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Home My WebLink About07/12/2018 Meeting M eeting L ocation: M unicipal Center 7100 147th Street West Apple Valley, M innesota 55124 July 12, 2018 C IT Y C O UN C IL IN F O RMA L MEET IN G T EN TAT IVE D ISC US SIO N IT EMS 5:30 P M 1.C ouncil Discussion Items (10 min.) 2.Present 2017 Comprehensive Annual Financial Report (25 min.) 3.Update on Emerald Ash Borer Management Strategies (20 min.) 4.Update on Liquor Store No. 1 Lease Extension (20 min.) 5.Adjourn C IT Y C O UN C IL REG ULA R MEET IN G T EN TAT IVE A G EN D A 7:00 P M 1.C all to Order and Pledge 2.Approve Agenda 3.Audience - 10 Minutes Total Time Limit - For Items N O T on this Agenda 4.Approve C onsent Agenda Items C onsent Agenda Items are considered routine and will be enacted with a single motion, without discussion, unless a councilmember or citizen requests to have any item separately considered. It will then be moved to the regular agenda f or consideration. A.Approve Minutes of J une 28, 2018, Regular Meeting B.Adopt Resolution Accepting Donation from Karen Hangebrauk for Use by Parks and Recreation Department C .Approve State Gambling Exempt Permit for Sons of the American Legion, at Apple Valley American Legion, Post 1776, on November 11, 2018 D.Receive 2017 Comprehensive Annual Financial Report E.Adopt Resolution Establishing Speed Limit along 157th Street from Finch Avenue to Pilot Knob Road for Project 2015-103, 157th Street & J ohnny Cake Ridge Road Improvements F.Adopt Resolution Setting Public Hearing at 7:00 p.m. on August 9, 2018, to Vacate Drainage and Utility Easements on Lot 1, Block 1, Rumoulington Addition, and Lot 15, Block 3, and the South Half of Lot 16, Block 3, Lebanon Hills First Addition (135 Surrey Trail South and 129 Surrey Trail South) G.Adopt Resolution Approving 10 Ft. Variance for 340 Sq. Ft. Garage Addition on Lot 8, Block 1, Apple Valley T hird Addition (216 Edgewood Lane) H.Adopt Resolution Approving Plans and Specifications for Project 2018- 154, Apple Valley Community C enter and Hayes Park Arena Roofing, and Authorizing Advertising for Receipt of Bids at 2:00 p.m. on August 16, 2018 I.Adopt Resolution Approving J oint Powers Agreement for Pharmaceutical Drug Disposal Program J .Approve T hird Amendment to Antenna Lease Agreement with T-Mobile Central, LLC, for Longridge Reservoir (Removed f rom agenda) K.Approve T hird Amendment to Antenna Lease Agreement with T-Mobile Central, LLC, for Quarry Point Water Tower (Removed from agenda) L.Approve Change Order No. 1 to Agreement with Sewer Services, Inc., for Project 2018-137, 2018 Sump Catch Basin Cleaning, and Approve Acceptance and Final Payment M.Approve Acceptance and Final Payment on Agreement with Klar Dig Construction, Inc., for Project 2017-167, C obblestone Lake Park Pavilion and Restroom Building N.Approve Personnel Report O.Approve Claims and Bills 5.Regular Agenda Items A.Introduction of Police Sergeant Alan Spillers B.Introduction of Police K-9 Koda and Handler Police Officer J ustin Drogseth C .Introductions and Oaths of Office of Police Officers April Ehmke, Colleen Strohmayer, and C ourtney Wahl 6.Staff and C ouncil C ommunications 7.Approve C alendar of Upcoming Events 8.Adjourn Regular meetings are broadcast, live, on Charter Communications Cable Channel 180 and on the C ity's website at www.cityof applevalley.org ! 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C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:I nformal A genda I tem Description: P resent 2017 Comprehensive A nnual F inancial Report (25 min.) S taff Contact: Ron Hedberg, Finance Director Department / Division: Finance Department AC T I O N RE Q UE S T E D: N/A S UM M ARY: A formal action to receive the 2017 C omprehensive Annual Financial Report will be included in the C ity Council agenda later the same evening. J im Eichten, Managing Partner, with the City’s auditing firm, Malloy Montague Karnowski Radosevich and C o., P.A. (MMKR), will present the 2017 C omprehensive Annual Finance Report and review their Management Report at the informal work session on J uly 12, 2018. Included with the council packet information are three separate bound documents in addition to one unbound report; the first bound document, and largest, is a copy of the Comprehensive Annual Financial Statements (C A FR), the second is auditor’s Management Report, and the third is Special Purpose Audit Reports including opinions on compliance with Government Auditing Standards and Legal C ompliance. In addition to the bound reports also attached is a new report this year, titled "Popular Annual Financial Report". T he intent of this report is to present data included in the C A F R in an easy to understand format. T his report adds to the financial transparency for the city operations. T his report, along with the Comprehensive Financial Report will be posted on the City's website Since the documents are large, a good place to start reviewing the C A FR documents would be the Popular Annual Financial Report and in the C A FR the Transmittal Letter (starting on page iii), the Management Discussion and Analysis letter (starting on page 4) and with the Auditor’s Management Report on page 1 and their financial analysis section beginning on page 7 of that report. Last year was the sixth year that the C ity of Apple Valley participated in the Certificate of Achievement for Excellence in Financial Reporting program administered by the G FO A, the City of Apple Valley was recently awarded the Certificate for the 2016 C A FR. Staff believes that the current year ’s submission will also meet the requirements to receive the award. T he presentation will cover some of the highlights of the year. If the Council has some items that they would like to be sure is covered just let me know prior to the meeting and we will be sure to cover it in the presentation. B AC K G RO UND: N/A B UD G E T I M PAC T: N/A AT TAC HM E NT S : Report Report Report Report City of Apple Valley Popular Annual Financial Report To The Community FOR THE YEAR ENDED DECEMBER 31, 2017 Dear Apple Valley Resident, We are pleased to present the City of Apple Valley’s Popular Annual Financial Report (PAFR). This report provides a summary of the City’s financial information in a simplified, easy to read format. We trust this report gives you a better understanding on city government and our financial condition. Information in this report comes from Apple Valley’s 2017 Comprehensive Annual Financial Report (CAFR). The CAFR was prepared in conformity with Generally Accepted Accounting Principles (GAAP), was audited by MMKR and received an unmodified opinion, which is the best audit opinion possible. In order for Apple Valley to manage the community finances smoothly, it divides various activities into several different funds. Governmental funds account for tax-supported activities and include:  General Fund activities that provide for basic operations of the City, i.e. administration, building maintenance, police & fire, street & park maintenance, recreation activity, community development and planning.  Special Revenue Funds account for activities restricted to specific purposes like the City’s Economic Development Authority.  Debt Service Funds track revenues and expenses related to repayment of long -term debt.  Capital Projects Funds collect revenue from special assessments, state and county aids and allots them toward construction or major capital expenses.  Proprietary Funds account for activities that operate as a public enterprise which are paid for by user fees, i.e. water, sanitary sewer, storm sewer, liquor stores, and Valleywood Golf Course.  Internal Service Funds account for the acquisition, operation, and maintenance of governmental facilities and services, which are entirely or predominately self-supported by user charges to the governmental funds. If you would like a copy of the CAFR, visit the City’s website at CityofAppleValley.org or contact the Finance Department at: 952-953-2540 Dividing Up Your Property Tax Dollar Your tax dollar is divided up into several governmental entities. Apple Valley collects 35 cents of every tax dollar for City services. The remaining portions are divided among Dakota County, the school district, and other agencies. These tax rates are based on a residential home valued at $224,100. City of Apple Valley 7100 147th Street West Apple Valley, MN 55124 952-953-2500 CityofAppleValley.org Elected Officials: MAYOR: Mary Hamann-Roland CITY COUNCIL: John Bergman Tom Goodwin Ruth Grendahl Clint Hooppaw INSIDE THIS ISSUE: Introduction 1 Dividing up your 1 Tax Dollar Monthly Bill 2 Tax Cost 2 Comparison General Fund 3 Special Revenue 4 Funds Long-Term Debt 4 Internal Service 4 Funds Capital Funds 5 Enterprise Funds 5-6 CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 2 How Tax Dollars Buy City Services Residents receive a variety of City services for an affordable price. The cost of City services in 2017 for the owner of a single-family home in Apple Valley with an assessor’s market value of $224,100 was $80.40 per month. The tax cost per month of $80.40 is the amount left requiring tax support after allocatfng grants, program fees, lodging taxes and other non-property tax revenue to the appropriate services. Quarterly Cost of Utilities Based on an average usage of 21,000 gallons of water and 15,000 gallons of sewer per quarter, the cost of utflitfes for a home in Apple Valley was $131.56 in 2017. Apple Valley bills on a quarterly basis. Services include water, sewer, storm water, and street lightfng. Police $24.09 Parks $12.84 Public Works $9.44 Street Reconstruction $9.36 Fire $5.96 General Gov. $12.92 Debt Service $4.22 Insurance $1.57 TOTAL $80.40 Below is a 2017 comparison of monthly city property taxes paid on a median valued home with twelve similar sized com- munitfes in the metro area. Using the median home value in each community, we compared the property tax cost per month for each city. Monthly City Property Tax Cost Comparison * *Apple Valley’s tax rate supports road reconstructfon projects within the City without the need for special assessments. Other citfes routfnely levy special assessments against their property owners to support such costs. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 3 General Fund Revenue The City’s General Fund is the largest Governmental fund and also one of the most vital to the City’s operatfon. The General Fund is the primary fund that accounts for everyday general expenditures like street and park maintenance, police protectfon, and fire protectfon while at the same tfme supportfng the annual street and utflity infrastructure program. Like most funds, the General Fund relies on the inflow of cash, shown as revenues and subsequently the outilow listed as expenditures. The primary revenue for the General Fund is property taxes. Intergovernmental revenues include state or county aids and grants. For the year end of 2017, the City’s revenue total was $32,199,813 which was a $2,146,249 (7.1%) increase from the previous year. The increase is related to an increase in collectfon of development related fees ($1,200,000) and property taxes. ($800,000). City Departments General Fund Expenditures The City’s total General Fund expenditures for 2017 were $27,274,374 which was $1,541,986 (5.4%) under the final 2017 budget. Overall, General Fund expenditures increased $1,288,016 (5.0%) primarily in the public safety area. The chart below highlights the amount funded to each of the City’s functfons. Administration: This department provides the overall directfon for the City as determined by the City Council. It is responsible for maintaining City records, issuing licenses, administering Council policies, and overseeing electfon procedures. Finance: This department conducts the financial affairs of the City of Apple Valley in accordance with the Government Accountfng Standards Board (GASB) and Generally Accepted Accountfng Principals (GAAP). Planning & Community Development: This department is responsible for ensuring that laws, ordinances, and zoning codes are enforced. It is also responsible for Economic Development within the City. Public Works: This department is responsible for maintaining the City’s infrastructure, vehicles, and buildings as well as civil and traffi c engineering, inspectfons, natural resources, and the City cemetery. Parks & Recreation: This department is responsible for providing recreatfon actfvitfes in the City and maintain the City’s parks and trails. Public Safety: This department is responsible for maintaining the peace and the protectfon of the community through diligent enforcement of laws and effectfve response to calls for service. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 4 Special Revenue Funds Special Revenue Funds are used to account for general government financial resources that are RESTRICTED by law or contractual agreement to specific purposes other than debt service or major capital projects. The City of Apple Valley has the following Special Revenue Funds:  Cable TV—This fund accounts for the operatfng costs of the cable TV functfons funded by cable franchise fees.  EDA Operations—This fund accounts for the operatfng actfvitfes of the Apple Valley Economic Development Authority.  Lodging Tax—This fund administers the resources from the lodging tax process. *Please note that Solid Waste Grant and Police Forfeiture are not recognized in this report, but are included in the CAFR. Long-Term Bonded Debt Apple Valley received a “AAA” ratfng from Standard and Poor’s and a “Aaa” ratfng from Moody’s. These are the highest possible ratfngs you can receive. A high bond ratfng translates into lower future borrowing costs. This ratfng is based on the City’s:  Moderately-sized tax base with recent improvement in its valuatfon after a trend decline.  Sound financial positfon characterized by healthy reserves.  Average debt burden with quick principal amortfzatfon.  Favorably located in the Twin Citfes metropolitan area. In 2017, the City did not issue any new debt, nor did it partfcipate in refinancing of any old debt. In late December 2017, the City called debt (paid off early) totaling $15,645,000, contributfng to the lowering of total net bonded debt to $20,925,516 and net debt per capita to $400. Once again the City received the Certfficate of Achievement for Excellence in Financial Reportfng awarded by the Government Finance Officers Associatfon for the City’s Comprehensive Annual Financial Report (CAFR). Although the financial numbers in the CAFR come from an audited source, they are presented in this report in a condensed, unaudited, non-GAAP format. Internal Service Funds Internal service funds are an accountfng procedure used to accumulate and allocate costs internally among the City’s various functfons. The City maintains internal service funds for the following services: $- $100 $200 $300 $400 $500 $600 $700 2013 2014 2015 2016 2017 Net Bonded Debt per capita CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 5 Capital Projects Funds Road Improvement Fund: This fund finances street overlays and reconstructfon projects per the City’s Pavement Management Plan. The ending balance in this fund for 2017 was negatfve $5,174,280. Future Capital Projects Fund: This fund accumulates resources directly from the General Fund. City Council policy calls for amounts in the General Fund that exceed a maximum level to be moved into the Future Capital Projects Fund. Funds are used to pay for any capital improvement costs needed in the future. The ending fund balance in this fund for 2017 was $15,353,401. Non-Major Capital Projects Funds: The City has an additfonal 27, non-major capital project funds that are used to account for various project-related costs. The net ending fund balance in these funds for 2017 was $11,483,537. Please see the 2017 CAFR for further detail Enterprise Funds The Enterprise Funds account for the City’s utflitfes (water, sewer, storm drainage, and street lights), liquor stores, golf course, sports arena, and cemetery, which are all run like businesses in that they rely on fees and charges for revenue to cover expenditures. Utilities: Water, Sewer, Storm Water, & Street Light About this Report The City of Apple Valley reports financial year-end results in the Comprehensive Annual Financial Report (CAFR). The Popular Annual Financial Report (PAFR) is an unaudited report that summarizes the most significant data from the 2017 CAFR, and is consistent with Generally Accepted Accounting Principles. The report reflects the net tax cost by service expenditure, developed by crediting related revenues against appropriate expenditures and allocating local taxes against the remaining balance. For a complete review of the City’s financial position for 2017, consult the 2017 CAFR available on the City’s website at CityofAppleValley.org, or from the Finance Department at 952-953-2540. These funds consist of utflity services provided to the community by the City such as water & sewer, storm drainage, and street lightfng. Revenues from these funds go to support operatfons, maintenance, and improvements of the City’s utflitfes. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 6 Municipal Liquor The City owns and operates three municipal liquor stores. Profits from your purchases stay in the City of Apple Valley to help aid in providing funding for police, fire, and public works vehicles, maintaining and improving city parks along with other General Fund services. Valleywood Golf Course Valleywood Golf Course features an 18-hole, par 71 course along with a large banquet space, full scale bar, restaurant, and outdoor patfo. Valleywood was recently named MGA Member Club of the Year for 2015. Sports Arena The Sports Arena offers tennis lessons during the summer and ice skatfng during the winter. Hayes Park Arena offers ice tfme from mid- June to mid-March and indoor turf tfme from mid-March to mid-June. City Facts  Populatfon: 52,361  Per Capita $38,684 Personal Income  High School 95.0% Graduatfon Rate  Unemployment 2.5% Rate Home of the MN Zoo 50 parks 78 miles of trails Valleywood Golf Course Sports Arena Aquatfc Center Senior Center Community Center Amenities In the general electfon of 1968, the residents voted to incorporate the Town of Lebanon as the Village of Apple Valley. A mayor and four councilmembers were elected and took office on January 1, 1969. On January 1, 1974, Apple Valley became a statutory city. History Comprehensive Annual Financial Report City of Apple Valley Minnesota Year Ended: December 31, 2017 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Comprehensive Annual Financial Report for the Year Ended December 31, 2017 Prepared by Finance Department CITY OF APPLE VALLEY 7100 147th Street West Apple Valley, Minnesota 55124 THIS PAGE INTENTIONALLY LEFT BLANK Page INTRODUCTORY SECTION ELECTED OFFICIALS AND ADMINISTRATION i ORGANIZATIONAL STRUCTURE ii LETTER OF TRANSMITTAL iii–ix CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING x FINANCIAL SECTION INDEPENDENT AUDITOR’S REPORT 1–3 MANAGEMENT’S DISCUSSION AND ANALYSIS 4–18 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 19 Statement of Activities 20–21 Fund Financial Statements Governmental Funds Balance Sheet 22–23 Reconciliation of the Balance Sheet to the Statement of Net Position 24 Statement of Revenue, Expenditures, and Changes in Fund Balances 25–26 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities 27 Statement of Revenue, Expenditures, and Changes in Fund Balances – General Fund – Budget and Actual 28 Proprietary Funds Statement of Net Position 29–32 Statement of Revenue, Expenses, and Changes in Net Position 33–34 Statement of Cash Flows 35–36 Notes to Basic Financial Statements 37–74 REQUIRED SUPPLEMENTARY INFORMATION PERA – General Employees Retirement Fund Schedule of City’s and Nonemployer Proportionate Share of Net Pension Liability 75 Schedule of City Contributions 75 PERA – Public Employees Police and Fire Fund Schedule of City’s Proportionate Share of Net Pension Liability 76 Schedule of City Contributions 76 Apple Valley Firefighters’ Relief Association Schedule of Changes in the Relief Association’s Net Pension Liability and Related Ratios 77 Schedule of City Contributions 78 Other Post-Employment Benefits Plan Schedule of Funding Progress 79 Notes to Required Supplementary Information 80–82 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents Page SUPPLEMENTARY INFORMATION Combining and Individual Fund Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet 83 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 84 Nonmajor Special Revenue Funds 85 Combining Balance Sheet 86–87 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 88–89 Nonmajor Debt Service Funds 90 Combining Balance Sheet 91–94 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 95–98 Nonmajor Capital Projects Funds 99–100 Combining Balance Sheet 101–105 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 106–110 General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 111–116 Road Improvements Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 117 Future Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 118 Cable TV Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 119 EDA Operations Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 120 Equipment Certificate Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 121 Cable Capital Equipment Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 122 Internal Service Funds 123 Combining Statement of Net Position 124 Combining Statement of Revenue, Expenses, and Changes in Net Position 125 Combining Statement of Cash Flows 126 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents (continued) Page STATISTICAL SECTION Net Position by Component 127–128 Changes in Net Position 129–132 Fund Balances of Governmental Funds 133–134 Changes in Fund Balances of Governmental Funds 135–136 Assessed and Estimated Actual Value of Taxable Property 137–138 Property Tax Capacity Rates 139–140 Principal Property Taxpayers 141 Property Tax Levies and Collections 142–143 Ratios of Outstanding Debt by Type 144–145 Ratios of General Bonded Debt Outstanding 146–147 Direct and Overlapping Governmental Activities Debt 148 Legal Debt Margin Information 149–150 Pledged Revenue Coverage 151–152 Demographic and Economic Statistics 153 Principal Employers 154 Full-Time Equivalent City Government Employees by Function 155–156 Operating Indicators by Function 157–158 Capital Asset Statistics by Function/Program 159–160 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents (continued) THIS PAGE INTENTIONALLY LEFT BLANK INTRODUCTORY SECTION TAB -i- Term Expires Mary Hamann-Roland Mayor December 31, 2018 John Bergman Councilmember December 31, 2018 Thomas Goodwin Councilmember December 31, 2020 Ruth Grendahl Councilmember December 31, 2020 Clint Hooppaw Councilmember December 31, 2018 M. Thomas Lawell City Administrator Pamela Gackstetter City Clerk Ronald Hedberg Finance Director/Treasurer Matt Saam Public Works Director Jon Rechtzigel Police Chief Nealon Thompson Fire Chief Bruce Nordquist Community Development Director Barry Bernstein Parks and Recreation Director Cathy Broughten Assistant Finance Director Charles Grawe Assistant City Administrator Melissa Haas Human Resource Manager Brandon Anderson City Engineer Carol Blommel Johnson Public Works Superintendent ELECTED OFFICIALS ADMINISTRATION CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Elected Officials and Administration December 31, 2017 ii Organizational Structure City of Apple Valley Mayor and City Council Citizens City Attorney (contractual) Economic Development Authority Planning Commission City Administrator Administration Fire Police Finance Community Development Public Works Planning Economic Development Code Enforcement Finance Utility Billing Administration Information Technologies Human Resources Cable TV Fire Patrol Investigations Records Parks & Recreation Recreation Programs Park Maintenance Planning Accounting Administration Patrol Fire Recreation Programs Street Maintenance Economic Development Financial Reporting City Clerk/ Elections Investigations Fire Inspection Park Maintenance Natural Resources Code Enforcement Cash & Investments Information Technology Records Ice Arena Engineering Utility Billing Human Resources Hayes Community & Senior Center Building Inspections Cable TV AV Aquatic Center Utilities Apple Valley Community Center Fleet Maintenance Municipal Liquor Stores Valleywood Golf Cemetery Redwood Pool -ii- -iii- City of Telephone (952) 953-2540 Fax (952)953-2515 www.ci.apple-valley.mn.us June 25, 2018 To the Honorable Mayor, City Council, and Citizens of the City of Apple Valley: The Comprehensive Annual Financial Report (CAFR) of the City of Apple Valley, Minnesota (the City), for the year ended December 31, 2017, is hereby submitted. The report was prepared in accordance with accounting principles generally accepted in the United States of America as established by the Governmental Accounting Standards Board and meets the requirements of the State Auditor’s Office. The report consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all information presented within this report. To provide a reasonable basis for making these representations, management of the City has established internal controls designed to protect the City’s assets from loss, theft, or misuse and to provide sufficient information for the preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America. Because the cost of internal controls should not outweigh the benefits, the City’s internal controls have been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatements. As management, we assert that to the best of our knowledge and belief this CAFR is complete and reliable in all material respects. The City’s financial statements have been audited by Malloy, Montague, Karnowski, Radosevich & Co., P.A., Certified Public Accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the year ended December 31, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates used by management; and evaluating the overall financial statement presentation. Based upon the audit, the independent auditor concluded that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements, for the year ended December 31, 2017, are fairly presented in conformity with accounting principles generally accepted in the United States of America. The independent auditor’s report is presented in the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial st atements. The City’s MD&A complements this letter of transmittal and should be read in conjunction with it. 7100 147th St. W Apple Valley, MN 55124 -iv- Profile of the City of Apple Valley The City was incorporated as a village on January 1, 1969, and incorporated as a city on January 1, 1974. The City is a suburban community located 17 miles south of downtown Minneapolis within Dakota County, and has a convenient location with a comprehensive system of highways – Interstate 35E serves the northwest boundary of the City, while State Highway 77 runs north and south through the City. The City is served by a Bus Rapid Transit service that connects to the light rail system serving Minneapolis and St. Paul. The City is seven miles from the Minneapolis-St. Paul International Airport within the seven-county Twin Cities metropolitan region, has a land area of 17.5 square miles, and serves a community with a current population of 52,361. -v- The City operates as a Statutory Plan A City, the Mayor-Council form, under Minnesota law. The governing body, consisting of the Mayor and four council members, is elected at large and on a nonpartisan basis. Terms of office are four years, with elections held in each even-numbered year; not more than three council members’ terms expire in any one year. The City Council is responsible for, among other things, passing ordinances, adopting the budget, appointing members to various advisory committees and commissions, and hiring the City Administrator and other city employees. The City Administrator is responsible for carrying out the policies, ordinances, and directions of the City Council and for overseeing the day-to-day operations of the City. The City provides its residents and businesses with a full range of municipal services consisting of public safety (police, fire, building inspections), public works, parks and recreation, and general government administration. The City also operates a number of enterprise activities including: water and sanitary sewer, Valleywood Golf Course, three off-sale liquor stores, storm water, street lights, sports arenas, and a cemetery. Sanitary sewage treatment and disposal is operated on a regional basis by the Metropolitan Council Environmental Services. Refuse collection and disposal are handled on a private basis through contractual arrangements by city residents with private haulers. Further information regarding city services can be obtained from the City’s website at www.ci.apple-valley.mn.us. The Apple Valley Economic Development Authority (EDA) is a separate legal entity organized pursuant to Minnesota Statutes, Chapter 469, and is included as a blended component unit. The EDA is considered a component unit because the governing body is comprised of City Council members and two other members being appointed by the City Council. Also, the EDA is in a relationship of financial benefit or burden with the City. The annual budget serves as the foundation for the City’s financial planning and control. The budgetary process is outlined in the notes to basic financial statements. The City applies budgetary controls to ensure compliance with legal provisions of the laws of Minnesota. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual budgets are adopted for the General Fund in addition to certain special revenue and capital projects funds. Bud get to actual comparisons are presented for each governmental fund for which an annual budget has been adopted. Factors Affecting Financial Condition The City is committed to maintaining a strong financial condition, while continuing to provide public services to its residents and businesses. The City’s financial position, as reflected in the financial statements presented in the reports, is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates. Local Economy The economic conditions have improved for the City, its residents, and its businesses. The City’s unemployment rate as of December 2017, for example, is 2.5 percent, compared to the State of Minnesota’s rate of 3.4 percent and the national unemployment rate of 3.9 percent. Unemployment Rate: Dec 2017 Dec. 2016 Dec. 2015 Dec 2014 Dec 2013 City of Apple Valley 2.5% 3.0% 2.6% 2.8% 3.6% Dakota County 2.7% 3.4% 3.1% 3.8% 4.0% State of Minnesota 3.4% 4.1% 3.7% 3.8% 4.5% National 3.9% 4.5% 5.0% 5.6% 6.7% (Source: MN Dept. of Economic Development) -vi - Housing Values Home values in the City are continuing a positive trend, reflecting the recovery of the housing market. The assessor’s estimated residential market values increased on the median valued home approximately 2.5 percent for 2017. Assessor values for 2018 and 2019 accelerate this positive trend. Increase (Decline) in Median Value Home: 2013 (5.8%) 2014 3.5% 2015 8.1% 2016 5.0% 2017 2.5% 2018 6.2% 2019 (Preliminary) 9.3% The population of the City has increased from 585 in 1960 to 49,084 according to the 2010 U.S. Census and is estimated at 52,361 for 2017. Most of the population of the City concentrates in two age groups: 45–54 years and 5–14 years at 17.0 percent and 14.2 percent, respectively. According to the 2010 U.S. Census, the average age is 32 years and the median household income was $78,028. The most recent estimate of the median household income from the American Community Survey is $83,450 for 2016. The City is the home to Uponor and Wings Financial Federal Credit Union. Other major employers in the area include Independent School District (ISD) No. 196, Target, Wal-Mart, Minnesota Zoo, Augustana Health Care Center, Cub Foods, and Menard’s. Market Value Growth The City consistently adds new tax base each year. In 2017, a total of $81 million of market value was added to the City’s tax base, which current data indicates is continuing. Total market value increased to $4.7 billion for 2017, resulting from improved market conditions. Conditions continue to improve for the future with preliminary County Assessor data for payable 2019 showing a 10.5 percent increase to a total city-wide taxable market value of $5.6 billion, of which $96 million and $136 million results from new construction for payable 2018 and 2019, respectively. -vii- Major Initiatives In 2017, investment continued in the City as new businesses opened and new developments were approved. What follows is a sample of some of the development projects that were reviewed, approved, began construction, or were completed in 2017, as well as some of the long-range planning and economic development initiatives that will help maintain the City’s high quality of life. Residential Development Over the past 10 years, single-family construction has averaged 80 units per year, and 2017 saw 167 single-family units constructed, valued at over $41 million. Recent multi-family construction shows strong activity for 2017 with 580 apartment units permitted. The Presbyterian Homes Orchard Path senior cooperative building was completed in 2017 adding 195 units. Construction continues in 2018 on the Valley Bluffs senior apartment complex totaling 163 units. Additional apartment construction continues with the second phase of the Remington Cove 95-unit apartment complex, along with an additional 134 units in the second phase of the Parkside Village. While the construction of new single-family homes has increased for 2017, the valuation added by remodeling and renovations is being maintained at a high level, valued at over $16.7 million. This reflects homeowners’ continued interest in investing in their properties. Commercial Development Commercial and industrial development continued to improve in 2017 with total improvement values, including commercial alterations, totaling $59 million in 2017. Included in these improvements was $35 million of alterations throughout Independent School District No. 196. New commercial construction projects included the 10,200 square foot Cobblestone Lake Medical Center and the 5,500 square foot Giselles Corner retail building at 147th and Cedar Avenue. -viii- Upcoming Initiatives include: Mixed-Use Business Campus: In 2018, approximately 350 acres of mixed business campus will begin to be master planned with some mixed uses proposed to begin development in the area currently being actively mined for aggregate. Significant public infrastructure improvements including roads, trails, ponding, and park improvements, will be part of the plan and coincide with private development. Menard’s Hanson Development Site: The 50-acre site known as Menard’s/Hanson will have proposed mixed business land uses (retail, office, industrial) considered. Water Meter Replacement Program: The City has engaged a consulting group to develop a water meter replacement program plan. Many water meters in the City have been in service for more than 25 years. The accuracy of water meters tends to diminish as they get older. The City’s Capital Improvement Program includes a two (2) year schedule for completing the water meter replacement project and will be funded within the Water Utility Fund. Infrastructure Improvements The City is committed to maintaining its significant investment in the community’s infrastructure with the implementation of an aggressive street maintenance program in 2012. In 2017, over $5 million was invested to maintain the infrastructure and included the following significant projects: • Reconstruction of streets in the Palomino 3rd and 4th subdivisions. • Extension of Embry Path to connect with CR 42. • Additional resurfacing of streets throughout the community. Long-Term Financial Planning In developing the annual budget, the City follows five core fiscal principles. These include: • Focus on the provision of basic city services and fund their provision at adequate levels. • Estimate anticipated revenues at realistic levels. • Retain adequate reserves to protect against fiscal uncertainty. • Anticipate continued community growth and program capital improvements to serve our growing community. • Demonstrate strong stewardship of existing infrastructure and plan for its repair/replacement in a proactive manner. Each year the City adopts a five-year Capital Improvement Program (CIP). The CIP is a five-year plan that identifies the City’s infrastructure, development objectives , and the allocation of resources for these projects. This CIP provides policy makers and the community with a strategic approach to implementation and administration of improvement projects. The 2018–2022 CIP identifies $135 million of capital projects along with the associated funding. The five-year CIP also includes five-year revenue and expenditure projections for the majority of funds identified in the document. One of the larger improvements included in the 2018–2022 CIP includes the continued street and utility reconstruction and reconditioning program which totals $62 million over the next five years. Relevant Financial Policies The City utilizes various financial and budget policies to guide the City Council and staff when making financial decisions. These include adoption of a balanced budget, minimizing the reliance on state revenues which have proven to be unpredictable, setting of 50 percent of subsequent year’s budgeted expenditures minimum fund balance level to provide for cash flow purposes, and adoption of a five-year capital improvement plan to provide for capital asset acquisition and replacement. -ix- Cash temporarily idle during the year was invested in U.S. government agency obligations, municipal securities, certificates of deposit, and money market instruments. The City’s investment policy calls for the investment of public funds in a manner that will provide the highest investment return with minimum risk while meeting the daily cash flow demands of the City. For investments held at December 31, 2017, the effective duration of the investment portfolio was two years. The City’s average return on investments in 2017 was 1.01 percent. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded the City a Certificate of Achievement for Excellence in Financial Reporting to the City of Apple Valley for its CAFR for the fiscal year ended December 31, 2016. This is the sixth year that the City achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report could not occur without the efficient and dedicated service of the entire finance department staff throughout the reporting year. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. We would like to thank the City Council for its commitment in planning and implementing the financial operations of the City in a fiscally prudent and progressive manner. Respectfully Submitted, CITY OF APPLE VALLEY, MINNESOTA Ronald Hedberg Finance Director -x- FINANCIAL SECTION TAB -1- INDEPENDENT AUDITOR’S REPORT To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit . We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts a nd 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 o n the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. (continued) -2- OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of December 31, 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 and the required supplementary information (RSI), 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, 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 RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplementary information, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The supplementary information is the responsibility of management and was 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 supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. (continued) -3- OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 25, 2018 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely 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 the effectiveness of the City’s 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’s internal control over financial reporting and compliance. Minneapolis, Minnesota June 25, 2018 THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY Management’s Discussion and Analysis Year Ended December 31, 2017 -4- As management of the City of Apple Valley, Minnesota (the City), we have provided readers of the City’s financial statements with this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2017. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, located earlier in this report. FINANCIAL HIGHLIGHTS • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $249,719,273 (net position). Of this amount, $39,682,988 (unrestricted net position) may be used to meet the City’s ongoing obligations to citizens and creditors; $15,543,033 is restricted for specific purposes (restricted net position); and $194,493,252 represents the net investment in capital assets. The City’s total net position increased by $4,391,062 during the year ended December 31, 2017, excluding the prior period adjustment reported in the current year as discussed below. • The City recorded a prior period adjustment in the current year related to the City’s inventory of capitalized assets and the related useful lives. This change reduced beginning net position in the government-wide financial statements by $25,853,175. • As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $50,825,446, a decrease of $12,536,778. Restricted fund balances decreased from $27,079,147 to $13,431,367, a decrease of $13,647,780, which is the result of a decrease in the G.O. Refunding Bonds of 2013 Fund and G.O. Park Bonds of 2015 Fund, due to payments on refunded bonds in the current year. • At the end of the current fiscal year, unassigned fund balance for the General Fund was $16,351,616, or 49.3 percent, of total General Fund expenditures based on 2018 budgeted expenditure levels, including transfers. • The City’s long-term liabilities decreased by $33,833,415, or 41.5 percent, during the current fiscal year. The decrease is primarily attributable to the decrease in net pension liability of $16,336,775, as a result of the change in actuarial assumptions in the computation of the City’s obligation under Governmental Accounting Standards Board (GASB) Statement No. 68. The remainder of the decrease is due to payments on refunded debt and payments on the City’s outstanding debt obligations per the agreed upon schedules. Please see further details of long-term debt in Note 5 of the notes to basic financial statements. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements include three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-Wide Financial Statements – The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private sector business. -5- The Statement of Net Position presents information on all of the City’s assets, liabilities, and deferred inflows/outflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by property taxes and intergovernmental revenues (governmental activities) from o ther functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, and parks and recreation. The business-type activities of the City include municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility. The government-wide financial statements not only include the City itself (known as the primary government), but also the Apple Valley Economic Development Authority (EDA). The EDA is legally separate and is reported as if it were part of the primary government because it provides services exclusively for the City. The EDA is reported as the Economic Development Debt Service Fund and the EDA Operations Special Revenue Fund. Fund Financial Statements – A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmenta l 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 the 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 funds Balance Sheet and Statement of Revenue , Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds. Information is presented separately in the governmental funds Balance Sheet and Statement of Revenue, Expenditures, and Changes in Fund Balances for the General Fund, Closed Bond Issues Debt Service Fund, 2001/2008B Refunding Improvement Bonds Debt Service Fund, Road Improvements Capital Projects Fund, and Future Capital Projects Capital Projects Fund, all of 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 nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. -6- The City adopts an annual appropriated budget for its General Fund, Road Improvements Capital Projects Fund, Future Capital Projects Capital Projects Fund, Cable TV Special Revenue Fund, EDA Operations Special Revenue Fund, Equipment Certificate Capital Projects Fund, and Cable Capital Equipment Capital Projects Fund. A budgetary comparison statement or schedule has been provided for these funds to demonstrate compliance with this budget. Proprietary Funds – The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility operations. Internal service funds are accounting devices used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its dental insurance, benefits/other insurance, and vehicle and equipment replacement. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. 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 municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility operations, all of which are considered to be major funds of the City. Conversely, the internal service funds are combined into a single, aggregated presentation in the proprietary funds financial statements. Individual fund data for the internal service funds is provided in the form of combin ing statements elsewhere in this report. Notes to Basic Financial Statements – The notes to basic financial statements provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Other Information – In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information and the combining and individual fund statements and schedules (presented as supplementary information) referred to earlier in connection with nonmajor governmental funds and internal service funds, which are presented immediately following the basic financial statements. Further, a statistical section has been included as part of the Comprehensive Annual Financial Report (CAFR) to facilitate additional analysis, and is the third and final section of the report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of the City’s financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $249,719,273 at the close of the most recent fiscal year. By far, the largest portion of the City’s net position reflects its net investment in capital assets (e.g., land, buildings, machinery, equipment, distribution system, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investments in its capital assets are reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. -7- City of Apple Valley’s Net Position 2017 2016 2017 2016 2017 2016 Assets Current and other assets 64,266,249$ 75,551,704$ 20,180,433$ 22,659,941$ 84,446,682$ 98,211,645$ Capital assets, net 114,442,328 111,334,935 105,304,026 130,498,267 219,746,354 241,833,202 Total assets 178,708,577$ 186,886,639$ 125,484,459$ 153,158,208$ 304,193,036$ 340,044,847$ Deferred outflows of resources Pension plan deferments 12,839,621$ 20,189,949$ 754,334$ 1,341,210$ 13,593,955$ 21,531,159$ Total assets and deferred outflows of resources 191,548,198$ 207,076,588$ 126,238,793$ 154,499,418$ 317,786,991$ 361,576,006$ Liabilities Other liabilities 3,924,212$ 3,436,537$ 1,439,232$ 745,041$ 5,363,444$ 4,181,578$ Noncurrent liabilities 33,878,216 64,951,342 13,853,129 16,613,418 47,731,345 81,564,760 Total liabilities 37,802,428$ 68,387,879$ 15,292,361$ 17,358,459$ 53,094,789$ 85,746,338$ Deferred inflows of resources Pension plan deferments 14,446,921$ 4,208,020$ 526,008$ 440,262$ 14,972,929$ 4,648,282$ Net position Net investment in capital assets 99,642,040$ 93,945,022$ 94,851,212$ 119,417,084$ 194,493,252$ 213,362,106$ Restricted 15,364,368 16,141,535 178,665 178,977 15,543,033 16,320,512 Unrestricted 24,292,441 24,394,132 15,390,547 17,104,636 39,682,988 41,498,768 Total net position 139,298,849$ 134,480,689$ 110,420,424$ 136,700,697$ 249,719,273$ 271,181,386$ Total liabilities, deferred inflows of resources, and net position 191,548,198$ 207,076,588$ 126,238,793$ 154,499,418$ 317,786,991$ 361,576,006$ Business-Type Activities Totals Table 1 Summary of Net Position as of December 31, 2017 and 2016 Governmental Activities An additional portion of the City’s net position represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position of $39,682,988 may be used to meet the City’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its separate governmental and business-type activities. There was an increase in net position in the governmental activities of $4,818,160, and a decrease in business-type activities of $26,280,273, for a net total decrease of $21,462,113 in net position. This change in net position reflects an increase of $4,391,062 from the current year operating results, while the prior period adjustment mentioned earlier reduced net position by $25,853,175. Both governmental activities and business-type activities experienced changes in deferred outflows of resources, deferred inflows of resources, and long-term liabilities as a result of the City’s participation in defined benefit pension plans. The City also experienced a decrease in current assets and long-term liabilities, due to payments on refunded bonds in the current year. -8- City of Apple Valley’s Changes in Net Position 2017 2016 2017 2016 2017 2016 Revenues Program revenues Charges for services 7,776,342$ 7,542,244$ 23,577,253$ 23,013,748$ 31,353,595$ 30,555,992$ Operating grants and contributions 1,082,234 1,531,412 – – 1,082,234 1,531,412 Capital grants and contributions 3,206,571 5,489,541 1,057,916 3,631,836 4,264,487 9,121,377 General revenues Property taxes 25,053,457 24,039,391 121,000 121,000 25,174,457 24,160,391 Other taxes 182,377 185,568 – – 182,377 185,568 Franchise taxes 1,288,426 1,309,757 – – 1,288,426 1,309,757 Grants and contributions not restricted to specific programs 56,751 37,719 – – 56,751 37,719 Other 8,440 6,888 – – 8,440 6,888 Investment earnings 551,119 801,038 151,206 204,464 702,325 1,005,502 Total revenues 39,205,717 40,943,558 24,907,375 26,971,048 64,113,092 67,914,606 Expenses General government 6,260,768 7,030,599 – – 6,260,768 7,030,599 Public safety 13,443,699 15,097,659 – – 13,443,699 15,097,659 Public works 8,473,039 7,690,149 – – 8,473,039 7,690,149 Parks and recreation 7,239,268 7,025,281 – – 7,239,268 7,025,281 Interest and fiscal charges 886,283 912,007 – – 886,283 912,007 Municipal liquor – – 8,251,249 7,872,023 8,251,249 7,872,023 Municipal golf course – – 1,545,792 1,728,605 1,545,792 1,728,605 Sports arena – – 798,402 770,666 798,402 770,666 Water and sewer – – 10,031,223 9,336,567 10,031,223 9,336,567 Storm drainage – – 2,181,086 1,481,121 2,181,086 1,481,121 Cemetery – – 127,469 60,790 127,469 60,790 Street light utility – – 483,752 437,439 483,752 437,439 Total expenses 36,303,057 37,755,695 23,418,973 21,687,211 59,722,030 59,442,906 Increase in net position before transfers 2,902,660 3,187,863 1,488,402 5,283,837 4,391,062 8,471,700 Transfers 1,915,500 1,281,000 (1,915,500) (1,281,000) – – Change in net position 4,818,160 4,468,863 (427,098) 4,002,837 4,391,062 8,471,700 Net position – beginning, as previously reported 134,480,689 130,011,826 136,700,697 132,697,860 271,181,386 262,709,686 Prior period adjustment – – (25,853,175) – (25,853,175) – Net position – beginning, as restated 134,480,689 130,011,826 110,847,522 132,697,860 245,328,211 262,709,686 Net position – ending 139,298,849$ 134,480,689$ 110,420,424$ 136,700,697$ 249,719,273$ 271,181,386$ Table 2 Change in Net Position for the Years Ended December 31, 2017 and 2016 Business-Type Activities TotalGovernmental Activities Governmental Activities – The City’s net position for governmental activities increased by $4,818,160, or 3.6 percent. Key elements of this increase are seen in the table above. -9- Revenues decreased overall by $1,737,841, or 4.2 percent. This change included: • Decrease in capital grants and contributions due to decreased special assessment activity in the current year. • Increase in property taxes due to increases in the general tax levy. Expenses decreased overall by $1,452,638, or 3.8 percent. This decrease included: • The public safety function decreased $1,653,960, mainly due to changes in the actuarial assumptions regarding the City’s obligations under the Public Employees Police and Fire Fund pension plan. As seen in the following graph, taxes make up about 67 percent of the total governmental activities revenues for 2017. Charges for services make up about 20 percent of the total, and are followed by grants at 11 percent, and other at 2 percent of the total. 2017 Revenues by Source – Governmental Activities 2016 Revenues by Source – Governmental Activities -10- 2017 Expenses – Governmental Activities 2016 Expenses – Governmental Activities The expenses in the graph above for governmental activities show the amounts spent on different activities for 2017 and 2016. In 2017, public safety makes up 37 percent, public works 23 percent, parks and recreation 20 percent, and general government 17 percent. Other includes debt service interest and fiscal charges in governmental activities and makes up 3 percent. -11- Business-Type Activities – Business-type activities decreased the City’s total net position by $26,280,273. Key elements of the business-type activities are as follows: • Charges for services for business-type activities include sales for municipal liquor, municipal golf course, and sports arena; and charges for water and sewer, storm drainage, cemetery, and street light utility operations. The following graph shows the relationship between the revenues and expenses for the various activities. • About 78 percent of all business-type activity expenses are from the municipal liquor and water and sewer operations. • The City reported a prior period adjustment related to capital assets, reducing beginning net position by $25,853,175, as previously mentioned. • Overall, business-type activities generated an increase in net position before capital contributions and transfers of $430,486. After considering capital grants and contributions of $1,057,916 and net transfers out to governmental activities totaling $1,915,500, net position decreased by $427,098. Revenues and Expenses – Business-Type Activities $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 Municipal Liquor Municipal Golf Course Sports Arena Water and Sewer Storm Drainage Cemetery Street Light Utility Revenues Expenses -12- 2017 Revenues by Source – Business-Type Activities 2016 Revenues by Source – Business-Type Activities -13- FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds – The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of currently available resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $50,825,446, a decrease of $12,536,778 in comparison with the prior year. The City has five major governmental funds: the General Fund, the Closed Bond Issues Debt Service Fund, the 2001/2008B Refunding Improvement Bonds Debt Service Fund, the Road Improvements Capital Projects Fund, and the Future Capital Projects Capital Projects Fund. General Fund The General Fund is the chief operating fund of the City. At the end of the current fiscal year, total fund balance of the General Fund was $17,336,413. As a measure of the General Fund’s liquidity, it may be useful to compare the unassigned fund balance to total fund expenditures. Unassigned fund balance represents 49.3 percent of subsequent year budget expenditures, including transfers. Total fund balance for the City’s General Fund increased by $726,959 during 2017. Key factors in this increase are as follows: • The City adopted a balanced budget prior to the start of the current year. • License and permit revenues were approximately $1,760,000 over budget and are an increase of about $1,200,000 over the prior year, due to an increase in development activity within the City. • Expenditures were approximately $1,500,000 under the 2017 budgeted amounts, due to position vacancies and uncompleted 2017 capital purchases that were carried over into 2018. • The total fund balance increase of $726,959 is after transferring $1,950,000 out of the General Fund to the Future Capital Projects Capital Projects Fund in accordance with the City’s fund balance policy. Closed Bond Issues Fund – Debt Service Fund The Closed Bond Issues Fund accumulates resources remaining from retired debt service f unds. The fund balance at the end of 2017 is $9,440,666, which increased $597,101 from the prior year. The increase results from the Closed Bond Issues Fund collecting $524,422 in special assessments on previously levied assessments. 2001/2008B Refunding Improvement Bonds Fund – Debt Service Fund The 2001/2008B Refunding Improvement Bonds Fund accounts for the debt service activity and special assessment collections for bond retirement. The fund balance at the end of 201 7 is negative $2,846,426. The fund balance increased $82,005 from the prior year, resulting from the special assessment collections in the current year. -14- Road Improvements Fund – Capital Projects Fund The Road Improvements Fund receives transfers from other funds. These resources are used to finance street overlays and reconstruction projects per the City’s pavement management plan. The fund balance at the end of 2017 is negative $5,174,280, which is an increase of $24,582 from the prior year. Future Capital Projects Fund – Capital Projects Fund The Future Capital Projects Fund accumulates resources according to the City Council’s adopted fund balance policy. This policy calls for amounts in the General Fund that exceed a maximum level to be transferred to the Future Capital Projects Fund. The fund balance at the end of 2017 is $15,353,401, which is an increase of $677,633 from the prior year. A transfer from the General Fund was received in 2017 in the amount of $1,950,000 in accordance with the fund balance policy. A transfer out in the amount of $1,295,900 was made in 2017 to replace the 2017 property tax levy for the 2012 Park Refunding Bonds and to support capital activities. Proprietary Funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The City has seven enterprise funds and three internal service funds. The seven enterprise funds include: Municipal Liquor Fund, Municipal Golf Course Fund, Sports Arena Fund, Water and Sewer Fund, Storm Drainage Fund, Cemetery Fund, and the Street Light Utility Fund. The total net position of all enterprise funds totals $110,535,661, $94,851,212, of which is capital assets, net of related debt and in total, is a decrease of $26,268,679 from the prior year, mostly due to the prior period adjustment reported in the current year related to changes in the depreciable lives used on previously capitalized assets of the Water and Sewer and Storm Drainage Funds. The total unrestricted net position for all proprietary funds for the year was $15,505,784, a decrease of $1,702,495. Municipal Liquor Fund The net position in the Municipal Liquor Fund increased $325,471 from current year operations. This increase reflects continued positive operations of the City’s liquor stores after transferring $630,000 to the General Fund in support of public safety and parks and recreation activities. The increase in the Municipal Liquor Fund current year operations comes from maintaining gross profit margins. Municipal Golf Course Fund The Municipal Golf Course Fund operations posted a decrease in net position from current year operations of $364,084. Sports Arena Fund The Sports Arena Fund posted an increase in net position from current year operations of $56,342, which is after inclusion of an annual $121,000 property tax levy. Water and Sewer Fund The Water and Sewer Fund is the City’s largest proprietary fund . Unrestricted net position at the end of the year amounted to $11,946,924, a decrease of $1,661,329. Current year operations posted a $526,162 decrease in net position, resulting from a $600,000 transfer to the Road Improvements Capital Projects Fund. Total net investment in capital assets totals $57,880,536, a decrease of $15,411,809, mainly due to the prior period adjustment as previously mentioned. -15- Storm Drainage Fund The Storm Drainage Fund decreased its net position by $9,290,132. This is mainly due to the prior period adjustment as previously mentioned. Cemetery Fund The Cemetery Fund increased its net position by $67,259, which results from additional lot sales during the year. Street Light Utility Fund The Street Light Utility Fund increased its net position by $9,603 in the current year. GENERAL FUND BUDGETARY HIGHLIGHTS The most significant amendment to the 2017 General Fund budget was made to provide for projects that were carried over from 2016 to 2017. During the year, the total revenues exceeded the final amended budgetary estimates by $1,805,398, which can be attributed to licensing and permits exceeding the budget by $1,759,679, due to increased development activity in the current year. Total actual expenditures were $1,541,986 less than the budgetary estimates. General Fund budget performance can be attributed to curtailing spending where possible, position vacancies during the year, and conservative budgeting practices. Personal services in the General Fund ended t he year about $671,000 under budget. In addition, actual capital outlay expenditures were approximately $320,000 less than anticipated for 2017. -16- CAPITAL ASSETS AND LONG-TERM DEBT Capital Assets – The City’s investment in capital assets for its governmental and business-type activities as of December 31, 2017 amounts to $219,746,354 (net of accumulated depreciation). This investment in capital assets includes land and land improvements, construction in progress, buildings, other improvements, furniture and equipment, and infrastructure. The total decrease in the City’s investment in capital assets for the current fiscal year was $22,086,848, or approximately 9.1 percent, mainly due to the prior period adjustment related to capital asset activity and depreciable lives. Total depreciation charged in 2017 was $10,780,672. City of Apple Valley’s Capital Assets 2017 2016 2017 2016 2017 2016 Capital assets Land and land improvements 4,581,173$ 3,885,715$ 6,818,433$ 6,744,731$ 11,399,606$ 10,630,446$ Construction in progress 1,740,083 1,668,316 1,277,221 1,789,097 3,017,304 3,457,413 Buildings 32,587,544 32,313,580 22,086,746 21,988,389 54,674,290 54,301,969 Other improvements 25,457,057 25,239,683 154,024,344 149,255,827 179,481,401 174,495,510 Furniture and equipment 18,597,572 17,780,862 5,515,325 5,359,718 24,112,897 23,140,580 Infrastructure 109,815,968 103,455,658 – – 109,815,968 103,455,658 Less accumulated depreciation (78,337,069) (73,008,879) (84,418,043) (54,639,495) (162,755,112) (127,648,374) Total capital assets, net of depreciation 114,442,328$ 111,334,935$ 105,304,026$ 130,498,267$ 219,746,354$ 241,833,202$ Total Table 3 Capital Assets Governmental Activities Business-Type Activities Major capital asset additions during the current year included the following: • Street and improvement projects totaling approximately $5.8 million, including the following significant projects: Embry Path County Road 42 Access Street Improvements ($717,000), Galaxie Avenue Overlay Street Improvements ($453,000), and Micro Surfacing Street Improvements ($408,000), along with other 2017 street and trail improvements totaling $4,300,000. • Water, Sanitary and Storm Sewer Utility improvements in new subdivisions totaling about $2,600,000. • Equipment additions totaling around $999,000. This includes about $600,000 of additions in governmental activities primarily related to new park equipment and IT server equipment. It also includes approximately $399,000 of additions in business-type activities primarily related to new golf carts and sewer cameras. Additional information on the City’s capital assets can be found in Note 4 of the notes to basic financial statements. -17- Long-Term Debt – At the end of the current fiscal year, the City had total debt outstanding of $47,731,345. Of this amount, $22,885,000 is backed by the full faith and credit of the City, and $585,000 is special assessment debt for which the City is liable in the event of default by the property owners subject to the assessment. The revenue bonds and capital lease are backed by the revenues of the enterprise funds. City of Apple Valley’s Debt 2017 2016 2017 2016 2017 2016 General obligation bonds 13,885,000$ 27,550,000$ –$ –$ 13,885,000$ 27,550,000$ General obligation improvement bonds 585,000 2,270,000 – – 585,000 2,270,000 General obligation revenue bonds – – 9,000,000 11,115,000 9,000,000 11,115,000 Revenue bonds – – 1,120,000 1,355,000 1,120,000 1,355,000 Capital lease – – 175,526 56,285 175,526 56,285 Unamortized premium 330,288 378,707 157,288 183,255 487,576 561,962 Net OPEB obligation 1,537,306 1,398,959 268,527 244,694 1,805,833 1,643,653 Net pension liability 14,729,157 30,539,605 2,658,752 3,185,079 17,387,909 33,724,684 Compensated absences 2,811,465 2,814,071 473,036 474,105 3,284,501 3,288,176 Total 33,878,216$ 64,951,342$ 13,853,129$ 16,613,418$ 47,731,345$ 81,564,760$ Total Table 4 Outstanding Debt Governmental Activities Business-Type Activities The City’s total bonded debt decreased by $17,700,000 during 2017, which resulted from the scheduled debt payments during the year and the advance refunding of General Obligation Park Bonds 2007A, General Obligation Park Bonds 2008D, General Obligation Park Bonds 2011A, and General Obligation Storm Water Bonds 2011A totaling $13,500,000, and the early call of the 2007 G.O. Improvement Bonds in the amount of $1,350,000. The City maintains an “Aaa” rating from Moody’s and AAA from Standard and Poor’s on all of its general obligation debt. State statutes limit the amount of general obligation debt a governmental entity may issue to 3 percent of its total market valuation. A complete calculation of the City’s legal debt margin can be found in the statistical section of this report. Additional information on the City’s long-term debt can be found in Note 5 of the notes to basic financial statements. -18- ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s budget, along with the 5-year Capital Improvement Plan, is an important part of the City’s public process. The combination of these documents provides the framework that allows the City to address needed maintenance and provide for the growth and demands for service. Through innovation and efficiencies, the City continues to provide quality services that meet or exceed the expectations of our community members. Strong financial stewardship and quality customer service is a hallmark of the City’s government and is evidenced by the City’s AAA bond rating. Departments successfully managed their expenditures and as a result General Fund expenditures were approximately 5 percent below the authorized budget. The City experienced growth in licenses and permits, due to a surge in single and multi-family development activity, which began in 2014 and is anticipated to last beyond 2018. The City will continue to make significant ongoing investments in the Street and Utility Infrastructure Preservation and Reconstruction Program. These factors were considered in preparing the City’s budget for the 2018 fiscal year: • Property taxes provide the largest source, approximately 73.0 percent, of the resources needed to support the General Fund activities. Minnesota cities are not subject to levy limits for 2018. • Property values in the City are increasing as they are in other locations. The increase in the median valued residential property for the 2018 budget year will be approximately 6.4 percent, compared to an increase of 2.5 percent for the 2017 budget year. The preliminary county data for 2018 shows a 9.3 percent increase in the median valued home. • The total property tax levy increased 3.8 percent for 2018. • The taxes paid by the median valued home increased for 2018 to $988 from $966 in 2017, approximately 1.8 percent. • Contract settlements with all of the City’s three unions have been reached through 2019. • A 5.0 percent increase in water utility rates was enacted for 2018 to fund the portion of the Street and Utility Infrastructure Preservation Program related to the water utility and the water meter replacement program. Utility rates for the sewer, storm water, and street light utilities each also increased by 5.0 percent for 2018. REQUESTS FOR INFORMATION This CAFR is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Finance Director, City of Apple Valley, 7100 – 147th Street West, Apple Valley, Minnesota 55124. THIS PAGE INTENTIONALLY LEFT BLANK INSERT: GOVERNMENT-WIDE FINANCIAL STATEMENTS TAB Governmental Business-Type Activities Activities Total Assets Cash and investments 51,228,506$ 16,336,837$ 67,565,343$ Receivables Accounts and interest 778,033 2,856,193 3,634,226 Taxes 1,723,622 – 1,723,622 Special assessments 3,898,649 297,902 4,196,551 Due from other governmental units 333,231 520,812 854,043 Internal balances 1,962,900 (1,962,900) – Prepaids 507,908 292,052 799,960 Inventory 16,176 1,660,872 1,677,048 Land held for resale 3,026,198 – 3,026,198 Net pension asset 791,026 – 791,026 Restricted assets Cash and investments for debt service – 178,665 178,665 Capital assets Not depreciated 6,321,256 8,095,654 14,416,910 Depreciated, net of accumulated depreciation 108,121,072 97,208,372 205,329,444 Total assets 178,708,577 125,484,459 304,193,036 Deferred outflows of resources Pension plan deferments 12,839,621 754,334 13,593,955 Total assets and deferred outflows of resources 191,548,198$ 126,238,793$ 317,786,991$ Liabilities Accrued salaries payable 653,022$ 89,340$ 742,362$ Accounts payable 1,883,289 827,103 2,710,392 Contracts payable 1,255,520 224,244 1,479,764 Interest payable 23,567 11,265 34,832 Due to other governmental units 102,028 287,280 389,308 Claims incurred, but not reported 6,786 – 6,786 Long-term liabilities Due within one year 2,917,700 1,112,128 4,029,828 Due in more than one year 30,960,516 12,741,001 43,701,517 Total long-term liabilities 33,878,216 13,853,129 47,731,345 Total liabilities 37,802,428 15,292,361 53,094,789 Deferred inflows of resources Pension plan deferments 14,446,921 526,008 14,972,929 Net position Net investment in capital assets 99,642,040 94,851,212 194,493,252 Restricted for Debt service 4,088,076 178,665 4,266,741 Tax increment financing 4,158,266 – 4,158,266 Economic development 124,531 – 124,531 Police forfeiture 50,367 – 50,367 Capital acquisition 6,063,535 – 6,063,535 Fire relief pension 709,512 – 709,512 Other purposes 170,081 – 170,081 Unrestricted 24,292,441 15,390,547 39,682,988 Total net position 139,298,849 110,420,424 249,719,273 Total liabilities, deferred inflows of resources, and net position 191,548,198$ 126,238,793$ 317,786,991$ CITY OF APPLE VALLEY Statement of Net Position as of December 31, 2017 See notes to basic financial statements -19- Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Governmental activities General government 6,260,768$ 1,956,499$ –$ 2,711$ Public safety 13,443,699 617,729 1,082,234 – Public works 8,473,039 3,740,394 – 3,203,860 Parks and recreation 7,239,268 1,461,720 – – Interest and fiscal charges 886,283 – – – Total governmental activities 36,303,057 7,776,342 1,082,234 3,206,571 Business-type activities Municipal liquor 8,251,249 9,185,736 – – Municipal golf course 1,545,792 1,180,209 – – Sports arena 798,402 732,979 – – Water and sewer 10,031,223 9,917,074 – 765,087 Storm drainage 2,181,086 1,866,306 – 292,829 Cemetery 127,469 187,589 – – Street light utility 483,752 507,360 – – Total business-type activities 23,418,973 23,577,253 – 1,057,916 Total governmental and business-type activities 59,722,030$ 31,353,595$ 1,082,234$ 4,264,487$ General revenues Property taxes Other taxes Franchise taxes Grants and contributions not restricted to specific programs Other general revenues Investment earnings Transfers Total general revenues and transfers Change in net position Net position – beginning, as previously reported Prior period adjustment Net position – beginning, as restated Net position – ending Program Revenues CITY OF APPLE VALLEY Statement of Activities Year Ended December 31, 2017 See notes to basic financial statements -20- Governmental Business-Type Activities Activities Total (4,301,558)$ –$ (4,301,558)$ (11,743,736) – (11,743,736) (1,528,785) – (1,528,785) (5,777,548) – (5,777,548) (886,283) – (886,283) (24,237,910) – (24,237,910) – 934,487 934,487 – (365,583) (365,583) – (65,423) (65,423) – 650,938 650,938 – (21,951) (21,951) – 60,120 60,120 – 23,608 23,608 – 1,216,196 1,216,196 (24,237,910) 1,216,196 (23,021,714) 25,053,457 121,000 25,174,457 182,377 – 182,377 1,288,426 – 1,288,426 56,751 – 56,751 8,440 – 8,440 551,119 151,206 702,325 1,915,500 (1,915,500) – 29,056,070 (1,643,294) 27,412,776 4,818,160 (427,098) 4,391,062 134,480,689 136,700,697 271,181,386 – (25,853,175) (25,853,175) 134,480,689 110,847,522 245,328,211 139,298,849$ 110,420,424$ 249,719,273$ Revenue and Changes in Net Position Net (Expenses) -21- THIS PAGE INTENTIONALLY LEFT BLANK INSERT: FUND FINANCIAL STATEMENTS TAB THIS PAGE INTENTIONALLY LEFT BLANK Capital Projects 2001/2008B Refunding General Closed Bond Improvement Road Fund Issues Bonds Improvements (1000)(3205)(3285)(2025) Assets Cash and investments 15,908,162$ 2,816,120$ –$ 6,172$ Receivables Accounts 237,410 – – – Taxes 1,723,622 – – – Special assessments Current – 165,646 48,819 53,102 Delinquent 11,426 20,466 – 39 Deferred – 903,094 376,438 422,435 Interest 357,825 – – – Due from other governmental units 332,083 – – – Due from other funds – 3,035,727 – – Advances to other funds – 576,000 – – Prepaids 309,106 – – – Inventory 16,176 – – – Land held for resale – 3,026,198 – – Total assets 18,895,810$ 10,543,251$ 425,257$ 481,748$ Liabilities Accrued salaries payable 647,892$ –$ –$ –$ Accounts payable 655,413 13,379 – 274,363 Contracts payable 992 – – 942,878 Due to other governmental units 102,028 – – – Due to other funds – – 2,846,426 3,963,211 Advances from other funds – – – – Total liabilities 1,406,325 13,379 2,846,426 5,180,452 Deferred inflows of resources Unavailable revenue – property taxes 141,646 – – – Unavailable revenue – special assessments 11,426 1,089,206 425,257 475,576 Total deferred inflows of resources 153,072 1,089,206 425,257 475,576 Fund balances (deficit) Nonspendable 325,282 – – – Restricted – – – – Committed 595,215 – – – Assigned 64,300 9,440,666 – – Unassigned 16,351,616 – (2,846,426) (5,174,280) Total fund balances (deficit)17,336,413 9,440,666 (2,846,426) (5,174,280) Total liabilities, deferred inflows of resources, and fund balances 18,895,810$ 10,543,251$ 425,257$ 481,748$ Debt Service CITY OF APPLE VALLEY Balance Sheet Governmental Funds as of December 31, 2017 See notes to basic financial statements -22- Capital Projects Future Capital Nonmajor Total Projects Governmental Governmental (4930)Funds Funds 9,529,321$ 18,563,227$ 46,823,002$ – 174,482 411,892 – – 1,723,622 – 374,283 641,850 – 781 32,712 – 1,522,120 3,224,087 – – 357,825 – 1,148 333,231 3,976,417 – 7,012,144 1,847,663 – 2,423,663 – 1,730 310,836 – – 16,176 – – 3,026,198 15,353,401$ 20,637,771$ 66,337,238$ –$ 5,130$ 653,022$ – 929,628 1,872,783 – 311,650 1,255,520 – – 102,028 – 202,507 7,012,144 – 576,000 576,000 – 2,024,915 11,471,497 – – 141,646 – 1,897,184 3,898,649 – 1,897,184 4,040,295 – 1,730 327,012 – 13,431,367 13,431,367 – 15,000 610,215 15,353,401 3,985,762 28,844,129 – (718,187) 7,612,723 15,353,401 16,715,672 50,825,446 15,353,401$ 20,637,771$ 66,337,238$ -23- THIS PAGE INTENTIONALLY LEFT BLANK Total fund balances – governmental funds 50,825,446$ 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 179,981,277 Less accumulated depreciation (71,715,663) Net pension assets are included in net position,but are excluded from fund balances because they do not represent financial resources 791,026 Long-term liabilities are not payable with current financial resources and,therefore,are not reported in governmental funds. Bonds payable (14,470,000) Net OPEB obligation (1,537,306) Net pension liability (14,729,157) Due to availability,certain revenues are not recognized under the governmental fund statements until received;however,under full accrual in the government-wide Statement of Activities, revenues are recorded when earned regardless of when received.4,040,295 Accrued interest payable is included in net position,but is excluded from fund balances until due and payable.(23,567) Internal service funds are used by management to charge certain costs to individual funds.The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Position. Internal service fund balances included in governmental activities 7,958,849 Add internal services balances allocated to business-type activities 115,237 Governmental funds report debt premiums as other financing sources at the time of issuance. Premiums are reported as liabilities in the Statement of Net Position.