ 21,149 $ 21,848,129 See notes to financial statements. 34 City of St. Joseph Reconciliation of the Statement of Revenues, Expenses, and Changes in Net Position - Business-Type Activities Year Ended December 31, 2017 Total net change in fund net position - proprietary funds$ 1,027,443 Amounts reported for business-type activities in the Statement of Activities are different because: Recognized current year activity from the water access capital project fund with the business-type activities. 200,622 Recognized current year activity from the sewer access capital project fund with the business-type activities. 31,315 Capital contributions from governmental activities (468,296) Transfers in of capital assets from governmental activities 468,296 Change in net position - business-type activities$ 1,259,380 See notes to financial statements.35 City of St. Joseph Statement of Cash Flows - Proprietary Funds Year Ended December 31, 2017 Sanitary Refuse Storm Water Street Light Water (601)Sewer (602)(603)(651)Utility (652)Total Cash Flows - Operating Activities Receipts from customers and users$ 952,959 $ 1,270,825$ 292,127$ 128,526$ 62,006 $ 2,706,443 Payments to suppliers (198,163) (396,345) (260,787) (31,740) (56,331) (943,366) Payments to employees (165,995) (135,521) (25,862) (43,004) (8,584) (378,966) Other miscellaneous receipts 91,638 18,855 3,360 2,816 3,532 120,201 Net cash flows - operating activities 680,439 757,814 8,838 56,598 623 1,504,312 Cash Flows - Noncapital Financing Activities Interfund loan payment - (30,000) - - - (30,000) Transfer from other funds 263,980 95,000 - - - 358,980 Transfer to other funds (41,770) (44,540) (770) (19,250) - (106,330) Net cash flows - noncapital financing Activities 222,210 20,460 (770) (19,250) - 222,650 Cash Flows - Capital and Related Financing Activities Principal paid on debt (490,000) (558,944) - - - (1,048,944) Interest paid on debt (132,096) (153,120) - - - (285,216) Bond proceeds 353,000 508,878 - - - 861,878 Acquisition of capital assets (30,975) (586,618) - - - (617,593) Net cash flows - capital and related Financing activities (300,071) (789,804) - - - (1,089,875) Cash Flows - Investing Activities Interest and dividends received 6,936 8,098 2,034 2,118 182 19,368 Net change in cash and cash equivalents 609,514 (3,432) 10,102 39,466 805 656,455 Cash and Cash Equivalents Beginning of year 60,868 5,778 247,662 241,498 22,772 578,578 End of year$ 670,382 $ 2,346$ 257,764$ 280,964$ 23,577 $ 1,235,033 Reconciliation of Operating Income (Loss) to Net Cash Flows - Operating Activities Operating income (loss)$ 177,044 $ 312,617$ (1,406) $ (42,222)$ (3,507)$ 442,526 Adjustments to reconcile operating loss to net cash flows - operating activities Depreciation expense 417,012 481,406 6,606 105,213 - 1,010,237 Pension expense 21,658 17,623 (1,889) (6,017) 72 31,447 Other miscellaneous receipts 91,638 18,855 3,360 2,816 3,532 120,201 Accounts receivable (16,223) (940) 4,291 1,359 647 (10,866) Due from other governments 359 - (315) - - 44 Accounts payable 10,464 (443) 1,431 (2,145) (213) 9,094 Due to other governmental units 533 (53,703) 112 - - (53,058) Salaries payable 2,084 1,083 48 139 - 3,354 Compensated absences payable 5,524 5,524 231 1,086 92 12,457 Net OPEB obligation (29,654) (24,208) (3,631) (3,631) - (61,124) Total adjustments 503,395 445,197 10,244 98,820 4,130 1,061,786 Net cash flows - operating activities$ 680,439 $ 757,814$ 8,838$ 56,598$ 623 $ 1,504,312 Non-Cash Activities Capital asset contributions from governmental funds$ 104,499 $ 144,159$ - $ 219,638$ -$ 468,296 See notes to financial statements. 36 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of St. Joseph (the "City") is a statutory city governed by an elected mayor and four council members. The accompanying financial statements present the government entities for which the government is considered to be financially accountable. The financial statements represent the City and its component units. The City includes all funds, account groups, organizations, institutions, agencies, departments, and offices that are not legally separate from such. Component units are legally separate organizations for which the elected officials of the City are financially accountable and are included within the basic financial statements of the City because of the significance of their operational or financial relationships with the City. The City is considered financially accountable for a component unit if it appoints a voting majority of the organization's governing body and it is able to impose its will on the organization by significantly influencing the programs, projects, activities, or level of services performed or provided by the organization, or there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on, the City. As a result of applying the component unit definition criteria above, certain organizations have been defined and are presented in this report as follows: Blended Component Unit Reported as if they were part of the City. Joint Ventures The relationship of the City with the entity is disclosed. For the categories above, the specific entities are identified as follows: 1. Blended Component Unit The St. Joseph Economic Development Authority (EDA) was organized for the purpose of preserving and creating jobs, enhancing the tax base, and promoting the general welfare of the people of the City. The St. Joseph EDA is governed by a five member board appointed by the City Council, two members of which are City Council Members. The St. Joseph EDA is included as a blended component unit of the City because the St. Joseph EDA is financially accountable to the City, as the City Council approves the budget. The St. Joseph EDA provides services almost entirely for the City. The St. Joseph EDA is presented as the Economic Development Authority Special Revenue Fund. Separate financial statements are not prepared for the St. Joseph EDA. 37 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) 2. Joint Ventures The Central Minnesota Major Crime Investigation Unit is a group of local law enforcement officers within the four county surrounding areas that will be available to assist any of the participating entities in the investigation and solution of major crimes. During 2017, the City contributed $10,290 to the organization. It is reported as a special revenue fund of the City of Sauk Rapids. Complete financial statements can be obtained from: City of Sauk Rapids, 250 Summit Avenue North, Sauk Rapids, Minnesota 56379. The City of St. Cloud Human Rights Office is a joint venture between the cities of St. Cloud, St. Joseph, Sauk Rapids, and Sartell, which works to enhance the lives of the citizens of the communities. During 2017, the City contributed $0 to the organization. It is reported as an agency fund of the City of St. Cloud. Complete financial statements can be obtained from: City of nd St. Cloud, 400 2 Street South, St. Cloud, Minnesota 56301. B.Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the City. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Interest on general long-term debt is considered an indirect expense and is reported separately in the Statement of Activities. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Internally dedicated revenues are reported as general revenues rather than program revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 38 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current period. Only the portion of special assessments receivable due within the current period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Description of Funds Major Governmental Funds: General Fund This fund is the City's primary operating fund. It accounts for all financial resources of the general City, except those required to be accounted for in another fund. State Collected Sales Tax This fund accounts for the collection of state approved local option sales tax. Government Center This fund accounts for the costs associated with the construction of the Government Center. 2016 Field Street Improvements This fund accounts for the costs associated with the City's street improvement project. Proprietary Funds Water Fund This fund accounts for the operations of the City's water utility. Sanitary Sewer Fund This fund accounts for the operations of the City's sanitary sewer utility. Refuse Fund This fund accounts for the operations of the City's refuse and compost utility. Storm Water Fund This fund accounts for the operations of the City's storm water utility. Street Light Utility Fund This fund accounts for the operations of the City's street light utility. 39 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City's water, sanitary sewer, refuse, storm water, and street light utility functions and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Water, Sanitary Sewer, Refuse, Storm Water, and Street Light Utility Enterprise Funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity 1. Cash and Investments Cash and investments include balances from all funds that are combined and invested to the extent available in various securities as authorized by state law. Earnings from the pooled investments are allocated to the individual funds based on the average of month-end cash and investment balances. The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short- term investments with original maturities of three months or less from the date of acquisition. Minnesota Statutes authorizes the City to invest in obligations of the U.S. Treasury, agencies, and instrumentalities, shares of investment companies whose only investments are in the aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' acceptances, future contracts, repurchase and reverse repurchase agreements, and commercial paper of the highest quality with a maturity of no longer than 270 days and in the Minnesota Municipal Investment Pool. Certain investments for the City are reported at fair value as disclosed in Note 3. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. 40 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity (Continued) 2. Receivables and Payables All trade and property tax receivables are shown at a gross amount since both are assessable to the property taxes and are collectible upon the sale of the property. The City levies its property tax for the subsequent year during the month of December. December 28 is the last day the City can certify a tax levy to the County Auditor for collection the following year. Such taxes become a lien on January 1 and are recorded as receivables by the City at that date. The property tax is recorded as revenue when it becomes measurable and available. Stearns County is the collecting agency for the levy and remits the collections to the City four times a year. The tax levy notice is mailed in March with the first half of the payment due on May 15 and the second half due on October 15. Taxes not collected as of December 31 each year are shown as delinquent taxes receivable. The County Auditor prepares the tax list for all taxable property in the City, applying the applicable tax rate to the tax capacity of individual properties, to arrive at the actual tax for each property. The County Auditor also collects all special assessments, except for certain prepayments paid directly to the City. The County Auditor submits the list of taxes and special assessments to be collected on each parcel of property to the County Treasurer in January of each year. 3. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaid items are reported using the consumption method and recorded as expenditures at the time of consumption. 4. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. 41 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity (Continued) 4. Capital Assets (Continued) Property, plant, and equipment of the City are depreciated using the straight-line full year convention method over the following estimated useful lives: AssetsYears Land improvements 5-20 Buildings30-40 Building improvements15 Infrastructure10-50 Sewer rights20-50 Furniture and fixtures 5-10 Vehicles 5-20 Equipment3-7 Machinery5-7 5. Deferred Outflows/ Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The City presents deferred outflows of resources on the Statements of Net Position for deferred outflows of resources related to pensions for various estimate differences that will be amortized and recognized over future years. In addition to liabilities, the statement of financial position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to future periods and so will not be recognized as an inflow of resources (revenue) until that time. The City has two items that qualify for reporting in this category. The City presents deferred inflows of resources on the Governmental Fund Balance Sheet as unavailable revenue. The governmental funds report unavailable revenues from four sources: property taxes, special assessments, notes receivable, and leases receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The City presents deferred inflows of resources on the Statements of Net Position for deferred inflows of resources related to pensions for various estimate differences that will be amortized and recognized over future years. 42 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity (Continued) 6. Compensated Absences The City compensates employees who leave City service in good standing for all earned, unused vacation. Employees can accrue up to 200 hours of vacation depending on years of service. The maximum amount of carryover from year-to-year is 100 hours or the amount of the current vacation accrual rate. In addition, employees are compensated for unused sick leave (up to a maximum of 720 hours or 960 hours for LELS and AFSCME employees) at various rates depending on the employee type and years of service, provided the City's notice of termination policy has been complied with. 7. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 8. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and the relief association and additions to/deductions from PERA's and the relief association's fiduciary net position have been determined on the same basis as they are reported by PERA and the relief association except that PERA's fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 43 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity (Continued) 9. Fund Equity a) Classification In the fund financial statements, governmental funds report fund classifications that comprise a hierarchy based primarily on the extent to which the City is bond to honor constraints on the specific purpose for which amounts in those funds can be spent. Nonspendable Fund Balance These are amounts that cannot be spent because they are not in spendable form as they are legally or contractually required to be maintained intact and include amounts set aside for prepaid items. Restricted Fund Balance These are amounts that are restricted to specific purposes either by a) constraints placed on the use of resources by creditors, grantors, contributors, or laws or regulations of other governments, or b) imposed by law through enabling legislation. Committed Fund Balance These are amounts that can only be used for specific purposes pursuant to constraints imposed by the City Council (highest level of decision making authority) through resolution. The City Council must also pass a resolution to remove the constraint of committed resources. Assigned Fund Balance These are amounts that are constrained by the City's intent to be used for specific purposes but are neither restricted nor committed. Assignments are made by the City's Finance Director based on the City Council's direction. Unassigned Fund Balance These are residual amounts in the General Fund not reported in any other classification. The General Fund is the only fund that can report a positive unassigned fund balance. Other funds would report a negative unassigned fund balance should the total of nonspendable, restricted, committed, and assigned fund balances exceed the total net resources of that fund. When both restricted and unrestricted resources are available for use, it is the City's policy to first use restricted resources, and then use unrestricted resources as they are needed. When committed, assigned, and unassigned resources are available for use, it is the City's policy to use resources in the following order: committed, assigned, and unassigned. b) Minimum Fund Balance The City's target General Fund balance is to maintain working capital, a portion of the unassigned balance, in the amount of four to six months of the next year's budgeted expenditures of the General Fund, excluding the fire department. 