(330,288) Governmental funds do not report certain long-term amounts related to pensions that are included in net position. Deferred outflows – pension plan deferments 12,839,621 Deferred inflows – pension plan deferments (14,446,921) Total net position – governmental activities 139,298,849$ Amounts reported for governmental activities in the Statement of Net Position are different because: as of December 31, 2017 CITY OF APPLE VALLEY Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds See notes to basic financial statements -24- Capital Projects 2001/2008B Refunding General Closed Bond Improvement Road Fund Issues Bonds Improvements (1000)(3205)(3285)(2025) Revenue Taxes 23,335,830$ –$ –$ –$ Other taxes 89,419 – – – Franchise taxes 515,245 – – – Special assessments 2,711 524,422 82,005 91,049 Licenses and permits 3,244,654 – – – Intergovernmental 831,908 – – 922,115 Charges for services 2,962,769 – – – Fines and forfeits 315,087 – – – Investment earnings 91,352 80,164 – – Other 810,838 – – 1,100 Total revenue 32,199,813 604,586 82,005 1,014,264 Expenditures Current General government 4,917,230 – – – Public safety 12,257,784 – – – Public works 4,017,771 – – – Parks and recreation 5,451,672 – – – Capital outlay 629,917 – – 5,089,682 Debt service Principal – – – – Interest and fiscal charges – 7,485 – – Total expenditures 27,274,374 7,485 – 5,089,682 Excess (deficiency) of revenue over expenditures 4,925,439 597,101 82,005 (4,075,418) Other financing sources (uses) Sale of capital assets 10,120 – – – Payment on refunded bond – – – – Transfers in 1,300,500 – – 4,100,000 Transfers (out)(5,509,100) – – – Total other financing sources (uses)(4,198,480) – – 4,100,000 Net change in fund balances 726,959 597,101 82,005 24,582 Fund balances (deficit) Beginning of year 16,609,454 8,843,565 (2,928,431) (5,198,862) End of year 17,336,413$ 9,440,666$ (2,846,426)$ (5,174,280)$ Debt Service CITY OF APPLE VALLEY Statement of Revenue, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended December 31, 2017 See notes to basic financial statements -25- Future Capital Nonmajor Total Projects Governmental Governmental (4930)Funds Funds –$ 1,740,504$ 25,076,334$ – 92,958 182,377 – 773,181 1,288,426 – 859,422 1,559,609 – – 3,244,654 – 248,362 2,002,385 – – 2,962,769 – – 315,087 110,947 241,428 523,891 – 1,002,869 1,814,807 110,947 4,958,724 38,970,339 – 788,478 5,705,708 – 22,151 12,279,935 87,414 26,611 4,131,796 – 314,882 5,766,554 – 2,745,384 8,464,983 – 3,425,000 3,425,000 – 932,946 940,431 87,414 8,255,452 40,714,407 23,533 (3,296,728) (1,744,068) – 32,670 42,790 – (11,925,000) (11,925,000) 1,950,000 1,392,625 8,743,125 (1,295,900) (848,625) (7,653,625) 654,100 (11,348,330) (10,792,710) 677,633 (14,645,058) (12,536,778) 14,675,768 31,360,730 63,362,224 15,353,401$ 16,715,672$ 50,825,446$ -26- THIS PAGE INTENTIONALLY LEFT BLANK Total net change in fund balances – governmental funds (12,536,778)$ Capital outlays are reported in governmental funds as expenditures;however,in the Statement of Activities the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital outlay 7,643,329 Capital contributions 675,613 Net book value of capital assets transferred from governmental activities to internal service funds (2,574,818) Depreciation expense (5,511,108) Net pension assets are only recorded in the government-wide financial statements as they are not current financial resources to governmental funds.791,026 Repayment of long-term liabilities is an expenditure in the governmental funds,but the repayment reduces long-term liabilities in the Statement of Net Position.15,350,000 Net OPEB obligations are recognized as paid in the governmental funds,but recognized as the expense is incurred in the Statement of Activities.(138,347) Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due,and thus requires the use of current financial resources.In the Statement of Activities,however,interest expense is recognized as the interest accrues, regardless of when it is due.5,729 Governmental funds report debt issuance premiums as other financing sources at the time of issuance. Premiums are reported as liabilities in the Statement of Net Position.48,419 Certain revenues are recognized as soon as they are earned in the Statement of Activities;however, under the modified accrual basis of accounting,certain revenues cannot be recognized until they are available to liquidate liabilities of the current period.(514,343) Internal service funds are used by management to charge certain costs to individual funds.The net revenue of certain activities of internal service funds is reported with governmental activities in the government-wide financial statements. Internal service fund activity included in governmental activities, net of capital contributions 771,807 Add back internal service fund activity allocated to business-type activities 11,594 Capital contributions from governmental funds 2,574,818 Governmental funds do not report long-term amounts related to pensions that are included in the change in net position. Net pension liability 15,810,448 Deferred outflows – pension plan deferments (7,350,328) Deferred inflows – pension plan deferments (10,238,901) Change in net position – governmental activities 4,818,160$ Amounts reported for governmental activities in the Statement of Activities are different because: CITY OF APPLE VALLEY Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds Year Ended December 31, 2017 See notes to basic financial statements -27- THIS PAGE INTENTIONALLY LEFT BLANK Over (Under) Original Final Actual Budget Revenue Taxes 23,254,170$ 23,359,170$ 23,335,830$ (23,340)$ Other taxes 102,300 102,300 89,419 (12,881) Franchise taxes 515,000 515,000 515,245 245 Special assessments 14,000 14,000 2,711 (11,289) Licenses and permits 1,368,975 1,484,975 3,244,654 1,759,679 Intergovernmental 706,530 706,530 831,908 125,378 Charges for services 3,073,440 3,073,440 2,962,769 (110,671) Fines and forfeits 279,500 279,500 315,087 35,587 Investment earnings 185,600 185,600 91,352 (94,248) Other 673,900 673,900 810,838 136,938 Total revenue 30,173,415 30,394,415 32,199,813 1,805,398 Expenditures Current General government 5,304,041 5,333,606 4,917,230 (416,376) Public safety 12,538,242 12,615,072 12,257,784 (357,288) Public works 4,315,375 4,408,475 4,017,771 (390,704) Parks and recreation 5,517,107 5,509,107 5,451,672 (57,435) Capital outlay General government 146,950 277,950 231,218 (46,732) Public safety 23,500 335,500 162,046 (173,454) Public works 27,500 56,500 23,273 (33,227) Parks and recreation 113,500 280,150 213,380 (66,770) Total expenditures 27,986,215 28,816,360 27,274,374 (1,541,986) Excess of revenue over expenditures 2,187,200 1,578,055 4,925,439 3,347,384 Other financing sources (uses) Sale of capital assets 20,400 20,400 10,120 (10,280) Transfers in 1,300,500 1,300,500 1,300,500 – Transfers (out)(3,508,100) (3,559,100) (5,509,100) (1,950,000) Total other financing sources (uses)(2,187,200) (2,238,200) (4,198,480) (1,960,280) Net change in fund balances –$ (660,145)$ 726,959 1,387,104$ Fund balances Beginning of year 16,609,454 End of year 17,336,413$ Budgeted Amounts CITY OF APPLE VALLEY Statement of Revenue, Expenditures, and Changes in Fund Balances General Fund – Budget and Actual Year Ended December 31, 2017 See notes to basic financial statements -28- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Current assets Cash and investments 2,603,041$ –$ –$ 9,735,978$ Receivables Special assessments Current – – – 224,154 Delinquent – – – 18,157 Accounts 6,717 3,535 80,290 2,159,672 Due from other governmental units – – 213,714 278,804 Prepaids 20,777 5,023 1,730 263,062 Inventory 1,509,964 57,826 – 93,082 Total current assets 4,140,499 66,384 295,734 12,772,909 Noncurrent assets Restricted cash with fiscal agent 178,665 – – – Deferred special assessment receivable – – – 30,405 Advance to other funds – – – 1,329,041 Capital assets Land and land improvements 1,177,683 991,179 2,000 1,996,379 Construction in progress – – – 1,217,350 Buildings 3,612,180 3,190,504 3,518,984 11,765,078 Other improvements 25,000 689,963 109,420 102,458,425 Furniture and equipment 362,676 953,038 287,615 3,594,890 Less accumulated depreciation (1,643,251) (1,602,460) (2,791,936) (55,620,319) Total capital assets (net of accumulated depreciation)3,534,288 4,222,224 1,126,083 65,411,803 Total noncurrent assets 3,712,953 4,222,224 1,126,083 66,771,249 Total assets 7,853,452 4,288,608 1,421,817 79,544,158 Deferred outflows of resources Pension plan deferments – PERA 158,214 113,750 55,183 366,033 Total assets and deferred outflows of resources 8,011,666$ 4,402,358$ 1,477,000$ 79,910,191$ as of December 31, 2017 Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Net Position Proprietary Funds See notes to basic financial statements -29- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 2,902,648$ 944,744$ 150,426$ 16,336,837$ 4,405,504$ 1,224 – – 225,378 – – – – 18,157 – 471,046 – 134,933 2,856,193 8,316 27,632 – 662 520,812 – 1,460 – – 292,052 197,072 – – – 1,660,872 – 3,404,010 944,744 286,021 21,910,301 4,610,892 – – – 178,665 – 23,962 – – 54,367 – – – – 1,329,041 – 2,137,632 513,560 – 6,818,433 – 59,871 – – 1,277,221 – – – – 22,086,746 – 49,931,222 810,314 – 154,024,344 – 317,106 – – 5,515,325 12,798,120 (22,528,094) (231,983) – (84,418,043) (6,621,406) 29,917,737 1,091,891 – 105,304,026 6,176,714 29,941,699 1,091,891 – 106,866,099 6,176,714 33,345,709 2,036,635 286,021 128,776,400 10,787,606 61,154 – – 754,334 – 33,406,863$ 2,036,635$ 286,021$ 129,530,734$ 10,787,606$ -30-(continued) Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Current liabilities Accrued salaries payable 27,940$ 11,630$ 7,385$ 39,332$ Accounts payable 540,902 15,731 13,179 179,866 Contracts payable – – – 224,244 Interest payable 1,882 – – 8,034 Due to other governmental units 98,419 1,035 41,930 145,896 Claims payable – – – – Accrued compensated absences 69,900 29,300 13,600 150,200 Capital lease payable – 38,728 – – Bonds payable 240,000 – – 385,000 Total current liabilities 979,043 96,424 76,094 1,132,572 Noncurrent liabilities Accrued compensated absences 28,003 49,648 15,871 104,649 Net OPEB obligation 66,632 34,159 21,416 138,400 Net pension liability 572,869 366,704 186,417 1,302,684 Advance from other fund – 3,123,789 52,915 – Capital lease payable – 136,798 – – Bonds payable 880,000 – – 7,146,267 Total noncurrent liabilities 1,547,504 3,711,098 276,619 8,692,000 Total liabilities 2,526,547 3,807,522 352,713 9,824,572 Deferred inflows of resources Pension plan deferments – PERA 115,333 71,449 36,196 258,159 Net position (deficit) Net investment in capital assets 2,414,288 4,046,698 1,126,083 57,880,536 Restricted for debt service 178,665 – – – Unrestricted 2,776,833 (3,523,311) (37,992) 11,946,924 Total net position 5,369,786 523,387 1,088,091 69,827,460 Total liabilities, deferred inflows of resources, and net position 8,011,666$ 4,402,358$ 1,477,000$ 79,910,191$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Net Position Proprietary Funds (continued) as of December 31, 2017 See notes to basic financial statements -31- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 3,053$ –$ –$ 89,340$ –$ 50,822 4,897 21,706 827,103 10,506 – – – 224,244 – 1,349 – – 11,265 – – – – 287,280 – – – – – 6,786 5,400 – – 268,400 1,817,700 – – – 38,728 – 180,000 – – 805,000 – 240,624 4,897 21,706 2,551,360 1,834,992 6,465 – – 204,636 993,765 7,920 – – 268,527 – 230,078 – – 2,658,752 – – – – 3,176,704 – – – – 136,798 – 1,446,021 – – 9,472,288 – 1,690,484 – – 15,917,705 993,765 1,931,108 4,897 21,706 18,469,065 2,828,757 44,871 – – 526,008 – 28,291,716 1,091,891 – 94,851,212 6,176,714 – – – 178,665 – 3,139,168 939,847 264,315 15,505,784 1,782,135 31,430,884 2,031,738 264,315 110,535,661 7,958,849 33,406,863$ 2,036,635$ 286,021$ 129,530,734$ 10,787,606$ Total net position – enterprise funds 110,535,661$ Adjustment to reflect the consolidation of internal service fund activity related to enterprise funds (115,237) Net position – business-type activities 110,420,424$ -32- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Operating revenue Sales and rentals 9,183,272$ 1,173,102$ 732,919$ –$ Charges for services – – – 9,910,773 Total operating revenue 9,183,272 1,173,102 732,919 9,910,773 Cost of goods sold 6,473,275 188,557 15,796 – Gross profit 2,709,997 984,545 717,123 9,910,773 Operating expenses Personal services 1,086,489 840,838 340,220 1,653,691 Contractual services 29,832 77,340 46,337 290,929 Other charges 334,285 31,670 12,237 930,186 Supplies and repairs 32,133 173,491 71,053 523,083 Insurance 75,285 36,000 26,775 207,375 Utilities 51,935 47,581 146,689 431,452 Depreciation 140,758 183,693 145,415 2,768,547 Sewer charges – – – 2,979,830 Total operating expenses 1,750,717 1,390,613 788,726 9,785,093 Operating income (loss)959,280 (406,068) (71,603) 125,680 Nonoperating revenue (expense) Taxes – – 121,000 – Investment earnings 18,342 – – 87,682 Other income 2,464 7,107 60 6,301 Gain (loss) on sale of capital assets 2,281 50,682 6,885 (48,605) Interest expense (26,896) (15,805) – (191,807) Total nonoperating revenue (expense)(3,809) 41,984 127,945 (146,429) Income (loss) before capital contributions and transfers 955,471 (364,084) 56,342 (20,749) Capital contributions – – – 524,767 Capital contributions – connection fees – – – 240,320 Transfers in – – – – Transfers (out)(630,000) – – (1,270,500) Change in net position 325,471 (364,084) 56,342 (526,162) Net position Beginning of year, as previously reported 5,044,315 887,471 1,031,749 86,900,598 Prior period adjustment – – – (16,546,976) Beginning of year, as restated 5,044,315 887,471 1,031,749 70,353,622 End of year 5,369,786$ 523,387$ 1,088,091$ 69,827,460$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Revenue, Expenses, and Changes in Net Position Proprietary Funds Year Ended December 31, 2017 See notes to basic financial statements -33- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund –$ –$ –$ 11,089,293$ –$ 1,769,842 187,334 507,360 12,375,309 2,415,781 1,769,842 187,334 507,360 23,464,602 2,415,781 – – – 6,677,628 – 1,769,842 187,334 507,360 16,786,974 2,415,781 258,343 3,612 2,300 4,185,493 846,795 353,340 77,094 37,012 911,884 19,145 400,725 12,442 699 1,722,244 787,130 31,560 13,422 3,685 848,427 – 6,800 – 7,893 360,128 – 70,494 1,588 432,163 1,181,902 – 995,490 19,311 – 4,253,214 1,016,350 – – – 2,979,830 – 2,116,752 127,469 483,752 16,443,122 2,669,420 (346,910) 59,865 23,608 343,852 (253,639) – – – 121,000 – 37,048 7,139 995 151,206 27,228 96,464 255 – 112,651 – (1,222)– – 10,021 172,218 (62,142) – – (296,650) – 70,148 7,394 995 98,228 199,446 (276,762) 67,259 24,603 442,080 (54,193) 232,710 – – 757,477 2,574,818 60,119 – – 300,439 – – – – – 826,000 – – (15,000) (1,915,500) – 16,067 67,259 9,603 (415,504) 3,346,625 40,721,016 1,964,479 254,712 136,804,340 4,612,224 (9,306,199) – – (25,853,175) – 31,414,817 1,964,479 254,712 110,951,165 4,612,224 31,430,884$ 2,031,738$ 264,315$ 110,535,661$ 7,958,849$ Change in net position – enterprise funds (415,504)$ Adjustment to reflect the consolidation of internal service fund activities related to the enterprise funds (11,594) Change in net position – business-type activities (427,098)$ -34- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Cash flows from operating activities Cash received from customers 9,179,019$ 1,193,130$ 734,762$ 10,072,773$ Cash receipts on interfund services provided – – – – Cash payments to suppliers (6,889,297) (560,116) (270,559) (4,923,784) Cash payments to employees for services (1,035,458) (831,985) (331,950) (1,554,862) Net cash flows from operating activities 1,254,264 (198,971) 132,253 3,594,127 Cash flows from capital and related financing activities Acquisition and construction of capital assets (15,670) (269,305) (82,626) (3,039,251) Connection fees received – – – 240,320 Proceeds from sale of capital assets 2,281 99,888 6,885 – Proceeds from issuance of capital lease – 215,419 – – Payment on debt (235,000) (96,178) – (380,000) Interest paid (27,288) (16,279) – (200,425) Transfer from other funds – – – – Net cash flows from capital and related financing activities (275,677) (66,455) (75,741) (3,379,356) Cash flows from investing activities Interest received on investments 18,342 – – 87,682 Cash flows from noncapital financing activities Taxes – – 121,000 – Cash received from other funds – 265,426 – – Cash paid to other funds – – (177,512) (153,910) Transfers (out)(630,000) – – (1,270,500) Net cash flows from noncapital financing activities (630,000) 265,426 (56,512) (1,424,410) Net increase (decrease) in cash and cash equivalents 366,929 – – (1,121,957) Cash and cash equivalents Beginning of year 2,414,777 – – 10,857,935 End of year 2,781,706$ –$ –$ 9,735,978$ Reconciliation of operating income (loss) to net cash flows from operating activities Operating income (loss)959,280$ (406,068)$ (71,603)$ 125,680$ Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation 140,758 183,693 145,415 2,768,547 Other revenue (expense)2,464 7,107 60 6,301 Change in assets, deferred outflows/inflows of resources, and liabilities Receivables Special assessments – – – 16,299 Accounts (6,717) 12,921 7,812 140,036 Due from other governmental units – – (6,029) (636) Inventory (33,634) (580) – (8,185) Prepaids (5,262) (4,688) (1,730) (20,984) Deferred outflows of resources 133,802 75,797 38,508 289,538 Accounts payable 142,876 (936) 8,348 145,105 Contracts payable – – – 203,708 Accrued salaries payable 3,926 1,296 (649) 7,674 Claims payable – – – – Net OPEB obligation 5,431 3,080 1,566 11,758 Net pension liability (119,997) (67,977) (34,535) (259,666) Accrued compensated absences 8,320 (14,417) (2,246) 7,221 Due to other governmental units 3,468 727 41,710 119,427 Deferred inflows of resources 19,549 11,074 5,626 42,304 Net cash flows from operating activities 1,254,264$ (198,971)$ 132,253$ 3,594,127$ Noncash capital activities Capital contributions –$ –$ –$ 524,767$ Net book value of capital asset disposals –$ (49,206)$ –$ (48,605)$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Cash Flows Proprietary Funds Year Ended December 31, 2017 See notes to basic financial statements -35- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 1,822,779$ 187,589$ 505,948$ 23,696,000$ –$ – – – – 2,385,386 (844,651) (120,076) (463,482) (14,071,965) (1,602,635) (245,432) (3,612) (2,300) (4,005,599) (133,569) 732,696 63,901 40,166 5,618,436 649,182 (714,773) (132,079) – (4,253,704) (1,453,051) 60,119 – – 300,439 – – – – 109,054 309,360 – – – 215,419 – (1,735,000) – – (2,446,178) – (81,870) – – (325,862) – – – – – 826,000 (2,471,524) (132,079) – (6,400,832) (317,691) 39,108 7,139 995 153,266 27,228 – – – 121,000 – – – – 265,426 – – – – (331,422) – – – (15,000) (1,915,500) – – – (15,000) (1,860,496) – (1,699,720) (61,039) 26,161 (2,489,626) 358,719 4,602,368 1,005,783 124,265 19,005,128 4,046,785 2,902,648$ 944,744$ 150,426$ 16,515,502$ 4,405,504$ (346,910)$ 59,865$ 23,608$ 343,852$ (253,639)$ 995,490 19,311 – 4,253,214 1,016,350 96,464 255 – 112,651 – 5,037 – – 21,336 – (20,932) – (1,395) 131,725 5 (27,632) – (17) (34,314) – – – – (42,399) – (1,460) – – (34,124) (30,455) 49,231 – – 586,876 – 26,309 (15,530) 18,092 324,264 (79,699) – – – 203,708 – (1,412) – – 10,835 – – – – – (774) 1,998 – – 23,833 – (44,152) – – (526,327) – 53 – – (1,069) (2,606) (6,581) – (122) 158,629 – 7,193 – – 85,746 – 732,696$ 63,901$ 40,166$ 5,618,436$ 649,182$ 232,710$ –$ –$ 757,477$ 2,574,818$ (1,222)$ –$ –$ (99,033)$ (137,142)$ -36- THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY Notes to Basic Financial Statements as of December 31, 2017 -37- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES A. Organization The City of Apple Valley, Minnesota (the City) is a statutory city governed by an elected mayor and four councilmembers. The accompanying financial statements present the government entities for which the City is considered to be financially accountable. The accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. B. Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the City (the primary government) and its component units. Component units are legally separate entities for which the primary government is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit includes whether or not the primary government appoints the voting majority of the potential component unit’s board, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. The Apple Valley Economic Development Authority (EDA) was established to provide economic development services to the City. Although a legally separate entity, the Apple Valley EDA is reported as if it were part of the primary government because it provides services exclusively for the City. The Apple Valley EDA governing body is substantially the same as the governing body of the primary government because five of the Apple Valley EDA boardmembers are City Council members and the two other members are appointed by the City Council. Management of the primary government also has operational responsibility for the Apple Valley EDA. The Apple Valley EDA is a blended component unit of the City, with the following funds reported as funds of the City: Economic Development Debt Service Fund and the EDA Operations Special Revenue Fund. The Apple Valley EDA does not issue separate financial statements. C. Government-Wide Financial Statement Presentation The government-wide financial statements (Statement of Net Position and Statement of Activities) display information about the reporting government as a whole. These statements include all of the financial activities of the City. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which significantly rely upon sales, fees, and charges for support. -38- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, 2) operating grants and contributions, and 3) capi tal grants and contributions, including special assessments that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other internally directed revenues are reported as general revenues. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes and special assessments are recognized as revenues in the fiscal year for which they are certified for levy. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. However, charges between the City’s enterprise funds and other functions are not eliminated, as that would distort the direct costs and program revenues reported in those functions. Depreciation expense is included in the direct expenses of each function. Interest on long-term debt is considered an indirect expense and is reported separately on the Statement of Activities. D. Fund Financial Statement Presentation Separate fund financial statements are provided for governmental and proprietary funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. Aggregated information for the remaining nonmajor governmental funds is reported in a single column in the fund financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this basis of accounting, transactions are recorded in the following manner: 1. Revenue Recognition – Revenue is recognized when it becomes measurable and available. “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are coll ected within 60 days after year-end. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. Major revenue that is susceptible to accrual includes property taxes, special assessments, intergovernmental revenue, charges for services, and interest earned on investments. Major revenue that is not susceptible to accrual includes licenses and per mits, fees, and miscellaneous revenue. Such revenue is recorded only when received because it is not measurable until collected. 2. Recording of Expenditures – Expenditures are generally recorded when a liability is incurred, except for principal and interest on long-term debt and other long-term liabilities, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as capital outlay expenditures in the governmental funds. -39- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Proprietary fund financial statements are reported using the economic resources measurement focus and accrual basis of accounting, similar to the government-wide financial statements. 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 City’s enterprise funds and internal service funds are charges to customers for sales and services . The operating expenses for the enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses that do not meet this definition are reported as nonoperating revenues and expenses. Aggregated information for the internal service funds is reported in a single column in the proprietary fund financial statements. Because the principal user of the internal services is the City’s governmental activities, the financial statements of the internal service funds are consolidated into the governmental column when presented in the government-wide financial statements. The cost of these services is reported in the appropriate functional activity. Description of Funds The City reports the following major governmental funds: General Fund (1000) – This fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Closed Bond Issues Debt Service Fund (3205) – This fund accounts for all the closed bond issues that still have activity. 2001/2008B Refunding Improvement Bonds Debt Service Fund (3285) – This fund accounts for the payment of the bond issuance for various improvements. Road Improvements Capital Projects Fund (2025) – This fund accounts for various road improvements. Future Capital Projects Capital Projects Fund (4930) – This fund accounts for funds set aside for future capital improvements. The City reports the following major enterprise funds: Municipal Liquor Fund (5000 and 5030) – This fund accounts for the operations of the City’s liquor stores. Municipal Golf Course Fund (5100) – This fund accounts for the operations of the City’s golf course. Sports Arena Fund (5200) – This fund accounts for the operations of the City’s sports arena. Water and Sewer Fund (5300 and 5400) – This fund accounts for the activities of the City’s water and sewer operations. -40- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Storm Drainage Fund (5500 and 5550) – This fund accounts for the activities of the City’s storm drainage operations. Cemetery Fund (5600 and 5700) – This fund accounts for the activities of the City’s cemetery operations. Street Light Utility Fund (5800) – This fund accounts for the activities of the City’s street light operations. Additionally, the City reports the following fund types: Internal Service Funds – Internal service funds account for the financing of goods and services provided to other departments or agencies of the City on a cost reimbursement basis. The City utilizes a Dental Insurance Internal Service Fund, Benefits/Other Insurance Internal Service Fund, and a Vehicle Equipment Replacement Internal Service Fund in managing city operations. E. 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 respective funds on the basis of applicable cash balance participation by each fund. The City generally reports investments at fair value. Investment pools/mutual funds and certificates of deposit with a maturity of less than one year are reported at amortized cost. Restricted cash with fiscal agent in the Municipal Liquor Fund includes balances held in an account in accordance with debt agreements to subsidize potential deficiencies from the liquor store operations that could adversely affect debt service payments. The City categorizes its fair value measurements within the fair value hierarchy established by accounting principles generally accepted in the United States of America. 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; and Level 3 inputs are significant unobservable inputs. Debt securities classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. See Note 2 for the City’s recurring fair value measurements as of year-end. F. Receivables Utility and miscellaneous accounts receivable are reported at gross. Since the City is generally able to certify delinquent amounts to the county for collection as special assessments, no allowance for uncollectible accounts has been provided on current receivables. The only receivables not expected to be collected within one year are property taxes and special assessments receivable. -41- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) G. Interfund Receivables and Payables In the fund financial statements, activity between funds that is representative of lending or borrowing arrangements is reported as either “due to/from other funds” (current portion) or “advances to/from other funds.” All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business -type activities are reported in the government-wide financial statements as “internal balances.” H. Land Held for Resale Land held for resale represents various property purchases made by the City with the intent to sell in order to increase tax base or to attract new businesses. These assets are stated at the lower of cost or acquisition value. During the year ended December 31, 2017, management has reviewed the cost value reported for these assets and has indicated the properties are fairly presented for financial reporting purposes. I. Property Taxes Property tax levies are set by the City Council in December of each year, and are certified to Dakota County for collection in the following year. In Minnesota, counties act as collection agents for all property taxes. The county spreads the levies over all taxable property. Such taxes become a lien on January 1 and are recorded as receivables by the City on that date. Real property taxes may be paid by taxpayers in two equal installments on May 15 and October 15. Personal property taxes are due in full on May 15. The county provides tax settlements to cities and other taxing districts three times a year; in July, December, and January. Property taxes are recognized as revenue in the year levied in the government -wide financial statements and proprietary fund financial statements. In the governmental fund financial statements, taxes are recognized as revenue when received in cash or within 60 days after year-end. Taxes which remain unpaid on December 31 are classified as delinquent taxes receivable, and are offset by a deferred inflow of resources in the governmental fund financial statements. J. Special Assessments Special assessments represent the financing for public improvements paid for by benefiting property owners. Special assessments are recorded as receivables upon certification to the county. Special assessments are recognized as revenue in the year levied in the government -wide financial statements and proprietary fund financial statements. In the governmental fund financial statements, special assessments are recognized as revenue when received in cash or within 60 days after year -end. Governmental fund special assessments receivable which remain unpaid on December 31 are offset by a deferred inflow of resources in the governmental fund financial statements. K. Prepaids Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. Prepaid items are reported using the consumption method and recorded as expenditures/expenses at the time of consumption. -42- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Inventories The inventories for the Municipal Golf and Municipal Liquor Funds use the average cost valuation method. Inventories of the remaining governmental and proprietary funds are valued at cost using the first-in, first-out valuation method. Inventories are recorded as expenditures or expenses when consumed. M. Capital Assets Capital assets, which include land, land improvements, buildings, other improvements, furniture and equipment, and infrastructure assets (roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are capitalized at historical cost, or estimated historical cost for assets where actual historical cost is not available. Donated assets are recorded as capital assets at their estimated acquisition value on the date of donation. The City defines capital assets as those with an initial, individual cost of $5,000 or more with an estimated useful life in excess of two years. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are recorded in the government-wide and proprietary fund financial statements, but are not reported in the governmental fund financial statements. Interest incurred during the construction phase of capital assets for business-type activities is included as part of the capitalized value of the assets constructed. Capital assets are depreciated using the straight-line method over their estimated useful lives. Land and construction in progress are not depreciated. The estimated useful lives are as follows: Assets Years Buildings 7–40 Improvements other than buildings 5–40 Furniture and equipment 3–50 Infrastructure 25–50 N. Compensated Absences Full-time employees employed by the City after January 1, 1995 are eligible for three to six weeks of annual leave depending on their length of service with the City. Annual leave may not accrue in excess of 800 hours. Upon termination of employment with the City, employees in “good standing” are reimbursed for all accrued and unused annual leave. Employees employed by the City prior to January 1, 1995 were eligible to elect to continue earning sick leave and vacation in lieu of the annual leave option. Those employees who elected not to take the annual leave provisions continue to be eligible to earn 12 days of sick leave and two to four weeks of vacation per year, depending on their length of service with the City. Sick leave may carry forward indefinitely. Upon termination of employment in “good standing,” employees with more than 10 years of continuous service shall be paid up to one-third of their accrued and unused sick leave. The maximum amount of vacation that may be accumulated is twice the amount earned in any one year. Upon termination of employment, “good standing” employees shall be paid for their accrued and unused vacation leave. Compensated absences are accrued in governmental fund financial statements only when used or matured prior to year-end, due to employee termination or similar circumstances. Vacation and sick benefits are recorded as expenses and liabilities in proprietary funds when earned. Compensated absences payable in the government-wide Statement of Net Position and the Statement of Net Position – Proprietary Funds include all leave balances accrued, but not yet used by employees, whether or not the employees have terminated employment with the City. -43- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Long-Term Liabilities In the government-wide and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, if material, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are expensed in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources , while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. P. Deferred Outflows/Inflows of Resources In addition to assets and liabilities, statements of financial position or balance sheets will sometimes report separate sections for deferred outflows or inflows of resources. These separate financial statement elements represent a consumption or acquisition of net position that applies to a future period, and so will not be recognized as an outflow of resources (expense/expenditure), or an inflow of financial resources (revenue) until then. The City reports deferred outflows and inflows of resources related to pensions in the government -wide and enterprise funds Statement of Net Position. These deferred outflows and inflows result from differences between expected and actual experience, changes in proportion, changes of assumptions, differences between projected and actual earnings on pension plan investments, and contributions to the plan subsequent to the measurement date and before the end of the reporting period. These amounts are deferred and amortized as required under pension standards. Unavailable revenue, arises only under a modified accrual basis of accounting and, therefore, is only reported in the governmental funds Balance Sheet. The governmental funds report unavailable revenue from two sources: property taxes and special assessments. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Q. Pension Plans For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from the PERA’s fiduciary net position have been determined on the same basis as they are reported by the PERA, except that the 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. -44- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The PERA has a special funding situation created by a direct aid contribution made by the state of Minnesota. The direct aid is a result of the merger of the Minneapolis Employees Retirement Fund into the PERA on January 1, 2015. R. Budgets and Budgetary Accounting The City follows these procedures in establishing the budgetary data reflected in the financial statements: 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 by the City Council. 4. Budgets 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 fund level. No fund’s budget can be increased without City Council approval. The City Council may authorize transfers 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. 6. Annual appropriated budgets are adopted during the year for the General Fund, Cable TV Special Revenue Fund, and EDA Operations Special Revenue Fund. 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 for most capital projects funds. In 2017, the City also adopted formal annual appropriated budgets for the Road Improvements Capital Projects, Future Capital Projects, Equipment Certificate Capital Projects, and Cable Capital Equipment Capital Projects Funds. 7. The finance director/treasurer presents monthly reports to the City Council. 8. Budgeted amounts are as originally adopted or as amended by the City Council. Budgeted expenditures lapse at year-end. S. Statement of Cash Flows For purposes of the Statement of Cash Flows, the City considers all highly liquid debt instruments with an original maturity from the time of purchase by the City of three months or less to be cash equivalents. The proprietary fund’s portion in the government-wide cash and investment management pool is considered to be cash equivalent. -45- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) T. Net Position and Flow Assumptions In the government-wide and proprietary fund financial statements, net position represents the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position is displayed in three components: • Net Investment in Capital Assets – Consists of capital assets, net of accumulated depreciation, reduced by any outstanding debt attributable to acquire capital assets. • Restricted Net Position – Consists of net position restricted when there are limitations imposed on its use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. • Unrestricted Net Position – All other elements of net position that do not meet the definition of “restricted” or “net investment in capital assets.” The City applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available. U. Fund Balance Classifications and Flow Assumptions In the fund financial statements, governmental funds report fund balance in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: • Nonspendable – Consists of amounts that are not in spendable form, such as prepaid items, inventory, and other long-term assets. • Restricted – Consists of amounts related to externally imposed constraints established by creditors, grantors, or contributors; or constraints imposed by state statutory provisions. • Committed – Consists of internally imposed constraints that are established by resolution of the City Council. Those committed amounts cannot be used for any other purpose unless the City Council removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. • Assigned – Consists of internally imposed constraints. These constraints consist of amounts intended to be used by the City for specific purposes, but do not meet the criteria to be classified as restricted or committed. In governmental funds, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to City Council resolution, the city administrator and/or the finance director/treasurer are authorized to establish assignments of fund balance. • Unassigned – The residual classification for the General Fund which also reflects negative residual amounts in other funds. When both restricted and unrestricted resources are available for use, it is the City’s policy to first use restricted resources, then use unrestricted resources as they are needed. When committed, assigned, or unassigned resources are available for use, it is the City’s policy to use resources in the following order: 1) committed, 2) assigned, and 3) unassigned. -46- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) V. Risk Management The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The City participates in the League of Minnesota Cities Insurance Trust (LMCIT), a public entity risk pool for its general property and casualty, workers ’ compensation, and other miscellaneous insurance coverage. The LMCIT operates as a common risk management and insurance program for a large number of cities in Minnesota. The City pays an annual premium to the LMCIT for insurance coverage. The LMCIT agreement provides that the trust will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of certain limits. The City also carries commercial insurance for certain other risks of loss . Settled claims resulting from these risks did not exceed insurance coverage in any of the past three fiscal years. There were no significant reductions in insurance coverage in 2017. The City uses its Dental Insurance Internal Service Fund to account for and finance its self-insured risk of loss for an employee dental plan. The dental plan is funded by the City, employee contributions, and investment earnings. The claims liability of $6,786 is included in the liabilities of the Dental Insurance Internal Service Fund at December 31, 2017, and is based on the requirement that a liability for claims be reported if information prior to issuance of the financial statements indicates that it is probabl e that a liability has been incurred on the date of the financial statements and the loss can be reasonably estimated. Changes in the fund’s claim liability for the past two years were: Claims Beginning and Changes Claim Ending Balance in Estimates Payments Balance 2016 6,767$ 203,790$ 202,997$ 7,560$ 2017 7,560$ 207,642$ 208,416$ 6,786$ W. Restricted Assets Restricted assets are cash, investments, and interest accrued thereon; the use of which is limited by external requirements such as a bond indenture. X. 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 amounts reported in the financial statements during the reporting period. Actual results could differ from those estimates. Y. Prior Period Adjustment A prior period adjustment, reducing equity by $16,546,976 and $9,306,199, was recorded in the Water and Sewer Fund and Storm Drainage Fund, respectively, in the proprietary fund statements, which is part of business-type activities on the government-wide statements. This change was related to the City’s inventory of capitalized assets and the related useful lives. -47- NOTE 2 – CASH AND INVESTMENTS A. Components of Cash and Investments Cash and investments at year-end consist of the following: Deposits 3,928,086$ Investments 63,797,822 Petty cash 18,100 Total 67,744,008$ Cash and investments are presented in the financial statements as follows: Statement of Net Position Cash and investments 67,565,343$ Restricted assets Cash and investments for debt service 178,665 Total 67,744,008$ B. Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council, including checking accounts and certificates of deposit. The following is considered the most significant risk associated with deposits: Custodial Credit Risk – In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated “A” or better; revenue obligations rated “AA” or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The City has no additional deposit policies addressing custodial credit risk. At year-end, the carrying amount of the City’s deposits was $3,928,086, while the balance on the bank records was $4,302,673. At December 31, 2017, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City’s agent in the City’s name. -48- NOTE 2 – CASH AND INVESTMENTS (CONTINUED) C. Investments The City has the following investments at year-end: Fair Value Measurements Less Investment Type Rating Agency Using Than 1 1 to 5 6 to 10 Total U.S. agency securities AA S&P Level 2 2,085,633$ 9,755,009$ –$ 11,840,642$ State and local bonds AAA S&P Level 2 3,090,219 1,705,578 – 4,795,797 State and local bonds AA S&P Level 2 4,363,788 17,056,250 688,392 22,108,430 State and local bonds AA Moody'sMoody’s Level 2 3,205,128 5,953,607 480,307 9,639,042 State and local bonds A S&P Level 2 – 1,767,025 – 1,767,025 State and local bonds A Moody’s Level 2 – – 554,274 554,274 Negotiable certificates of deposit N/R N/A Level 2 2,204,187 9,517,475 – 11,721,662 14,948,955$ 45,754,944$ 1,722,973$ 62,426,872 Investment pools/mutual funds Invesco Government AAA S&P Level 1 1,353,897 Federated Trust for Treasury Obligations AAA S&P NAV 17,053 Total investments 63,797,822$ N/A – Not Applicable N/R – Not Rated NAV – Based on net asset value, with no unfunded commitments, daily redemption frequency, and no notice is required. Credit Risk Maturity Duration in Years Interest Risk – Investments are subject to various risks, the following of which are considered the most significant: Custodial Credit Risk – For investments, this is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker-dealer), the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy states that the City may not invest in securities that are both uninsured and not registered in the name of the City and are held by either the counterparty or the counterparty’s trust department or agent, but not in the name of the City. Credit Risk – This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City’s investments to direct obligations or obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of 13 months or less; general obligations rated “A” or better; revenue obligations rated “AA” or better; general obligations of the Minnesota Housing Finance Agency rated “A” or better; bankers’ acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one of the top two highest categories; repurchase or reverse purchase agreements and securities lending agreements with financial institutions qualified as a “depository” by the government entity, wit h banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000; that are a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York; or certain Minnesota securities broker-dealers. The City’s investment policy addresses credit risk by limiting investments to the safest type of securities and using prequalifying brokers/financial institutions. -49- NOTE 2 – CASH AND INVESTMENTS (CONTINUED) Concentration Risk – This is the risk associated with investing a significant portion of the City’s investment (considered 5.0 percent or more) in the securities of a single issuer, excluding U.S. guaranteed investments (such as treasuries), investment pools, and mutual funds. The City’s investment policy states no more than 5.0 percent of the overall portfolio may be invested in the securities of a single issuer, except for the securities of the U.S. government or an external investment pool. As of December 31, 2017, the City’s investment portfolio includes the Federal National Mortgage Association at 5.3 percent and Federal Home Loan Bank at 9.2 percent. Interest Rate Risk – This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City’s investment policy does include specific limits on investment maturities as a means of managing its exposure to fair value arising from i ncreasing interest rates. It also states investments should not be purchased that are considered to be highly sensitive to interest rate changes. NOTE 3 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS A. Due To and Due From Other Funds Interfund receivables and payables at year-end were as follows: Closed Bond Future Capital Due To Other Funds Issues Projects Total Governmental 2001/2008B Refunding Improvement Bonds 2,846,426$ –$ 2,846,426$ Road Improvements – 3,963,211 3,963,211 Nonmajor 189,301 13,206 202,507 Total 3,035,727$ 3,976,417$ 7,012,144$ Governmental Due From Other Funds Interfund borrowing is utilized for cash flow borrowing to eliminate temporary cash balance deficits, due to the timing of projects and the related revenue sources. B. Advance From and Advance To Other Funds Borrowing at year-end was as follows: Enterprise Closed Bond Future Capital Water and Advance From Other Funds Issues Projects Sewer Total Governmental Nonmajor 576,000$ –$ –$ 576,000$ Enterprise Municipal Golf Course – 1,847,663 1,276,126 3,123,789 Sports Arena – – 52,915 52,915 Total 576,000$ 1,847,663$ 1,329,041$ 3,752,704$ Governmental Advance To Other Funds Advances are utilized to cover operations of the related city funds, including capital improvements. -50- NOTE 3 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS (CONTINUED) C. Interfund Transfers Internal Service Vehicle Road Future Capital Equipment Transfers Out General Fund Improvements Projects Nonmajor Replacement Total Governmental General Fund –$ 3,332,100$ 1,950,000$ 176,000$ 51,000$ 5,509,100$ Future Capital Projects – 152,900 – 1,143,000 – 1,295,900 Nonmajor – – – 73,625 775,000 848,625 Enterprise Municipal Liquor 630,000 – – – – 630,000 Water and Sewer 670,500 600,000 – – – 1,270,500 Street Light Utility – 15,000 – – – 15,000 Total 1,300,500$ 4,100,000$ 1,950,000$ 1,392,625$ 826,000$ 9,569,125$ Governmental Transfers In Transfers are made in accordance with budget appropriations or as approved by the City Council for special funding of city activities. These transfers were made to fund operations, debt payments, capital outlay, or to close funds. NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended December 31, 2017 was as follows: A. Changes in Capital Assets Used in Governmental Activities Transfers and Beginning Completed of Year Additions Deletions Construction End of Year Capital assets, not depreciated Land 3,885,715$ –$ –$ 695,458$ 4,581,173$ Construction in progress 1,668,316 7,327,286 – (7,255,519) 1,740,083 Total capital assets, not depreciated 5,554,031 7,327,286 – (6,560,061) 6,321,256 Capital assets, depreciated Buildings 32,313,580 – – 273,964 32,587,544 Other improvements 25,239,683 – – 217,374 25,457,057 Furniture and equipment 17,780,862 1,769,094 (1,336,410) 384,026 18,597,572 Infrastructure 103,455,658 675,613 – 5,684,697 109,815,968 Total capital assets, depreciated 178,789,783 2,444,707 (1,336,410) 6,560,061 186,458,141 Less accumulated depreciation on Buildings 12,577,758 955,777 – – 13,533,535 Other improvements 9,813,128 971,511 – – 10,784,639 Furniture and equipment 11,233,765 1,317,757 (1,199,268) – 11,352,254 Infrastructure 39,384,228 3,282,413 – – 42,666,641 Total accumulated depreciation 73,008,879 6,527,458 (1,199,268) – 78,337,069 Net capital assets, depreciated 105,780,904 (4,082,751) (137,142) 6,560,061 108,121,072 Total capital assets, net 111,334,935$ 3,244,535$ (137,142)$ –$ 114,442,328$ -51- NOTE 4 – CAPITAL ASSETS (CONTINUED) B. Changes in Capital Assets Used in Business-Type Activities Beginning of Year,Transfers and as Previously Prior Period Beginning of Year,Completed Reported Adjustment as Restated Additions Deletions Construction End of Year Capital assets, not depreciated Land 6,744,731$ –$ 6,744,731$ 62,852$ –$ 10,850$ 6,818,433$ Construction in progress 1,789,097 – 1,789,097 3,647,074 – (4,158,950) 1,277,221 Total capital assets, not depreciated 8,533,828 – 8,533,828 3,709,926 – (4,148,100) 8,095,654 Capital assets, depreciated Buildings 21,988,389 – 21,988,389 29,470 – 68,887 22,086,746 Other improvements 149,255,827 – 149,255,827 872,972 (183,668) 4,079,213 154,024,344 Furniture and equipment 5,359,718 – 5,359,718 398,813 (243,206) – 5,515,325 Total capital assets, depreciated 176,603,934 – 176,603,934 1,301,255 (426,874) 4,148,100 181,626,415 Less accumulated depreciation on Buildings 9,425,271 – 9,425,271 502,165 – – 9,927,436 Other improvements 41,033,362 25,853,175 66,886,537 3,363,430 (133,841) – 70,116,126 Furniture and equipment 4,180,862 – 4,180,862 387,619 (194,000) – 4,374,481 Total accumulated depreciation 54,639,495 25,853,175 80,492,670 4,253,214 (327,841) – 84,418,043 Net capital assets, depreciated 121,964,439 (25,853,175) 96,111,264 (2,951,959) (99,033) 4,148,100 97,208,372 Total capital assets, net 130,498,267$ (25,853,175)$ 104,645,092$ 757,967$ (99,033)$ –$ 105,304,026$ C. Depreciation Expense by Function Depreciation expense for the year ended December 31, 2017 was charged to the following functions: Governmental activities General government 398,372$ Public safety 360,814 Public works 3,446,868 Parks and recreation 1,305,054 Capital assets held by the City’s internal service funds are charged to the various functions based on their usage of the assets 1,016,350 Total depreciation expense – governmental activities 6,527,458$ Business-type activities Municipal liquor 140,758$ Municipal golf course 183,693 Sports arena 145,415 Water and sewer 2,768,547 Storm drainage 995,490 Cemetery 19,311 Total depreciation expense – business-type activities 4,253,214$ -52- NOTE 5 – LONG-TERM DEBT A. Components of Long-Term Debt Final Balance – Original Issue Interest Rate Maturity End of Year Governmental activities General obligation bonds G.O. Equipment Certificate Bonds 2012A 1,305,000$ 2.00%12/15/2021 470,000$ G.O. Crossover Refunding Bonds 2013A 9,000,000$ 1.75–2.35%12/15/2031 9,000,000 G.O. Equipment Bonds 2014A 680,000$ 2.00%12/15/2020 390,000 G.O. Bonds 2015B 4,255,000$ 2.00–2.75%12/15/2029 4,025,000 Total general obligation bonds 13,885,000 General obligation improvement bonds G.O. Improvement Bonds 2012A 920,000$ 2.00%12/15/2022 585,000 Total governmental activities bonds 14,470,000 Unamortized premium 330,288 Net OPEB obligation 1,537,306 Net pension liability 14,729,157 Compensated absences 2,811,465 Total governmental activities 33,878,216$ Business-type activities General obligation revenue bonds G.O. Water Revenue Bonds 2014A 8,830,000$ 2.00–3.00%12/15/2033 7,395,000$ G.O. Bonds 2015B 1,605,000$ 2.00–2.75%12/15/2026 1,605,000 Total general obligation revenue bonds 9,000,000 Revenue bonds Liquor Store Revenue Refunding Bonds 2015A 1,785,000$ 0.50–2.15%12/01/2021 1,120,000 Total business-type activities bonds 10,120,000 Capital lease 175,526 Unamortized premium 157,288 Net OPEB obligation 268,527 Net pension liability 2,658,752 Compensated absences 473,036 Total business-type activities 13,853,129$ -53- NOTE 5 – LONG-TERM DEBT (CONTINUED) B. Changes in Long-Term Debt Balance – Beginning Balance –Due Within of Year Additions Deletions End of Year One Year Governmental activities General obligation bonds 27,550,000$ –$ 13,665,000$ 13,885,000$ 990,000$ General obligation improvement bonds 2,270,000 – 1,685,000 585,000 110,000 Unamortized premium 378,707 – 48,419 330,288 – Net OPEB obligation 1,398,959 201,920 63,573 1,537,306 – Net pension liability 30,539,605 3,721,549 19,531,997 14,729,157 – Compensated absences 2,814,071 1,815,194 1,817,800 2,811,465 1,817,700 Total governmental activities 64,951,342 5,738,663 36,811,789 33,878,216 2,917,700 Business-type activities General obligation revenue bonds 11,115,000 – 2,115,000 9,000,000 565,000 Revenue bonds 1,355,000 – 235,000 1,120,000 240,000 Capital lease 56,285 215,419 96,178 175,526 38,728 Unamortized premium 183,255 – 25,967 157,288 – Net OPEB obligation 244,694 34,784 10,951 268,527 – Net pension liability 3,185,079 538,775 1,065,102 2,658,752 – Compensated absences 474,105 287,347 288,416 473,036 268,400 Total business-type activities 16,613,418 1,076,325 3,836,614 13,853,129 1,112,128 Total government-wide 81,564,760$ 6,814,988$ 40,648,403$ 47,731,345$ 4,029,828$ C. Minimum Debt Payments Minimum annual payments required to retire bonds are as follows: Governmental Activities Year Ending December 31,Principal Interest Principal Interest Principal Interest 2018 990,000$ 283,513$ 110,000$ 11,700$ 1,100,000$ 295,213$ 2019 1,065,000 264,075 115,000 9,500 1,180,000 273,575 2020 1,125,000 243,150 120,000 7,200 1,245,000 250,350 2021 905,000 221,025 120,000 4,800 1,025,000 225,825 2022 820,000 203,313 120,000 2,400 940,000 205,713 2023–2027 4,725,000 764,800 – – 4,725,000 764,800 2028–2031 4,255,000 241,480 – – 4,255,000 241,480 Total 13,885,000$ 2,221,356$ 585,000$ 35,600$ 14,470,000$ 2,256,956$ General Obligation Bonds TotalImprovement Bonds General Obligation -54- NOTE 5 – LONG-TERM DEBT (CONTINUED) Business-Type Activities Year Ending December 31,Principal Interest Principal Interest Principal Interest Principal Interest 2018 565,000$ 225,213$ 240,000$ 22,588$ 38,728$ 5,657$ 843,728$ 253,458$ 2019 570,000 213,913 250,000 17,788 40,106 4,279 860,106 235,980 2020 580,000 202,513 255,000 13,163 96,692 2,693 931,692 218,369 2021 590,000 190,913 375,000 8,063 – – 965,000 198,976 2022 610,000 179,113 – – – – 610,000 179,113 2023–2027 2,950,000 685,423 – – – – 2,950,000 685,423 2028–2032 2,575,000 320,250 – – – – 2,575,000 320,250 2033 560,000 16,800 – – – – 560,000 16,800 9,000,000$ 2,034,138$ 1,120,000$ 61,602$ 175,526$ 12,629$ 10,295,526$ 2,108,369$ Revenue Bonds Revenue Bonds Total General Obligation Capital Lease D. Description of Long-Term Debt • General Obligation Bonds and General Obligation Improvement Bonds – The City issues general obligation (G.O.) bonds to provide financing for street, utility, park, and cemetery project improvements. The City issues G.O. equipment certificates to provide financing for capital equipment. Debt service is covered respectively by special assessments, state aids, general property taxes, and tax increments. G.O. bonds and equipment certificates are direct obligations and pledge the full faith and credit of the City. Equipment certificates are issued as five-year notes with fluctuating debt service payments each year. In April 2013, the City issued $9,000,000 of G.O. Crossover Refunding Bonds, Series 2013A. The proceeds of this issue and interest earned thereon were used to refund the 2023 through 2032 maturities of the City’s G.O. Park Bonds, Series 2007A, totaling $4,150,000, on their December 15, 2017 call date and the 2023 through 2032 maturities of the City’s G.O. Park Bonds, Series 2008D, totaling $4,225,000, on their December 15, 2017 call date. Until the call date, the City made all debt service payments on the 2007A and 2008D issues, and all debt service on the 2013A issue were paid from the refunding escrow account. This “crossover refunding” reduced the City’s total future debt service payments by $1,031,660 and resulted in a present value savings of $1,047,760. In May 2015, the City issued $5,860,000 of G.O. Bonds, Series 2015B. The proceeds of this issue and interest earned thereon were used to refund the 2018 through 2022 maturities of the City’s G.O. Park Bonds, Series 2007A, totaling $1,155,000, on their December 15, 2017 call date, the 2018 through 2023 maturities of the City’s G.O. Park Bonds, Series 2008D, totaling $1,320,000, on their December 15, 2017 call date, and the 2018 through 2032 maturities of the City’s G.O. Park Bonds, Series 2011A and G.O. Storm Water Bonds, Series 2011A, totaling $2,650,000, on their December 15, 2017 call date. Until the call date, the City made all debt service payments on the 2007A, 2008D, and 2011A issues, and all debt service on the 2015B issue were paid from the refunding escrow account. This “crossover refunding” reduced the City’s total future debt service payments by $216,551 and resulted in a present value savings of $231,938. • General Obligation Revenue Bonds and Revenue Bonds – The City issues revenue bonds to provide financing for its enterprise funds. The City issued revenue bonds for the liquor store and G.O. revenue bonds for the arena, water and sewer, and storm drainage activity. Debt service is covered through the revenue producing activities of these funds. -55- NOTE 5 – LONG-TERM DEBT (CONTINUED) • Capital Lease – The City entered into a lease agreement for financing the acquisition of equipment for the municipal golf course. This lease agreement matures in November 2020 and carries an interest rate of 3.5 percent. As of December 31, 2017, these assets had a capitalized value of $253,419 with accumulated depreciation of $47,733. Revenues from the Municipal Golf Course Fund financed this lease. • Net OPEB Obligation – This liability represents the City’s Other Post-Employment Benefits (OPEB) Plan obligation as further described later in these notes. The General Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. • Net Pension Liability – This liability represents the City’s pension benefit obligations as further described later in these notes. The General Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. The City participates in two state-wide, cost-sharing, multi-employer defined benefit pension plans administered by the PERA and a single employer plan administered by the fire relief association. The following is a summary of the net pension asset, net pension liabilities, deferred outflows and inflows of resources, and pension expense reported for these plans as of and for the year ended December 31, 2017: Net Pension Net Pension Deferred Outflows Deferred Inflows Pension Pension Plans Asset Liabilities of Resources of Resources Expense PERA – GERF –$ 10,488,804$ 2,883,037$ 2,107,294$ 1,383,931$ PERA – PEPFF – 6,899,105 9,896,017 11,969,220 1,735,353 Fire Relief 791,026 – 814,901 896,415 244,652 Total – all pensions 791,026$ 17,387,909$ 13,593,955$ 14,972,929$ 3,363,936$ • Compensated Absences – This liability represents vested benefits earned by employees through the end of the year, which will be paid or used in future periods . The Benefits/Other Insurance Internal Service Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. E. Revenue Pledged Percent of Remaining Principal Pledged Use of Total Debt Term of Principal and Interest Revenue Bond Issue Proceeds Type Service Pledge and Interest Paid Received G.O. Water Revenue Bonds 2014A Utility improvements Utility charges 100%2014–2033 9,268,950$ 580,425$ 9,910,773$ Liquor Store Revenue Refunding Bonds 2015A Site improvements Liquor sales 100%2015–2021 1,181,600$ 262,288$ 9,183,272$ G.O. Bonds 2015B Utility improvements Utility charges 100%2015–2026 1,765,190$ 32,388$ 1,769,842$ Revenue Pledged Current Year -56- NOTE 5 – LONG-TERM DEBT (CONTINUED) F. Arbitrage Rebate The Tax Reform Act of 1986 requires governmental entities to pay to the federal government income earned on the proceeds from the issuance of debt in excess of interest costs, pending the expenditure of the borrowed funds. This rebate of interest income (known as arbitrage) applies to governmental debt issued after August 31, 1986. In the opinion of management, any obligation would be immaterial. G. Conduit Debt Obligations At times, the City has issued various types of revenue bonds to provide financial assistance to private sector, nonprofit, or governmental entities to finance the acquisition or construction of facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payments received on the underlying mortgage loans. Upon repayment of the bonds, ownership of the acquired facilities transfers to the private sector entity served by the bond issuance . Neither the City, nor any political subdivision thereof, is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the City’s financial statements. As of December 31, 2017, the following conduit debt issues were outstanding: Augustana Care Health Care Revenue Bonds (Augustana Health Care Center Project), Series 2016A 16,940,000$ Minnesota Senior Living LLC Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016A 68,890,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016B 50,540,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016C 6,890,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016D 21,650,000 Lifeworks Services Inc. Educational Facilities Revenue Note, Series 2011 1,815,312 Total conduit debt obligations 166,725,312$ NOTE 6 – JOINT POWERS COMMITMENT On August 25, 2005, the City entered into a joint powers agreement (the Agreement) with the cities of Burnsville, Eagan, Farmington, Hastings, Inver Grove Heights, Lakeville, Mendota Heights, Rosemount, South St. Paul, West St. Paul, and Dakota County, Minnesota, to establish the Dakota Communications Center (DCC), a Minnesota nonprofit corporation. The purpose of the DCC is to engage in the operation and maintenance of a county-wide public safety answering point and communications center for law enforcement, fire, emergency medical services, and other public safety services for the mutual benefit of residents residing in the above mentioned cities and county (members). Pursuant to the Agreement, members are required to provide the DCC their pro rata share of the cost of operations, maintenance, and capital projects. Information regarding the DCC can be obtained by contacting the City of Lakeville, 20195 Holyoke Avenue, Lakeville, Minnesota 55044-9177 or from the website www.mn-dcc.org/about-the-dcc/statistics/. -57- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE A. Plan Description The City participates in the following cost-sharing, multi-employer defined benefit pension plans administered by the PERA of Minnesota. The PERA’s defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. The PERA’s defined benefit pension plans are tax-qualified plans under Section 401(a) of the Internal Revenue Code (IRC). 1. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City are covered by the General Employees Retirement Fund (GERF). GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. 2. Public Employees Police and Fire Fund (PEPFF) The Public Employees Police and Fire Fund (PEPFF), 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 PEPFF also covers police officers and firefighters belonging to local relief associations that elected to merge with and transfer assets and administration to the PERA. B. Benefits Provided The PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statutes and can only be modified by the State Legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the fundin g ratio of the plan. Members in plans that are at least 90.0 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90.0 percent funded, or have fallen below 80.0 percent, are given 1.0 percent increases. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. 1. GERF Benefits Benefits are based on a member’s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for the PERA’s Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. 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 age 66. -58- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) 2. PEPFF Benefits Benefits for the PEPFF members first hired after June 30, 2010 but before July 1, 2014, vest on a prorated basis from 50 percent after five years, up to 100 percent after 10 years of credited service. Benefits for the PEPFF members first hired after June 30, 2014 vest on a prorated basis from 50 percent after 10 years, up to 100 percent after 20 years of credited service. The annuity accrual rate is 3 percent of average salary for each year of service. For the PEPFF members 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. 1. GERF Contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.50 percent, respectively, of their annual covered salary in calendar year 2017. The City was required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2017. The City’s contributions to the GERF for the year ended December 31, 2017 were $768,029. The City’s contributions were equal to the required contributions as set by state statutes. 2. PEPFF Contributions Plan members were required to contribute 10.80 percent of their annual covered salary in calendar year 2017. The City was required to contribute 16.20 percent of pay for members in calendar year 2017. The City’s contributions to the PEPFF for the year ended December 31, 2017 were $829,640. The City’s contributions were equal to the required contributions as set by state statutes. D. Pension Costs 1. GERF Pension Costs At December 31, 2017, the City reported a liability of $10,488,804 for its proportionate share of the GERF’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 the 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 the PERA’s participating employers. The City’s proportionate share was 0.1643 percent at the end of the measurement period and 0.1561 percent for the beginning of the period. -59- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) The City’s net pension liability reflected a reduction due to the state of Minnesota’s contribution of $6 million to the fund. The state of Minnesota is considered a nonemployer contributing entity and the state’s contribution meets the definition of a special funding situation. The amount recognized by the City as its proportionate share of the net pension liability, the direct aid, and total portion of the net pension liability that was associated with the City were as follows: City’s proportionate share of net pension liability 10,488,804$ State’s proportionate share of the net pension liability associated with the City 131,924$ For the year ended December 31, 2017, the City recognized pension expense of $1,380,121 for its proportionate share of the GERF’s pension expense. In addition, the City recognized an additional $3,810 as pension expense (and grant revenue) for its proportionate share of the state of Minnesota’s contribution of $6 million to the GERF. At December 31, 2017, the City reported its proportionate share of the GERF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 345,679$ 647,452$ Changes in actuarial assumptions 1,654,458 1,051,504 Differences between projected and actual investment earnings – 6,614 Changes in proportion 499,349 401,724 Contributions paid to the PERA subsequent to the measurement date 383,551 – Total 2,883,037$ 2,107,294$ Deferred outflows of resources reported $383,551 related to pensions resulting from city contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 269,387$ 2019 624,264$ 2020 (56,228)$ 2021 (445,231)$ -60- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) 2. PEPFF Pension Costs At December 31, 2017, the City reported a liability of $6,899,105 for its proportionate share of the PEPFF’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 the 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 the PERA’s participating employers. The City’s proportionate share was 0.5110 percent at the end of the measurement period and 0.5190 percent for the beginning of the period. For the year ended December 31, 2017, the City recognized pension expense of $1,689,363 for its proportionate share of the PEPFF’s pension expense. The City also recognized $45,990 for the year ended December 31, 2017 as revenue and an offsetting reduction of net pension liability for its proportionate share of the state of Minnesota’s on-behalf contributions to the PEPFF. Legislation passed in 2013 required the state of Minnesota to begin contributing $9 million to the PEPFF each year, starting in fiscal year 2014. At December 31, 2017, the City reported its proportionate share of the PEPFF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 158,803$ 1,868,852$ Changes in actuarial assumptions 9,170,211 9,795,022 Differences between projected and actual investment earnings 126,551 – Changes in proportion 30,300 305,346 Contributions paid to the PERA subsequent to the measurement date 410,152 – Total 9,896,017$ 11,969,220$ Deferred outflows of resources reported $410,152 related to pensions resulting from city contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 101,693$ 2019 101,693$ 2020 (153,194)$ 2021 (552,795)$ 2022 (1,980,752)$ -61- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) E. Actuarial Assumptions The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.50% per year Active member payroll growth 3.25% per year Investment rate of return 7.50% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit the PERA’s experience. Cost of living benefit increases for retirees are assumed to be 1.0 percent per year for the GERF through 2044, and the PEPFF through 2064, and then 2.5 percent 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 GERF was completed in 2015. The most recent five-year experience study for the PEPFF was completed in 2016. The following changes in actuarial assumptions occurred in 2017: 1. GERF • The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60.0 percent for vested and nonvested deferred members. The revised CSA loads are now zero percent for active member liability, 15.0 percent for vested deferred member liability, and 3.0 percent for nonvested deferred member liability. • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years, to 1.0 percent per year through 2044, and 2.5 percent per year thereafter. 2. PEPFF • Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34 percent lower than the previous rates. • Assumed rates of retirement were changed, resulting in fewer retirements. • The CSA load was 30.00 percent for vested and nonvested deferred members. The CSA has been changed to 33.00 percent for vested members and 2.00 percent for nonvested 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 3.00 percent 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 65.00 percent to 60.00 percent. • Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two years older than females. -62- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) • The assumed percentage of female members electing joint and survivor annuities was increased. • The assumed post-retirement benefit increase rate was changed from 1.00 percent for all years, to 1.00 percent per year through 2064, and 2.50 percent thereafter. • The single discount rate changed from 5.60 percent to 7.50 percent. The State Board of Investment, which manages the investments of the PERA, prepares an analysis o f the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Domestic stocks 39 %5.10 % International stocks 19 5.30 % Bonds 20 0.75 % Alternative assets 20 5.90 % Cash 2 – % Total 100 % Target Long-Term Expected Allocation Real Rate of Return F. Discount Rate The discount rate used to measure the total pension liability in 2017 was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the GERF and the PEPFF were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability G. Pension Liability Sensitivity The following presents the City’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1% Decrease in 1% Increase in Discount Rate Discount Rate Discount Rate 6.50%7.50%8.50% City’s proportionate share of the GERF net pension liability 16,268,914$ 10,488,804$ 5,756,734$ City’s proportionate share of the PEPFF net pension liability 12,993,033$ 6,899,105$ 1,868,236$ -63- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) H. Pension Plan Fiduciary Net Position Detailed information about the GERF’s fiduciary net position is available in a separately issued PERA financial report. That report may be obtained on the PERA website at www.mnpera.org; by writing to the PERA at 60 Empire Drive, Suite 200, St. Paul, Minnesota 55103; or by calling (651) 296-7460 or (800) 652-9026. NOTE 8 – DEFINED CONTRIBUTION PENSION PLAN – STATE-WIDE Councilmembers of the City are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by the PERA. The PEDCP is a tax qualified plan under Section 401(a) of the IRC and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan provisions, including the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5 percent of salary, which is matched by the elected official’s employer. For ambulance service personnel, employer contributions are determined by the employer, and for salaried employee contributions 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, the PERA receives 2 percent of employer contributions and twenty-five hundredths of 1 percent (0.0025) of the assets in each member’s account annually. Total contributions made by the City for the fiscal year 2017 were: Required Rate for Employees Employee Employer Employee Employer and Employers 1,902$ 1,902$ 5%5%5% Contribution Amount Percentage of Covered Payroll NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION A. Plan Description All members of the Apple Valley Fire Department (the Department) are covered by a defined benefit plan administered by the Apple Valley Firefighters’ Relief Association (the Association). As of the measurement date, the plan covered 64 active members, 19 inactive members entitled to future benefits, and 32 inactive members or beneficiaries currently receiving benefits. The plan is a single employer retirement plan and is established and administered in accordance with Minnesota Statutes, Chapter 69. The Association maintains a separate Special Pension Trust Fund to accumulate assets to fund the retirement benefits earned by the Department’s membership. Funding for the Association is derived from an insurance premium tax in accordance with the Volunteer Firefighter’s Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). Funds are also derived from investment income. -64- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) B. Benefits Provided Each member who is at least 50 years of age, has separated from service from the fire department, has served at least 5 years of active service for members commencing active duty prior to January 1, 2010, and 10 years of active service for members commencing active duty after January 1, 2010 with such department before separation and has been a member of the Association in good standing at least 5 years prior to such separation shall be entitled to a lump sum service pension in the amount of $6,700 for each year of service (including each year over 20) or a monthly service pension of $45 for each year of service (including each year over 20) but not exceeding the maximum amount per year of service allowed by law for the minimum average amount of available financing per firefighter as prescribed by law. According to the bylaws of the Association and pursuant to Minnesota Statutes, members who separate from service with less than 20 years of service and have reached the age of at least 50 , and have completed at least 5 years of active membership for members commencing active duty prior to January 1, 2010, and 10 years of active membership for members commencing active duty after January 1, 2010, are entitled to a reduced service pension not to exceed the amount calculated by multiplying the member ’s service pension for the completed years of service times the applicable nonforfeitable percentage of pension for the completed years of service times the applicable nonforfeitable percentage of pension. C. Contributions Minnesota Statutes, Chapters 424 and 424A, authorize pension benefits for volunteer fire relief associations. The plan is funded by fire state aid, investment earnings, and, if necessary, employer contributions as specified in Minnesota Statutes and voluntary city contributions (if applicable). Required employer contributions are calculated annually based on statutory provisions. The City’s statutorily-required contributions to the plan for the year ended December 31, 2017 were $243,200. The City’s contributions were equal to the required contributions as set by state statutes. The City made no voluntary contributions to the plan. Furthermore, the firefighter has no obligation to contribute to the plan. D. Pension Costs At December 31, 2017, the City reported a net pension liability (asset) of ($791,026) for the plan. The net pension liability (asset) was measured as of December 31, 2016. The total pension liability used to calculate the net pension liability (asset) in accordance with GASB Statement No. 68 was determined by applying an actuarial formula to specific census data certified by the Department as of December 31, 2016. For the year ended December 31, 2017, the City recognized pension expense of $244,652. The City also recognized $281,578 as revenue from the state of Minnesota on-behalf contributions to the Department. -65- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) The following table presents the changes in net pension liability during the year: Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) Beginning balance 6,270,772$ 6,049,005$ 221,767$ Changes for the year Service cost 179,770 – 179,770 Interest 402,119 – 402,119 Difference between expected and actual experience (23,940) – (23,940) Change of assumptions (509,724) – (509,724) Contributions – state and local – 546,408 (546,408) Net investment income – 549,126 (549,126) Benefit payments (528,192) (528,192) – Administrative costs – (34,516) 34,516 Total net changes (479,967) 532,826 (1,012,793) Ending balance 5,790,805$ 6,581,831$ (791,026)$ At December 31, 2017, the City reported deferred inflows of resources and deferred outflows of resources related to pensions from the following: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 8,870$ 20,610$ Changes in actuarial assumptions – 592,224 Differences between projected and actual investment earnings 279,250 – City contributions subsequent to the measurement date 243,200 – State aid to the City subsequent to the measurement date 283,581 283,581 Total 814,901$ 896,415$ -66- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) Deferred outflows of resources totaling $526,781 related to pensions resulting from the city contributions to the plan subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Deferred inflows of resources totaling $283,581 related to state aid received subsequent to the measurement date will be recognized for its impact on the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 11,330$ 2019 11,332$ 2020 (12,575)$ 2021 (133,997)$ 2022 (100,790)$ Thereafter (100,014)$ E. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of the measurement date using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50% Salary increases N/A Investment rate of return Index rate for 20-year, tax-exempt municipal bonds (Bond Buyer G.O. 20-Year Municipal Bond Index); used in discount rate determination 3.78% N/A – Not Applicable 7.50% net of pension plan investment expense, including inflation Mortality rates were based on the July 1, 2016 Minnesota Public Employees Retirement Association Police and Fire Plan actuarial valuation as described below: Healthy Pre-Retirement – RP-2000 Nonannuitant Generational Mortality Table projected with Scale AA, white collar adjustment, male rates set back two years, female rates set back two years. Healthy Post-Retirement – RP-2000 Nonannuitant Generational Mortality Table, projected with Scale AA, white collar adjustment, without age adjustment. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimates of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These asset class estimates are combined to produce the portfolio long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage (or target allocation, if available) and by adding expected inflation. All results are then rounded to the nearest quarter percent. -67- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) Asset Class Domestic equity 81.86 %5.58 %8.08 % International equity 5.78 5.71 %8.21 % Fixed income 11.31 2.27 %4.77 % Real estate and alternatives – 4.44 %6.94 % Cash and equivalents 1.05 0.84 %3.34 % Total (weighted average, rounded to 1/4 percent)100.00 %7.50 % Allocation at Measurement Date Long-Term Expected Nominal Rate of Return Long-Term Expected Real Rate of Return F. Discount Rate The discount rate used to measure the total pension liability was 7.50 percent. The liability discount rate was developed using the alternative method described in paragraph 43 of GASB Statement No. 67, which states that “if the evaluations required by paragraph 41 can be made with sufficient reliability without a separate projection of cash flows into and out of the pension plan, alternative methods may be applied in making the evaluations.” We believe that the plan’s current overfunded status, combined with Minnesota statutory funding requirements, provide sufficient reliability that projected plan assets will be adequate to pay future retiree benefits. Therefore, we used the plan’s long-term expected investment return as the liability discount rate. G. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability (asset) of the Association, calculated using the discount rate of 7.50 percent, as well as what the Association’s net pension liability (asset) would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate: 1% Decrease in Current 1% Increase in Discount Rate Discount Rate Discount Rate 6.50%7.50%8.50% Association’s net pension liability (asset)(281,176)$ (791,026)$ (1,228,261)$ H. Pension Plan Fiduciary Net Position The Association issues a publicly available financial report. This report may be obtained by writing to the Apple Valley Firefighters’ Relief Association, 7100 147th Street West, Apple Valley, Minnesota 55124. -68- NOTE 10 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN A. Plan Description The City provides post-employment benefits to certain eligible employees and their spouses through the City’s OPEB Plan, a single-employer defined benefit plan administered by the City. All post-employment benefits are based on contractual agreements with employee groups. These contractual agreements do not include any specific contribution or funding requirements. The plan does not issue a publicly available financial report. These benefits are summarized as follows: Post-Employment Insurance Benefits – All retirees of the City have the option under state law to continue their medical insurance coverage through the City from the time of retirement until the employee reaches the age of eligibility for Medicare. For members of all employee groups, the re tiree must pay the full premium to continue coverage for medical and dental insurance. The City is legally required to include any retirees for whom it provides health insurance coverage in the same insurance pool as its active employees, whether premiums are paid by the City or the retiree. Consequently, participating retirees are considered to receive a secondary benefit known as an “implicit rate subsidy.” This benefit relates to the assumption that the retiree is receiving a more favorable premium rate than they would otherwise be able to obtain if purchasing insurance on their own, due to being included in the same pool with the City’s younger and statistically healthier active employees. B. Funding Policy The required contributions are based on projected pay-as-you-go financing requirements, with additional amounts to prefund benefits as determined annually by the City. C. Annual OPEB Cost and Net OPEB Obligation The City’s annual OPEB cost (expense) is calculated based on annual required contributions (ARC) of the City, an amount determined on an actuarially determined basis in accordance with the parameters of GASB Statement No. 45. The ARC represents a level funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The annual OPEB cost is accrued in the accrual-based statements. The liability is funded through payments from the City’s General Fund and enterprise funds. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and the changes in the City’s net OPEB obligation to the plan: ARC 226,905$ Interest on net OPEB obligation 73,964 Adjustment to ARC (64,165) Annual OPEB cost (expense)236,704 Contributions made 74,524 Increase in net OPEB obligation 162,180 Net OPEB obligation – beginning of year 1,643,653 Net OPEB obligation – end of year 1,805,833$ -69- NOTE 10 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN (CONTINUED) The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current and preceding years are as follows: Percentage of Fiscal Year Ended Annual Employer Annual OPEB Net OPEB December 31,OPEB Cost Contribution Cost Contributed Obligation 2015 236,671$ 84,647$ 36%1,441,936$ 2016 227,404$ 25,687$ 11%1,643,653$ 2017 236,704$ 74,524$ 31%1,805,833$ D. Funded Status and Funding Progress As of January 1, 2016, the most recent actuarial valuation date, the actuarial accrued liability for benefits and unfunded actuarial accrued liability (UAAL) were both $1,966,565, as the plan was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $13,401,000 and the ratio of the UAAL to the covered payroll was 15 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the ARC of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress following the notes to basic financial statements presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2016 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included: a 4.50 percent investment rate of return (net of administrative expenses) based on the City’s own investments; an annual payroll growth rate of 3.50 percent; an annual healthcare cost trend rate of 9.00 percent initially, reduced by decrements to an ultimate rate of 5.00 percent after 12 years for medical insurance; and a general inflation rate of 2.75 percent. The UAAL is amortized on a level dollar basis over an open 30-year period. -70- NOTE 11 – STEWARDSHIP AND ACCOUNTABILITY A. Deficit Fund Balances The following funds have a deficit fund balance at December 31, 2017: Amount Governmental 2001/2008B Refunding Improvement Bonds 2,846,426$ Road Improvements 5,174,280$ Nonmajor funds Debt service Improvement Bonds of 2010 189,301$ Capital projects TIF District Parkside Village 528,886$ The deficits listed above will be eliminated by transfers from other funds, collection of special assessments, future special assessment bond issues, future tax levies, and state grant reimbursements. B. Budget to Actual Expenditures exceeded budgeted amounts in the Future Capital Projects Fund by $59,475 and Cable Capital Equipment Capital Projects Fund by $18,010. NOTE 12 – FUND BALANCES A. Classifications At December 31, 2017, the City had the following governmental fund balances: 2001/2008B Closed Refunding Future Nonmajor General Bond Improvement Road Capital Governmental Fund Issues Bonds Improvements Projects Funds Total Nonspendable Inventory 16,176$ –$ –$ –$ –$ –$ 16,176$ Prepaid items 309,106 – – – – 1,730 310,836 Total nonspendable 325,282 – – – – 1,730 327,012 Restricted Debt service – – – – – 2,864,587 2,864,587 Economic development – – – – – 124,531 124,531 Tax increment financing – – – – – 1,287,475 1,287,475 Police forfeiture – – – – – 50,367 50,367 Capital acquisition Cable capital equipment – – – – – 639,079 639,079 Tax increment financing – – – – – 2,870,791 2,870,791 Park dedication – – – – – 1,466,116 1,466,116 Electric projects – – – – – 3,889,650 3,889,650 Cable TV – – – – – 68,690 68,690 Other purposes Solid waste grant – – – – – 45,131 45,131 Lodging tax – – – – – 124,950 124,950 Total restricted – – – – – 13,431,367 13,431,367 Debt Service Capital Projects -71- NOTE 12 – FUND BALANCES (CONTINUED) 2001/2008B Closed Refunding Future Nonmajor General Bond Improvement Road Capital Governmental Fund Issues Bonds Improvements Projects Funds Total Committed Home improvement guide 20,000 – – – – – 20,000 Aquatic center equipment 13,000 – – – – – 13,000 Comp plan update contract services 30,000 – – – – – 30,000 Chair replacement 3,046 – – – – – 3,046 Repairs to HVAC system – Police Department 120,000 – – – – – 120,000 Fire alarm system 15,100 – – – – – 15,100 Finance automation Laserfich and AP 5,805 – – – – – 5,805 Police training 8,000 – – – – – 8,000 Fire apparatus bay flooring 50,000 – – – – – 50,000 Fire day room chairs 5,000 – – – – – 5,000 HR office chairs 1,000 – – – – – 1,000 Public works snow and ice equipment 25,000 – – – – – 25,000 Redwood building security cameras 5,655 – – – – – 5,655 Aquatic center rental cabanas 5,130 – – – – – 5,130 Aquatic center point of sales system 6,900 – – – – – 6,900 Park maintenance training 1,700 – – – – – 1,700 Building inspection Avolve workflows 109,279 – – – – – 109,279 Redwood building diving board replacement 7,200 – – – – – 7,200 Police utility vehicle 31,100 – – – – – 31,100 Fire security camera 25,700 – – – – – 25,700 Fire station identification signs 41,800 – – – – – 41,800 Fire pluggie fire hydrant 6,200 – – – – – 6,200 HR Laserfiche system 5,000 – – – – – 5,000 Fleet Assetworks system 33,500 – – – – – 33,500 Fleet AV equipment 5,100 – – – – – 5,100 IT website refresh 15,000 – – – – – 15,000 Municipal building flooring replacement – – – – – 15,000 15,000 Total committed 595,215 – – – – 15,000 610,215 Assigned Administrative facilities study 50,000 – – – – – 50,000 Police vitals program 4,700 – – – – – 4,700 Police IBIS fingerprint 3,600 – – – – – 3,600 IT lighting improvements 6,000 – – – – – 6,000 Debt service – 9,440,666 – – – 853,975 10,294,641 Other capital projects – – – – 15,353,401 577,664 15,931,065 Police special projects – – – – – 174,776 174,776 Tree preservation – – – – – 366,134 366,134 Ponds – – – – – 246,191 246,191 Pathways and sidewalks – – – – – 252,981 252,981 Dodd Road – – – – – 239,284 239,284 Former City Hall building – – – – – 679,373 679,373 Capital building – – – – – 418,064 418,064 Park improvement development – – – – – 2,947 2,947 Physical improvement – – – – – 157,098 157,098 Fire capital purchases – – – – – 17,275 17,275 Total assigned 64,300 9,440,666 – – 15,353,401 3,985,762 28,844,129 Unassigned 16,351,616 – (2,846,426) (5,174,280) – (718,187) 7,612,723 Total 17,336,413$ 9,440,666$ (2,846,426)$ (5,174,280)$ 15,353,401$ 16,715,672$ 50,825,446$ Debt Service Capital Projects B. Minimum Fund Balance Policy The City Council has formally adopted a fund balance policy. The policy establishes the City will strive to maintain a minimum unassigned General Fund balance of 50.0 percent of the subsequent year’s budgeted expenditures. At December 31, 2017, the unassigned fund balance of the General Fund was 49.3 percent of the subsequent year’s budgeted expenditures, including transfers. -72- NOTE 13 – JOINT POWERS AGREEMENT WITH DAKOTA COUNTY In July 1987, the City and Dakota County (the County) entered into an agreement whereby the City and the County jointly acquired certain real estate for the purpose of building a library facility to serve the City and surrounding communities. The City’s portion of the cost of the property was $348,414. As part of this agreement, the City transferred its interest in the property to the Cou nty but maintains a lien for 30 years. If during this time, the County terminates its library use, the County will pay the City the unamortized cost of the property. NOTE 14 – TAX ABATEMENT AGREEMENTS The City, in order to spur economic development and redevelopment , has entered into private development and redevelopment agreements to encourage a developer to construct, expand, or improve new or existing properties and building or clean-up and redevelop blighted areas. The City has four agreements that would be considered a tax abatement under GASB Statement No. 77. The City is authorized to create a tax increment finance plan under Minnesota Statute s, Chapter 469.175. The criteria that must be met under the statutes are that, in the opinion of the municipality: • The proposed development or redevelopment would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future; • The increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less that the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the tax increment district permitted in the plan. The requirements of this item do not apply if the district is a housing district; • That the tax increment financing plan conforms to the general plan for the development or redevelopment of the municipality as a whole; and • That the tax increment financing plan will afford maximum opportunity, consistent with the sound needs of the municipality as a whole, for the development or redevelopment of the project by private enterprise. The City has entered into private development agreements regarding certain properties within a tax increment district. Included in the development agreement was the reimbursement of eligible development costs. The vehicle used for this reimbursement is called a tax increment revenue note. These notes provide for the payment of principal, equal to the developer’s eligible costs, plus interest at a set rate. Payments on the note will be made at the lesser of the note payment or a percent of the available tax increment received during the specific year as stated in the agreement. Payments are first applied to accrued interest and then to the principal balance. The notes are to be cancelled at the end of the term, whether or not the note has been repaid in full. The agreements are not a general obligation of the City and are payable solely from available tax increments, received from the property owner. The City’s position is that these are obligations to assign future and uncertain revenues sources and, as such, is not actual debt in substance. -73- NOTE 14 – TAX ABATEMENT AGREEMENTS (CONTINUED) The outstanding principal balances as of December 31, 2017 for these agreements are as follows: District Name Purpose Percentage of Taxes Returned During the Fiscal Year Amount of Taxes Returned During the Fiscal Year Outstanding Principal at Year-End Date of Required Decertification TIF No. 14 – Apple Valley Business Campus Construction of 147th St. and Felton Ct., 100,000 sq. ft. expansion of warehouse/office facilities and the addition of minimum of 40 full-time jobs. 89% $171,917 $1,545,459 12/31/2022 TIF No. 15 – Parkside Village – Gabella Housing district, including the construction of multi-family residential buildings of 196 units with 20% affordable units. 70% $181,701 $2,684,000 12/31/2041 TIF No. 16 – Uponor Creation of 86,000 sq. ft. of manufacturing facilities and the addition of 75 full-time jobs. 90% $51,099 $452,901 12/31/2025 TIF No. 17 – Karamella Creation of 73,000 sq. ft. manufacturing facilities and the addition of 76 full-time jobs. 0% $0 $736,000 12/31/2026 NOTE 15 – COMMITMENTS AND CONTINGENCIES A. Legal Claims The City has the usual and customary type of miscellaneous legal claims pending at year-end. Although the outcome of these lawsuits is not presently determinable, the City’s management believes that the City will not incur any material monetary loss resulting from these claims . No loss has been recorded on the City’s financial statements relating to these claims. B. Freeway Landfill In February 2017, the Environmental Protection Agency sent letters to potentially responsible parties (PRPs) related to the clean-up of the Freeway Landfill property under the federal Superfund Program. The State Legislature passed Laws 2017, Chapter 93, Article 2, Sections 124–128, which transferred liability from PRPs to the Minnesota Pollution Control Agency (PCA). The City continues to work with the PCA to secure funds for the closure of the landfill. C. Federal and State Funding Amounts recorded or receivable from federal and state agencies are subject to agency a udit and adjustment. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of claims which may be disallowed by the grantor agencies cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. -74- NOTE 15 – COMMITMENTS AND CONTINGENCIES (CONTINUED) D. Tax Increment Districts The City’s tax increment districts are subject to review by the state of Minnesota Office of the State Auditor. Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which would have a material effect on the financial statements. E. Construction Commitments At December 31, 2017, the City is committed to various construction contracts for the improvement of city property. The City’s remaining commitment under these contracts is approximately $6,500,000. F. Operating Lease On October 22, 2015, the City entered into an agreement to extend the existing liquor store building lease at Apple Valley Shopping Center with Time Square Shopping Center II, LLP for t hree years commencing February 1, 2016, and ending January 31, 2019 at a base rent of $11,000 per month. Lease expenditures for the year ending December 31, 2017 were $132,000. The following is a schedule by years of future minimum payments required under the leases as of December 31, 2017: Year Ending December 31, Amount 2018 132,000$ 2019 11,000 Total 143,000$ NOTE 16 – SUBSEQUENT EVENT In March 2018, the City entered into a capital lease for golf course equipment in the amount of $180,268 and a 4.95 percent interest rate. Annual payments will be made for $39,701 for five years. In March 2018, the City entered into a second capital lease for golf course equipment in the amount of $70,000 and a 7.0 percent interest rate. Annual payments will be made at a rate of $15,957 for five years. REQUIRED SUPPLEMENTARY INFORMATION Proportionate Share of the City’s Net Pension Proportionate Liability and City’s Share of the the City’s Proportionate Plan Fiduciary State of Share of the Share of the Net Position City’s City’s Minnesota’s State of Net Pension as a PERA Fiscal Proportion Proportionate Proportionate Minnesota’s Liability as a Percentage Year-End Date of the Net Share of the Share of the Share of the City’s Percentage of of the Total (Measurement Pension Net Pension Net Pension Net Pension Covered Covered Pension Date)Liability Liability Liability Liability Payroll Payroll Liability 06/30/2015 0.1634% 8,468,235$ –$ 8,468,235$ 9,603,176$ 88.18% 78.20% 06/30/2016 0.1561% 12,674,544$ 165,598$ 12,840,142$ 9,680,914$ 130.92% 68.90% 06/30/2017 0.1643% 10,488,804$ 131,924$ 10,620,728$ 10,539,668$ 99.52% 75.90% Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess)Payroll Payroll 750,987$ 750,987$ –$ 10,013,141$ 7.50% 741,397$ 741,397$ –$ 9,885,306$ 7.50% 768,029$ 768,029$ –$ 10,240,379$ 7.50% Note: CITY OF APPLE VALLEY Schedule of City’s and Nonemployer Proportionate Share of Net Pension Liability PERA – General Employees Retirement Fund Year Ended December 31, 2017 Schedule of City Contributions PERA – General Employees Retirement Fund City Fiscal Year-End Date 12/31/2015 12/31/2016 12/31/2017 12/31/2017 City Fiscal Year-End Date Year Ended December 31, 2017 The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2015 12/31/2016 -75- City’s Proportionate Plan Fiduciary Share of the Net Position City’s City’s Net Pension as a PERA Fiscal Proportion Proportionate Liability as a Percentage Year-End Date of the Net Share of the City’s Percentage of of the Total (Measurement Pension Net Pension Covered Covered Pension Date)Liability Liability Payroll Payroll Liability 06/30/2015 0.5150% 5,851,604$ 4,711,902$ 124.19% 86.60% 06/30/2016 0.5190% 20,828,373$ 4,976,069$ 418.57% 63.90% 06/30/2017 0.5110% 6,899,105$ 5,233,601$ 131.82% 85.40% Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess)Payroll Payroll 818,071$ 818,071$ –$ 5,049,825$ 16.20% 808,641$ 808,641$ –$ 4,991,606$ 16.20% 829,640$ 829,640$ –$ 5,121,237$ 16.20% Note: CITY OF APPLE VALLEY PERA – Public Employees Police and Fire Fund Year Ended December 31, 2017 PERA – Public Employees Police and Fire Fund The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2017 Schedule of City Contributions 12/31/2015 City Fiscal Year-End Date Date 12/31/2016 12/31/2017 12/31/2016 Year Ended December 31, 2017 Year-End City Fiscal Date 12/31/2015 -76- City fiscal year-end date December 31, 2017 December 31, 2016 December 31, 2015 Apple Valley Firefighters’ Relief Association year-end date (measurement date) December 31, 2016 December 31, 2015 December 31, 2014 Total pension liability Service cost 179,770$ 181,221$ 168,532$ Interest 402,119 398,162 369,565 Differences between expected and actual experience (23,940) 12,130 – Changes of assumptions (509,724) (209,787) – Change in benefit terms – – 265,088 Benefit payments (528,192) (600,659) (269,330) Net change in total pension liability (479,967) (218,933) 533,855 Total pension liability – beginning of year 6,270,772 6,489,705 5,955,850 Total pension liability – end of year 5,790,805$ 6,270,772$ 6,489,705$ Plan fiduciary net position Contributions (state and local) 546,408$ 477,537$ 526,217$ Net investment income 549,126 (219,523) 239,737 Benefit payments (528,192) (600,659) (269,330) Administrative costs (34,516) (35,434) (22,641) Net change in plan fiduciary net position 532,826 (378,079) 473,983 Plan fiduciary net position – beginning of year 6,049,005 6,427,084 5,953,101 Plan fiduciary net position – end of year 6,581,831$ 6,049,005$ 6,427,084$ Net pension liability (asset) – ending (791,026)$ 221,767$ 62,621$ Plan fiduciary net position as a percentage of the total pension liability 113.66% 96.46% 99.04% Note 1: Note 2: Schedule of Changes in the Relief Association’s Net Pension Liability and Related Ratios Apple Valley Firefighters’ Relief Association The City implemented GASB Statement No. 68 in fiscal 2015 (using a December 31, 2014 measurement date). This schedule is intended to present 10-year trend information. Additional years will be added as they become available. CITY OF APPLE VALLEY Changes in Actuarial Assumptions:(1) 2016 Changes – The discount rate was changed to reflect updated investment expectations. Disability decrements were added to reflect the disability benefit. Retirement rates were changed from 100 percent at age 50 with 20 years of service to a graded schedule. (2) 2017 Changes – The expected investment return and discount rate increased from 6.50 percent to 7.50 percent to reflect updated capital market assumptions. -77- Contributions in Relation to the Statutorily Statutorily Contribution Determined Determined Deficiency Contribution Contributions (Excess) 449,869$ 526,217$ (76,348)$ 338,049$ 477,537$ (139,488)$ 404,811$ 546,408$ (141,597)$ Note: 12/31/2015 The City implemented GASB Statement No.68 in fiscal 2015 (using a December 31,2014 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2016 CITY OF APPLE VALLEY Schedule of City Contributions Apple Valley Firefighters’ Relief Association City Fiscal Year-End Date 12/31/2017 -78- Unfunded Unfunded Actuarial Actuarial Liability as a Actuarial Accrued Actuarial Value Accrued Funded Covered Percentage of Valuation Date Liability of Plan Assets Liability Ratio Payroll Payroll January 1, 2016 1,966,565$ –$ 1,966,565$ –% 13,401,000$ 14.7% January 1, 2014 2,145,589$ –$ 2,145,589$ –% 12,506,433$ 17.2% January 1, 2012 2,131,117$ –$ 2,131,117$ –% 11,616,482$ 18.3% CITY OF APPLE VALLEY Other Post-Employment Benefits Plan Schedule of Funding Progress December 31, 2017 -79- CITY OF APPLE VALLEY Notes to Required Supplementary Information December 31, 2017 PERA – General Employees Retirement Fund -80- 2017 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60.0 percent for vested and nonvested deferred members. The revised CSA loads are now zero percent for active member liability, 15.0 percent for vested deferred member liability, and 3.0 percent for nonvested deferred member liability. • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years, to 1.0 percent per year through 2044, and 2.5 percent per year thereafter. 2016 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035, and 2.5 percent per year thereafter, to 1.0 percent per year for all years. • The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent. • Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. 2015 CHANGES CHANGES IN PLAN PROVISIONS: • On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Retirement 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 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2035, and 2.5 percent per year thereafter. CITY OF APPLE VALLEY Notes to Required Supplementary Information (continued) December 31, 2017 PERA – Public Employees Police and Fire Fund -81- 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 percent lower than the previous rates. • Assumed rates of retirement were changed, resulting in fewer retirements. • The CSA load was 30 percent for vested and nonvested deferred members. The CSA has been changed to 33 percent for vested members, and 2 percent for nonvested 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 3.0 percent 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 percent to 60 percent. • Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two 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 1.00 percent for all years, to 1.00 percent per year through 2064, and 2.50 percent thereafter. • The single discount rate changed from 5.60 percent to 7.50 percent. CITY OF APPLE VALLEY Notes to Required Supplementary Information (continued) December 31, 2017 PERA – Public Employees Police and Fire Fund -82- 2016 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2037, and 2.5 percent thereafter, to 1.0 percent per year for all future years. • The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate changed from 7.9 percent to 5.6 percent. • The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. 2015 CHANGES CHANGES IN PLAN PROVISIONS: • The post-retirement benefit increase to be paid after attainment of the 90.0 percent funding threshold was changed, from inflation up to 2.5 percent, to a fixed rate of 2.5 percent CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2037, and 2.5 percent per year thereafter. THIS PAGE INTENTIONALLY LEFT BLANK SUPPLEMENTARY INFORMATION THIS PAGE INTENTIONALLY LEFT BLANK COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Special Debt Capital Revenue Service Projects Total Assets Cash and investments 416,122$ 5,002,878$ 13,144,227$ 18,563,227$ Receivables Accounts 8,483 4,000 161,999 174,482 Special assessments Current – 279,449 94,834 374,283 Delinquent – 781 – 781 Deferred – 1,007,149 514,971 1,522,120 Due from other governmental units 1,148 – – 1,148 Prepaids 1,730 – – 1,730 Total assets 427,483$ 6,294,257$ 13,916,031$ 20,637,771$ Liabilities Accrued salaries payable 5,058$ –$ 72$ 5,130$ Accounts payable 7,026 841 921,761 929,628 Contracts payable – – 311,650 311,650 Due to other funds – 189,301 13,206 202,507 Advances from other funds – – 576,000 576,000 Total liabilities 12,084 190,142 1,822,689 2,024,915 Deferred inflows of resources Unavailable revenue – special assessments – 1,287,379 609,805 1,897,184 Fund balances (deficit) Nonspendable 1,730 – – 1,730 Restricted 413,669 4,152,062 8,865,636 13,431,367 Committed – – 15,000 15,000 Assigned – 853,975 3,131,787 3,985,762 Unassigned – (189,301) (528,886) (718,187) Total fund balances 415,399 4,816,736 11,483,537 16,715,672 Total liabilities, deferred inflows of resources, and fund balances 427,483$ 6,294,257$ 13,916,031$ 20,637,771$ CITY OF APPLE VALLEY Nonmajor Governmental Funds Combining Balance Sheet as of December 31, 2017 -83- Special Debt Capital Revenue Service Projects Total Revenues Taxes –$ 1,393,830$ 346,674$ 1,740,504$ Other taxes 92,958 – – 92,958 Franchise taxes – – 773,181 773,181 Special assessments – 334,563 524,859 859,422 Intergovernmental – – 248,362 248,362 Investment earnings 3,619 142,098 95,711 241,428 Other 145,479 – 857,390 1,002,869 Total revenues 242,056 1,870,491 2,846,177 4,958,724 Expenditures Current General government 104,043 34,457 649,978 788,478 Public safety 14,208 – 7,943 22,151 Public works 15,299 – 11,312 26,611 Parks and recreation 226,113 – 88,769 314,882 Capital outlay 90,539 – 2,654,845 2,745,384 Debt service Principal – 3,425,000 – 3,425,000 Interest and fiscal charges – 894,010 38,936 932,946 Total expenditures 450,202 4,353,467 3,451,783 8,255,452 Excess (deficiency) of revenues over expenditures (208,146) (2,482,976) (605,606) (3,296,728) Other financing sources (uses) Sale of capital assets 32,670 – – 32,670 Payment on refunded bond – (11,925,000) – (11,925,000) Transfers in 57,289 976,336 359,000 1,392,625 Transfers (out)– (775,000) (73,625) (848,625) Total other financing sources (uses)89,959 (11,723,664) 285,375 (11,348,330) Net change in fund balances (118,187) (14,206,640) (320,231) (14,645,058) Fund balances Beginning of year 533,586 19,023,376 11,803,768 31,360,730 End of year 415,399$ 4,816,736$ 11,483,537$ 16,715,672$ CITY OF APPLE VALLEY Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -84- THIS PAGE INTENTIONALLY LEFT BLANK -85- NONMAJOR SPECIAL REVENUE FUNDS Nonmajor special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. Nonmajor special revenue funds presently established are as follows: • Cable TV Fund – Accounts for the operating costs of the cable TV functions funded by cable franchise fees. • Solid Waste Grant Fund – Accounts for the expenses related to recycling activities and the semiannual cleanup day funded by grants from Dakota County. • Police Forfeiture Fund – Administers the resources received through court-ordered forfeitures. • EDA Operations Fund – Accounts for the operating activities of the Apple Valley Economic Development Authority. • Lodging Tax Fund – Administers the resources received from the lodging tax process. Solid Waste Police Cable TV Grant Forfeiture (2010)(2040)(2060) Assets Cash and investments 74,131$ 45,131$ 49,219$ Receivables Accounts 307 – – Due from other governmental units – – 1,148 Prepaids 1,730 – – Total assets 76,168$ 45,131$ 50,367$ Liabilities Accrued salaries payable 5,058$ –$ –$ Accounts payable 690 – – Total liabilities 5,748 – – Fund balances Nonspendable 1,730 – – Restricted 68,690 45,131 50,367 Total fund balances 70,420 45,131 50,367 Total liabilities and fund balances 76,168$ 45,131$ 50,367$ CITY OF APPLE VALLEY Nonmajor Special Revenue Funds Combining Balance Sheet as of December 31, 2017 -86- EDA Lodging Operations Tax (3210)(7000)Totals 124,531$ 123,110$ 416,122$ – 8,176 8,483 – – 1,148 – – 1,730 124,531$ 131,286$ 427,483$ –$ –$ 5,058$ – 6,336 7,026 – 6,336 12,084 – – 1,730 124,531 124,950 413,669 124,531 124,950 415,399 124,531$ 131,286$ 427,483$ -87- Solid Waste Police Cable TV Grant Forfeiture (2010)(2040)(2060) Revenues Other taxes –$ –$ –$ Investment earnings 1,246 374 193 Other revenue Miscellaneous 118,859 7,990 18,630 Total revenues 120,105 8,364 18,823 Expenditures Current General government – – – Public safety – – 14,208 Public works – 15,299 – Parks and recreation 226,113 – – Capital outlay 91,687 – (1,148) Total expenditures 317,800 15,299 13,060 Excess (deficiency) of revenue over expenditures (197,695) (6,935) 5,763 Other financing sources Sale of capital assets 1,114 – 31,556 Transfers in 57,289 – – Total other financing sources 58,403 – 31,556 Net change in fund balances (139,292) (6,935) 37,319 Fund balances Beginning of year 209,712 52,066 13,048 End of year 70,420$ 45,131$ 50,367$ CITY OF APPLE VALLEY Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -88- EDA Lodging Operations Tax (3210)(7000)Totals –$ 92,958$ 92,958$ 937 869 3,619 – – 145,479 937 93,827 242,056 18,501 85,542 104,043 – – 14,208 – – 15,299 – – 226,113 – – 90,539 18,501 85,542 450,202 (17,564) 8,285 (208,146) – – 32,670 – – 57,289 – – 89,959 (17,564) 8,285 (118,187) 142,095 116,665 533,586 124,531$ 124,950$ 415,399$ -89- THIS PAGE INTENTIONALLY LEFT BLANK -90- NONMAJOR DEBT SERVICE FUNDS Nonmajor debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal, interest, and related costs on long-term debt of governmental funds. The individual nonmajor debt service funds presented are to distinguish between the various bond issues. 2003/2009A Improvement Improvement Refunding Improvement G.O. Closed Bonds Bonds Improvement Bonds Bond Issues of 2006 of 2007 Bonds of 2010 (3075)(3330)(3340)(3305)(3320) Assets Cash and investments 853,975$ 581,999$ 725,013$ 733,213$ –$ Receivables Special assessments Current – 115,652 13,635 – 20,162 Delinquent – 710 71 – – Deferred – 416,083 40,905 – 20,161 Accounts – – – – – Total assets 853,975$ 1,114,444$ 779,624$ 733,213$ 40,323$ Liabilities Accounts payable –$ –$ –$ –$ –$ Due to other funds – – – – 189,301 Total liabilities – – – – 189,301 Deferred inflows of resources Unavailable revenue – special assessments – 532,445 54,611 – 40,323 Fund balances (deficit) Restricted – 581,999 725,013 733,213 – Assigned 853,975 – – – – Unassigned – – – – (189,301) Total fund balances (deficit)853,975 581,999 725,013 733,213 (189,301) Total liabilities, deferred inflows of resources, and fund balances 853,975$ 1,114,444$ 779,624$ 733,213$ 40,323$ CITY OF APPLE VALLEY Nonmajor Debt Service Funds Combining Balance Sheet as of December 31, 2017 -91- Taxable Tax Tax Taxable Increment Tax Increment Tax Refunding Increment G.O.G.O. Park Economic Downtown Increment Bonds of Fischer Park Bonds Bonds Development Redevelopment Bonds of 2003 1985–1992A Marketplace of 2007 of 2008 (3215)(3260)(3270)(3220)(3275)(3345)(3355) –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 208,170$ – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,000 –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 212,170$ –$ –$ –$ –$ 841$ –$ –$ – – – – – – – – – – – 841 – – – – – – – – – – 180,506 1,106,969 – – 215,119 212,170 – – – – – – – – – – – – – – – 180,506 1,106,969 – – 215,119 212,170 –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 212,170$ -92-(continued) G.O.G.O.G.O. G.O. Park Equipment Refunding Improvement Refunding Bonds Certificates Bonds Bonds Bonds of 2011 of 2012 of 2012 of 2012 of 2013 (3360)(3370)(3375)(3380)(3385) Assets Cash and investments 47,172$ 36,389$ 184,014$ 45,804$ 15,334$ Receivables Special assessments Current – – – 130,000 – Delinquent – – – – – Deferred – – – 530,000 – Accounts – – – – – Total assets 47,172$ 36,389$ 184,014$ 705,804$ 15,334$ Liabilities Accounts payable –$ –$ –$ –$ –$ Due to other funds – – – – – Total liabilities – – – – – Deferred inflows of resources Unavailable revenue – special assessments – – – 660,000 – Fund balances (deficit) Restricted 47,172 36,389 184,014 45,804 15,334 Assigned – – – – – Unassigned – – – – – Total fund balances (deficit)47,172 36,389 184,014 45,804 15,334 Total liabilities, deferred inflows of resources, and fund balances 47,172$ 36,389$ 184,014$ 705,804$ 15,334$ Nonmajor Debt Service Funds Combining Balance Sheet (continued) as of December 31, 2017 CITY OF APPLE VALLEY -93- G.O.G.O. Equipment G.O.Equipment Certificates Park Bonds Certificates of 2014 of 2015 of 2015 (3390)(3395)(3400)Total 24,833$ 30,873$ 12,654$ 5,002,878$ – – – 279,449 – – – 781 – – – 1,007,149 – – – 4,000 24,833$ 30,873$ 12,654$ 6,294,257$ –$ –$ –$ 841$ – – – 189,301 – – – 190,142 – – – 1,287,379 24,833 30,873 12,654 4,152,062 – – – 853,975 – – – (189,301) 24,833 30,873 12,654 4,816,736 24,833$ 30,873$ 12,654$ 6,294,257$ -94- 2003/2009A Improvement Improvement Refunding Improvement G.O. Closed Bonds Bonds Improvement Bonds Bond Issues of 2006 of 2007 Bonds of 2010 (3075)(3330)(3340)(3305)(3320) Revenues Taxes –$ –$ –$ –$ –$ Special assessments – 149,879 17,738 – 36,946 Investment earnings 11,327 3,721 17,030 5,149 730 Total revenues 11,327 153,600 34,768 5,149 37,676 Expenditures Current General government – – – – – Debt service Principal – – 1,575,000 – – Interest and fiscal charges – – 63,976 – – Total expenditures – – 1,638,976 – – Excess (deficiency) of revenue over expenditures 11,327 153,600 (1,604,208) 5,149 37,676 Other financing sources (uses) Payment on refunded bond – – – – – Transfers in 16,336 – – – – Transfers (out)(775,000) – – – – Total other financing sources (uses)(758,664) – – – – Net change in fund balances (747,337) 153,600 (1,604,208) 5,149 37,676 Fund balances (deficit) Beginning of year 1,601,312 428,399 2,329,221 728,064 (226,977) End of year 853,975$ 581,999$ 725,013$ 733,213$ (189,301)$ CITY OF APPLE VALLEY Nonmajor Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -95- Taxable Tax Tax Taxable Increment Tax Increment Tax Refunding Increment G.O.G.O. Park Economic Downtown Increment Bonds of Fischer Park Bonds Bonds Development Redevelopment Bonds of 2003 1985–1992A Marketplace of 2007 of 2008 (3215)(3260)(3270)(3220)(3275)(3345)(3355) –$ –$ –$ –$ –$ 435,000$ 435,000$ – – – – – – – 209 1,289 7,774 17 – 1,223 1,234 209 1,289 7,774 17 – 436,223 436,234 26,054 2,947 – 4,706 – – – – – – – – 175,000 185,000 – – – – – 232,405 230,353 26,054 2,947 – 4,706 – 407,405 415,353 (25,845) (1,658) 7,774 (4,689) – 28,818 20,881 – – – – – – – – – – – – – – – – – – – – – – – – – – – – (25,845) (1,658) 7,774 (4,689) – 28,818 20,881 25,845 182,164 1,099,195 4,689 – 186,301 191,289 –$ 180,506$ 1,106,969$ –$ –$ 215,119$ 212,170$ -96-(continued) G.O.G.O.G.O. G.O. Park Equipment Refunding Improvement Refunding Bonds Certificates Bonds Bonds Bonds of 2011 of 2012 of 2012 of 2012 of 2013 (3360)(3370)(3375)(3380)(3385) Revenues Taxes 92,000$ 181,000$ –$ –$ –$ Special assessments – – – 130,000 – Investment earnings 302 362 1,484 323 59,970 Total revenues 92,302 181,362 1,484 130,323 59,970 Expenditures Current General government – 440 – 310 – Debt service Principal 50,000 175,000 935,000 110,000 – Interest and fiscal charges 39,063 12,900 18,700 13,900 185,613 Total expenditures 89,063 188,340 953,700 124,210 185,613 Excess (deficiency) of revenue over expenditures 3,239 (6,978) (952,216) 6,113 (125,643) Other financing sources (uses) Payment on refunded bond – – – – (8,375,000) Transfers in – – 960,000 – – Transfers (out)– – – – – Total other financing sources (uses)– – 960,000 – (8,375,000) Net change in fund balances 3,239 (6,978) 7,784 6,113 (8,500,643) Fund balances (deficit) Beginning of year 43,933 43,367 176,230 39,691 8,515,977 End of year 47,172$ 36,389$ 184,014$ 45,804$ 15,334$ Nonmajor Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 CITY OF APPLE VALLEY -97- G.O.G.O. Equipment G.O.Equipment Certificates Park Bonds Certificates of 2014 of 2015 of 2015 (3390)(3395)(3400)Total 120,000$ –$ 130,830$ 1,393,830$ – – – 334,563 169 29,706 79 142,098 120,169 29,706 130,909 1,870,491 – – – 34,457 105,000 – 115,000 3,425,000 9,900 77,600 9,600 894,010 114,900 77,600 124,600 4,353,467 5,269 (47,894) 6,309 (2,482,976) – (3,550,000) – (11,925,000) – – – 976,336 – – – (775,000) – (3,550,000) – (11,723,664) 5,269 (3,597,894) 6,309 (14,206,640) 19,564 3,628,767 6,345 19,023,376 24,833$ 30,873$ 12,654$ 4,816,736$ -98- -99- NONMAJOR CAPITAL PROJECTS FUNDS Nonmajor capital projects funds used are to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition and construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital-related outflows financed by proprietary funds. Nonmajor capital projects funds presently established are as follows: • Equipment Certificates Fund – Accounts for purchases of equipment financed with the issuance of equipment certificates. • Park Dedication Fund – Accounts for expenditures for the expansion of the City’s park facilities funded by the collection of park dedication fees charged to developing property. • Police Special Projects Fund – Accounts for police department projects funded with specific funding sources. • Police 911 Fund – Accounts for costs funded by the fees received from the 911 system. • Tree Preservation Fund – Accounts for the amounts received in the development process related to tree preservation efforts. • Pond Fund – Accounts for the amounts received in the development process related to ponding efforts on privately-developed projects. • Pathways and Sidewalks Fund – Accounts for the amounts received in the development process related to pathways and sidewalk development efforts. • Dodd Road Fund – Accounts for the amounts received from the development process on Dodd Road. • Former City Hall Building Fund – Accounts for the costs and revenues associated with the use of the former City Hall building. • Capital Building Fund – Accounts for the cost of the construction of the municipal center and other city facilities. • Park Improvement Development Fund – Accounts for park improvement costs in the development process. • C.I.P. Development Fund – Accounts for the proceeds from and expenses related to the Fraser land sale. • 2012 Improvement Construction Fund – Accounts for the improvements initiated in 2012 to be funded with development charges or developer reimbursements. • Cable Capital Equipment Fund – Accounts for capital equipment needs of the cable TV function funded with portions of the cable franchise fees. • Cable Capital Equipment/PEG Fund – Accounts for capital equipment needs of the cable TV function funded with the cable PEG fees. • Physical Improvement Fund – Accounts for developer projects funded by developers. -100- NONMAJOR CAPITAL PROJECTS FUNDS (CONTINUED) • Private Development Fund – Accounts for developer projects funded by developers. • 2003 Improvement Construction Fund – Accounts for the improvements funded with the 2003 General Obligation Bonds. • Electric Franchise Fee Fund – Accounts for project costs and revenues associated with the electric franchise fee. • 2007 Park Bond Fund – Accounts for the improvements funded with the Park Bonds of 2007 and 2008. • Fire Grants Project Fund – Accounts for Fire Department projects funded with specific funding sources. • TIF District No. 7 Fund – Accounts for project costs included within TIF District No. 7. • TIF District No. 1 Fund – Accounts for project costs included within TIF District No. 1. • TIF District No. 15 Parkside Village Fund – Accounts for project costs included within TIF District No. 15 Parkside Village. • TIF District No. 16 Uponor Fund – Accounts for project costs included within TIF District No. 16. • TIF District No. 14 Business Campus Fund – Accounts for project costs included within TIF District No. 14 – Apple Valley Business Campus. • Construction Projects Fund – This fund accounts for development projects, the costs of which will be recovered through the development process, including specially assessing the benefiting properties. Equipment Park Police Special Tree Certificates Dedication Projects Police 911 Preservation (2005)(2015)(2055)(2065)(2070) Assets Cash and investments –$ 1,640,659$ 174,776$ –$ 366,134$ Receivables Accounts – – – – – Special assessments Current – – – – – Deferred – – – – – Total assets –$ 1,640,659$ 174,776$ –$ 366,134$ Liabilities Accounts payable –$ 5,348$ –$ –$ –$ Accrued salaries payable – – – – – Contracts payable – 169,195 – – – Due to other funds – – – – – Advances from other funds – – – – – Total liabilities – 174,543 – – – Deferred inflows of resources Unavailable revenue – special assessments – – – – – Fund balances (deficit) Restricted – 1,466,116 – – – Committed – – – – – Assigned – – 174,776 – 366,134 Unassigned – – – – – Total fund balances (deficit)– 1,466,116 174,776 – 366,134 Total liabilities, deferred inflows of resources, and fund balances –$ 1,640,659$ 174,776$ –$ 366,134$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Balance Sheet as of December 31, 2017 -101- Former Park Pathways and City Hall Capital Improvement C.I.P. Pond Sidewalks Dodd Road Building Building Development Development (2075)(2080)(2085)(2090)(4000)(4010)(4045) 246,191$ 252,981$ 239,284$ 758,186$ 450,586$ 2,947$ 265,055$ – – – 4,300 – – – – – – – – – – – – – – – – – 246,191$ 252,981$ 239,284$ 762,486$ 450,586$ 2,947$ 265,055$ –$ –$ –$ 11,400$ 10,447$ –$ –$ – – – – – – – – – – 58,507 7,075 – – – – – 13,206 – – – – – – – – – – – – – 83,113 17,522 – – – – – – – – – – – – – – – – – – – – 15,000 – – 246,191 252,981 239,284 679,373 418,064 2,947 265,055 – – – – – – – 246,191 252,981 239,284 679,373 433,064 2,947 265,055 246,191$ 252,981$ 239,284$ 762,486$ 450,586$ 2,947$ 265,055$ -102-(continued) 2012 Improvement Cable Capital Cable Capital Physical Private Construction Equipment Equipment/PEG Improvement Development (4715)(4800)(4810)(4900)(4920) Assets Cash and investments 25,368$ 578,554$ 46,414$ 219,179$ 129,780$ Receivables Accounts – – 14,880 – – Special assessments Current – – – – – Deferred – – – – – Total assets 25,368$ 578,554$ 61,294$ 219,179$ 129,780$ Liabilities Accounts payable –$ 697$ –$ 62,081$ –$ Accrued salaries payable – 72 – – – Contracts payable – – – – – Due to other funds – – – – – Advances from other funds – – – – – Total liabilities – 769 – 62,081 – Deferred inflows of resources Unavailable revenue – special assessments – – – – – Fund balances (deficit) Restricted – 577,785 61,294 – – Committed – – – – – Assigned 25,368 – – 157,098 129,780 Unassigned – – – – – Total fund balances (deficit)25,368 577,785 61,294 157,098 129,780 Total liabilities, deferred inflows of resources, and fund balances 25,368$ 578,554$ 61,294$ 219,179$ 129,780$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Balance Sheet (continued) as of December 31, 2017 -103- 2003 TIF District Improvement Electric 2007 Fire Grants TIF District TIF District No. 15 Construction Franchise Fee Park Bond Project No. 7 No. 1 Parkside Village (4300)(4750)(4935)(7600)(4710)(4730)(4740) 121,909$ 3,754,497$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ – 135,153 – – – – – – – – – – – – – – – – – – – 121,909$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ 24,943$ –$ –$ –$ –$ –$ 90,851$ – – – – – – – – – – – – – – – – – – – – – – – – – – – 576,000 24,943 – – – – – 666,851 – – – – – – – – 3,889,650 – – 1,823,587 911,987 – – – – – – – – 96,966 – – 17,275 – – – – – – – – – (528,886) 96,966 3,889,650 – 17,275 1,823,587 911,987 (528,886) 121,909$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ -104-(continued) THIS PAGE INTENTIONALLY LEFT BLANK TIF District TIF District No. 16 No. 14 Construction Uponor Business Campus Projects (4743)(4735)(4500)Total Assets Cash and investments 4,672$ 130,545$ 845,696$ 13,144,227$ Receivables Accounts – – 7,666 161,999 Special assessments Current – – 94,834 94,834 Deferred – – 514,971 514,971 Total assets 4,672$ 130,545$ 1,463,167$ 13,916,031$ Liabilities Accounts payable –$ –$ 715,994$ 921,761$ Accrued salaries payable – – – 72 Contracts payable – – 76,873 311,650 Due to other funds – – – 13,206 Advances from other funds – – – 576,000 Total liabilities – – 792,867 1,822,689 Deferred inflows of resources Unavailable revenue – special assessments – – 609,805 609,805 Fund balances (deficit) Restricted 4,672 130,545 – 8,865,636 Committed – – – 15,000 Assigned – – 60,495 3,131,787 Unassigned – – – (528,886) Total fund balances (deficit)4,672 130,545 60,495 11,483,537 Total liabilities, deferred inflows of resources, and fund balances 4,672$ 130,545$ 1,463,167$ 13,916,031$ Nonmajor Capital Projects Funds Combining Balance Sheet (continued) as of December 31, 2017 CITY OF APPLE VALLEY -105- Equipment Park Police Special Tree Certificates Dedication Projects Police 911 Preservation (2005)(2015)(2055)(2065)(2070) Revenues Taxes (abatements)–$ –$ –$ –$ –$ Franchise taxes – – – – – Intergovernmental – – – – – Investment earnings 320 12,723 1,227 88 2,572 Special assessments – – – – – Other revenue Contributions – – 1,600 – – Rentals – – – – – Miscellaneous – 169,375 90 – – Total revenues 320 182,098 2,917 88 2,572 Expenditures Current General government – – – – – Public safety – – 2,943 5,000 – Public works – – – – – Parks and recreation – 88,769 – – – Capital outlay – 464,152 – – – Debt service Interest and fiscal charges – – – – – Total expenditures – 552,921 2,943 5,000 – Excess (deficiency) of revenue over expenditures 320 (370,823) (26) (4,912) 2,572 Other financing sources (uses) Transfers in – – – – – Transfers (out)(16,336) – – – – Total other financing sources (uses)(16,336) – – – – Net change in fund balances (16,016) (370,823) (26) (4,912) 2,572 Fund balances (deficit) Beginning of year 16,016 1,836,939 174,802 4,912 363,562 End of year –$ 1,466,116$ 174,776$ –$ 366,134$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -106- Former Park Pathways and City Hall Capital Improvement C.I.P. Pond Sidewalks Dodd Road Building Building Development Development (2075)(2080)(2085)(2090)(4000)(4010)(4045) –$ –$ –$ –$ –$ –$ –$ – – – – – – – – – – – – – – 1,727 1,778 1,681 5,705 3,684 22 1,862 – – – – – – – – – – – – – – – – – 133,300 – – – – – – – 130 – – 1,727 1,778 1,681 139,005 3,814 22 1,862 – – – 241,603 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 445,759 – – – – – – – – – – – – 241,603 445,759 – – 1,727 1,778 1,681 (102,598) (441,945) 22 1,862 – – – – 359,000 – – – – – – – – – – – – – 359,000 – – 1,727 1,778 1,681 (102,598) (82,945) 22 1,862 244,464 251,203 237,603 781,971 516,009 2,925 263,193 246,191$ 252,981$ 239,284$ 679,373$ 433,064$ 2,947$ 265,055$ -107-(continued) 2012 Improvement Cable Capital Cable Capital Physical Private Construction Equipment Equipment/PEG Improvement Development (4715)(4800)(4810)(4900)(4920) Revenues Taxes (abatements)–$ –$ –$ –$ –$ Franchise taxes – 136,474 61,252 – – Intergovernmental – – – – – Investment earnings 181 3,818 42 2,143 914 Special assessments – – – – – Other revenue Contributions – – – – – Rentals – – – – – Miscellaneous – – – 2,707 – Total revenues 181 140,292 61,294 4,850 914 Expenditures Current General government – – – – – Public safety – – – – – Public works – 9,255 – – – Parks and recreation – – – – – Capital outlay – 34,090 – – – Debt service Interest and fiscal charges – – – – – Total expenditures – 43,345 – – – Excess (deficiency) of revenue over expenditures 181 96,947 61,294 4,850 914 Other financing sources (uses) Transfers in – – – – – Transfers (out)– (57,289) – – – Total other financing sources (uses)– (57,289) – – – Net change in fund balances 181 39,658 61,294 4,850 914 Fund balances (deficit) Beginning of year 25,187 538,127 – 152,248 128,866 End of year 25,368$ 577,785$ 61,294$ 157,098$ 129,780$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 -108- 2003 TIF District Improvement Electric 2007 Fire Grants TIF District TIF District No. 15 Construction Franchise Fee Park Bond Project No. 7 No. 1 Parkside Village (4300)(4750)(4935)(7600)(4710)(4730)(4740) –$ –$ –$ –$ –$ (162,526)$ 259,573$ – 575,455 – – – – – – – 248,362 – – – – 856 23,254 2,631 139 12,809 7,709 149 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 856 598,709 250,993 139 12,809 (154,817) 259,722 – – – – – – 182,710 – – – – – – – 2,057 – – – – – – – – – – – – – – – 477,753 10,330 – 10,906 – – – – – – – 38,936 2,057 – 477,753 10,330 – 10,906 221,646 (1,201) 598,709 (226,760) (10,191) 12,809 (165,723) 38,076 – – – – – – – – – – – – – – – – – – – – – (1,201) 598,709 (226,760) (10,191) 12,809 (165,723) 38,076 98,167 3,290,941 226,760 27,466 1,810,778 1,077,710 (566,962) 96,966$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ (528,886)$ -109-(continued) THIS PAGE INTENTIONALLY LEFT BLANK TIF District TIF District No. 16 No. 14 Construction Uponor Business Campus Projects (4743)(4735)(4500)Total Revenues Taxes (abatements)56,776$ 192,851$ –$ 346,674$ Franchise taxes – – – 773,181 Intergovernmental – – – 248,362 Investment earnings 3 299 7,375 95,711 Special assessments – – 524,859 524,859 Other revenue Contributions – – – 1,600 Rentals – – – 133,300 Miscellaneous – – 550,188 722,490 Total revenues 56,779 193,150 1,082,422 2,846,177 Expenditures Current General government 52,107 173,558 – 649,978 Public safety – – – 7,943 Public works – – – 11,312 Parks and recreation – – – 88,769 Capital outlay – – 1,211,855 2,654,845 Debt service Interest and fiscal charges – – – 38,936 Total expenditures 52,107 173,558 1,211,855 3,451,783 Excess (deficiency) of revenue over expenditures 4,672 19,592 (129,433) (605,606) Other financing sources (uses) Transfers in – – – 359,000 Transfers (out)– – – (73,625) Total other financing sources (uses)– – – 285,375 Net change in fund balances 4,672 19,592 (129,433) (320,231) Fund balances (deficit) Beginning of year – 110,953 189,928 11,803,768 End of year 4,672$ 130,545$ 60,495$ 11,483,537$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 -110- Over (Under) Original Final Actual Budget Revenue Taxes Current 23,154,170$ 23,259,170$ 23,219,572$ (39,598)$ Delinquent 100,000 100,000 116,258 16,258 Total taxes 23,254,170 23,359,170 23,335,830 (23,340) Other taxes 102,300 102,300 89,419 (12,881) Franchise taxes 515,000 515,000 515,245 245 Special assessments 14,000 14,000 2,711 (11,289) Licenses and permits General government 162,475 162,475 191,612 29,137 Public safety 5,400 5,400 21,410 16,010 Public works 1,201,100 1,317,100 3,031,632 1,714,532 Total licenses and permits 1,368,975 1,484,975 3,244,654 1,759,679 Intergovernmental Federal grants General government 2,500 2,500 – (2,500) State grants PERA aid 36,000 36,000 44,916 8,916 Fire relief aid – public safety 281,030 281,030 283,581 2,551 Police relief aid – public safety 340,000 340,000 420,565 80,565 Other – public safety 47,000 47,000 82,846 35,846 Total intergovernmental 706,530 706,530 831,908 125,378 Charges for services Administration charges – general government Construction funds 69,200 69,200 196,149 126,949 Enterprise funds 750,230 750,230 750,230 – Investment charges – general government 120,000 120,000 120,000 – Engineering charges – public works – construction 818,000 818,000 667,485 (150,515) General government 30,910 30,910 13,117 (17,793) Public safety 236,200 236,200 222,482 (13,718) Public works 15,800 15,800 33,079 17,279 Parks and recreation 1,033,100 1,033,100 960,227 (72,873) Total charges for services 3,073,440 3,073,440 2,962,769 (110,671) Fines and forfeitures 279,500 279,500 315,087 35,587 Investment earnings 185,600 185,600 91,352 (94,248) Other Rentals – recreation 406,800 406,800 483,850 77,050 Rentals – other 180,000 180,000 220,360 40,360 Refunds and reimbursements 61,200 61,200 68,257 7,057 Donations – – 2,160 2,160 Miscellaneous 25,900 25,900 36,211 10,311 Total other 673,900 673,900 810,838 136,938 Total revenue 30,173,415 30,394,415 32,199,813 1,805,398 Budgeted Amounts CITY OF APPLE VALLEY General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -111-(continued) Over (Under) Original Final Actual Budget Expenditures General government Mayor and City Council Personal services 119,100 119,100 115,567 (3,533) Supplies 655 655 966 311 Other current expenditures 31,275 31,275 21,569 (9,706) Total Mayor and City Council 151,030 151,030 138,102 (12,928) Administration Personal services 435,665 435,665 427,351 (8,314) Supplies 265 265 26 (239) Other current expenditures 17,325 17,325 13,027 (4,298) Total administration 453,255 453,255 440,404 (12,851) Finance and data processing Personal services 588,825 578,925 550,927 (27,998) Supplies 10,620 10,620 8,212 (2,408) Other current expenditures 316,198 319,863 310,687 (9,176) Total finance and data processing 915,643 909,408 869,826 (39,582) Information technology Personal services 428,805 398,805 340,137 (58,668) Supplies 11,000 11,000 8,631 (2,369) Other current expenditures 207,090 231,090 117,516 (113,574) Capital outlay 145,200 225,200 177,157 (48,043) Total information technology 792,095 866,095 643,441 (222,654) Human resources Personal services 496,490 496,490 497,399 909 Supplies 650 650 529 (121) Other current expenditures 64,530 71,030 55,194 (15,836) Capital outlay 1,750 1,750 762 (988) Total human resources 563,420 569,920 553,884 (16,036) City clerk/elections Personal services 208,645 208,645 197,108 (11,537) Supplies 1,750 1,750 1,782 32 Other current expenditures 84,723 86,623 78,579 (8,044) Capital outlay – 5,000 1,954 (3,046) Total city clerk/elections 295,118 302,018 279,423 (22,595) Legal Other current expenditures 529,986 529,986 503,924 (26,062) General government buildings Personal services 186,105 186,105 180,144 (5,961) Supplies 25,300 29,000 22,741 (6,259) Other current expenditures 178,675 178,675 172,941 (5,734) Capital outlay – 46,000 51,345 5,345 Total general government buildings 390,080 439,780 427,171 (12,609) Budget and Actual (continued) CITY OF APPLE VALLEY General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budgeted Amounts -112-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) General government (continued) Community development Personal services 602,265 602,265 593,485 (8,780) Supplies 900 900 504 (396) Other current expenditures 114,725 144,725 156,208 11,483 Total community development 717,890 747,890 750,197 2,307 Code enforcement Personal services 209,725 209,725 196,007 (13,718) Supplies 3,000 2,700 1,403 (1,297) Other current expenditures 37,400 37,400 10,714 (26,686) Total code enforcement 250,125 249,825 208,124 (41,701) Unallocated Personal services 6,200 6,200 11,976 5,776 Other current expenditures 386,149 386,149 321,976 (64,173) Total unallocated 392,349 392,349 333,952 (58,397) Total general government 5,450,991 5,611,556 5,148,448 (463,108) Public safety Police protection Personal services 7,395,380 7,339,180 7,338,858 (322) Supplies 219,450 209,450 202,681 (6,769) Other current expenditures 1,398,742 1,424,942 1,365,034 (59,908) Capital outlay – 186,000 76,461 (109,539) Total police protection 9,013,572 9,159,572 8,983,034 (176,538) Fire protection Personal services 1,185,716 1,177,016 1,058,170 (118,846) Supplies 102,718 107,918 94,241 (13,677) Other current expenditures 631,776 677,106 564,211 (112,895) Total fire protection 1,920,210 1,962,040 1,716,622 (245,418) Fire relief Other current expenditures 526,230 526,230 527,531 1,301 Civil defense Supplies 2,000 2,000 724 (1,276) Other current expenditures 18,185 18,185 16,722 (1,463) Total civil defense 20,185 20,185 17,446 (2,739) Animal control Personal services 87,190 87,190 74,899 (12,291) Supplies 6,625 6,625 5,660 (965) Other current expenditures 8,650 8,650 4,462 (4,188) Total animal control 102,465 102,465 85,021 (17,444) Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) Year Ended December 31, 2017 Budgeted Amounts CITY OF APPLE VALLEY General Fund -113-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) Public safety (continued) Building inspection Personal services 755,475 755,475 691,788 (63,687) Supplies 63,200 63,200 74,436 11,236 Other current expenditures 136,905 211,905 238,367 26,462 Capital outlay 23,500 149,500 85,585 (63,915) Total building inspection 979,080 1,180,080 1,090,176 (89,904) Total public safety 12,561,742 12,950,572 12,419,830 (530,742) Public works Public works administration Personal services 442,735 454,735 418,084 (36,651) Supplies 9,075 10,375 5,461 (4,914) Other current expenditures 95,200 95,200 52,620 (42,580) Total public works administration 547,010 560,310 476,165 (84,145) Central maintenance facility Personal services 482,180 482,180 475,384 (6,796) Supplies 33,530 31,930 21,190 (10,740) Other current expenditures 131,755 127,755 126,481 (1,274) Capital outlay – 46,500 10,572 (35,928) Total central maintenance facility 647,465 688,365 633,627 (54,738) Streets Personal services 1,622,477 1,622,477 1,419,072 (203,405) Supplies 469,762 450,862 417,408 (33,454) Other current expenditures 350,266 455,266 430,022 (25,244) Capital outlay – 10,000 7,390 (2,610) Total streets 2,442,505 2,538,605 2,273,892 (264,713) Engineering Personal services 572,815 572,815 523,236 (49,579) Supplies 12,835 12,135 9,046 (3,089) Other current expenditures 92,745 92,745 119,767 27,022 Capital outlay 27,500 – 5,311 5,311 Total engineering 705,895 677,695 657,360 (20,335) Total public works 4,342,875 4,464,975 4,041,044 (423,931) Parks and recreation Parks and recreation administration Personal services 785,900 785,900 774,569 (11,331) Supplies 3,600 3,600 2,019 (1,581) Other current expenditures 148,150 148,150 143,922 (4,228) Total parks and recreation administration 937,650 937,650 920,510 (17,140) Budgeted Amounts Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) General Fund CITY OF APPLE VALLEY Year Ended December 31, 2017 -114-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) Parks and recreation (continued) Recreation programs Personal services 216,370 216,370 193,590 (22,780) Supplies 51,455 51,455 37,594 (13,861) Other current expenditures 119,157 119,157 127,299 8,142 Total recreation programs 386,982 386,982 358,483 (28,499) Parks maintenance Personal services 1,727,170 1,727,170 1,685,852 (41,318) Supplies 297,600 289,600 266,670 (22,930) Other current expenditures 761,720 761,720 782,165 20,445 Capital outlay 33,000 33,000 14,339 (18,661) Total parks maintenance 2,819,490 2,811,490 2,749,026 (62,464) Redwood pool Personal services 64,565 64,565 62,640 (1,925) Supplies 6,900 6,900 3,767 (3,133) Other current expenditures 38,825 38,825 26,426 (12,399) Capital outlay – 15,000 7,877 (7,123) Total Redwood pool 110,290 125,290 100,710 (24,580) Aquatic swim center Personal services 315,940 315,940 331,290 15,350 Supplies 35,500 35,500 41,892 6,392 Other current expenditures 274,025 274,025 288,558 14,533 Capital outlay 44,000 63,000 26,494 (36,506) Total aquatic swim center 669,465 688,465 688,234 (231) Apple Valley Community Center Personal services 197,530 197,530 202,511 4,981 Supplies 19,450 19,450 19,917 467 Other current expenditures 84,200 84,200 89,147 4,947 Capital outlay 21,500 134,150 125,740 (8,410) Total Apple Valley Community Center 322,680 435,330 437,315 1,985 Apple Valley Senior Center Personal services 296,500 296,500 300,359 3,859 Supplies 14,000 14,000 9,313 (4,687) Other current expenditures 58,550 58,550 62,172 3,622 Capital outlay 15,000 35,000 38,930 3,930 Total Apple Valley Senior Center 384,050 404,050 410,774 6,724 Total parks and recreation 5,630,607 5,789,257 5,665,052 (124,205) Total expenditures 27,986,215 28,816,360 27,274,374 (1,541,986) Excess of revenues over expenditures 2,187,200 1,578,055 4,925,439 3,347,384 Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) CITY OF APPLE VALLEY General Fund Year Ended December 31, 2017 Budgeted Amounts -115-(continued) Over (Under) Original Final Actual Budget Other financing sources (uses) Sale of capital assets 20,400 20,400 10,120 (10,280) Transfers in 1,300,500 1,300,500 1,300,500 – Transfers (out)(3,508,100) (3,559,100) (5,509,100) (1,950,000) Total other financing sources (uses)(2,187,200) (2,238,200) (4,198,480) (1,960,280) Net change in fund balances –$ (660,145)$ 726,959 1,387,104$ Fund balances Beginning of year 16,609,454 End of year 17,336,413$ Budgeted Amounts General Fund Year Ended December 31, 2017 CITY OF APPLE VALLEY Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) -116- Over (Under) Budget Actual Budget Revenue Special assessments –$ 91,049$ 91,049$ Intergovernmental 636,000 922,115 286,115 Investment earnings – – – Other – 1,100 1,100 Total revenue 636,000 1,014,264 378,264 Expenditures Capital outlay Public works 6,396,000 5,089,682 (1,306,318) Excess (deficiency) of revenue over expenditures (5,760,000) (4,075,418) 1,684,582 Other financing sources Transfers in 5,760,000 4,100,000 (1,660,000) Net change in fund balances –$ 24,582 24,582$ Fund balances (deficit) Beginning of year (5,198,862) End of year (5,174,280)$ CITY OF APPLE VALLEY Road Improvements Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -117- Over (Under) Budget Actual Budget Revenue Investment earnings 194,591$ 110,947$ (83,644)$ Expenditures Current Public works 27,939 87,414 59,475 Excess of revenue over expenditures 166,652 23,533 (143,119) Other financing sources (uses) Transfers in – 1,950,000 1,950,000 Transfers (out)(1,295,900) (1,295,900) – Total other financing sources (uses)(1,295,900) 654,100 1,950,000 Net change in fund balances (1,129,248)$ 677,633 1,806,881$ Fund balances Beginning of year 14,675,768 End of year 15,353,401$ CITY OF APPLE VALLEY Future Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -118- Over (Under) Budget Actual Budget Revenue Intergovernmental 118,512$ –$ (118,512)$ Investment earnings 2,000 1,246 (754) Other Miscellaneous – 118,859 118,859 Total revenue 120,512 120,105 (407) Expenditures Current Parks and recreation 236,825 226,113 (10,712) Capital outlay 97,200 91,687 (5,513) Total expenditures 334,025 317,800 (16,225) Excess (deficiency) of revenue over expenditures (213,513) (197,695) 15,818 Other financing sources Sale of capital assets – 1,114 1,114 Transfers in 118,512 57,289 (61,223) Total other financing sources 118,512 58,403 (60,109) Net change in fund balances (95,001)$ (139,292) (44,291)$ Fund balances Beginning of year 209,712 End of year 70,420$ CITY OF APPLE VALLEY Cable TV Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -119- Over (Under) Budget Actual Budget Revenue Investment earnings 1,860$ 937$ (923)$ Expenditures Current General government 37,950 18,501 (19,449) Net change in fund balances (36,090)$ (17,564) 18,526$ Fund balances Beginning of year 142,095 End of year 124,531$ CITY OF APPLE VALLEY EDA Operations Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -120- Over (Under) Budget Actual Budget Revenue Investment earnings 750$ 320$ (430)$ Expenditures Capital outlay 432,000 – (432,000) Excess (deficiency) of revenue over expenditures (431,250) 320 431,570 Other financing sources (uses) Sale of capital assets 83,400 – (83,400) Bonds issued 350,000 – (350,000) Transfers (out)– (16,336) (16,336) Total other financing sources (uses)433,400 (16,336) (449,736) Net change in fund balances 2,150$ (16,016) (18,166)$ Fund balances Beginning of year 16,016 End of year –$ CITY OF APPLE VALLEY Equipment Certificate Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -121- Over (Under) Budget Actual Budget Revenue Franchise fees 100,000$ 136,474$ 36,474$ Investment earnings 1,910 3,818 1,908 Total revenue 101,910 140,292 38,382 Expenditures Current Public works 15,335 9,255 (6,080) Capital outlay 10,000 34,090 24,090 Total expenditures 25,335 43,345 18,010 Excess of revenue over expenditures 76,575 96,947 20,372 Other financing sources (uses) Transfers (out)(118,512) (57,289) 61,223 Net change in fund balances (41,937)$ 39,658 81,595$ Fund balances Beginning of year 538,127 End of year 577,785$ CITY OF APPLE VALLEY Cable Capital Equipment Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -122- THIS PAGE INTENTIONALLY LEFT BLANK -123- INTERNAL SERVICE FUNDS Internal service funds account for the financing of goods and services provided by one department or agency to other departments or agencies of the City on a cost reimbursement basis. The City utilizes a Dental Insurance Internal Service Fund, a Benefits/Other Insurance Internal Service Fund, and a Vehicle Equipment Replacement Internal Service Fund in managing city operations. Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7440)Totals Current assets Cash and investments 57,482$ 3,103,321$ 1,244,701$ 4,405,504$ Receivables Accounts – 8,316 – 8,316 Prepaids – 197,072 – 197,072 Total current assets 57,482 3,308,709 1,244,701 4,610,892 Noncurrent assets Capital assets Furniture and equipment – – 12,798,120 12,798,120 Less accumulated depreciation – – (6,621,406) (6,621,406) Total noncurrent assets – – 6,176,714 6,176,714 Total assets 57,482$ 3,308,709$ 7,421,415$ 10,787,606$ Current liabilities Accounts payable 5,417$ 5,089$ –$ 10,506$ Claims payable 6,786 – – 6,786 Accrued compensated absences – 1,817,700 – 1,817,700 Total current liabilities 12,203 1,822,789 – 1,834,992 Noncurrent liabilities Accrued compensated absences – 993,765 – 993,765 Total liabilities 12,203 2,816,554 – 2,828,757 Net position Net investment in capital assets – – 6,176,714 6,176,714 Unrestricted 45,279 492,155 1,244,701 1,782,135 Total net position 45,279 492,155 7,421,415 7,958,849 Total liabilities and net position 57,482$ 3,308,709$ 7,421,415$ 10,787,606$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Net Position as of December 31, 2017 -124- Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7440)Totals Operating revenue Charges to other funds 233,010$ 1,341,191$ 841,580$ 2,415,781$ Operating expenses Personal services 207,642 639,153 – 846,795 Contractual services – 19,145 – 19,145 Other charges – 787,130 – 787,130 Depreciation – – 1,016,350 1,016,350 Total operating expenses 207,642 1,445,428 1,016,350 2,669,420 Operating income (loss)25,368 (104,237) (174,770) (253,639) Nonoperating revenue Investment earnings 238 21,823 5,167 27,228 Gain on sale of capital assets – – 172,218 172,218 Total nonoperating revenue 238 21,823 177,385 199,446 Income (loss) before Capital contributions and transfers 25,606 (82,414) 2,615 (54,193) Capital contributions – – 2,574,818 2,574,818 Transfer in – – 826,000 826,000 Change in net position 25,606 (82,414) 3,403,433 3,346,625 Net position Beginning of year 19,673 574,569 4,017,982 4,612,224 End of year 45,279$ 492,155$ 7,421,415$ 7,958,849$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Revenue, Expenses, and Changes in Net Position Year Ended December 31, 2017 -125- Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7430)Totals Cash flows from operating activities Cash receipts on interfund services provided 233,010$ 1,341,196$ 811,180$ 2,385,386$ Cash payments to suppliers (206,906) (1,395,729) – (1,602,635) Cash payments to employees for services – (133,569) – (133,569) Net cash flows from operating activities 26,104 (188,102) 811,180 649,182 Cash flows from capital and related financing activities Acquisition and construction of capital assets – – (1,453,051) (1,453,051) Proceeds from sale of capital assets – – 309,360 309,360 Transfers from other funds – – 826,000 826,000 Net cash flows from capital and related financing activities – – (317,691) (317,691) Cash flows from investing activities Interest received on investments 238 21,823 5,167 27,228 Net increase in cash and cash equivalents 26,342 (166,279) 498,656 358,719 Cash and investments Beginning of year 31,140 3,269,600 746,045 4,046,785 End of year 57,482$ 3,103,321$ 1,244,701$ 4,405,504$ Reconciliation of operating income (loss) to net cash flows from operating activities Operating income (loss)25,368$ (104,237)$ (174,770)$ (253,639)$ Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation – – 1,016,350 1,016,350 Change in assets and liabilities Receivables Accounts – 5 – 5 Prepaids – (30,455) – (30,455) Accounts payable 1,510 (50,809) (30,400) (79,699) Claims payable (774) – – (774) Accrued compensated absences – (2,606) – (2,606) Net cash flows from operating activities 26,104$ (188,102)$ 811,180$ 649,182$ Noncash capital activities Capital contributions –$ –$ 2,574,818$ 2,574,818$ Net book value of capital asset disposals –$ –$ (137,142)$ (137,142)$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Cash Flows Year Ended December 31, 2017 -126- STATISTICAL SECTION TAB Page Contents: Financial Trends 127 Revenue Capacity 137 Debt Capacity 144 Demographic and Economic Information 153 Operating Indicators 155 Source: Unless otherwise noted, the information in these schedules is derived from the CAFR for the relevant year. These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides, and the activities it performs. STATISTICAL SECTION (UNAUDITED) This part of the City of Apple Valley,Minnesota’s (the City)Comprehensive Annual Financial Report (CAFR)presents detailed information as a context for understanding what the information in the financial statements,note disclosures,and required supplementary information says about the City’s overall financial health. These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. These schedules contain information to help the reader assess the City’s most significant revenue source, including property tax and utility revenue. These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. 