44 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/ Inflows of Resources, and Net Position or Equity (Continued) 10. Net Position Net position represents the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources in the government-wide financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. A reclassification of $1,817,741 between the net position and unrestricted net position on the total column in the Statement of Net Position to recognize the portion of debt attributable to capital assets donated from governmental activities to business-type activities. Net position is reported as restricted in the government-wide financial statement when there are limitations on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The restricted for other purposes restriction of net position for governmental activities of $1,467,136 includes $25,550 for tax incrementing financing, $1,046,189 in state collected sales tax restricted by enabling legislation, $20,755 restricted for lodging tax, $121,382 in park dedication fees, $2,090 restricted by donors for future projects, $11,145 DEED Funds, $205,655 in revolving loan funds restricted for EDA projects and $34,370 of restricted PEG access fees. 11. 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. E.Budgetary Information 1. In August of each year, City staff submits to the City Council, a proposed operating budget for the year commencing the following January 1. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comments. 3. The budget is legally enacted through passage of a resolution after obtaining taxpayer comments. 4. Budgets for the General Fund and the Economic Development Authority Special Revenue Fund are adopted on a basis consistent with accounting principles generally accepted in the United States of America. 5. Expenditures may not legally exceed budgeted appropriations at the department level. No fund's budget can be increased without City Council approval. The City Council may authorize transfer of budgeted amounts between departments within any fund. Management may amend budgets within a department level, so long as the total department budget is not changed. 45 City of St. Joseph Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E.Budgetary Information (Continued) 6. Annual appropriated budgets are adopted during the year for the General Fund and the Economic Development Authority Special Revenue Fund. Budgetary control for the remaining special revenue fund is done through the use of project controls when the council authorizes the project. Annual appropriated budgets are not adopted for Debt Service Funds because effective budgetary control is alternatively achieved through bond indenture provisions. Budgetary control for Capital Projects Funds is accomplished through the use of project controls and formal appropriated budgets are not adopted. 7. Budgeted amounts are as originally adopted by the City Council. Budgeted expenditure appropriations lapse at year-end. Encumbrances outstanding at year-end expire and outstanding purchase orders are canceled and not reported in the financial statements. NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Deficit Fund Balance The following fund had a deficit fund balance at December 31, 2017. Nonmajor governmental funds Special Revenue TIF 2-2 St. Joseph Meat Market$ 166 TIF 2-3 Bayou Blues/Alley Flat 7,080 TIF 3-1 Central Minnesota Credit Union 3,236 Debt Service G.O. Certificates of Indebtedness of 2011A 44 This deficit will be eliminated with future tax increment revenues and future debt levies. NOTE 3 DEPOSITS AND INVESTMENTS Cash balances of the City's funds are combined (pooled) and invested to the extent available in various investments authorized by Minnesota Statutes. Each fund's portion of this pool (or pools) is displayed in the financial statements as "cash and cash equivalents" or "investments." For purposes of identifying risk of investing public funds, the balances and related restrictions are summarized on the following page. 46 City of St. Joseph Notes to Financial Statements NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) A. Deposits Custodial Credit Risk Deposits: This is the risk that in the event of a bank failure, the City's deposits may not be returned to it. The City has a policy that requires the District's deposits be collateralized as required by Minnesota Statutes for an amount exceeding FDIC, SAIF, BIF, or FCUA coverage. As of December 31, 2017, the City's bank balance was not exposed to custodial credit risk because it was fully insured through the FDIC or NCUA and fully collateralized with securities held by the pledging financial institutions trust department or agent and in the City's name. As of December 31, 2017, the City's deposits had a carrying value as shown below. Certificates of deposit$ 426,184 Checking 159,316 Savings 3,128,263 Total$ 3,713,763 B.Investments As of December 31, 2017, the City had the following investments: Weighted FairAverageMoody's ValueMaturity (Years)Rating Brokered certificates of deposit$ 3,395,087 2.20N/A Brokered money market 909N/AN/A U.S. government securities 297,9307.01AA+ Total$ 3,693,926 Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes 118A.04 and 118A.05 limit investments that are in the top two ratings issued by nationally recognized statistical rating organizations. The City's investment policy limits the allowable investments in accordance with these statutes. As of December 31, 2017, the City's investments were rated as listed in the table above. Interest Rate Risk: The City should try to minimize the risk that arises from over investing in specific instruments, individual financial institutions, or maturities. The City's investment policy states the investment portfolio will be structured so that securities mature to meet cash flow requirements and avoiding the need to sell securities prior to maturity, investing in short-term securities, investing in long- term securities if the market rate is favorable. 47 City of St. Joseph Notes to Financial Statements NOTE 4 INTERFUND BALANCES AND TRANSFERS A. Interfund Balances The composition of interfund balances as of December 31, 2017, is as follows: Amounts Due to Other Funds Other Governmental Funds Amounts Due from Other Funds Other governmental Funds$ 13,700 The due from/due to other funds balances represent loans made to cover tax increment financing (TIF) consulting costs to establish the TIF districts. B.Transfers The composition of interfund transfers as of December 31, 2017, is as follows: Transfer InTransfer OutDescription Amount General FundSanitary SewerTransfer retirement reserve funding$ 1,540 General FundRefuseTransfer retirement reserve funding 770 General FundWaterTransfer retirement reserve funding 770 Transfer of funds for project costs General FundOther Governmental Funds 10,816 Transfer of residual funds for project costs Government CenterOther Governmental Funds 6,176 Transfer of residual funds for project costs Other Governmental FundsGeneral Fund 195,548 Transfer to reduce the 2018 certified levy Other Governmental FundsGeneral Fund 55,000 Transfer sales tax revenue committed for bond payments Other Governmental FundsState Collected Sales Tax 162,000 Transfer of residual funds for project costs Other Governmental FundsGovernment Center 2,177 Transfer of residual funds for project costs Other Governmental Funds2016 Field Street Improvements 199,566 Other Governmental FundsOther Governmental FundsTransfer of funds for bond payments 231,512 Transfer of excess project revenue for future projects Other Governmental FundsOther Governmental Funds 136,714 Other Governmental FundsWaterAnnual transfer for bond payment 41,000 Other Governmental FundsSanitary SewerAnnual transfer for bond payment 36,000 Other Governmental FundsStorm WaterAnnual transfer for bond payment 19,250 Transfer costs funded with the main lift station project WaterSanitary Sewer 7,000 Transfer of residual funds for project costs WaterOther Governmental Funds 56,980 Annual transfer for bond payment WaterOther Governmental Funds 200,000 Annual transfer for bond payment Sanitary SewerOther Governmental Funds 95,000 $ 1,457,819 49 City of St. Joseph Notes to Financial Statements NOTE 5 CAPITAL ASSETS Capital asset activity for the year ended December 31, 2017, was as follows: BeginningEnding BalanceIncreasesDecreasesBalance Governmental activities Capital assets not being depreciated Land$ 874,133$ - $ -$ 874,133 Easements 175,873 - - 175,873 Construction in progress 4,633,084 300,072 4,468,150 465,006 Total capital assets not being depreciated 5,683,090 300,072 4,468,150 1,515,012 Capital assets being depreciated Buildings 4,746,527 4,796,919 2,684 9,540,762 Infrastructure 18,830,234 1,346,432 - 20,176,666 Intangible Assets - 200,000 - 200,000 Improvements 1,356,427 26,260 13,486 1,369,201 401,161 191,968 Machinery and equipment 3,468,207 3,677,400 Total capital assets being depreciated 28,401,395 6,770,772 208,138 34,964,029 Less accumulated depreciation for Buildings 1,304,919 262,117 2,585 1,564,451 Infrastructure 13,415,684 942,934 - 14,358,618 Intangible assets - 10,000 - 10,000 Improvements 53,648 13,241 558,312 598,719 Machinery and equipment 2,371,189 277,114 173,554 2,474,749 Total accumulated 17,650,104 1,545,813 189,380 19,006,537 depreciation Total capital assets being depreciated, net 10,751,291 5,224,959 18,758 15,957,492 Governmental activities capital $ 16,434,381$ 5,525,031$ 4,486,908$ 17,472,504 assets, net 50 City of St. Joseph Notes to Financial Statements NOTE 5 CAPITAL ASSETS (CONTINUED) BeginningEnding BalanceIncreasesDecreasesBalance Business-type activities Capital assets not being depreciated Land$ 377,882$ - $ -$ 377,882 Easements 67,915 - - 67,915 Construction in progress 714,700 575,222 584,826 705,096 Total capital assets not being depreciated 1,160,497 575,222 584,826 1,150,893 Capital assets being depreciated Buildings 8,797,686 - - 8,797,686 Plant and lines 23,679,159 595,959 - 24,275,118 Machinery and equipment - 9,322 787,554 778,232 499,534 - Sewer rights 8,569,212 9,068,746 Total capital assets being depreciated 41,833,611 1,095,493 9,322 42,919,782 Less accumulated depreciation for Buildings 1,968,111 214,141 - 2,182,252 Plant and lines 6,456,285 500,359 - 6,956,644 Machinery and equipment 538,047 41,917 7,656 572,308 Sewer rights 1,723,908 253,820 - 1,977,728 Total accumulated depreciation 10,686,351 1,010,237 7,656 11,688,932 Total capital assets being depreciated, net 31,147,260 85,256 1,666 31,230,850 Business-type activities captial $ 32,307,757$ 660,478$ 586,492$ 32,381,743 assets, net Depreciation expense was charged to functions/programs of the City as follows: Governmental activities General government$ 159,438 Public safety 202,050 Public works 988,440 Culture and recreation 195,651 Economic development 234 Total depreciation expense - governmental activities$ 1,545,813 Business-type activities Water$ 417,012 Sanitary sewer 481,406 Refuse 6,606 Storm sewer 105,213 Total depreciation expense - business-type activities$ 1,010,237 51 City of St. Joseph Notes to Financial Statements NOTE 6 LONG-TERM DEBT A. General Obligation Bonds The City issues General Obligation (G.O.) bonds to provide for financing improvement, development, and street improvement projects. G.O. bonds are direct obligations and pledge the full faith and credit of the City. These bonds generally are issued as 5 to 20 year serial bonds with equal debt service payments each year. Revenue bonds are issued by the City where the City pledges income derived from the acquired or constructed assets to pay debt service including access and trunk charges and utility user fees. B.Components of Long-Term Liabilities IssueInterestOriginalFinalPrincipalDue Within DateRateIssueMaturityOutstandingOne Year Governmental Activities G.O. Bonds, including Refunding Bonds G.O. Capital Improvement Plan Refunding Bonds 2009B09/03/091.10%-3.75%$ 495,000 12/01/18$ 60,000$ 60,000 G.O. Certificates of Indebtedness of 2011A11/10/112.00%-2.40% 390,000 10/01/21 165,000 40,000 G.O. Capital Improvement Plan Bonds of 2011A11/10/112.00%-2.40% 195,000 10/01/21 80,000 20,000 G.O. Certificates of Indebtedness of 2013A09/01/132.00% 265,000 12/01/18 60,000 60,000 G.O. Certificates of Indebtedness 2015A08/13/151.20%-2.00% 165,000 12/01/20 105,000 35,000 G.O. Certificates of Indebtedness 2016A07/07/162.00%-2.875% 4,275,000 12/15/36 4,100,000 180,000 G.O. Certificates of Indebtedness 2017A08/30/172.75% 337,000 12/15/25 337,000 43,000 Total G.O. Bonds 4,907,000 438,000 G.O. Special Assessment Bonds G.O. Improvement Refunding Bonds of 2010B09/28/102.00%-3.25% 1,035,000 12/01/20 405,000 135,000 G.O. Improvement Bonds of 2010B09/28/102.00%-3.25% 790,000 12/01/25 455,000 50,000 G.O. Improvement Crossover Refunding Bonds of 2011A11/10/112.00%-2.40% 1,040,000 10/01/21 540,000 130,000 G.O. Improvement Bonds of 2013A09/01/132.00%-3.00% 405,000 12/01/24 310,000 35,000 G.O. Improvement Bonds of 2014A06/15/142.00%-3.40% 2,010,000 12/01/30 1,790,000 115,000 G.O. Improvement Bonds of 2015A08/13/151.20%-3.00% 595,000 12/01/25 485,000 60,000 G.O. Improvement Bonds of 2016B11/03/161.00%-3.00% 740,000 12/15/32 740,000 50,000 G.O. Improvement Bonds of 2017B08/30/172.25%-3.00% 344,000 12/15/27 344,000 35,000 Total G.O. Special Assessment Bonds 5,069,000 610,000 G.O. Abatement Bonds G.O. Tax Abatement Bonds of 2015B08/13/152.00%-3.05% 1,840,000 12/01/30 1,635,000 110,000 Unamortized premiums/discounts 104,929 - 452,500 Compensated absences 81,027 Total long-term liabilities, governmental activities$ 12,168,429$ 1,239,027 52 City of St. Joseph Notes to Financial Statements NOTE 6 LONG-TERM DEBT (CONTINUED) B.Components of Long-Term Liabilities (Continued) Long-term bonded indebtedness listed on the previous page and above were issued to finance acquisition and construction of capital assets or to refinance (refund) previous bond issues. 53 City of St. Joseph Notes to Financial Statements NOTE 6 LONG-TERM DEBT (CONTINUED) C. Changes in Long-Term Liabilities Long-term liability activity for the year ended December 31, 2017, was as follows: BeginningEnding BalanceAdditionsReductionsBalance Governmental activities Bonds payable General obligation$ 5,025,000 $ 337,000$ 455,000 $ 4,907,000 G.O. special assessment bonds 5,585,000 344,000 860,000 5,069,000 G.O. abatement bonds 1,745,000 - 110,000 1,635,000 Total bonds payable 12,355,000 681,000 1,425,000 11,611,000 Unamortized premiums/discounts 121,847 - 16,918 104,929 Compensated absences 402,186 191,461 141,147 452,500 Total governmental activities 12,879,033 872,461 1,583,065 12,168,429 Business-type activities Bonds payable G.O. utility revenue bonds 7,230,000 353,000 670,000 6,913,000 Notes payable City of St. Cloud notes 4,590,939 508,877 378,943 4,720,873 Unamortized premiums 59,136 - 10,877 48,259 Compensated absences 130,782 46,273 33,816 143,239 Total business-type activities 12,010,857 908,150 1,093,636 11,825,371 Total long-term liabilities$ 24,889,890$ 1,780,611$ 2,676,701$ 23,993,800 For governmental activities, the General Fund typically liquidates the liability related to compensated absences. For Business-Type Activities, the Water, Sanitary Sewer, Refuse, Storm Water, and Street Light Utility Funds typically liquidates the liability related to the compensated absences. 54 City of St. Joseph Notes to Financial Statements NOTE 6 LONG-TERM DEBT (CONTINUED) D. Minimum Debt Payments Minimum annual principal and interest payments required to retire long-term liabilities: Governmental Activities G.O. Government ActivitiesG.O. Special Assessment Bonds Year Ended December 31,PrincipalInterestPrincipalInterest 2018$ 438,000$ 115,693$ 610,000$ 127,182 2019 317,000 103,033 625,000 112,880 2020 322,000 96,553 635,000 100,483 2021 297,000 89,678 510,000 86,950 2022 237,000 83,163 374,000 75,740 2023-2027 1,151,000 340,142 1,595,000 231,678 2028-2032 1,130,000 222,902 720,000 51,675 2033-2036 1,015,000 72,583 - - Total$ 4,907,000$ 1,123,747 $ 5,069,000$ 786,588 Governmental Activities Abatement Bonds Year Ended December 31,PrincipalInterestTotal 2018$ 110,000$ 42,135$ 1,443,010 2019 115,000 39,935 1,312,848 2020 115,000 37,635 1,306,671 2021 120,000 35,335 1,138,963 2022 120,000 32,935 922,838 2023-2027 650,000 118,950 4,086,770 2028-2030 405,000 24,638 2,554,215 Total$ 1,635,000$ 331,563 $ 12,765,315 55 City of St. Joseph Notes to Financial Statements NOTE 6 LONG-TERM DEBT (CONTINUED) D. Minimum Debt Payments (Continued) Business-Type Activities Utility Revenue BondsNotes Payable Year Ended December 31,PrincipalInterestPrincipalInterestTotal 2018$ 756,000$ 174,139$ 455,101$ 101,826$ 1,487,066 2019 771,000 155,785 510,541 98,128 1,535,454 86,857 2020 771,000 139,235 420,903 1,417,995 79,301 2021 775,000 122,635 406,256 1,383,192 72,059 2022 725,000 105,340 416,950 1,319,349 2023-2027 2,640,000 273,823 2,132,394 249,667 5,295,884 2028-2032 475,000 30,477 1,373,909 74,387 1,953,773 2033-2037 - - 483,372 15,994 499,366 Total$ 6,913,000 $ 1,001,434$ 6,199,426 $ 778,219 $ 14,892,079 * * - Balance does not agree to amounts listed in Note 6.C. due to payment schedule including estimated PFA draw that is scheduled to occur in July 2018. E.Conduit Debt Conduit debt obligations are certain limited obligation revenue bonds or similar debt instruments issued for the express purpose of providing capital financing for a specific third party. The City has issued various revenue bonds to provide funding to private sector entities for projects deemed to be in the public interest. Although these bonds bear the name of the City, the City has no obligation for such debt. Accordingly, the bonds are not reported as liabilities in the financial statements of the City. 56 City of St. Joseph Notes to Financial Statements NOTE 7 FUND BALANCE Fund equity balances are classified as follows to reflect the limitations and restrictions of the respective funds. StateNonmajor CollectedGovernmental GeneralSales TaxFundTotal Nonspendable Prepaid items$ 25,712 $ -$ -$ 25,712 Restricted Peg access fees 34,370 - - 34,370 Debt service - - 1,160,431 1,160,431 Tax increments - - 25,550 25,550 State collected sales tax projects - 1,046,189 - 1,046,189 Park dedication fees - - 121,382 121,382 Chartitable gambling - - 2,090 2,090 Lodging tax - - 20,755 20,755 DEED CDAP - - 11,145 11,145 Revolving loan - - 205,655 205,655 Total restricted 34,370 1,046,189 1,547,008 2,627,567 Committed Economic development - - 39,774 39,774 Assigned Elections 14,988 - - 14,988 Street seal coating /crack filling 131,506 - - 131,506 Schneider Field 3,817 - - 3,817 Loader tires 4,389 - - 4,389 Fire operations 20,000 - - 20,000 Fire debt service 129,452 - - 129,452 Fire capital 408,433 - - 408,433 Police forfeiture 7,835 - - 7,835 Severance pay 115,843 - - 115,843 Comp plan update 4,915 - - 4,915 GASB updates 5,200 - - 5,200 Capital outlay reserves - - 647,654 647,654 Debt service relief - - 392,353 392,353 Total assigned 846,378 - 1,040,007 1,886,385 Unassigned 1,449,363 - (10,526) 1,438,837 Total$ 2,355,823$ 1,046,189 $ 2,616,263$ 6,018,275 57 City of St. Joseph Notes to Financial Statements NOTE 8 RISK MANAGEMENT The City purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT) with other cities in the state, which is a public entity risk pool currently operating as a common risk management and insurance program. The City pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self-sustaining through commercial companies for excess claims. The City is covered through the pool for any claims incurred but unreported, however, retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three years. The City's workers' compensation insurance policy is retrospectively rated. With this type of policy, final premiums are determined after loss experience is known. The amount of premium adjustment for 2017 is estimated to be immaterial based on workers' compensation rates and salaries for the year. At December 31, 2017, there were no other claims liabilities reported in the fund based on the requirements of GASB Statement No. 10, which requires a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. NOTE 9 PENSION PLANS Public Employees' Retirement Association The City participates in various pension plans. Total pension expense for the year ended December 31, 2017, was $288,836. The components of pension expense are noted in the following plan summaries. Public Employees' Retirement Association A. Plan Description The City participates in the following cost-sharing multiple-employer defined benefit pension plans administered by 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 are covered by the General Employees Plan. General Employees Plan members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. 58 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) A. Plan Description (Continued) Public Employees Police and Fire Plan (Police and Fire Plan (accounted for in the Police and Fire Fund)) The Police and Fire Plan, originally established for police officers and firefighters not covered by a local relief association, now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the Police and Fire Plan also covers police officers and firefighters belonging to a local relief association that elected to merge with and transfer assets and administration to PERA. B.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 2.5% increases. Members in plans that have not exceeded 90% funded, or have fallen below 80%, are given 1% increases. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. General Employees Plan Benefits General Employees Plan 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 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 Coordinated Plan member is 1.2% of average salary for each of the first ten years and 1.7% for each remaining year. Under Method 2, the annuity accrual rate is 1.7% 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. 59 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) B.Benefits Provided (Continued) Police and Fire Plan Benefits Benefits for the Police and Fire Plan members first hired after June 30, 2010, but before July 1, 2014, vest on a prorated basis from 50% after five years up to 100% after ten years of credited service. Benefits for Police and Fire Plan members first hired after June 30, 2014, vest on a prorated basis from 50% after ten years up to 100% after twenty years of credited service. The annuity accrual rate is 3% of average salary for each year of service. For Police and Fire Plan who were first hired prior to July 1, 1989, a full annuity is available when age plus years of service equal at least 90. C. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state legislature. General Employees Fund Contributions Coordinated Plan members were required to contribute 6.5% of their annual covered salary in calendar year 2017. The City was required to contribute 7.50% for Coordinated Plan members in calendar year 2017. The City's contributions to the General Employees Fund for the year ended December 31, 2017, were $69,820. The City's contributions were equal to the required contributions as set by state statute. Police and Fire Fund Contributions Plan members were required to contribute 10.8% of their annual covered salary in calendar year 2017. The City was required to contribute 16.2% of pay for members in calendar year 2017. The City's contributions to the Police and Fire Fund for the year ended December 31, 2017, were $93,325. The City's contributions were equal to the required contributions as set by state statute. 60 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs General Employees Fund Pension Costs At December 31, 2017, the City reported a liability of $906,519 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 2017. 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 $11,418. The net pension liability was measured as of June 30, 2017, 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, 2016, through June 30, 2017, relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2017, the City's proportion share was 0.0142%, which was an increase of 0.0007% from its proportion measured as of June 30, 2016. For the year ended December 31, 2017, the City recognized pension expense of $131,874 for its proportionate share of General Employees Plan's pension expense. In addition, the City recognized an additional $330 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota's contribution of $6 million to the General Employees Fund. At December 31, 2017, the City reported its proportionate share of the General Employees Plan's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of ResourcesResources Differences between expected and actual economic experience$ 29,877$ 55,705 Changes in actuarial assumptions 143,082 90,879 Difference between projected and actual investment earnings - 1,286 Changes in proportion 42,627 17,169 Contributions paid to PERA subsequent to the measurement date 34,910 - Total$ 250,496$ 165,039 61 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) $34,910 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended Pension Expense December 31,Amount 2018$ 36,312 2019 57,726 2020 (5,011) 2021 (38,480) $ 50,547 Total Police and Fire Fund Pension Costs At December 31, 2017, the City reported a liability of $729,064 for its proportionate share of the Police and Fire Fund's net pension liability. The net pension liability was measured as of June 30, 2017, 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, 2016, through June 30, 2017, relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2017, the City's proportion was 0.054%, which was the same from its proportion measured as of June 30, 2016. The City also recognized $4,860 for the year ended December 31, 2017, as revenue and an offsetting reduction of the net pension liability for its proportionate share of the State of Minnesota's on-behalf contributions to the Police and Fire Fund. Legislation passed in 2013 required the State of Minnesota to begin contributing $9 million to the Police and Fire Fund each year, starting in fiscal year 2014. For the year ended December 31, 2017, the City recognized pension expense of $177,118 for its proportionate share of the Police and Fire Fund pension expense. At December 31, 2017, the City reported its proportionate share of the Police and Fire Plan's deferred outflows of resources and deferred inflows of resources related to pensions from the sources below and on the following page. 62 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) Police and Fire Fund Pension Costs (Continued) Deferred Deferred Outflows of Inflows of ResourcesResources Differences between expected and actual economic experience$ 16,782$ 198,225 Changes in actuarial assumptions 954,128 1,035,090 Difference between projected and actual investment earnings 12,983 - Changes in proportion - 22,724 Contributions paid to PERA subsequent to the measurement date 46,662 - Total$ 1,030,555$ 1,256,039 $46,662 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended Pension Expense December 31,Amount 2018$ 7,390 2019 7,392 2020 (20,820) 2021 (62,447) 2022 (203,661) Total$ (272,146) 63 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) E. Actuarial Assumptions The total pension liability in the June 30, 2017, actuarial valuation was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Inflation2.50%Per year Active member payroll growth3.25Per year Investment rate of return7.50 Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit PERA's experience. Cost of living benefit increases for retirees are assumed to be 1% per year for the General Employees plan through 2044 and the Police and Fire Plan through 2064 and then 2.5% thereafter for both plans. Actuarial assumptions used in the June 30, 2017, 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 most recent five-year experience study for Police and Fire Plan was completed in 2016. The following changes in actuarial assumptions occurred in 2017: General Employees Fund The Combined Service Annuity (CSA) loads were changed from 0.8% for active members and 60% for vested and non-vested deferred members. The revised CSA loads are now 0.0% for active member liability, 15% for vested deferred member liability, and 3% for non-vested deferred member liability. The assumed post-retirement benefit increase rate was changed from 1% per year for all years to 1% per year through 2044 and 2.5% per year thereafter. Police and Fire Fund Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34% lower than the previous rates. Assumed rates of retirement were changed, resulting in fewer retirements. The CSA load was 30% for vested and non-vested deferred members. The CSA has been changed to 33% for vested members and 2% for non-vested members. The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP- 2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees. 64 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) E. Actuarial Assumptions (Continued) Police and Fire Fund (Continued) Assumed termination rates were decreased to 3.0% for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall. Assumed percentage of married female members was decreased from 65% to 60%. Assumed age difference was changed from separate assumptions for male members (wives assumed to be 3 years younger) and female members (husbands assumed to be 4 years older) to the assumption that males are 2 years older than females. The assumed percentage of female members electing Joint and Survivor annuities was increased. The assumed post-retirement benefit increase rate was changed from 1% for all years to 1% per year through 2064 and 2.5% thereafter. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-Term Expected Asset ClassTarget AllocationReal Rate of Return Domestic stocks39%5.10% International stock195.30 Bonds200.75 Alternative assets205.90 Cash20.00 Total100% 65 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) F. Discount Rate The discount rate used to measure the total pension liability in 2017 was 7.5%. The projection of cash flows used to determine the discount rate assumed that contributions from Plan members and employers will be made at rates set in Minnesota Statutes. Based on those assumptions, the fiduciary net position of the General Employees Fund and the Police and Fire Fund was projected to be available to make all projected future benefit payments of current Plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension Liability Sensitivity The following table presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1% Decrease in1% Increase in Discount Rate Discount Rate Discount Rate (6.5%) (7.5%)(8.5%) City's proportionate share of the General Employees Fund net pension liability$ 1,406,078$ 906,519$ 497,539 1% Decrease in 1% Increase in Discount Rate Discount Rate Discount Rate (6.5%)(7.5%)(8.5%) City's proportionate share of the Police and Fire Fund net pension liability$ 1,373,041$ 729,064$ 197,426 H. Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. Public Employees Defined Contribution Plan (Defined Contribution Plan) (Continued) Five of the City's council members are covered by the Defined Contribution Plan, a multiple-employer deferred compensation plan administered by PERA. The Defined Contribution Plan 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. 66 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Public Employees Defined Contribution Plan (Defined Contribution Plan) (Continued) The defined contribution plan consists of individual accounts paying a lump sum benefit, plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses, therefore, there is no future liability to the employer. 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% of salary which is matched by the elected official's employer. For ambulance service personnel, employer contributions are determined by the employer, and for salaried employees must be a fixed percentage of salary. Employer contributions for volunteer personnel may be a unit value for each call or period of alert duty. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. 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% of employer contributions and twenty-five hundredths of 1% (.0025) of the assets in each member's account annually. Pension expense for the year is equal to contributions made. Total contributions made by the City during fiscal year 2017 were: Contribution AmountPercentage of Covered Payroll EmployeeEmployerEmployeeEmployerRequired Rate $ 1,460$ 1,460 5%5%5% Defined Benefit Pension Plan Volunteer Fire Fighter's Relief Association A. Plan Description The City of St. Joseph Volunteer Fire Department Relief Association is the administrator of a single employer defined benefit pension plan established to provide benefits for members of the Relief Association per Minnesota State Statutes. The Association issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the St. Joseph Volunteer Fire Department Relief Association, 75 Callaway St E, St. Joseph, MN 56374. B.Benefits Provided Volunteer firefighters of the City are member of Joseph Volunteer Fire Department Relief Association. Full retirement benefits are payable to members who have reached age 50 and have completed twenty years of service for lump sum service pension. Partial benefits are payable to members who have reached 50 years and have completed ten years of service. Disability benefits and widow and children's survivor benefits are also payable to members or their beneficiaries based upon requirements set forth in the bylaws. These benefit provisions and all other requirements are consistent with enabling state statutes. 67 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Defined Benefit Pension Plan Volunteer Fire Fighter's Relief Association C. Employees Covered by Benefit Terms At December 31, 2017, the following employees were covered by the benefit terms: Inactive employees entitled to but not yet receiving benefits3 Active employees29 Total32 D. Contributions. Minnesota Statutes Chapter 424A.092 specifies minimum support rates required on an annual basis. The minimum support rates from the municipality and from State aids are determined as the amount required to meet the normal cost plus amortizing any existing prior service costs over a ten year period. The City's obligation is the financial requirement for the year less state aids. Any additional payments by the City shall be used to amortize the unfunded liability of the relief association. The Association is comprised of volunteers: therefore, there are no payroll expenditures (i.e. there are no covered payroll percentage calculations). During the year, the City recognized as revenue and as an expenditure an on behalf payment of $53,310 made by the State of Minnesota for the Relief Association. E.Net Pension Liability The City's net pension liability was measured as of December 31, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial assumptions The total pension liability in the December 31, 2017, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation2.75% Salary increase0%, average, including inflation Investment rate of return5.50%, net of pensions plan investment expense including inflation The value of death benefits is similar to the value of the retirement pension. Because of low retirement ages, the plan assumes no pre-retirement mortality. Post-retirement mortality does not apply as the benefit structure and form of payment do not reflect lifetime benefits. The long-term return on assets has been set based on the plan's target investment allocation along with long-term return expectations by asset class. When there is sufficient historical evidence of market outperformance, historical average returns may be considered. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of the measurement date are summarized in the table on the following page. 68 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Defined Benefit Pension Plan Volunteer Fire Fighter's Relief Association (Continued) E.Net Pension Liability (Continued) Long-Term Expected Asset ClassTarget AllocationReal Rate of Return Cash14.17%0.79% Fixed income37.041.98 Real estate and alternatives0.904.25 Equities47.8910.59 Total100% Discount rate The discount rate used to measure the total pension liability was 5.5%. Assets were projected using expected benefit payments and expected asset returns. Expected benefit payments by year were discounted using the expected asset return assumption for years in which the assets were sufficient to pay all benefit payments. Any remaining benefit payments after the trust fund is exhausted are discounted at the municipal bond rate. The equivalent single rate is the discount rate. F. Changes in the Net Pension Liability Increase (Decrease) Total Plan FiduciaryNet PensionNet Pension Liability PositionLiability (a) (b)(a) - (b) Balances at January 1, 2017$ 610,621$ 775,967$ (165,346) Changes for the year Service cost 25,641 - 25,641 Interest cost 33,188 - 33,188 Differences between expected and actual experience - - - Change in assumptions, changes in benefit terms 4,299 - 4,299 Contributions - state and local - 58,310 (58,310) Net investment income - 77,946 (77,946) Benefit payments, including refunding of employee contributions (118,151) (118,151) - Administrative expense - (8,546) 8,546 Net charges (55,023) 9,559 (64,582) Balances at December 31, 2017$ 555,598$ 785,526$ (229,928) 69 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Defined Benefit Pension Plan Volunteer Fire Fighter's Relief Association (Continued) F. Changes in the Net Pension Liability (Continued) Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the City, calculated using the discount rate of 5.5%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (4.5%) or 1-percentage-point higher (6.5%) than the current rate: 1%Current1% DecreaseDiscountIncrease (4.5%)Rate (5.5%)(6.5%) City's net pension liability$ (212,394)$ (229,928)$ (246,892) Pension plan fiduciary net position. Detailed information about the pension plan's fiduciary net position is available in the separately issued relief association financial report. G. Pension Expense and Deferred Outflows of Resources, and Deferred Inflows of Resources Related to Pensions For the year ended December 31, 2017, the City recognized pension expense of $21,650. At December 31, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows ofInflows of ResourcesResources Differences between expected and actual experience$ - $ 24,345 Changes of assumptions 90,311 - Net difference between projected and actual earnings on pension plan investments - 5,652 Total$ 90,311$ 29,997 70 City of St. Joseph Notes to Financial Statements NOTE 9 PENSION PLANS (CONTINUED) Defined Benefit Pension Plan Volunteer Fire Fighter's Relief Association (Continued) G. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (Continued) Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30, 2018$ 14,048 2019 14,048 2020 (3,617) 2021 1,197 2022 7,832 Therafter 26,806 Total$ 60,314 NOTE 10 COMMITMENTS The City has entered into contracts for construction as follows: Expended Contractthrough ProjectAmount12/31/17Commitment CBD Alley Improvements$ 255,935$ 213,196$ 42,739 WTP 1 Refurbish 193,700 - 193,700 Total$ 236,439 71 City of St. Joseph Notes to Financial Statements NOTE 11 TAX INCREMENT FINANCING The City has entered into five Tax Increment Financing agreements which meet the criteria for disclosure under Governmental Accounting Standards Board Statement No. 77 Tax Abatement Disclosures. The City's authority to enter into these agreements comes from Minnesota Statute 469. The City entered into these agreements for the purpose of economic development. Under each agreement, the City and developer agree on an amount of development costs to be reimbursed to the developer by the City though tax revenues from the additional taxable value of the property generated by the development (tax increment). A "pay-as-you-go" note is established for this amount, on which the City makes payments for a fixed period of time with available tax increment revenue after deducting for certain administrative costs. During the year ended December 31, 2017, the City generated $85,216 in tax increment revenue and made $76,902 in payments to developers. NOTE 12 NEW STANDARDS ISSUED BUT NOT YET IMPLEMENTED GASB Statement No. 83, Certain Asset Retirement Obligations establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for Asset Retirement Obligations (AROs). This statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments to take specific actions to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO. This statement will be effective for the year ending December 31, 2019. GASB Statement No. 84, Fiduciary Activities establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. This statement will be effective for the year ending December 31, 2019. GASB Statement No. 85, Omnibus 2017 addresses practice issues that have been identified during implementation and application of certain GASB statements, including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits. This statement will be effective for the year ending December 31, 2018. 72 City of St. Joseph Notes to Financial Statements NOTE 12 NEW STANDARDS ISSUED BUT NOT YET IMPLEMENTED (CONTINUED) GASB Statement No. 86, Certain Debt Extinguishment Issues improves consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources are placed in an irrevocable trust for the sole purpose of extinguishing debt. This statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to the financial statements for debt that is defeased in substance. This statement will be effective for the year ending December 31, 2018. GASB Statement No. 87, Leases establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing be effective for the year ending December 31, 2020. NOTE 13 SUBSEQUENT EVENT On February 28, 2018, the City issued equipment certificates of indebtedness for $265,000 to finance the purchase of various equipment for the City. The City Council notified St. Joseph Township the City of St. Joseph will be exercising their rights to annex a portion of the Township included in the Orderly Annexation Agreement. After negotiations with between the City of St. Joseph and the St. Joseph Township, the entities agreed upon the area to be annexed and the terms of annexation at their April 2018 meetings. The annexation will be completed by July 1, 2018. Bad Habit Brewing Company agreed to terms for the purchase of the previous city hall facility. City Council approved the sell at their April 16, 2018 council meeting with final terms to be negotiated between the Administrator and buyer. On April 19, 2018, Bad Habit Brewing Company submitted a purchase agreement in the amount of $400,000 along with an earnest deposit of $10,000. The closing will be completed by 7/16/18. NOTE 14 CONTINGENCIES AND LITIGATION The City is currently involved in various pending litigation cases. After evaluation by the City's attorney, it is unknown if the resolution of these cases will have a material impact on the financial statements. 73 (THIS PAGE LEFT BLANK INTENTIONALLY 74 REQUIRED SUPPLEMENTARY INFORMATION 75 City of St. Joseph Schedule of City's Proportionate Share of Net Pension Liability General Employees Retirement Fund Last Ten Years City's Proportionate State's Share of the Net City's City's City's Proportionate Pension Liability Proportionate Proportionate Proportionate Share (Amount) and the State's Share of the Net Plan Fiduciary Net Share Share (Amount) of the Net Pension Proportionate Share Pension Liability Position as a (Percentage) of of the Net Liability of the Net Pension (Asset) as a Percentage of the City's Covered For Fiscal Year the Net Pension Pension Liability Associated with Liability Associated Percentage of its Total Pension Payroll Ended June 30,Liability (Asset)(Asset) the Citywith the CityCovered Payroll Liability 20150.0138%$ 715,188 $ -$ 715,188$ 799,773 89.42%78.19% 20160.0135% 1,096,133 14,341 1,110,474 839,240 130.61%68.91% 20170.0142% 906,519 11,418 917,937 916,373 98.92%75.90% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. Schedule of City's Proportionate Share of Net Pension Liability Public Employees Police and Fire Retirement Fund Last Ten Years City's Proportionate City's Share of the Net Plan Fiduciary City's Proportion Proportionate Pension Liability Net Position as a of the Net Share of the Net (Asset) as a Percentage of the For Fiscal Year Pension Liability Pension Liability City's Covered Percentage of its Total Pension Ended June 30,(Asset)(Asset) PayrollCovered Payroll Liability 20150.0570%$ 647,653 $ 505,160128.21%86.61% 20160.0540% 2,167,114 518,580417.89%63.88% 20170.0540% 729,064 554,975131.37%85.43% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. 76 City of St. Joseph Schedule of City Contributions - General Employees Retirement Fund Last Ten Years Contributions in Relation to the Fiscal Year Statutorily Statutorily Contribution Contributions as a Ending Required Required Deficiency City's Covered Percentage of December 31,ContributionContributions(Excess)PayrollCovered Payroll 2015$ 57,804$ 57,804$ -$ 770,7207.5% 2016 66,294 66,294 - 883,9207.5% 2017 69,820 69,820 - 930,9337.5% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. Schedule of City Contributions - Public Employees Police and Fire Retirement Fund Last Ten Years Contributions in Relation to the Fiscal Year Statutorily Statutorily Contribution Contributions as a Ending Required Required Deficiency City's Covered Percentage of December 31,ContributionContributions(Excess)PayrollCovered Payroll 2015$ 85,925$ 85,925$ -$ 530,40116.2% 2016 89,587 89,587 - 553,006 16.2% 2017 93,325 93,325 - 576,080 16.2% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. 