2008 2009 2010 2011 Governmental activities Net investment in capital assets 41,867,201$ 43,981,788$ 45,477,393$ 54,928,735$ Restricted 30,525,737 24,664,257 24,656,491 21,580,777 Unrestricted 30,010,778 36,290,872 38,798,761 42,115,459 Total governmental activities net assets 102,403,716$ 104,936,917$ 108,932,645$ 118,624,971$ Business-type activities Net investment in capital assets 100,280,579$ 101,447,457$ 102,320,160$ 104,198,009$ Restricted 275,000 289,049 291,591 309,518 Unrestricted 17,998,903 19,100,650 20,094,976 19,431,679 Total business-type activities net assets 118,554,482$ 120,837,156$ 122,706,727$ 123,939,206$ Primary government Net investment in capital assets 142,147,780$ 145,429,245$ 147,797,553$ 159,126,744$ Restricted 30,800,737 24,953,306 24,948,082 21,890,295 Unrestricted 48,009,681 55,391,522 58,893,737 61,547,138 Total primary government net assets 220,958,198$ 225,774,073$ 231,639,372$ 242,564,177$ Note 1: Note 2: Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) CITY OF APPLE VALLEY The City implemented GASB Statement No.68 in 2015,resulting in a restatement of beginning net position for the effects of implementing this standard. Net position for previous years has not been restated. The City implemented GASB Statement No.65 in 2012.Net position for 2011 was restated for the effects of implementing this standard. Net position for previous years has not been restated. Fiscal Year -127- 2012 2013 2014 2015 2016 2017 64,226,520$ 70,526,658$ 78,398,734$ 86,664,918$ 93,945,022$ 99,642,040$ 17,001,111 18,619,396 15,253,042 16,541,831 16,141,535 15,364,368 43,609,670 38,654,601 36,056,447 26,805,077 24,394,132 24,292,441 124,837,301$ 127,800,655$ 129,708,223$ 130,011,826$ 134,480,689$ 139,298,849$ 110,376,210$ 118,410,631$ 120,092,250$ 118,288,727$ 119,417,084$ 94,851,212$ 319,582 303,823 329,167 178,529 178,977 178,665 19,030,882 13,228,257 14,998,933 14,230,604 17,104,636 15,390,547 129,726,674$ 131,942,711$ 135,420,350$ 132,697,860$ 136,700,697$ 110,420,424$ 174,602,730$ 188,937,289$ 198,490,984$ 204,953,645$ 213,362,106$ 194,493,252$ 17,320,693 18,923,219 15,582,209 16,720,360 16,320,512 15,543,033 62,640,552 51,882,858 51,055,380 41,035,681 41,498,768 39,682,988 254,563,975$ 259,743,366$ 265,128,573$ 262,709,686$ 271,181,386$ 249,719,273$ Table 1 -128- 2008 2009 2010 2011 Expenses Governmental activities General government 8,147,712$ 8,685,487$ 10,081,345$ 7,086,321$ Public safety 10,223,407 10,306,540 10,092,977 10,548,223 Public works 7,349,899 8,393,981 7,008,886 5,744,780 Park and recreation 5,011,287 5,754,969 6,261,801 6,169,552 Interest on long-term debt 2,102,579 1,773,863 1,556,130 1,459,728 Total governmental activities expenses 32,834,884$ 34,914,840$ 35,001,139$ 31,008,604$ Business-type activities Municipal liquor 6,985,584$ 8,062,876$ 8,285,841$ 8,177,679$ Municipal golf course 1,047,254 1,011,443 1,057,715 1,051,605 Sports arena 755,102 771,198 748,541 799,993 Water and sewer 7,983,126 7,226,393 7,302,254 7,309,277 Storm drainage 926,799 869,376 846,743 917,054 Cemetery 45,882 56,518 68,868 69,004 Street light utility – – 410,787 398,114 Total business-type activities 17,743,747 17,997,804 18,720,749 18,722,726 Total primary government expenses 50,578,631$ 52,912,644$ 53,721,888$ 49,731,330$ Program revenues Governmental activities Charges for services General government 3,470,858$ 2,363,002$ 2,423,051$ 2,435,834$ Public safety 647,651 603,425 755,339 587,486 Public works 112,651 457,516 1,046,007 1,055,995 Park and recreation 1,027,675 1,259,959 1,721,486 1,314,377 Operating grants and contributions 1,153,964 1,577,419 1,872,316 534,041 Capital grants and contributions 10,345,742 2,451,327 3,271,761 4,398,403 Total governmental activities program revenues 16,758,541$ 8,712,648$ 11,089,960$ 10,326,136$ CITY OF APPLE VALLEY Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year -129- 2012 2013 2014 2015 2016 2017 7,398,895$ 5,012,638$ 6,107,245$ 5,468,843$ 6,974,444$ 6,260,768$ 11,101,520 11,336,972 11,946,671 12,464,603 15,097,659 13,443,699 6,382,138 6,905,011 9,011,324 7,038,033 7,746,304 8,473,039 6,166,397 6,345,937 6,403,907 6,543,162 7,025,281 7,239,268 1,235,352 1,194,974 1,037,527 1,037,567 912,007 886,283 32,284,302$ 30,795,532$ 34,506,674$ 32,552,208$ 37,755,695$ 36,303,057$ 8,377,991$ 8,419,472$ 8,332,921$ 7,772,369$ 7,872,023$ 8,251,249$ 1,292,371 1,507,451 1,526,108 1,653,759 1,728,605 1,545,792 778,931 759,930 853,315 770,215 770,666 798,402 7,194,007 7,794,274 8,186,262 8,154,989 9,336,567 10,031,223 1,001,140 1,052,087 1,257,566 1,444,800 1,481,121 2,181,086 69,376 51,472 51,646 49,086 60,790 127,469 447,954 444,106 424,670 446,644 437,439 483,752 19,161,770 20,028,792 20,632,488 20,291,862 21,687,211 23,418,973 51,446,072$ 50,824,324$ 55,139,162$ 52,844,070$ 59,442,906$ 59,722,030$ 2,413,190$ 2,315,613$ 2,828,709$ 1,696,786$ 1,768,008$ 1,956,499$ 554,820 549,371 541,947 496,566 543,950 617,729 1,543,446 892,267 1,001,148 2,620,283 2,489,539 3,740,394 1,504,546 1,271,031 2,030,716 1,989,084 2,740,747 1,461,720 579,675 900,223 837,763 771,220 1,531,412 1,082,234 4,445,816 3,250,152 1,897,081 5,918,652 5,489,541 3,206,571 11,041,493$ 9,178,657$ 9,137,364$ 13,492,591$ 14,563,197$ 12,065,147$ (continued) Table 2 -130- Fiscal Year 2008 2009 2010 2011 Program revenues (continued) Business-type activities Charges for services Municipal liquor 7,390,696$ 8,772,571$ 9,032,194$ 9,005,660$ Municipal golf course 1,049,707 1,085,429 1,114,395 1,023,866 Sports arena 538,694 627,595 606,262 650,350 Water and sewer 8,670,265 9,250,812 8,439,232 8,361,750 Storm drainage 1,227,331 1,233,346 1,360,483 1,370,348 Cemetery 110,175 95,320 89,695 114,365 Street light utility – – 465,552 433,464 Operating grants and contributions 47,285 25,190 – 10,170 Capital grants and contributions 324,323 316,200 645,427 643,164 Total business-type activities program revenues 19,358,476 21,406,463 21,753,240 21,613,137 Total primary government program revenues 36,117,017$ 30,119,111$ 32,843,200$ 31,939,273$ Net (expense) revenue Governmental activities (16,076,343)$ (26,202,192)$ (23,911,179)$ (20,682,468)$ Business-type activities 1,614,729 3,408,659 3,032,491 2,890,411 Total primary government net expense (14,461,614)$ (22,793,533)$ (20,878,688)$ (17,792,057)$ General revenues and other changes in net position Governmental activities Property taxes 19,942,701$ 21,892,939$ 21,697,421$ 21,460,141$ Tax increments 2,040,480 2,185,762 2,311,405 2,240,269 Franchise taxes 1,023,368 1,096,578 1,160,771 1,177,715 Lodging tax 65,073 56,300 67,311 74,105 Gravel tax 37,209 40,692 36,314 38,666 Unallocated state and county aids 584,294 292,225 95,019 117,000 Other general revenue 143,403 433,956 271,622 176,575 Unrestricted investment earnings 1,352,749 912,413 643,741 2,372,693 Transfers 955,251 1,824,528 1,623,303 2,717,630 Total governmental activities 26,144,528$ 28,735,393$ 27,906,907$ 30,374,794$ Business-type activities Unrestricted investment earnings 672,485$ 426,300$ 320,166$ 888,863$ Property taxes 125,000 120,000 125,000 120,000 Other 81,197 152,243 15,217 50,835 Transfers (955,251) (1,824,528) (1,623,303) (2,717,630) Total business-type activities (76,569) (1,125,985) (1,162,920) (1,657,932) Total primary government 26,067,959$ 27,609,408$ 26,743,987$ 28,716,862$ Change in net position Governmental activities 10,068,185$ 2,533,201$ 3,995,728$ 9,692,326$ Business-type activities 1,538,160 2,282,674 1,869,571 1,232,479 Total primary government 11,606,345$ 4,815,875$ 5,865,299$ 10,924,805$ Note 1: Note 2:Fiscal 2012 and prior data has not been restated for the reclassifications made in fiscal 2013. The Street Light Utility Fund was established in fiscal year 2010; the street light activity prior to 2010 was included in the Water and Sewer CITY OF APPLE VALLEY Changes in Net Position (continued) Last Ten Fiscal Years (accrual basis of accounting) -131- 2012 2013 2014 2015 2016 2017 9,231,890$ 9,380,818$ 9,292,269$ 8,480,414$ 8,738,804$ 9,185,736$ 1,122,791 1,168,154 1,289,089 1,387,821 1,356,436 1,180,209 647,134 643,855 746,351 722,270 783,962 732,979 9,256,709 8,951,798 8,913,191 8,995,642 9,754,601 9,917,074 1,517,090 1,525,136 1,567,066 1,631,761 1,718,352 1,866,306 127,735 123,197 104,128 132,305 160,716 187,589 454,477 449,885 465,584 483,680 500,877 507,360 13,890 80,707 – – – – 3,201,690 1,497,501 1,612,392 2,110,667 3,631,836 1,057,916 25,573,406 23,821,051 23,990,070 23,944,560 26,645,584 24,635,169 36,614,899$ 32,999,708$ 33,127,434$ 37,437,151$ 41,208,781$ 36,700,316$ (21,242,809)$ (21,616,875)$ (25,369,310)$ (19,059,617)$ (23,192,498)$ (24,237,910)$ 6,411,636 3,792,259 3,357,582 3,652,698 4,958,373 1,216,196 (14,831,173)$ (17,824,616)$ (22,011,728)$ (15,406,919)$ (18,234,125)$ (23,021,714)$ 21,769,647$ 22,144,883$ 23,067,164$ 23,038,450$ 23,894,359$ 24,758,299$ 2,012,281 544,283 611,662 489,617 199,214 346,675 1,197,288 1,262,393 1,272,428 1,259,271 1,309,757 1,288,426 75,472 73,504 89,859 93,492 90,592 92,958 36,439 45,890 50,612 39,215 40,794 37,902 145,755 40,397 36,710 40,061 37,719 56,751 116,558 186,872 78,478 7,387 6,888 8,440 1,026,594 (1,056,882) 1,562,329 863,798 801,038 551,119 1,075,105 1,338,889 507,636 4,681,392 1,281,000 1,915,500 27,455,139$ 24,580,229$ 27,276,878$ 30,512,683$ 27,661,361$ 29,056,070$ 388,923$ (358,333)$ 506,693$ 235,424$ 204,464$ 151,206$ 120,000 121,000 121,000 121,000 121,000 121,000 43,845 – – – – – (1,075,105) (1,338,889) (507,636) (4,681,392) (1,281,000) (1,915,500) (522,337) (1,576,222) 120,057 (4,324,968) (955,536) (1,643,294) 26,932,802$ 23,004,007$ 27,396,935$ 26,187,715$ 26,705,825$ 27,412,776$ 6,212,330$ 2,963,354$ 1,907,568$ 11,453,066$ 4,468,863$ 4,818,160$ 5,889,299 2,216,037 3,477,639 (672,270) 4,002,837 (427,098) 12,101,629$ 5,179,391$ 5,385,207$ 10,780,796$ 8,471,700$ 4,391,062$ Table 2 (continued) -132- Fiscal Year 2008 2009 2010 2011 General Fund Reserved 122,232$ 40,515$ 53,113$ –$ Unreserved 11,103,476 12,181,208 12,594,013 – Nonspendable – – – 118,661 Committed – – – 165,872 Assigned – – – 278,724 Unassigned – – – 12,142,496 Total General Fund 11,225,708$ 12,221,723$ 12,647,126$ 12,705,753$ All other governmental funds Unreserved reported in Special revenue funds 361,472$ 342,464$ 324,251$ –$ Debt service funds 20,923,916 16,996,037 15,892,926 – Capital projects funds 12,447,954 10,965,444 14,011,232 – Nonspendable – – – – Restricted – – – 15,537,787 Committed – – – – Assigned – – – 28,795,063 Unassigned – – – (13,395,872) Total all other governmental funds 33,733,342$ 28,303,945$ 30,228,409$ 30,936,978$ Total all funds 44,959,050$ 40,525,668$ 42,875,535$ 43,642,731$ Note:Fund balance descriptions changed due to GASB Statement No. 54 implementation effective January 1, 2011. CITY OF APPLE VALLEY Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) -133- 2012 2013 2014 2015 2016 2017 –$ –$ –$ –$ –$ –$ – – – – – – 239,462 90,745 337,564 345,004 119,947 325,282 210,005 154,100 146,300 405,990 693,145 595,215 279,973 151,502 54,416 20,000 56,000 64,300 12,646,076 13,830,037 14,617,170 15,321,110 15,740,362 16,351,616 13,375,516$ 14,226,384$ 15,155,450$ 16,092,104$ 16,609,454$ 17,336,413$ –$ –$ –$ –$ –$ –$ – – – – – – – – – – – – 1,750 – – 1,750 600 1,730 11,435,144 20,966,147 21,772,784 27,424,225 27,079,147 13,431,367 – – – – 140,000 15,000 31,538,043 26,215,087 27,614,620 27,008,733 28,454,255 28,779,829 (12,381,234) (9,561,124) (11,108,352) (9,539,062) (8,921,232) (8,738,893) 30,593,703$ 37,620,110$ 38,279,052$ 44,895,646$ 46,752,770$ 33,489,033$ 43,969,219$ 51,846,494$ 53,434,502$ 60,987,750$ 63,362,224$ 50,825,446$ Table 3 -134- 2008 2009 2010 2011 Revenues General property taxes 19,916,783$ 21,544,567$ 21,709,126$ 21,408,873$ Tax increments 2,040,480 2,185,762 2,311,405 2,240,269 Other taxes 102,282 96,992 103,625 152,020 Special assessments 1,419,869 2,471,962 2,055,783 2,125,776 Licenses and permits 561,594 755,444 1,018,847 796,316 Intergovernmental 1,934,886 2,429,800 2,996,658 2,407,596 Charges for services 1,454,353 1,145,890 1,349,123 1,436,256 Franchise taxes 1,023,368 1,096,578 1,160,771 1,177,715 Fines and forfeits 324,461 316,324 258,165 288,946 Investment income 1,256,353 840,898 593,336 2,232,966 Rentals 271,758 444,877 592,831 511,453 Contributions and donations 11,045 7,150 11,484 2,750 Administrative fees 1,311,479 651,052 778,400 828,999 Other 772,437 509,778 697,054 321,565 Refunds and reimbursements 341,756 165,345 450,972 139,581 Total revenues 32,742,904 34,662,419 36,087,580 36,071,081 Expenditures Current General government 6,310,842 6,159,832 7,418,012 4,679,394 Public safety 9,470,152 9,635,166 9,728,340 9,890,086 Public works 3,355,405 3,501,792 3,593,951 3,675,687 Park and recreation 4,373,278 4,692,052 4,768,656 4,855,184 Capital outlay 11,666,201 11,727,599 5,879,024 6,370,109 Debt service Principal 5,070,000 5,060,000 4,160,000 4,665,000 Interest and fiscal charges 2,001,578 1,880,399 1,615,929 1,487,399 Total expenditures 42,247,456 42,656,840 37,163,912 35,622,859 Excess (deficiency) of revenues over expenditures (9,504,552) (7,994,421) (1,076,332) 448,222 Other financing sources (uses) Transfers in 4,290,930 17,777,689 5,734,691 5,874,339 Transfers out (2,967,903) (14,701,754) (3,680,241) (3,156,709) Bonds issued 11,520,000 2,775,000 3,965,000 1,345,000 Payment of refunded debt (2,360,000) (2,400,000) (2,750,000) (3,920,000) Premium on debt issued 54,759 61,795 47,191 6,568 Discount on debt issued (110,621) – – – Sale of capital assets 120,765 48,309 109,558 169,776 Total other financing sources (uses)10,547,930 3,561,039 3,426,199 318,974 Net change in fund balances 1,043,378$ (4,433,382)$ 2,349,867$ 767,196$ Debt service as a percentage of noncapital expenditures 23.1%22.4%18.5%20.5% (modified accrual basis of accounting) Fiscal Year CITY OF APPLE VALLEY Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years -135- 2012 2013 2014 2015 2016 2017 21,773,048$ 22,252,162$ 23,161,124$ 22,969,161$ 23,910,991$ 24,729,659$ 2,012,281 544,283 611,662 489,617 199,214 346,675 154,126 169,413 193,018 186,512 185,568 182,377 4,015,591 4,073,061 5,457,959 3,859,401 4,150,527 1,559,609 1,033,797 1,140,603 1,644,338 2,147,477 2,052,043 3,244,654 2,642,018 2,388,922 3,459,585 2,330,695 2,605,769 2,002,385 1,783,390 1,712,660 1,763,940 2,711,884 2,739,163 2,962,769 1,197,288 1,262,393 1,272,428 1,259,271 1,309,757 1,288,426 278,913 257,345 236,943 225,804 273,372 315,087 965,333 (991,703) 1,461,765 817,230 756,341 523,891 559,702 642,422 774,364 806,915 832,854 720,100 1,801 51,425 13,176 4,852 7,309 3,760 788,171 785,927 770,000 809,000 2,054,475 722,490 338,142 545,994 1,497,913 312,708 202,540 300,200 127,166 99,024 202,518 90,148 236,416 68,257 37,670,767 34,933,931 42,520,733 39,020,675 41,516,339 38,970,339 4,355,811 4,518,602 5,655,482 5,014,867 6,264,368 5,705,708 9,987,493 10,538,043 11,118,268 11,467,187 12,105,588 12,279,935 3,674,876 4,031,492 4,010,339 3,621,872 3,956,049 4,131,796 4,847,194 4,978,896 5,135,573 5,198,446 5,728,049 5,766,554 13,266,487 8,716,540 13,453,625 6,462,646 8,425,307 8,464,983 8,280,000 3,625,000 3,415,000 3,575,000 2,650,000 3,425,000 1,224,409 1,268,227 1,072,847 1,100,649 964,997 940,431 45,636,270 37,676,800 43,861,134 36,440,667 40,094,358 40,714,407 (7,965,503) (2,742,869) (1,340,401) 2,580,008 1,421,981 (1,744,068) 5,634,873 11,182,608 9,800,593 9,678,084 8,046,274 8,743,125 (4,559,768) (9,843,719) (7,745,923) (8,139,084) (7,226,274) (7,653,625) 6,775,000 9,000,000 680,000 4,255,000 – – – – – (1,030,000) – (11,925,000) 330,981 81,545 25,505 113,988 – – – – – – – – 110,905 199,710 168,234 95,252 132,493 42,790 8,291,991 10,620,144 2,928,409 4,973,240 952,493 (10,792,710) 326,488$ 7,877,275$ 1,588,008$ 7,553,248$ 2,374,474$ (12,536,778)$ 27.5%16.7%13.1%15.3%11.4%13.2% Table 4 -136- Industrial Residential Commercial and Utility Agricultural Property Property Property Property Apartments 44,078,807$ 9,483,581$ 1,331,742$ 113,556$ 2,639,548$ 43,107,127 10,171,716 1,225,657 127,972 2,564,523 39,692,580 10,053,775 1,238,900 130,237 2,498,076 36,918,099 9,363,833 1,038,862 130,124 2,319,888 32,937,899 9,210,935 1,004,132 116,719 2,445,781 30,220,442 9,015,644 829,980 92,210 2,704,250 31,239,597 9,045,624 837,008 88,030 2,723,667 34,412,031 9,071,960 859,888 85,694 2,864,337 36,561,330 9,186,796 874,912 78,636 3,038,517 38,063,519 9,379,705 842,612 75,901 3,572,226 Note: Source:Dakota County CITY OF APPLE VALLEY Assessed and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 2010 The tax capacity (assessed taxable value)of the property is calculated by applying a statutory formula to the estimated market value of the property. 2014 2009 Payable Year 2008 2011 2012 2013 2015 2016 2017 -137- Table 5 Estimated Total Actual Taxable Total Direct Taxable Personal Assessed Tax Capacity Market Other Property Value Rate Value 4,829$ 684,166$ 58,336,229$ 35.537 5,202,130,200$ 1.12 % 4,760 701,073 57,902,828 37.086 5,135,644,200 1.13 4,283 688,202 54,306,053 39.867 4,787,691,200 1.13 3,959 764,694 50,539,459 42.388 4,457,368,700 1.13 2,316 773,692 46,491,474 44.110 4,061,762,557 1.14 2,159 755,422 43,620,107 49.210 3,791,294,766 1.15 2,194 763,784 44,699,904 47.891 3,897,057,902 1.15 2,369 790,695 48,086,974 45.274 4,228,421,500 1.14 2,564 835,973 50,578,728 44.721 4,464,893,416 1.13 2,521 872,987 52,809,471 44.473 4,669,204,881 1.13 Actual Value Taxable Assessed Percentage of Value as a -138- Fiscal School District Year General Debt Service Total City Dakota County (1)Other (2) 2008 35.528 0.009 35.537 25.184 21.136 4.996 2009 37.078 0.008 37.086 25.821 21.109 4.916 2010 39.861 0.006 39.867 27.269 25.391 4.987 2011 42.382 0.006 42.388 29.149 26.959 5.199 2012 44.104 0.006 44.110 31.426 28.440 5.562 2013 49.199 0.011 49.210 33.421 27.956 5.884 2014 47.880 0.011 47.891 31.827 27.606 5.538 2015 45.265 0.009 45.274 29.633 23.271 5.033 2016 44.711 0.010 44.721 28.570 24.317 5.063 2017 44.462 0.011 44.473 28.004 23.336 4.907 Total Direct and Fiscal School District Total Overlapping Year Debt Service Total City Dakota County (1)Overlapping Tax Rate 2008 0.000174 0.000174 0.000047 0.002127 0.002175 0.002348 2009 0.000311 0.000311 0.000047 0.002103 0.002150 0.002461 2010 0.000337 0.000337 0.000050 0.002227 0.002277 0.002614 2011 0.000375 0.000375 0.000054 0.002260 0.002314 0.002689 2012 0.000417 0.000417 0.000055 0.002213 0.002268 0.002685 2013 0.000212 0.000212 – 0.002354 0.002354 0.002566 2014 0.000212 0.000212 – 0.002581 0.002581 0.002793 2015 0.000204 0.000204 – 0.002548 0.002548 0.002752 2016 0.000199 0.000199 – 0.002700 0.002700 0.002899 2017 0.000197 0.000197 – 0.002738 0.002738 0.002935 Note 1:Overlapping rates are those of local and county governments that apply to property owners within the City. Note 2:Not all overlapping rates apply to all of the City’s property owners. (1)Independent School District No. 196 (2) Source: Dakota County Includes Metropolitan Council,Mosquito Control Abatement,Metro Transit,Dakota County CDA,Light Rail, and Vermillion River Watershed CITY OF APPLE VALLEY Property Tax Capacity Rates Direct and Overlapping Governments Last Ten Fiscal Years City Direct Tax Capacity Rate Overlapping Tax Capacity Rates City Direct Market Value Tax Rate Overlapping Market Value Tax Rates -139- Total Direct and Total Overlapping Overlapping Tax Rate 51.316 86.853 51.846 88.932 57.647 97.514 61.307 103.695 65.428 109.538 67.261 116.471 64.971 112.862 57.937 103.211 57.950 102.671 56.247 100.720 Table 6 Overlapping Tax Capacity Rates -140- THIS PAGE INTENTIONALLY LEFT BLANK Percentage Net Tax Net Tax Capacity Capacity Taxpayer Value Rank Value Rank Principal Life Insurance Co.507,284$ 1 1.0 %630,662$ 1 1.1 % Individual 503,751 2 1.0 450,000 3 0.8 CAR Apple Valley Square, LLC 375,820 3 0.7 467,238 2 0.8 Apple Valley Leased Housing Assoc., III 374,788 4 0.7 312,500 7 0.5 Dakota Electric Association 343,192 5 0.6 375,228 4 0.6 Centro Bradley Southport Centre 333,392 6 0.6 363,748 5 0.6 Uponor North America 306,086 7 0.6 – – – Rockport, LLC 297,553 8 0.6 – – – Regent at Apple Valley, LLC 295,702 9 0.6 – – – Menard, Inc.269,126 10 0.5 – – – Target Corporation – – – 313,744 6 0.5 Fischer Sand & Aggregate Co.– – – 308,122 8 0.5 Wings Financial Federal Credit Union – – – 284,630 9 0.5 Fischer Sand & Aggregate, LLP – – – 240,076 10 0.4 Total 3,606,694$ 6.8 %3,745,948$ 6.4 % Source: Dakota County of Total City Tax Capacity Value Percentage of Total City Tax Capacity Value 20082017 Table 7 CITY OF APPLE VALLEY Principal Property Taxpayers Current Fiscal Year and Nine Years Prior -141- Taxes Levied for the Fiscal Year MVHC/ Ag Credit and Fiscal Fiscal Gross Operating Disparities Total Net Year Tax Levy Received Tax Levy Amount 2008 20,998,612$ (2,955,499)$ 18,037,810$ 17,724,935$ 98.27 % 2009 22,627,731 (3,436,931) 19,190,369 18,828,050 98.11 2010 22,839,554 (3,815,622) 19,000,860 18,723,194 98.54 2011 22,700,000 (3,612,353) 19,087,647 18,846,881 98.74 2012 22,025,249 (2,821,637) 19,203,612 18,996,562 98.92 2013 22,410,946 (2,751,166) 19,659,780 19,411,582 98.74 2014 22,727,000 (2,994,265) 19,732,735 19,607,759 99.37 2015 23,134,000 (2,881,124) 20,252,876 20,069,635 99.10 2016 24,058,000 (2,784,776) 21,273,224 21,138,944 99.37 2017 24,840,000 (2,915,340) 21,924,660 21,783,179 99.35 CITY OF APPLE VALLEY Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year of Levy Collected Within the Levy of Percentage -142- Delinquencies Collected as of Most Recent Report Amount 306,765$ 18,031,700$ 99.97 % 295,040 19,123,090 99.65 105,140 18,828,334 99.09 163,215 19,010,096 99.59 146,016 19,142,578 99.68 205,620 19,617,202 99.78 99,176 19,706,935 99.87 146,931 20,216,566 99.82 134,280 21,273,224 100.00 – 21,783,179 99.35 Table 8 Total Collections to Date Percentage of Levy -143- General Obligation Tax General Special MSA Increment Obligation Assessments Road Revenue Capital Bonds Bonds Bonds Bonds Bonds Lease 1,230,000$ 25,795,000$ 19,530,000$ –$ 5,321,037$ 50,505$ 1,050,000 24,295,000 13,750,000 2,775,000 4,649,229 40,918 865,000 20,535,000 14,750,000 2,775,000 4,014,416 109,211 – 19,925,000 9,000,000 2,760,000 6,020,717 77,975 – 20,128,873 8,062,109 2,320,000 5,531,461 44,884 – 27,922,953 6,247,398 1,760,000 5,044,929 190,645 – 27,023,868 4,972,687 1,185,000 13,209,567 138,799 – 29,669,149 2,637,976 590,000 13,420,425 97,919 – 27,900,442 2,298,265 – 12,653,255 56,285 – 14,191,734 608,554 – 10,277,288 175,526 Note: (1) (2) CITY OF APPLE VALLEY Ratios of Outstanding Debt by Type Last Ten Fiscal Years Year Fiscal Business-Type ActivitiesGovernmental Activities City personal income not available for 2017. See the Demographic and Economic Statistics schedule for personal income and population data. Details regarding the City’s outstanding debt can be found in the notes to basic financial statements.All figures are presented net of related premiums, discounts, and adjustments if applicable. 2017 2009 2008 2016 2015 2014 2011 2010 2013 2012 -144- Table 9 Total Primary Per Government Capita (1) 51,926,542$ 2.81 %1,039$ 46,560,147 2.61 943 43,048,627 2.47 877 37,783,692 2.10 759 36,087,327 2.00 723 41,165,925 2.22 818 46,529,921 2.40 924 46,415,469 2.44 925 42,908,247 2.16 836 25,253,102 N/A (2)482 Percentage Income (1) of Personal -145- Less Amounts General General Special MSA Available Obligation Tax Obligation Assessments Road in Debt Increment Bonds Bonds Bonds Bonds Service Funds (3) 1,230,000$ 27,875,444$ 19,530,000$ –$ 7,816,415$ 1,050,000 25,815,420 13,750,000 2,775,000 10,034,145 865,000 21,547,391 14,750,000 2,775,000 14,386,682 – 23,075,476 9,000,000 2,760,000 9,455,268 – 22,885,334 8,062,109 2,320,000 8,176,337 – 30,337,882 6,247,398 1,760,000 15,297,560 – 37,753,435 4,972,687 1,185,000 13,581,184 – 41,504,574 2,637,976 590,000 17,807,062 – 40,553,697 2,298,265 – 17,649,041 – 24,469,022 608,554 – 4,152,062 Note: (1) (2) (3) CITY OF APPLE VALLEY Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years 2016 2015 2014 2013 2012 2011 2010 2009 2008 Year Fiscal 2017 Amounts shown here are the total restricted fund balances for all debt service funds and include restricted amounts held in escrow for advance refunding bond issues. Details regarding the City’s outstanding debt can be found in the notes to the financial statements.All debt is presented net of related premiums, discounts, and adjustments if applicable. City personal income not available for 2017. See the Demographic and Economic Statistics schedule for personal income and population data. -146- Table 10 Per Total Capita (1) 40,819,029$ 0.78 %2.21 %817$ 33,356,275 0.65 1.87 676 25,550,709 0.53 1.47 521 25,380,208 0.57 1.41 510 25,091,106 0.62 1.39 503 23,047,720 0.61 1.24 458 30,329,938 0.78 1.57 603 26,925,488 0.64 1.41 537 25,202,921 0.56 1.27 491 20,925,514 0.45 N/A (2)400 Personal Income Percentage of Percentage of Taxable Market Value of Property -147- THIS PAGE INTENTIONALLY LEFT BLANK Table 11 City of Apple Valley’s Share of Net Debt Overlapping Outstanding (1)Debt Overlapping Dakota County (2)–$ 11.20 %–$ School districts ISD No. 191, Burnsville – Eagan – Savage 150,135,000 0.90 1,351,215 ISD No. 196, Rosemount – Apple Valley – Eagan 158,470,000 29.97 47,493,459 Metropolitan Council (3)10,440,000 1.27 132,588 Metro Transit (4)177,190,000 1.44 2,551,536 Total overlapping 496,235,000 51,528,798 City of Apple Valley direct debt 14,800,288 100.00 14,800,288 Total direct and overlapping debt 511,035,288$ 66,329,086$ Note: (1)As of December 31, 2017, unless noted otherwise. (2) (3) (4) Source: to City Overlapping governments are those that coincide,at least in part,with the geographic boundaries of the City.This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City.This process recognizes that,when considering the City’s ability to issue and repay long-term debt,the entire debt burden borne by the residents and businesses should be taken into account.However, this does not imply that every taxpayer is a resident and,therefore,responsible for repaying the debt of each term debt, the entire debt burden borne by the residents and businesses should be taken into account. Metro Transit has bond indebtedness of $177,190,000 as of December 31,2017.Transit debt is issued by the Metropolitan Council for all public transit operations in the transit district and is payable from ad valorem taxes levied on all taxable property within the Metropolitan Transit District. Dakota County.Percentage of debt applicable is calculated by dividing a portion of tax capacity of the authority that lies in the City divided by the total tax capacity that lies in Dakota County. CITY OF APPLE VALLEY Direct and Overlapping Governmental Activities Debt December 31, 2017 Percentage of Debt Applicable Dakota County has bond indebtedness of $84,695,000 as of December 31,2017,of which $84,695,000 has been excluded as it is payable from housing revenues. Metropolitan Council has $10,440,000 of general obligation debt outstanding as of December 31,2017.This debt is payable from ad valorem taxes levied on all taxable property within the Metropolitan Taxing District.This amount excludes $1,256,315,294 of general obligation debt payable from wastewater and sewer revenues,and lease agreements. -148- Fiscal Year 2008 2009 2010 2011 Debt limit 156,063,906$ 154,069,326$ 143,630,736$ 133,721,061$ Total net debt applicable to limit 25,795,000 24,295,000 20,535,000 19,830,000 Legal debt margin 130,268,906$ 129,774,326$ 123,095,736$ 113,891,061$ Total net debt applicable to limit as a percentage of debt limit 16.53%15.77%14.30%14.83% CITY OF APPLE VALLEY Legal Debt Margin Information Last Ten Fiscal Years -149- Table 12 2012 2013 2014 2015 2016 2017 121,852,877$ 123,111,918$ 116,911,737$ 126,852,645$ 133,946,802$ 140,076,146$ 19,845,000 27,590,000 26,700,000 29,275,000 27,550,000 13,885,000 102,007,877$ 95,521,918$ 90,211,737$ 97,577,645$ 106,396,802$ 126,191,146$ 16.29%22.41%22.84%23.08%20.57%9.91% Market value 4,669,204,881$ Debt limit (3% of assessed value)140,076,146 Debt applicable to limit 13,885,000 Legal debt margin 126,191,146$ Legal Debt Margin Calculation for Fiscal Year 2017 -150- Operating Less Net Operating Less Net Fiscal Revenues/Operating Available Debt Service Revenues/Operating Available Year Gross Profit Expense Revenue Principal Interest Coverage Gross Profit Expense Revenue 2008 1,883,996$ 1,383,688$ 500,308$ –$ 66,105$ 1,227,331$ 883,299$ 344,032$ 2009 2,501,430 1,656,559 844,871 115,000 132,210 1,233,346 818,151 415,195 2010 2,486,461 1,607,986 878,475 130,000 129,220 1,360,483 806,506 553,977 2011 2,557,573 1,601,269 956,304 135,000 125,450 1,370,348 872,369 497,979 2012 2,528,423 1,557,994 970,429 140,000 121,333 1,517,090 936,991 580,099 2013 2,685,372 1,595,221 1,090,151 145,000 116,436 1,505,136 989,295 515,841 2014 2,692,077 1,612,171 1,079,906 150,000 111,850 1,562,067 1,196,115 365,952 2015 2,443,210 1,626,498 816,712 200,000 71,256 1,629,361 1,376,670 252,691 2016 2,567,113 1,682,574 884,539 230,000 29,127 1,717,350 1,399,093 318,257 2017 2,709,997 1,750,717 959,280 235,000 27,288 1,769,842 2,116,752 (346,910) (1)Excludes principal refunded from the proceeds of refunding bond issues. Note: Details regarding the City’s outstanding debt can be found in the notes to basic financial statements. CITY OF APPLE VALLEY Liquor Store – Revenue Bonds G.O. Storm Water – Revenue Bonds Pledged Revenue Coverage Last Ten Fiscal Years 7.568 3.418 3.389 3.672 3.713 3.657 3.414 4.170 4.124 3.011 -151- Operating Less Net Debt Service Revenues/Operating Available Debt Service Principal (1)Interest Coverage Gross Profit Expense Revenue Principal Interest Coverage 285,000$ 41,787$ 1.053 8,670,265$ 7,961,763$ 708,502$ 95,000$ 21,363$ 6.09 300,000 48,416 1.192 8,876,346 6,832,611 2,043,735 170,000 18,275 10.86 315,000 31,035 1.601 8,423,373 7,285,380 1,137,993 105,000 12,495 9.69 220,000 63,313 1.758 8,358,787 7,361,390 997,397 120,000 8,820 7.74 225,000 68,558 1.976 9,256,709 7,214,372 2,042,337 – – – 230,000 64,553 1.751 8,949,608 7,776,510 1,173,098 – – – 240,000 59,908 1.220 8,911,018 7,997,799 913,219 320,000 129,223 2.03 150,000 73,036 1.133 8,988,411 7,950,081 1,038,330 365,000 215,125 1.79 155,000 84,979 1.326 9,450,362 9,130,962 319,400 370,000 207,825 0.55 160,000 81,870 (1.434) 9,910,773 9,785,093 125,680 380,000 200,425 0.22 G.O. Water – Revenue Bonds Table 13 -152- Table 14 Per Capita Personal Personal School Unemployment Population (1)Income Income (2)Enrollment (3)Rate (4) 49,983 1,850,720,541$ 37,027$ 11,348 5.30% 49,376 1,782,325,472 36,097 11,216 6.80% 49,084 1,740,027,800 35,450 11,291 6.50% 49,801 1,801,750,379 36,179 11,264 4.80% 49,895 1,801,658,555 36,109 11,219 4.20% 50,326 1,855,167,338 36,863 11,189 3.60% 50,330 1,934,886,520 38,444 11,312 2.80% 50,161 1,903,961,077 37,957 11,272 2.60% 51,338 1,985,959,192 38,684 11,883 3.00% 52,361 N/A N/A 12,070 2.50% N/A – Not Available Sources: (1)U.S. Census Bureau, Population Division. (2) (3)Schools located in the City’s boundaries: Independent School District No. 196, including Dakota Ridge School. School enrollment defined as adjusted ADMs (average daily membership). ADM is weighted as follows in computing adjusted ADMs: Secondary Fiscal 2008 through 2014 1.250 1.000 0.612 0.612 1.115 1.060 1.300 Fiscal 2015 through 2017 1.000 1.000 0.550 1.000 1.000 1.000 1.200 (4)Minnesota Department of Employment and Economic Development 2015 CITY OF APPLE VALLEY Demographic and Economic Statistics Last Ten Fiscal Years Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2016 City of Apple Valley, American Community Survey, U.S. Census Bureau (2017 data for the City not yet available). Pre-Kindergarten Handicapped Kindergarten Half-Day Kindergarten Full-Day Kindergarten Elementary 1–3 Elementary 4–6 2017 -153- Table 15 Taxpayer Employees Rank Employees Rank ISD No. 196 1,414 1 8.97 %1,913 1 13.25 % Uponor 664 2 4.21 450 3 3.12 Target 520 3 3.30 500 2 3.46 Dakota County 384 4 2.44 349 4 2.42 Walmart 350 5 2.22 340 5 2.36 Wings Financial Federal Credit Union 350 6 2.22 – – – Cub Foods 320 7 2.03 300 6 2.08 Augustana Health Care Center 265 8 1.68 – – – Menard’s 250 9 1.59 – – – Minnesota Zoo 220 10 1.40 260 8 1.80 Fischer Sand and Aggregate Co.– – – 295 7 2.04 Apple Valley Health Care Center – – – 250 9 1.73 Apple Valley Red-E-Mix, Inc.– – – 200 10 1.39 Total 4,737 30.05 %4,857 33.65 % Source: City of Apple Valley Community Development Department Percentage of Total Employment Percentage of Total Employment 20082017 CITY OF APPLE VALLEY Principal Employers Current Fiscal Year and Nine Years Ago -154- Fiscal Year 2008 2009 2010 2011 2012 General government Administration 3.00 3.00 3.00 2.81 3.00 Finance and data processing 5.00 4.95 5.00 5.00 4.71 Information and technology 3.21 3.20 3.17 3.21 3.33 Human resources 5.67 5.92 6.00 5.38 3.97 City clerk/elections 1.68 1.50 1.65 1.73 2.05 General government buildings 3.00 3.00 3.00 2.46 2.00 Community development 5.00 5.00 5.01 5.02 5.16 Code enforcement 2.98 2.15 2.00 1.71 1.82 Total general government 29.54 28.72 28.83 27.32 26.04 Public safety Police 63.97 64.00 62.00 60.09 58.72 Fire 16.49 18.94 16.44 18.45 18.40 Building inspections 5.91 5.99 4.93 4.02 5.07 Total public safety 86.37 88.93 83.37 82.56 82.19 Public works Public works administration 5.90 6.00 7.13 8.48 6.25 Central maintenance facility 5.51 5.50 5.52 5.48 5.25 Streets 17.36 17.07 17.19 17.32 16.63 Engineering (1)– – – 0.73 4.28 Total public works 28.77 28.57 29.84 32.01 32.41 Culture and recreation Park and recreation administration 8.26 7.29 7.81 7.82 7.28 Recreation programs 7.25 7.02 7.84 7.41 6.16 Park maintenance 25.93 25.96 25.27 25.06 25.02 Redwood pool 2.50 2.80 2.13 1.94 2.32 Aquatic swim center 9.27 13.92 12.85 11.28 13.25 Community center 4.15 4.56 3.76 4.03 5.07 Apple Valley Senior Center – 1.15 2.04 1.89 1.92 Cable TV 2.65 2.58 2.61 2.43 2.27 Total culture and recreation 60.01 65.28 64.31 61.86 63.29 Total general government 204.69 211.50 206.35 203.75 203.93 Enterprise funds Municipal liquor 16.85 19.91 19.49 18.99 18.98 Municipal golf (2)13.25 13.83 13.76 14.44 15.96 Sports arena 6.04 6.29 6.05 6.72 6.47 Stormwater drainage utility (3)– – – – – Water and sewer 18.11 18.88 18.58 18.45 18.84 Total enterprise funds 54.25 58.91 57.88 58.60 60.25 Total 258.94 270.41 264.23 262.35 264.18 (1)The City engineering function began in 2011. (2)New expanded golf clubhouse opened September 2012. (3)The Stormwater Drainage FTEs were included in Public Works Administration prior to 2014. Source: CITY OF APPLE VALLEY Full-Time Equivalent (FTE) City Government Employees by Function Last Ten Fiscal Years City of Apple Valley Human Resources Office –FTEs based on hours worked during the fiscal year.Part-time employees converted to FTE based on 2,080 hours per year. -155- Table 16 2013 2014 2015 2016 2017 3.00 3.00 3.00 3.00 3.00 4.00 4.00 4.00 4.00 4.58 3.24 3.53 3.64 3.78 3.11 4.00 4.63 5.00 5.00 5.00 1.81 4.84 2.00 5.39 1.92 2.00 2.00 2.00 2.00 1.92 5.00 5.00 4.77 4.35 5.00 2.00 2.00 2.44 2.40 2.36 25.05 29.00 26.85 29.92 26.89 61.16 60.22 62.27 62.58 62.74 18.63 16.21 15.46 15.54 16.02 5.22 5.75 6.93 6.76 7.72 85.01 82.18 84.66 84.88 86.48 5.99 5.30 3.83 3.80 4.20 5.34 5.44 5.51 5.29 5.30 16.66 16.66 16.92 16.95 17.07 4.24 4.49 4.03 4.48 4.91 32.23 31.89 30.29 30.52 31.48 7.87 7.82 7.83 7.45 7.85 6.76 5.06 6.88 6.23 5.91 23.09 23.24 22.97 24.18 23.79 2.47 2.55 2.35 2.63 2.26 12.80 11.95 12.25 12.65 12.14 5.67 5.95 4.64 4.72 4.55 2.27 3.13 3.03 3.36 3.43 2.44 2.46 2.61 2.74 2.84 63.37 62.16 62.56 63.96 62.77 205.66 205.23 204.36 209.28 207.62 18.86 18.51 17.51 17.47 17.57 20.41 20.10 19.68 18.89 19.15 6.88 7.09 6.57 6.85 6.47 – 0.28 1.96 2.00 2.00 18.14 18.26 18.07 17.61 17.35 64.29 64.24 63.79 62.82 62.54 269.95 269.47 268.15 272.10 270.16 -156- 2008 2009 2010 2011 General government Elections 2 N/A 2 N/A Registered voters 36,003 N/A 32,094 N/A Number of voters casting votes 29,262 N/A 21,271 N/A Number of absentee ballots received 3,348 N/A 1,316 N/A Percentage of absentee ballots to total votes 11.4% N/A 6.2% N/A Voter participation (registered) (elections are held every other year)81.28% N/A 66.28% N/A Public safety Police Crimes – Part I 1,555 1,366 1,565 1,230 Crimes – Part II 2,901 2,542 2,364 2,072 Total arrests 2,278 2,137 1,985 1,963 DWI arrests 251 288 205 213 Traffic citations issued 8,088 7,997 6,329 7,587 Total calls for service 41,682 41,049 38,335 40,272 Fire Calls for service 1,380 1,307 1,340 1,408 Medical 840 735 712 792 Fire 540 572 628 616 Fire call response times under 5 minutes 40% 41% 37% 40% Fire call response times 6–10 minutes 51% 48% 52% 51% Fire call response times over 10 minutes 9% 11% 11% 9% Public works Building permits issued 672 577 1,241 1,630 Permits issued for new dwelling units 41 91 228 31 Commercial building permits issued 110 73 102 71 Plumbing permits issued 900 912 920 886 Heating permits issued 521 557 771 540 Building permits issued 3,017 2,688 2,995 4,248 Building inspections 4,028 3,470 3,621 5,187 Streets maintained (lane miles)404 405 407 408 Cul-de-sacs maintained 313 314 329 329 Snow/ice events 50 48 35 29 Signs replaced 271 385 500 460 Boulevard trees trimmed 1,256 1,600 1,800 5,200 Fleet division vehicle work orders 1,689 1,733 1,735 1,751 Diseased elm and oak trees mitigated 863 729 588 486 Lakes and ponds monitored with water quality samples 17 18 18 18 Sump catch basins cleaned 1,492 1,406 1,505 1,303 Sewage pumped (million gallons)1.2 1.2 1.2 1.2 Miles of sanitary sewer cleaned 69.2 47.6 64.2 72.1 Sanitary lift station inspections 1,716 1,716 1,716 1,716 Water produced (million gallons)2.5 2.4 2.1 2.3 Water samples taken 1,098 1,098 1,128 1,098 Fire hydrants maintained 2,388 2,401 2,405 2,410 Pressure stations inspected 13 13 13 13 Air relief manholes inspected 15 15 15 15 Hydrant flushing 7,045 3,050 5,250 1,020 Hydrant flushing (minutes)– – – – Water breaks repaired 7 20 12 16 Burial sites sold 59 50 44 56 Burials 40 32 36 38 N/A – Not Available Source: Various city departments Function/Program CITY OF APPLE VALLEY Operating Indicators by Function Last Ten Years Fiscal Year -157- Table 17 2012 2013 2014 2015 2016 2017 2 N/A 2 N/A 2 N/A 35,354 N/A 32,370 N/A 35,836 N/A 29,715 N/A 19,351 N/A 29,853 N/A 2,993 N/A 2,100 N/A 8,692 N/A 10.1% N/A 10.9% N/A 29.1% N/A 84.05% N/A 59.78% N/A 83.30% N/A 1,187 1,124 1,098 1,207 1,232 1,237 1,970 1,756 1,627 1,833 1,936 1,993 1,962 1,307 1,096 969 1,234 1,206 145 160 152 120 87 176 6,670 5,726 4,735 4,246 5,441 4,471 39,223 35,215 34,497 35,510 39,548 40,079 1,417 1,454 1,412 1,397 1,622 1,787 639 636 623 668 812 1,097 778 818 789 729 810 690 42% 44% 43% 43% 38% 43% 49% 46% 46% 48% 51% 48% 9% 10% 11% 9% 11% 9% 1,398 1,005 1,893 1,785 1,883 1,902 47 63 71 115 140 167 96 113 115 197 98 184 1,027 1,090 1,173 1,334 1,560 1,620 692 786 851 951 1,076 1,170 4,248 4,248 5,430 5,755 1,883 1,902 6,890 6,848 8,636 10,543 10,702 11,794 410 410 416 416 418 418 330 331 322 324 325 325 25 53 45 29 29 32 700 411 657 451 354 402 2,137 1,990 1,175 1,250 939 1,565 1,850 1,890 2,148 1,486 2,138 1,507 260 430 340 322 326 444 18 18 17 18 18 18 1,400 885 1,455 983 1,106 1,282 1.2 1.3 1.1 1.2 1.1 1.1 75.0 77.0 79.0 54.0 62.0 47.0 1,716 1,716 1,716 1,716 1,716 1,716 2.4 2.4 2.1 2.0 2.0 2.0 1,098 1,098 1,098 1,098 1,098 1,098 2,410 2,444 2,454 2,466 2,484 2,489 13 13 13 13 13 13 15 15 15 16 16 16 – – – – – – 24,455 24,189 23,987 24,916 26,687 24,688 10 16 11 16 8 10 70 59 57 69 75 108 43 45 34 50 46 58 -158- Function/Program 2008 2009 2010 2011 Public safety Police Stations 1 1 1 1 Marked squad units 18 18 20 23 Fire Stations 3 3 3 3 Fire engine trucks 5 5 5 5 Fire ladder trucks 2 2 2 2 Fire brush/rescue trucks 1 1 1 1 Public works City-owned lights 107 126 246 246 Dakota Electric Association-owned 2,076 2,124 2,207 2,270 Xcel-owned lights 301 301 301 301 Streets (centerline miles)171 171 171 172 Cul-de-sacs 313 314 329 329 Roundabouts 3 3 3 3 Trees (number of boulevard trees)7,000 9,500 9,500 9,500 Parks Parks 49 49 50 50 Total park acreage 847 847 879 879 Trails – street side trails (miles)65 65 65 65 Athletic complexes 4 4 5 5 Golf course 1 1 1 1 Community centers 2 2 2 2 Senior center 1 1 1 1 Pools/aquatic centers 2 2 2 2 Ice arenas 2 2 2 2 Water Number of connections 15,413 15,464 15,518 15,566 Miles of water mains and laterals 240 240 241 241 Wells 19 19 19 19 Water valves 3,680 3,705 3,712 3,726 Fire hydrants 2,388 2,401 2,405 2,410 Water reservoirs 5 5 5 5 Reservoir capacity (millions of gallons)12.5 12.5 12.5 12.5 Sanitary sewer Number of connections 14,989 15,033 15,087 15,130 Miles of sanitary sewer mains and laterals 193 193 193 194 Sanitary lift stations 9 9 9 9 Sanitary manholes 5,335 5,360 5,372 5,384 Storm sewer Lift stations 12 12 12 12 Mile of storm sewers N/A 162 162 163 N/A – Not Available Source: Various city departments CITY OF APPLE VALLEY Capital Assets Statistics by Function/Program Last Ten Years Fiscal Year -159- Table 18 2012 2013 2014 2015 2016 2017 1 1 1 1 1 1 23 23 24 24 24 25 3 3 3 3 3 3 5 5 5 5 5 5 2 2 2 2 2 2 1 1 1 1 1 1 261 261 271 271 302 308 2,494 2,718 2,942 3,167 3,303 3,112 301 301 301 301 343 343 172 175 177 177 179 180 329 329 329 324 325 325 3 3 3 4 4 4 9,500 9,330 9,250 9,175 9,100 8,800 50 50 50 50 50 50 879 879 879 879 879 879 65 65 65 65 75 78 5 5 5 5 5 5 1 1 1 1 1 1 2 2 2 2 2 2 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 15,596 15,674 15,752 15,874 16,024 16,226 241 245 247 248 250 266 19 19 19 19 20 20 3,751 3,774 3,812 3,836 3,872 3,886 2,410 2,438 2,454 2,466 2,484 2,489 5 5 5 5 5 5 12.5 13 13 13 13 13 15,160 15,229 15,307 15,422 15,563 15,764 194 200 204 204 204 212 9 9 9 9 9 9 5,384 5,466 5,514 5,538 5,587 5,596 12 12 12 12 12 12 164 165 167 170 173 196 -160- THIS PAGE INTENTIONALLY LEFT BLANK Management Report for City of Apple Valley, Minnesota December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK -1- AUDIT SUMMARY The following is a summary of our audit work, key conclusions, and other information that we consider important or that is required to be communicated to the City Council, administration, or those charged with governance of the City. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the governmental activities, the 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, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information to you verbally and in our audit engagement letter. Professional standards also require that we communicate the following information related to our audit. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. AUDIT OPINION AND FINDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2017: • We have issued an unmodified opinion on the City’s basic financial statements. • We reported one matter involving the City’s internal control over financial reporting that we considered to be a significant deficiency. Due to the limited size of the City’s staff, the City has limited segregation of duties over cash receipts, community center refunds and reimbursements, golf course inventory, and utility billing adjustments. This finding is further detailed in the City’s Special Purpose Audit Reports. • The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. • We reported two findings based on our testing of the City’s compliance with Minnesota laws and regulations. These findings, as further detailed in the City’s Special Purpose Audit Reports, include the following: 1. Responsible Contractor Language 2. Claims and Disbursements -2- OTHER OBSERVATIONS AND RECOMMENDATIONS Golf Course Inventory and Event Revenue Tracking As part of our audit, we noted the City does not have an adequate process for tracking both food and beverage inventory at the golf course. Due to the size and nature of the golf course operations, segregation of duties is limited in the ordering, receiving, and recording of inventory, and there are no standardized processes for interim or annual physical counts. Additionally, the usage of food and beverage inventories that occurs during events held at the golf course is not accurately captured by the current inventory software, due to system limitations and internal modification deficiencies made to the software. These conditions expose the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. One way to h elp mitigate this risk would be to implement monthly physical inventory counts, which are then reviewed in conjunction with the financial activities and results that occur during the same time period. The effectiveness of this type of control procedure is somewhat dependent upon the frequency and timeliness with which it is performed. During our audit, we also evaluated the golf course’s information systems, policies and procedures surrounding event management, including the billing of its customers. During our procedures, we noted it was necessary for the golf course to utilize a stand-alone system for event tracking, due to the inability of the golf course point-of-sale system and the City’s finance system to generate itemized invoices for events. The particular sale details are then later manually entered into the point -of-sale system at the golf course in order for the data to be transferred into the City’s finance software. During the current audit year, the City reviewed the operations at the golf course and is in the process of implementing controls and procedures surrounding event management and billing and tracking of both food and beverage inventory. We recommend the City continues to review these systems and monitor the controls to ensure all events held at the golf course are properly included in the City’s point -of-sale and financial systems. Furthermore, we recommend the City standardize the billing process for events held at the golf course, including assessing whether these functions should be centralized and completed within the finance department. Claims and Disbursements All general disbursement invoices are paid through the City’s finance department. During the audit process, it was noted that vendor invoices are being received in various departments within the City. On occasion, there is a timing delay of sending the invoice to the finance department for payment. We recommend the City review claims and disbursement payment procedures and obtain all vendor invoices centrally at city hall to process in the electronic accounts payable system through the finance department. SIGNIFICANT ACCOUNTING POLICIES Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 of the notes to basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2017; however, the City implemented the following governmental accounting standards during the fiscal year: • Governmental Accounting Standards Board (GASB) Statement No. 79, Certain External Investment Pools and Pool Participants, which enhanced disclosures regarding investments. • GASB Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73, which addressed certain issues related to pension reporting and disclosures. -3- 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 AND MANAGEMENT JUDGMENTS 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 – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets. • Net Other Post-Employment Benefit (OPEB) Liabilities and Pension Benefits – The City has recorded liabilities and activity for net other post-employment benefits (OPEB) and pension benefits. These obligations are calculated using actuarial methodologies described in the GASB Statement Nos. 45 and 68. These actuarial calculations include significant assumptions, including projected changes, healthcare insurance costs, investment returns, retirement ages, proportionate share, and employee turnover. • Compensated Absences – Management’s estimates are based on current rates of pay and unused compensated absence balances. • Self-Insurance Reserves – Management’s estimates of self-insurance reserves are based on the estimated liability for incurred but not reported claims. • Land Held for Resale – Management’s estimates of these assets are based on the lower of cost or acquisition value. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that they are reasonable in relation to the basic financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Where applicable, management has corrected all such misstatements, including the prior period adjustment noted in the comprehensive annual financial report. There were no additional misstatements detected as a result of audit procedures that were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. -4- DISAGREEMENTS WITH MANAGEMENT For purposes of this report, 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. MANAGEMENT REPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated June 25, 2018. MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards requi re 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 respo nses were not a condition to our retention. OTHER MATTERS We applied certain limited procedures to the management’s discussion and analysis (MD&A) and the pension and OPEB-related required supplementary information (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. We were engaged to report on the supplementary information accompanying the financial statements, which is not RSI. With respect to this supplementary information, 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. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements, but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. -5- GOVERNMENTAL FUNDS OVERVIEW This section of the report provides you with an overview of the financial trends and activities of the City’s governmental funds, which includes the General, special revenue, debt service, and capital project funds. These funds are used to account for the basic services the City provides to all of its citizens, which are financed primarily with property taxes. The governmental fund information in the City’s financial statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current assets to finance its current liabilities. PROPERTY TAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For the 2016 fiscal year, local ad valorem property tax levies provided 39.8 percent of the total governmental fund revenues for cities over 2,500 in population, and 36.4 percent for cities under 2,500 in population. The total market value of property in Minnesota cities increased about 5.6 percent for the 2017 levy year, which followed an increase of 5.7 percent for levy year 2016. The market values used for levying property taxes are based on the previous fiscal year (e.g., market values for taxes levied in 2017 were based on assessed values as of January 1, 2016), so the trend of change in these market values lags somewhat behind the housing market and economy in general. The City’s taxable market value increased 5.6 percent for taxes payable in 2016 and increased 4.6 percent for taxes payable in 2017. The following graph shows the City’s changes in taxable market value over the past 10 years: $– $1,000,000,000 $2,000,000,000 $3,000,000,000 $4,000,000,000 $5,000,000,000 $6,000,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Taxable Market Value -6- Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s property classification system to each property’s market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of its tax base that is in each property classification from year -to-year, as well as legislative changes to tax rates. The City’s tax capacity increased 5.2 percent for taxes payable in 2016 and increased 4.4 percent for taxes payable in 2017. The following graph shows the City’s change in tax capacities over the past 10 years: $– $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years, along with comparative state-wide and metro area average rates from the two most recent years for which the information is available: 2015 2016 2015 2016 2015 2016 2017 Average tax rate City 46.9 46.5 43.4 43.0 45.3 44.7 44.5 County 44.7 44.1 42.9 42.3 29.6 28.6 28.0 School 27.1 27.5 28.3 28.6 23.3 24.4 23.3 Special taxing 6.9 6.9 8.8 8.7 5.0 5.0 4.9 Total 125.6 125.0 123.4 122.6 103.2 102.7 100.7 Note: State-wide and metro area average tax rates are not available for 2017. Rates Expressed as a Percentage of Net Tax Capacity Apple ValleyMetro Area Seven-CountyAll Cities State-Wide City of The City’s portion of the tax capacity rate has been similar to state-wide and seven-county metro averages. The total tax rate applied to the City’s residents is lower than average, due to the much lower average tax rate of the county. -7- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2017, presented both by fund balance classification and by major fund: Increase 2016 2017 (Decrease) Fund balances of governmental funds Total by classification Nonspendable 120,547$ 327,012$ 206,465$ Restricted 27,079,147 13,431,367 (13,647,780) Committed 833,145 610,215 (222,930) Assigned 28,510,255 28,844,129 333,874 Unassigned 6,819,130 7,612,723 793,593 Total governmental funds 63,362,224$ 50,825,446$ (12,536,778)$ Total by fund General 16,609,454$ 17,336,413$ 726,959$ Closed Bond Issues 8,843,565 9,440,666 597,101 2001/2008B Refunding Improvement Bonds (2,928,431) (2,846,426) 82,005 Road Improvements (5,198,862) (5,174,280) 24,582 Future Capital Projects 14,675,768 15,353,401 677,633 Nonmajor 31,360,730 16,715,672 (14,645,058) Total governmental funds 63,362,224$ 50,825,446$ (12,536,778)$ Governmental Funds Change in Fund Balance Fund Balance as of December 31, In total, the fund balances of the City’s governmental funds decreased by $12,536,778 during the year ended December 31, 2017. The decrease is mainly in fund balance restricted for debt service, due largely to the 2013A and 2015B bond proceeds being used in the current year to refund outstanding bonds in advance of scheduled payment dates. -8- GOVERNMENTAL FUND REVENUES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors , such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the MD&A. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Year ##############################2015 2016 2017 Population 20,000–100,000 20,000–100,000 50,161 51,338 52,361 Property taxes 443$ 455$ 458$ 466$ 472$ Tax increments 37 42 10 4 7 Franchise fees and other taxes 39 45 29 29 28 Special assessments 59 59 77 81 30 Licenses and permits 43 42 43 40 62 Intergovernmental revenues 156 152 46 51 38 Charges for services 94 103 54 53 57 Other 58 54 61 85 51 Total revenue 929$ 952$ 778$ 809$ 745$ Governmental Funds Revenue per Capita With State-Wide Averages by Population Class State-Wide City of Apple Valley The City’s governmental funds have generated significantly less revenue per capita in total than other Minnesota cities in its population class. As noted above, the City receives a lower level of intergovernmental revenue than the average city, causing the City to rely on property taxes and other forms of revenue to operate the governmental activities of the City. The City generated $38,970,339 of total revenue in its governmental funds in 2017, a decrease of $2,546,000 (6.1 percent) from the prior year. The City’s per capita governmental funds revenue for 2017 was $745, a decrease of $64, or 7.9 percent, from the prior year. The largest changes occurred in special assessments, other revenue, and licenses and permits. Special assessment revenue decreased $51 per capita, due to the decreased special assessment prepayments in the current year. The decrease in other revenue of $34 per capita is due to additional project escrow deposits and park dedications received in the prior year. These decreases were offset by the $22 per capita increase in licenses and permits, due to increased building activity. -9- GOVERNMENTAL FUND EXPENDITURES The expenditures of governmental funds will also vary from state -wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows: • Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues. • Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects. • Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources, such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with state-wide averages, are presented in the following table: Year December 31, 2015 December 31, 2016 2015 2016 2017 Population 20,000–100,000 20,000–100,000 50,161 51,338 52,361 Current General government 89$ 97$ 100$ 123$ 109$ Public safety 261 273 229 236 235 Street maintenance 99 95 72 76 79 Parks and recreation 94 95 104 112 110 All other 89 91 – – – Total current 632 651 505 547 533 Capital outlay and construction 286 301 129 164 162 Debt service Principal 117 115 71 52 65 Interest and fiscal 33 34 22 19 18 Total debt service 150 149 93 71 83 Total expenditures 1,068$ 1,101$ 727$ 782$ 778$ State-Wide Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class City of Apple Valley As the above table reflects, the City’s current expenditures per capita have also been below the state-wide average. Total expenditures in the City’s governmental funds for 2017 were $40,714,407, an increase of $620,049 (1.5 percent). The City’s per capita governmental funds current expenditures decreased $14 per capita, mainly in the general government function. Debt service expenditures experienced an increase of $12 per capita as established with the scheduled payment plans approved at the time of issuing debt. -10- GENERAL FUND The City’s General Fund accounts for the financial activity of the basic services provided to the community. The primary services included within this fund are the administration of the municipal operation, police and fire protection, building inspection, streets and highway maintenance, and parks and recreation. The graph below illustrates the change in the General Fund financial position over the last five years. We have also included a line representing annual expenditures to reflect the change in the size of the General Fund operation over the same period. 2013 2014 2015 2016 2017 Fund Balance $14,226,384 $15,155,450 $16,092,104 $16,609,454 $17,336,413 Cash Balance $11,356,150 $11,476,467 $14,299,304 $14,202,606 $15,908,162 Expenditures $24,625,113 $24,642,712 $24,927,799 $25,986,358 $27,274,374 $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 General Fund Financial Position Year Ended December 31, The City’s General Fund cash and investments balance at December 31, 2017 was $15,908,162, an increase of $1,705,556 from the previous year. Total fund balance at December 31, 2017 was $17,336,413, an increase of $726,959 from the prior year. Having an appropriate fund balance is an important factor in assessing the City’s financial health because a government, like any organization, requires a certain amount of equity to operate. Generally, the amount of equity required typically increases as the size of the operation increases. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and can be a factor in determining the City’s bond rating and resulting interest costs. The City Council has formally adopted a fund balance policy that states the City will strive to maintain a minimum unassigned General Fund balance of 50.0 percent of the subsequent year’s budgeted expenditures. At December 31, 2017, the unassigned fund balance of the General Fund was 49.3 percent of the subsequent year’s budgeted expenditures, including transfers. -11- The following graph reflects the City’s General Fund revenue sources for 2017 compared to budget: Other Charges for Services Intergovernmental Licenses and Permits Taxes General Fund Revenue Budget to Actual Budget Actual Total General Fund revenues for 2017 were $1,805,398 (5.9 percent) over the final budget. The majority of this variance was in licenses and permits, which was over budget $1,759,679, due to more than anticipated building-related activities. The following graph presents the City’s General Fund revenues by source for the last five years: Taxes Intergovernmental Other 2013 $21,666,778 $938,090 $4,494,986 2014 $22,188,314 $874,473 $5,465,302 2015 $22,226,012 $781,409 $6,044,728 2016 $23,126,722 $806,909 $6,119,933 2017 $23,940,494 $831,908 $7,427,411 $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 General Fund Revenue by Source Year Ended December 31, Total General Fund revenues for 2017 were $32,199,813, an increase of $2,146,249 (7.1 percent) from the previous year. Taxes increased $813,772, due to an overall increase in the general tax levy. Revenue from other sources increased $1,307,478 mainly in license and permit revenue, due to more building-related activity as previously discussed. -12- The following graph reflects the City’s General Fund expenditures compared to budget for 2017: Parks and Recreation Public Works Public Safety General Government General Fund Expenditures Budget to Actual Budget Actual Total General Fund expenditures for 2017 were $27,274,374, which was $1,541,986 (5.4 percent) less than budget. This variance was spread across all functions. General government was under budget $463,108, mostly in the information technology department related to lower than anticipated costs in software licensing and equipment purchases. Public safety was under budget $530,742, mostly in the fire protection and police protection departments resulting from less equipment purchases and position vacancies. Public works expenditures were $423,931 under budget, mostly from savings of overtime hours in the streets department. The remaining variance was in parks and recreation expenditures, which was $124,205 under budget, mostly in the parks maintenance department in equipment purchases and lower than budgeted benefit costs. The following graph presents the City’s General Fund expenditures by function for the last five years: General Government Public Safety Public Works Parks and Recreation 2013 $4,664,916 $10,882,561 $4,181,297 $4,896,339 2014 $4,576,708 $11,057,938 $3,986,727 $5,021,339 2015 $4,792,595 $11,390,204 $3,637,190 $5,107,810 2016 $4,984,412 $11,817,350 $3,725,606 $5,458,990 2017 $5,148,448 $12,419,830 $4,041,044 $5,665,052 $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 General Fund Expenditures by Function Year Ended December 31, General Fund expenditures increased by $1,288,016, or 5.0 percent, from the prior year. General government expenditures increased $164,036, mainly in the community development department related to the comprehensive plan update. Public safety expenditures increased $602,480, mainly in the police protection and building inspection departments. The increase in expenditures in the public works department of $315,438 was mainly in the engineering and streets departments. Expenditures in parks and recreation increased $206,062, mainly in the aquatic swim center, Apple Valley Community Center, and parks and recreation administration departments. Typical to other cities we audit, public safety costs for the City comprise the largest portion of General Fund spending and have seen the largest increases over the past five years. -13- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which includes the Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, Storm Drainage, Street Light Utility, and Cemetery Funds. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the years ended December 31, 2017 and 2016, presented both by classification and by fund: Increase 2016 (as restated)2017 (Decrease) Net position of enterprise funds Total by classification Net investment in capital assets 93,563,909$ 94,851,212$ 1,287,303$ Restricted 178,977 178,665 (312) Unrestricted 17,208,279 15,505,784 (1,702,495) Total enterprise funds 110,951,165$ 110,535,661$ (415,504)$ Total by fund Municipal Liquor 5,044,315$ 5,369,786$ 325,471$ Municipal Golf Course 887,471 523,387 (364,084) Sports Arena 1,031,749 1,088,091 56,342 Water and Sewer 70,353,622 69,827,460 (526,162) Storm Drainage 31,414,817 31,430,884 16,067 Street Light Utility 254,712 264,315 9,603 Cemetery 1,964,479 2,031,738 67,259 Total enterprise funds 110,951,165$ 110,535,661$ (415,504)$ Enterprise Funds Change in Financial Position Net Position as of December 31, In total, the net position ($110,535,661) of the City’s enterprise funds decreased by $415,504 during the year ended December 31, 2017. The increase in the net investment in capital assets reflects the continued investment in utility infrastructure and other capital assets. The decrease in unrestricted net position ($1,702,495) is due to the use of unrestricted net position for capital asset purchases in the current year. In the current year, the City reported a prior period adjustment in the Water and Sewer Fund and Storm Drainage Fund related to the City’s inventory of capitalized assets and the related useful lives. This prior period adjustment reduced beginning equity by $16,546,976 in the Water and Sewer Fund and $9,306,199 in the Storm Drainage Fund. The 2016 balances in the table above have been restated for this adjustment. -14- MUNICIPAL LIQUOR FUND The following graph presents five years of operating results for the Municipal Liquor Fund: 2013 2014 2015 2016 2017 Sales $9,380,818 $9,292,224 $8,480,414 $8,738,804 $9,183,272 Cost of Sales $6,695,446 $6,600,147 $6,037,204 $6,171,691 $6,473,275 Operating Expenses (Excluding Depreciation)$1,460,732 $1,479,096 $1,485,163 $1,546,028 $1,609,959 Operating Income (Loss) (Excluding Depreciation)$1,224,640 $1,212,981 $958,047 $1,021,085 $1,100,038 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Municipal Liquor Fund Year Ended December 31, The Municipal Liquor Fund ended 2017 with a net position of $5,369,786, an increase of $325,471 from the prior year. Of this net position, $2,414,288 represents the investment in liquor capital assets, $178,665 is restricted for debt service, and $2,776,833 is in unrestricted net position. Liquor sales for 2017 were $9,183,272, $444,468 (5.1 percent) higher than the prior year. The Municipal Liquor Fund generated operating income (excluding depreciation) of $1,100,038 in 2017, or 12.0 percent, of gross sales, which is an increase from the 11.7 percent reported in fiscal 2016. The Municipal Liquor Fund gross profit margin was 29.5 in fiscal 2017, slightly more than 29.4 in fiscal 2016. -15- MUNICIPAL GOLF COURSE FUND The following graph presents five years of operating results for the Municipal Golf Course Fund: 2013 2014 2015 2016 2017 Operating Revenue $1,167,654 $1,289,089 $1,387,821 $1,354,645 $1,173,102 Operating Expenses (Excluding Depreciation)$1,089,819 $1,135,917 $1,208,454 $1,301,452 $1,206,920 Cost of Goods Sold $231,404 $210,461 $256,331 $237,409 $188,557 Depreciation $159,987 $175,518 $174,033 $174,171 $183,693 Operating Income (Loss) (Excluding Depreciation)$(153,569)$(57,289)$(76,964)$(184,216)$(222,375) $(400,000) $(200,000) $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Municipal Golf Course Fund Year Ended December 31, The Municipal Golf Course Fund ended 2017 with a net position of $523,387, a decrease of $364,084 from the prior year. Of this net position, $4,046,698 represents the investment in golf course land and capital assets, leaving a deficit of ($3,523,311) in unrestricted net position. Municipal Golf Course Fund operating revenues for 2017 were $1,173,102, which is $181,543 less than the prior year, resulting from fewer rounds of golf played in 2017 attributed to the weather . Operating expenses (excluding depreciation) for 2017 were $1,206,920, a decrease of $94,532 from the prior year. On an annual basis, this fund has had to borrow from other funds to fund cash flow and capital needs. This interfund borrowing was a total of $3,123,789 at December 31, 2017. Interfund borrowing for cash flow needs totals $1,211,519 at December 31, 2017. The remainder, $1,912,270, is for capital needs and is to be repaid over multiple years. We recommend the City continue to monitor the financial results in this fund and update the long-range financial plan for this fund. -16- SPORTS ARENA FUND The following graph presents five years of operating results for the Sports Arena Fund: 2013 2014 2015 2016 2017 Sales and User Fees $643,855 $714,351 $722,270 $783,089 $732,919 Operating Expenses (Excluding Depreciation)$601,634 $697,754 $606,977 $618,747 $659,107 Nonoperating Revenue (Expense)$108,860 $152,162 $121,419 $123,022 $127,945 Income (Loss)$6,361 $19,779 $73,273 $135,513 $56,342 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 Sports Arena Fund Year Ended December 31, The Sports Arena Fund ended 2017 with a net position of $1,088,091, an increase of $56,342 from the prior year. Of the net position balance, $1,126,083 represents investments in sports arena capital assets, leaving a deficit of ($37,992) of unrestricted net position. Sports Arena Fund operating revenues for 2017 were $732,919, a decrease of $50,170 (6.4 percent) from the prior year. Operating expenses (including cost of goods sold and excluding depreciation) for 2017 were $659,107, an increase of $40,360 from the prior year. In the past, this fund has had to borrow from other funds to fund cash flow needs. The remaining interfund borrowing was a total of $52,915 at December 31, 2017. -17- WATER AND SEWER FUND The following graph presents five years of operating results for the Water and Sewer Fund: 2013 2014 2015 2016 2017 Operating Revenue $8,949,608 $8,911,018 $8,988,411 $9,450,362 $9,910,773 Operating Expenses (Excluding Depreciation)$6,186,463 $6,388,459 $6,102,574 $6,401,847 $7,016,546 Depreciation $1,590,047 $1,609,340 $1,847,507 $2,729,115 $2,768,547 Operating Income (Loss) (Excluding Depreciation)$2,763,145 $2,522,559 $2,885,837 $3,048,515 $2,894,227 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 $11,000,000 Water and Sewer Fund Year Ended December 31, The Water and Sewer Fund ended 2017 with a net position of $69,827,460, a decrease of $17,073,138 from the prior year. Of this net position, $57,880,536 represents the investment in water and sewer distribution system capital assets, leaving $11,946,924 of unrestricted net position. This fund recorded a prior period adjustment related to the City’s inventory of capitalized assets and the related useful lives that reduced beginning net investment in capital assets by $16,546,976. Water and Sewer Fund operating revenue was $9,910,773 for 2017, an increase of $460,411 (4.9 percent) from the prior year, due to an increase in rates. Operating expenses (excluding depreciation) of $7,016,546 were $614,699 (9.6 percent) higher than last year, mainly due to an increase in building repairs, consulting services related to the comprehensive plan, and the increased sewer charges. Although this fund is in a healthy financial position, we suggest that the City continue to review the water and sewer rates on an annual basis. Water and sewer rates are generally designed to cover operating costs and provide an accumulation of resources for significant repairs and replacements, and an operating cushion for potential negative years in financial operations. -18- STORM DRAINAGE FUND The following graph presents five years of operating results for the Storm Drainage Fund: 2013 2014 2015 2016 2017 Operating Revenue $1,505,136 $1,562,067 $1,629,361 $1,717,350 $1,769,842 Operating Expenses (Excluding Depreciation)$501,165 $695,341 $840,901 $823,837 $1,121,262 Depreciation $488,130 $500,774 $535,769 $575,256 $995,490 Operating Income (Loss) (Excluding Depreciation)$1,003,971 $866,726 $788,460 $893,513 $648,580 $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 Storm Drainage Fund Year Ended December 31, The Storm Drainage Fund ended 2017 with a net position of $31,430,884, a decrease of $9,290,132 from the prior year. Of this, $28,291,716 represents the investment in storm drainage capital assets and $3,139,168 of unrestricted net position. This fund recorded a prior period adjustment related to the City’s inventory of capitalized assets and the related useful lives that reduced beginning net investment in capital assets by $9,306,199. Storm Drainage Fund operating revenues for 2017 were $1,769,842, which was an increase of $52,492 (3.1 percent) from the prior year, due to the increased rates. Operating expenses (excluding depreciation) for 2017 were $1,121,262, which was $297,425 (36.1 percent) higher than the prior year, mainly due to an increase in contractual services related to the surface water management plan. -19- STREET LIGHT UTILITY FUND The following graph presents five years of operating results for the Street Light Utility Fund: 2013 2014 2015 2016 2017 Operating Revenue $449,885 $465,584 $483,680 $500,877 $507,360 Operating Expenses $444,106 $424,670 $446,644 $437,439 $483,752 Operating Income (Loss)$5,779 $40,914 $37,036 $63,438 $23,608 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Street Light Utility Fund Year Ended December 31, The Street Light Utility Fund ended 2017 with a net position of $264,315, an increase of $9,603 from the prior year, which is all in unrestricted net position. Street Light Utility Fund operating revenues for 2017 were $507,360, a slight increase of $6,483 from the prior year. Operating expenses for 2017 were $483,752, an increase of $46,313 from the previous year, mainly in utilities expense. -20- CEMETERY FUND The following graph presents five years of operating results for the Cemetery Fund: 2013 2014 2015 2016 2017 Operating Revenue $123,197 $104,128 $132,305 $160,716 $187,334 Operating Expenses (Excluding Depreciation)$32,408 $32,582 $30,022 $41,726 $108,158 Operating Income (Loss) (Excluding Depreciation)$90,789 $71,546 $102,283 $118,990 $79,176 $– $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 Cemetery Fund Year Ended December 31, The Cemetery Fund ended 2017 with a net position of $2,031,738, an increase of $67,259 from the prior year. Of the net position balance, $1,091,891 represents investments in cemetery capital assets, leaving $939,847 of unrestricted net position. Cemetery Fund operating revenues for 2017 were $187,334, an increase of $26,618 from the prior year. Operating expenses (excluding depreciation) for 2017 were $108,158, an increase of $66,432 from the prior year, mainly due to plans related to the expansion of the cemetery. -21- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what your city owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, the Statement of Net Position divides the net position into three components: • Net Investment in Capital Assets – The portion of net position reflecting equity in capital assets (i.e., capital assets minus related debt). • Restricted Net Position – The portion of net position equal to resources whose use is l egally restricted minus any noncapital-related liabilities payable from those same resources. • Unrestricted Net Position – The residual balance of net position after the elimination of net investment in capital assets and restricted net position. The following table presents the components of the City’s net position as of December 31, 2017 and 2016, for governmental activities and business-type activities: Increase 2016 (as restated)2017 (Decrease) Net position Governmental activities Net investment in capital assets 93,945,022$ 99,642,040$ 5,697,018$ Restricted 16,141,535 15,364,368 (777,167) Unrestricted 24,394,132 24,292,441 (101,691) Total governmental activities 134,480,689 139,298,849 4,818,160 Business-type activities Net investment in capital assets 93,563,909 94,851,212 1,287,303 Restricted 178,977 178,665 (312) Unrestricted 17,104,636 15,390,547 (1,714,089) Total business-type activities 110,847,522 110,420,424 (427,098) Total net position 245,328,211$ 249,719,273$ 4,391,062$ As of December 31, The City’s total net position at December 31, 2017 was $4,391,062 higher than the previous year-end, which was comprised of an increase of $4,818,160 in governmental activities and a decrease of $427,098 in business-type activities. In the current year, the City reported a prior period adjustment in the Water and Sewer Fund and Storm Drainage Fund, which is part of business-type activities on the entity-wide statements, related to the City’s inventory of capitalized assets and the related useful lives. This prior period adjustment reduced beginning equity by $25,853,175. The 2016 balances in the table above have been restated for this adjustment. -22- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net position. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2017 and 2016: 2016 2017 Net (expense) revenue Governmental activities General government (5,255,652)$ (4,301,558)$ Public safety (13,022,297) (11,743,736) Public works 281,992 (1,528,785) Parks and recreation (4,284,534) (5,777,548) Interest and fiscal charges (912,007) (886,283) Business-type activities Municipal liquor 866,781 934,487 Municipal golf course (372,169) (365,583) Sports arena 13,296 (65,423) Water and sewer 2,855,345 650,938 Storm drainage 1,431,756 (21,951) Cemetery 99,926 60,120 Street light utility 63,438 23,608 Total net (expense) revenue (18,234,125) (23,021,714) General revenues Property taxes 24,160,391 25,174,457 Other taxes 185,568 182,377 Franchise taxes 1,309,757 1,288,426 Grants and contributions not restricted to specific programs 37,719 56,751 Other general revenues 6,888 8,440 Investment earnings (net of market value adjustment)1,005,502 702,325 Total general revenues 26,705,825 27,412,776 Change in net position 8,471,700$ 4,391,062$ Net Change One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the way the City’s governmental and business-type operations are financed. The table clearly illustrates the dependence of the City’s governmental operations on general revenues, such as property taxes and unrestricted grants. It also shows if the City’s business-type activities are generating sufficient program revenues (service charges and program-specific grants) to cover expenses. This is critical given the current downward pressures on the general revenue sources. -23- LEGISLATIVE UPDATES The 2017 legislative session began with a full agenda, which included adopting a fiscal year 2018–2019 biennial state budget. The February 2017, state budget forecast projected that the state General Fund would end the 2016–2017 biennium with a surplus of $743 million, eliminating the need for budget cuts or transfers to balance the fund. However, the Legislature was expected to address several significant spending areas for which successful funding appropriations had not been passed in recent legislative sessions. The 2017 regular legislative session ended with four omnibus budget bills being vetoed, potentially leaving a number of these same areas without appropriations. After a three-day special session, the Governor and Legislature were able to agree on budget and appropriation bills addressing most of the state budgetary needs for the upcoming biennium, albeit not without several line item vetoes invoked by the Governor, including striking the appropriations for operating the House and Senate from the bills. The following is a summary of recent legislation affecting Minnesota cities: Omnibus Bonding Bill – The omnibus bonding bill authorizes financing for approximately $1.1 billion in capital improvements. Included in the approved funding was $255 million for transportation infrastructure, $83 million for economic development, $116 million for Public Financing Agency water infrastructure loans and grants to municipalities, and $4 million for Metropolitan Council inflow and infiltration improvement grants to metro area cities. Omnibus Transportation Bill – The omnibus transportation bill appropriates $2.95 billion in fiscal 2018 and $2.87 billion in fiscal 2019, for a wide variety of transportation related projects. Included in the appropriations are approximately $191 million and $198 million for municipal state aid street fund purposes in fiscal 2018 and fiscal 2019, respectively. Property Tax Relief – The omnibus tax bill contained a number of property tax relief measures, including: • Elimination of the implicit price deflator annual increase for the state general property tax levy, effectively freezing it at the payable 2018 level for many property classes; • Exempting the first $100,000 of each commercial-industrial parcel’s tax capacity from the state general property tax levy; • Expanding eligibility for homestead or agricultural property classification exemptions for certain types of resort and conservation property for general property taxes; and • Increasing the minimum value for a storage shed, deck, or similar structure on a leased mobile home to be considered taxable from $1,000 to $10,000. Local Government Aid – The annual appropriation for Local Government Aid (LGA) for cities was increased $15.0 million to $534.4 million for aid payable in 2018 and thereafter, and the LGA payment schedule was accelerated for fiscal 2019 only. Several corrections were also mad e to the city LGA formula calculation, and a sparsity adjustment was incorporated for certain medium and small cities beginning in 2018. Minnesota Investment Fund – The omnibus jobs and economic growth bill appropriates $12.5 million for each year of the biennium for the Minnesota Investment Fund, which is available for municipalities to provide loans to assist with the expansion of local businesses. Electronic Funds Transfers – Effective August 1, 2017, home rule charter cities of the second, third, or fourth class are added to the list of local government entities allowed to pay certain claims using electronic funds transfers. To be eligible, local governments must enact specified policy controls governing the initiation, authorization, and documentation of electronic funds transfers. Claims Declaration – The requirement to obtain a specific form of written claim declaration was also repealed based on the understanding that by making the claim, the party making the claim is declaring that the claim is just and correct and has not been paid previously. -24- City E-mail Address Required to Receive State Aid – Effective for state aids payable in 2018 and thereafter, cities will be required to register an official e-mail address with the Commissioner of the state Department of Revenue in order to receive state aid payments. Workforce Housing Tax Increment Financing – The omnibus tax bill created a new authorized use of tax increment financing (TIF), for workforce housing in cities located outside of the statutorily defined metropolitan area that meet certain criteria. Tax Increment Financing Interfund Loans – Interfund loan provisions for TIF were amended to make it easier for cities and development authorities to make and document interfund loans. Loans may now be made or documented up to 60 days after the actual transfer or expenditure occurs. Interfund loan resolutions may now be passed prior to the final approval of the related TIF plan. Loan terms may be amended after the loan has been made if the TIF district has not been decertified. Public Debt – The Legislature passed several amendments to statutes governing public debt that took effect on July 1, 2017, including: • Allowing both home rule charter and statutory cities to issue 20-year capital notes for projects to eliminate R-22 Freon-based refrigerant; • Increasing the maximum dollar limit on Housing and Redevelopment Authority general obligation bond issues from $3 million to $5 million; and • Modifying the requirements for street reconstruction bonds to be approved by a two-thirds majority of the governing body rather than requiring unanimous approval. Local Housing Trust Funds – The omnibus jobs and economic growth appropriations bill established authority for cities to create a local housing trust fund by ordinance, or to participate in a joint powers agreement to establish a regional housing trust fund. The funds, which may be financed from sources such as local government appropriations or housing and redevelopment authority levies, may be used for grants or loans for development, rehabilitation, financing of housing to match federal or state or private funds for housing, down payment assistance, rental assistance, or homebuyer counseling. Long-Term Equity Investment Authority – Effective July 1, 2017, cities with a population of more than 100,000 or those that had their most recently issued general obligation bonds rated in the highest category, are authorized to invest in an expanded list of authori zed investments that includes certain equity-based investments. The amount invested in equity-based investments cannot exceed 15 percent of the sum of a city’s assigned cash, cash equivalents, deposits, and investments. Before investing in the expanded list of authorized investments, the governing body of the municipality must adopt a resolution acknowledging the risks assumed. Border-to-Border Broadband Grants – The Legislature appropriated $20 million in fiscal 2018 for the Border-to-Border Broadband Grant Program. The grants, available through the Office of Broadband Development in the Department of Employment and Economic Development, provide funding to help communities meet state goals for the development of state-wide, high-speed broadband access, focusing on areas currently considered to be underserved or with a high concentration of low-income households. Elections – An omnibus elections law was passed making several modifications to election administration, including: requiring special elections conducted by local governments be held on one of five uniform election dates, clarifying the timeline for municipalities to change from odd to even -year election cycles or vise-versa, allowing municipalities to canvass the results of a primary election on the second or third day after the primary, and appropriating $7 million for grants to replace aging election equipment or purchase electronic poll books. -25- Workers’ Compensation and PERA Retirement Benefits – A statutory change was adopted based on the results of recent court rulings that Public Employees Retirement Association (PERA) retirement benefits should not be offset against workers’ compensation permanent total disability benefits. Under the new law, claimants would receive all past and future permanent and total disability benefits without a PERA retirement offset. Effective January 1, 2019, the contribution rates for the Police and Fire Plan will increase. Employee and employer rates will increase by 1.0 percent and 1.5 percent , respectively, phased in over a two-year period. Notice of Proposed Ordinances – A new statute was created requiring cities to provide a 10-day notice prior to a scheduled final vote on most new proposed ordinances or amendments to ordinances, and specifying the various acceptable means of providing the required notification. State Building Code Applicability – Construction, additions, and alterations to places of public accommodation; defined as publicly or privately-owned facilities designed for occupancy by 200 or more people as a sports or entertainment arena, stadium, theater, community or convention hall, special event center, indoor amusement facility or water park, or indoor swimming pool; must comply with the state building code. Sunday Liquor Sales – Minnesota Statutes were amended to allow for the sale of intoxicating liquor on Sundays between the hours of 11:00 a.m. and 6:00 p.m. by off-sale licensees, effective July 1, 2017. REAL ID Act – Minnesota Statutes were amended to make the state compliant with federal REAL ID Act requirements, which will change identity verification and security related to state-issued identification cards and driver’s licenses. THIS PAGE INTENTIONALLY LEFT BLANK -26- ACCOUNTING AND AUDITING UPDATES GASB STATEMENT NO. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with other post-employment benefits (OPEB), as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. Similar to changes implemented for pensions, this statement requires the liability of employer and nonemployer contributing entities to employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. Note disclosure and RSI requirements about defined benefit OPEB also are addressed. The requirements for this statement are effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. GASB STATEMENT NO. 83, CERTAIN ASSET RETIREMENT OBLIGATIONS This statement addresses accounting and financial reporting for certain asset retirement obligations (ARO), which are legally enforceable liabilities associated with the retirement of a tangible capital asset. This statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for ARO. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability when it is both incurred and reasonably estimable. The measurement of an ARO is required to be based on the best estimate of the current value of outlays expected to be incurred, and a deferred outflow of resources associated with an ARO is required to be measured at the amount of the corresponding liability upon initial measurement. This statement requires the current value of a government’s AROs to be adjusted for the effects of general inflation or deflation at least annually, and a government to evaluate all relevant fac tors at least annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. A government should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays. Deferred outflows of resources should be reduced and recognized as outflows of resources in a systematic and rational manner over the estimated useful life of the tangible capital asset. If a government owns a minority interest in a jointly owned tangible asset where a nongovernmental entity is the majority owner or has operational responsibility for the jointly owned asset, the government’s minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability measurement and recognition requirements of this statement. -27- The statement also requires disclosures of any funding or financial assurance requirements a government has related to the performance of asset retirement activities, along with any assets restricted for the payment of the government’s AROs. This statement also requires disclosure of information about the nature of a government’s AROs, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor. This statement requires similar disclosures for a government’s minority shares of AROs. The requirements of this statement are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 84, FIDUCIARY ACTIVITIES 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 post-employment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements, which should present a statement of fiduciary net position and a statement of changes in fiduciary net position. This statement 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. A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds. 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, defined as 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. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 85, OMNIBUS 2017 The objective of this statement is to address issues that have been identified during implementation and application of certain GASB statements. The statement addresses a variety of topics, including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits (pensions and OPEB). The statement is meant to enhance consistency in the application of recent accounting and financial reporting standards. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. -28- GASB STATEMENT NO. 86, CERTAIN DEBT EXTINGUISHMENT ISSUES Current GASB guidance requires that debt be considered defeased in substance when the debtor irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. This new standard establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. The primary objective of this statement is to improve 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—resources other than the proceeds of refunding debt—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 financial statements for debt that is defeased in substance. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. GASB STATEMENT NO. 87, LEASES A lease is a contract that transfers control of the right to use another entity’s nonfinancial 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. Governments enter into leases for many types of assets. Under the previous guidance, leases were classified as either capital or operating depending on whether the lease met any of four tests. In many cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease financing transactions. The goal of this statement is to better meet the information needs of users by improving accounting and financial reporting for leases by governments. It establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. This statement increases the usefulness of 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. 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 the relevance and consistency of information about governments’ leasing activities. To reduce the cost of implementation, this statement includes an exception for short-term leases, 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. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Special Purpose Audit Reports Year Ended December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK Page Independent Auditor’s 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 1–2 Independent Auditor’s Report on Minnesota Legal Compliance 3 Schedule of Findings and Responses 4–5 Table of Contents CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA THIS PAGE INTENTIONALLY LEFT BLANK C ERTIFIED A CCOUNTANTS P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com -1- INDEPENDENT AUDITOR’S 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 To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 25, 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. 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 have not been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be a material weakness. We did identify certain deficiencies in internal control, described in the accompanying Schedule of Findings and Responses as item 2017-001, that we consider to be a significant deficiency. (continued) -2- 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 FINDING The City’s response to the finding identified in our audit is described in the accompanying Schedule of Findings and Responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota June 25, 2018 C ERTIFIED A CCOUNTANTS P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com -3- INDEPENDENT AUDITOR’S REPORT ON MINNESOTA LEGAL COMPLIANCE To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 25, 2018. MINNESOTA LEGAL COMPLIANCE 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 failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities, except as described in the Schedule of Findings and Responses as items 2017-002 and 2017-003. 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. CITY’S RESPONSES TO FINDINGS The City’s responses to the legal compliance findings identified in our audit have been included in the Schedule of Findings and Responses. The City’s responses were not subject to the auditing procedures applied in our audit of the financial statements and, accordingly, we express no opinion on them. PURPOSE OF THIS REPORT 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 report is not suitable for any other purpose. Minneapolis, Minnesota June 25, 2018 CITY OF APPLE VALLEY Schedule of Findings and Responses Year Ended December 31, 2017 -4- A. FINDINGS – SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER FINANCIAL REPORTING 2017-001 INADEQUATE SEGREGATION OF DUTIES Criteria – Internal control over financial reporting. Condition – The City of Apple Valley, Minnesota (the City) has limited segregation of duties over cash receipts, community center refunds and reimbursements, golf course inventory, and utility billing adjustments. Context – This is a current year and prior year finding. Cause – The limited segregation of duties is primarily caused by the limited size of the City’s finance and recreation department staff. Effect – One important element of internal accounting controls is an adequate segregation of duties such that no one individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. A lack of segregation of duties subjects the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. Recommendation – We recommend that the City continue to review its accounting procedures and internal controls and make improvements on an ongoing basis within the limits of the staff available. Management Response – There is no disagreement with the audit finding. The City has made improvements during the current year and is in the process of making additional improvements to its internal control structure to maximize the segregation of duties in all areas within the limits of the staff available. B. FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT 2017-002 RESPONSIBLE CONTRACTOR LANGUAGE Criteria – Minnesota Statutes § 16C.285. Condition – Minnesota Statutes require the City to include responsible contractor language for each construction contract in excess of $50,000, awarded pursuant to a lowest responsible bidder or best value process. The successful contractor must submit a verificati on of compliance signed under oath by an owner or officer verifying compliance with the minimum criteria set forth in Minnesota Statutes § 16C.285. Context – One of four bids tested was not in compliance. This is a current year finding. Cause – This was an oversight by city personnel. CITY OF APPLE VALLEY Schedule of Findings and Responses (continued) Year Ended December 31, 2017 -5- B. FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT (CONTINUED) 2017-002 RESPONSIBLE CONTRACTOR LANGUAGE (CONTINUED) Effect – One bid approved in 2017 was not in compliance with this statute for responsible contractor requirements. Recommendation – We recommend that the City review applicable statutes and bid procedures to ensure future compliance. Management Response – There is no disagreement with the audit finding. The City will review its procedures to ensure that verifications are obtained in the future. 2017-003 CLAIMS AND DISBURSEMENTS Criteria – Minnesota Statutes § 471.425, Subd. 2. Condition – Minnesota Statutes require cities to pay each vendor obligation according to the terms of each contract or within 35 days after the receipt of the goods or services , or the invoice for the goods or services. If such obligations are not paid within the appropriate time period, cities must pay interest on the unpaid obligations at the rate of 1.5 percent per month or part of a month. For one disbursement selected for testing, the City did not pay the obligation within the required time period, and did not pay interest on the unpaid obligation. Context – One of twenty-five disbursements tested were not in compliance. This is a current year finding. Cause – This was an oversight by city personnel by not submitting invoices to the centralized accounts payable function. Effect – One payment made to a vendor was not paid within the timeframe as required by state statutes, and the vendor was not paid interest to which they were entitled. Recommendation – We recommend that the City review claims and disbursements payment procedures in place to ensure future compliance with this statute. Management Response – The City agrees with the finding. The City will review its payment procedures and monitor vendor submissions of invoices to ensure they are submitted to the centralized accounts payable function. THIS PAGE INTENTIONALLY LEFT BLANK I T E M: 3. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:I nformal A genda I tem Description: Update on Emerald Ash B orer Management S trategies (20 min.) S taff Contact: J essica Schaum, Natural Resources Coordinator Department / Division: Natural Resources Division AC T I O N RE Q UE S T E D: N/A S UM M ARY: Staff will present information regarding current Emerald Ash Borer infestation levels and management strategies to date. Apple Valley's current Emerald Ash Borer Management Plan guides a balanced approach of removals, replacements, and preventative treatments. B AC K G RO UND: In J anuary 2016, Emerald Ash Borer was identified in the City’s Ring Route area just west of the Municipal Center. Since then, several new areas of infestations have been documented within the C ity. Recently Emerald Ash Borer has also been confirmed in the surrounding cities of Burnsville, Lakeville, and Rosemount. B UD G E T I M PAC T: N/A AT TAC HM E NT S : Map Presentation ¯ Emerald Ash Borer Coverage Infestation Sites .5 Mile Buffer 1 Mile Buffer 7/12/2018 1 Emerald Ash Borer Management Strategies July 12, 2018 Background Find and spread Our approach Looking forward Purpose 7/12/2018 2 Symptoms 7/12/2018 3 Death Curve 0 100 200 300 400 500 600 700 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Number of TreesDiseased Tree History Oak Elm Ash 7/12/2018 4 Inventory •1,995 boulevard •820 in parks •Thousands on private property Boulevard Ash 7/12/2018 5 2016 “Ground Zero” 7/12/2018 6 2017 Confirmed in: Prior Lake Lakeville 2018 Confirmed in: Burnsville Rosemount 7/12/2018 7 Apple Valley Approach •Target removals and replacements •Treatments – aesthetics –Major collector roadway, Cemetery, Ring Route –Extend price 7/12/2018 8 Removals 7/12/2018 9 Replacements 7/12/2018 10 Treatments 7/12/2018 11 Treatments Galaxie Avenue Galaxie Avenue Removals 7/12/2018 12 0 50 100 150 200 250 300 350 400 450 2015 2016 2017 2018 2019 2020Number of TreesAsh Management by Contractors Removed Replanted Treated Infestations 7/12/2018 13 Winter 2018 Confirmed Sites Lesson Learned 36 Ash 7/12/2018 14 26 Ash •Inspections •Home and Garden Show •Video/social media, newsletter •Tree Sale –Arbor Day Education & Outreach 7/12/2018 15 Home & Garden Show 7/12/2018 16 7/12/2018 17 Ramp up efforts Ahead of other cities just finding it Look to contractors Diversify Looking Ahead Questions? I T E M: 4. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:I nformal A genda I tem Description: Update on L iquor S tore No. 1 L ease E xtension (20 min.) S taff Contact: Tom L awell, City A dministrator and Scott Swanson, L iquor Operations Director Department / Division: A dministration Department AC T I O N RE Q UE S T E D: T his item is being included on the J uly 12 informal agenda to update the C ity Council on the status of the Liquor Store No. 1 lease at Time Square shopping center. Formal action is recommended on the lease extension is anticipated for the J uly 26, 2018 C ity C ouncil consent agenda. S UM M ARY: T he C ity of Apple Valley has for many years leased a retail space in Time Square shopping center for Apple Valley Liquor Store No. 1. T he current lease will expire on J anuary 31, 2019 and it is requested that we enter into a new lease for an additional three-year term. B AC K G RO UND: T his renewal would be for a three-year term commencing February 1, 2019 at a monthly base rent of $11,500. T his monthly rent would stay constant for the duration of the three-year extension. T he C ity has been approached by a representative of a real estate partnership group who indicates they are in the process of acquiring the shopping center from the long-time property owner. T hey anticipate closing on the property sometime this summer. T hey anticipate adding new tenants to the center and making property improvements in the years ahead. A new three-year lease will allow us time to evaluate the modifications they intend to make to the property and determine if the shopping center remains a desirable location for Liquor Store #1. B UD G E T I M PAC T: Rent costs will total $138,000 per year for each year of the three-year lease. In addition, the City will pay its share of the common area maintenance charges and taxes as a tenant in the multi-tenant commercial building. T hose charges are anticipated to be $49,000 in 2019 and $49,000 in 2020. All of the described charges are provided for in the C ity's proposed 2019/2020 budget. AT TAC HM E NT S : Aerial Photo I T E M: 4.A. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Minutes of J une 28, 2018, Regular Meeting S taff Contact: P amela J . Gackstetter, City Clerk Department / Division: City Clerk’s Office AC T I O N RE Q UE S T E D: Approve the minutes of the regular meeting of J une 28, 2018. S UM M ARY: T he minutes from the last regular C ity C ouncil meeting are attached for your review and approval. B AC K G RO UND: State statute requires the creation and preservation of meeting minutes which document the official actions and proceedings of public governing bodies. B UD G E T I M PAC T: N/A AT TAC HM E NT S : Minutes CITY OF APPLE VALLEY Dakota County, Minnesota June 28, 2018 Minutes of the regular meeting of the City Council of Apple Valley, Dakota County, Minnesota, held June 28, 2018, at 7:00 o’clock p.m., at Apple Valley Municipal Center. PRESENT: Mayor Hamann-Roland; Councilmembers Bergman, Goodwin, Grendahl, and Hooppaw. ABSENT: None. City staff members present were: City Administrator Lawell, City Clerk Gackstetter, City Attorney Dougherty, Police Captain Bermel, Police Captain Francis, Assistant City Administrator Grawe, Human Resources Manager Haas, Finance Director Hedberg, City Planner Lovelace, Recreation Manager Muelken, Community Development Director Nordquist, Police Chief Rechtzigel, Acting Fire Chief Russell, Public Works Director Saam, and Planner/Econ. Dev. Specialist Sharpe. Mayor Hamann-Roland called the meeting to order at 7:00 p.m. Everyone took part in the Pledge of Allegiance to the flag. APPROVAL OF AGENDA MOTION: of Bergman, seconded by Grendahl, approving the agenda for tonight’s meeting, as presented. Ayes - 5 - Nays - 0. AUDIENCE Mayor Hamann-Roland asked if anyone was present to address the Council, at this time, on any item not on this meeting’s agenda. No one requested to speak. CONSENT AGENDA Mayor Hamann-Roland asked if the Council or anyone in the audience wished to pull any item from the consent agenda. There were no requests. MOTION: of Bergman, seconded by Hooppaw, approving all items on the consent agenda with no exceptions. Ayes - 5 - Nays - 0. CONSENT AGENDA ITEMS MOTION: of Bergman, seconded by Hooppaw, approving the minutes of the regular meeting of June 14, 2018, as written. Ayes - 4 - Nays - 0 - Abstain - 1 (Grendahl). MOTION: of Bergman, seconded by Hooppaw, authorizing issuance of a 1 to 4 Day Temporary On-Sale Liquor License to Augustana Care Apple Valley Villa, by Minnesota Alcohol and Gambling Enforcement Division, for use on CITY OF APPLE VALLEY Dakota County, Minnesota June 28, 2018 Page 2 August 9, 2018, in Fireside Dining Room (5th Floor), 14610 Garrett Avenue, as described in the City Clerk’s memo. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, authorizing issuance of a 1 to 4 Day Temporary On-Sale Liquor License to H.O.O.A.H. (Helping Out Our American Heroes), by Minnesota Alcohol and Gambling Enforcement Division, for use on July 28, 2018, from 3:00 p.m. to midnight, in north parking lot, at Bogarts/Apple Place Bowl, 14917 Garrett Avenue, as described in the City Clerk’s memo. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-84 designating as additional depositories for City funds for the year 2018: Wells Fargo Securities, LLC; Wells Fargo Bank, NA; Northland Securities, Inc.; RBC Capital Markets Corporation; Robert W. Baird & Co., Inc.; Stifel Nicolaus & Co., Inc.; Moreton Capital Markets, LLC; U.S. Bank; U.S. Bankcorp Investments; First Resource Bank (formerly Eagle Valley Bank, N.A.); Think Mutual Bank; BMO Harris Bank N.A.; Old National Bankcorp (formerly Anchor Bank). Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-85 approving support for 2018 Regional Solicitation Grant Application. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-86 approving the City’s 2018-2022 Capital Improvements Program (CIP). Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-87 amending the 2018 Fee Schedule. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, receiving the Telecommunications Advisory Committee’s 2017 annual report. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-88 appointing individuals listed in the resolution to serve as judges for the Primary Election to be held on August 14, 2018, in the City. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, authorizing staff to send the U.S. Census Bureau an Apple Valley commitment letter to establish a Complete Count Committee. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, directing the Urban Affairs Advisory Committee to be the designated the 2020 Census Complete Count Committee. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-89 accepting reimbursement from and authorizing release of all claims against Nelson Auto CITY OF APPLE VALLEY Dakota County, Minnesota June 28, 2018 Page 3 Center for City Police Department vehicle repair and maintenance service contract. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, approving release of financial guarantees for Legacy of Apple Valley Sixth Addition and Apple Valley East Commercial, as listed in the Community Development Department Assistant’s memo. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-90 amending Conditional Use Permit No. 1992-278 for major anchor signs on Lots 1 and 2, Block 1, Apple Valley Square 5th Addition (15125 Cedar Avenue and 7552-638 150th Street W.), with conditions as recommended by the Planning Commission. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-91 completing vacation of all drainage and utility easements on Lot 1, Block 9, and Lots 1 and 2, Block 10, Legacy of Apple Valley North, and authorizing the City Clerk to record the necessary documents. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-92 approving the final plat, Development Agreement, and associated agreements for Nuvelo, and authorizing the Mayor and City Clerk to sign the same. Ayes - 5 - Nays - 0. MOTION: of Bergman seconded by Hooppaw, adopting Resolution No. 2018-93 approving the Planned Development Agreement with Bigos-Nuvelo, LLC, for Nuvelo, and authorizing the Mayor and City Clerk to sign the same. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, adopting Resolution No. 2018-94 approving the correction or recombination final plat for Lebanon Cemetery, and authorizing the Mayor and City Clerk to sign the same. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, approving the Water Quality Improvement Cost Share Program Agreement with Allen F. Tuff and Pamela Jo Krause for raingarden at 14255 Fossil Lane, in an amount not to exceed $500.00, and authorizing the Mayor and City Clerk to sign the same. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, approving the Agreement for Project 2018- 141, Backstop Fabric Replacement Fields #6 & #7 at Johnny Cake Ridge Park West, with Midwest Fence & Mfg. Co., in the amount of $12,357.00, and authorizing the Mayor and City Clerk to sign the same. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, accepting Municipal Center Security Camera System, as complete and authorizing final payment on the agreement with Pro- Tec Design, Inc. Ayes - 5 - Nays - 0. CITY OF APPLE VALLEY Dakota County, Minnesota June 28, 2018 Page 4 MOTION: of Bergman, seconded by Hooppaw, accepting Project 2017-137, Central Maintenance Facility (CMF) and Police Department Air Handling Unit Upgrades,, as complete and authorizing final payment on the agreement with Grendahl Mechanical, LLC, in the amount of $8,274.25. Ayes - 4 - Nays - 0 - Abstain - 1 (Grendahl). MOTION: of Bergman, seconded by Hooppaw, approving the personnel actions as listed in the Personnel Report dated June 28, 2018. Ayes - 5 - Nays - 0. MOTION: of Bergman, seconded by Hooppaw, to pay the claims and bills, check registers dated June 6, 2018, in the amount of $1,772,886.48; and June 14, 2018, in the amount of $1,538,917.73. Ayes - 5 - Nays - 0. END OF CONSENT AGENDA INTRODUCTION AND OATH OF OFFICE OF FIREFIGHTER HOMME Acting Fire Chief Russell introduced probationary Firefighter Joseph Homme to the Council. The City Clerk administered the oath of office. Firefighter Homme selected his wife to pin his badge. The Council congratulated Firefighter Homme and welcomed him to his new position on the Fire Department. APPLIANCE SMART BUILDING ADDITION Mr. Lovelace reviewed the request by Seventy Three Seventy, LLC, for a conditional permit to allow for a 2,983-square foot Class II restaurant with drive-through window service and a site plan/building permit authorization to allow for construction of a 7,087-square foot addition to an existing 48,960-square foot retail building located at 7370 153rd Street W. The Planning Commission held a public hearing and recommended approval of the Conditional Use Permit and site plan/building authorization subject to conditions. Discussion followed. Mr. Robert Grootwassink, property owner, addressed the Council. MOTION: of Grendahl, seconded by Hooppaw, adopting Resolution No. 2018-95 approving a Conditional Use Permit to allow for a 2,983-square foot Class II restaurant with drive-through window service on Lot 2, Block 1, Apple Valley Retail 2nd Addition (7370 153rd Street W.), with conditions as recommended by the Planning Commission. Ayes - 5 - Nays - 0. MOTION: of Grendahl, seconded by Bergman, adopting Resolutions No. 2018-96 approving the site plan and authorizing issuance of a building permit to allow construction of a 7,087-square foot addition to an existing 48,960-square foot retail building located on Lot 2, Block 1, Apple Valley Retail 2nd Addition (7370 CITY OF APPLE VALLEY Dakota County, Minnesota June 28, 2018 Page 5 153rd Street W.), subject to conditions as recommended by the Planning Commission. Ayes - 5 - Nays - 0. COMMUNICATIONS Ms. Muelken invited everyone to the Freedom Days celebration activities. She noted the “Music in Kelley Park” concert scheduled for tomorrow night has been canceled due to the anticipated heat index. Councilmember Goodwin announced Mary Hamann-Roland received the League of Minnesota Cities’ prestigious C.C. Ludwig Award. Mayor Hamann-Roland said she is deeply honored to be given this award. The award will be on display in the Municipal Center lobby for the next several months. CALENDAR OF UPCOMING EVENTS MOTION: of Hooppaw, seconded by Grendahl, approving the calendar of upcoming events as included in the Deputy City Clerk’s memo, and noting that each event listed is hereby deemed a Special Meeting of the City Council. Ayes - 5 - Nays - 0. MOTION: of Grendahl, seconded by Bergman, to adjourn. Ayes - 5 - Nays - 0. The meeting was adjourned at 7:29 o’clock p.m. Respectfully Submitted, /s/ Pamela J. Gackstetter Pamela J. Gackstetter, City Clerk Approved by the Apple Valley City Council on Mary Hamann-Roland, Mayor I T E M: 4.B. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution A ccepting Donation from K aren Hangebrauk for Use by P arks and Recreation Department S taff Contact: Mike Endres, Parks Superintendent Department / Division: Parks and Recreation Department AC T I O N RE Q UE S T E D: Adopt resolution accepting the donation of $1,249.72 cash from Karen Hangebrauk for use by the Parks and Recreation D epartment toward the purchase of a memorial bench for Kelley Park. S UM M ARY: Karen Hangebrauk has offered to donate $1,249.72 toward the purchase of a park bench for Kelley Park in memory of her husband Bruce Hangebrauk. Attached, please find a proposed resolution accepting the donation from Ms. Hangebrauk and thanking her for her generosity. B AC K G RO UND: N/A B UD G E T I M PAC T: $1,249.72 donation AT TAC HM E NT S : Resolution CITY OF APPLE VALLEY RESOLUTION NO. 2018-___ A RESOLUTION ACCEPTING DONATION WHEREAS, the City Council of Apple Valley encourages public donations to help defray costs to the general public of providing services and improve the quality of life in Apple Valley; and WHEREAS, Karen Hangebrauk has offered to donate $1,249.72 to the Parks and Recreation Department toward the purchase and placement of a memorial bench in Kelley Park in memory of her husband Bruce Hangebrauk; and WHEREAS, Minnesota Statues 465.03 requires that all gifts and donations of real or personal property be accepted only with the adoption of a resolution approved by two-thirds of the members of the City Council. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Apple Valley, Dakota County, Minnesota, that this donation is hereby accepted for use by the City. BE IT FURTHER RESOLVED that the City sincerely thanks Karen Hangebrauk for her gracious donation. ADOPTED this 12th day of July, 2018. ___________________________________ Mary Hamann-Roland, Mayor ATTEST: ______________________________ Pamela J. Gackstetter, City Clerk I T E M: 4.C. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove S tate Gambling Exempt P ermit for Sons of the American L egion, at Apple Valley A merican L egion, Post 1776, on November 11, 2018 S taff Contact: P amela J . Gackstetter, City Clerk Department / Division: City Clerk’s Office AC T I O N RE Q UE S T E D: Approve issuance of a lawful gambling exempt permit, by the State Gambling C ontrol Board, to Sons of the American Legion, Squadron 1776, for use on November 11, 2018, at Apple Valley American Legion, 14521 Granada D rive, and waiving any waiting period for State approval. S UM M ARY: Sons of the A merican Legion, Squadron 1776, submitted an application for a gambling event to be held at Apple Valley American Legion, 14521 G ranada Drive, on November 11, 2018. T he application is on file should you wish to review it. B AC K G RO UND: Exempt permits to conduct lawful gambling activities, on five or fewer days in a calendar year, for qualified nonprofit organizations, are issued by the State Gambling Control Board. Issuance is subject to approval or denial by the city in which the gambling activity is to be conducted. B UD G E T I M PAC T: N/A I T E M: 4.D. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: Receive 2017 Comprehensive A nnual F inancial Report S taff Contact: Ron Hedberg, Finance Director Department / Division: Finance Department AC T I O N RE Q UE S T E D: Receive the 2017 Comprehensive Annual Financial Report. S UM M ARY: J im Eichten, Managing Partner, with the City’s auditing firm, Malloy Montague Karnowski Radosevich and C o. P.A . (MMKR) will present the 2017 Comprehensive Annual Finance Report and review their Management Report at the informal work session on J uly 12, 2017. Included with the council packet information are three separate bound documents in addition to one unbound report; the first bound document, and largest, is a copy of the Comprehensive Annual Financial Statements (C A FR), the second is auditor’s Management Report, and the third is Special Purpose Audit Reports including opinions on compliance with Government Auditing Standards and Legal C ompliance. In addition to the bound reports also attached is a new report this year, titled "Popular Annual Financial Report". T he intent of this report is to present data included in the C A F R in an easy to understand format. T his report adds to the financial transparency for the city operations. T his report, along with the Comprehensive Financial Report will be posted on the City's website Since the documents are large, a good place to start reviewing the C A FR documents would be the Popular Annual Financial Report and in the C A FR the Transmittal Letter (starting on page iii), the Management Discussion and Analysis letter (starting on page 4) and with the Auditor’s Management Report on page 1 and their financial analysis section beginning on page 7 of that report. Last year was the sixth year that the C ity of Apple Valley participated in the Certificate of Achievement for Excellence in Financial Reporting program administered by the G FO A, the City of Apple Valley was recently awarded the Certificate for the 2016 C A FR. Staff believes that the current year ’s submission will also meet the requirements to receive the award. T he presentation will cover some of the highlights of the year. If the Council has some items that they would like to be sure is covered just let me know prior to the meeting and we will be sure to cover it in the presentation. B AC K G RO UND: N/A B UD G E T I M PAC T: No budget impact. AT TAC HM E NT S : Report Report Report Report Comprehensive Annual Financial Report City of Apple Valley Minnesota Year Ended: December 31, 2017 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Comprehensive Annual Financial Report for the Year Ended December 31, 2017 Prepared by Finance Department CITY OF APPLE VALLEY 7100 147th Street West Apple Valley, Minnesota 55124 THIS PAGE INTENTIONALLY LEFT BLANK Page INTRODUCTORY SECTION ELECTED OFFICIALS AND ADMINISTRATION i ORGANIZATIONAL STRUCTURE ii LETTER OF TRANSMITTAL iii–ix CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING x FINANCIAL SECTION INDEPENDENT AUDITOR’S REPORT 1–3 MANAGEMENT’S DISCUSSION AND ANALYSIS 4–18 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 19 Statement of Activities 20–21 Fund Financial Statements Governmental Funds Balance Sheet 22–23 Reconciliation of the Balance Sheet to the Statement of Net Position 24 Statement of Revenue, Expenditures, and Changes in Fund Balances 25–26 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities 27 Statement of Revenue, Expenditures, and Changes in Fund Balances – General Fund – Budget and Actual 28 Proprietary Funds Statement of Net Position 29–32 Statement of Revenue, Expenses, and Changes in Net Position 33–34 Statement of Cash Flows 35–36 Notes to Basic Financial Statements 37–74 REQUIRED SUPPLEMENTARY INFORMATION PERA – General Employees Retirement Fund Schedule of City’s and Nonemployer Proportionate Share of Net Pension Liability 75 Schedule of City Contributions 75 PERA – Public Employees Police and Fire Fund Schedule of City’s Proportionate Share of Net Pension Liability 76 Schedule of City Contributions 76 Apple Valley Firefighters’ Relief Association Schedule of Changes in the Relief Association’s Net Pension Liability and Related Ratios 77 Schedule of City Contributions 78 Other Post-Employment Benefits Plan Schedule of Funding Progress 79 Notes to Required Supplementary Information 80–82 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents Page SUPPLEMENTARY INFORMATION Combining and Individual Fund Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet 83 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 84 Nonmajor Special Revenue Funds 85 Combining Balance Sheet 86–87 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 88–89 Nonmajor Debt Service Funds 90 Combining Balance Sheet 91–94 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 95–98 Nonmajor Capital Projects Funds 99–100 Combining Balance Sheet 101–105 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 106–110 General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 111–116 Road Improvements Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 117 Future Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 118 Cable TV Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 119 EDA Operations Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 120 Equipment Certificate Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 121 Cable Capital Equipment Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual 122 Internal Service Funds 123 Combining Statement of Net Position 124 Combining Statement of Revenue, Expenses, and Changes in Net Position 125 Combining Statement of Cash Flows 126 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents (continued) Page STATISTICAL SECTION Net Position by Component 127–128 Changes in Net Position 129–132 Fund Balances of Governmental Funds 133–134 Changes in Fund Balances of Governmental Funds 135–136 Assessed and Estimated Actual Value of Taxable Property 137–138 Property Tax Capacity Rates 139–140 Principal Property Taxpayers 141 Property Tax Levies and Collections 142–143 Ratios of Outstanding Debt by Type 144–145 Ratios of General Bonded Debt Outstanding 146–147 Direct and Overlapping Governmental Activities Debt 148 Legal Debt Margin Information 149–150 Pledged Revenue Coverage 151–152 Demographic and Economic Statistics 153 Principal Employers 154 Full-Time Equivalent City Government Employees by Function 155–156 Operating Indicators by Function 157–158 Capital Asset Statistics by Function/Program 159–160 CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Table of Contents (continued) THIS PAGE INTENTIONALLY LEFT BLANK INTRODUCTORY SECTION TAB -i- Term Expires Mary Hamann-Roland Mayor December 31, 2018 John Bergman Councilmember December 31, 2018 Thomas Goodwin Councilmember December 31, 2020 Ruth Grendahl Councilmember December 31, 2020 Clint Hooppaw Councilmember December 31, 2018 M. Thomas Lawell City Administrator Pamela Gackstetter City Clerk Ronald Hedberg Finance Director/Treasurer Matt Saam Public Works Director Jon Rechtzigel Police Chief Nealon Thompson Fire Chief Bruce Nordquist Community Development Director Barry Bernstein Parks and Recreation Director Cathy Broughten Assistant Finance Director Charles Grawe Assistant City Administrator Melissa Haas Human Resource Manager Brandon Anderson City Engineer Carol Blommel Johnson Public Works Superintendent ELECTED OFFICIALS ADMINISTRATION CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Elected Officials and Administration December 31, 2017 ii Organizational Structure City of Apple Valley Mayor and City Council Citizens City Attorney (contractual) Economic Development Authority Planning Commission City Administrator Administration Fire Police Finance Community Development Public Works Planning Economic Development Code Enforcement Finance Utility Billing Administration Information Technologies Human Resources Cable TV Fire Patrol Investigations Records Parks & Recreation Recreation Programs Park Maintenance Planning Accounting Administration Patrol Fire Recreation Programs Street Maintenance Economic Development Financial Reporting City Clerk/ Elections Investigations Fire Inspection Park Maintenance Natural Resources Code Enforcement Cash & Investments Information Technology Records Ice Arena Engineering Utility Billing Human Resources Hayes Community & Senior Center Building Inspections Cable TV AV Aquatic Center Utilities Apple Valley Community Center Fleet Maintenance Municipal Liquor Stores Valleywood Golf Cemetery Redwood Pool -ii- -iii- City of Telephone (952) 953-2540 Fax (952)953-2515 www.ci.apple-valley.mn.us June 25, 2018 To the Honorable Mayor, City Council, and Citizens of the City of Apple Valley: The Comprehensive Annual Financial Report (CAFR) of the City of Apple Valley, Minnesota (the City), for the year ended December 31, 2017, is hereby submitted. The report was prepared in accordance with accounting principles generally accepted in the United States of America as established by the Governmental Accounting Standards Board and meets the requirements of the State Auditor’s Office. The report consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all information presented within this report. To provide a reasonable basis for making these representations, management of the City has established internal controls designed to protect the City’s assets from loss, theft, or misuse and to provide sufficient information for the preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America. Because the cost of internal controls should not outweigh the benefits, the City’s internal controls have been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatements. As management, we assert that to the best of our knowledge and belief this CAFR is complete and reliable in all material respects. The City’s financial statements have been audited by Malloy, Montague, Karnowski, Radosevich & Co., P.A., Certified Public Accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the year ended December 31, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates used by management; and evaluating the overall financial statement presentation. Based upon the audit, the independent auditor concluded that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements, for the year ended December 31, 2017, are fairly presented in conformity with accounting principles generally accepted in the United States of America. The independent auditor’s report is presented in the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial st atements. The City’s MD&A complements this letter of transmittal and should be read in conjunction with it. 7100 147th St. W Apple Valley, MN 55124 -iv- Profile of the City of Apple Valley The City was incorporated as a village on January 1, 1969, and incorporated as a city on January 1, 1974. The City is a suburban community located 17 miles south of downtown Minneapolis within Dakota County, and has a convenient location with a comprehensive system of highways – Interstate 35E serves the northwest boundary of the City, while State Highway 77 runs north and south through the City. The City is served by a Bus Rapid Transit service that connects to the light rail system serving Minneapolis and St. Paul. The City is seven miles from the Minneapolis-St. Paul International Airport within the seven-county Twin Cities metropolitan region, has a land area of 17.5 square miles, and serves a community with a current population of 52,361. -v- The City operates as a Statutory Plan A City, the Mayor-Council form, under Minnesota law. The governing body, consisting of the Mayor and four council members, is elected at large and on a nonpartisan basis. Terms of office are four years, with elections held in each even-numbered year; not more than three council members’ terms expire in any one year. The City Council is responsible for, among other things, passing ordinances, adopting the budget, appointing members to various advisory committees and commissions, and hiring the City Administrator and other city employees. The City Administrator is responsible for carrying out the policies, ordinances, and directions of the City Council and for overseeing the day-to-day operations of the City. The City provides its residents and businesses with a full range of municipal services consisting of public safety (police, fire, building inspections), public works, parks and recreation, and general government administration. The City also operates a number of enterprise activities including: water and sanitary sewer, Valleywood Golf Course, three off-sale liquor stores, storm water, street lights, sports arenas, and a cemetery. Sanitary sewage treatment and disposal is operated on a regional basis by the Metropolitan Council Environmental Services. Refuse collection and disposal are handled on a private basis through contractual arrangements by city residents with private haulers. Further information regarding city services can be obtained from the City’s website at www.ci.apple-valley.mn.us. The Apple Valley Economic Development Authority (EDA) is a separate legal entity organized pursuant to Minnesota Statutes, Chapter 469, and is included as a blended component unit. The EDA is considered a component unit because the governing body is comprised of City Council members and two other members being appointed by the City Council. Also, the EDA is in a relationship of financial benefit or burden with the City. The annual budget serves as the foundation for the City’s financial planning and control. The budgetary process is outlined in the notes to basic financial statements. The City applies budgetary controls to ensure compliance with legal provisions of the laws of Minnesota. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual budgets are adopted for the General Fund in addition to certain special revenue and capital projects funds. Bud get to actual comparisons are presented for each governmental fund for which an annual budget has been adopted. Factors Affecting Financial Condition The City is committed to maintaining a strong financial condition, while continuing to provide public services to its residents and businesses. The City’s financial position, as reflected in the financial statements presented in the reports, is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates. Local Economy The economic conditions have improved for the City, its residents, and its businesses. The City’s unemployment rate as of December 2017, for example, is 2.5 percent, compared to the State of Minnesota’s rate of 3.4 percent and the national unemployment rate of 3.9 percent. Unemployment Rate: Dec 2017 Dec. 2016 Dec. 2015 Dec 2014 Dec 2013 City of Apple Valley 2.5% 3.0% 2.6% 2.8% 3.6% Dakota County 2.7% 3.4% 3.1% 3.8% 4.0% State of Minnesota 3.4% 4.1% 3.7% 3.8% 4.5% National 3.9% 4.5% 5.0% 5.6% 6.7% (Source: MN Dept. of Economic Development) -vi - Housing Values Home values in the City are continuing a positive trend, reflecting the recovery of the housing market. The assessor’s estimated residential market values increased on the median valued home approximately 2.5 percent for 2017. Assessor values for 2018 and 2019 accelerate this positive trend. Increase (Decline) in Median Value Home: 2013 (5.8%) 2014 3.5% 2015 8.1% 2016 5.0% 2017 2.5% 2018 6.2% 2019 (Preliminary) 9.3% The population of the City has increased from 585 in 1960 to 49,084 according to the 2010 U.S. Census and is estimated at 52,361 for 2017. Most of the population of the City concentrates in two age groups: 45–54 years and 5–14 years at 17.0 percent and 14.2 percent, respectively. According to the 2010 U.S. Census, the average age is 32 years and the median household income was $78,028. The most recent estimate of the median household income from the American Community Survey is $83,450 for 2016. The City is the home to Uponor and Wings Financial Federal Credit Union. Other major employers in the area include Independent School District (ISD) No. 196, Target, Wal-Mart, Minnesota Zoo, Augustana Health Care Center, Cub Foods, and Menard’s. Market Value Growth The City consistently adds new tax base each year. In 2017, a total of $81 million of market value was added to the City’s tax base, which current data indicates is continuing. Total market value increased to $4.7 billion for 2017, resulting from improved market conditions. Conditions continue to improve for the future with preliminary County Assessor data for payable 2019 showing a 10.5 percent increase to a total city-wide taxable market value of $5.6 billion, of which $96 million and $136 million results from new construction for payable 2018 and 2019, respectively. -vii- Major Initiatives In 2017, investment continued in the City as new businesses opened and new developments were approved. What follows is a sample of some of the development projects that were reviewed, approved, began construction, or were completed in 2017, as well as some of the long-range planning and economic development initiatives that will help maintain the City’s high quality of life. Residential Development Over the past 10 years, single-family construction has averaged 80 units per year, and 2017 saw 167 single-family units constructed, valued at over $41 million. Recent multi-family construction shows strong activity for 2017 with 580 apartment units permitted. The Presbyterian Homes Orchard Path senior cooperative building was completed in 2017 adding 195 units. Construction continues in 2018 on the Valley Bluffs senior apartment complex totaling 163 units. Additional apartment construction continues with the second phase of the Remington Cove 95-unit apartment complex, along with an additional 134 units in the second phase of the Parkside Village. While the construction of new single-family homes has increased for 2017, the valuation added by remodeling and renovations is being maintained at a high level, valued at over $16.7 million. This reflects homeowners’ continued interest in investing in their properties. Commercial Development Commercial and industrial development continued to improve in 2017 with total improvement values, including commercial alterations, totaling $59 million in 2017. Included in these improvements was $35 million of alterations throughout Independent School District No. 196. New commercial construction projects included the 10,200 square foot Cobblestone Lake Medical Center and the 5,500 square foot Giselles Corner retail building at 147th and Cedar Avenue. -viii- Upcoming Initiatives include: Mixed-Use Business Campus: In 2018, approximately 350 acres of mixed business campus will begin to be master planned with some mixed uses proposed to begin development in the area currently being actively mined for aggregate. Significant public infrastructure improvements including roads, trails, ponding, and park improvements, will be part of the plan and coincide with private development. Menard’s Hanson Development Site: The 50-acre site known as Menard’s/Hanson will have proposed mixed business land uses (retail, office, industrial) considered. Water Meter Replacement Program: The City has engaged a consulting group to develop a water meter replacement program plan. Many water meters in the City have been in service for more than 25 years. The accuracy of water meters tends to diminish as they get older. The City’s Capital Improvement Program includes a two (2) year schedule for completing the water meter replacement project and will be funded within the Water Utility Fund. Infrastructure Improvements The City is committed to maintaining its significant investment in the community’s infrastructure with the implementation of an aggressive street maintenance program in 2012. In 2017, over $5 million was invested to maintain the infrastructure and included the following significant projects: • Reconstruction of streets in the Palomino 3rd and 4th subdivisions. • Extension of Embry Path to connect with CR 42. • Additional resurfacing of streets throughout the community. Long-Term Financial Planning In developing the annual budget, the City follows five core fiscal principles. These include: • Focus on the provision of basic city services and fund their provision at adequate levels. • Estimate anticipated revenues at realistic levels. • Retain adequate reserves to protect against fiscal uncertainty. • Anticipate continued community growth and program capital improvements to serve our growing community. • Demonstrate strong stewardship of existing infrastructure and plan for its repair/replacement in a proactive manner. Each year the City adopts a five-year Capital Improvement Program (CIP). The CIP is a five-year plan that identifies the City’s infrastructure, development objectives , and the allocation of resources for these projects. This CIP provides policy makers and the community with a strategic approach to implementation and administration of improvement projects. The 2018–2022 CIP identifies $135 million of capital projects along with the associated funding. The five-year CIP also includes five-year revenue and expenditure projections for the majority of funds identified in the document. One of the larger improvements included in the 2018–2022 CIP includes the continued street and utility reconstruction and reconditioning program which totals $62 million over the next five years. Relevant Financial Policies The City utilizes various financial and budget policies to guide the City Council and staff when making financial decisions. These include adoption of a balanced budget, minimizing the reliance on state revenues which have proven to be unpredictable, setting of 50 percent of subsequent year’s budgeted expenditures minimum fund balance level to provide for cash flow purposes, and adoption of a five-year capital improvement plan to provide for capital asset acquisition and replacement. -ix- Cash temporarily idle during the year was invested in U.S. government agency obligations, municipal securities, certificates of deposit, and money market instruments. The City’s investment policy calls for the investment of public funds in a manner that will provide the highest investment return with minimum risk while meeting the daily cash flow demands of the City. For investments held at December 31, 2017, the effective duration of the investment portfolio was two years. The City’s average return on investments in 2017 was 1.01 percent. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded the City a Certificate of Achievement for Excellence in Financial Reporting to the City of Apple Valley for its CAFR for the fiscal year ended December 31, 2016. This is the sixth year that the City achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report could not occur without the efficient and dedicated service of the entire finance department staff throughout the reporting year. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. We would like to thank the City Council for its commitment in planning and implementing the financial operations of the City in a fiscally prudent and progressive manner. Respectfully Submitted, CITY OF APPLE VALLEY, MINNESOTA Ronald Hedberg Finance Director -x- FINANCIAL SECTION TAB -1- INDEPENDENT AUDITOR’S REPORT To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit . We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts a nd 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 o n the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. (continued) -2- OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of December 31, 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 and the required supplementary information (RSI), 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, 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 RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplementary information, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts of the basic financial statements. The supplementary information is the responsibility of management and was 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 supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. (continued) -3- OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 25, 2018 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely 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 the effectiveness of the City’s 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’s internal control over financial reporting and compliance. Minneapolis, Minnesota June 25, 2018 THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY Management’s Discussion and Analysis Year Ended December 31, 2017 -4- As management of the City of Apple Valley, Minnesota (the City), we have provided readers of the City’s financial statements with this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2017. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, located earlier in this report. FINANCIAL HIGHLIGHTS • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $249,719,273 (net position). Of this amount, $39,682,988 (unrestricted net position) may be used to meet the City’s ongoing obligations to citizens and creditors; $15,543,033 is restricted for specific purposes (restricted net position); and $194,493,252 represents the net investment in capital assets. The City’s total net position increased by $4,391,062 during the year ended December 31, 2017, excluding the prior period adjustment reported in the current year as discussed below. • The City recorded a prior period adjustment in the current year related to the City’s inventory of capitalized assets and the related useful lives. This change reduced beginning net position in the government-wide financial statements by $25,853,175. • As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $50,825,446, a decrease of $12,536,778. Restricted fund balances decreased from $27,079,147 to $13,431,367, a decrease of $13,647,780, which is the result of a decrease in the G.O. Refunding Bonds of 2013 Fund and G.O. Park Bonds of 2015 Fund, due to payments on refunded bonds in the current year. • At the end of the current fiscal year, unassigned fund balance for the General Fund was $16,351,616, or 49.3 percent, of total General Fund expenditures based on 2018 budgeted expenditure levels, including transfers. • The City’s long-term liabilities decreased by $33,833,415, or 41.5 percent, during the current fiscal year. The decrease is primarily attributable to the decrease in net pension liability of $16,336,775, as a result of the change in actuarial assumptions in the computation of the City’s obligation under Governmental Accounting Standards Board (GASB) Statement No. 68. The remainder of the decrease is due to payments on refunded debt and payments on the City’s outstanding debt obligations per the agreed upon schedules. Please see further details of long-term debt in Note 5 of the notes to basic financial statements. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements include three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-Wide Financial Statements – The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private sector business. -5- The Statement of Net Position presents information on all of the City’s assets, liabilities, and deferred inflows/outflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by property taxes and intergovernmental revenues (governmental activities) from o ther functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, and parks and recreation. The business-type activities of the City include municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility. The government-wide financial statements not only include the City itself (known as the primary government), but also the Apple Valley Economic Development Authority (EDA). The EDA is legally separate and is reported as if it were part of the primary government because it provides services exclusively for the City. The EDA is reported as the Economic Development Debt Service Fund and the EDA Operations Special Revenue Fund. Fund Financial Statements – A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmenta l 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 the 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 funds Balance Sheet and Statement of Revenue , Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds. Information is presented separately in the governmental funds Balance Sheet and Statement of Revenue, Expenditures, and Changes in Fund Balances for the General Fund, Closed Bond Issues Debt Service Fund, 2001/2008B Refunding Improvement Bonds Debt Service Fund, Road Improvements Capital Projects Fund, and Future Capital Projects Capital Projects Fund, all of 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 nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. -6- The City adopts an annual appropriated budget for its General Fund, Road Improvements Capital Projects Fund, Future Capital Projects Capital Projects Fund, Cable TV Special Revenue Fund, EDA Operations Special Revenue Fund, Equipment Certificate Capital Projects Fund, and Cable Capital Equipment Capital Projects Fund. A budgetary comparison statement or schedule has been provided for these funds to demonstrate compliance with this budget. Proprietary Funds – The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility operations. Internal service funds are accounting devices used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its dental insurance, benefits/other insurance, and vehicle and equipment replacement. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. 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 municipal liquor, municipal golf course, sports arena, water and sewer, storm drainage, cemetery, and street light utility operations, all of which are considered to be major funds of the City. Conversely, the internal service funds are combined into a single, aggregated presentation in the proprietary funds financial statements. Individual fund data for the internal service funds is provided in the form of combin ing statements elsewhere in this report. Notes to Basic Financial Statements – The notes to basic financial statements provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Other Information – In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information and the combining and individual fund statements and schedules (presented as supplementary information) referred to earlier in connection with nonmajor governmental funds and internal service funds, which are presented immediately following the basic financial statements. Further, a statistical section has been included as part of the Comprehensive Annual Financial Report (CAFR) to facilitate additional analysis, and is the third and final section of the report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of the City’s financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $249,719,273 at the close of the most recent fiscal year. By far, the largest portion of the City’s net position reflects its net investment in capital assets (e.g., land, buildings, machinery, equipment, distribution system, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investments in its capital assets are reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. -7- City of Apple Valley’s Net Position 2017 2016 2017 2016 2017 2016 Assets Current and other assets 64,266,249$ 75,551,704$ 20,180,433$ 22,659,941$ 84,446,682$ 98,211,645$ Capital assets, net 114,442,328 111,334,935 105,304,026 130,498,267 219,746,354 241,833,202 Total assets 178,708,577$ 186,886,639$ 125,484,459$ 153,158,208$ 304,193,036$ 340,044,847$ Deferred outflows of resources Pension plan deferments 12,839,621$ 20,189,949$ 754,334$ 1,341,210$ 13,593,955$ 21,531,159$ Total assets and deferred outflows of resources 191,548,198$ 207,076,588$ 126,238,793$ 154,499,418$ 317,786,991$ 361,576,006$ Liabilities Other liabilities 3,924,212$ 3,436,537$ 1,439,232$ 745,041$ 5,363,444$ 4,181,578$ Noncurrent liabilities 33,878,216 64,951,342 13,853,129 16,613,418 47,731,345 81,564,760 Total liabilities 37,802,428$ 68,387,879$ 15,292,361$ 17,358,459$ 53,094,789$ 85,746,338$ Deferred inflows of resources Pension plan deferments 14,446,921$ 4,208,020$ 526,008$ 440,262$ 14,972,929$ 4,648,282$ Net position Net investment in capital assets 99,642,040$ 93,945,022$ 94,851,212$ 119,417,084$ 194,493,252$ 213,362,106$ Restricted 15,364,368 16,141,535 178,665 178,977 15,543,033 16,320,512 Unrestricted 24,292,441 24,394,132 15,390,547 17,104,636 39,682,988 41,498,768 Total net position 139,298,849$ 134,480,689$ 110,420,424$ 136,700,697$ 249,719,273$ 271,181,386$ Total liabilities, deferred inflows of resources, and net position 191,548,198$ 207,076,588$ 126,238,793$ 154,499,418$ 317,786,991$ 361,576,006$ Business-Type Activities Totals Table 1 Summary of Net Position as of December 31, 2017 and 2016 Governmental Activities An additional portion of the City’s net position represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position of $39,682,988 may be used to meet the City’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its separate governmental and business-type activities. There was an increase in net position in the governmental activities of $4,818,160, and a decrease in business-type activities of $26,280,273, for a net total decrease of $21,462,113 in net position. This change in net position reflects an increase of $4,391,062 from the current year operating results, while the prior period adjustment mentioned earlier reduced net position by $25,853,175. Both governmental activities and business-type activities experienced changes in deferred outflows of resources, deferred inflows of resources, and long-term liabilities as a result of the City’s participation in defined benefit pension plans. The City also experienced a decrease in current assets and long-term liabilities, due to payments on refunded bonds in the current year. -8- City of Apple Valley’s Changes in Net Position 2017 2016 2017 2016 2017 2016 Revenues Program revenues Charges for services 7,776,342$ 7,542,244$ 23,577,253$ 23,013,748$ 31,353,595$ 30,555,992$ Operating grants and contributions 1,082,234 1,531,412 – – 1,082,234 1,531,412 Capital grants and contributions 3,206,571 5,489,541 1,057,916 3,631,836 4,264,487 9,121,377 General revenues Property taxes 25,053,457 24,039,391 121,000 121,000 25,174,457 24,160,391 Other taxes 182,377 185,568 – – 182,377 185,568 Franchise taxes 1,288,426 1,309,757 – – 1,288,426 1,309,757 Grants and contributions not restricted to specific programs 56,751 37,719 – – 56,751 37,719 Other 8,440 6,888 – – 8,440 6,888 Investment earnings 551,119 801,038 151,206 204,464 702,325 1,005,502 Total revenues 39,205,717 40,943,558 24,907,375 26,971,048 64,113,092 67,914,606 Expenses General government 6,260,768 7,030,599 – – 6,260,768 7,030,599 Public safety 13,443,699 15,097,659 – – 13,443,699 15,097,659 Public works 8,473,039 7,690,149 – – 8,473,039 7,690,149 Parks and recreation 7,239,268 7,025,281 – – 7,239,268 7,025,281 Interest and fiscal charges 886,283 912,007 – – 886,283 912,007 Municipal liquor – – 8,251,249 7,872,023 8,251,249 7,872,023 Municipal golf course – – 1,545,792 1,728,605 1,545,792 1,728,605 Sports arena – – 798,402 770,666 798,402 770,666 Water and sewer – – 10,031,223 9,336,567 10,031,223 9,336,567 Storm drainage – – 2,181,086 1,481,121 2,181,086 1,481,121 Cemetery – – 127,469 60,790 127,469 60,790 Street light utility – – 483,752 437,439 483,752 437,439 Total expenses 36,303,057 37,755,695 23,418,973 21,687,211 59,722,030 59,442,906 Increase in net position before transfers 2,902,660 3,187,863 1,488,402 5,283,837 4,391,062 8,471,700 Transfers 1,915,500 1,281,000 (1,915,500) (1,281,000) – – Change in net position 4,818,160 4,468,863 (427,098) 4,002,837 4,391,062 8,471,700 Net position – beginning, as previously reported 134,480,689 130,011,826 136,700,697 132,697,860 271,181,386 262,709,686 Prior period adjustment – – (25,853,175) – (25,853,175) – Net position – beginning, as restated 134,480,689 130,011,826 110,847,522 132,697,860 245,328,211 262,709,686 Net position – ending 139,298,849$ 134,480,689$ 110,420,424$ 136,700,697$ 249,719,273$ 271,181,386$ Table 2 Change in Net Position for the Years Ended December 31, 2017 and 2016 Business-Type Activities TotalGovernmental Activities Governmental Activities – The City’s net position for governmental activities increased by $4,818,160, or 3.6 percent. Key elements of this increase are seen in the table above. -9- Revenues decreased overall by $1,737,841, or 4.2 percent. This change included: • Decrease in capital grants and contributions due to decreased special assessment activity in the current year. • Increase in property taxes due to increases in the general tax levy. Expenses decreased overall by $1,452,638, or 3.8 percent. This decrease included: • The public safety function decreased $1,653,960, mainly due to changes in the actuarial assumptions regarding the City’s obligations under the Public Employees Police and Fire Fund pension plan. As seen in the following graph, taxes make up about 67 percent of the total governmental activities revenues for 2017. Charges for services make up about 20 percent of the total, and are followed by grants at 11 percent, and other at 2 percent of the total. 2017 Revenues by Source – Governmental Activities 2016 Revenues by Source – Governmental Activities -10- 2017 Expenses – Governmental Activities 2016 Expenses – Governmental Activities The expenses in the graph above for governmental activities show the amounts spent on different activities for 2017 and 2016. In 2017, public safety makes up 37 percent, public works 23 percent, parks and recreation 20 percent, and general government 17 percent. Other includes debt service interest and fiscal charges in governmental activities and makes up 3 percent. -11- Business-Type Activities – Business-type activities decreased the City’s total net position by $26,280,273. Key elements of the business-type activities are as follows: • Charges for services for business-type activities include sales for municipal liquor, municipal golf course, and sports arena; and charges for water and sewer, storm drainage, cemetery, and street light utility operations. The following graph shows the relationship between the revenues and expenses for the various activities. • About 78 percent of all business-type activity expenses are from the municipal liquor and water and sewer operations. • The City reported a prior period adjustment related to capital assets, reducing beginning net position by $25,853,175, as previously mentioned. • Overall, business-type activities generated an increase in net position before capital contributions and transfers of $430,486. After considering capital grants and contributions of $1,057,916 and net transfers out to governmental activities totaling $1,915,500, net position decreased by $427,098. Revenues and Expenses – Business-Type Activities $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 Municipal Liquor Municipal Golf Course Sports Arena Water and Sewer Storm Drainage Cemetery Street Light Utility Revenues Expenses -12- 2017 Revenues by Source – Business-Type Activities 2016 Revenues by Source – Business-Type Activities -13- FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds – The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of currently available resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $50,825,446, a decrease of $12,536,778 in comparison with the prior year. The City has five major governmental funds: the General Fund, the Closed Bond Issues Debt Service Fund, the 2001/2008B Refunding Improvement Bonds Debt Service Fund, the Road Improvements Capital Projects Fund, and the Future Capital Projects Capital Projects Fund. General Fund The General Fund is the chief operating fund of the City. At the end of the current fiscal year, total fund balance of the General Fund was $17,336,413. As a measure of the General Fund’s liquidity, it may be useful to compare the unassigned fund balance to total fund expenditures. Unassigned fund balance represents 49.3 percent of subsequent year budget expenditures, including transfers. Total fund balance for the City’s General Fund increased by $726,959 during 2017. Key factors in this increase are as follows: • The City adopted a balanced budget prior to the start of the current year. • License and permit revenues were approximately $1,760,000 over budget and are an increase of about $1,200,000 over the prior year, due to an increase in development activity within the City. • Expenditures were approximately $1,500,000 under the 2017 budgeted amounts, due to position vacancies and uncompleted 2017 capital purchases that were carried over into 2018. • The total fund balance increase of $726,959 is after transferring $1,950,000 out of the General Fund to the Future Capital Projects Capital Projects Fund in accordance with the City’s fund balance policy. Closed Bond Issues Fund – Debt Service Fund The Closed Bond Issues Fund accumulates resources remaining from retired debt service f unds. The fund balance at the end of 2017 is $9,440,666, which increased $597,101 from the prior year. The increase results from the Closed Bond Issues Fund collecting $524,422 in special assessments on previously levied assessments. 2001/2008B Refunding Improvement Bonds Fund – Debt Service Fund The 2001/2008B Refunding Improvement Bonds Fund accounts for the debt service activity and special assessment collections for bond retirement. The fund balance at the end of 201 7 is negative $2,846,426. The fund balance increased $82,005 from the prior year, resulting from the special assessment collections in the current year. -14- Road Improvements Fund – Capital Projects Fund The Road Improvements Fund receives transfers from other funds. These resources are used to finance street overlays and reconstruction projects per the City’s pavement management plan. The fund balance at the end of 2017 is negative $5,174,280, which is an increase of $24,582 from the prior year. Future Capital Projects Fund – Capital Projects Fund The Future Capital Projects Fund accumulates resources according to the City Council’s adopted fund balance policy. This policy calls for amounts in the General Fund that exceed a maximum level to be transferred to the Future Capital Projects Fund. The fund balance at the end of 2017 is $15,353,401, which is an increase of $677,633 from the prior year. A transfer from the General Fund was received in 2017 in the amount of $1,950,000 in accordance with the fund balance policy. A transfer out in the amount of $1,295,900 was made in 2017 to replace the 2017 property tax levy for the 2012 Park Refunding Bonds and to support capital activities. Proprietary Funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The City has seven enterprise funds and three internal service funds. The seven enterprise funds include: Municipal Liquor Fund, Municipal Golf Course Fund, Sports Arena Fund, Water and Sewer Fund, Storm Drainage Fund, Cemetery Fund, and the Street Light Utility Fund. The total net position of all enterprise funds totals $110,535,661, $94,851,212, of which is capital assets, net of related debt and in total, is a decrease of $26,268,679 from the prior year, mostly due to the prior period adjustment reported in the current year related to changes in the depreciable lives used on previously capitalized assets of the Water and Sewer and Storm Drainage Funds. The total unrestricted net position for all proprietary funds for the year was $15,505,784, a decrease of $1,702,495. Municipal Liquor Fund The net position in the Municipal Liquor Fund increased $325,471 from current year operations. This increase reflects continued positive operations of the City’s liquor stores after transferring $630,000 to the General Fund in support of public safety and parks and recreation activities. The increase in the Municipal Liquor Fund current year operations comes from maintaining gross profit margins. Municipal Golf Course Fund The Municipal Golf Course Fund operations posted a decrease in net position from current year operations of $364,084. Sports Arena Fund The Sports Arena Fund posted an increase in net position from current year operations of $56,342, which is after inclusion of an annual $121,000 property tax levy. Water and Sewer Fund The Water and Sewer Fund is the City’s largest proprietary fund . Unrestricted net position at the end of the year amounted to $11,946,924, a decrease of $1,661,329. Current year operations posted a $526,162 decrease in net position, resulting from a $600,000 transfer to the Road Improvements Capital Projects Fund. Total net investment in capital assets totals $57,880,536, a decrease of $15,411,809, mainly due to the prior period adjustment as previously mentioned. -15- Storm Drainage Fund The Storm Drainage Fund decreased its net position by $9,290,132. This is mainly due to the prior period adjustment as previously mentioned. Cemetery Fund The Cemetery Fund increased its net position by $67,259, which results from additional lot sales during the year. Street Light Utility Fund The Street Light Utility Fund increased its net position by $9,603 in the current year. GENERAL FUND BUDGETARY HIGHLIGHTS The most significant amendment to the 2017 General Fund budget was made to provide for projects that were carried over from 2016 to 2017. During the year, the total revenues exceeded the final amended budgetary estimates by $1,805,398, which can be attributed to licensing and permits exceeding the budget by $1,759,679, due to increased development activity in the current year. Total actual expenditures were $1,541,986 less than the budgetary estimates. General Fund budget performance can be attributed to curtailing spending where possible, position vacancies during the year, and conservative budgeting practices. Personal services in the General Fund ended t he year about $671,000 under budget. In addition, actual capital outlay expenditures were approximately $320,000 less than anticipated for 2017. -16- CAPITAL ASSETS AND LONG-TERM DEBT Capital Assets – The City’s investment in capital assets for its governmental and business-type activities as of December 31, 2017 amounts to $219,746,354 (net of accumulated depreciation). This investment in capital assets includes land and land improvements, construction in progress, buildings, other improvements, furniture and equipment, and infrastructure. The total decrease in the City’s investment in capital assets for the current fiscal year was $22,086,848, or approximately 9.1 percent, mainly due to the prior period adjustment related to capital asset activity and depreciable lives. Total depreciation charged in 2017 was $10,780,672. City of Apple Valley’s Capital Assets 2017 2016 2017 2016 2017 2016 Capital assets Land and land improvements 4,581,173$ 3,885,715$ 6,818,433$ 6,744,731$ 11,399,606$ 10,630,446$ Construction in progress 1,740,083 1,668,316 1,277,221 1,789,097 3,017,304 3,457,413 Buildings 32,587,544 32,313,580 22,086,746 21,988,389 54,674,290 54,301,969 Other improvements 25,457,057 25,239,683 154,024,344 149,255,827 179,481,401 174,495,510 Furniture and equipment 18,597,572 17,780,862 5,515,325 5,359,718 24,112,897 23,140,580 Infrastructure 109,815,968 103,455,658 – – 109,815,968 103,455,658 Less accumulated depreciation (78,337,069) (73,008,879) (84,418,043) (54,639,495) (162,755,112) (127,648,374) Total capital assets, net of depreciation 114,442,328$ 111,334,935$ 105,304,026$ 130,498,267$ 219,746,354$ 241,833,202$ Total Table 3 Capital Assets Governmental Activities Business-Type Activities Major capital asset additions during the current year included the following: • Street and improvement projects totaling approximately $5.8 million, including the following significant projects: Embry Path County Road 42 Access Street Improvements ($717,000), Galaxie Avenue Overlay Street Improvements ($453,000), and Micro Surfacing Street Improvements ($408,000), along with other 2017 street and trail improvements totaling $4,300,000. • Water, Sanitary and Storm Sewer Utility improvements in new subdivisions totaling about $2,600,000. • Equipment additions totaling around $999,000. This includes about $600,000 of additions in governmental activities primarily related to new park equipment and IT server equipment. It also includes approximately $399,000 of additions in business-type activities primarily related to new golf carts and sewer cameras. Additional information on the City’s capital assets can be found in Note 4 of the notes to basic financial statements. -17- Long-Term Debt – At the end of the current fiscal year, the City had total debt outstanding of $47,731,345. Of this amount, $22,885,000 is backed by the full faith and credit of the City, and $585,000 is special assessment debt for which the City is liable in the event of default by the property owners subject to the assessment. The revenue bonds and capital lease are backed by the revenues of the enterprise funds. City of Apple Valley’s Debt 2017 2016 2017 2016 2017 2016 General obligation bonds 13,885,000$ 27,550,000$ –$ –$ 13,885,000$ 27,550,000$ General obligation improvement bonds 585,000 2,270,000 – – 585,000 2,270,000 General obligation revenue bonds – – 9,000,000 11,115,000 9,000,000 11,115,000 Revenue bonds – – 1,120,000 1,355,000 1,120,000 1,355,000 Capital lease – – 175,526 56,285 175,526 56,285 Unamortized premium 330,288 378,707 157,288 183,255 487,576 561,962 Net OPEB obligation 1,537,306 1,398,959 268,527 244,694 1,805,833 1,643,653 Net pension liability 14,729,157 30,539,605 2,658,752 3,185,079 17,387,909 33,724,684 Compensated absences 2,811,465 2,814,071 473,036 474,105 3,284,501 3,288,176 Total 33,878,216$ 64,951,342$ 13,853,129$ 16,613,418$ 47,731,345$ 81,564,760$ Total Table 4 Outstanding Debt Governmental Activities Business-Type Activities The City’s total bonded debt decreased by $17,700,000 during 2017, which resulted from the scheduled debt payments during the year and the advance refunding of General Obligation Park Bonds 2007A, General Obligation Park Bonds 2008D, General Obligation Park Bonds 2011A, and General Obligation Storm Water Bonds 2011A totaling $13,500,000, and the early call of the 2007 G.O. Improvement Bonds in the amount of $1,350,000. The City maintains an “Aaa” rating from Moody’s and AAA from Standard and Poor’s on all of its general obligation debt. State statutes limit the amount of general obligation debt a governmental entity may issue to 3 percent of its total market valuation. A complete calculation of the City’s legal debt margin can be found in the statistical section of this report. Additional information on the City’s long-term debt can be found in Note 5 of the notes to basic financial statements. -18- ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s budget, along with the 5-year Capital Improvement Plan, is an important part of the City’s public process. The combination of these documents provides the framework that allows the City to address needed maintenance and provide for the growth and demands for service. Through innovation and efficiencies, the City continues to provide quality services that meet or exceed the expectations of our community members. Strong financial stewardship and quality customer service is a hallmark of the City’s government and is evidenced by the City’s AAA bond rating. Departments successfully managed their expenditures and as a result General Fund expenditures were approximately 5 percent below the authorized budget. The City experienced growth in licenses and permits, due to a surge in single and multi-family development activity, which began in 2014 and is anticipated to last beyond 2018. The City will continue to make significant ongoing investments in the Street and Utility Infrastructure Preservation and Reconstruction Program. These factors were considered in preparing the City’s budget for the 2018 fiscal year: • Property taxes provide the largest source, approximately 73.0 percent, of the resources needed to support the General Fund activities. Minnesota cities are not subject to levy limits for 2018. • Property values in the City are increasing as they are in other locations. The increase in the median valued residential property for the 2018 budget year will be approximately 6.4 percent, compared to an increase of 2.5 percent for the 2017 budget year. The preliminary county data for 2018 shows a 9.3 percent increase in the median valued home. • The total property tax levy increased 3.8 percent for 2018. • The taxes paid by the median valued home increased for 2018 to $988 from $966 in 2017, approximately 1.8 percent. • Contract settlements with all of the City’s three unions have been reached through 2019. • A 5.0 percent increase in water utility rates was enacted for 2018 to fund the portion of the Street and Utility Infrastructure Preservation Program related to the water utility and the water meter replacement program. Utility rates for the sewer, storm water, and street light utilities each also increased by 5.0 percent for 2018. REQUESTS FOR INFORMATION This CAFR is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Finance Director, City of Apple Valley, 7100 – 147th Street West, Apple Valley, Minnesota 55124. THIS PAGE INTENTIONALLY LEFT BLANK INSERT: GOVERNMENT-WIDE FINANCIAL STATEMENTS TAB Governmental Business-Type Activities Activities Total Assets Cash and investments 51,228,506$ 16,336,837$ 67,565,343$ Receivables Accounts and interest 778,033 2,856,193 3,634,226 Taxes 1,723,622 – 1,723,622 Special assessments 3,898,649 297,902 4,196,551 Due from other governmental units 333,231 520,812 854,043 Internal balances 1,962,900 (1,962,900) – Prepaids 507,908 292,052 799,960 Inventory 16,176 1,660,872 1,677,048 Land held for resale 3,026,198 – 3,026,198 Net pension asset 791,026 – 791,026 Restricted assets Cash and investments for debt service – 178,665 178,665 Capital assets Not depreciated 6,321,256 8,095,654 14,416,910 Depreciated, net of accumulated depreciation 108,121,072 97,208,372 205,329,444 Total assets 178,708,577 125,484,459 304,193,036 Deferred outflows of resources Pension plan deferments 12,839,621 754,334 13,593,955 Total assets and deferred outflows of resources 191,548,198$ 126,238,793$ 317,786,991$ Liabilities Accrued salaries payable 653,022$ 89,340$ 742,362$ Accounts payable 1,883,289 827,103 2,710,392 Contracts payable 1,255,520 224,244 1,479,764 Interest payable 23,567 11,265 34,832 Due to other governmental units 102,028 287,280 389,308 Claims incurred, but not reported 6,786 – 6,786 Long-term liabilities Due within one year 2,917,700 1,112,128 4,029,828 Due in more than one year 30,960,516 12,741,001 43,701,517 Total long-term liabilities 33,878,216 13,853,129 47,731,345 Total liabilities 37,802,428 15,292,361 53,094,789 Deferred inflows of resources Pension plan deferments 14,446,921 526,008 14,972,929 Net position Net investment in capital assets 99,642,040 94,851,212 194,493,252 Restricted for Debt service 4,088,076 178,665 4,266,741 Tax increment financing 4,158,266 – 4,158,266 Economic development 124,531 – 124,531 Police forfeiture 50,367 – 50,367 Capital acquisition 6,063,535 – 6,063,535 Fire relief pension 709,512 – 709,512 Other purposes 170,081 – 170,081 Unrestricted 24,292,441 15,390,547 39,682,988 Total net position 139,298,849 110,420,424 249,719,273 Total liabilities, deferred inflows of resources, and net position 191,548,198$ 126,238,793$ 317,786,991$ CITY OF APPLE VALLEY Statement of Net Position as of December 31, 2017 See notes to basic financial statements -19- Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Governmental activities General government 6,260,768$ 1,956,499$ –$ 2,711$ Public safety 13,443,699 617,729 1,082,234 – Public works 8,473,039 3,740,394 – 3,203,860 Parks and recreation 7,239,268 1,461,720 – – Interest and fiscal charges 886,283 – – – Total governmental activities 36,303,057 7,776,342 1,082,234 3,206,571 Business-type activities Municipal liquor 8,251,249 9,185,736 – – Municipal golf course 1,545,792 1,180,209 – – Sports arena 798,402 732,979 – – Water and sewer 10,031,223 9,917,074 – 765,087 Storm drainage 2,181,086 1,866,306 – 292,829 Cemetery 127,469 187,589 – – Street light utility 483,752 507,360 – – Total business-type activities 23,418,973 23,577,253 – 1,057,916 Total governmental and business-type activities 59,722,030$ 31,353,595$ 1,082,234$ 4,264,487$ General revenues Property taxes Other taxes Franchise taxes Grants and contributions not restricted to specific programs Other general revenues Investment earnings Transfers Total general revenues and transfers Change in net position Net position – beginning, as previously reported Prior period adjustment Net position – beginning, as restated Net position – ending Program Revenues CITY OF APPLE VALLEY Statement of Activities Year Ended December 31, 2017 See notes to basic financial statements -20- Governmental Business-Type Activities Activities Total (4,301,558)$ –$ (4,301,558)$ (11,743,736) – (11,743,736) (1,528,785) – (1,528,785) (5,777,548) – (5,777,548) (886,283) – (886,283) (24,237,910) – (24,237,910) – 934,487 934,487 – (365,583) (365,583) – (65,423) (65,423) – 650,938 650,938 – (21,951) (21,951) – 60,120 60,120 – 23,608 23,608 – 1,216,196 1,216,196 (24,237,910) 1,216,196 (23,021,714) 25,053,457 121,000 25,174,457 182,377 – 182,377 1,288,426 – 1,288,426 56,751 – 56,751 8,440 – 8,440 551,119 151,206 702,325 1,915,500 (1,915,500) – 29,056,070 (1,643,294) 27,412,776 4,818,160 (427,098) 4,391,062 134,480,689 136,700,697 271,181,386 – (25,853,175) (25,853,175) 134,480,689 110,847,522 245,328,211 139,298,849$ 110,420,424$ 249,719,273$ Revenue and Changes in Net Position Net (Expenses) -21- THIS PAGE INTENTIONALLY LEFT BLANK INSERT: FUND FINANCIAL STATEMENTS TAB THIS PAGE INTENTIONALLY LEFT BLANK Capital Projects 2001/2008B Refunding General Closed Bond Improvement Road Fund Issues Bonds Improvements (1000)(3205)(3285)(2025) Assets Cash and investments 15,908,162$ 2,816,120$ –$ 6,172$ Receivables Accounts 237,410 – – – Taxes 1,723,622 – – – Special assessments Current – 165,646 48,819 53,102 Delinquent 11,426 20,466 – 39 Deferred – 903,094 376,438 422,435 Interest 357,825 – – – Due from other governmental units 332,083 – – – Due from other funds – 3,035,727 – – Advances to other funds – 576,000 – – Prepaids 309,106 – – – Inventory 16,176 – – – Land held for resale – 3,026,198 – – Total assets 18,895,810$ 10,543,251$ 425,257$ 481,748$ Liabilities Accrued salaries payable 647,892$ –$ –$ –$ Accounts payable 655,413 13,379 – 274,363 Contracts payable 992 – – 942,878 Due to other governmental units 102,028 – – – Due to other funds – – 2,846,426 3,963,211 Advances from other funds – – – – Total liabilities 1,406,325 13,379 2,846,426 5,180,452 Deferred inflows of resources Unavailable revenue – property taxes 141,646 – – – Unavailable revenue – special assessments 11,426 1,089,206 425,257 475,576 Total deferred inflows of resources 153,072 1,089,206 425,257 475,576 Fund balances (deficit) Nonspendable 325,282 – – – Restricted – – – – Committed 595,215 – – – Assigned 64,300 9,440,666 – – Unassigned 16,351,616 – (2,846,426) (5,174,280) Total fund balances (deficit)17,336,413 9,440,666 (2,846,426) (5,174,280) Total liabilities, deferred inflows of resources, and fund balances 18,895,810$ 10,543,251$ 425,257$ 481,748$ Debt Service CITY OF APPLE VALLEY Balance Sheet Governmental Funds as of December 31, 2017 See notes to basic financial statements -22- Capital Projects Future Capital Nonmajor Total Projects Governmental Governmental (4930)Funds Funds 9,529,321$ 18,563,227$ 46,823,002$ – 174,482 411,892 – – 1,723,622 – 374,283 641,850 – 781 32,712 – 1,522,120 3,224,087 – – 357,825 – 1,148 333,231 3,976,417 – 7,012,144 1,847,663 – 2,423,663 – 1,730 310,836 – – 16,176 – – 3,026,198 15,353,401$ 20,637,771$ 66,337,238$ –$ 5,130$ 653,022$ – 929,628 1,872,783 – 311,650 1,255,520 – – 102,028 – 202,507 7,012,144 – 576,000 576,000 – 2,024,915 11,471,497 – – 141,646 – 1,897,184 3,898,649 – 1,897,184 4,040,295 – 1,730 327,012 – 13,431,367 13,431,367 – 15,000 610,215 15,353,401 3,985,762 28,844,129 – (718,187) 7,612,723 15,353,401 16,715,672 50,825,446 15,353,401$ 20,637,771$ 66,337,238$ -23- THIS PAGE INTENTIONALLY LEFT BLANK Total fund balances – governmental funds 50,825,446$ 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 179,981,277 Less accumulated depreciation (71,715,663) Net pension assets are included in net position,but are excluded from fund balances because they do not represent financial resources 791,026 Long-term liabilities are not payable with current financial resources and,therefore,are not reported in governmental funds. Bonds payable (14,470,000) Net OPEB obligation (1,537,306) Net pension liability (14,729,157) Due to availability,certain revenues are not recognized under the governmental fund statements until received;however,under full accrual in the government-wide Statement of Activities, revenues are recorded when earned regardless of when received.4,040,295 Accrued interest payable is included in net position,but is excluded from fund balances until due and payable.(23,567) Internal service funds are used by management to charge certain costs to individual funds.The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Position. Internal service fund balances included in governmental activities 7,958,849 Add internal services balances allocated to business-type activities 115,237 Governmental funds report debt premiums as other financing sources at the time of issuance. Premiums are reported as liabilities in the Statement of Net Position.(330,288) Governmental funds do not report certain long-term amounts related to pensions that are included in net position. Deferred outflows – pension plan deferments 12,839,621 Deferred inflows – pension plan deferments (14,446,921) Total net position – governmental activities 139,298,849$ Amounts reported for governmental activities in the Statement of Net Position are different because: as of December 31, 2017 CITY OF APPLE VALLEY Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds See notes to basic financial statements -24- Capital Projects 2001/2008B Refunding General Closed Bond Improvement Road Fund Issues Bonds Improvements (1000)(3205)(3285)(2025) Revenue Taxes 23,335,830$ –$ –$ –$ Other taxes 89,419 – – – Franchise taxes 515,245 – – – Special assessments 2,711 524,422 82,005 91,049 Licenses and permits 3,244,654 – – – Intergovernmental 831,908 – – 922,115 Charges for services 2,962,769 – – – Fines and forfeits 315,087 – – – Investment earnings 91,352 80,164 – – Other 810,838 – – 1,100 Total revenue 32,199,813 604,586 82,005 1,014,264 Expenditures Current General government 4,917,230 – – – Public safety 12,257,784 – – – Public works 4,017,771 – – – Parks and recreation 5,451,672 – – – Capital outlay 629,917 – – 5,089,682 Debt service Principal – – – – Interest and fiscal charges – 7,485 – – Total expenditures 27,274,374 7,485 – 5,089,682 Excess (deficiency) of revenue over expenditures 4,925,439 597,101 82,005 (4,075,418) Other financing sources (uses) Sale of capital assets 10,120 – – – Payment on refunded bond – – – – Transfers in 1,300,500 – – 4,100,000 Transfers (out)(5,509,100) – – – Total other financing sources (uses)(4,198,480) – – 4,100,000 Net change in fund balances 726,959 597,101 82,005 24,582 Fund balances (deficit) Beginning of year 16,609,454 8,843,565 (2,928,431) (5,198,862) End of year 17,336,413$ 9,440,666$ (2,846,426)$ (5,174,280)$ Debt Service CITY OF APPLE VALLEY Statement of Revenue, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended December 31, 2017 See notes to basic financial statements -25- Future Capital Nonmajor Total Projects Governmental Governmental (4930)Funds Funds –$ 1,740,504$ 25,076,334$ – 92,958 182,377 – 773,181 1,288,426 – 859,422 1,559,609 – – 3,244,654 – 248,362 2,002,385 – – 2,962,769 – – 315,087 110,947 241,428 523,891 – 1,002,869 1,814,807 110,947 4,958,724 38,970,339 – 788,478 5,705,708 – 22,151 12,279,935 87,414 26,611 4,131,796 – 314,882 5,766,554 – 2,745,384 8,464,983 – 3,425,000 3,425,000 – 932,946 940,431 87,414 8,255,452 40,714,407 23,533 (3,296,728) (1,744,068) – 32,670 42,790 – (11,925,000) (11,925,000) 1,950,000 1,392,625 8,743,125 (1,295,900) (848,625) (7,653,625) 654,100 (11,348,330) (10,792,710) 677,633 (14,645,058) (12,536,778) 14,675,768 31,360,730 63,362,224 15,353,401$ 16,715,672$ 50,825,446$ -26- THIS PAGE INTENTIONALLY LEFT BLANK Total net change in fund balances – governmental funds (12,536,778)$ Capital outlays are reported in governmental funds as expenditures;however,in the Statement of Activities the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital outlay 7,643,329 Capital contributions 675,613 Net book value of capital assets transferred from governmental activities to internal service funds (2,574,818) Depreciation expense (5,511,108) Net pension assets are only recorded in the government-wide financial statements as they are not current financial resources to governmental funds.791,026 Repayment of long-term liabilities is an expenditure in the governmental funds,but the repayment reduces long-term liabilities in the Statement of Net Position.15,350,000 Net OPEB obligations are recognized as paid in the governmental funds,but recognized as the expense is incurred in the Statement of Activities.(138,347) Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due,and thus requires the use of current financial resources.In the Statement of Activities,however,interest expense is recognized as the interest accrues, regardless of when it is due.5,729 Governmental funds report debt issuance premiums as other financing sources at the time of issuance. Premiums are reported as liabilities in the Statement of Net Position.48,419 Certain revenues are recognized as soon as they are earned in the Statement of Activities;however, under the modified accrual basis of accounting,certain revenues cannot be recognized until they are available to liquidate liabilities of the current period.(514,343) Internal service funds are used by management to charge certain costs to individual funds.The net revenue of certain activities of internal service funds is reported with governmental activities in the government-wide financial statements. Internal service fund activity included in governmental activities, net of capital contributions 771,807 Add back internal service fund activity allocated to business-type activities 11,594 Capital contributions from governmental funds 2,574,818 Governmental funds do not report long-term amounts related to pensions that are included in the change in net position. Net pension liability 15,810,448 Deferred outflows – pension plan deferments (7,350,328) Deferred inflows – pension plan deferments (10,238,901) Change in net position – governmental activities 4,818,160$ Amounts reported for governmental activities in the Statement of Activities are different because: CITY OF APPLE VALLEY Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds Year Ended December 31, 2017 See notes to basic financial statements -27- THIS PAGE INTENTIONALLY LEFT BLANK Over (Under) Original Final Actual Budget Revenue Taxes 23,254,170$ 23,359,170$ 23,335,830$ (23,340)$ Other taxes 102,300 102,300 89,419 (12,881) Franchise taxes 515,000 515,000 515,245 245 Special assessments 14,000 14,000 2,711 (11,289) Licenses and permits 1,368,975 1,484,975 3,244,654 1,759,679 Intergovernmental 706,530 706,530 831,908 125,378 Charges for services 3,073,440 3,073,440 2,962,769 (110,671) Fines and forfeits 279,500 279,500 315,087 35,587 Investment earnings 185,600 185,600 91,352 (94,248) Other 673,900 673,900 810,838 136,938 Total revenue 30,173,415 30,394,415 32,199,813 1,805,398 Expenditures Current General government 5,304,041 5,333,606 4,917,230 (416,376) Public safety 12,538,242 12,615,072 12,257,784 (357,288) Public works 4,315,375 4,408,475 4,017,771 (390,704) Parks and recreation 5,517,107 5,509,107 5,451,672 (57,435) Capital outlay General government 146,950 277,950 231,218 (46,732) Public safety 23,500 335,500 162,046 (173,454) Public works 27,500 56,500 23,273 (33,227) Parks and recreation 113,500 280,150 213,380 (66,770) Total expenditures 27,986,215 28,816,360 27,274,374 (1,541,986) Excess of revenue over expenditures 2,187,200 1,578,055 4,925,439 3,347,384 Other financing sources (uses) Sale of capital assets 20,400 20,400 10,120 (10,280) Transfers in 1,300,500 1,300,500 1,300,500 – Transfers (out)(3,508,100) (3,559,100) (5,509,100) (1,950,000) Total other financing sources (uses)(2,187,200) (2,238,200) (4,198,480) (1,960,280) Net change in fund balances –$ (660,145)$ 726,959 1,387,104$ Fund balances Beginning of year 16,609,454 End of year 17,336,413$ Budgeted Amounts CITY OF APPLE VALLEY Statement of Revenue, Expenditures, and Changes in Fund Balances General Fund – Budget and Actual Year Ended December 31, 2017 See notes to basic financial statements -28- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Current assets Cash and investments 2,603,041$ –$ –$ 9,735,978$ Receivables Special assessments Current – – – 224,154 Delinquent – – – 18,157 Accounts 6,717 3,535 80,290 2,159,672 Due from other governmental units – – 213,714 278,804 Prepaids 20,777 5,023 1,730 263,062 Inventory 1,509,964 57,826 – 93,082 Total current assets 4,140,499 66,384 295,734 12,772,909 Noncurrent assets Restricted cash with fiscal agent 178,665 – – – Deferred special assessment receivable – – – 30,405 Advance to other funds – – – 1,329,041 Capital assets Land and land improvements 1,177,683 991,179 2,000 1,996,379 Construction in progress – – – 1,217,350 Buildings 3,612,180 3,190,504 3,518,984 11,765,078 Other improvements 25,000 689,963 109,420 102,458,425 Furniture and equipment 362,676 953,038 287,615 3,594,890 Less accumulated depreciation (1,643,251) (1,602,460) (2,791,936) (55,620,319) Total capital assets (net of accumulated depreciation)3,534,288 4,222,224 1,126,083 65,411,803 Total noncurrent assets 3,712,953 4,222,224 1,126,083 66,771,249 Total assets 7,853,452 4,288,608 1,421,817 79,544,158 Deferred outflows of resources Pension plan deferments – PERA 158,214 113,750 55,183 366,033 Total assets and deferred outflows of resources 8,011,666$ 4,402,358$ 1,477,000$ 79,910,191$ as of December 31, 2017 Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Net Position Proprietary Funds See notes to basic financial statements -29- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 2,902,648$ 944,744$ 150,426$ 16,336,837$ 4,405,504$ 1,224 – – 225,378 – – – – 18,157 – 471,046 – 134,933 2,856,193 8,316 27,632 – 662 520,812 – 1,460 – – 292,052 197,072 – – – 1,660,872 – 3,404,010 944,744 286,021 21,910,301 4,610,892 – – – 178,665 – 23,962 – – 54,367 – – – – 1,329,041 – 2,137,632 513,560 – 6,818,433 – 59,871 – – 1,277,221 – – – – 22,086,746 – 49,931,222 810,314 – 154,024,344 – 317,106 – – 5,515,325 12,798,120 (22,528,094) (231,983) – (84,418,043) (6,621,406) 29,917,737 1,091,891 – 105,304,026 6,176,714 29,941,699 1,091,891 – 106,866,099 6,176,714 33,345,709 2,036,635 286,021 128,776,400 10,787,606 61,154 – – 754,334 – 33,406,863$ 2,036,635$ 286,021$ 129,530,734$ 10,787,606$ -30-(continued) Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Current liabilities Accrued salaries payable 27,940$ 11,630$ 7,385$ 39,332$ Accounts payable 540,902 15,731 13,179 179,866 Contracts payable – – – 224,244 Interest payable 1,882 – – 8,034 Due to other governmental units 98,419 1,035 41,930 145,896 Claims payable – – – – Accrued compensated absences 69,900 29,300 13,600 150,200 Capital lease payable – 38,728 – – Bonds payable 240,000 – – 385,000 Total current liabilities 979,043 96,424 76,094 1,132,572 Noncurrent liabilities Accrued compensated absences 28,003 49,648 15,871 104,649 Net OPEB obligation 66,632 34,159 21,416 138,400 Net pension liability 572,869 366,704 186,417 1,302,684 Advance from other fund – 3,123,789 52,915 – Capital lease payable – 136,798 – – Bonds payable 880,000 – – 7,146,267 Total noncurrent liabilities 1,547,504 3,711,098 276,619 8,692,000 Total liabilities 2,526,547 3,807,522 352,713 9,824,572 Deferred inflows of resources Pension plan deferments – PERA 115,333 71,449 36,196 258,159 Net position (deficit) Net investment in capital assets 2,414,288 4,046,698 1,126,083 57,880,536 Restricted for debt service 178,665 – – – Unrestricted 2,776,833 (3,523,311) (37,992) 11,946,924 Total net position 5,369,786 523,387 1,088,091 69,827,460 Total liabilities, deferred inflows of resources, and net position 8,011,666$ 4,402,358$ 1,477,000$ 79,910,191$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Net Position Proprietary Funds (continued) as of December 31, 2017 See notes to basic financial statements -31- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 3,053$ –$ –$ 89,340$ –$ 50,822 4,897 21,706 827,103 10,506 – – – 224,244 – 1,349 – – 11,265 – – – – 287,280 – – – – – 6,786 5,400 – – 268,400 1,817,700 – – – 38,728 – 180,000 – – 805,000 – 240,624 4,897 21,706 2,551,360 1,834,992 6,465 – – 204,636 993,765 7,920 – – 268,527 – 230,078 – – 2,658,752 – – – – 3,176,704 – – – – 136,798 – 1,446,021 – – 9,472,288 – 1,690,484 – – 15,917,705 993,765 1,931,108 4,897 21,706 18,469,065 2,828,757 44,871 – – 526,008 – 28,291,716 1,091,891 – 94,851,212 6,176,714 – – – 178,665 – 3,139,168 939,847 264,315 15,505,784 1,782,135 31,430,884 2,031,738 264,315 110,535,661 7,958,849 33,406,863$ 2,036,635$ 286,021$ 129,530,734$ 10,787,606$ Total net position – enterprise funds 110,535,661$ Adjustment to reflect the consolidation of internal service fund activity related to enterprise funds (115,237) Net position – business-type activities 110,420,424$ -32- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Operating revenue Sales and rentals 9,183,272$ 1,173,102$ 732,919$ –$ Charges for services – – – 9,910,773 Total operating revenue 9,183,272 1,173,102 732,919 9,910,773 Cost of goods sold 6,473,275 188,557 15,796 – Gross profit 2,709,997 984,545 717,123 9,910,773 Operating expenses Personal services 1,086,489 840,838 340,220 1,653,691 Contractual services 29,832 77,340 46,337 290,929 Other charges 334,285 31,670 12,237 930,186 Supplies and repairs 32,133 173,491 71,053 523,083 Insurance 75,285 36,000 26,775 207,375 Utilities 51,935 47,581 146,689 431,452 Depreciation 140,758 183,693 145,415 2,768,547 Sewer charges – – – 2,979,830 Total operating expenses 1,750,717 1,390,613 788,726 9,785,093 Operating income (loss)959,280 (406,068) (71,603) 125,680 Nonoperating revenue (expense) Taxes – – 121,000 – Investment earnings 18,342 – – 87,682 Other income 2,464 7,107 60 6,301 Gain (loss) on sale of capital assets 2,281 50,682 6,885 (48,605) Interest expense (26,896) (15,805) – (191,807) Total nonoperating revenue (expense)(3,809) 41,984 127,945 (146,429) Income (loss) before capital contributions and transfers 955,471 (364,084) 56,342 (20,749) Capital contributions – – – 524,767 Capital contributions – connection fees – – – 240,320 Transfers in – – – – Transfers (out)(630,000) – – (1,270,500) Change in net position 325,471 (364,084) 56,342 (526,162) Net position Beginning of year, as previously reported 5,044,315 887,471 1,031,749 86,900,598 Prior period adjustment – – – (16,546,976) Beginning of year, as restated 5,044,315 887,471 1,031,749 70,353,622 End of year 5,369,786$ 523,387$ 1,088,091$ 69,827,460$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Revenue, Expenses, and Changes in Net Position Proprietary Funds Year Ended December 31, 2017 See notes to basic financial statements -33- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund –$ –$ –$ 11,089,293$ –$ 1,769,842 187,334 507,360 12,375,309 2,415,781 1,769,842 187,334 507,360 23,464,602 2,415,781 – – – 6,677,628 – 1,769,842 187,334 507,360 16,786,974 2,415,781 258,343 3,612 2,300 4,185,493 846,795 353,340 77,094 37,012 911,884 19,145 400,725 12,442 699 1,722,244 787,130 31,560 13,422 3,685 848,427 – 6,800 – 7,893 360,128 – 70,494 1,588 432,163 1,181,902 – 995,490 19,311 – 4,253,214 1,016,350 – – – 2,979,830 – 2,116,752 127,469 483,752 16,443,122 2,669,420 (346,910) 59,865 23,608 343,852 (253,639) – – – 121,000 – 37,048 7,139 995 151,206 27,228 96,464 255 – 112,651 – (1,222)– – 10,021 172,218 (62,142) – – (296,650) – 70,148 7,394 995 98,228 199,446 (276,762) 67,259 24,603 442,080 (54,193) 232,710 – – 757,477 2,574,818 60,119 – – 300,439 – – – – – 826,000 – – (15,000) (1,915,500) – 16,067 67,259 9,603 (415,504) 3,346,625 40,721,016 1,964,479 254,712 136,804,340 4,612,224 (9,306,199) – – (25,853,175) – 31,414,817 1,964,479 254,712 110,951,165 4,612,224 31,430,884$ 2,031,738$ 264,315$ 110,535,661$ 7,958,849$ Change in net position – enterprise funds (415,504)$ Adjustment to reflect the consolidation of internal service fund activities related to the enterprise funds (11,594) Change in net position – business-type activities (427,098)$ -34- Municipal Municipal Sports Water and Liquor Golf Course Arena Sewer (5000, 5030)(5100)(5200)(5300, 5400) Cash flows from operating activities Cash received from customers 9,179,019$ 1,193,130$ 734,762$ 10,072,773$ Cash receipts on interfund services provided – – – – Cash payments to suppliers (6,889,297) (560,116) (270,559) (4,923,784) Cash payments to employees for services (1,035,458) (831,985) (331,950) (1,554,862) Net cash flows from operating activities 1,254,264 (198,971) 132,253 3,594,127 Cash flows from capital and related financing activities Acquisition and construction of capital assets (15,670) (269,305) (82,626) (3,039,251) Connection fees received – – – 240,320 Proceeds from sale of capital assets 2,281 99,888 6,885 – Proceeds from issuance of capital lease – 215,419 – – Payment on debt (235,000) (96,178) – (380,000) Interest paid (27,288) (16,279) – (200,425) Transfer from other funds – – – – Net cash flows from capital and related financing activities (275,677) (66,455) (75,741) (3,379,356) Cash flows from investing activities Interest received on investments 18,342 – – 87,682 Cash flows from noncapital financing activities Taxes – – 121,000 – Cash received from other funds – 265,426 – – Cash paid to other funds – – (177,512) (153,910) Transfers (out)(630,000) – – (1,270,500) Net cash flows from noncapital financing activities (630,000) 265,426 (56,512) (1,424,410) Net increase (decrease) in cash and cash equivalents 366,929 – – (1,121,957) Cash and cash equivalents Beginning of year 2,414,777 – – 10,857,935 End of year 2,781,706$ –$ –$ 9,735,978$ Reconciliation of operating income (loss) to net cash flows from operating activities Operating income (loss)959,280$ (406,068)$ (71,603)$ 125,680$ Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation 140,758 183,693 145,415 2,768,547 Other revenue (expense)2,464 7,107 60 6,301 Change in assets, deferred outflows/inflows of resources, and liabilities Receivables Special assessments – – – 16,299 Accounts (6,717) 12,921 7,812 140,036 Due from other governmental units – – (6,029) (636) Inventory (33,634) (580) – (8,185) Prepaids (5,262) (4,688) (1,730) (20,984) Deferred outflows of resources 133,802 75,797 38,508 289,538 Accounts payable 142,876 (936) 8,348 145,105 Contracts payable – – – 203,708 Accrued salaries payable 3,926 1,296 (649) 7,674 Claims payable – – – – Net OPEB obligation 5,431 3,080 1,566 11,758 Net pension liability (119,997) (67,977) (34,535) (259,666) Accrued compensated absences 8,320 (14,417) (2,246) 7,221 Due to other governmental units 3,468 727 41,710 119,427 Deferred inflows of resources 19,549 11,074 5,626 42,304 Net cash flows from operating activities 1,254,264$ (198,971)$ 132,253$ 3,594,127$ Noncash capital activities Capital contributions –$ –$ –$ 524,767$ Net book value of capital asset disposals –$ (49,206)$ –$ (48,605)$ Business-Type Activities – Enterprise Funds CITY OF APPLE VALLEY Statement of Cash Flows Proprietary Funds Year Ended December 31, 2017 See notes to basic financial statements -35- Governmental Storm Street Light Activities Drainage Cemetery Utility Internal (5500, 5550)(5600, 5700)(5800)Totals Service Fund 1,822,779$ 187,589$ 505,948$ 23,696,000$ –$ – – – – 2,385,386 (844,651) (120,076) (463,482) (14,071,965) (1,602,635) (245,432) (3,612) (2,300) (4,005,599) (133,569) 732,696 63,901 40,166 5,618,436 649,182 (714,773) (132,079) – (4,253,704) (1,453,051) 60,119 – – 300,439 – – – – 109,054 309,360 – – – 215,419 – (1,735,000) – – (2,446,178) – (81,870) – – (325,862) – – – – – 826,000 (2,471,524) (132,079) – (6,400,832) (317,691) 39,108 7,139 995 153,266 27,228 – – – 121,000 – – – – 265,426 – – – – (331,422) – – – (15,000) (1,915,500) – – – (15,000) (1,860,496) – (1,699,720) (61,039) 26,161 (2,489,626) 358,719 4,602,368 1,005,783 124,265 19,005,128 4,046,785 2,902,648$ 944,744$ 150,426$ 16,515,502$ 4,405,504$ (346,910)$ 59,865$ 23,608$ 343,852$ (253,639)$ 995,490 19,311 – 4,253,214 1,016,350 96,464 255 – 112,651 – 5,037 – – 21,336 – (20,932) – (1,395) 131,725 5 (27,632) – (17) (34,314) – – – – (42,399) – (1,460) – – (34,124) (30,455) 49,231 – – 586,876 – 26,309 (15,530) 18,092 324,264 (79,699) – – – 203,708 – (1,412) – – 10,835 – – – – – (774) 1,998 – – 23,833 – (44,152) – – (526,327) – 53 – – (1,069) (2,606) (6,581) – (122) 158,629 – 7,193 – – 85,746 – 732,696$ 63,901$ 40,166$ 5,618,436$ 649,182$ 232,710$ –$ –$ 757,477$ 2,574,818$ (1,222)$ –$ –$ (99,033)$ (137,142)$ -36- THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY Notes to Basic Financial Statements as of December 31, 2017 -37- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES A. Organization The City of Apple Valley, Minnesota (the City) is a statutory city governed by an elected mayor and four councilmembers. The accompanying financial statements present the government entities for which the City is considered to be financially accountable. The accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. B. Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the City (the primary government) and its component units. Component units are legally separate entities for which the primary government is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit includes whether or not the primary government appoints the voting majority of the potential component unit’s board, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. The Apple Valley Economic Development Authority (EDA) was established to provide economic development services to the City. Although a legally separate entity, the Apple Valley EDA is reported as if it were part of the primary government because it provides services exclusively for the City. The Apple Valley EDA governing body is substantially the same as the governing body of the primary government because five of the Apple Valley EDA boardmembers are City Council members and the two other members are appointed by the City Council. Management of the primary government also has operational responsibility for the Apple Valley EDA. The Apple Valley EDA is a blended component unit of the City, with the following funds reported as funds of the City: Economic Development Debt Service Fund and the EDA Operations Special Revenue Fund. The Apple Valley EDA does not issue separate financial statements. C. Government-Wide Financial Statement Presentation The government-wide financial statements (Statement of Net Position and Statement of Activities) display information about the reporting government as a whole. These statements include all of the financial activities of the City. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which significantly rely upon sales, fees, and charges for support. -38- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, 2) operating grants and contributions, and 3) capi tal grants and contributions, including special assessments that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other internally directed revenues are reported as general revenues. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes and special assessments are recognized as revenues in the fiscal year for which they are certified for levy. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. However, charges between the City’s enterprise funds and other functions are not eliminated, as that would distort the direct costs and program revenues reported in those functions. Depreciation expense is included in the direct expenses of each function. Interest on long-term debt is considered an indirect expense and is reported separately on the Statement of Activities. D. Fund Financial Statement Presentation Separate fund financial statements are provided for governmental and proprietary funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. Aggregated information for the remaining nonmajor governmental funds is reported in a single column in the fund financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this basis of accounting, transactions are recorded in the following manner: 1. Revenue Recognition – Revenue is recognized when it becomes measurable and available. “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are coll ected within 60 days after year-end. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. Major revenue that is susceptible to accrual includes property taxes, special assessments, intergovernmental revenue, charges for services, and interest earned on investments. Major revenue that is not susceptible to accrual includes licenses and per mits, fees, and miscellaneous revenue. Such revenue is recorded only when received because it is not measurable until collected. 2. Recording of Expenditures – Expenditures are generally recorded when a liability is incurred, except for principal and interest on long-term debt and other long-term liabilities, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as capital outlay expenditures in the governmental funds. -39- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Proprietary fund financial statements are reported using the economic resources measurement focus and accrual basis of accounting, similar to the government-wide financial statements. 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 City’s enterprise funds and internal service funds are charges to customers for sales and services . The operating expenses for the enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses that do not meet this definition are reported as nonoperating revenues and expenses. Aggregated information for the internal service funds is reported in a single column in the proprietary fund financial statements. Because the principal user of the internal services is the City’s governmental activities, the financial statements of the internal service funds are consolidated into the governmental column when presented in the government-wide financial statements. The cost of these services is reported in the appropriate functional activity. Description of Funds The City reports the following major governmental funds: General Fund (1000) – This fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Closed Bond Issues Debt Service Fund (3205) – This fund accounts for all the closed bond issues that still have activity. 2001/2008B Refunding Improvement Bonds Debt Service Fund (3285) – This fund accounts for the payment of the bond issuance for various improvements. Road Improvements Capital Projects Fund (2025) – This fund accounts for various road improvements. Future Capital Projects Capital Projects Fund (4930) – This fund accounts for funds set aside for future capital improvements. The City reports the following major enterprise funds: Municipal Liquor Fund (5000 and 5030) – This fund accounts for the operations of the City’s liquor stores. Municipal Golf Course Fund (5100) – This fund accounts for the operations of the City’s golf course. Sports Arena Fund (5200) – This fund accounts for the operations of the City’s sports arena. Water and Sewer Fund (5300 and 5400) – This fund accounts for the activities of the City’s water and sewer operations. -40- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Storm Drainage Fund (5500 and 5550) – This fund accounts for the activities of the City’s storm drainage operations. Cemetery Fund (5600 and 5700) – This fund accounts for the activities of the City’s cemetery operations. Street Light Utility Fund (5800) – This fund accounts for the activities of the City’s street light operations. Additionally, the City reports the following fund types: Internal Service Funds – Internal service funds account for the financing of goods and services provided to other departments or agencies of the City on a cost reimbursement basis. The City utilizes a Dental Insurance Internal Service Fund, Benefits/Other Insurance Internal Service Fund, and a Vehicle Equipment Replacement Internal Service Fund in managing city operations. E. 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 respective funds on the basis of applicable cash balance participation by each fund. The City generally reports investments at fair value. Investment pools/mutual funds and certificates of deposit with a maturity of less than one year are reported at amortized cost. Restricted cash with fiscal agent in the Municipal Liquor Fund includes balances held in an account in accordance with debt agreements to subsidize potential deficiencies from the liquor store operations that could adversely affect debt service payments. The City categorizes its fair value measurements within the fair value hierarchy established by accounting principles generally accepted in the United States of America. 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; and Level 3 inputs are significant unobservable inputs. Debt securities classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. See Note 2 for the City’s recurring fair value measurements as of year-end. F. Receivables Utility and miscellaneous accounts receivable are reported at gross. Since the City is generally able to certify delinquent amounts to the county for collection as special assessments, no allowance for uncollectible accounts has been provided on current receivables. The only receivables not expected to be collected within one year are property taxes and special assessments receivable. -41- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) G. Interfund Receivables and Payables In the fund financial statements, activity between funds that is representative of lending or borrowing arrangements is reported as either “due to/from other funds” (current portion) or “advances to/from other funds.” All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business -type activities are reported in the government-wide financial statements as “internal balances.” H. Land Held for Resale Land held for resale represents various property purchases made by the City with the intent to sell in order to increase tax base or to attract new businesses. These assets are stated at the lower of cost or acquisition value. During the year ended December 31, 2017, management has reviewed the cost value reported for these assets and has indicated the properties are fairly presented for financial reporting purposes. I. Property Taxes Property tax levies are set by the City Council in December of each year, and are certified to Dakota County for collection in the following year. In Minnesota, counties act as collection agents for all property taxes. The county spreads the levies over all taxable property. Such taxes become a lien on January 1 and are recorded as receivables by the City on that date. Real property taxes may be paid by taxpayers in two equal installments on May 15 and October 15. Personal property taxes are due in full on May 15. The county provides tax settlements to cities and other taxing districts three times a year; in July, December, and January. Property taxes are recognized as revenue in the year levied in the government -wide financial statements and proprietary fund financial statements. In the governmental fund financial statements, taxes are recognized as revenue when received in cash or within 60 days after year-end. Taxes which remain unpaid on December 31 are classified as delinquent taxes receivable, and are offset by a deferred inflow of resources in the governmental fund financial statements. J. Special Assessments Special assessments represent the financing for public improvements paid for by benefiting property owners. Special assessments are recorded as receivables upon certification to the county. Special assessments are recognized as revenue in the year levied in the government -wide financial statements and proprietary fund financial statements. In the governmental fund financial statements, special assessments are recognized as revenue when received in cash or within 60 days after year -end. Governmental fund special assessments receivable which remain unpaid on December 31 are offset by a deferred inflow of resources in the governmental fund financial statements. K. Prepaids Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. Prepaid items are reported using the consumption method and recorded as expenditures/expenses at the time of consumption. -42- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Inventories The inventories for the Municipal Golf and Municipal Liquor Funds use the average cost valuation method. Inventories of the remaining governmental and proprietary funds are valued at cost using the first-in, first-out valuation method. Inventories are recorded as expenditures or expenses when consumed. M. Capital Assets Capital assets, which include land, land improvements, buildings, other improvements, furniture and equipment, and infrastructure assets (roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are capitalized at historical cost, or estimated historical cost for assets where actual historical cost is not available. Donated assets are recorded as capital assets at their estimated acquisition value on the date of donation. The City defines capital assets as those with an initial, individual cost of $5,000 or more with an estimated useful life in excess of two years. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are recorded in the government-wide and proprietary fund financial statements, but are not reported in the governmental fund financial statements. Interest incurred during the construction phase of capital assets for business-type activities is included as part of the capitalized value of the assets constructed. Capital assets are depreciated using the straight-line method over their estimated useful lives. Land and construction in progress are not depreciated. The estimated useful lives are as follows: Assets Years Buildings 7–40 Improvements other than buildings 5–40 Furniture and equipment 3–50 Infrastructure 25–50 N. Compensated Absences Full-time employees employed by the City after January 1, 1995 are eligible for three to six weeks of annual leave depending on their length of service with the City. Annual leave may not accrue in excess of 800 hours. Upon termination of employment with the City, employees in “good standing” are reimbursed for all accrued and unused annual leave. Employees employed by the City prior to January 1, 1995 were eligible to elect to continue earning sick leave and vacation in lieu of the annual leave option. Those employees who elected not to take the annual leave provisions continue to be eligible to earn 12 days of sick leave and two to four weeks of vacation per year, depending on their length of service with the City. Sick leave may carry forward indefinitely. Upon termination of employment in “good standing,” employees with more than 10 years of continuous service shall be paid up to one-third of their accrued and unused sick leave. The maximum amount of vacation that may be accumulated is twice the amount earned in any one year. Upon termination of employment, “good standing” employees shall be paid for their accrued and unused vacation leave. Compensated absences are accrued in governmental fund financial statements only when used or matured prior to year-end, due to employee termination or similar circumstances. Vacation and sick benefits are recorded as expenses and liabilities in proprietary funds when earned. Compensated absences payable in the government-wide Statement of Net Position and the Statement of Net Position – Proprietary Funds include all leave balances accrued, but not yet used by employees, whether or not the employees have terminated employment with the City. -43- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Long-Term Liabilities In the government-wide and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, if material, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are expensed in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources , while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. P. Deferred Outflows/Inflows of Resources In addition to assets and liabilities, statements of financial position or balance sheets will sometimes report separate sections for deferred outflows or inflows of resources. These separate financial statement elements represent a consumption or acquisition of net position that applies to a future period, and so will not be recognized as an outflow of resources (expense/expenditure), or an inflow of financial resources (revenue) until then. The City reports deferred outflows and inflows of resources related to pensions in the government -wide and enterprise funds Statement of Net Position. These deferred outflows and inflows result from differences between expected and actual experience, changes in proportion, changes of assumptions, differences between projected and actual earnings on pension plan investments, and contributions to the plan subsequent to the measurement date and before the end of the reporting period. These amounts are deferred and amortized as required under pension standards. Unavailable revenue, arises only under a modified accrual basis of accounting and, therefore, is only reported in the governmental funds Balance Sheet. The governmental funds report unavailable revenue from two sources: property taxes and special assessments. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Q. Pension Plans For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from the PERA’s fiduciary net position have been determined on the same basis as they are reported by the PERA, except that the 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. -44- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The PERA has a special funding situation created by a direct aid contribution made by the state of Minnesota. The direct aid is a result of the merger of the Minneapolis Employees Retirement Fund into the PERA on January 1, 2015. R. Budgets and Budgetary Accounting The City follows these procedures in establishing the budgetary data reflected in the financial statements: 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 by the City Council. 4. Budgets 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 fund level. No fund’s budget can be increased without City Council approval. The City Council may authorize transfers 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. 6. Annual appropriated budgets are adopted during the year for the General Fund, Cable TV Special Revenue Fund, and EDA Operations Special Revenue Fund. 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 for most capital projects funds. In 2017, the City also adopted formal annual appropriated budgets for the Road Improvements Capital Projects, Future Capital Projects, Equipment Certificate Capital Projects, and Cable Capital Equipment Capital Projects Funds. 7. The finance director/treasurer presents monthly reports to the City Council. 8. Budgeted amounts are as originally adopted or as amended by the City Council. Budgeted expenditures lapse at year-end. S. Statement of Cash Flows For purposes of the Statement of Cash Flows, the City considers all highly liquid debt instruments with an original maturity from the time of purchase by the City of three months or less to be cash equivalents. The proprietary fund’s portion in the government-wide cash and investment management pool is considered to be cash equivalent. -45- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) T. Net Position and Flow Assumptions In the government-wide and proprietary fund financial statements, net position represents the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position is displayed in three components: • Net Investment in Capital Assets – Consists of capital assets, net of accumulated depreciation, reduced by any outstanding debt attributable to acquire capital assets. • Restricted Net Position – Consists of net position restricted when there are limitations imposed on its use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. • Unrestricted Net Position – All other elements of net position that do not meet the definition of “restricted” or “net investment in capital assets.” The City applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available. U. Fund Balance Classifications and Flow Assumptions In the fund financial statements, governmental funds report fund balance in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: • Nonspendable – Consists of amounts that are not in spendable form, such as prepaid items, inventory, and other long-term assets. • Restricted – Consists of amounts related to externally imposed constraints established by creditors, grantors, or contributors; or constraints imposed by state statutory provisions. • Committed – Consists of internally imposed constraints that are established by resolution of the City Council. Those committed amounts cannot be used for any other purpose unless the City Council removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. • Assigned – Consists of internally imposed constraints. These constraints consist of amounts intended to be used by the City for specific purposes, but do not meet the criteria to be classified as restricted or committed. In governmental funds, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to City Council resolution, the city administrator and/or the finance director/treasurer are authorized to establish assignments of fund balance. • Unassigned – The residual classification for the General Fund which also reflects negative residual amounts in other funds. When both restricted and unrestricted resources are available for use, it is the City’s policy to first use restricted resources, then use unrestricted resources as they are needed. When committed, assigned, or unassigned resources are available for use, it is the City’s policy to use resources in the following order: 1) committed, 2) assigned, and 3) unassigned. -46- NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) V. Risk Management The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The City participates in the League of Minnesota Cities Insurance Trust (LMCIT), a public entity risk pool for its general property and casualty, workers ’ compensation, and other miscellaneous insurance coverage. The LMCIT operates as a common risk management and insurance program for a large number of cities in Minnesota. The City pays an annual premium to the LMCIT for insurance coverage. The LMCIT agreement provides that the trust will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of certain limits. The City also carries commercial insurance for certain other risks of loss . Settled claims resulting from these risks did not exceed insurance coverage in any of the past three fiscal years. There were no significant reductions in insurance coverage in 2017. The City uses its Dental Insurance Internal Service Fund to account for and finance its self-insured risk of loss for an employee dental plan. The dental plan is funded by the City, employee contributions, and investment earnings. The claims liability of $6,786 is included in the liabilities of the Dental Insurance Internal Service Fund at December 31, 2017, and is based on the requirement that a liability for claims be reported if information prior to issuance of the financial statements indicates that it is probabl e that a liability has been incurred on the date of the financial statements and the loss can be reasonably estimated. Changes in the fund’s claim liability for the past two years were: Claims Beginning and Changes Claim Ending Balance in Estimates Payments Balance 2016 6,767$ 203,790$ 202,997$ 7,560$ 2017 7,560$ 207,642$ 208,416$ 6,786$ W. Restricted Assets Restricted assets are cash, investments, and interest accrued thereon; the use of which is limited by external requirements such as a bond indenture. X. 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 amounts reported in the financial statements during the reporting period. Actual results could differ from those estimates. Y. Prior Period Adjustment A prior period adjustment, reducing equity by $16,546,976 and $9,306,199, was recorded in the Water and Sewer Fund and Storm Drainage Fund, respectively, in the proprietary fund statements, which is part of business-type activities on the government-wide statements. This change was related to the City’s inventory of capitalized assets and the related useful lives. -47- NOTE 2 – CASH AND INVESTMENTS A. Components of Cash and Investments Cash and investments at year-end consist of the following: Deposits 3,928,086$ Investments 63,797,822 Petty cash 18,100 Total 67,744,008$ Cash and investments are presented in the financial statements as follows: Statement of Net Position Cash and investments 67,565,343$ Restricted assets Cash and investments for debt service 178,665 Total 67,744,008$ B. Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council, including checking accounts and certificates of deposit. The following is considered the most significant risk associated with deposits: Custodial Credit Risk – In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated “A” or better; revenue obligations rated “AA” or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The City has no additional deposit policies addressing custodial credit risk. At year-end, the carrying amount of the City’s deposits was $3,928,086, while the balance on the bank records was $4,302,673. At December 31, 2017, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the City’s agent in the City’s name. -48- NOTE 2 – CASH AND INVESTMENTS (CONTINUED) C. Investments The City has the following investments at year-end: Fair Value Measurements Less Investment Type Rating Agency Using Than 1 1 to 5 6 to 10 Total U.S. agency securities AA S&P Level 2 2,085,633$ 9,755,009$ –$ 11,840,642$ State and local bonds AAA S&P Level 2 3,090,219 1,705,578 – 4,795,797 State and local bonds AA S&P Level 2 4,363,788 17,056,250 688,392 22,108,430 State and local bonds AA Moody'sMoody’s Level 2 3,205,128 5,953,607 480,307 9,639,042 State and local bonds A S&P Level 2 – 1,767,025 – 1,767,025 State and local bonds A Moody’s Level 2 – – 554,274 554,274 Negotiable certificates of deposit N/R N/A Level 2 2,204,187 9,517,475 – 11,721,662 14,948,955$ 45,754,944$ 1,722,973$ 62,426,872 Investment pools/mutual funds Invesco Government AAA S&P Level 1 1,353,897 Federated Trust for Treasury Obligations AAA S&P NAV 17,053 Total investments 63,797,822$ N/A – Not Applicable N/R – Not Rated NAV – Based on net asset value, with no unfunded commitments, daily redemption frequency, and no notice is required. Credit Risk Maturity Duration in Years Interest Risk – Investments are subject to various risks, the following of which are considered the most significant: Custodial Credit Risk – For investments, this is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker-dealer), the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy states that the City may not invest in securities that are both uninsured and not registered in the name of the City and are held by either the counterparty or the counterparty’s trust department or agent, but not in the name of the City. Credit Risk – This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City’s investments to direct obligations or obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of 13 months or less; general obligations rated “A” or better; revenue obligations rated “AA” or better; general obligations of the Minnesota Housing Finance Agency rated “A” or better; bankers’ acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one of the top two highest categories; repurchase or reverse purchase agreements and securities lending agreements with financial institutions qualified as a “depository” by the government entity, wit h banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000; that are a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York; or certain Minnesota securities broker-dealers. The City’s investment policy addresses credit risk by limiting investments to the safest type of securities and using prequalifying brokers/financial institutions. -49- NOTE 2 – CASH AND INVESTMENTS (CONTINUED) Concentration Risk – This is the risk associated with investing a significant portion of the City’s investment (considered 5.0 percent or more) in the securities of a single issuer, excluding U.S. guaranteed investments (such as treasuries), investment pools, and mutual funds. The City’s investment policy states no more than 5.0 percent of the overall portfolio may be invested in the securities of a single issuer, except for the securities of the U.S. government or an external investment pool. As of December 31, 2017, the City’s investment portfolio includes the Federal National Mortgage Association at 5.3 percent and Federal Home Loan Bank at 9.2 percent. Interest Rate Risk – This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City’s investment policy does include specific limits on investment maturities as a means of managing its exposure to fair value arising from i ncreasing interest rates. It also states investments should not be purchased that are considered to be highly sensitive to interest rate changes. NOTE 3 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS A. Due To and Due From Other Funds Interfund receivables and payables at year-end were as follows: Closed Bond Future Capital Due To Other Funds Issues Projects Total Governmental 2001/2008B Refunding Improvement Bonds 2,846,426$ –$ 2,846,426$ Road Improvements – 3,963,211 3,963,211 Nonmajor 189,301 13,206 202,507 Total 3,035,727$ 3,976,417$ 7,012,144$ Governmental Due From Other Funds Interfund borrowing is utilized for cash flow borrowing to eliminate temporary cash balance deficits, due to the timing of projects and the related revenue sources. B. Advance From and Advance To Other Funds Borrowing at year-end was as follows: Enterprise Closed Bond Future Capital Water and Advance From Other Funds Issues Projects Sewer Total Governmental Nonmajor 576,000$ –$ –$ 576,000$ Enterprise Municipal Golf Course – 1,847,663 1,276,126 3,123,789 Sports Arena – – 52,915 52,915 Total 576,000$ 1,847,663$ 1,329,041$ 3,752,704$ Governmental Advance To Other Funds Advances are utilized to cover operations of the related city funds, including capital improvements. -50- NOTE 3 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS (CONTINUED) C. Interfund Transfers Internal Service Vehicle Road Future Capital Equipment Transfers Out General Fund Improvements Projects Nonmajor Replacement Total Governmental General Fund –$ 3,332,100$ 1,950,000$ 176,000$ 51,000$ 5,509,100$ Future Capital Projects – 152,900 – 1,143,000 – 1,295,900 Nonmajor – – – 73,625 775,000 848,625 Enterprise Municipal Liquor 630,000 – – – – 630,000 Water and Sewer 670,500 600,000 – – – 1,270,500 Street Light Utility – 15,000 – – – 15,000 Total 1,300,500$ 4,100,000$ 1,950,000$ 1,392,625$ 826,000$ 9,569,125$ Governmental Transfers In Transfers are made in accordance with budget appropriations or as approved by the City Council for special funding of city activities. These transfers were made to fund operations, debt payments, capital outlay, or to close funds. NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended December 31, 2017 was as follows: A. Changes in Capital Assets Used in Governmental Activities Transfers and Beginning Completed of Year Additions Deletions Construction End of Year Capital assets, not depreciated Land 3,885,715$ –$ –$ 695,458$ 4,581,173$ Construction in progress 1,668,316 7,327,286 – (7,255,519) 1,740,083 Total capital assets, not depreciated 5,554,031 7,327,286 – (6,560,061) 6,321,256 Capital assets, depreciated Buildings 32,313,580 – – 273,964 32,587,544 Other improvements 25,239,683 – – 217,374 25,457,057 Furniture and equipment 17,780,862 1,769,094 (1,336,410) 384,026 18,597,572 Infrastructure 103,455,658 675,613 – 5,684,697 109,815,968 Total capital assets, depreciated 178,789,783 2,444,707 (1,336,410) 6,560,061 186,458,141 Less accumulated depreciation on Buildings 12,577,758 955,777 – – 13,533,535 Other improvements 9,813,128 971,511 – – 10,784,639 Furniture and equipment 11,233,765 1,317,757 (1,199,268) – 11,352,254 Infrastructure 39,384,228 3,282,413 – – 42,666,641 Total accumulated depreciation 73,008,879 6,527,458 (1,199,268) – 78,337,069 Net capital assets, depreciated 105,780,904 (4,082,751) (137,142) 6,560,061 108,121,072 Total capital assets, net 111,334,935$ 3,244,535$ (137,142)$ –$ 114,442,328$ -51- NOTE 4 – CAPITAL ASSETS (CONTINUED) B. Changes in Capital Assets Used in Business-Type Activities Beginning of Year,Transfers and as Previously Prior Period Beginning of Year,Completed Reported Adjustment as Restated Additions Deletions Construction End of Year Capital assets, not depreciated Land 6,744,731$ –$ 6,744,731$ 62,852$ –$ 10,850$ 6,818,433$ Construction in progress 1,789,097 – 1,789,097 3,647,074 – (4,158,950) 1,277,221 Total capital assets, not depreciated 8,533,828 – 8,533,828 3,709,926 – (4,148,100) 8,095,654 Capital assets, depreciated Buildings 21,988,389 – 21,988,389 29,470 – 68,887 22,086,746 Other improvements 149,255,827 – 149,255,827 872,972 (183,668) 4,079,213 154,024,344 Furniture and equipment 5,359,718 – 5,359,718 398,813 (243,206) – 5,515,325 Total capital assets, depreciated 176,603,934 – 176,603,934 1,301,255 (426,874) 4,148,100 181,626,415 Less accumulated depreciation on Buildings 9,425,271 – 9,425,271 502,165 – – 9,927,436 Other improvements 41,033,362 25,853,175 66,886,537 3,363,430 (133,841) – 70,116,126 Furniture and equipment 4,180,862 – 4,180,862 387,619 (194,000) – 4,374,481 Total accumulated depreciation 54,639,495 25,853,175 80,492,670 4,253,214 (327,841) – 84,418,043 Net capital assets, depreciated 121,964,439 (25,853,175) 96,111,264 (2,951,959) (99,033) 4,148,100 97,208,372 Total capital assets, net 130,498,267$ (25,853,175)$ 104,645,092$ 757,967$ (99,033)$ –$ 105,304,026$ C. Depreciation Expense by Function Depreciation expense for the year ended December 31, 2017 was charged to the following functions: Governmental activities General government 398,372$ Public safety 360,814 Public works 3,446,868 Parks and recreation 1,305,054 Capital assets held by the City’s internal service funds are charged to the various functions based on their usage of the assets 1,016,350 Total depreciation expense – governmental activities 6,527,458$ Business-type activities Municipal liquor 140,758$ Municipal golf course 183,693 Sports arena 145,415 Water and sewer 2,768,547 Storm drainage 995,490 Cemetery 19,311 Total depreciation expense – business-type activities 4,253,214$ -52- NOTE 5 – LONG-TERM DEBT A. Components of Long-Term Debt Final Balance – Original Issue Interest Rate Maturity End of Year Governmental activities General obligation bonds G.O. Equipment Certificate Bonds 2012A 1,305,000$ 2.00%12/15/2021 470,000$ G.O. Crossover Refunding Bonds 2013A 9,000,000$ 1.75–2.35%12/15/2031 9,000,000 G.O. Equipment Bonds 2014A 680,000$ 2.00%12/15/2020 390,000 G.O. Bonds 2015B 4,255,000$ 2.00–2.75%12/15/2029 4,025,000 Total general obligation bonds 13,885,000 General obligation improvement bonds G.O. Improvement Bonds 2012A 920,000$ 2.00%12/15/2022 585,000 Total governmental activities bonds 14,470,000 Unamortized premium 330,288 Net OPEB obligation 1,537,306 Net pension liability 14,729,157 Compensated absences 2,811,465 Total governmental activities 33,878,216$ Business-type activities General obligation revenue bonds G.O. Water Revenue Bonds 2014A 8,830,000$ 2.00–3.00%12/15/2033 7,395,000$ G.O. Bonds 2015B 1,605,000$ 2.00–2.75%12/15/2026 1,605,000 Total general obligation revenue bonds 9,000,000 Revenue bonds Liquor Store Revenue Refunding Bonds 2015A 1,785,000$ 0.50–2.15%12/01/2021 1,120,000 Total business-type activities bonds 10,120,000 Capital lease 175,526 Unamortized premium 157,288 Net OPEB obligation 268,527 Net pension liability 2,658,752 Compensated absences 473,036 Total business-type activities 13,853,129$ -53- NOTE 5 – LONG-TERM DEBT (CONTINUED) B. Changes in Long-Term Debt Balance – Beginning Balance –Due Within of Year Additions Deletions End of Year One Year Governmental activities General obligation bonds 27,550,000$ –$ 13,665,000$ 13,885,000$ 990,000$ General obligation improvement bonds 2,270,000 – 1,685,000 585,000 110,000 Unamortized premium 378,707 – 48,419 330,288 – Net OPEB obligation 1,398,959 201,920 63,573 1,537,306 – Net pension liability 30,539,605 3,721,549 19,531,997 14,729,157 – Compensated absences 2,814,071 1,815,194 1,817,800 2,811,465 1,817,700 Total governmental activities 64,951,342 5,738,663 36,811,789 33,878,216 2,917,700 Business-type activities General obligation revenue bonds 11,115,000 – 2,115,000 9,000,000 565,000 Revenue bonds 1,355,000 – 235,000 1,120,000 240,000 Capital lease 56,285 215,419 96,178 175,526 38,728 Unamortized premium 183,255 – 25,967 157,288 – Net OPEB obligation 244,694 34,784 10,951 268,527 – Net pension liability 3,185,079 538,775 1,065,102 2,658,752 – Compensated absences 474,105 287,347 288,416 473,036 268,400 Total business-type activities 16,613,418 1,076,325 3,836,614 13,853,129 1,112,128 Total government-wide 81,564,760$ 6,814,988$ 40,648,403$ 47,731,345$ 4,029,828$ C. Minimum Debt Payments Minimum annual payments required to retire bonds are as follows: Governmental Activities Year Ending December 31,Principal Interest Principal Interest Principal Interest 2018 990,000$ 283,513$ 110,000$ 11,700$ 1,100,000$ 295,213$ 2019 1,065,000 264,075 115,000 9,500 1,180,000 273,575 2020 1,125,000 243,150 120,000 7,200 1,245,000 250,350 2021 905,000 221,025 120,000 4,800 1,025,000 225,825 2022 820,000 203,313 120,000 2,400 940,000 205,713 2023–2027 4,725,000 764,800 – – 4,725,000 764,800 2028–2031 4,255,000 241,480 – – 4,255,000 241,480 Total 13,885,000$ 2,221,356$ 585,000$ 35,600$ 14,470,000$ 2,256,956$ General Obligation Bonds TotalImprovement Bonds General Obligation -54- NOTE 5 – LONG-TERM DEBT (CONTINUED) Business-Type Activities Year Ending December 31,Principal Interest Principal Interest Principal Interest Principal Interest 2018 565,000$ 225,213$ 240,000$ 22,588$ 38,728$ 5,657$ 843,728$ 253,458$ 2019 570,000 213,913 250,000 17,788 40,106 4,279 860,106 235,980 2020 580,000 202,513 255,000 13,163 96,692 2,693 931,692 218,369 2021 590,000 190,913 375,000 8,063 – – 965,000 198,976 2022 610,000 179,113 – – – – 610,000 179,113 2023–2027 2,950,000 685,423 – – – – 2,950,000 685,423 2028–2032 2,575,000 320,250 – – – – 2,575,000 320,250 2033 560,000 16,800 – – – – 560,000 16,800 9,000,000$ 2,034,138$ 1,120,000$ 61,602$ 175,526$ 12,629$ 10,295,526$ 2,108,369$ Revenue Bonds Revenue Bonds Total General Obligation Capital Lease D. Description of Long-Term Debt • General Obligation Bonds and General Obligation Improvement Bonds – The City issues general obligation (G.O.) bonds to provide financing for street, utility, park, and cemetery project improvements. The City issues G.O. equipment certificates to provide financing for capital equipment. Debt service is covered respectively by special assessments, state aids, general property taxes, and tax increments. G.O. bonds and equipment certificates are direct obligations and pledge the full faith and credit of the City. Equipment certificates are issued as five-year notes with fluctuating debt service payments each year. In April 2013, the City issued $9,000,000 of G.O. Crossover Refunding Bonds, Series 2013A. The proceeds of this issue and interest earned thereon were used to refund the 2023 through 2032 maturities of the City’s G.O. Park Bonds, Series 2007A, totaling $4,150,000, on their December 15, 2017 call date and the 2023 through 2032 maturities of the City’s G.O. Park Bonds, Series 2008D, totaling $4,225,000, on their December 15, 2017 call date. Until the call date, the City made all debt service payments on the 2007A and 2008D issues, and all debt service on the 2013A issue were paid from the refunding escrow account. This “crossover refunding” reduced the City’s total future debt service payments by $1,031,660 and resulted in a present value savings of $1,047,760. In May 2015, the City issued $5,860,000 of G.O. Bonds, Series 2015B. The proceeds of this issue and interest earned thereon were used to refund the 2018 through 2022 maturities of the City’s G.O. Park Bonds, Series 2007A, totaling $1,155,000, on their December 15, 2017 call date, the 2018 through 2023 maturities of the City’s G.O. Park Bonds, Series 2008D, totaling $1,320,000, on their December 15, 2017 call date, and the 2018 through 2032 maturities of the City’s G.O. Park Bonds, Series 2011A and G.O. Storm Water Bonds, Series 2011A, totaling $2,650,000, on their December 15, 2017 call date. Until the call date, the City made all debt service payments on the 2007A, 2008D, and 2011A issues, and all debt service on the 2015B issue were paid from the refunding escrow account. This “crossover refunding” reduced the City’s total future debt service payments by $216,551 and resulted in a present value savings of $231,938. • General Obligation Revenue Bonds and Revenue Bonds – The City issues revenue bonds to provide financing for its enterprise funds. The City issued revenue bonds for the liquor store and G.O. revenue bonds for the arena, water and sewer, and storm drainage activity. Debt service is covered through the revenue producing activities of these funds. -55- NOTE 5 – LONG-TERM DEBT (CONTINUED) • Capital Lease – The City entered into a lease agreement for financing the acquisition of equipment for the municipal golf course. This lease agreement matures in November 2020 and carries an interest rate of 3.5 percent. As of December 31, 2017, these assets had a capitalized value of $253,419 with accumulated depreciation of $47,733. Revenues from the Municipal Golf Course Fund financed this lease. • Net OPEB Obligation – This liability represents the City’s Other Post-Employment Benefits (OPEB) Plan obligation as further described later in these notes. The General Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. • Net Pension Liability – This liability represents the City’s pension benefit obligations as further described later in these notes. The General Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. The City participates in two state-wide, cost-sharing, multi-employer defined benefit pension plans administered by the PERA and a single employer plan administered by the fire relief association. The following is a summary of the net pension asset, net pension liabilities, deferred outflows and inflows of resources, and pension expense reported for these plans as of and for the year ended December 31, 2017: Net Pension Net Pension Deferred Outflows Deferred Inflows Pension Pension Plans Asset Liabilities of Resources of Resources Expense PERA – GERF –$ 10,488,804$ 2,883,037$ 2,107,294$ 1,383,931$ PERA – PEPFF – 6,899,105 9,896,017 11,969,220 1,735,353 Fire Relief 791,026 – 814,901 896,415 244,652 Total – all pensions 791,026$ 17,387,909$ 13,593,955$ 14,972,929$ 3,363,936$ • Compensated Absences – This liability represents vested benefits earned by employees through the end of the year, which will be paid or used in future periods . The Benefits/Other Insurance Internal Service Fund, Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, and Storm Drainage Funds will be used to liquidate this liability. E. Revenue Pledged Percent of Remaining Principal Pledged Use of Total Debt Term of Principal and Interest Revenue Bond Issue Proceeds Type Service Pledge and Interest Paid Received G.O. Water Revenue Bonds 2014A Utility improvements Utility charges 100%2014–2033 9,268,950$ 580,425$ 9,910,773$ Liquor Store Revenue Refunding Bonds 2015A Site improvements Liquor sales 100%2015–2021 1,181,600$ 262,288$ 9,183,272$ G.O. Bonds 2015B Utility improvements Utility charges 100%2015–2026 1,765,190$ 32,388$ 1,769,842$ Revenue Pledged Current Year -56- NOTE 5 – LONG-TERM DEBT (CONTINUED) F. Arbitrage Rebate The Tax Reform Act of 1986 requires governmental entities to pay to the federal government income earned on the proceeds from the issuance of debt in excess of interest costs, pending the expenditure of the borrowed funds. This rebate of interest income (known as arbitrage) applies to governmental debt issued after August 31, 1986. In the opinion of management, any obligation would be immaterial. G. Conduit Debt Obligations At times, the City has issued various types of revenue bonds to provide financial assistance to private sector, nonprofit, or governmental entities to finance the acquisition or construction of facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payments received on the underlying mortgage loans. Upon repayment of the bonds, ownership of the acquired facilities transfers to the private sector entity served by the bond issuance . Neither the City, nor any political subdivision thereof, is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the City’s financial statements. As of December 31, 2017, the following conduit debt issues were outstanding: Augustana Care Health Care Revenue Bonds (Augustana Health Care Center Project), Series 2016A 16,940,000$ Minnesota Senior Living LLC Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016A 68,890,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016B 50,540,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016C 6,890,000 Senior Living Revenue Bonds (Minnesota Senior Living LLC Project), Series 2016D 21,650,000 Lifeworks Services Inc. Educational Facilities Revenue Note, Series 2011 1,815,312 Total conduit debt obligations 166,725,312$ NOTE 6 – JOINT POWERS COMMITMENT On August 25, 2005, the City entered into a joint powers agreement (the Agreement) with the cities of Burnsville, Eagan, Farmington, Hastings, Inver Grove Heights, Lakeville, Mendota Heights, Rosemount, South St. Paul, West St. Paul, and Dakota County, Minnesota, to establish the Dakota Communications Center (DCC), a Minnesota nonprofit corporation. The purpose of the DCC is to engage in the operation and maintenance of a county-wide public safety answering point and communications center for law enforcement, fire, emergency medical services, and other public safety services for the mutual benefit of residents residing in the above mentioned cities and county (members). Pursuant to the Agreement, members are required to provide the DCC their pro rata share of the cost of operations, maintenance, and capital projects. Information regarding the DCC can be obtained by contacting the City of Lakeville, 20195 Holyoke Avenue, Lakeville, Minnesota 55044-9177 or from the website www.mn-dcc.org/about-the-dcc/statistics/. -57- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE A. Plan Description The City participates in the following cost-sharing, multi-employer defined benefit pension plans administered by the PERA of Minnesota. The PERA’s defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. The PERA’s defined benefit pension plans are tax-qualified plans under Section 401(a) of the Internal Revenue Code (IRC). 1. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the City are covered by the General Employees Retirement Fund (GERF). GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. 2. Public Employees Police and Fire Fund (PEPFF) The Public Employees Police and Fire Fund (PEPFF), 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 PEPFF also covers police officers and firefighters belonging to local relief associations that elected to merge with and transfer assets and administration to the PERA. B. Benefits Provided The PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statutes and can only be modified by the State Legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the fundin g ratio of the plan. Members in plans that are at least 90.0 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90.0 percent funded, or have fallen below 80.0 percent, are given 1.0 percent increases. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. 1. GERF Benefits Benefits are based on a member’s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for the PERA’s Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. 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 age 66. -58- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) 2. PEPFF Benefits Benefits for the PEPFF members first hired after June 30, 2010 but before July 1, 2014, vest on a prorated basis from 50 percent after five years, up to 100 percent after 10 years of credited service. Benefits for the PEPFF members first hired after June 30, 2014 vest on a prorated basis from 50 percent after 10 years, up to 100 percent after 20 years of credited service. The annuity accrual rate is 3 percent of average salary for each year of service. For the PEPFF members 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. 1. GERF Contributions Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.50 percent, respectively, of their annual covered salary in calendar year 2017. The City was required to contribute 11.78 percent of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2017. The City’s contributions to the GERF for the year ended December 31, 2017 were $768,029. The City’s contributions were equal to the required contributions as set by state statutes. 2. PEPFF Contributions Plan members were required to contribute 10.80 percent of their annual covered salary in calendar year 2017. The City was required to contribute 16.20 percent of pay for members in calendar year 2017. The City’s contributions to the PEPFF for the year ended December 31, 2017 were $829,640. The City’s contributions were equal to the required contributions as set by state statutes. D. Pension Costs 1. GERF Pension Costs At December 31, 2017, the City reported a liability of $10,488,804 for its proportionate share of the GERF’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 the 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 the PERA’s participating employers. The City’s proportionate share was 0.1643 percent at the end of the measurement period and 0.1561 percent for the beginning of the period. -59- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) The City’s net pension liability reflected a reduction due to the state of Minnesota’s contribution of $6 million to the fund. The state of Minnesota is considered a nonemployer contributing entity and the state’s contribution meets the definition of a special funding situation. The amount recognized by the City as its proportionate share of the net pension liability, the direct aid, and total portion of the net pension liability that was associated with the City were as follows: City’s proportionate share of net pension liability 10,488,804$ State’s proportionate share of the net pension liability associated with the City 131,924$ For the year ended December 31, 2017, the City recognized pension expense of $1,380,121 for its proportionate share of the GERF’s pension expense. In addition, the City recognized an additional $3,810 as pension expense (and grant revenue) for its proportionate share of the state of Minnesota’s contribution of $6 million to the GERF. At December 31, 2017, the City reported its proportionate share of the GERF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 345,679$ 647,452$ Changes in actuarial assumptions 1,654,458 1,051,504 Differences between projected and actual investment earnings – 6,614 Changes in proportion 499,349 401,724 Contributions paid to the PERA subsequent to the measurement date 383,551 – Total 2,883,037$ 2,107,294$ Deferred outflows of resources reported $383,551 related to pensions resulting from city contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 269,387$ 2019 624,264$ 2020 (56,228)$ 2021 (445,231)$ -60- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) 2. PEPFF Pension Costs At December 31, 2017, the City reported a liability of $6,899,105 for its proportionate share of the PEPFF’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 the 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 the PERA’s participating employers. The City’s proportionate share was 0.5110 percent at the end of the measurement period and 0.5190 percent for the beginning of the period. For the year ended December 31, 2017, the City recognized pension expense of $1,689,363 for its proportionate share of the PEPFF’s pension expense. The City also recognized $45,990 for the year ended December 31, 2017 as revenue and an offsetting reduction of net pension liability for its proportionate share of the state of Minnesota’s on-behalf contributions to the PEPFF. Legislation passed in 2013 required the state of Minnesota to begin contributing $9 million to the PEPFF each year, starting in fiscal year 2014. At December 31, 2017, the City reported its proportionate share of the PEPFF’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 158,803$ 1,868,852$ Changes in actuarial assumptions 9,170,211 9,795,022 Differences between projected and actual investment earnings 126,551 – Changes in proportion 30,300 305,346 Contributions paid to the PERA subsequent to the measurement date 410,152 – Total 9,896,017$ 11,969,220$ Deferred outflows of resources reported $410,152 related to pensions resulting from city contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 101,693$ 2019 101,693$ 2020 (153,194)$ 2021 (552,795)$ 2022 (1,980,752)$ -61- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) E. Actuarial Assumptions The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.50% per year Active member payroll growth 3.25% per year Investment rate of return 7.50% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for all plans for males or females, as appropriate, with slight adjustments to fit the PERA’s experience. Cost of living benefit increases for retirees are assumed to be 1.0 percent per year for the GERF through 2044, and the PEPFF through 2064, and then 2.5 percent 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 GERF was completed in 2015. The most recent five-year experience study for the PEPFF was completed in 2016. The following changes in actuarial assumptions occurred in 2017: 1. GERF • The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60.0 percent for vested and nonvested deferred members. The revised CSA loads are now zero percent for active member liability, 15.0 percent for vested deferred member liability, and 3.0 percent for nonvested deferred member liability. • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years, to 1.0 percent per year through 2044, and 2.5 percent per year thereafter. 2. PEPFF • Assumed salary increases were changed as recommended in the June 30, 2016 experience study. The net effect is proposed rates that average 0.34 percent lower than the previous rates. • Assumed rates of retirement were changed, resulting in fewer retirements. • The CSA load was 30.00 percent for vested and nonvested deferred members. The CSA has been changed to 33.00 percent for vested members and 2.00 percent for nonvested 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 3.00 percent 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 65.00 percent to 60.00 percent. • Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two years older than females. -62- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) • The assumed percentage of female members electing joint and survivor annuities was increased. • The assumed post-retirement benefit increase rate was changed from 1.00 percent for all years, to 1.00 percent per year through 2064, and 2.50 percent thereafter. • The single discount rate changed from 5.60 percent to 7.50 percent. The State Board of Investment, which manages the investments of the PERA, prepares an analysis o f the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Domestic stocks 39 %5.10 % International stocks 19 5.30 % Bonds 20 0.75 % Alternative assets 20 5.90 % Cash 2 – % Total 100 % Target Long-Term Expected Allocation Real Rate of Return F. Discount Rate The discount rate used to measure the total pension liability in 2017 was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the GERF and the PEPFF were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability G. Pension Liability Sensitivity The following presents the City’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1% Decrease in 1% Increase in Discount Rate Discount Rate Discount Rate 6.50%7.50%8.50% City’s proportionate share of the GERF net pension liability 16,268,914$ 10,488,804$ 5,756,734$ City’s proportionate share of the PEPFF net pension liability 12,993,033$ 6,899,105$ 1,868,236$ -63- NOTE 7 – DEFINED BENEFIT PENSION PLANS – STATE-WIDE (CONTINUED) H. Pension Plan Fiduciary Net Position Detailed information about the GERF’s fiduciary net position is available in a separately issued PERA financial report. That report may be obtained on the PERA website at www.mnpera.org; by writing to the PERA at 60 Empire Drive, Suite 200, St. Paul, Minnesota 55103; or by calling (651) 296-7460 or (800) 652-9026. NOTE 8 – DEFINED CONTRIBUTION PENSION PLAN – STATE-WIDE Councilmembers of the City are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by the PERA. The PEDCP is a tax qualified plan under Section 401(a) of the IRC and all contributions by or on behalf of employees are tax deferred until time of withdrawal. Plan benefits depend solely on amounts contributed to the plan plus investment earnings, less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan provisions, including the employee and employer contribution rates for those qualified personnel who elect to participate. An eligible elected official who decides to participate contributes 5 percent of salary, which is matched by the elected official’s employer. For ambulance service personnel, employer contributions are determined by the employer, and for salaried employee contributions 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, the PERA receives 2 percent of employer contributions and twenty-five hundredths of 1 percent (0.0025) of the assets in each member’s account annually. Total contributions made by the City for the fiscal year 2017 were: Required Rate for Employees Employee Employer Employee Employer and Employers 1,902$ 1,902$ 5%5%5% Contribution Amount Percentage of Covered Payroll NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION A. Plan Description All members of the Apple Valley Fire Department (the Department) are covered by a defined benefit plan administered by the Apple Valley Firefighters’ Relief Association (the Association). As of the measurement date, the plan covered 64 active members, 19 inactive members entitled to future benefits, and 32 inactive members or beneficiaries currently receiving benefits. The plan is a single employer retirement plan and is established and administered in accordance with Minnesota Statutes, Chapter 69. The Association maintains a separate Special Pension Trust Fund to accumulate assets to fund the retirement benefits earned by the Department’s membership. Funding for the Association is derived from an insurance premium tax in accordance with the Volunteer Firefighter’s Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). Funds are also derived from investment income. -64- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) B. Benefits Provided Each member who is at least 50 years of age, has separated from service from the fire department, has served at least 5 years of active service for members commencing active duty prior to January 1, 2010, and 10 years of active service for members commencing active duty after January 1, 2010 with such department before separation and has been a member of the Association in good standing at least 5 years prior to such separation shall be entitled to a lump sum service pension in the amount of $6,700 for each year of service (including each year over 20) or a monthly service pension of $45 for each year of service (including each year over 20) but not exceeding the maximum amount per year of service allowed by law for the minimum average amount of available financing per firefighter as prescribed by law. According to the bylaws of the Association and pursuant to Minnesota Statutes, members who separate from service with less than 20 years of service and have reached the age of at least 50 , and have completed at least 5 years of active membership for members commencing active duty prior to January 1, 2010, and 10 years of active membership for members commencing active duty after January 1, 2010, are entitled to a reduced service pension not to exceed the amount calculated by multiplying the member ’s service pension for the completed years of service times the applicable nonforfeitable percentage of pension for the completed years of service times the applicable nonforfeitable percentage of pension. C. Contributions Minnesota Statutes, Chapters 424 and 424A, authorize pension benefits for volunteer fire relief associations. The plan is funded by fire state aid, investment earnings, and, if necessary, employer contributions as specified in Minnesota Statutes and voluntary city contributions (if applicable). Required employer contributions are calculated annually based on statutory provisions. The City’s statutorily-required contributions to the plan for the year ended December 31, 2017 were $243,200. The City’s contributions were equal to the required contributions as set by state statutes. The City made no voluntary contributions to the plan. Furthermore, the firefighter has no obligation to contribute to the plan. D. Pension Costs At December 31, 2017, the City reported a net pension liability (asset) of ($791,026) for the plan. The net pension liability (asset) was measured as of December 31, 2016. The total pension liability used to calculate the net pension liability (asset) in accordance with GASB Statement No. 68 was determined by applying an actuarial formula to specific census data certified by the Department as of December 31, 2016. For the year ended December 31, 2017, the City recognized pension expense of $244,652. The City also recognized $281,578 as revenue from the state of Minnesota on-behalf contributions to the Department. -65- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) The following table presents the changes in net pension liability during the year: Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) Beginning balance 6,270,772$ 6,049,005$ 221,767$ Changes for the year Service cost 179,770 – 179,770 Interest 402,119 – 402,119 Difference between expected and actual experience (23,940) – (23,940) Change of assumptions (509,724) – (509,724) Contributions – state and local – 546,408 (546,408) Net investment income – 549,126 (549,126) Benefit payments (528,192) (528,192) – Administrative costs – (34,516) 34,516 Total net changes (479,967) 532,826 (1,012,793) Ending balance 5,790,805$ 6,581,831$ (791,026)$ At December 31, 2017, the City reported deferred inflows of resources and deferred outflows of resources related to pensions from the following: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience 8,870$ 20,610$ Changes in actuarial assumptions – 592,224 Differences between projected and actual investment earnings 279,250 – City contributions subsequent to the measurement date 243,200 – State aid to the City subsequent to the measurement date 283,581 283,581 Total 814,901$ 896,415$ -66- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) Deferred outflows of resources totaling $526,781 related to pensions resulting from the city contributions to the plan subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Deferred inflows of resources totaling $283,581 related to state aid received subsequent to the measurement date will be recognized for its impact on the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to the plan will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2018 11,330$ 2019 11,332$ 2020 (12,575)$ 2021 (133,997)$ 2022 (100,790)$ Thereafter (100,014)$ E. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of the measurement date using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50% Salary increases N/A Investment rate of return Index rate for 20-year, tax-exempt municipal bonds (Bond Buyer G.O. 20-Year Municipal Bond Index); used in discount rate determination 3.78% N/A – Not Applicable 7.50% net of pension plan investment expense, including inflation Mortality rates were based on the July 1, 2016 Minnesota Public Employees Retirement Association Police and Fire Plan actuarial valuation as described below: Healthy Pre-Retirement – RP-2000 Nonannuitant Generational Mortality Table projected with Scale AA, white collar adjustment, male rates set back two years, female rates set back two years. Healthy Post-Retirement – RP-2000 Nonannuitant Generational Mortality Table, projected with Scale AA, white collar adjustment, without age adjustment. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimates of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These asset class estimates are combined to produce the portfolio long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage (or target allocation, if available) and by adding expected inflation. All results are then rounded to the nearest quarter percent. -67- NOTE 9 – DEFINED BENEFIT PENSION PLAN – FIRE RELIEF ASSOCIATION (CONTINUED) Asset Class Domestic equity 81.86 %5.58 %8.08 % International equity 5.78 5.71 %8.21 % Fixed income 11.31 2.27 %4.77 % Real estate and alternatives – 4.44 %6.94 % Cash and equivalents 1.05 0.84 %3.34 % Total (weighted average, rounded to 1/4 percent)100.00 %7.50 % Allocation at Measurement Date Long-Term Expected Nominal Rate of Return Long-Term Expected Real Rate of Return F. Discount Rate The discount rate used to measure the total pension liability was 7.50 percent. The liability discount rate was developed using the alternative method described in paragraph 43 of GASB Statement No. 67, which states that “if the evaluations required by paragraph 41 can be made with sufficient reliability without a separate projection of cash flows into and out of the pension plan, alternative methods may be applied in making the evaluations.” We believe that the plan’s current overfunded status, combined with Minnesota statutory funding requirements, provide sufficient reliability that projected plan assets will be adequate to pay future retiree benefits. Therefore, we used the plan’s long-term expected investment return as the liability discount rate. G. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability (asset) of the Association, calculated using the discount rate of 7.50 percent, as well as what the Association’s net pension liability (asset) would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate: 1% Decrease in Current 1% Increase in Discount Rate Discount Rate Discount Rate 6.50%7.50%8.50% Association’s net pension liability (asset)(281,176)$ (791,026)$ (1,228,261)$ H. Pension Plan Fiduciary Net Position The Association issues a publicly available financial report. This report may be obtained by writing to the Apple Valley Firefighters’ Relief Association, 7100 147th Street West, Apple Valley, Minnesota 55124. -68- NOTE 10 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN A. Plan Description The City provides post-employment benefits to certain eligible employees and their spouses through the City’s OPEB Plan, a single-employer defined benefit plan administered by the City. All post-employment benefits are based on contractual agreements with employee groups. These contractual agreements do not include any specific contribution or funding requirements. The plan does not issue a publicly available financial report. These benefits are summarized as follows: Post-Employment Insurance Benefits – All retirees of the City have the option under state law to continue their medical insurance coverage through the City from the time of retirement until the employee reaches the age of eligibility for Medicare. For members of all employee groups, the re tiree must pay the full premium to continue coverage for medical and dental insurance. The City is legally required to include any retirees for whom it provides health insurance coverage in the same insurance pool as its active employees, whether premiums are paid by the City or the retiree. Consequently, participating retirees are considered to receive a secondary benefit known as an “implicit rate subsidy.” This benefit relates to the assumption that the retiree is receiving a more favorable premium rate than they would otherwise be able to obtain if purchasing insurance on their own, due to being included in the same pool with the City’s younger and statistically healthier active employees. B. Funding Policy The required contributions are based on projected pay-as-you-go financing requirements, with additional amounts to prefund benefits as determined annually by the City. C. Annual OPEB Cost and Net OPEB Obligation The City’s annual OPEB cost (expense) is calculated based on annual required contributions (ARC) of the City, an amount determined on an actuarially determined basis in accordance with the parameters of GASB Statement No. 45. The ARC represents a level funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The annual OPEB cost is accrued in the accrual-based statements. The liability is funded through payments from the City’s General Fund and enterprise funds. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and the changes in the City’s net OPEB obligation to the plan: ARC 226,905$ Interest on net OPEB obligation 73,964 Adjustment to ARC (64,165) Annual OPEB cost (expense)236,704 Contributions made 74,524 Increase in net OPEB obligation 162,180 Net OPEB obligation – beginning of year 1,643,653 Net OPEB obligation – end of year 1,805,833$ -69- NOTE 10 – OTHER POST-EMPLOYMENT BENEFITS (OPEB) PLAN (CONTINUED) The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current and preceding years are as follows: Percentage of Fiscal Year Ended Annual Employer Annual OPEB Net OPEB December 31,OPEB Cost Contribution Cost Contributed Obligation 2015 236,671$ 84,647$ 36%1,441,936$ 2016 227,404$ 25,687$ 11%1,643,653$ 2017 236,704$ 74,524$ 31%1,805,833$ D. Funded Status and Funding Progress As of January 1, 2016, the most recent actuarial valuation date, the actuarial accrued liability for benefits and unfunded actuarial accrued liability (UAAL) were both $1,966,565, as the plan was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $13,401,000 and the ratio of the UAAL to the covered payroll was 15 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the ARC of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress following the notes to basic financial statements presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2016 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included: a 4.50 percent investment rate of return (net of administrative expenses) based on the City’s own investments; an annual payroll growth rate of 3.50 percent; an annual healthcare cost trend rate of 9.00 percent initially, reduced by decrements to an ultimate rate of 5.00 percent after 12 years for medical insurance; and a general inflation rate of 2.75 percent. The UAAL is amortized on a level dollar basis over an open 30-year period. -70- NOTE 11 – STEWARDSHIP AND ACCOUNTABILITY A. Deficit Fund Balances The following funds have a deficit fund balance at December 31, 2017: Amount Governmental 2001/2008B Refunding Improvement Bonds 2,846,426$ Road Improvements 5,174,280$ Nonmajor funds Debt service Improvement Bonds of 2010 189,301$ Capital projects TIF District Parkside Village 528,886$ The deficits listed above will be eliminated by transfers from other funds, collection of special assessments, future special assessment bond issues, future tax levies, and state grant reimbursements. B. Budget to Actual Expenditures exceeded budgeted amounts in the Future Capital Projects Fund by $59,475 and Cable Capital Equipment Capital Projects Fund by $18,010. NOTE 12 – FUND BALANCES A. Classifications At December 31, 2017, the City had the following governmental fund balances: 2001/2008B Closed Refunding Future Nonmajor General Bond Improvement Road Capital Governmental Fund Issues Bonds Improvements Projects Funds Total Nonspendable Inventory 16,176$ –$ –$ –$ –$ –$ 16,176$ Prepaid items 309,106 – – – – 1,730 310,836 Total nonspendable 325,282 – – – – 1,730 327,012 Restricted Debt service – – – – – 2,864,587 2,864,587 Economic development – – – – – 124,531 124,531 Tax increment financing – – – – – 1,287,475 1,287,475 Police forfeiture – – – – – 50,367 50,367 Capital acquisition Cable capital equipment – – – – – 639,079 639,079 Tax increment financing – – – – – 2,870,791 2,870,791 Park dedication – – – – – 1,466,116 1,466,116 Electric projects – – – – – 3,889,650 3,889,650 Cable TV – – – – – 68,690 68,690 Other purposes Solid waste grant – – – – – 45,131 45,131 Lodging tax – – – – – 124,950 124,950 Total restricted – – – – – 13,431,367 13,431,367 Debt Service Capital Projects -71- NOTE 12 – FUND BALANCES (CONTINUED) 2001/2008B Closed Refunding Future Nonmajor General Bond Improvement Road Capital Governmental Fund Issues Bonds Improvements Projects Funds Total Committed Home improvement guide 20,000 – – – – – 20,000 Aquatic center equipment 13,000 – – – – – 13,000 Comp plan update contract services 30,000 – – – – – 30,000 Chair replacement 3,046 – – – – – 3,046 Repairs to HVAC system – Police Department 120,000 – – – – – 120,000 Fire alarm system 15,100 – – – – – 15,100 Finance automation Laserfich and AP 5,805 – – – – – 5,805 Police training 8,000 – – – – – 8,000 Fire apparatus bay flooring 50,000 – – – – – 50,000 Fire day room chairs 5,000 – – – – – 5,000 HR office chairs 1,000 – – – – – 1,000 Public works snow and ice equipment 25,000 – – – – – 25,000 Redwood building security cameras 5,655 – – – – – 5,655 Aquatic center rental cabanas 5,130 – – – – – 5,130 Aquatic center point of sales system 6,900 – – – – – 6,900 Park maintenance training 1,700 – – – – – 1,700 Building inspection Avolve workflows 109,279 – – – – – 109,279 Redwood building diving board replacement 7,200 – – – – – 7,200 Police utility vehicle 31,100 – – – – – 31,100 Fire security camera 25,700 – – – – – 25,700 Fire station identification signs 41,800 – – – – – 41,800 Fire pluggie fire hydrant 6,200 – – – – – 6,200 HR Laserfiche system 5,000 – – – – – 5,000 Fleet Assetworks system 33,500 – – – – – 33,500 Fleet AV equipment 5,100 – – – – – 5,100 IT website refresh 15,000 – – – – – 15,000 Municipal building flooring replacement – – – – – 15,000 15,000 Total committed 595,215 – – – – 15,000 610,215 Assigned Administrative facilities study 50,000 – – – – – 50,000 Police vitals program 4,700 – – – – – 4,700 Police IBIS fingerprint 3,600 – – – – – 3,600 IT lighting improvements 6,000 – – – – – 6,000 Debt service – 9,440,666 – – – 853,975 10,294,641 Other capital projects – – – – 15,353,401 577,664 15,931,065 Police special projects – – – – – 174,776 174,776 Tree preservation – – – – – 366,134 366,134 Ponds – – – – – 246,191 246,191 Pathways and sidewalks – – – – – 252,981 252,981 Dodd Road – – – – – 239,284 239,284 Former City Hall building – – – – – 679,373 679,373 Capital building – – – – – 418,064 418,064 Park improvement development – – – – – 2,947 2,947 Physical improvement – – – – – 157,098 157,098 Fire capital purchases – – – – – 17,275 17,275 Total assigned 64,300 9,440,666 – – 15,353,401 3,985,762 28,844,129 Unassigned 16,351,616 – (2,846,426) (5,174,280) – (718,187) 7,612,723 Total 17,336,413$ 9,440,666$ (2,846,426)$ (5,174,280)$ 15,353,401$ 16,715,672$ 50,825,446$ Debt Service Capital Projects B. Minimum Fund Balance Policy The City Council has formally adopted a fund balance policy. The policy establishes the City will strive to maintain a minimum unassigned General Fund balance of 50.0 percent of the subsequent year’s budgeted expenditures. At December 31, 2017, the unassigned fund balance of the General Fund was 49.3 percent of the subsequent year’s budgeted expenditures, including transfers. -72- NOTE 13 – JOINT POWERS AGREEMENT WITH DAKOTA COUNTY In July 1987, the City and Dakota County (the County) entered into an agreement whereby the City and the County jointly acquired certain real estate for the purpose of building a library facility to serve the City and surrounding communities. The City’s portion of the cost of the property was $348,414. As part of this agreement, the City transferred its interest in the property to the Cou nty but maintains a lien for 30 years. If during this time, the County terminates its library use, the County will pay the City the unamortized cost of the property. NOTE 14 – TAX ABATEMENT AGREEMENTS The City, in order to spur economic development and redevelopment , has entered into private development and redevelopment agreements to encourage a developer to construct, expand, or improve new or existing properties and building or clean-up and redevelop blighted areas. The City has four agreements that would be considered a tax abatement under GASB Statement No. 77. The City is authorized to create a tax increment finance plan under Minnesota Statute s, Chapter 469.175. The criteria that must be met under the statutes are that, in the opinion of the municipality: • The proposed development or redevelopment would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future; • The increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less that the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the tax increment district permitted in the plan. The requirements of this item do not apply if the district is a housing district; • That the tax increment financing plan conforms to the general plan for the development or redevelopment of the municipality as a whole; and • That the tax increment financing plan will afford maximum opportunity, consistent with the sound needs of the municipality as a whole, for the development or redevelopment of the project by private enterprise. The City has entered into private development agreements regarding certain properties within a tax increment district. Included in the development agreement was the reimbursement of eligible development costs. The vehicle used for this reimbursement is called a tax increment revenue note. These notes provide for the payment of principal, equal to the developer’s eligible costs, plus interest at a set rate. Payments on the note will be made at the lesser of the note payment or a percent of the available tax increment received during the specific year as stated in the agreement. Payments are first applied to accrued interest and then to the principal balance. The notes are to be cancelled at the end of the term, whether or not the note has been repaid in full. The agreements are not a general obligation of the City and are payable solely from available tax increments, received from the property owner. The City’s position is that these are obligations to assign future and uncertain revenues sources and, as such, is not actual debt in substance. -73- NOTE 14 – TAX ABATEMENT AGREEMENTS (CONTINUED) The outstanding principal balances as of December 31, 2017 for these agreements are as follows: District Name Purpose Percentage of Taxes Returned During the Fiscal Year Amount of Taxes Returned During the Fiscal Year Outstanding Principal at Year-End Date of Required Decertification TIF No. 14 – Apple Valley Business Campus Construction of 147th St. and Felton Ct., 100,000 sq. ft. expansion of warehouse/office facilities and the addition of minimum of 40 full-time jobs. 89% $171,917 $1,545,459 12/31/2022 TIF No. 15 – Parkside Village – Gabella Housing district, including the construction of multi-family residential buildings of 196 units with 20% affordable units. 70% $181,701 $2,684,000 12/31/2041 TIF No. 16 – Uponor Creation of 86,000 sq. ft. of manufacturing facilities and the addition of 75 full-time jobs. 90% $51,099 $452,901 12/31/2025 TIF No. 17 – Karamella Creation of 73,000 sq. ft. manufacturing facilities and the addition of 76 full-time jobs. 0% $0 $736,000 12/31/2026 NOTE 15 – COMMITMENTS AND CONTINGENCIES A. Legal Claims The City has the usual and customary type of miscellaneous legal claims pending at year-end. Although the outcome of these lawsuits is not presently determinable, the City’s management believes that the City will not incur any material monetary loss resulting from these claims . No loss has been recorded on the City’s financial statements relating to these claims. B. Freeway Landfill In February 2017, the Environmental Protection Agency sent letters to potentially responsible parties (PRPs) related to the clean-up of the Freeway Landfill property under the federal Superfund Program. The State Legislature passed Laws 2017, Chapter 93, Article 2, Sections 124–128, which transferred liability from PRPs to the Minnesota Pollution Control Agency (PCA). The City continues to work with the PCA to secure funds for the closure of the landfill. C. Federal and State Funding Amounts recorded or receivable from federal and state agencies are subject to agency a udit and adjustment. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of claims which may be disallowed by the grantor agencies cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. -74- NOTE 15 – COMMITMENTS AND CONTINGENCIES (CONTINUED) D. Tax Increment Districts The City’s tax increment districts are subject to review by the state of Minnesota Office of the State Auditor. Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which would have a material effect on the financial statements. E. Construction Commitments At December 31, 2017, the City is committed to various construction contracts for the improvement of city property. The City’s remaining commitment under these contracts is approximately $6,500,000. F. Operating Lease On October 22, 2015, the City entered into an agreement to extend the existing liquor store building lease at Apple Valley Shopping Center with Time Square Shopping Center II, LLP for t hree years commencing February 1, 2016, and ending January 31, 2019 at a base rent of $11,000 per month. Lease expenditures for the year ending December 31, 2017 were $132,000. The following is a schedule by years of future minimum payments required under the leases as of December 31, 2017: Year Ending December 31, Amount 2018 132,000$ 2019 11,000 Total 143,000$ NOTE 16 – SUBSEQUENT EVENT In March 2018, the City entered into a capital lease for golf course equipment in the amount of $180,268 and a 4.95 percent interest rate. Annual payments will be made for $39,701 for five years. In March 2018, the City entered into a second capital lease for golf course equipment in the amount of $70,000 and a 7.0 percent interest rate. Annual payments will be made at a rate of $15,957 for five years. REQUIRED SUPPLEMENTARY INFORMATION Proportionate Share of the City’s Net Pension Proportionate Liability and City’s Share of the the City’s Proportionate Plan Fiduciary State of Share of the Share of the Net Position City’s City’s Minnesota’s State of Net Pension as a PERA Fiscal Proportion Proportionate Proportionate Minnesota’s Liability as a Percentage Year-End Date of the Net Share of the Share of the Share of the City’s Percentage of of the Total (Measurement Pension Net Pension Net Pension Net Pension Covered Covered Pension Date)Liability Liability Liability Liability Payroll Payroll Liability 06/30/2015 0.1634% 8,468,235$ –$ 8,468,235$ 9,603,176$ 88.18% 78.20% 06/30/2016 0.1561% 12,674,544$ 165,598$ 12,840,142$ 9,680,914$ 130.92% 68.90% 06/30/2017 0.1643% 10,488,804$ 131,924$ 10,620,728$ 10,539,668$ 99.52% 75.90% Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess)Payroll Payroll 750,987$ 750,987$ –$ 10,013,141$ 7.50% 741,397$ 741,397$ –$ 9,885,306$ 7.50% 768,029$ 768,029$ –$ 10,240,379$ 7.50% Note: CITY OF APPLE VALLEY Schedule of City’s and Nonemployer Proportionate Share of Net Pension Liability PERA – General Employees Retirement Fund Year Ended December 31, 2017 Schedule of City Contributions PERA – General Employees Retirement Fund City Fiscal Year-End Date 12/31/2015 12/31/2016 12/31/2017 12/31/2017 City Fiscal Year-End Date Year Ended December 31, 2017 The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2015 12/31/2016 -75- City’s Proportionate Plan Fiduciary Share of the Net Position City’s City’s Net Pension as a PERA Fiscal Proportion Proportionate Liability as a Percentage Year-End Date of the Net Share of the City’s Percentage of of the Total (Measurement Pension Net Pension Covered Covered Pension Date)Liability Liability Payroll Payroll Liability 06/30/2015 0.5150% 5,851,604$ 4,711,902$ 124.19% 86.60% 06/30/2016 0.5190% 20,828,373$ 4,976,069$ 418.57% 63.90% 06/30/2017 0.5110% 6,899,105$ 5,233,601$ 131.82% 85.40% Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess)Payroll Payroll 818,071$ 818,071$ –$ 5,049,825$ 16.20% 808,641$ 808,641$ –$ 4,991,606$ 16.20% 829,640$ 829,640$ –$ 5,121,237$ 16.20% Note: CITY OF APPLE VALLEY PERA – Public Employees Police and Fire Fund Year Ended December 31, 2017 PERA – Public Employees Police and Fire Fund The City implemented GASB Statement No.68 in fiscal 2015 (using a June 30,2015 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2017 Schedule of City Contributions 12/31/2015 City Fiscal Year-End Date Date 12/31/2016 12/31/2017 12/31/2016 Year Ended December 31, 2017 Year-End City Fiscal Date 12/31/2015 -76- City fiscal year-end date December 31, 2017 December 31, 2016 December 31, 2015 Apple Valley Firefighters’ Relief Association year-end date (measurement date) December 31, 2016 December 31, 2015 December 31, 2014 Total pension liability Service cost 179,770$ 181,221$ 168,532$ Interest 402,119 398,162 369,565 Differences between expected and actual experience (23,940) 12,130 – Changes of assumptions (509,724) (209,787) – Change in benefit terms – – 265,088 Benefit payments (528,192) (600,659) (269,330) Net change in total pension liability (479,967) (218,933) 533,855 Total pension liability – beginning of year 6,270,772 6,489,705 5,955,850 Total pension liability – end of year 5,790,805$ 6,270,772$ 6,489,705$ Plan fiduciary net position Contributions (state and local) 546,408$ 477,537$ 526,217$ Net investment income 549,126 (219,523) 239,737 Benefit payments (528,192) (600,659) (269,330) Administrative costs (34,516) (35,434) (22,641) Net change in plan fiduciary net position 532,826 (378,079) 473,983 Plan fiduciary net position – beginning of year 6,049,005 6,427,084 5,953,101 Plan fiduciary net position – end of year 6,581,831$ 6,049,005$ 6,427,084$ Net pension liability (asset) – ending (791,026)$ 221,767$ 62,621$ Plan fiduciary net position as a percentage of the total pension liability 113.66% 96.46% 99.04% Note 1: Note 2: Schedule of Changes in the Relief Association’s Net Pension Liability and Related Ratios Apple Valley Firefighters’ Relief Association The City implemented GASB Statement No. 68 in fiscal 2015 (using a December 31, 2014 measurement date). This schedule is intended to present 10-year trend information. Additional years will be added as they become available. CITY OF APPLE VALLEY Changes in Actuarial Assumptions:(1) 2016 Changes – The discount rate was changed to reflect updated investment expectations. Disability decrements were added to reflect the disability benefit. Retirement rates were changed from 100 percent at age 50 with 20 years of service to a graded schedule. (2) 2017 Changes – The expected investment return and discount rate increased from 6.50 percent to 7.50 percent to reflect updated capital market assumptions. -77- Contributions in Relation to the Statutorily Statutorily Contribution Determined Determined Deficiency Contribution Contributions (Excess) 449,869$ 526,217$ (76,348)$ 338,049$ 477,537$ (139,488)$ 404,811$ 546,408$ (141,597)$ Note: 12/31/2015 The City implemented GASB Statement No.68 in fiscal 2015 (using a December 31,2014 measurement date).This schedule is intended to present 10-year trend information. Additional years will be added as they become available. 12/31/2016 CITY OF APPLE VALLEY Schedule of City Contributions Apple Valley Firefighters’ Relief Association City Fiscal Year-End Date 12/31/2017 -78- Unfunded Unfunded Actuarial Actuarial Liability as a Actuarial Accrued Actuarial Value Accrued Funded Covered Percentage of Valuation Date Liability of Plan Assets Liability Ratio Payroll Payroll January 1, 2016 1,966,565$ –$ 1,966,565$ –% 13,401,000$ 14.7% January 1, 2014 2,145,589$ –$ 2,145,589$ –% 12,506,433$ 17.2% January 1, 2012 2,131,117$ –$ 2,131,117$ –% 11,616,482$ 18.3% CITY OF APPLE VALLEY Other Post-Employment Benefits Plan Schedule of Funding Progress December 31, 2017 -79- CITY OF APPLE VALLEY Notes to Required Supplementary Information December 31, 2017 PERA – General Employees Retirement Fund -80- 2017 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60.0 percent for vested and nonvested deferred members. The revised CSA loads are now zero percent for active member liability, 15.0 percent for vested deferred member liability, and 3.0 percent for nonvested deferred member liability. • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years, to 1.0 percent per year through 2044, and 2.5 percent per year thereafter. 2016 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035, and 2.5 percent per year thereafter, to 1.0 percent per year for all years. • The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent. • Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. 2015 CHANGES CHANGES IN PLAN PROVISIONS: • On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Retirement 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 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2035, and 2.5 percent per year thereafter. CITY OF APPLE VALLEY Notes to Required Supplementary Information (continued) December 31, 2017 PERA – Public Employees Police and Fire Fund -81- 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 percent lower than the previous rates. • Assumed rates of retirement were changed, resulting in fewer retirements. • The CSA load was 30 percent for vested and nonvested deferred members. The CSA has been changed to 33 percent for vested members, and 2 percent for nonvested 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 3.0 percent 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 percent to 60 percent. • Assumed age difference was changed from separate assumptions for male members (wives assumed to be three years younger) and female members (husbands assumed to be four years older) to the assumption that males are two 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 1.00 percent for all years, to 1.00 percent per year through 2064, and 2.50 percent thereafter. • The single discount rate changed from 5.60 percent to 7.50 percent. CITY OF APPLE VALLEY Notes to Required Supplementary Information (continued) December 31, 2017 PERA – Public Employees Police and Fire Fund -82- 2016 CHANGES CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2037, and 2.5 percent thereafter, to 1.0 percent per year for all future years. • The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate changed from 7.9 percent to 5.6 percent. • The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth, and 2.50 percent for inflation. 2015 CHANGES CHANGES IN PLAN PROVISIONS: • The post-retirement benefit increase to be paid after attainment of the 90.0 percent funding threshold was changed, from inflation up to 2.5 percent, to a fixed rate of 2.5 percent CHANGES IN ACTUARIAL ASSUMPTIONS: • The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030, and 2.5 percent per year thereafter, to 1.0 percent per year through 2037, and 2.5 percent per year thereafter. THIS PAGE INTENTIONALLY LEFT BLANK SUPPLEMENTARY INFORMATION THIS PAGE INTENTIONALLY LEFT BLANK COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Special Debt Capital Revenue Service Projects Total Assets Cash and investments 416,122$ 5,002,878$ 13,144,227$ 18,563,227$ Receivables Accounts 8,483 4,000 161,999 174,482 Special assessments Current – 279,449 94,834 374,283 Delinquent – 781 – 781 Deferred – 1,007,149 514,971 1,522,120 Due from other governmental units 1,148 – – 1,148 Prepaids 1,730 – – 1,730 Total assets 427,483$ 6,294,257$ 13,916,031$ 20,637,771$ Liabilities Accrued salaries payable 5,058$ –$ 72$ 5,130$ Accounts payable 7,026 841 921,761 929,628 Contracts payable – – 311,650 311,650 Due to other funds – 189,301 13,206 202,507 Advances from other funds – – 576,000 576,000 Total liabilities 12,084 190,142 1,822,689 2,024,915 Deferred inflows of resources Unavailable revenue – special assessments – 1,287,379 609,805 1,897,184 Fund balances (deficit) Nonspendable 1,730 – – 1,730 Restricted 413,669 4,152,062 8,865,636 13,431,367 Committed – – 15,000 15,000 Assigned – 853,975 3,131,787 3,985,762 Unassigned – (189,301) (528,886) (718,187) Total fund balances 415,399 4,816,736 11,483,537 16,715,672 Total liabilities, deferred inflows of resources, and fund balances 427,483$ 6,294,257$ 13,916,031$ 20,637,771$ CITY OF APPLE VALLEY Nonmajor Governmental Funds Combining Balance Sheet as of December 31, 2017 -83- Special Debt Capital Revenue Service Projects Total Revenues Taxes –$ 1,393,830$ 346,674$ 1,740,504$ Other taxes 92,958 – – 92,958 Franchise taxes – – 773,181 773,181 Special assessments – 334,563 524,859 859,422 Intergovernmental – – 248,362 248,362 Investment earnings 3,619 142,098 95,711 241,428 Other 145,479 – 857,390 1,002,869 Total revenues 242,056 1,870,491 2,846,177 4,958,724 Expenditures Current General government 104,043 34,457 649,978 788,478 Public safety 14,208 – 7,943 22,151 Public works 15,299 – 11,312 26,611 Parks and recreation 226,113 – 88,769 314,882 Capital outlay 90,539 – 2,654,845 2,745,384 Debt service Principal – 3,425,000 – 3,425,000 Interest and fiscal charges – 894,010 38,936 932,946 Total expenditures 450,202 4,353,467 3,451,783 8,255,452 Excess (deficiency) of revenues over expenditures (208,146) (2,482,976) (605,606) (3,296,728) Other financing sources (uses) Sale of capital assets 32,670 – – 32,670 Payment on refunded bond – (11,925,000) – (11,925,000) Transfers in 57,289 976,336 359,000 1,392,625 Transfers (out)– (775,000) (73,625) (848,625) Total other financing sources (uses)89,959 (11,723,664) 285,375 (11,348,330) Net change in fund balances (118,187) (14,206,640) (320,231) (14,645,058) Fund balances Beginning of year 533,586 19,023,376 11,803,768 31,360,730 End of year 415,399$ 4,816,736$ 11,483,537$ 16,715,672$ CITY OF APPLE VALLEY Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -84- THIS PAGE INTENTIONALLY LEFT BLANK -85- NONMAJOR SPECIAL REVENUE FUNDS Nonmajor special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. Nonmajor special revenue funds presently established are as follows: • Cable TV Fund – Accounts for the operating costs of the cable TV functions funded by cable franchise fees. • Solid Waste Grant Fund – Accounts for the expenses related to recycling activities and the semiannual cleanup day funded by grants from Dakota County. • Police Forfeiture Fund – Administers the resources received through court-ordered forfeitures. • EDA Operations Fund – Accounts for the operating activities of the Apple Valley Economic Development Authority. • Lodging Tax Fund – Administers the resources received from the lodging tax process. Solid Waste Police Cable TV Grant Forfeiture (2010)(2040)(2060) Assets Cash and investments 74,131$ 45,131$ 49,219$ Receivables Accounts 307 – – Due from other governmental units – – 1,148 Prepaids 1,730 – – Total assets 76,168$ 45,131$ 50,367$ Liabilities Accrued salaries payable 5,058$ –$ –$ Accounts payable 690 – – Total liabilities 5,748 – – Fund balances Nonspendable 1,730 – – Restricted 68,690 45,131 50,367 Total fund balances 70,420 45,131 50,367 Total liabilities and fund balances 76,168$ 45,131$ 50,367$ CITY OF APPLE VALLEY Nonmajor Special Revenue Funds Combining Balance Sheet as of December 31, 2017 -86- EDA Lodging Operations Tax (3210)(7000)Totals 124,531$ 123,110$ 416,122$ – 8,176 8,483 – – 1,148 – – 1,730 124,531$ 131,286$ 427,483$ –$ –$ 5,058$ – 6,336 7,026 – 6,336 12,084 – – 1,730 124,531 124,950 413,669 124,531 124,950 415,399 124,531$ 131,286$ 427,483$ -87- Solid Waste Police Cable TV Grant Forfeiture (2010)(2040)(2060) Revenues Other taxes –$ –$ –$ Investment earnings 1,246 374 193 Other revenue Miscellaneous 118,859 7,990 18,630 Total revenues 120,105 8,364 18,823 Expenditures Current General government – – – Public safety – – 14,208 Public works – 15,299 – Parks and recreation 226,113 – – Capital outlay 91,687 – (1,148) Total expenditures 317,800 15,299 13,060 Excess (deficiency) of revenue over expenditures (197,695) (6,935) 5,763 Other financing sources Sale of capital assets 1,114 – 31,556 Transfers in 57,289 – – Total other financing sources 58,403 – 31,556 Net change in fund balances (139,292) (6,935) 37,319 Fund balances Beginning of year 209,712 52,066 13,048 End of year 70,420$ 45,131$ 50,367$ CITY OF APPLE VALLEY Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -88- EDA Lodging Operations Tax (3210)(7000)Totals –$ 92,958$ 92,958$ 937 869 3,619 – – 145,479 937 93,827 242,056 18,501 85,542 104,043 – – 14,208 – – 15,299 – – 226,113 – – 90,539 18,501 85,542 450,202 (17,564) 8,285 (208,146) – – 32,670 – – 57,289 – – 89,959 (17,564) 8,285 (118,187) 142,095 116,665 533,586 124,531$ 124,950$ 415,399$ -89- THIS PAGE INTENTIONALLY LEFT BLANK -90- NONMAJOR DEBT SERVICE FUNDS Nonmajor debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal, interest, and related costs on long-term debt of governmental funds. The individual nonmajor debt service funds presented are to distinguish between the various bond issues. 2003/2009A Improvement Improvement Refunding Improvement G.O. Closed Bonds Bonds Improvement Bonds Bond Issues of 2006 of 2007 Bonds of 2010 (3075)(3330)(3340)(3305)(3320) Assets Cash and investments 853,975$ 581,999$ 725,013$ 733,213$ –$ Receivables Special assessments Current – 115,652 13,635 – 20,162 Delinquent – 710 71 – – Deferred – 416,083 40,905 – 20,161 Accounts – – – – – Total assets 853,975$ 1,114,444$ 779,624$ 733,213$ 40,323$ Liabilities Accounts payable –$ –$ –$ –$ –$ Due to other funds – – – – 189,301 Total liabilities – – – – 189,301 Deferred inflows of resources Unavailable revenue – special assessments – 532,445 54,611 – 40,323 Fund balances (deficit) Restricted – 581,999 725,013 733,213 – Assigned 853,975 – – – – Unassigned – – – – (189,301) Total fund balances (deficit)853,975 581,999 725,013 733,213 (189,301) Total liabilities, deferred inflows of resources, and fund balances 853,975$ 1,114,444$ 779,624$ 733,213$ 40,323$ CITY OF APPLE VALLEY Nonmajor Debt Service Funds Combining Balance Sheet as of December 31, 2017 -91- Taxable Tax Tax Taxable Increment Tax Increment Tax Refunding Increment G.O.G.O. Park Economic Downtown Increment Bonds of Fischer Park Bonds Bonds Development Redevelopment Bonds of 2003 1985–1992A Marketplace of 2007 of 2008 (3215)(3260)(3270)(3220)(3275)(3345)(3355) –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 208,170$ – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,000 –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 212,170$ –$ –$ –$ –$ 841$ –$ –$ – – – – – – – – – – – 841 – – – – – – – – – – 180,506 1,106,969 – – 215,119 212,170 – – – – – – – – – – – – – – – 180,506 1,106,969 – – 215,119 212,170 –$ 180,506$ 1,106,969$ –$ 841$ 215,119$ 212,170$ -92-(continued) G.O.G.O.G.O. G.O. Park Equipment Refunding Improvement Refunding Bonds Certificates Bonds Bonds Bonds of 2011 of 2012 of 2012 of 2012 of 2013 (3360)(3370)(3375)(3380)(3385) Assets Cash and investments 47,172$ 36,389$ 184,014$ 45,804$ 15,334$ Receivables Special assessments Current – – – 130,000 – Delinquent – – – – – Deferred – – – 530,000 – Accounts – – – – – Total assets 47,172$ 36,389$ 184,014$ 705,804$ 15,334$ Liabilities Accounts payable –$ –$ –$ –$ –$ Due to other funds – – – – – Total liabilities – – – – – Deferred inflows of resources Unavailable revenue – special assessments – – – 660,000 – Fund balances (deficit) Restricted 47,172 36,389 184,014 45,804 15,334 Assigned – – – – – Unassigned – – – – – Total fund balances (deficit)47,172 36,389 184,014 45,804 15,334 Total liabilities, deferred inflows of resources, and fund balances 47,172$ 36,389$ 184,014$ 705,804$ 15,334$ Nonmajor Debt Service Funds Combining Balance Sheet (continued) as of December 31, 2017 CITY OF APPLE VALLEY -93- G.O.G.O. Equipment G.O.Equipment Certificates Park Bonds Certificates of 2014 of 2015 of 2015 (3390)(3395)(3400)Total 24,833$ 30,873$ 12,654$ 5,002,878$ – – – 279,449 – – – 781 – – – 1,007,149 – – – 4,000 24,833$ 30,873$ 12,654$ 6,294,257$ –$ –$ –$ 841$ – – – 189,301 – – – 190,142 – – – 1,287,379 24,833 30,873 12,654 4,152,062 – – – 853,975 – – – (189,301) 24,833 30,873 12,654 4,816,736 24,833$ 30,873$ 12,654$ 6,294,257$ -94- 2003/2009A Improvement Improvement Refunding Improvement G.O. Closed Bonds Bonds Improvement Bonds Bond Issues of 2006 of 2007 Bonds of 2010 (3075)(3330)(3340)(3305)(3320) Revenues Taxes –$ –$ –$ –$ –$ Special assessments – 149,879 17,738 – 36,946 Investment earnings 11,327 3,721 17,030 5,149 730 Total revenues 11,327 153,600 34,768 5,149 37,676 Expenditures Current General government – – – – – Debt service Principal – – 1,575,000 – – Interest and fiscal charges – – 63,976 – – Total expenditures – – 1,638,976 – – Excess (deficiency) of revenue over expenditures 11,327 153,600 (1,604,208) 5,149 37,676 Other financing sources (uses) Payment on refunded bond – – – – – Transfers in 16,336 – – – – Transfers (out)(775,000) – – – – Total other financing sources (uses)(758,664) – – – – Net change in fund balances (747,337) 153,600 (1,604,208) 5,149 37,676 Fund balances (deficit) Beginning of year 1,601,312 428,399 2,329,221 728,064 (226,977) End of year 853,975$ 581,999$ 725,013$ 733,213$ (189,301)$ CITY OF APPLE VALLEY Nonmajor Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -95- Taxable Tax Tax Taxable Increment Tax Increment Tax Refunding Increment G.O.G.O. Park Economic Downtown Increment Bonds of Fischer Park Bonds Bonds Development Redevelopment Bonds of 2003 1985–1992A Marketplace of 2007 of 2008 (3215)(3260)(3270)(3220)(3275)(3345)(3355) –$ –$ –$ –$ –$ 435,000$ 435,000$ – – – – – – – 209 1,289 7,774 17 – 1,223 1,234 209 1,289 7,774 17 – 436,223 436,234 26,054 2,947 – 4,706 – – – – – – – – 175,000 185,000 – – – – – 232,405 230,353 26,054 2,947 – 4,706 – 407,405 415,353 (25,845) (1,658) 7,774 (4,689) – 28,818 20,881 – – – – – – – – – – – – – – – – – – – – – – – – – – – – (25,845) (1,658) 7,774 (4,689) – 28,818 20,881 25,845 182,164 1,099,195 4,689 – 186,301 191,289 –$ 180,506$ 1,106,969$ –$ –$ 215,119$ 212,170$ -96-(continued) G.O.G.O.G.O. G.O. Park Equipment Refunding Improvement Refunding Bonds Certificates Bonds Bonds Bonds of 2011 of 2012 of 2012 of 2012 of 2013 (3360)(3370)(3375)(3380)(3385) Revenues Taxes 92,000$ 181,000$ –$ –$ –$ Special assessments – – – 130,000 – Investment earnings 302 362 1,484 323 59,970 Total revenues 92,302 181,362 1,484 130,323 59,970 Expenditures Current General government – 440 – 310 – Debt service Principal 50,000 175,000 935,000 110,000 – Interest and fiscal charges 39,063 12,900 18,700 13,900 185,613 Total expenditures 89,063 188,340 953,700 124,210 185,613 Excess (deficiency) of revenue over expenditures 3,239 (6,978) (952,216) 6,113 (125,643) Other financing sources (uses) Payment on refunded bond – – – – (8,375,000) Transfers in – – 960,000 – – Transfers (out)– – – – – Total other financing sources (uses)– – 960,000 – (8,375,000) Net change in fund balances 3,239 (6,978) 7,784 6,113 (8,500,643) Fund balances (deficit) Beginning of year 43,933 43,367 176,230 39,691 8,515,977 End of year 47,172$ 36,389$ 184,014$ 45,804$ 15,334$ Nonmajor Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 CITY OF APPLE VALLEY -97- G.O.G.O. Equipment G.O.Equipment Certificates Park Bonds Certificates of 2014 of 2015 of 2015 (3390)(3395)(3400)Total 120,000$ –$ 130,830$ 1,393,830$ – – – 334,563 169 29,706 79 142,098 120,169 29,706 130,909 1,870,491 – – – 34,457 105,000 – 115,000 3,425,000 9,900 77,600 9,600 894,010 114,900 77,600 124,600 4,353,467 5,269 (47,894) 6,309 (2,482,976) – (3,550,000) – (11,925,000) – – – 976,336 – – – (775,000) – (3,550,000) – (11,723,664) 5,269 (3,597,894) 6,309 (14,206,640) 19,564 3,628,767 6,345 19,023,376 24,833$ 30,873$ 12,654$ 4,816,736$ -98- -99- NONMAJOR CAPITAL PROJECTS FUNDS Nonmajor capital projects funds used are to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition and construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital-related outflows financed by proprietary funds. Nonmajor capital projects funds presently established are as follows: • Equipment Certificates Fund – Accounts for purchases of equipment financed with the issuance of equipment certificates. • Park Dedication Fund – Accounts for expenditures for the expansion of the City’s park facilities funded by the collection of park dedication fees charged to developing property. • Police Special Projects Fund – Accounts for police department projects funded with specific funding sources. • Police 911 Fund – Accounts for costs funded by the fees received from the 911 system. • Tree Preservation Fund – Accounts for the amounts received in the development process related to tree preservation efforts. • Pond Fund – Accounts for the amounts received in the development process related to ponding efforts on privately-developed projects. • Pathways and Sidewalks Fund – Accounts for the amounts received in the development process related to pathways and sidewalk development efforts. • Dodd Road Fund – Accounts for the amounts received from the development process on Dodd Road. • Former City Hall Building Fund – Accounts for the costs and revenues associated with the use of the former City Hall building. • Capital Building Fund – Accounts for the cost of the construction of the municipal center and other city facilities. • Park Improvement Development Fund – Accounts for park improvement costs in the development process. • C.I.P. Development Fund – Accounts for the proceeds from and expenses related to the Fraser land sale. • 2012 Improvement Construction Fund – Accounts for the improvements initiated in 2012 to be funded with development charges or developer reimbursements. • Cable Capital Equipment Fund – Accounts for capital equipment needs of the cable TV function funded with portions of the cable franchise fees. • Cable Capital Equipment/PEG Fund – Accounts for capital equipment needs of the cable TV function funded with the cable PEG fees. • Physical Improvement Fund – Accounts for developer projects funded by developers. -100- NONMAJOR CAPITAL PROJECTS FUNDS (CONTINUED) • Private Development Fund – Accounts for developer projects funded by developers. • 2003 Improvement Construction Fund – Accounts for the improvements funded with the 2003 General Obligation Bonds. • Electric Franchise Fee Fund – Accounts for project costs and revenues associated with the electric franchise fee. • 2007 Park Bond Fund – Accounts for the improvements funded with the Park Bonds of 2007 and 2008. • Fire Grants Project Fund – Accounts for Fire Department projects funded with specific funding sources. • TIF District No. 7 Fund – Accounts for project costs included within TIF District No. 7. • TIF District No. 1 Fund – Accounts for project costs included within TIF District No. 1. • TIF District No. 15 Parkside Village Fund – Accounts for project costs included within TIF District No. 15 Parkside Village. • TIF District No. 16 Uponor Fund – Accounts for project costs included within TIF District No. 16. • TIF District No. 14 Business Campus Fund – Accounts for project costs included within TIF District No. 14 – Apple Valley Business Campus. • Construction Projects Fund – This fund accounts for development projects, the costs of which will be recovered through the development process, including specially assessing the benefiting properties. Equipment Park Police Special Tree Certificates Dedication Projects Police 911 Preservation (2005)(2015)(2055)(2065)(2070) Assets Cash and investments –$ 1,640,659$ 174,776$ –$ 366,134$ Receivables Accounts – – – – – Special assessments Current – – – – – Deferred – – – – – Total assets –$ 1,640,659$ 174,776$ –$ 366,134$ Liabilities Accounts payable –$ 5,348$ –$ –$ –$ Accrued salaries payable – – – – – Contracts payable – 169,195 – – – Due to other funds – – – – – Advances from other funds – – – – – Total liabilities – 174,543 – – – Deferred inflows of resources Unavailable revenue – special assessments – – – – – Fund balances (deficit) Restricted – 1,466,116 – – – Committed – – – – – Assigned – – 174,776 – 366,134 Unassigned – – – – – Total fund balances (deficit)– 1,466,116 174,776 – 366,134 Total liabilities, deferred inflows of resources, and fund balances –$ 1,640,659$ 174,776$ –$ 366,134$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Balance Sheet as of December 31, 2017 -101- Former Park Pathways and City Hall Capital Improvement C.I.P. Pond Sidewalks Dodd Road Building Building Development Development (2075)(2080)(2085)(2090)(4000)(4010)(4045) 246,191$ 252,981$ 239,284$ 758,186$ 450,586$ 2,947$ 265,055$ – – – 4,300 – – – – – – – – – – – – – – – – – 246,191$ 252,981$ 239,284$ 762,486$ 450,586$ 2,947$ 265,055$ –$ –$ –$ 11,400$ 10,447$ –$ –$ – – – – – – – – – – 58,507 7,075 – – – – – 13,206 – – – – – – – – – – – – – 83,113 17,522 – – – – – – – – – – – – – – – – – – – – 15,000 – – 246,191 252,981 239,284 679,373 418,064 2,947 265,055 – – – – – – – 246,191 252,981 239,284 679,373 433,064 2,947 265,055 246,191$ 252,981$ 239,284$ 762,486$ 450,586$ 2,947$ 265,055$ -102-(continued) 2012 Improvement Cable Capital Cable Capital Physical Private Construction Equipment Equipment/PEG Improvement Development (4715)(4800)(4810)(4900)(4920) Assets Cash and investments 25,368$ 578,554$ 46,414$ 219,179$ 129,780$ Receivables Accounts – – 14,880 – – Special assessments Current – – – – – Deferred – – – – – Total assets 25,368$ 578,554$ 61,294$ 219,179$ 129,780$ Liabilities Accounts payable –$ 697$ –$ 62,081$ –$ Accrued salaries payable – 72 – – – Contracts payable – – – – – Due to other funds – – – – – Advances from other funds – – – – – Total liabilities – 769 – 62,081 – Deferred inflows of resources Unavailable revenue – special assessments – – – – – Fund balances (deficit) Restricted – 577,785 61,294 – – Committed – – – – – Assigned 25,368 – – 157,098 129,780 Unassigned – – – – – Total fund balances (deficit)25,368 577,785 61,294 157,098 129,780 Total liabilities, deferred inflows of resources, and fund balances 25,368$ 578,554$ 61,294$ 219,179$ 129,780$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Balance Sheet (continued) as of December 31, 2017 -103- 2003 TIF District Improvement Electric 2007 Fire Grants TIF District TIF District No. 15 Construction Franchise Fee Park Bond Project No. 7 No. 1 Parkside Village (4300)(4750)(4935)(7600)(4710)(4730)(4740) 121,909$ 3,754,497$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ – 135,153 – – – – – – – – – – – – – – – – – – – 121,909$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ 24,943$ –$ –$ –$ –$ –$ 90,851$ – – – – – – – – – – – – – – – – – – – – – – – – – – – 576,000 24,943 – – – – – 666,851 – – – – – – – – 3,889,650 – – 1,823,587 911,987 – – – – – – – – 96,966 – – 17,275 – – – – – – – – – (528,886) 96,966 3,889,650 – 17,275 1,823,587 911,987 (528,886) 121,909$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ 137,965$ -104-(continued) THIS PAGE INTENTIONALLY LEFT BLANK TIF District TIF District No. 16 No. 14 Construction Uponor Business Campus Projects (4743)(4735)(4500)Total Assets Cash and investments 4,672$ 130,545$ 845,696$ 13,144,227$ Receivables Accounts – – 7,666 161,999 Special assessments Current – – 94,834 94,834 Deferred – – 514,971 514,971 Total assets 4,672$ 130,545$ 1,463,167$ 13,916,031$ Liabilities Accounts payable –$ –$ 715,994$ 921,761$ Accrued salaries payable – – – 72 Contracts payable – – 76,873 311,650 Due to other funds – – – 13,206 Advances from other funds – – – 576,000 Total liabilities – – 792,867 1,822,689 Deferred inflows of resources Unavailable revenue – special assessments – – 609,805 609,805 Fund balances (deficit) Restricted 4,672 130,545 – 8,865,636 Committed – – – 15,000 Assigned – – 60,495 3,131,787 Unassigned – – – (528,886) Total fund balances (deficit)4,672 130,545 60,495 11,483,537 Total liabilities, deferred inflows of resources, and fund balances 4,672$ 130,545$ 1,463,167$ 13,916,031$ Nonmajor Capital Projects Funds Combining Balance Sheet (continued) as of December 31, 2017 CITY OF APPLE VALLEY -105- Equipment Park Police Special Tree Certificates Dedication Projects Police 911 Preservation (2005)(2015)(2055)(2065)(2070) Revenues Taxes (abatements)–$ –$ –$ –$ –$ Franchise taxes – – – – – Intergovernmental – – – – – Investment earnings 320 12,723 1,227 88 2,572 Special assessments – – – – – Other revenue Contributions – – 1,600 – – Rentals – – – – – Miscellaneous – 169,375 90 – – Total revenues 320 182,098 2,917 88 2,572 Expenditures Current General government – – – – – Public safety – – 2,943 5,000 – Public works – – – – – Parks and recreation – 88,769 – – – Capital outlay – 464,152 – – – Debt service Interest and fiscal charges – – – – – Total expenditures – 552,921 2,943 5,000 – Excess (deficiency) of revenue over expenditures 320 (370,823) (26) (4,912) 2,572 Other financing sources (uses) Transfers in – – – – – Transfers (out)(16,336) – – – – Total other financing sources (uses)(16,336) – – – – Net change in fund balances (16,016) (370,823) (26) (4,912) 2,572 Fund balances (deficit) Beginning of year 16,016 1,836,939 174,802 4,912 363,562 End of year –$ 1,466,116$ 174,776$ –$ 366,134$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended December 31, 2017 -106- Former Park Pathways and City Hall Capital Improvement C.I.P. Pond Sidewalks Dodd Road Building Building Development Development (2075)(2080)(2085)(2090)(4000)(4010)(4045) –$ –$ –$ –$ –$ –$ –$ – – – – – – – – – – – – – – 1,727 1,778 1,681 5,705 3,684 22 1,862 – – – – – – – – – – – – – – – – – 133,300 – – – – – – – 130 – – 1,727 1,778 1,681 139,005 3,814 22 1,862 – – – 241,603 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 445,759 – – – – – – – – – – – – 241,603 445,759 – – 1,727 1,778 1,681 (102,598) (441,945) 22 1,862 – – – – 359,000 – – – – – – – – – – – – – 359,000 – – 1,727 1,778 1,681 (102,598) (82,945) 22 1,862 244,464 251,203 237,603 781,971 516,009 2,925 263,193 246,191$ 252,981$ 239,284$ 679,373$ 433,064$ 2,947$ 265,055$ -107-(continued) 2012 Improvement Cable Capital Cable Capital Physical Private Construction Equipment Equipment/PEG Improvement Development (4715)(4800)(4810)(4900)(4920) Revenues Taxes (abatements)–$ –$ –$ –$ –$ Franchise taxes – 136,474 61,252 – – Intergovernmental – – – – – Investment earnings 181 3,818 42 2,143 914 Special assessments – – – – – Other revenue Contributions – – – – – Rentals – – – – – Miscellaneous – – – 2,707 – Total revenues 181 140,292 61,294 4,850 914 Expenditures Current General government – – – – – Public safety – – – – – Public works – 9,255 – – – Parks and recreation – – – – – Capital outlay – 34,090 – – – Debt service Interest and fiscal charges – – – – – Total expenditures – 43,345 – – – Excess (deficiency) of revenue over expenditures 181 96,947 61,294 4,850 914 Other financing sources (uses) Transfers in – – – – – Transfers (out)– (57,289) – – – Total other financing sources (uses)– (57,289) – – – Net change in fund balances 181 39,658 61,294 4,850 914 Fund balances (deficit) Beginning of year 25,187 538,127 – 152,248 128,866 End of year 25,368$ 577,785$ 61,294$ 157,098$ 129,780$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 -108- 2003 TIF District Improvement Electric 2007 Fire Grants TIF District TIF District No. 15 Construction Franchise Fee Park Bond Project No. 7 No. 1 Parkside Village (4300)(4750)(4935)(7600)(4710)(4730)(4740) –$ –$ –$ –$ –$ (162,526)$ 259,573$ – 575,455 – – – – – – – 248,362 – – – – 856 23,254 2,631 139 12,809 7,709 149 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 856 598,709 250,993 139 12,809 (154,817) 259,722 – – – – – – 182,710 – – – – – – – 2,057 – – – – – – – – – – – – – – – 477,753 10,330 – 10,906 – – – – – – – 38,936 2,057 – 477,753 10,330 – 10,906 221,646 (1,201) 598,709 (226,760) (10,191) 12,809 (165,723) 38,076 – – – – – – – – – – – – – – – – – – – – – (1,201) 598,709 (226,760) (10,191) 12,809 (165,723) 38,076 98,167 3,290,941 226,760 27,466 1,810,778 1,077,710 (566,962) 96,966$ 3,889,650$ –$ 17,275$ 1,823,587$ 911,987$ (528,886)$ -109-(continued) THIS PAGE INTENTIONALLY LEFT BLANK TIF District TIF District No. 16 No. 14 Construction Uponor Business Campus Projects (4743)(4735)(4500)Total Revenues Taxes (abatements)56,776$ 192,851$ –$ 346,674$ Franchise taxes – – – 773,181 Intergovernmental – – – 248,362 Investment earnings 3 299 7,375 95,711 Special assessments – – 524,859 524,859 Other revenue Contributions – – – 1,600 Rentals – – – 133,300 Miscellaneous – – 550,188 722,490 Total revenues 56,779 193,150 1,082,422 2,846,177 Expenditures Current General government 52,107 173,558 – 649,978 Public safety – – – 7,943 Public works – – – 11,312 Parks and recreation – – – 88,769 Capital outlay – – 1,211,855 2,654,845 Debt service Interest and fiscal charges – – – 38,936 Total expenditures 52,107 173,558 1,211,855 3,451,783 Excess (deficiency) of revenue over expenditures 4,672 19,592 (129,433) (605,606) Other financing sources (uses) Transfers in – – – 359,000 Transfers (out)– – – (73,625) Total other financing sources (uses)– – – 285,375 Net change in fund balances 4,672 19,592 (129,433) (320,231) Fund balances (deficit) Beginning of year – 110,953 189,928 11,803,768 End of year 4,672$ 130,545$ 60,495$ 11,483,537$ CITY OF APPLE VALLEY Nonmajor Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (continued) Year Ended December 31, 2017 -110- Over (Under) Original Final Actual Budget Revenue Taxes Current 23,154,170$ 23,259,170$ 23,219,572$ (39,598)$ Delinquent 100,000 100,000 116,258 16,258 Total taxes 23,254,170 23,359,170 23,335,830 (23,340) Other taxes 102,300 102,300 89,419 (12,881) Franchise taxes 515,000 515,000 515,245 245 Special assessments 14,000 14,000 2,711 (11,289) Licenses and permits General government 162,475 162,475 191,612 29,137 Public safety 5,400 5,400 21,410 16,010 Public works 1,201,100 1,317,100 3,031,632 1,714,532 Total licenses and permits 1,368,975 1,484,975 3,244,654 1,759,679 Intergovernmental Federal grants General government 2,500 2,500 – (2,500) State grants PERA aid 36,000 36,000 44,916 8,916 Fire relief aid – public safety 281,030 281,030 283,581 2,551 Police relief aid – public safety 340,000 340,000 420,565 80,565 Other – public safety 47,000 47,000 82,846 35,846 Total intergovernmental 706,530 706,530 831,908 125,378 Charges for services Administration charges – general government Construction funds 69,200 69,200 196,149 126,949 Enterprise funds 750,230 750,230 750,230 – Investment charges – general government 120,000 120,000 120,000 – Engineering charges – public works – construction 818,000 818,000 667,485 (150,515) General government 30,910 30,910 13,117 (17,793) Public safety 236,200 236,200 222,482 (13,718) Public works 15,800 15,800 33,079 17,279 Parks and recreation 1,033,100 1,033,100 960,227 (72,873) Total charges for services 3,073,440 3,073,440 2,962,769 (110,671) Fines and forfeitures 279,500 279,500 315,087 35,587 Investment earnings 185,600 185,600 91,352 (94,248) Other Rentals – recreation 406,800 406,800 483,850 77,050 Rentals – other 180,000 180,000 220,360 40,360 Refunds and reimbursements 61,200 61,200 68,257 7,057 Donations – – 2,160 2,160 Miscellaneous 25,900 25,900 36,211 10,311 Total other 673,900 673,900 810,838 136,938 Total revenue 30,173,415 30,394,415 32,199,813 1,805,398 Budgeted Amounts CITY OF APPLE VALLEY General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -111-(continued) Over (Under) Original Final Actual Budget Expenditures General government Mayor and City Council Personal services 119,100 119,100 115,567 (3,533) Supplies 655 655 966 311 Other current expenditures 31,275 31,275 21,569 (9,706) Total Mayor and City Council 151,030 151,030 138,102 (12,928) Administration Personal services 435,665 435,665 427,351 (8,314) Supplies 265 265 26 (239) Other current expenditures 17,325 