77 City of St. Joseph Schedule of Changes in Net Pension Liability and Related Ratios - Fire Relief Association Measurement Date 201520162017 Total Pension Liability (TPL) Service cost$ 20,898 $ 25,691 $ 25,641 Interest 29,709 35,786 33,188 Differenced between expected and actual experience - (29,935) - Changes of assumptions 55,033 56,691 4,299 Changes of benefit terms 31,883 - - Benefit payments, including refunds, or member contributions (41,168) (49,000) (118,151) Net change in total pension liability 96,355 39,233 (55,023) Beginning of year 475,033 571,388 610,621 End of Year$ 571,388 $ 610,621 $ 555,598 Plan Fiduciary Net Pension (FNP) Contributions - employer$ 52,164 $ 63,111 $ 58,310 Net investment income (41,979) 68,585 77,946 Benefit payments, including refunds of member contributions (41,168) (49,000) (118,151) Administrative expense (8,121) (7,724) (8,546) Net change in plan fiduciary net position (39,104) 74,972 9,559 Beginning of year 740,099 700,995 775,967 End of year$ 700,995 $ 775,967 $ 785,526 Net Pension Liability (NPL)$ (129,607)$ (165,346)$ (229,928) Plan fiduciary net position as a percentage of the total pension liability122.7%127.1%141.4% Covered employee payrolln/an/an/a Net pension liability as a percentage of covered payrolln/an/an/a The City implemented the Provisions of Governmental Accounting Standards Board Statement No. 68 for the year ended December 31, 2015. The schedules within the Required Supplementary Information section required a ten year presentation, but does not require retroactive reporting. Information prior to 2015 is not available. Additional years will be reported as they become available. 78 City of St. Joseph Schedule of Employer Contributions and Non-Employer Contributing Entities - Fire Relief Association 201520162017 Employer Statutorily determined contribution (SDC)$ -$ -$ - Contribution in relation to the SDC 3,000 3,000 3,000 Contribution deficiency (excess)$ (3,000)$ (3,000)$ (3,000) Non-employer 2% aid$ 52,164$ 60,111$ 55,310 Covered employee payrolln/an/an/a Contributions as a percentage of covered employee payrolln/an/an/a The Association implemented the Provisions of Governmental Accounting Standards Board Statement No. 68 for the year ended December 31, 2015. The schedules within the Required Supplementary Information section required a ten year presentation, but does not require retroactive reporting. Information prior to 2015 is not available. Additional years will be reported as they become available. 79 City of St. Joseph Notes to Required Supplementary Information GENERAL EMPLOYEES FUND 2017 Changes Changes in Actuarial Assumptions The CSA loads were changed from 0.8% for active members and 60% for vested and non- vested deferred members. The revised CSA loads are now 0.0% for active member liability, 15% for vested deferred member liability and 3% for non-vested deferred member liability. The assumed post-retirement benefit increase rate was changed from 1.0% per year for all years to 1.0% per year through 2044 and 2.5% per year thereafter. 2016 Changes Changes in Actuarial Assumptions 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, the inflation were decreased by 0.25% to 3.25% for payroll growth and 2.50% for inflation. 2015 Changes Changes in Plan Provisions On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised. Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2030 and 2.5% per year thereafter to 1.0% per year through 2035 and 2.5% per year thereafter. 80 City of St. Joseph Notes to Required Supplementary Information POLICE AND FIRE FUND 2017 Changes Changes in Actuarial Assumptions Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34% lower than the previous rates. Assumed rates of retirement were changed, resulting in fewer retirements. The CSA load was 30% for vested and non-vested deferred members. The CSA has been changed to 33% for vested members and 2% for non-vested members. The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees. Assumed termination rates were decreased to 3% for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall. Assumed percentage of married female members was decreased from 65% to 60%. Assumed age difference was changed from separate assumptions for male members (wives assumed to be 3 years younger) and female members (husbands assumed to be 4 years older) to the assumption that males are 2 years older than females. The assumed percentage of female members electing Joint and Survivor annuities was increased. The assumed post-retirement benefit increase rate was changed from 1% for all years to 1% per year through 2064 and 2.5% thereafter. 2016 Changes Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2037 and 2.5% 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 changed from 7.9% to 5.6%. 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. 2015 Changes Changes in Plan Provisions The post-retirement benefit increase to be paid after attainment of the 90% funding threshold was changed, from inflation up to 2.5%, to a fixed rate of 2.5%. Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2030 and 2.5% per year thereafter to 1.0% per year through 2037 and 2.5% per year thereafter. 81 (THIS PAGE LEFT BLANK INTENTIONALLY) 82 SUPPLEMENTARY INFORMATION 83 City of St. Joseph Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended December 31, 2017 Variance with Original and Actual Final Budget - Final BudgetAmounts Over (Under) Revenues Property taxes$ 1,128,180$ 1,124,680$ (3,500) Sales taxes - 1,085 1,085 Special assessments 3,000 9,127 6,127 Franchise fees 126,300 129,242 2,942 Licenses and permits 157,035 356,990 199,955 Intergovernmental revenue Local government aid 919,430 919,415 (15) PERA aid 1,540 1,541 1 Fire aid 43,000 56,560 13,560 Police aid 63,500 71,757 8,257 Federal grants 62,300 6,713 (55,587) State grants 50,950 51,073 123 Other grants and aids 14,500 26,303 11,803 Total intergovernmental revenue 1,155,220 1,133,362 (21,858) Charges for services General government 31,935 44,139 12,204 Public safety 263,375 269,772 6,397 Public works 3,830 3,983 153 Culture and recreation 62,850 59,052 (3,798) Total charges for services 361,990 376,946 14,956 Fines and forfeitures 43,000 55,474 12,474 Miscellaneous revenues Investment income 37,000 20,686 (16,314) Contributions and donations 3,550 5,094 1,544 Other 44,850 45,351 501 Total miscellaneous revenues 85,400 71,131 (14,269) Total revenues 3,060,125 3,258,037 197,912 Expenditures General government Mayor and council 85,825 70,931 (14,894) Administrative and finance 407,525 412,051 4,526 Other general government 168,825 266,026 97,201 Capital outlay 2,760 - (2,760) Total general government 664,935 749,008 84,073 84 City of St. Joseph Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended December 31, 2017 Variance with Original and Actual Final Budget - Final BudgetAmountsOver (Under) Expenditures Public safety Police Current$ 1,139,210$ 1,042,291$ (96,919) Capital outlay - 1,590 1,590 Total police 1,139,210 1,043,881 (95,329) Fire Current 346,440 396,702 50,262 Capital outlay 84,100 72,823 (11,277) Total fire 430,540 469,525 38,985 Other Current 95,810 98,190 2,380 Total public safety 1,665,560 1,611,596 (53,964) Public works Streets and highways Street maintenance and storm sewers 254,755 270,135 15,380 Snow and ice removal 113,465 54,257 (59,208) Street engineering 35,000 18,414 (16,586) Capital outlay 89,600 54,856 (34,744) Total public works 492,820 397,662 (95,158) Culture and recreation Current 299,470 270,555 (28,915) Capital outlay - 425 425 Total culture and recreation 299,470 270,980 (28,490) Total expenditures 3,122,785 3,029,246 (93,539) Excess of revenues over (under) expenditures (62,660) 228,791 291,451 Other Financing Sources (Uses) Insurance recoveries - 1,470 1,470 Sale of property 12,350 275 (12,075) Transfers in - 13,896 13,896 Transfers out (39,000) (250,548) (211,548) Total other financing sources (uses) (26,650) (234,907) (208,257) Net change in fund balances$ (89,310) (6,116)$ 83,194 Fund Balances Beginning of year2,361,939 End of year$ 2,355,823 85 City of St. Joseph Combining Balance Sheet - Nonmajor Governmental Funds December 31, 2017 Special Revenue TIF 3-1 Economic TIF 2-1 Central Development Millstream TIF 2-2 St. TIF 2-3 Bayou Minnesota Authority Shops and Joseph Meat Blues/ Alley Credit Union (150)Lofts (157)Market (158)Flat (159)(152) Assets Cash and investments$ 27,549 $ 23,357 $ 333 $ 120 $ 2,760 Taxes receivable - delinquent 732 - - - - Special assessments receivable Delinquent - - - - - Deferred - - - - - Accounts receivable 1,250 - - - - Interest receivable 300 54 1 - 4 Due from other funds 13,700 - - - - Due from other governments 229 - - - - Notes receivable - - - - - Total assets$ 43,760 $ 23,411 $ 334 $ 120 $ 2,764 Liabilities Accounts payable$ 1,843 $ - $ - $ - $ - Contracts payable - - - - - Due to other funds - - 500 7,200 6,000 Due to other governments - - - - - Salaries and benefits payable 1,411 - - - - Total liabilities 3,254 - 500 7,200 6,000 Deferred Inflows of Resources Unavailable revenue - property taxes 732 - - - - Unavailable revenue - special assessments - - - - - Unavailable revenue - notes receivable - - - - - Total deferred inflows of resources 732 - - - - Fund Balances Restricted - 23,411 - - - Committed 39,774 - - - - Assigned - - - - - Unassigned - - (166) (7,080) (3,236) Total fund balances 39,774 23,411 (166) (7,080) (3,236) Total liabilities, deferred inflows of resources, and fund balances$ 43,760 $ 23,411 $ 334 $ 120 $ 2,764 86 Special RevenueDebt Service G.O. TIF 4-1 Improvement G.O. Fortitude Park Charitable Deed Bonds of Improvement Senior Housing Dedication Gambling Lodging Tax Revolving Housing 2005B/2010B Bonds of 2013A (153)(205)(215)(220)Loan (250)(225)(333)(348) $ 2,136$ 121,019$ 2,085$ 20,177$ 205,555$ 11,126$ 108,556 $ 110,705 - - - - - - 199 66 - - - - - - 5,371 - - - - - - - 222,193 43,802 - 30 - 548 - - - - 3 285 5 30 100 19 394 319 - - - - - - - - - 48 - - - - 69 28 - - - - 5,025 - - - $ 2,139$ 121,382$ 2,090$ 20,755$ 210,680$ 11,145$ 336,782 $ 154,920 $ -$ -$ -$ -$ -$ -$ 109$ 109 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 109 109 - - - - - - 199 66 - - - - - - 227,564 43,802 - - - - 5,025 - - - - - - - 5,025 - 227,763 43,868 2,139 121,382 2,090 20,755 205,655 11,145 108,910 110,943 - - - - - - - - - - - - - - - - - - - - - - - - 2,139 121,382 2,090 20,755 205,655 11,145 108,910 110,943 $ 2,139$ 121,382$ 2,090$ 20,755$ 210,680$ 11,145$ 336,782 $ 154,920 87 City of St. Joseph Combining Balance Sheet - Nonmajor Governmental Funds December 31, 2017 Debt Service G.O. G.O. Improvement G.O. Capital G.O. G.O. Certificates of Bonds of Improvement Improvement Certificates of Indebtedness of 2011A/2006C Plan Bonds of Bonds of Indebtedness of 2013A (349)(338)2009B (343)2010B (345)2011A (346) Assets Cash and investments$ 7,044 $ 100,178$ 10,633$ 169,832 $ 28 Taxes receivable - delinquent 438 419 541 47 141 Special assessments receivable Delinquent - 1,042 - 775 - Deferred - 155,790 - 110,762 - Accounts receivable - - - - - Interest receivable 38 259 34 474 3 Due from other funds - - - - - Due from other governments 157 686 180 33 34 Notes receivable - - - - - Total assets$ 7,677 $ 258,374$ 11,388$ 281,923 $ 206 Liabilities Accounts payable$ 109 $ 109 $ 109$ 109$ 109 Contracts payable - - - - - Due to other funds - - - - - Due to other governments - - - - - Salaries and benefits payable - - - - - Total liabilities 109 109 109 109 109 Deferred Inflows of Resources Unavailable revenue - property taxes 438 419 541 47 141 Unavailable revenue - special assessments - 156,832 - 111,537 - Unavailable revenue - notes receivable - - - - - Total deferred inflows of resources 438 157,251 541 111,584 141 Fund Balances Restricted 7,130 101,014 10,738 170,230 - Committed - - - - - Assigned - - - - - Unassigned - - - - (44) Total fund balances 7,130 101,014 10,738 170,230 (44) Total liabilities, deferred inflows of resources, and fund balances$ 7,677 $ 258,374$ 11,388$ 281,923 $ 206 88 Debt Service G.O. Capital G.O. G.O. G.O. G.O. Tax G.O. Capital G.O. Improvement Improvement Improvement Certificates of Abatement Improvement Improvement Plan Bonds of Bonds of Bonds of Indebtedness Bonds of Plan Bonds of Bonds of 2011A (347)2014A (350)2015A (351)2015A (352)2015B (353)2016A (301)2016B (304) $ 3,320$ 249,175 $ 146,997 $ 1,528 $ 20,204 $ 17,891 $ 190,460 196 588 707 776 - 892 - - - - - - - - - 140,993 165,766 - - - 632,581 - - - - - 18 - 2 863 536 75 126 305 1,906 - - - - - - - 72 238 299 320 - 622 - - - - - - - - $ 3,590$ 391,857 $ 314,305 $ 2,699 $ 20,330 $ 19,728 $ 824,947 $ 109$ 109$ 109$ 109$ 109$ 109$ 6,296 - - - - - - 76,300 - - - - - - - - - - - - - 138 - - - - - - - 109 109 109 109 109 109 82,734 196 588 707 776 - 892 - - 140,993 165,766 - - - 632,581 - - - - - - - 196 141,581 166,473 776 - 892 632,581 3,285 250,167 147,723 1,814 20,221 18,727 109,632 - - - - - - - - - - - - - - - - - - - - - 3,285 250,167 147,723 1,814 20,221 18,727 109,632 $ 3,590$ 391,857 $ 314,305 $ 2,699 $ 20,330 $ 19,728 $ 824,947 89 City of St. Joseph Combining Balance Sheet - Nonmajor Governmental Funds December 31, 2017 Debt ServiceCapital Projects Capital G.O. Jacob Improvement Improvement Debt Service Wetterling CBD Alley Bonds of Bonds of Relief Fund Recreation Improvement 2017A (303)2017B (305)(390)Center (402)Project (405) Assets Cash and investments$ 55,006 $ 44,962 $ 392,281 $ 1,885$ 62,956 Taxes receivable - delinquent - - 820 - - Special assessments receivable Delinquent - - 135 - - Deferred - 89,271 130,977 - - Accounts receivable - - - - - Interest receivable 2 145 - 2 - Due from other funds - - - - - Due from other governments - - 72 - - Notes receivable - - - - - Total assets$ 55,008 $ 134,378 $ 524,285 $ 1,887$ 62,956 Liabilities Accounts payable$ 109$ 109$ - $ -$ - Contracts payable - - - - 10,660 Due to other funds - - - - - Due to other governments - - - - - Salaries and benefits payable - - - - - Total liabilities 109 109 - - 10,660 Deferred Inflows of Resources Unavailable revenue - property taxes - - 820 - - Unavailable revenue - special assessments - 89,271 131,112 - - Unavailable revenue - notes receivable - - - - - Total deferred inflows of resources - 89,271 131,932 - - Fund Balances Restricted 54,899 44,998 - - - Committed - - - - - Assigned - - 392,353 1,887 52,296 Unassigned - - - - - Total fund balances 54,899 44,998 392,353 1,887 52,296 Total liabilities, deferred inflows of resources, and fund balances$ 55,008 $ 134,378 $ 524,285 $ 1,887$ 62,956 90 Capital Projects Total General Capital Water Access Sewer Access Governmental Outlay (490)Fund (501)Fund (502)Funds $ 347,122$ 241,291$ 6,319$ 2,704,590 - - - 6,562 - - - 7,323 - - - 1,692,135 - - - 1,846 - 430 39 6,753 - - - 13,700 186 - - 3,273 - - - 5,025 $ 347,308$ 241,721$ 6,358$ 4,441,207 $ -$ -$ -$ 9,774 - - - 86,960 - - - 13,700 1,916 - - 2,054 - - - 1,411 1,916 - - 113,899 - - - 6,562 - - - 1,699,458 - - - 5,025 - - - 1,711,045 - - - 1,547,008 - - - 39,774 345,392 241,721 6,358 1,040,007 - - - (10,526) 345,392 241,721 6,358 2,616,263 $ 347,308$ 241,721$ 6,358$ 4,441,207 91 City of St. Joseph Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2017 Special Revenue TIF 2-1 TIF 3-1 Central Economic Millstream TIF 2-2TIF 2-3 Bayou Minnesota Development Shops and St. Joseph Meat Blues/ Alley Credit Union Authority (150)Lofts (157)Market (158)Flat (159)(152) Revenues Property taxes$ 93,818$ -$ -$ -$ - Tax increments - 38,355 4,182 89 42,590 Lodging taxes - - - - - Special assessments - - - - - Charges for services - - - - - Miscellaneous Investment income 1,070 194 5 - 14 Contributions and donations - - - - - Revolving loan repayments - - - - - Other - - - - - Total revenues 94,888 38,549 4,187 89 42,604 Expenditures Current Public works - - - - - Culture and recreation - - - - - Economic development 51,780 35,980 4,170 1,500 39,994 Debt service Principal - - - - - Interest and other charges - - - - - Capital outlay General government - - - - - Public safety - - - - - Public works - - - - - Culture and recreation - - - - - Total expenditures 51,780 35,980 4,170 1,500 39,994 Excess of revenues over (under) expenditures 43,108 2,569 17 (1,411) 2,610 Other Financing Sources (Uses) Sale of property - - - - - Bonds issued - - - - - Transfers in - - - - - Transfers out (136,714) - - - - Total other financing sources (uses) (136,714) - - - - Net change in fund balances (93,606) 2,569 17 (1,411) 2,610 Fund Balances Beginning of year 133,380 20,842 (183) (5,669) (5,846) End of year$ 39,774$ 23,411$ (166)$ (7,080)$ (3,236) 92 Special Revenue TIF 4-1 Fortitude Park Senior Housing Dedication Charitable Lodging Tax Revolving Loan Deed Housing (153)(205)Gambling (215)(220)(250)(225) $ -$ 20,000$ -$ -$ -$ - - - - - - - - - - 12,595 - - - - - - - - - 2,301 - - - - 10 1,014 18 106 356 67 - 6,944 - - - - - - - - 34,785 - - - - - - 11,078 10 30,259 18 12,701 35,141 11,145 - - - - - - - 5,390 - - - - - - - - 61 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23,788 - - - - - 29,178 - - 61 - 10 1,081 18 12,701 35,080 11,145 - - - - - - - - - - - - - - - - 136,714 - - - - - - - - - - - 136,714 - 10 1,081 18 12,701 171,794 11,145 2,129 120,301 2,072 8,054 33,861 - $ 2,139$ 121,382$ 2,090$ 20,755$ 205,655$ 11,145 93 City of St. Joseph Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2017 Debt Service G.O. G.O. Crossover Fire Hall G.O. Improvement G.O. G.O. Refunding Refunding Bonds of Improvement Certificates of Bonds of Bonds of 2005B/2010B Bonds of Indebtedness of 2009A (318)2003B (331)(333)2013A (348)2013A (349) Revenues Property taxes$ 25,528$ 19,051$ 33,395$ 9,980$ 56,680 Tax increments - - - - - Lodging taxes - - - - - Special assessments 116,640 - 57,838 12,213 - Charges for services - 19,796 - - - Miscellaneous Investment income 1,204 182 1,406 1,138 136 Contributions and donations - - - - - Revolving loan repayments - - - - - Other - - - - - Total revenues 143,372 39,029 92,639 23,331 56,816 Expenditures Current Public works - - - - - Culture and recreation - - - - - Economic development - - - - - Debt service Principal 350,000 75,000 130,000 35,000 55,000 Interest and other charges 10,150 1,995 11,957 8,578 2,411 Capital outlay General government - - - - - Public safety - - - - - Public works - - - - - Culture and recreation - - - - - Total expenditures 360,150 76,995 141,957 43,578 57,411 Excess of revenues over (under) expenditures (216,778) (37,966) (49,318) (20,247) (595) Other Financing Sources (Uses) Sale of property - - - - - Bonds issued - - - - - Transfers in 65,000 15,548 - - - Transfers out (8,766) - - - - Total other financing sources (uses) 56,234 15,548 - - - Net change in fund balances (160,544) (22,418) (49,318) (20,247) (595) Fund Balances Beginning of year 160,544 22,418 158,228 131,190 7,725 End of year$ -$ -$ 108,910$ 110,943$ 7,130 94 Debt Service G.O. Improvement G.O. Capital G.O. G.O. G.O. Capital G.O. G.O. Bonds of Improvement Improvement Certificates of Improvement Improvement Improvement 2011A/2006C Plan Bonds of Bonds of Indebtedness of Plan Bonds of Bonds of Bonds of (338)2009B (343)2010B (345)2011A (346)2011A (347)2014A (350)2015A (351) $ 49,953$ 64,931$ 5,993$ 12,880$ 25,953$ 79,879$ 29,776 - - - - - - - - - - - - - - 56,982 - 16,698 - - 36,337 40,787 - - - 12,930 - - - 924 122 1,689 11 5 3,078 1,910 - - - - - - - - - - - - - - - - - - - - - 107,859 65,053 24,380 25,821 25,958 119,294 72,473 - - - - - - - - - - - - - - - - - - - - - 130,000 60,000 50,000 40,000 20,000 110,000 55,000 14,339 4,805 13,765 4,470 2,229 51,745 11,719 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 144,339 64,805 63,765 44,470 22,229 161,745 66,719 (36,480) 248 (39,385) (18,649) 3,729 (42,451) 5,754 - - - - - - - - - - - - - - 18,000 4,400 13,250 15,000 - 109,269 109,077 - - - - - - - 18,000 4,400 13,250 15,000 - 109,269 109,077 (18,480) 4,648 (26,135) (3,649) 3,729 66,818 114,831 119,494 6,090 196,365 3,605 (444) 183,349 32,892 $ 101,014$ 10,738$ 170,230$ (44)$ 3,285$ 250,167$ 147,723 95 City of St. Joseph Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2017 Debt Service G.O. G.O. Tax G.O. Capital G.O. Capital Certificates of Abatement Improvement Improvement Improvement Indebtedness Bonds of Plan Bonds of Bonds of Bonds of 2015A (352)2015B (353)2016A (301)2016B (304)2017A (303) Revenues Property taxes$ 31,776$ -$ 229,108$ -$ - Tax increments - - - - - Lodging taxes - - - - - Special assessments - - - - - Charges for services - - - - - Miscellaneous Investment income 267 451 1,088 6,795 8 Contributions and donations - - - - - Revolving loan repayments - - - - - Other - - - - - Total revenues 32,043 451 230,196 6,795 8 Expenditures Current Public works - - - - - Culture and recreation - - - - - Economic development - - - - - Debt service Principal 30,000 110,000 175,000 - - Interest and other charges 2,219 44,445 96,852 15,652 11,362 Capital outlay General government - - - - - Public safety - - - - - Public works - - - 82,625 - Culture and recreation - - - - - Total expenditures 32,219 154,445 271,852 98,277 11,362 Excess of revenues over (under) expenditures (176) (153,994) (41,656) (91,482) (11,354) Other Financing Sources (uses) Sale of property - - 18 - - Bonds issued - - - - 11,253 Transfers in - 162,000 2,177 199,566 55,000 Transfers out - - - - - Total other financing sources (uses) - 162,000 2,195 199,566 66,253 Net change in fund balances (176) 8,006 (39,461) 108,084 54,899 Fund Balances Beginning of year 1,990 12,215 58,188 1,548 - End of year$ 1,814$ 20,221$ 18,727$ 109,632$ 54,899 96 Debt ServiceCapital Projects Clinton G.O. Jacob Villiage/ 2015 Improvement Debt Service Wetterling CBD Alley Park Terrace Northland Equipment Bonds of Relief Fund Recreation Improvement Improvements Improvements Certificates 2017B (305)(390)Center (402)Project (405)(450)(451)(452) $ -$ -$ -$ -$ -$ -$ - - - - - - - - - - - - - - - 43,797 18,317 - - - - - - - - - - - - 516 - 7 - - - - - - 2,055 - - - - - - - - - - - - - - - - - - 44,313 18,317 2,062 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,460 - - - - - - - - - - - - 1,212 - - - - - - 6,336 - 39,261 - 272,743 8,020 20,870 1,527 - - 175 - - - - 7,460 39,261 175 272,743 8,020 20,870 9,075 36,853 (20,944) 1,887 (272,743) (8,020) (20,870) (9,075) - - - - - - - 8,145 - - 335,855 - - - - 173,766 - - - - - - (10,576) - (10,816) (166,249) (109,077) - 8,145 163,190 - 325,039 (166,249) (109,077) - 44,998 142,246 1,887 52,296 (174,269) (129,947) (9,075) - 250,107 - - 174,269 129,947 9,075 $ 44,998$ 392,353$ 1,887$ 52,296$ -$ -$ - 97 City of St. Joseph Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2017 Capital Projects Total Other General Capital Water Access Sewer Access Governmental Outlay (490)Fund (501)Fund (502)Funds Revenues Property taxes$ 77,080$ -$ -$ 865,781 Tax increments - - - 85,216 Lodging taxes - - - 12,595 Special assessments - - - 399,609 Charges for services - 399,090 126,174 560,291 Miscellaneous Investment income - 1,532 141 25,464 Contributions and donations - - - 8,999 Revolving loan repayments - - - 34,785 Other - - - 11,078 Total revenues 77,080 400,622 126,315 2,003,818 Expenditures Current Public works - - - - Culture and recreation - - - 5,390 Economic development - - - 133,485 Debt service Principal - - - 1,425,000 Interest and other charges - - - 316,153 Capital outlay General government 199 - - 1,411 Public safety 11,210 - - 17,546 Public works - - - 425,046 Culture and recreation 8,102 - - 32,065 Total expenditures 19,511 - - 2,356,096 Excess of revenues over (under) expenditures 57,569 400,622 126,315 (352,278) Other Financing Sources (uses) Sale of property 23,465 - - 23,483 Bonds issued - - - 355,253 Transfers in - - - 1,078,767 Transfers out - (200,000) (95,000) (737,198) Total other financing sources (uses) 23,465 (200,000) (95,000) 720,305 Net change in fund balances 81,034 200,622 31,315 368,027 Fund Balances Beginning of year 264,358 41,099 (24,957) 2,248,236 End of year$ 345,392$ 241,721$ 6,358$ 2,616,263 98 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 Independent Auditor's Report Honorable Mayor and Members of the City Council City of St. Joseph St. Joseph, 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 St. Joseph, Minnesota, as of and for the year ended December 31, 2017, and the related notes to financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated April 19, 2018. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City'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. 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 City's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. BerganKDV, Ltd. bergankdv.com 99 Internal Control over Financial Reporting (Continued) Our consideration of internal control was for the limited purpose described in the first paragraph of this section 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. We did identify a certain deficiency in internal control, as described in the accompanying Schedule of Finding and Response on Internal Control that we consider to be a material weakness, listed as audit finding 2006-001. 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's response to the finding identified in our audit is described in the accompanying Schedule of Finding and Response on Internal Control. 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. St. Cloud, Minnesota April 19, 2018 100 Report on Legal Compliance Independent Auditor's Report Honorable Mayor and Members of the City Council City of St. Joseph St. Joseph, Minnesota We have audited, 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of St. Joseph, Minnesota, as of and for the year ended December 31, 2017, and the related notes to financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated April 19, 2018. The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statutes § 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. In connection with our audit, nothing came to our attention that caused us to believe that the City of St. Joseph 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. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. St. Cloud, Minnesota April 19, 2018 BerganKDV, Ltd. bergankdv.com 101 City of St. Joseph Schedule of Finding and Response on Internal Control CURRENT AND PRIOR YEAR INTERNAL CONTROL FINDING Material Weakness Audit Finding 2006-001 Improve Segregation of Accounting Duties Adequate segregation of accounting duties is in place when the four areas of a transaction have been separated: authorization, custody, recording, and reconciliation. As part of this year's audit, we reviewed the City's documentation of its internal control over significant areas including: cash receipts, cash disbursements, capital assets, payroll, and utility billing. The 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. Some of the areas in which we noticed a lack of segregation or an overlap in duties are as follows: Cash Receipts The Office Specialist or City Administrator enters cash and checks into the point of sale system, reconciles the entries, and prepares the deposit. The Police Records Specialist records police receipts, receives payments, and reconciles the collections. Cash Disbursements The Finance Director approves some invoices for payment, enters invoices into the system, generates checks, and a check register. The Finance Director is also an authorized signer and has access to the Mayor's electronic signature. The Administrator reviews and approves checks for payment. At year-end, the Finance Director reconciles and records accounts and contracts payable. Capital Assets The Finance Director records, processes, reconciles, and posts journal entries related to capital assets. The department heads review their listing for accuracy. Payroll The Finance Director enters employees' time, processes, and posts payroll, generates a payroll report, distributes paystubs to employees, and posts the journal entries related to payroll. In addition, this same employee reconciles payroll accruals and time off balances. The City Administrator does review payroll reports, time off balances, and calculated compensated absences balances for the audit. 102 City of St. Joseph Schedule of Finding and Response on Internal Control CURRENT AND PRIOR YEAR INTERNAL CONTROL FINDING (CONTINUED) Material Weakness (Continued) Audit Finding 2006-001 Improve Segregation of Accounting Duties (Continued) Utility Billing The Utility Billing Clerk enters new accounts into the utility billing system and uploads meter readings via interfacing with electronic readers. The Utility Billing Clerk enters any rate changes to the system and can enter manual adjustments. The Utility Billing Clerk calculates and enters final bills, prints, and mails utility bills, reconciles receipts to billed amounts, and enters receipts batches. Cash Reconciliation and Access The Finance Director performs the above noted responsibilities, while also reconciling cash, and generating manual journal entries. City's Response The City Council and City staff are aware of the limited personnel handling the City's financial matters. The processes and internal controls are reviewed frequently to look for ways to improve internal controls. The department heads, City Administrator and City Council each have active roles in monitoring the financial matters of the City to provided additional oversight. It is unlikely complete segregation of accountings duties will be achieved due to the cost of hiring several additional staff. 103 City of St. Joseph Communications Letter December 31, 2017 City of St. Joseph Table of Contents Report on Matters Identified as a Result of the Audit of the Financial Statements 1 Material Weakness 3 Other Deficiency 5 Required Communication 6 Financial Analysis 9 Emerging Issues 23 Report on Matters Identified as a Result of the Audit of the Financial Statements Honorable Mayor, Members of the City Council and Management City of St. Joseph St. Joseph, Minnesota In planning and performing our audit of the financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of City of St. Joseph, Minnesota, as of and for the year ended December 31, 2017, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing 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. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error, or fraud may occur and not be detected by such controls. However, as discussed below, we identified certain deficiencies 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 City's financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness identified is stated within this letter. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. BerganKDV, Ltd. bergankdv.com 1 During our audit, we also became aware of a deficiency in internal control other than significant deficiencies or material weaknesses, and other matters that are opportunities for strengthening internal controls and operating efficiency. It is described in the accompanying letter under Other Deficiency. The accompanying memorandum also includes financial analysis provided as a basis for discussion. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditor's Report dated April 19, 2018, on such statements. This communication is intended solely for the information and use of the City Council, management, others within the City and state oversight agencies and is not intended to be, and should not be, used by anyone other than these specified parties. St. Cloud, Minnesota April 19, 2018 2 City of St. Joseph Material Weakness IMPROVE SEGREGATION OF ACCOUNTING DUTIES Adequate segregation of accounting duties is in place when the four areas of a transaction have been separated: authorization, custody, recording, and reconciliation. As part of this year's audit, we reviewed the City's documentation of its internal control over significant areas including: cash receipts, cash disbursements, capital assets, payroll, and utility billing. The 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. Some of the areas in which we noticed a lack of segregation or an overlap in duties are as follows: Cash Receipts The Office Specialist or City Administrator enter cash and checks into the point of sale system, reconcile the entries, and prepare the deposit. The Police Records Specialist records police receipts, receives payments, and reconciles the collections. Cash Disbursements The Finance Director approves some invoices for payment, enters invoices into the system, and generates checks and a check register. The Finance Director also is an authorized signer and has access to the Mayor's electronic signature. At year-end, the Finance Director reconciles and records accounts and contracts payable. The City Administrator reviews and approves checks for payment. Capital Assets The Finance Director records, processes, reconciles, and posts journal entries related to capital assets. Department heads review their listing for accuracy. Payroll The Finance Director enters employee's time, processes and posts payroll, generates a payroll report, distributes paystubs to employees, and posts the journal entries related to payroll. In addition, this same employee reconciles payroll accruals and time off balances. The City Administrator does review payroll reports and time off balances and calculates compensated absences balances for the audit. Utility Billing The Utility Billing Clerk enters new accounts into the utility billing system and uploads meter readings via interfacing with electronic readers. The Utility Billing Clerk enters any rate changes to the system. The Utility Billing Clerk can enter manual adjustments, calculates, and enters final bills, prints, and mails utility bills, reconciles receipts to billed amounts, and enters receipts batches. Cash Reconciliation and Access The Finance Director performs the above noted responsibilities, while also reconciling cash and generating manual journal entries. 3 City of St. Joseph Material Weakness IMPROVE SEGREGATION OF ACCOUNTING DUTIES (CONTINUED) We recommend management and the City Council review the above deficiencies and improve segregation of accounting duties where possible to build upon the control environment. We also recommend the City closely follow its internal control plan and follow through with the control activities that have been designed. 4 City of St. Joseph Other Deficiency POLICE DEPARTMENT TICKET BILLING During our testing of police deposits, it was noted no one reviews the police secretary's reconciliation of the Police Department's daily receipts or records maintained by the Police Department. This could lead to unrecorded collections the City's Finance Department is not aware of. It wasalso noted the follow up notices are not mailed out timely. We noted several past due, uncollected tickets on hand that were not currently being pursued. This could result in reduced revenues for the City. In addition, it was determined that the City's fee schedule was not being properly followed when issuing receipts through the police department. It was noted there were multiple instances where late payment fees were written off. In addition, there were multiple instances of inconsistent fees being charged for the same violation. We recommend someone other than the Police Secretary reconcile the daily collections to records maintained by the Police Department and that the City develop a process for sending timely notices and for collecting past due tickets. We also recommend that the City implement controls to ensure the fee schedule is being uniformly followed. 5 City of St. Joseph Required Communication We have audited the financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended December 31, 2017. Professional standards require that we provide you with the following information related to our audit. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. Generally accepted accounting principles provide for certain required supplementary information (RSI) tosupplement the basic financial statements. Our responsibility with respect to the RSI, which supplements the basic audit financial statements, is to apply certain limited procedures in accordance with generally accepted auditing standards. However, the RSI was not audited and, because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance, we do not express an opinion or provide any assurance on the RSI. Our responsibility for the supplementary information accompanying the financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. PLANNED SCOPE AND TIMING OF THE AUDIT An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit involved judgment about the number of transactions to be examined and the areas to be tested. Our audit included obtaining an understanding of the City and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Material misstatements may result from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the City or to acts by management or employees acting on behalf of the City. 6 City of St. Joseph Required Communication QUALITATIVE ASPECTS OF ACCOUNTING PRACTICES Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in the notes to financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2017. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Depreciation The City is currently depreciating its capital assets over their estimated useful lives, as determined by management, using the straight-line method. Net Pension Liability, Deferred Outflows of Resources Relating to Pension Activity, and Deferred Inflows of Resources relating to Pension Activity These balances are based on an allocation by the pension plans using estimates based on contributions. We evaluated the key factors and assumptions used to develop the accounting estimates in determining that they are reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management did not identify and we did not notify them of any uncorrected financial statement misstatements. DISAGREEMENTS WITH MANAGEMENT For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. 7 City of St. Joseph Required Communication MANAGEMENT REPRESENTATIONS We requested certain representations from management that are included in the management representation letter. MANAGEMENT CONSULTATIONS WITH OTHER ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. OTHER AUDIT FINDINGS OR ISSUES We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. OTHER MATTERS We applied certain limited procedures to the RSI that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. 8 City of St. Joseph Financial Analysis The following pages provide graphic representation of select data pertaining to the financial position and operations of the City for the past five years. Our analysis of each graph is presented to provide a basis for discussion of past performance and how implementing certain changes may enhance future performance. We suggest you view each graph and document if our analysis is consistent with yours. A subsequent discussion of this information should be useful for planning purposes. TAX CAPACITY, LEVY, AND RATES The certified levy increased more than the taxable tax capacity increased in 2017 causing the tax rate to increase. Tax Capacity, Levy, and Rates $4,500,000100% 99.61% 99.00% 98.38% 97.10% 97.00% 90% $4,000,000 80% $3,379,730 $3,342,661 $3,500,000 $3,215,462 $3,272,269 70% $3,199,935 60% $3,000,000 59.26% 50% 55.01% 54.78% 52.70% 53.89% $2,500,000 40% 30% $2,000,000 $2,002,920 20% $1,838,805 $1,704,320 $1,724,270 $1,500,000 $1,673,870 10% $1,000,0000% 20132014201520162017 Taxable Tax CapacityCertified Tax LevyTax RateCollection Rate GENERAL FUND For the year ended December 31, 2017, General Fund revenues exceeded expenditures by $228,791. In addition to this, the City received $275 in proceeds from the sale of property, $1,470 of insurance recoveries, transferred out $250,548 to other funds and transferred in $13,896 from other funds. This resulted in a decrease in the General Fund balance of $(6,116). Of the City's General Fund balance at December 31, 2017, $846,378 was assigned for specific expenditures, such as the fire department, elections, and a City structure/facility study. An additional $34,370 was restricted by PEG access fees restricted for future cable access expenditures. The City also has $25,712 of its fund balance in nonspendable form as the funds have already been spent on prepaid insurance. The unassigned portion of the fund balance, which includes monies set aside for working capital, totaled $1,449,363 represents approximately six months of 2017 General Fund expenditures. The City's target General Fund balance is to maintain working capital, a portion of the unassigned balance, in the amount of four to six months of the next year's budgeted expenditures of the General Fund, excluding the fire department. 9 City of St. Joseph Financial Analysis GENERAL FUND The graphs below and on the following page show the City's General Fund balance and the General Fund revenues and expenditures for the last five years. General Fund $2,500,000 $23,479 $25,712 $26,567 $34,370 $77 $295,972 $20,366 $2,000,000 $288,493 $150,544 $22,423 $19,500 $576,622 $557,885 $112,556 $69,600 $1,500,000 $514,060 $491,170 $500,085 $1,000,000 $1,439,299 $1,315,805 $1,134,091$1,090,634$1,449,363 $500,000 $- 20132014201520162017 UnassignedAssigned for Fire FundAssigned for Other PurposesRestrictedNonspendable 10 City of St. Joseph Financial Analysis GENERAL FUND (CONTINUED) General Fund $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- 20132014201520162017 Total revenues $2,626,455$2,745,142$2,927,909$3,206,688$3,258,037 Total Expenditures $2,603,383$2,656,243$2,682,512$2,848,467$3,029,246 Fund Balance 1,721,2311,740,9142,000,8522,361,9392,355,823 During the year ended December 31, 2017, the City's General Fund revenues increased $51,349, or 1.6%, from 2016, while expenditures increased by $180,779, or 6.3%. These changes in revenues and expenditures will be discussed by source and function, respectively, on the following pages. As discussed earlier, fund balance did decrease $6,116 from 2016 to 2017. Fund balance has increased $634,592 or 36.9% since 2013. 11 City of St. Joseph Financial Analysis GENERAL FUND REVENUES 20132014201520162017 Taxes$ 1,152,533$ 1,124,594$ 1,107,058$ 1,083,067$ 1,125,765 Special assessments 2,080 7,302 3,590 3,740 9,127 Franchise fees 117,894 124,940 124,283 126,817 129,242 Licenses and permits 97,192 105,929 152,158 270,780 356,990 Intergovernmental 884,370 1,018,932 1,107,840 1,212,746 1,133,362 Charges for services 244,699 243,067 270,508 345,321 376,946 Fines and forfeitures 45,439 38,330 50,489 46,747 55,474 Miscellaneous 82,248 82,048 111,983 117,470 71,131 Total revenues$ 2,626,455$ 2,745,142$ 2,927,909$ 3,206,688$ 3,258,037 As discussed earlier, the City's revenue increased $51,349 from 2016 to 2017. The most significant variance was an increase in licenses and permits of $86,210. This increase was due to new development in the City in 2017. Intergovernmental revenues decreased $79,384 from 2016, due primarily to the City receiving a onetime county grant for the turnback street project totaling $95,000 in 2016. Charges for services increased $31,625 from the prior year due to an increase in in fire service. Property tax revenues increased due to an increase in amounts levied for general purposes. Miscellaneous revenues decreased $46,339 due receiving a lower dividend through the League of MN Cities and fewer insurance recoveries in 2017. Other revenues stayed consistent with the prior year. Total revenues have grown $631,582 since 2013, an increase of 24.1%. The largest variances between the types of revenue have been the increases in Licenses and Permits. The pie charts on the following page show the General Fund sources of revenue for 2017 and 2016 as a percentage of total revenues. The allocation of sources of revenue fluctuates minimally from year-to- year. Intergovernmental revenue and Taxes account for the two largest components of revenues, each making up 34% and 35% of the total. The total of these two categories accounts for approximately 69% and 72% of General Fund revenues in 2017 and 2016. 12 City of St. Joseph Financial Analysis GENERAL FUND REVENUES (CONTINUED) 2017 General Fund Revenues Licenses and Permits Intergovernmental 11% 35% Franchise Fees 4% Special Assessments Less Than 1% Charges for Services 12% \[CATEGORY NAME\] 35% Miscellaneous Fines and Forfeitures 2% 2% 2016 General Fund Revenues Intergovernmental Licenses and Permits 38% Franchise Fees 8% 4% Special Assessments Less Than 1% Charges for Services 11% Taxes 34% Fines and forfeitures Miscellaneous 1% 4% 13 City of St. Joseph Financial Analysis GENERAL FUND EXPENDITURES 20132014201520162017 General government$ 485,778$ 552,559$ 582,258$ 617,764$ 749,008 Public safety 1,405,347 1,419,890 1,376,624 1,459,196 1,537,183 Public works 344,935 403,435 329,004 353,421 342,806 Culture and recreation 196,504 199,011 264,168 317,839 270,555 Capital outlay 170,819 81,348 130,458 100,247 129,694 Total Expenditures$ 2,603,383$ 2,656,243$ 2,682,512$ 2,848,467$ 3,029,246 As discussed earlier, General Fund expenditures increased $180,779, or 6.3%, from 2016 to 2017. The most significant increases in expenditures occurred in general government, public safety, and capital outlay. General government expenditures increased $131,244 due to an increase in wages as well as a full-time community development director. Public Safety increased $77,987 due to increased salaries as well as hiring a full-time officer. Capital outlay expenditures increased $29,447 from 2016 due to the City improving a parking lot. All other expenses remained consistent with the prior year. Partially offsetting these increases was a decrease in Culture and recreation expenditures of $29,447, which was the result of less weed spraying and fewer operational supplies needed in 2017. The pie charts on the following page show the General Fund expenditures by function for 2017 and 2016as a percentage of total expenditures. The allocation of expenditures by function was fairly consistent from 2016 to 2017. Public safety remains the largest component of General Fund expenditures, representing 51% of total expenditures for both 2017 and 2016. 14 City of St. Joseph Financial Analysis GENERAL FUND EXPENDITURES (CONTINUED) 2017 General Fund Expenditures Public Safety 51% Public Works 11% General Government 25% Culture and Recreation 9% Capital Outlay 4% 2016 General Fund Expenditures Public Safety 51% Public Works 12% Culture and General Government Recreation 22% 11% Capital Outlay 4% 15 City of St. Joseph Financial Analysis GENERAL FUND BUDGET The table below illustrates the General Fund budget and actual for 2017 revenues and expenditures by function. Variance With Final Actual Original and Budget - Amounts Final Budget Over (under) Revenues Taxes$ 1,128,180$ 1,125,765$ (2,415) Special assessments 3,000 9,127 6,127 Franchise fees 126,300 129,242 2,942 Licenses and permits 157,035 356,990 199,955 Intergovernmental 1,155,220 1,133,362 (21,858) Charges for services 361,990 376,946 14,956 Fines and forfeitures 43,000 55,474 12,474 Miscellaneous 85,400 71,131 (14,269) Total revenues 3,060,125 3,258,037 197,912 Expenditures General government 662,175 749,008 86,833 Public safety 1,581,460 1,537,183 (44,277) Public works 403,220 342,806 (60,414) Culture and recreation 299,470 270,555 (28,915) Capital outlay 176,460 129,694 (46,766) Total expenditures 3,122,785 3,029,246 (93,539) Excess of receipts over (under) disbursements (62,660) 228,791 291,451 Other Financing Sources (Uses) Insurance recoveries - 1,470 1,470 Sale of property 12,350 275 (12,075) Transfers in - 13,896 13,896 Transfers out (39,000) (250,548) (211,548) Total other financing sources (26,650) (234,907) (208,257) Net change in fund balance$ (89,310)$ (6,116)$ 83,194 16 City of St. Joseph Financial Analysis GENERAL FUND BUDGET (CONTINUED) General Fund revenues were over budget by $197,912, or 6.5% in 2017. The area with the largest budget variance was licenses and permits, which exceeded budget by $199,955. Licenses and permits were over budget due to the City budgeting conservatively for them as they can vary from year to year, 2017was a year of increased development resulting in revenues exceeding the budget. The remaining areas were on budget, with a total variance between them of $16,999 under budget. General fund expenditures were under budget by $93,539. Public works, Capital Outlay, Public Safety, and Culture and recreation were under budget $60,414, $46,766, $44,277 and $28,915, respectively. Public works is under budget due to the City having a mild winter, resulting in less hours worked for snow removal services. Capital outlay expenditures were under budget $46,766, the largest component of this variance relates to setting monies aside each year for future fire equipment purchases. Public Safety was under budget due to conservative budgeting. Culture and recreation was under budget due to not having to pay utilities for the school building as Colt's Academy extended its lease. These areas were partially offset by General government, which was over budget $86,833. This variance was due to a compensation plan update that was designated in the prior year's equity. ENTERPRISE FUNDS Enterprise funds are used to account for operations financed and operated in a manner, similar to private business enterprises, where the City intends the cost of providing goods or services to the public be financed or recovered primarily through user charges. The City's Enterprise Funds include the Water, Sanitary Sewer, Refuse, Storm Water, and Street Light Utility Funds. 17 City of St. Joseph Financial Analysis ENTERPRISE FUNDS Water Fund The Water Fund showed operating income for the third year in a row, after two years of operating losses. Operating revenues increased $85,222, or 9.6%, from 2016 due to rate increases, while operating expenses increased $9,722, or 1.2%, from 2016 to 2017, due to the purchase of water meters. Operations produced operating income of $177,044, the highest in the five years presented. With the exclusion of $417,012 in depreciation expense, the Fund experienced operating income of $594,056. However, depreciation should be considered as a true expense in operations, being that most equipment and facilities will eventually need upgrades or replacement. The operations of the Water Fund covered 100% of depreciation expense. In addition to the operating revenues and expenses of the Water Fund, there were net non-operating expenses of $30,362, which is comprised of property taxes and other income, offset by interest expense on the outstanding bond debt. The operating and non-operating activities netted with capital contributions and transfers resulted in an increase in net position of $473,391 to $8,661,088 at December 31, 2017. The cash and investments balance at December 31, 2017, totaled $670,382, an increase of $609,514, a large portion of this increase was attributed to bond proceeds received at year end but not spent. Water Fund $1,000,000 $800,000 $600,000 $400,000 $200,000 $- $(200,000) 20132014201520162017 Operating Revenues $713,136$723,850$770,889$883,601$968,823 Operating Expenses 733,526753,725762,423782,057791,779 Operating Income (Loss) with Depreciation (20,390)(29,875)8,466101,544177,044 Operating Income without Depreciation 357,200349,539413,747513,809594,056 18 City of St. Joseph Financial Analysis ENTERPRISE FUNDS (CONTINUED) Sanitary Sewer Fund Operating revenues increased $274,559, or 15.6%%, from 2016 to 2017, while operating expenses increased $72,338, or 8.2%. The increase in revenue is due to the City raising rates. Expenses increased due to increases in depreciation and repairs and maintenance. The Sewer Fund produced operating income for the second time in the five years presented. Due to the nature and cost of the Sewer Fund's assets, it is difficult to establish sewer rates sufficient to cover replacement of the assets represented by depreciation expense. Ideally, sewer revenues should cover all operating expenses, including depreciation. However, depreciation of Sewer Fund assets is a difficult cost to recover from system users since there are relatively few users in relation to the cost of asset replacement. The operations of the Sewer Fund covered 100% of depreciation expense in 2016 and 2017. The graph below indicates the Sewer Fund did generate operating income each year when depreciation expense is not considered, indicated by the orange bar. In addition to the operating revenues and expenses of the Sewer Fund, there were net non-operating expenses of $117,403, which is mainly due to $151,289 of interest expense paid on outstanding debt. Capital contributions and transfers along with the operating and non-operating activities resulted in an increase in net position of $389,833 to $8,635,059 at December 31, 2017. The cash balance at December 31, 2017, totaled $2,346, a decrease of $3,432. Sanitary Sewer Fund $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- $(200,000) $(400,000) 20132014201520162017 Operating Revenues $709,892$661,679$840,148$997,206$1,271,765 Operating Expenses 809,378850,112848,367886,810959,148 Operating Income (Loss) with Depreciation (99,486)(188,433)(8,219)110,396312,617 Operating Income without Depreciation 289,213204,478433,404563,309794,023 19 City of St. Joseph Financial Analysis ENTERPRISE FUNDS (CONTINUED) Refuse Fund The following graph displays selected financial data for the Refuse Fund for the past five years. The Fund consistently showed an operating loss each year, except for 2016. Operating revenues increased $1,548,or 0.5%, while operating expenses increased $7,277, or 2.6%, from 2016 to 2017. This increase in expenditures was a result of an increase in refuse fees. These changes resulted in an operating loss of $1,406 for 2017. The Fund produced operating income of $5,200 when depreciation is not factored in. The operations of the Refuse Fund cover 79% of the depreciation expense. It should be noted that the Refuse Fund receives non-operating revenues including interest income and special assessments revenue,which resulted in an increase in the Fund's net position of $3,478. The cash balance increased $10,102 in 2017 and totaled $257,764 at December 31, 2017. Refuse Fund $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- $(50,000) 20132014201520162017 Operating Revenues $298,123$285,197$284,585$286,603$288,151 Operating Expenses316,087322,397287,877282,280289,557 Operating Income (Loss) with Depreciation (17,964)(37,200)(3,292)4,323(1,406) Operating Income (Loss) without Depreciation (11,458)(30,694)3,31410,9295,200 20 City of St. Joseph Financial Analysis ENTERPRISE FUNDS (CONTINUED) Storm Water Fund The Storm Water Fund showed operating losses in the past five years. Operating revenues increased $27,955,or 28.2%, from 2016 to 2017, due to increased developer fees while operating expenses decreased $8,800, or 4.9% due to the decreased wage expense due to extinguished OPEB liability. The Storm Water Fund produced an operating loss of $42,222 with depreciation and operating income of $62,991 without depreciation expense. The operations of the Storm Water Fund covered approximately 59.9% of depreciation expense. The Storm Water Fund also reported non-operating revenues including investment income and special assessments totaling $2,332, with capital contributions and transfers of $200,388 for bonded improvement projects to other funds. Fund activity resulted in an increase in net position of $160,498. The cash balance increased $39,466 in 2017 and totaled $280,964 at December 31, 2017. We recommend the City continue to monitor rates as well as operating expenses to ensure the Fund's profitability in the future. Storm Water Fund $200,000 $150,000 $100,000 $50,000 $- $(50,000) $(100,000) 20132014201520162017 Operating Revenues $102,009$97,505$98,133$99,212$127,167 Operating Expenses170,289167,939180,681178,189169,389 Operating Loss with Depreciation (68,280)(70,434)(82,548)(78,977)(42,222) Operating Income without Depreciation 28,94627,22415,21123,78662,991 21 City of St. Joseph Financial Analysis ENTERPRISE FUNDS (CONTINUED) Street Light Utility The Street Light Utility Fund was opened during 2013 to track activity relating to the street light utility. The Street Light Utility Fund showed an operating loss in two of the four years presented. Operating revenues increased $809, from 2016 to 2017 while operating expenses increased $1,539, or 2.4%. The Street Light Utility Fund produced an operating loss of $3,507. The fund also reported non- operating income including investment income and special assessments totaling $3,750, which resulted in an increase in net position of $243. The cash balance increased $805 in 2017 and totaled $23,577 at December 31, 2017. We recommend the City continue to monitor rates as well as operating expenses to ensure the Fund's profitability in the future. Street Light Utility $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- $(10,000) 20132014201520162017 Operating Revenues $43,066$63,037$60,564$60,550$61,359 Operating Expenses 47,63850,53153,75163,32764,866 Operating Income (Loss)(4,572)12,5066,813(2,777)(3,507) 22 City of St. Joseph Emerging Issues Executive Summary The following is an executive summary of financial and business related updates to assist you in staying current on emerging issues in accounting and finance. This summary will give you a preview of the new standards that have been recently issued and what is on the horizon for the near future. The most recent and significant update(s) include(s): Accounting Standard Update GASB Statement No. 84 Fiduciary Activities GASB has issued GASB Statement No. 84 relating to accounting and financial reporting for fiduciary activities. This new statement establishes clarity to determines when a government has fiduciary responsibility for a certain activity. Accounting Standard Update GASB Statement No. 87 Leases GASB has issued GASB Statement No. 87 relating to accounting and financial reporting for leases. This new statement establishes a single model for lease accounting based on the principle that leases are financing of the right to use an underlying asset. The following is/are (an) extensive summary(ies) of the current update(s). As your continued business partner, we are committed to keeping you informed of new and emerging issues. We are happy to discuss these issues with you further and their applicability to your City. ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 84 FIDUCIARY ACTIVITIES The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. Governments with activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary net position. An exception to that requirement is provided for a business-type activity that normally expects to hold custodial assets for three months or less. GASB Statement No. 84 describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets. 23 City of St. Joseph Emerging Issues ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 84 FIDUCIARY ACTIVITIES (CONTINUED) GASB Statement No. 84 is effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. Information provided above was obtained from www.gasb.org. ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 87 LEASES The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and anintangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. A lease is defined as a contract that conveys control of the right to use another entity's nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this Statement. A short-term lease is defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract. A lessee should recognize a lease liability and a lease asset at the commencement of the lease term, unless the lease is a short-term lease or it transfers ownership of the underlying asset. The lease liability should be measured at the present value of payments expected to be made during the lease term (less any lease incentives). The lease asset should be measured at the amount of the initial measurement of the lease liability, plus any payments made to the lessor at or before the commencement of the lease term and certain direct costs. A lessee should reduce the lease liability as payments are made and recognize an outflow of resources (for example, expense) for interest on the liability. The lessee should amortize the lease asset in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset. The notes to financial statements should include a description of leasing arrangements, the amount of lease assets recognized, and a schedule of future lease payments to be made. 24 City of St. Joseph Emerging Issues ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 87 LEASES (CONTINUED) A lessor should recognize a lease receivable and a deferred inflow of resources at the commencement of the lease term, with certain exceptions for leases of assets held as investments, certain regulated leases, short-term leases, and leases that transfer ownership of the underlying asset. A lessor should not derecognize the asset underlying the lease. The lease receivable should be measured at the present value of lease payments expected to be received during the lease term. The deferred inflow of resources should be measured at the value of the lease receivable plus any payments received at or before the commencement of the lease term that relate to future periods. A lessor should recognize interest revenue on the lease receivable and an inflow of resources (for example, revenue) from the deferred inflows of resources in a systematic and rational manner over the term of the lease. The notes to financial statements should include a description of leasing arrangements and the total amount of inflows of resources recognized from leases. GASB Statement No. 87 is effective for reporting periods beginning after December 15, 2019. Earlier application is encouraged. Information provided above was obtained from www.gasb.org. 25