17,325 13,027 (4,298) Total administration 453,255 453,255 440,404 (12,851) Finance and data processing Personal services 588,825 578,925 550,927 (27,998) Supplies 10,620 10,620 8,212 (2,408) Other current expenditures 316,198 319,863 310,687 (9,176) Total finance and data processing 915,643 909,408 869,826 (39,582) Information technology Personal services 428,805 398,805 340,137 (58,668) Supplies 11,000 11,000 8,631 (2,369) Other current expenditures 207,090 231,090 117,516 (113,574) Capital outlay 145,200 225,200 177,157 (48,043) Total information technology 792,095 866,095 643,441 (222,654) Human resources Personal services 496,490 496,490 497,399 909 Supplies 650 650 529 (121) Other current expenditures 64,530 71,030 55,194 (15,836) Capital outlay 1,750 1,750 762 (988) Total human resources 563,420 569,920 553,884 (16,036) City clerk/elections Personal services 208,645 208,645 197,108 (11,537) Supplies 1,750 1,750 1,782 32 Other current expenditures 84,723 86,623 78,579 (8,044) Capital outlay – 5,000 1,954 (3,046) Total city clerk/elections 295,118 302,018 279,423 (22,595) Legal Other current expenditures 529,986 529,986 503,924 (26,062) General government buildings Personal services 186,105 186,105 180,144 (5,961) Supplies 25,300 29,000 22,741 (6,259) Other current expenditures 178,675 178,675 172,941 (5,734) Capital outlay – 46,000 51,345 5,345 Total general government buildings 390,080 439,780 427,171 (12,609) Budget and Actual (continued) CITY OF APPLE VALLEY General Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budgeted Amounts -112-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) General government (continued) Community development Personal services 602,265 602,265 593,485 (8,780) Supplies 900 900 504 (396) Other current expenditures 114,725 144,725 156,208 11,483 Total community development 717,890 747,890 750,197 2,307 Code enforcement Personal services 209,725 209,725 196,007 (13,718) Supplies 3,000 2,700 1,403 (1,297) Other current expenditures 37,400 37,400 10,714 (26,686) Total code enforcement 250,125 249,825 208,124 (41,701) Unallocated Personal services 6,200 6,200 11,976 5,776 Other current expenditures 386,149 386,149 321,976 (64,173) Total unallocated 392,349 392,349 333,952 (58,397) Total general government 5,450,991 5,611,556 5,148,448 (463,108) Public safety Police protection Personal services 7,395,380 7,339,180 7,338,858 (322) Supplies 219,450 209,450 202,681 (6,769) Other current expenditures 1,398,742 1,424,942 1,365,034 (59,908) Capital outlay – 186,000 76,461 (109,539) Total police protection 9,013,572 9,159,572 8,983,034 (176,538) Fire protection Personal services 1,185,716 1,177,016 1,058,170 (118,846) Supplies 102,718 107,918 94,241 (13,677) Other current expenditures 631,776 677,106 564,211 (112,895) Total fire protection 1,920,210 1,962,040 1,716,622 (245,418) Fire relief Other current expenditures 526,230 526,230 527,531 1,301 Civil defense Supplies 2,000 2,000 724 (1,276) Other current expenditures 18,185 18,185 16,722 (1,463) Total civil defense 20,185 20,185 17,446 (2,739) Animal control Personal services 87,190 87,190 74,899 (12,291) Supplies 6,625 6,625 5,660 (965) Other current expenditures 8,650 8,650 4,462 (4,188) Total animal control 102,465 102,465 85,021 (17,444) Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) Year Ended December 31, 2017 Budgeted Amounts CITY OF APPLE VALLEY General Fund -113-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) Public safety (continued) Building inspection Personal services 755,475 755,475 691,788 (63,687) Supplies 63,200 63,200 74,436 11,236 Other current expenditures 136,905 211,905 238,367 26,462 Capital outlay 23,500 149,500 85,585 (63,915) Total building inspection 979,080 1,180,080 1,090,176 (89,904) Total public safety 12,561,742 12,950,572 12,419,830 (530,742) Public works Public works administration Personal services 442,735 454,735 418,084 (36,651) Supplies 9,075 10,375 5,461 (4,914) Other current expenditures 95,200 95,200 52,620 (42,580) Total public works administration 547,010 560,310 476,165 (84,145) Central maintenance facility Personal services 482,180 482,180 475,384 (6,796) Supplies 33,530 31,930 21,190 (10,740) Other current expenditures 131,755 127,755 126,481 (1,274) Capital outlay – 46,500 10,572 (35,928) Total central maintenance facility 647,465 688,365 633,627 (54,738) Streets Personal services 1,622,477 1,622,477 1,419,072 (203,405) Supplies 469,762 450,862 417,408 (33,454) Other current expenditures 350,266 455,266 430,022 (25,244) Capital outlay – 10,000 7,390 (2,610) Total streets 2,442,505 2,538,605 2,273,892 (264,713) Engineering Personal services 572,815 572,815 523,236 (49,579) Supplies 12,835 12,135 9,046 (3,089) Other current expenditures 92,745 92,745 119,767 27,022 Capital outlay 27,500 – 5,311 5,311 Total engineering 705,895 677,695 657,360 (20,335) Total public works 4,342,875 4,464,975 4,041,044 (423,931) Parks and recreation Parks and recreation administration Personal services 785,900 785,900 774,569 (11,331) Supplies 3,600 3,600 2,019 (1,581) Other current expenditures 148,150 148,150 143,922 (4,228) Total parks and recreation administration 937,650 937,650 920,510 (17,140) Budgeted Amounts Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) General Fund CITY OF APPLE VALLEY Year Ended December 31, 2017 -114-(continued) Over (Under) Original Final Actual Budget Expenditures (continued) Parks and recreation (continued) Recreation programs Personal services 216,370 216,370 193,590 (22,780) Supplies 51,455 51,455 37,594 (13,861) Other current expenditures 119,157 119,157 127,299 8,142 Total recreation programs 386,982 386,982 358,483 (28,499) Parks maintenance Personal services 1,727,170 1,727,170 1,685,852 (41,318) Supplies 297,600 289,600 266,670 (22,930) Other current expenditures 761,720 761,720 782,165 20,445 Capital outlay 33,000 33,000 14,339 (18,661) Total parks maintenance 2,819,490 2,811,490 2,749,026 (62,464) Redwood pool Personal services 64,565 64,565 62,640 (1,925) Supplies 6,900 6,900 3,767 (3,133) Other current expenditures 38,825 38,825 26,426 (12,399) Capital outlay – 15,000 7,877 (7,123) Total Redwood pool 110,290 125,290 100,710 (24,580) Aquatic swim center Personal services 315,940 315,940 331,290 15,350 Supplies 35,500 35,500 41,892 6,392 Other current expenditures 274,025 274,025 288,558 14,533 Capital outlay 44,000 63,000 26,494 (36,506) Total aquatic swim center 669,465 688,465 688,234 (231) Apple Valley Community Center Personal services 197,530 197,530 202,511 4,981 Supplies 19,450 19,450 19,917 467 Other current expenditures 84,200 84,200 89,147 4,947 Capital outlay 21,500 134,150 125,740 (8,410) Total Apple Valley Community Center 322,680 435,330 437,315 1,985 Apple Valley Senior Center Personal services 296,500 296,500 300,359 3,859 Supplies 14,000 14,000 9,313 (4,687) Other current expenditures 58,550 58,550 62,172 3,622 Capital outlay 15,000 35,000 38,930 3,930 Total Apple Valley Senior Center 384,050 404,050 410,774 6,724 Total parks and recreation 5,630,607 5,789,257 5,665,052 (124,205) Total expenditures 27,986,215 28,816,360 27,274,374 (1,541,986) Excess of revenues over expenditures 2,187,200 1,578,055 4,925,439 3,347,384 Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) CITY OF APPLE VALLEY General Fund Year Ended December 31, 2017 Budgeted Amounts -115-(continued) Over (Under) Original Final Actual Budget Other financing sources (uses) Sale of capital assets 20,400 20,400 10,120 (10,280) Transfers in 1,300,500 1,300,500 1,300,500 – Transfers (out)(3,508,100) (3,559,100) (5,509,100) (1,950,000) Total other financing sources (uses)(2,187,200) (2,238,200) (4,198,480) (1,960,280) Net change in fund balances –$ (660,145)$ 726,959 1,387,104$ Fund balances Beginning of year 16,609,454 End of year 17,336,413$ Budgeted Amounts General Fund Year Ended December 31, 2017 CITY OF APPLE VALLEY Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual (continued) -116- Over (Under) Budget Actual Budget Revenue Special assessments –$ 91,049$ 91,049$ Intergovernmental 636,000 922,115 286,115 Investment earnings – – – Other – 1,100 1,100 Total revenue 636,000 1,014,264 378,264 Expenditures Capital outlay Public works 6,396,000 5,089,682 (1,306,318) Excess (deficiency) of revenue over expenditures (5,760,000) (4,075,418) 1,684,582 Other financing sources Transfers in 5,760,000 4,100,000 (1,660,000) Net change in fund balances –$ 24,582 24,582$ Fund balances (deficit) Beginning of year (5,198,862) End of year (5,174,280)$ CITY OF APPLE VALLEY Road Improvements Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -117- Over (Under) Budget Actual Budget Revenue Investment earnings 194,591$ 110,947$ (83,644)$ Expenditures Current Public works 27,939 87,414 59,475 Excess of revenue over expenditures 166,652 23,533 (143,119) Other financing sources (uses) Transfers in – 1,950,000 1,950,000 Transfers (out)(1,295,900) (1,295,900) – Total other financing sources (uses)(1,295,900) 654,100 1,950,000 Net change in fund balances (1,129,248)$ 677,633 1,806,881$ Fund balances Beginning of year 14,675,768 End of year 15,353,401$ CITY OF APPLE VALLEY Future Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Year Ended December 31, 2017 Budget and Actual -118- Over (Under) Budget Actual Budget Revenue Intergovernmental 118,512$ –$ (118,512)$ Investment earnings 2,000 1,246 (754) Other Miscellaneous – 118,859 118,859 Total revenue 120,512 120,105 (407) Expenditures Current Parks and recreation 236,825 226,113 (10,712) Capital outlay 97,200 91,687 (5,513) Total expenditures 334,025 317,800 (16,225) Excess (deficiency) of revenue over expenditures (213,513) (197,695) 15,818 Other financing sources Sale of capital assets – 1,114 1,114 Transfers in 118,512 57,289 (61,223) Total other financing sources 118,512 58,403 (60,109) Net change in fund balances (95,001)$ (139,292) (44,291)$ Fund balances Beginning of year 209,712 End of year 70,420$ CITY OF APPLE VALLEY Cable TV Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -119- Over (Under) Budget Actual Budget Revenue Investment earnings 1,860$ 937$ (923)$ Expenditures Current General government 37,950 18,501 (19,449) Net change in fund balances (36,090)$ (17,564) 18,526$ Fund balances Beginning of year 142,095 End of year 124,531$ CITY OF APPLE VALLEY EDA Operations Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -120- Over (Under) Budget Actual Budget Revenue Investment earnings 750$ 320$ (430)$ Expenditures Capital outlay 432,000 – (432,000) Excess (deficiency) of revenue over expenditures (431,250) 320 431,570 Other financing sources (uses) Sale of capital assets 83,400 – (83,400) Bonds issued 350,000 – (350,000) Transfers (out)– (16,336) (16,336) Total other financing sources (uses)433,400 (16,336) (449,736) Net change in fund balances 2,150$ (16,016) (18,166)$ Fund balances Beginning of year 16,016 End of year –$ CITY OF APPLE VALLEY Equipment Certificate Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -121- Over (Under) Budget Actual Budget Revenue Franchise fees 100,000$ 136,474$ 36,474$ Investment earnings 1,910 3,818 1,908 Total revenue 101,910 140,292 38,382 Expenditures Current Public works 15,335 9,255 (6,080) Capital outlay 10,000 34,090 24,090 Total expenditures 25,335 43,345 18,010 Excess of revenue over expenditures 76,575 96,947 20,372 Other financing sources (uses) Transfers (out)(118,512) (57,289) 61,223 Net change in fund balances (41,937)$ 39,658 81,595$ Fund balances Beginning of year 538,127 End of year 577,785$ CITY OF APPLE VALLEY Cable Capital Equipment Capital Projects Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances – Budget and Actual Year Ended December 31, 2017 -122- THIS PAGE INTENTIONALLY LEFT BLANK -123- INTERNAL SERVICE FUNDS Internal service funds account for the financing of goods and services provided by one department or agency to other departments or agencies of the City on a cost reimbursement basis. The City utilizes a Dental Insurance Internal Service Fund, a Benefits/Other Insurance Internal Service Fund, and a Vehicle Equipment Replacement Internal Service Fund in managing city operations. Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7440)Totals Current assets Cash and investments 57,482$ 3,103,321$ 1,244,701$ 4,405,504$ Receivables Accounts – 8,316 – 8,316 Prepaids – 197,072 – 197,072 Total current assets 57,482 3,308,709 1,244,701 4,610,892 Noncurrent assets Capital assets Furniture and equipment – – 12,798,120 12,798,120 Less accumulated depreciation – – (6,621,406) (6,621,406) Total noncurrent assets – – 6,176,714 6,176,714 Total assets 57,482$ 3,308,709$ 7,421,415$ 10,787,606$ Current liabilities Accounts payable 5,417$ 5,089$ –$ 10,506$ Claims payable 6,786 – – 6,786 Accrued compensated absences – 1,817,700 – 1,817,700 Total current liabilities 12,203 1,822,789 – 1,834,992 Noncurrent liabilities Accrued compensated absences – 993,765 – 993,765 Total liabilities 12,203 2,816,554 – 2,828,757 Net position Net investment in capital assets – – 6,176,714 6,176,714 Unrestricted 45,279 492,155 1,244,701 1,782,135 Total net position 45,279 492,155 7,421,415 7,958,849 Total liabilities and net position 57,482$ 3,308,709$ 7,421,415$ 10,787,606$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Net Position as of December 31, 2017 -124- Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7440)Totals Operating revenue Charges to other funds 233,010$ 1,341,191$ 841,580$ 2,415,781$ Operating expenses Personal services 207,642 639,153 – 846,795 Contractual services – 19,145 – 19,145 Other charges – 787,130 – 787,130 Depreciation – – 1,016,350 1,016,350 Total operating expenses 207,642 1,445,428 1,016,350 2,669,420 Operating income (loss)25,368 (104,237) (174,770) (253,639) Nonoperating revenue Investment earnings 238 21,823 5,167 27,228 Gain on sale of capital assets – – 172,218 172,218 Total nonoperating revenue 238 21,823 177,385 199,446 Income (loss) before Capital contributions and transfers 25,606 (82,414) 2,615 (54,193) Capital contributions – – 2,574,818 2,574,818 Transfer in – – 826,000 826,000 Change in net position 25,606 (82,414) 3,403,433 3,346,625 Net position Beginning of year 19,673 574,569 4,017,982 4,612,224 End of year 45,279$ 492,155$ 7,421,415$ 7,958,849$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Revenue, Expenses, and Changes in Net Position Year Ended December 31, 2017 -125- Benefits/Vehicle Dental Other Equipment Insurance Insurance Replacement (7100)(7200)(7400–7430)Totals Cash flows from operating activities Cash receipts on interfund services provided 233,010$ 1,341,196$ 811,180$ 2,385,386$ Cash payments to suppliers (206,906) (1,395,729) – (1,602,635) Cash payments to employees for services – (133,569) – (133,569) Net cash flows from operating activities 26,104 (188,102) 811,180 649,182 Cash flows from capital and related financing activities Acquisition and construction of capital assets – – (1,453,051) (1,453,051) Proceeds from sale of capital assets – – 309,360 309,360 Transfers from other funds – – 826,000 826,000 Net cash flows from capital and related financing activities – – (317,691) (317,691) Cash flows from investing activities Interest received on investments 238 21,823 5,167 27,228 Net increase in cash and cash equivalents 26,342 (166,279) 498,656 358,719 Cash and investments Beginning of year 31,140 3,269,600 746,045 4,046,785 End of year 57,482$ 3,103,321$ 1,244,701$ 4,405,504$ Reconciliation of operating income (loss) to net cash flows from operating activities Operating income (loss)25,368$ (104,237)$ (174,770)$ (253,639)$ Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation – – 1,016,350 1,016,350 Change in assets and liabilities Receivables Accounts – 5 – 5 Prepaids – (30,455) – (30,455) Accounts payable 1,510 (50,809) (30,400) (79,699) Claims payable (774) – – (774) Accrued compensated absences – (2,606) – (2,606) Net cash flows from operating activities 26,104$ (188,102)$ 811,180$ 649,182$ Noncash capital activities Capital contributions –$ –$ 2,574,818$ 2,574,818$ Net book value of capital asset disposals –$ –$ (137,142)$ (137,142)$ CITY OF APPLE VALLEY Internal Service Funds Combining Statement of Cash Flows Year Ended December 31, 2017 -126- STATISTICAL SECTION TAB Page Contents: Financial Trends 127 Revenue Capacity 137 Debt Capacity 144 Demographic and Economic Information 153 Operating Indicators 155 Source: Unless otherwise noted, the information in these schedules is derived from the CAFR for the relevant year. These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides, and the activities it performs. STATISTICAL SECTION (UNAUDITED) This part of the City of Apple Valley,Minnesota’s (the City)Comprehensive Annual Financial Report (CAFR)presents detailed information as a context for understanding what the information in the financial statements,note disclosures,and required supplementary information says about the City’s overall financial health. These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. These schedules contain information to help the reader assess the City’s most significant revenue source, including property tax and utility revenue. These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. 2008 2009 2010 2011 Governmental activities Net investment in capital assets 41,867,201$ 43,981,788$ 45,477,393$ 54,928,735$ Restricted 30,525,737 24,664,257 24,656,491 21,580,777 Unrestricted 30,010,778 36,290,872 38,798,761 42,115,459 Total governmental activities net assets 102,403,716$ 104,936,917$ 108,932,645$ 118,624,971$ Business-type activities Net investment in capital assets 100,280,579$ 101,447,457$ 102,320,160$ 104,198,009$ Restricted 275,000 289,049 291,591 309,518 Unrestricted 17,998,903 19,100,650 20,094,976 19,431,679 Total business-type activities net assets 118,554,482$ 120,837,156$ 122,706,727$ 123,939,206$ Primary government Net investment in capital assets 142,147,780$ 145,429,245$ 147,797,553$ 159,126,744$ Restricted 30,800,737 24,953,306 24,948,082 21,890,295 Unrestricted 48,009,681 55,391,522 58,893,737 61,547,138 Total primary government net assets 220,958,198$ 225,774,073$ 231,639,372$ 242,564,177$ Note 1: Note 2: Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) CITY OF APPLE VALLEY The City implemented GASB Statement No.68 in 2015,resulting in a restatement of beginning net position for the effects of implementing this standard. Net position for previous years has not been restated. The City implemented GASB Statement No.65 in 2012.Net position for 2011 was restated for the effects of implementing this standard. Net position for previous years has not been restated. Fiscal Year -127- 2012 2013 2014 2015 2016 2017 64,226,520$ 70,526,658$ 78,398,734$ 86,664,918$ 93,945,022$ 99,642,040$ 17,001,111 18,619,396 15,253,042 16,541,831 16,141,535 15,364,368 43,609,670 38,654,601 36,056,447 26,805,077 24,394,132 24,292,441 124,837,301$ 127,800,655$ 129,708,223$ 130,011,826$ 134,480,689$ 139,298,849$ 110,376,210$ 118,410,631$ 120,092,250$ 118,288,727$ 119,417,084$ 94,851,212$ 319,582 303,823 329,167 178,529 178,977 178,665 19,030,882 13,228,257 14,998,933 14,230,604 17,104,636 15,390,547 129,726,674$ 131,942,711$ 135,420,350$ 132,697,860$ 136,700,697$ 110,420,424$ 174,602,730$ 188,937,289$ 198,490,984$ 204,953,645$ 213,362,106$ 194,493,252$ 17,320,693 18,923,219 15,582,209 16,720,360 16,320,512 15,543,033 62,640,552 51,882,858 51,055,380 41,035,681 41,498,768 39,682,988 254,563,975$ 259,743,366$ 265,128,573$ 262,709,686$ 271,181,386$ 249,719,273$ Table 1 -128- 2008 2009 2010 2011 Expenses Governmental activities General government 8,147,712$ 8,685,487$ 10,081,345$ 7,086,321$ Public safety 10,223,407 10,306,540 10,092,977 10,548,223 Public works 7,349,899 8,393,981 7,008,886 5,744,780 Park and recreation 5,011,287 5,754,969 6,261,801 6,169,552 Interest on long-term debt 2,102,579 1,773,863 1,556,130 1,459,728 Total governmental activities expenses 32,834,884$ 34,914,840$ 35,001,139$ 31,008,604$ Business-type activities Municipal liquor 6,985,584$ 8,062,876$ 8,285,841$ 8,177,679$ Municipal golf course 1,047,254 1,011,443 1,057,715 1,051,605 Sports arena 755,102 771,198 748,541 799,993 Water and sewer 7,983,126 7,226,393 7,302,254 7,309,277 Storm drainage 926,799 869,376 846,743 917,054 Cemetery 45,882 56,518 68,868 69,004 Street light utility – – 410,787 398,114 Total business-type activities 17,743,747 17,997,804 18,720,749 18,722,726 Total primary government expenses 50,578,631$ 52,912,644$ 53,721,888$ 49,731,330$ Program revenues Governmental activities Charges for services General government 3,470,858$ 2,363,002$ 2,423,051$ 2,435,834$ Public safety 647,651 603,425 755,339 587,486 Public works 112,651 457,516 1,046,007 1,055,995 Park and recreation 1,027,675 1,259,959 1,721,486 1,314,377 Operating grants and contributions 1,153,964 1,577,419 1,872,316 534,041 Capital grants and contributions 10,345,742 2,451,327 3,271,761 4,398,403 Total governmental activities program revenues 16,758,541$ 8,712,648$ 11,089,960$ 10,326,136$ CITY OF APPLE VALLEY Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year -129- 2012 2013 2014 2015 2016 2017 7,398,895$ 5,012,638$ 6,107,245$ 5,468,843$ 6,974,444$ 6,260,768$ 11,101,520 11,336,972 11,946,671 12,464,603 15,097,659 13,443,699 6,382,138 6,905,011 9,011,324 7,038,033 7,746,304 8,473,039 6,166,397 6,345,937 6,403,907 6,543,162 7,025,281 7,239,268 1,235,352 1,194,974 1,037,527 1,037,567 912,007 886,283 32,284,302$ 30,795,532$ 34,506,674$ 32,552,208$ 37,755,695$ 36,303,057$ 8,377,991$ 8,419,472$ 8,332,921$ 7,772,369$ 7,872,023$ 8,251,249$ 1,292,371 1,507,451 1,526,108 1,653,759 1,728,605 1,545,792 778,931 759,930 853,315 770,215 770,666 798,402 7,194,007 7,794,274 8,186,262 8,154,989 9,336,567 10,031,223 1,001,140 1,052,087 1,257,566 1,444,800 1,481,121 2,181,086 69,376 51,472 51,646 49,086 60,790 127,469 447,954 444,106 424,670 446,644 437,439 483,752 19,161,770 20,028,792 20,632,488 20,291,862 21,687,211 23,418,973 51,446,072$ 50,824,324$ 55,139,162$ 52,844,070$ 59,442,906$ 59,722,030$ 2,413,190$ 2,315,613$ 2,828,709$ 1,696,786$ 1,768,008$ 1,956,499$ 554,820 549,371 541,947 496,566 543,950 617,729 1,543,446 892,267 1,001,148 2,620,283 2,489,539 3,740,394 1,504,546 1,271,031 2,030,716 1,989,084 2,740,747 1,461,720 579,675 900,223 837,763 771,220 1,531,412 1,082,234 4,445,816 3,250,152 1,897,081 5,918,652 5,489,541 3,206,571 11,041,493$ 9,178,657$ 9,137,364$ 13,492,591$ 14,563,197$ 12,065,147$ (continued) Table 2 -130- Fiscal Year 2008 2009 2010 2011 Program revenues (continued) Business-type activities Charges for services Municipal liquor 7,390,696$ 8,772,571$ 9,032,194$ 9,005,660$ Municipal golf course 1,049,707 1,085,429 1,114,395 1,023,866 Sports arena 538,694 627,595 606,262 650,350 Water and sewer 8,670,265 9,250,812 8,439,232 8,361,750 Storm drainage 1,227,331 1,233,346 1,360,483 1,370,348 Cemetery 110,175 95,320 89,695 114,365 Street light utility – – 465,552 433,464 Operating grants and contributions 47,285 25,190 – 10,170 Capital grants and contributions 324,323 316,200 645,427 643,164 Total business-type activities program revenues 19,358,476 21,406,463 21,753,240 21,613,137 Total primary government program revenues 36,117,017$ 30,119,111$ 32,843,200$ 31,939,273$ Net (expense) revenue Governmental activities (16,076,343)$ (26,202,192)$ (23,911,179)$ (20,682,468)$ Business-type activities 1,614,729 3,408,659 3,032,491 2,890,411 Total primary government net expense (14,461,614)$ (22,793,533)$ (20,878,688)$ (17,792,057)$ General revenues and other changes in net position Governmental activities Property taxes 19,942,701$ 21,892,939$ 21,697,421$ 21,460,141$ Tax increments 2,040,480 2,185,762 2,311,405 2,240,269 Franchise taxes 1,023,368 1,096,578 1,160,771 1,177,715 Lodging tax 65,073 56,300 67,311 74,105 Gravel tax 37,209 40,692 36,314 38,666 Unallocated state and county aids 584,294 292,225 95,019 117,000 Other general revenue 143,403 433,956 271,622 176,575 Unrestricted investment earnings 1,352,749 912,413 643,741 2,372,693 Transfers 955,251 1,824,528 1,623,303 2,717,630 Total governmental activities 26,144,528$ 28,735,393$ 27,906,907$ 30,374,794$ Business-type activities Unrestricted investment earnings 672,485$ 426,300$ 320,166$ 888,863$ Property taxes 125,000 120,000 125,000 120,000 Other 81,197 152,243 15,217 50,835 Transfers (955,251) (1,824,528) (1,623,303) (2,717,630) Total business-type activities (76,569) (1,125,985) (1,162,920) (1,657,932) Total primary government 26,067,959$ 27,609,408$ 26,743,987$ 28,716,862$ Change in net position Governmental activities 10,068,185$ 2,533,201$ 3,995,728$ 9,692,326$ Business-type activities 1,538,160 2,282,674 1,869,571 1,232,479 Total primary government 11,606,345$ 4,815,875$ 5,865,299$ 10,924,805$ Note 1: Note 2:Fiscal 2012 and prior data has not been restated for the reclassifications made in fiscal 2013. The Street Light Utility Fund was established in fiscal year 2010; the street light activity prior to 2010 was included in the Water and Sewer CITY OF APPLE VALLEY Changes in Net Position (continued) Last Ten Fiscal Years (accrual basis of accounting) -131- 2012 2013 2014 2015 2016 2017 9,231,890$ 9,380,818$ 9,292,269$ 8,480,414$ 8,738,804$ 9,185,736$ 1,122,791 1,168,154 1,289,089 1,387,821 1,356,436 1,180,209 647,134 643,855 746,351 722,270 783,962 732,979 9,256,709 8,951,798 8,913,191 8,995,642 9,754,601 9,917,074 1,517,090 1,525,136 1,567,066 1,631,761 1,718,352 1,866,306 127,735 123,197 104,128 132,305 160,716 187,589 454,477 449,885 465,584 483,680 500,877 507,360 13,890 80,707 – – – – 3,201,690 1,497,501 1,612,392 2,110,667 3,631,836 1,057,916 25,573,406 23,821,051 23,990,070 23,944,560 26,645,584 24,635,169 36,614,899$ 32,999,708$ 33,127,434$ 37,437,151$ 41,208,781$ 36,700,316$ (21,242,809)$ (21,616,875)$ (25,369,310)$ (19,059,617)$ (23,192,498)$ (24,237,910)$ 6,411,636 3,792,259 3,357,582 3,652,698 4,958,373 1,216,196 (14,831,173)$ (17,824,616)$ (22,011,728)$ (15,406,919)$ (18,234,125)$ (23,021,714)$ 21,769,647$ 22,144,883$ 23,067,164$ 23,038,450$ 23,894,359$ 24,758,299$ 2,012,281 544,283 611,662 489,617 199,214 346,675 1,197,288 1,262,393 1,272,428 1,259,271 1,309,757 1,288,426 75,472 73,504 89,859 93,492 90,592 92,958 36,439 45,890 50,612 39,215 40,794 37,902 145,755 40,397 36,710 40,061 37,719 56,751 116,558 186,872 78,478 7,387 6,888 8,440 1,026,594 (1,056,882) 1,562,329 863,798 801,038 551,119 1,075,105 1,338,889 507,636 4,681,392 1,281,000 1,915,500 27,455,139$ 24,580,229$ 27,276,878$ 30,512,683$ 27,661,361$ 29,056,070$ 388,923$ (358,333)$ 506,693$ 235,424$ 204,464$ 151,206$ 120,000 121,000 121,000 121,000 121,000 121,000 43,845 – – – – – (1,075,105) (1,338,889) (507,636) (4,681,392) (1,281,000) (1,915,500) (522,337) (1,576,222) 120,057 (4,324,968) (955,536) (1,643,294) 26,932,802$ 23,004,007$ 27,396,935$ 26,187,715$ 26,705,825$ 27,412,776$ 6,212,330$ 2,963,354$ 1,907,568$ 11,453,066$ 4,468,863$ 4,818,160$ 5,889,299 2,216,037 3,477,639 (672,270) 4,002,837 (427,098) 12,101,629$ 5,179,391$ 5,385,207$ 10,780,796$ 8,471,700$ 4,391,062$ Table 2 (continued) -132- Fiscal Year 2008 2009 2010 2011 General Fund Reserved 122,232$ 40,515$ 53,113$ –$ Unreserved 11,103,476 12,181,208 12,594,013 – Nonspendable – – – 118,661 Committed – – – 165,872 Assigned – – – 278,724 Unassigned – – – 12,142,496 Total General Fund 11,225,708$ 12,221,723$ 12,647,126$ 12,705,753$ All other governmental funds Unreserved reported in Special revenue funds 361,472$ 342,464$ 324,251$ –$ Debt service funds 20,923,916 16,996,037 15,892,926 – Capital projects funds 12,447,954 10,965,444 14,011,232 – Nonspendable – – – – Restricted – – – 15,537,787 Committed – – – – Assigned – – – 28,795,063 Unassigned – – – (13,395,872) Total all other governmental funds 33,733,342$ 28,303,945$ 30,228,409$ 30,936,978$ Total all funds 44,959,050$ 40,525,668$ 42,875,535$ 43,642,731$ Note:Fund balance descriptions changed due to GASB Statement No. 54 implementation effective January 1, 2011. CITY OF APPLE VALLEY Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) -133- 2012 2013 2014 2015 2016 2017 –$ –$ –$ –$ –$ –$ – – – – – – 239,462 90,745 337,564 345,004 119,947 325,282 210,005 154,100 146,300 405,990 693,145 595,215 279,973 151,502 54,416 20,000 56,000 64,300 12,646,076 13,830,037 14,617,170 15,321,110 15,740,362 16,351,616 13,375,516$ 14,226,384$ 15,155,450$ 16,092,104$ 16,609,454$ 17,336,413$ –$ –$ –$ –$ –$ –$ – – – – – – – – – – – – 1,750 – – 1,750 600 1,730 11,435,144 20,966,147 21,772,784 27,424,225 27,079,147 13,431,367 – – – – 140,000 15,000 31,538,043 26,215,087 27,614,620 27,008,733 28,454,255 28,779,829 (12,381,234) (9,561,124) (11,108,352) (9,539,062) (8,921,232) (8,738,893) 30,593,703$ 37,620,110$ 38,279,052$ 44,895,646$ 46,752,770$ 33,489,033$ 43,969,219$ 51,846,494$ 53,434,502$ 60,987,750$ 63,362,224$ 50,825,446$ Table 3 -134- 2008 2009 2010 2011 Revenues General property taxes 19,916,783$ 21,544,567$ 21,709,126$ 21,408,873$ Tax increments 2,040,480 2,185,762 2,311,405 2,240,269 Other taxes 102,282 96,992 103,625 152,020 Special assessments 1,419,869 2,471,962 2,055,783 2,125,776 Licenses and permits 561,594 755,444 1,018,847 796,316 Intergovernmental 1,934,886 2,429,800 2,996,658 2,407,596 Charges for services 1,454,353 1,145,890 1,349,123 1,436,256 Franchise taxes 1,023,368 1,096,578 1,160,771 1,177,715 Fines and forfeits 324,461 316,324 258,165 288,946 Investment income 1,256,353 840,898 593,336 2,232,966 Rentals 271,758 444,877 592,831 511,453 Contributions and donations 11,045 7,150 11,484 2,750 Administrative fees 1,311,479 651,052 778,400 828,999 Other 772,437 509,778 697,054 321,565 Refunds and reimbursements 341,756 165,345 450,972 139,581 Total revenues 32,742,904 34,662,419 36,087,580 36,071,081 Expenditures Current General government 6,310,842 6,159,832 7,418,012 4,679,394 Public safety 9,470,152 9,635,166 9,728,340 9,890,086 Public works 3,355,405 3,501,792 3,593,951 3,675,687 Park and recreation 4,373,278 4,692,052 4,768,656 4,855,184 Capital outlay 11,666,201 11,727,599 5,879,024 6,370,109 Debt service Principal 5,070,000 5,060,000 4,160,000 4,665,000 Interest and fiscal charges 2,001,578 1,880,399 1,615,929 1,487,399 Total expenditures 42,247,456 42,656,840 37,163,912 35,622,859 Excess (deficiency) of revenues over expenditures (9,504,552) (7,994,421) (1,076,332) 448,222 Other financing sources (uses) Transfers in 4,290,930 17,777,689 5,734,691 5,874,339 Transfers out (2,967,903) (14,701,754) (3,680,241) (3,156,709) Bonds issued 11,520,000 2,775,000 3,965,000 1,345,000 Payment of refunded debt (2,360,000) (2,400,000) (2,750,000) (3,920,000) Premium on debt issued 54,759 61,795 47,191 6,568 Discount on debt issued (110,621) – – – Sale of capital assets 120,765 48,309 109,558 169,776 Total other financing sources (uses)10,547,930 3,561,039 3,426,199 318,974 Net change in fund balances 1,043,378$ (4,433,382)$ 2,349,867$ 767,196$ Debt service as a percentage of noncapital expenditures 23.1%22.4%18.5%20.5% (modified accrual basis of accounting) Fiscal Year CITY OF APPLE VALLEY Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years -135- 2012 2013 2014 2015 2016 2017 21,773,048$ 22,252,162$ 23,161,124$ 22,969,161$ 23,910,991$ 24,729,659$ 2,012,281 544,283 611,662 489,617 199,214 346,675 154,126 169,413 193,018 186,512 185,568 182,377 4,015,591 4,073,061 5,457,959 3,859,401 4,150,527 1,559,609 1,033,797 1,140,603 1,644,338 2,147,477 2,052,043 3,244,654 2,642,018 2,388,922 3,459,585 2,330,695 2,605,769 2,002,385 1,783,390 1,712,660 1,763,940 2,711,884 2,739,163 2,962,769 1,197,288 1,262,393 1,272,428 1,259,271 1,309,757 1,288,426 278,913 257,345 236,943 225,804 273,372 315,087 965,333 (991,703) 1,461,765 817,230 756,341 523,891 559,702 642,422 774,364 806,915 832,854 720,100 1,801 51,425 13,176 4,852 7,309 3,760 788,171 785,927 770,000 809,000 2,054,475 722,490 338,142 545,994 1,497,913 312,708 202,540 300,200 127,166 99,024 202,518 90,148 236,416 68,257 37,670,767 34,933,931 42,520,733 39,020,675 41,516,339 38,970,339 4,355,811 4,518,602 5,655,482 5,014,867 6,264,368 5,705,708 9,987,493 10,538,043 11,118,268 11,467,187 12,105,588 12,279,935 3,674,876 4,031,492 4,010,339 3,621,872 3,956,049 4,131,796 4,847,194 4,978,896 5,135,573 5,198,446 5,728,049 5,766,554 13,266,487 8,716,540 13,453,625 6,462,646 8,425,307 8,464,983 8,280,000 3,625,000 3,415,000 3,575,000 2,650,000 3,425,000 1,224,409 1,268,227 1,072,847 1,100,649 964,997 940,431 45,636,270 37,676,800 43,861,134 36,440,667 40,094,358 40,714,407 (7,965,503) (2,742,869) (1,340,401) 2,580,008 1,421,981 (1,744,068) 5,634,873 11,182,608 9,800,593 9,678,084 8,046,274 8,743,125 (4,559,768) (9,843,719) (7,745,923) (8,139,084) (7,226,274) (7,653,625) 6,775,000 9,000,000 680,000 4,255,000 – – – – – (1,030,000) – (11,925,000) 330,981 81,545 25,505 113,988 – – – – – – – – 110,905 199,710 168,234 95,252 132,493 42,790 8,291,991 10,620,144 2,928,409 4,973,240 952,493 (10,792,710) 326,488$ 7,877,275$ 1,588,008$ 7,553,248$ 2,374,474$ (12,536,778)$ 27.5%16.7%13.1%15.3%11.4%13.2% Table 4 -136- Industrial Residential Commercial and Utility Agricultural Property Property Property Property Apartments 44,078,807$ 9,483,581$ 1,331,742$ 113,556$ 2,639,548$ 43,107,127 10,171,716 1,225,657 127,972 2,564,523 39,692,580 10,053,775 1,238,900 130,237 2,498,076 36,918,099 9,363,833 1,038,862 130,124 2,319,888 32,937,899 9,210,935 1,004,132 116,719 2,445,781 30,220,442 9,015,644 829,980 92,210 2,704,250 31,239,597 9,045,624 837,008 88,030 2,723,667 34,412,031 9,071,960 859,888 85,694 2,864,337 36,561,330 9,186,796 874,912 78,636 3,038,517 38,063,519 9,379,705 842,612 75,901 3,572,226 Note: Source:Dakota County CITY OF APPLE VALLEY Assessed and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 2010 The tax capacity (assessed taxable value)of the property is calculated by applying a statutory formula to the estimated market value of the property. 2014 2009 Payable Year 2008 2011 2012 2013 2015 2016 2017 -137- Table 5 Estimated Total Actual Taxable Total Direct Taxable Personal Assessed Tax Capacity Market Other Property Value Rate Value 4,829$ 684,166$ 58,336,229$ 35.537 5,202,130,200$ 1.12 % 4,760 701,073 57,902,828 37.086 5,135,644,200 1.13 4,283 688,202 54,306,053 39.867 4,787,691,200 1.13 3,959 764,694 50,539,459 42.388 4,457,368,700 1.13 2,316 773,692 46,491,474 44.110 4,061,762,557 1.14 2,159 755,422 43,620,107 49.210 3,791,294,766 1.15 2,194 763,784 44,699,904 47.891 3,897,057,902 1.15 2,369 790,695 48,086,974 45.274 4,228,421,500 1.14 2,564 835,973 50,578,728 44.721 4,464,893,416 1.13 2,521 872,987 52,809,471 44.473 4,669,204,881 1.13 Actual Value Taxable Assessed Percentage of Value as a -138- Fiscal School District Year General Debt Service Total City Dakota County (1)Other (2) 2008 35.528 0.009 35.537 25.184 21.136 4.996 2009 37.078 0.008 37.086 25.821 21.109 4.916 2010 39.861 0.006 39.867 27.269 25.391 4.987 2011 42.382 0.006 42.388 29.149 26.959 5.199 2012 44.104 0.006 44.110 31.426 28.440 5.562 2013 49.199 0.011 49.210 33.421 27.956 5.884 2014 47.880 0.011 47.891 31.827 27.606 5.538 2015 45.265 0.009 45.274 29.633 23.271 5.033 2016 44.711 0.010 44.721 28.570 24.317 5.063 2017 44.462 0.011 44.473 28.004 23.336 4.907 Total Direct and Fiscal School District Total Overlapping Year Debt Service Total City Dakota County (1)Overlapping Tax Rate 2008 0.000174 0.000174 0.000047 0.002127 0.002175 0.002348 2009 0.000311 0.000311 0.000047 0.002103 0.002150 0.002461 2010 0.000337 0.000337 0.000050 0.002227 0.002277 0.002614 2011 0.000375 0.000375 0.000054 0.002260 0.002314 0.002689 2012 0.000417 0.000417 0.000055 0.002213 0.002268 0.002685 2013 0.000212 0.000212 – 0.002354 0.002354 0.002566 2014 0.000212 0.000212 – 0.002581 0.002581 0.002793 2015 0.000204 0.000204 – 0.002548 0.002548 0.002752 2016 0.000199 0.000199 – 0.002700 0.002700 0.002899 2017 0.000197 0.000197 – 0.002738 0.002738 0.002935 Note 1:Overlapping rates are those of local and county governments that apply to property owners within the City. Note 2:Not all overlapping rates apply to all of the City’s property owners. (1)Independent School District No. 196 (2) Source: Dakota County Includes Metropolitan Council,Mosquito Control Abatement,Metro Transit,Dakota County CDA,Light Rail, and Vermillion River Watershed CITY OF APPLE VALLEY Property Tax Capacity Rates Direct and Overlapping Governments Last Ten Fiscal Years City Direct Tax Capacity Rate Overlapping Tax Capacity Rates City Direct Market Value Tax Rate Overlapping Market Value Tax Rates -139- Total Direct and Total Overlapping Overlapping Tax Rate 51.316 86.853 51.846 88.932 57.647 97.514 61.307 103.695 65.428 109.538 67.261 116.471 64.971 112.862 57.937 103.211 57.950 102.671 56.247 100.720 Table 6 Overlapping Tax Capacity Rates -140- THIS PAGE INTENTIONALLY LEFT BLANK Percentage Net Tax Net Tax Capacity Capacity Taxpayer Value Rank Value Rank Principal Life Insurance Co.507,284$ 1 1.0 %630,662$ 1 1.1 % Individual 503,751 2 1.0 450,000 3 0.8 CAR Apple Valley Square, LLC 375,820 3 0.7 467,238 2 0.8 Apple Valley Leased Housing Assoc., III 374,788 4 0.7 312,500 7 0.5 Dakota Electric Association 343,192 5 0.6 375,228 4 0.6 Centro Bradley Southport Centre 333,392 6 0.6 363,748 5 0.6 Uponor North America 306,086 7 0.6 – – – Rockport, LLC 297,553 8 0.6 – – – Regent at Apple Valley, LLC 295,702 9 0.6 – – – Menard, Inc.269,126 10 0.5 – – – Target Corporation – – – 313,744 6 0.5 Fischer Sand & Aggregate Co.– – – 308,122 8 0.5 Wings Financial Federal Credit Union – – – 284,630 9 0.5 Fischer Sand & Aggregate, LLP – – – 240,076 10 0.4 Total 3,606,694$ 6.8 %3,745,948$ 6.4 % Source: Dakota County of Total City Tax Capacity Value Percentage of Total City Tax Capacity Value 20082017 Table 7 CITY OF APPLE VALLEY Principal Property Taxpayers Current Fiscal Year and Nine Years Prior -141- Taxes Levied for the Fiscal Year MVHC/ Ag Credit and Fiscal Fiscal Gross Operating Disparities Total Net Year Tax Levy Received Tax Levy Amount 2008 20,998,612$ (2,955,499)$ 18,037,810$ 17,724,935$ 98.27 % 2009 22,627,731 (3,436,931) 19,190,369 18,828,050 98.11 2010 22,839,554 (3,815,622) 19,000,860 18,723,194 98.54 2011 22,700,000 (3,612,353) 19,087,647 18,846,881 98.74 2012 22,025,249 (2,821,637) 19,203,612 18,996,562 98.92 2013 22,410,946 (2,751,166) 19,659,780 19,411,582 98.74 2014 22,727,000 (2,994,265) 19,732,735 19,607,759 99.37 2015 23,134,000 (2,881,124) 20,252,876 20,069,635 99.10 2016 24,058,000 (2,784,776) 21,273,224 21,138,944 99.37 2017 24,840,000 (2,915,340) 21,924,660 21,783,179 99.35 CITY OF APPLE VALLEY Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year of Levy Collected Within the Levy of Percentage -142- Delinquencies Collected as of Most Recent Report Amount 306,765$ 18,031,700$ 99.97 % 295,040 19,123,090 99.65 105,140 18,828,334 99.09 163,215 19,010,096 99.59 146,016 19,142,578 99.68 205,620 19,617,202 99.78 99,176 19,706,935 99.87 146,931 20,216,566 99.82 134,280 21,273,224 100.00 – 21,783,179 99.35 Table 8 Total Collections to Date Percentage of Levy -143- General Obligation Tax General Special MSA Increment Obligation Assessments Road Revenue Capital Bonds Bonds Bonds Bonds Bonds Lease 1,230,000$ 25,795,000$ 19,530,000$ –$ 5,321,037$ 50,505$ 1,050,000 24,295,000 13,750,000 2,775,000 4,649,229 40,918 865,000 20,535,000 14,750,000 2,775,000 4,014,416 109,211 – 19,925,000 9,000,000 2,760,000 6,020,717 77,975 – 20,128,873 8,062,109 2,320,000 5,531,461 44,884 – 27,922,953 6,247,398 1,760,000 5,044,929 190,645 – 27,023,868 4,972,687 1,185,000 13,209,567 138,799 – 29,669,149 2,637,976 590,000 13,420,425 97,919 – 27,900,442 2,298,265 – 12,653,255 56,285 – 14,191,734 608,554 – 10,277,288 175,526 Note: (1) (2) CITY OF APPLE VALLEY Ratios of Outstanding Debt by Type Last Ten Fiscal Years Year Fiscal Business-Type ActivitiesGovernmental Activities City personal income not available for 2017. See the Demographic and Economic Statistics schedule for personal income and population data. Details regarding the City’s outstanding debt can be found in the notes to basic financial statements.All figures are presented net of related premiums, discounts, and adjustments if applicable. 2017 2009 2008 2016 2015 2014 2011 2010 2013 2012 -144- Table 9 Total Primary Per Government Capita (1) 51,926,542$ 2.81 %1,039$ 46,560,147 2.61 943 43,048,627 2.47 877 37,783,692 2.10 759 36,087,327 2.00 723 41,165,925 2.22 818 46,529,921 2.40 924 46,415,469 2.44 925 42,908,247 2.16 836 25,253,102 N/A (2)482 Percentage Income (1) of Personal -145- Less Amounts General General Special MSA Available Obligation Tax Obligation Assessments Road in Debt Increment Bonds Bonds Bonds Bonds Service Funds (3) 1,230,000$ 27,875,444$ 19,530,000$ –$ 7,816,415$ 1,050,000 25,815,420 13,750,000 2,775,000 10,034,145 865,000 21,547,391 14,750,000 2,775,000 14,386,682 – 23,075,476 9,000,000 2,760,000 9,455,268 – 22,885,334 8,062,109 2,320,000 8,176,337 – 30,337,882 6,247,398 1,760,000 15,297,560 – 37,753,435 4,972,687 1,185,000 13,581,184 – 41,504,574 2,637,976 590,000 17,807,062 – 40,553,697 2,298,265 – 17,649,041 – 24,469,022 608,554 – 4,152,062 Note: (1) (2) (3) CITY OF APPLE VALLEY Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years 2016 2015 2014 2013 2012 2011 2010 2009 2008 Year Fiscal 2017 Amounts shown here are the total restricted fund balances for all debt service funds and include restricted amounts held in escrow for advance refunding bond issues. Details regarding the City’s outstanding debt can be found in the notes to the financial statements.All debt is presented net of related premiums, discounts, and adjustments if applicable. City personal income not available for 2017. See the Demographic and Economic Statistics schedule for personal income and population data. -146- Table 10 Per Total Capita (1) 40,819,029$ 0.78 %2.21 %817$ 33,356,275 0.65 1.87 676 25,550,709 0.53 1.47 521 25,380,208 0.57 1.41 510 25,091,106 0.62 1.39 503 23,047,720 0.61 1.24 458 30,329,938 0.78 1.57 603 26,925,488 0.64 1.41 537 25,202,921 0.56 1.27 491 20,925,514 0.45 N/A (2)400 Personal Income Percentage of Percentage of Taxable Market Value of Property -147- THIS PAGE INTENTIONALLY LEFT BLANK Table 11 City of Apple Valley’s Share of Net Debt Overlapping Outstanding (1)Debt Overlapping Dakota County (2)–$ 11.20 %–$ School districts ISD No. 191, Burnsville – Eagan – Savage 150,135,000 0.90 1,351,215 ISD No. 196, Rosemount – Apple Valley – Eagan 158,470,000 29.97 47,493,459 Metropolitan Council (3)10,440,000 1.27 132,588 Metro Transit (4)177,190,000 1.44 2,551,536 Total overlapping 496,235,000 51,528,798 City of Apple Valley direct debt 14,800,288 100.00 14,800,288 Total direct and overlapping debt 511,035,288$ 66,329,086$ Note: (1)As of December 31, 2017, unless noted otherwise. (2) (3) (4) Source: to City Overlapping governments are those that coincide,at least in part,with the geographic boundaries of the City.This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City.This process recognizes that,when considering the City’s ability to issue and repay long-term debt,the entire debt burden borne by the residents and businesses should be taken into account.However, this does not imply that every taxpayer is a resident and,therefore,responsible for repaying the debt of each term debt, the entire debt burden borne by the residents and businesses should be taken into account. Metro Transit has bond indebtedness of $177,190,000 as of December 31,2017.Transit debt is issued by the Metropolitan Council for all public transit operations in the transit district and is payable from ad valorem taxes levied on all taxable property within the Metropolitan Transit District. Dakota County.Percentage of debt applicable is calculated by dividing a portion of tax capacity of the authority that lies in the City divided by the total tax capacity that lies in Dakota County. CITY OF APPLE VALLEY Direct and Overlapping Governmental Activities Debt December 31, 2017 Percentage of Debt Applicable Dakota County has bond indebtedness of $84,695,000 as of December 31,2017,of which $84,695,000 has been excluded as it is payable from housing revenues. Metropolitan Council has $10,440,000 of general obligation debt outstanding as of December 31,2017.This debt is payable from ad valorem taxes levied on all taxable property within the Metropolitan Taxing District.This amount excludes $1,256,315,294 of general obligation debt payable from wastewater and sewer revenues,and lease agreements. -148- Fiscal Year 2008 2009 2010 2011 Debt limit 156,063,906$ 154,069,326$ 143,630,736$ 133,721,061$ Total net debt applicable to limit 25,795,000 24,295,000 20,535,000 19,830,000 Legal debt margin 130,268,906$ 129,774,326$ 123,095,736$ 113,891,061$ Total net debt applicable to limit as a percentage of debt limit 16.53%15.77%14.30%14.83% CITY OF APPLE VALLEY Legal Debt Margin Information Last Ten Fiscal Years -149- Table 12 2012 2013 2014 2015 2016 2017 121,852,877$ 123,111,918$ 116,911,737$ 126,852,645$ 133,946,802$ 140,076,146$ 19,845,000 27,590,000 26,700,000 29,275,000 27,550,000 13,885,000 102,007,877$ 95,521,918$ 90,211,737$ 97,577,645$ 106,396,802$ 126,191,146$ 16.29%22.41%22.84%23.08%20.57%9.91% Market value 4,669,204,881$ Debt limit (3% of assessed value)140,076,146 Debt applicable to limit 13,885,000 Legal debt margin 126,191,146$ Legal Debt Margin Calculation for Fiscal Year 2017 -150- Operating Less Net Operating Less Net Fiscal Revenues/Operating Available Debt Service Revenues/Operating Available Year Gross Profit Expense Revenue Principal Interest Coverage Gross Profit Expense Revenue 2008 1,883,996$ 1,383,688$ 500,308$ –$ 66,105$ 1,227,331$ 883,299$ 344,032$ 2009 2,501,430 1,656,559 844,871 115,000 132,210 1,233,346 818,151 415,195 2010 2,486,461 1,607,986 878,475 130,000 129,220 1,360,483 806,506 553,977 2011 2,557,573 1,601,269 956,304 135,000 125,450 1,370,348 872,369 497,979 2012 2,528,423 1,557,994 970,429 140,000 121,333 1,517,090 936,991 580,099 2013 2,685,372 1,595,221 1,090,151 145,000 116,436 1,505,136 989,295 515,841 2014 2,692,077 1,612,171 1,079,906 150,000 111,850 1,562,067 1,196,115 365,952 2015 2,443,210 1,626,498 816,712 200,000 71,256 1,629,361 1,376,670 252,691 2016 2,567,113 1,682,574 884,539 230,000 29,127 1,717,350 1,399,093 318,257 2017 2,709,997 1,750,717 959,280 235,000 27,288 1,769,842 2,116,752 (346,910) (1)Excludes principal refunded from the proceeds of refunding bond issues. Note: Details regarding the City’s outstanding debt can be found in the notes to basic financial statements. CITY OF APPLE VALLEY Liquor Store – Revenue Bonds G.O. Storm Water – Revenue Bonds Pledged Revenue Coverage Last Ten Fiscal Years 7.568 3.418 3.389 3.672 3.713 3.657 3.414 4.170 4.124 3.011 -151- Operating Less Net Debt Service Revenues/Operating Available Debt Service Principal (1)Interest Coverage Gross Profit Expense Revenue Principal Interest Coverage 285,000$ 41,787$ 1.053 8,670,265$ 7,961,763$ 708,502$ 95,000$ 21,363$ 6.09 300,000 48,416 1.192 8,876,346 6,832,611 2,043,735 170,000 18,275 10.86 315,000 31,035 1.601 8,423,373 7,285,380 1,137,993 105,000 12,495 9.69 220,000 63,313 1.758 8,358,787 7,361,390 997,397 120,000 8,820 7.74 225,000 68,558 1.976 9,256,709 7,214,372 2,042,337 – – – 230,000 64,553 1.751 8,949,608 7,776,510 1,173,098 – – – 240,000 59,908 1.220 8,911,018 7,997,799 913,219 320,000 129,223 2.03 150,000 73,036 1.133 8,988,411 7,950,081 1,038,330 365,000 215,125 1.79 155,000 84,979 1.326 9,450,362 9,130,962 319,400 370,000 207,825 0.55 160,000 81,870 (1.434) 9,910,773 9,785,093 125,680 380,000 200,425 0.22 G.O. Water – Revenue Bonds Table 13 -152- Table 14 Per Capita Personal Personal School Unemployment Population (1)Income Income (2)Enrollment (3)Rate (4) 49,983 1,850,720,541$ 37,027$ 11,348 5.30% 49,376 1,782,325,472 36,097 11,216 6.80% 49,084 1,740,027,800 35,450 11,291 6.50% 49,801 1,801,750,379 36,179 11,264 4.80% 49,895 1,801,658,555 36,109 11,219 4.20% 50,326 1,855,167,338 36,863 11,189 3.60% 50,330 1,934,886,520 38,444 11,312 2.80% 50,161 1,903,961,077 37,957 11,272 2.60% 51,338 1,985,959,192 38,684 11,883 3.00% 52,361 N/A N/A 12,070 2.50% N/A – Not Available Sources: (1)U.S. Census Bureau, Population Division. (2) (3)Schools located in the City’s boundaries: Independent School District No. 196, including Dakota Ridge School. School enrollment defined as adjusted ADMs (average daily membership). ADM is weighted as follows in computing adjusted ADMs: Secondary Fiscal 2008 through 2014 1.250 1.000 0.612 0.612 1.115 1.060 1.300 Fiscal 2015 through 2017 1.000 1.000 0.550 1.000 1.000 1.000 1.200 (4)Minnesota Department of Employment and Economic Development 2015 CITY OF APPLE VALLEY Demographic and Economic Statistics Last Ten Fiscal Years Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2016 City of Apple Valley, American Community Survey, U.S. Census Bureau (2017 data for the City not yet available). Pre-Kindergarten Handicapped Kindergarten Half-Day Kindergarten Full-Day Kindergarten Elementary 1–3 Elementary 4–6 2017 -153- Table 15 Taxpayer Employees Rank Employees Rank ISD No. 196 1,414 1 8.97 %1,913 1 13.25 % Uponor 664 2 4.21 450 3 3.12 Target 520 3 3.30 500 2 3.46 Dakota County 384 4 2.44 349 4 2.42 Walmart 350 5 2.22 340 5 2.36 Wings Financial Federal Credit Union 350 6 2.22 – – – Cub Foods 320 7 2.03 300 6 2.08 Augustana Health Care Center 265 8 1.68 – – – Menard’s 250 9 1.59 – – – Minnesota Zoo 220 10 1.40 260 8 1.80 Fischer Sand and Aggregate Co.– – – 295 7 2.04 Apple Valley Health Care Center – – – 250 9 1.73 Apple Valley Red-E-Mix, Inc.– – – 200 10 1.39 Total 4,737 30.05 %4,857 33.65 % Source: City of Apple Valley Community Development Department Percentage of Total Employment Percentage of Total Employment 20082017 CITY OF APPLE VALLEY Principal Employers Current Fiscal Year and Nine Years Ago -154- Fiscal Year 2008 2009 2010 2011 2012 General government Administration 3.00 3.00 3.00 2.81 3.00 Finance and data processing 5.00 4.95 5.00 5.00 4.71 Information and technology 3.21 3.20 3.17 3.21 3.33 Human resources 5.67 5.92 6.00 5.38 3.97 City clerk/elections 1.68 1.50 1.65 1.73 2.05 General government buildings 3.00 3.00 3.00 2.46 2.00 Community development 5.00 5.00 5.01 5.02 5.16 Code enforcement 2.98 2.15 2.00 1.71 1.82 Total general government 29.54 28.72 28.83 27.32 26.04 Public safety Police 63.97 64.00 62.00 60.09 58.72 Fire 16.49 18.94 16.44 18.45 18.40 Building inspections 5.91 5.99 4.93 4.02 5.07 Total public safety 86.37 88.93 83.37 82.56 82.19 Public works Public works administration 5.90 6.00 7.13 8.48 6.25 Central maintenance facility 5.51 5.50 5.52 5.48 5.25 Streets 17.36 17.07 17.19 17.32 16.63 Engineering (1)– – – 0.73 4.28 Total public works 28.77 28.57 29.84 32.01 32.41 Culture and recreation Park and recreation administration 8.26 7.29 7.81 7.82 7.28 Recreation programs 7.25 7.02 7.84 7.41 6.16 Park maintenance 25.93 25.96 25.27 25.06 25.02 Redwood pool 2.50 2.80 2.13 1.94 2.32 Aquatic swim center 9.27 13.92 12.85 11.28 13.25 Community center 4.15 4.56 3.76 4.03 5.07 Apple Valley Senior Center – 1.15 2.04 1.89 1.92 Cable TV 2.65 2.58 2.61 2.43 2.27 Total culture and recreation 60.01 65.28 64.31 61.86 63.29 Total general government 204.69 211.50 206.35 203.75 203.93 Enterprise funds Municipal liquor 16.85 19.91 19.49 18.99 18.98 Municipal golf (2)13.25 13.83 13.76 14.44 15.96 Sports arena 6.04 6.29 6.05 6.72 6.47 Stormwater drainage utility (3)– – – – – Water and sewer 18.11 18.88 18.58 18.45 18.84 Total enterprise funds 54.25 58.91 57.88 58.60 60.25 Total 258.94 270.41 264.23 262.35 264.18 (1)The City engineering function began in 2011. (2)New expanded golf clubhouse opened September 2012. (3)The Stormwater Drainage FTEs were included in Public Works Administration prior to 2014. Source: CITY OF APPLE VALLEY Full-Time Equivalent (FTE) City Government Employees by Function Last Ten Fiscal Years City of Apple Valley Human Resources Office –FTEs based on hours worked during the fiscal year.Part-time employees converted to FTE based on 2,080 hours per year. -155- Table 16 2013 2014 2015 2016 2017 3.00 3.00 3.00 3.00 3.00 4.00 4.00 4.00 4.00 4.58 3.24 3.53 3.64 3.78 3.11 4.00 4.63 5.00 5.00 5.00 1.81 4.84 2.00 5.39 1.92 2.00 2.00 2.00 2.00 1.92 5.00 5.00 4.77 4.35 5.00 2.00 2.00 2.44 2.40 2.36 25.05 29.00 26.85 29.92 26.89 61.16 60.22 62.27 62.58 62.74 18.63 16.21 15.46 15.54 16.02 5.22 5.75 6.93 6.76 7.72 85.01 82.18 84.66 84.88 86.48 5.99 5.30 3.83 3.80 4.20 5.34 5.44 5.51 5.29 5.30 16.66 16.66 16.92 16.95 17.07 4.24 4.49 4.03 4.48 4.91 32.23 31.89 30.29 30.52 31.48 7.87 7.82 7.83 7.45 7.85 6.76 5.06 6.88 6.23 5.91 23.09 23.24 22.97 24.18 23.79 2.47 2.55 2.35 2.63 2.26 12.80 11.95 12.25 12.65 12.14 5.67 5.95 4.64 4.72 4.55 2.27 3.13 3.03 3.36 3.43 2.44 2.46 2.61 2.74 2.84 63.37 62.16 62.56 63.96 62.77 205.66 205.23 204.36 209.28 207.62 18.86 18.51 17.51 17.47 17.57 20.41 20.10 19.68 18.89 19.15 6.88 7.09 6.57 6.85 6.47 – 0.28 1.96 2.00 2.00 18.14 18.26 18.07 17.61 17.35 64.29 64.24 63.79 62.82 62.54 269.95 269.47 268.15 272.10 270.16 -156- 2008 2009 2010 2011 General government Elections 2 N/A 2 N/A Registered voters 36,003 N/A 32,094 N/A Number of voters casting votes 29,262 N/A 21,271 N/A Number of absentee ballots received 3,348 N/A 1,316 N/A Percentage of absentee ballots to total votes 11.4% N/A 6.2% N/A Voter participation (registered) (elections are held every other year)81.28% N/A 66.28% N/A Public safety Police Crimes – Part I 1,555 1,366 1,565 1,230 Crimes – Part II 2,901 2,542 2,364 2,072 Total arrests 2,278 2,137 1,985 1,963 DWI arrests 251 288 205 213 Traffic citations issued 8,088 7,997 6,329 7,587 Total calls for service 41,682 41,049 38,335 40,272 Fire Calls for service 1,380 1,307 1,340 1,408 Medical 840 735 712 792 Fire 540 572 628 616 Fire call response times under 5 minutes 40% 41% 37% 40% Fire call response times 6–10 minutes 51% 48% 52% 51% Fire call response times over 10 minutes 9% 11% 11% 9% Public works Building permits issued 672 577 1,241 1,630 Permits issued for new dwelling units 41 91 228 31 Commercial building permits issued 110 73 102 71 Plumbing permits issued 900 912 920 886 Heating permits issued 521 557 771 540 Building permits issued 3,017 2,688 2,995 4,248 Building inspections 4,028 3,470 3,621 5,187 Streets maintained (lane miles)404 405 407 408 Cul-de-sacs maintained 313 314 329 329 Snow/ice events 50 48 35 29 Signs replaced 271 385 500 460 Boulevard trees trimmed 1,256 1,600 1,800 5,200 Fleet division vehicle work orders 1,689 1,733 1,735 1,751 Diseased elm and oak trees mitigated 863 729 588 486 Lakes and ponds monitored with water quality samples 17 18 18 18 Sump catch basins cleaned 1,492 1,406 1,505 1,303 Sewage pumped (million gallons)1.2 1.2 1.2 1.2 Miles of sanitary sewer cleaned 69.2 47.6 64.2 72.1 Sanitary lift station inspections 1,716 1,716 1,716 1,716 Water produced (million gallons)2.5 2.4 2.1 2.3 Water samples taken 1,098 1,098 1,128 1,098 Fire hydrants maintained 2,388 2,401 2,405 2,410 Pressure stations inspected 13 13 13 13 Air relief manholes inspected 15 15 15 15 Hydrant flushing 7,045 3,050 5,250 1,020 Hydrant flushing (minutes)– – – – Water breaks repaired 7 20 12 16 Burial sites sold 59 50 44 56 Burials 40 32 36 38 N/A – Not Available Source: Various city departments Function/Program CITY OF APPLE VALLEY Operating Indicators by Function Last Ten Years Fiscal Year -157- Table 17 2012 2013 2014 2015 2016 2017 2 N/A 2 N/A 2 N/A 35,354 N/A 32,370 N/A 35,836 N/A 29,715 N/A 19,351 N/A 29,853 N/A 2,993 N/A 2,100 N/A 8,692 N/A 10.1% N/A 10.9% N/A 29.1% N/A 84.05% N/A 59.78% N/A 83.30% N/A 1,187 1,124 1,098 1,207 1,232 1,237 1,970 1,756 1,627 1,833 1,936 1,993 1,962 1,307 1,096 969 1,234 1,206 145 160 152 120 87 176 6,670 5,726 4,735 4,246 5,441 4,471 39,223 35,215 34,497 35,510 39,548 40,079 1,417 1,454 1,412 1,397 1,622 1,787 639 636 623 668 812 1,097 778 818 789 729 810 690 42% 44% 43% 43% 38% 43% 49% 46% 46% 48% 51% 48% 9% 10% 11% 9% 11% 9% 1,398 1,005 1,893 1,785 1,883 1,902 47 63 71 115 140 167 96 113 115 197 98 184 1,027 1,090 1,173 1,334 1,560 1,620 692 786 851 951 1,076 1,170 4,248 4,248 5,430 5,755 1,883 1,902 6,890 6,848 8,636 10,543 10,702 11,794 410 410 416 416 418 418 330 331 322 324 325 325 25 53 45 29 29 32 700 411 657 451 354 402 2,137 1,990 1,175 1,250 939 1,565 1,850 1,890 2,148 1,486 2,138 1,507 260 430 340 322 326 444 18 18 17 18 18 18 1,400 885 1,455 983 1,106 1,282 1.2 1.3 1.1 1.2 1.1 1.1 75.0 77.0 79.0 54.0 62.0 47.0 1,716 1,716 1,716 1,716 1,716 1,716 2.4 2.4 2.1 2.0 2.0 2.0 1,098 1,098 1,098 1,098 1,098 1,098 2,410 2,444 2,454 2,466 2,484 2,489 13 13 13 13 13 13 15 15 15 16 16 16 – – – – – – 24,455 24,189 23,987 24,916 26,687 24,688 10 16 11 16 8 10 70 59 57 69 75 108 43 45 34 50 46 58 -158- Function/Program 2008 2009 2010 2011 Public safety Police Stations 1 1 1 1 Marked squad units 18 18 20 23 Fire Stations 3 3 3 3 Fire engine trucks 5 5 5 5 Fire ladder trucks 2 2 2 2 Fire brush/rescue trucks 1 1 1 1 Public works City-owned lights 107 126 246 246 Dakota Electric Association-owned 2,076 2,124 2,207 2,270 Xcel-owned lights 301 301 301 301 Streets (centerline miles)171 171 171 172 Cul-de-sacs 313 314 329 329 Roundabouts 3 3 3 3 Trees (number of boulevard trees)7,000 9,500 9,500 9,500 Parks Parks 49 49 50 50 Total park acreage 847 847 879 879 Trails – street side trails (miles)65 65 65 65 Athletic complexes 4 4 5 5 Golf course 1 1 1 1 Community centers 2 2 2 2 Senior center 1 1 1 1 Pools/aquatic centers 2 2 2 2 Ice arenas 2 2 2 2 Water Number of connections 15,413 15,464 15,518 15,566 Miles of water mains and laterals 240 240 241 241 Wells 19 19 19 19 Water valves 3,680 3,705 3,712 3,726 Fire hydrants 2,388 2,401 2,405 2,410 Water reservoirs 5 5 5 5 Reservoir capacity (millions of gallons)12.5 12.5 12.5 12.5 Sanitary sewer Number of connections 14,989 15,033 15,087 15,130 Miles of sanitary sewer mains and laterals 193 193 193 194 Sanitary lift stations 9 9 9 9 Sanitary manholes 5,335 5,360 5,372 5,384 Storm sewer Lift stations 12 12 12 12 Mile of storm sewers N/A 162 162 163 N/A – Not Available Source: Various city departments CITY OF APPLE VALLEY Capital Assets Statistics by Function/Program Last Ten Years Fiscal Year -159- Table 18 2012 2013 2014 2015 2016 2017 1 1 1 1 1 1 23 23 24 24 24 25 3 3 3 3 3 3 5 5 5 5 5 5 2 2 2 2 2 2 1 1 1 1 1 1 261 261 271 271 302 308 2,494 2,718 2,942 3,167 3,303 3,112 301 301 301 301 343 343 172 175 177 177 179 180 329 329 329 324 325 325 3 3 3 4 4 4 9,500 9,330 9,250 9,175 9,100 8,800 50 50 50 50 50 50 879 879 879 879 879 879 65 65 65 65 75 78 5 5 5 5 5 5 1 1 1 1 1 1 2 2 2 2 2 2 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 15,596 15,674 15,752 15,874 16,024 16,226 241 245 247 248 250 266 19 19 19 19 20 20 3,751 3,774 3,812 3,836 3,872 3,886 2,410 2,438 2,454 2,466 2,484 2,489 5 5 5 5 5 5 12.5 13 13 13 13 13 15,160 15,229 15,307 15,422 15,563 15,764 194 200 204 204 204 212 9 9 9 9 9 9 5,384 5,466 5,514 5,538 5,587 5,596 12 12 12 12 12 12 164 165 167 170 173 196 -160- THIS PAGE INTENTIONALLY LEFT BLANK Management Report for City of Apple Valley, Minnesota December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK -1- AUDIT SUMMARY The following is a summary of our audit work, key conclusions, and other information that we consider important or that is required to be communicated to the City Council, administration, or those charged with governance of the City. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the governmental activities, the 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, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information to you verbally and in our audit engagement letter. Professional standards also require that we communicate the following information related to our audit. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. AUDIT OPINION AND FINDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2017: • We have issued an unmodified opinion on the City’s basic financial statements. • We reported one matter involving the City’s internal control over financial reporting that we considered to be a significant deficiency. Due to the limited size of the City’s staff, the City has limited segregation of duties over cash receipts, community center refunds and reimbursements, golf course inventory, and utility billing adjustments. This finding is further detailed in the City’s Special Purpose Audit Reports. • The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. • We reported two findings based on our testing of the City’s compliance with Minnesota laws and regulations. These findings, as further detailed in the City’s Special Purpose Audit Reports, include the following: 1. Responsible Contractor Language 2. Claims and Disbursements -2- OTHER OBSERVATIONS AND RECOMMENDATIONS Golf Course Inventory and Event Revenue Tracking As part of our audit, we noted the City does not have an adequate process for tracking both food and beverage inventory at the golf course. Due to the size and nature of the golf course operations, segregation of duties is limited in the ordering, receiving, and recording of inventory, and there are no standardized processes for interim or annual physical counts. Additionally, the usage of food and beverage inventories that occurs during events held at the golf course is not accurately captured by the current inventory software, due to system limitations and internal modification deficiencies made to the software. These conditions expose the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. One way to h elp mitigate this risk would be to implement monthly physical inventory counts, which are then reviewed in conjunction with the financial activities and results that occur during the same time period. The effectiveness of this type of control procedure is somewhat dependent upon the frequency and timeliness with which it is performed. During our audit, we also evaluated the golf course’s information systems, policies and procedures surrounding event management, including the billing of its customers. During our procedures, we noted it was necessary for the golf course to utilize a stand-alone system for event tracking, due to the inability of the golf course point-of-sale system and the City’s finance system to generate itemized invoices for events. The particular sale details are then later manually entered into the point -of-sale system at the golf course in order for the data to be transferred into the City’s finance software. During the current audit year, the City reviewed the operations at the golf course and is in the process of implementing controls and procedures surrounding event management and billing and tracking of both food and beverage inventory. We recommend the City continues to review these systems and monitor the controls to ensure all events held at the golf course are properly included in the City’s point -of-sale and financial systems. Furthermore, we recommend the City standardize the billing process for events held at the golf course, including assessing whether these functions should be centralized and completed within the finance department. Claims and Disbursements All general disbursement invoices are paid through the City’s finance department. During the audit process, it was noted that vendor invoices are being received in various departments within the City. On occasion, there is a timing delay of sending the invoice to the finance department for payment. We recommend the City review claims and disbursement payment procedures and obtain all vendor invoices centrally at city hall to process in the electronic accounts payable system through the finance department. SIGNIFICANT ACCOUNTING POLICIES Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 of the notes to basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2017; however, the City implemented the following governmental accounting standards during the fiscal year: • Governmental Accounting Standards Board (GASB) Statement No. 79, Certain External Investment Pools and Pool Participants, which enhanced disclosures regarding investments. • GASB Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73, which addressed certain issues related to pension reporting and disclosures. -3- 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 AND MANAGEMENT JUDGMENTS 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 – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets. • Net Other Post-Employment Benefit (OPEB) Liabilities and Pension Benefits – The City has recorded liabilities and activity for net other post-employment benefits (OPEB) and pension benefits. These obligations are calculated using actuarial methodologies described in the GASB Statement Nos. 45 and 68. These actuarial calculations include significant assumptions, including projected changes, healthcare insurance costs, investment returns, retirement ages, proportionate share, and employee turnover. • Compensated Absences – Management’s estimates are based on current rates of pay and unused compensated absence balances. • Self-Insurance Reserves – Management’s estimates of self-insurance reserves are based on the estimated liability for incurred but not reported claims. • Land Held for Resale – Management’s estimates of these assets are based on the lower of cost or acquisition value. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that they are reasonable in relation to the basic financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Where applicable, management has corrected all such misstatements, including the prior period adjustment noted in the comprehensive annual financial report. There were no additional misstatements detected as a result of audit procedures that were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. -4- DISAGREEMENTS WITH MANAGEMENT For purposes of this report, 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. MANAGEMENT REPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated June 25, 2018. MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards requi re 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 respo nses were not a condition to our retention. OTHER MATTERS We applied certain limited procedures to the management’s discussion and analysis (MD&A) and the pension and OPEB-related required supplementary information (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. We were engaged to report on the supplementary information accompanying the financial statements, which is not RSI. With respect to this supplementary information, 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. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements, but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. -5- GOVERNMENTAL FUNDS OVERVIEW This section of the report provides you with an overview of the financial trends and activities of the City’s governmental funds, which includes the General, special revenue, debt service, and capital project funds. These funds are used to account for the basic services the City provides to all of its citizens, which are financed primarily with property taxes. The governmental fund information in the City’s financial statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current assets to finance its current liabilities. PROPERTY TAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For the 2016 fiscal year, local ad valorem property tax levies provided 39.8 percent of the total governmental fund revenues for cities over 2,500 in population, and 36.4 percent for cities under 2,500 in population. The total market value of property in Minnesota cities increased about 5.6 percent for the 2017 levy year, which followed an increase of 5.7 percent for levy year 2016. The market values used for levying property taxes are based on the previous fiscal year (e.g., market values for taxes levied in 2017 were based on assessed values as of January 1, 2016), so the trend of change in these market values lags somewhat behind the housing market and economy in general. The City’s taxable market value increased 5.6 percent for taxes payable in 2016 and increased 4.6 percent for taxes payable in 2017. The following graph shows the City’s changes in taxable market value over the past 10 years: $– $1,000,000,000 $2,000,000,000 $3,000,000,000 $4,000,000,000 $5,000,000,000 $6,000,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Taxable Market Value -6- Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s property classification system to each property’s market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of its tax base that is in each property classification from year -to-year, as well as legislative changes to tax rates. The City’s tax capacity increased 5.2 percent for taxes payable in 2016 and increased 4.4 percent for taxes payable in 2017. The following graph shows the City’s change in tax capacities over the past 10 years: $– $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years, along with comparative state-wide and metro area average rates from the two most recent years for which the information is available: 2015 2016 2015 2016 2015 2016 2017 Average tax rate City 46.9 46.5 43.4 43.0 45.3 44.7 44.5 County 44.7 44.1 42.9 42.3 29.6 28.6 28.0 School 27.1 27.5 28.3 28.6 23.3 24.4 23.3 Special taxing 6.9 6.9 8.8 8.7 5.0 5.0 4.9 Total 125.6 125.0 123.4 122.6 103.2 102.7 100.7 Note: State-wide and metro area average tax rates are not available for 2017. Rates Expressed as a Percentage of Net Tax Capacity Apple ValleyMetro Area Seven-CountyAll Cities State-Wide City of The City’s portion of the tax capacity rate has been similar to state-wide and seven-county metro averages. The total tax rate applied to the City’s residents is lower than average, due to the much lower average tax rate of the county. -7- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2017, presented both by fund balance classification and by major fund: Increase 2016 2017 (Decrease) Fund balances of governmental funds Total by classification Nonspendable 120,547$ 327,012$ 206,465$ Restricted 27,079,147 13,431,367 (13,647,780) Committed 833,145 610,215 (222,930) Assigned 28,510,255 28,844,129 333,874 Unassigned 6,819,130 7,612,723 793,593 Total governmental funds 63,362,224$ 50,825,446$ (12,536,778)$ Total by fund General 16,609,454$ 17,336,413$ 726,959$ Closed Bond Issues 8,843,565 9,440,666 597,101 2001/2008B Refunding Improvement Bonds (2,928,431) (2,846,426) 82,005 Road Improvements (5,198,862) (5,174,280) 24,582 Future Capital Projects 14,675,768 15,353,401 677,633 Nonmajor 31,360,730 16,715,672 (14,645,058) Total governmental funds 63,362,224$ 50,825,446$ (12,536,778)$ Governmental Funds Change in Fund Balance Fund Balance as of December 31, In total, the fund balances of the City’s governmental funds decreased by $12,536,778 during the year ended December 31, 2017. The decrease is mainly in fund balance restricted for debt service, due largely to the 2013A and 2015B bond proceeds being used in the current year to refund outstanding bonds in advance of scheduled payment dates. -8- GOVERNMENTAL FUND REVENUES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors , such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the MD&A. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Year ##############################2015 2016 2017 Population 20,000–100,000 20,000–100,000 50,161 51,338 52,361 Property taxes 443$ 455$ 458$ 466$ 472$ Tax increments 37 42 10 4 7 Franchise fees and other taxes 39 45 29 29 28 Special assessments 59 59 77 81 30 Licenses and permits 43 42 43 40 62 Intergovernmental revenues 156 152 46 51 38 Charges for services 94 103 54 53 57 Other 58 54 61 85 51 Total revenue 929$ 952$ 778$ 809$ 745$ Governmental Funds Revenue per Capita With State-Wide Averages by Population Class State-Wide City of Apple Valley The City’s governmental funds have generated significantly less revenue per capita in total than other Minnesota cities in its population class. As noted above, the City receives a lower level of intergovernmental revenue than the average city, causing the City to rely on property taxes and other forms of revenue to operate the governmental activities of the City. The City generated $38,970,339 of total revenue in its governmental funds in 2017, a decrease of $2,546,000 (6.1 percent) from the prior year. The City’s per capita governmental funds revenue for 2017 was $745, a decrease of $64, or 7.9 percent, from the prior year. The largest changes occurred in special assessments, other revenue, and licenses and permits. Special assessment revenue decreased $51 per capita, due to the decreased special assessment prepayments in the current year. The decrease in other revenue of $34 per capita is due to additional project escrow deposits and park dedications received in the prior year. These decreases were offset by the $22 per capita increase in licenses and permits, due to increased building activity. -9- GOVERNMENTAL FUND EXPENDITURES The expenditures of governmental funds will also vary from state -wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows: • Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues. • Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects. • Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources, such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with state-wide averages, are presented in the following table: Year December 31, 2015 December 31, 2016 2015 2016 2017 Population 20,000–100,000 20,000–100,000 50,161 51,338 52,361 Current General government 89$ 97$ 100$ 123$ 109$ Public safety 261 273 229 236 235 Street maintenance 99 95 72 76 79 Parks and recreation 94 95 104 112 110 All other 89 91 – – – Total current 632 651 505 547 533 Capital outlay and construction 286 301 129 164 162 Debt service Principal 117 115 71 52 65 Interest and fiscal 33 34 22 19 18 Total debt service 150 149 93 71 83 Total expenditures 1,068$ 1,101$ 727$ 782$ 778$ State-Wide Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class City of Apple Valley As the above table reflects, the City’s current expenditures per capita have also been below the state-wide average. Total expenditures in the City’s governmental funds for 2017 were $40,714,407, an increase of $620,049 (1.5 percent). The City’s per capita governmental funds current expenditures decreased $14 per capita, mainly in the general government function. Debt service expenditures experienced an increase of $12 per capita as established with the scheduled payment plans approved at the time of issuing debt. -10- GENERAL FUND The City’s General Fund accounts for the financial activity of the basic services provided to the community. The primary services included within this fund are the administration of the municipal operation, police and fire protection, building inspection, streets and highway maintenance, and parks and recreation. The graph below illustrates the change in the General Fund financial position over the last five years. We have also included a line representing annual expenditures to reflect the change in the size of the General Fund operation over the same period. 2013 2014 2015 2016 2017 Fund Balance $14,226,384 $15,155,450 $16,092,104 $16,609,454 $17,336,413 Cash Balance $11,356,150 $11,476,467 $14,299,304 $14,202,606 $15,908,162 Expenditures $24,625,113 $24,642,712 $24,927,799 $25,986,358 $27,274,374 $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 General Fund Financial Position Year Ended December 31, The City’s General Fund cash and investments balance at December 31, 2017 was $15,908,162, an increase of $1,705,556 from the previous year. Total fund balance at December 31, 2017 was $17,336,413, an increase of $726,959 from the prior year. Having an appropriate fund balance is an important factor in assessing the City’s financial health because a government, like any organization, requires a certain amount of equity to operate. Generally, the amount of equity required typically increases as the size of the operation increases. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and can be a factor in determining the City’s bond rating and resulting interest costs. The City Council has formally adopted a fund balance policy that states the City will strive to maintain a minimum unassigned General Fund balance of 50.0 percent of the subsequent year’s budgeted expenditures. At December 31, 2017, the unassigned fund balance of the General Fund was 49.3 percent of the subsequent year’s budgeted expenditures, including transfers. -11- The following graph reflects the City’s General Fund revenue sources for 2017 compared to budget: Other Charges for Services Intergovernmental Licenses and Permits Taxes General Fund Revenue Budget to Actual Budget Actual Total General Fund revenues for 2017 were $1,805,398 (5.9 percent) over the final budget. The majority of this variance was in licenses and permits, which was over budget $1,759,679, due to more than anticipated building-related activities. The following graph presents the City’s General Fund revenues by source for the last five years: Taxes Intergovernmental Other 2013 $21,666,778 $938,090 $4,494,986 2014 $22,188,314 $874,473 $5,465,302 2015 $22,226,012 $781,409 $6,044,728 2016 $23,126,722 $806,909 $6,119,933 2017 $23,940,494 $831,908 $7,427,411 $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 General Fund Revenue by Source Year Ended December 31, Total General Fund revenues for 2017 were $32,199,813, an increase of $2,146,249 (7.1 percent) from the previous year. Taxes increased $813,772, due to an overall increase in the general tax levy. Revenue from other sources increased $1,307,478 mainly in license and permit revenue, due to more building-related activity as previously discussed. -12- The following graph reflects the City’s General Fund expenditures compared to budget for 2017: Parks and Recreation Public Works Public Safety General Government General Fund Expenditures Budget to Actual Budget Actual Total General Fund expenditures for 2017 were $27,274,374, which was $1,541,986 (5.4 percent) less than budget. This variance was spread across all functions. General government was under budget $463,108, mostly in the information technology department related to lower than anticipated costs in software licensing and equipment purchases. Public safety was under budget $530,742, mostly in the fire protection and police protection departments resulting from less equipment purchases and position vacancies. Public works expenditures were $423,931 under budget, mostly from savings of overtime hours in the streets department. The remaining variance was in parks and recreation expenditures, which was $124,205 under budget, mostly in the parks maintenance department in equipment purchases and lower than budgeted benefit costs. The following graph presents the City’s General Fund expenditures by function for the last five years: General Government Public Safety Public Works Parks and Recreation 2013 $4,664,916 $10,882,561 $4,181,297 $4,896,339 2014 $4,576,708 $11,057,938 $3,986,727 $5,021,339 2015 $4,792,595 $11,390,204 $3,637,190 $5,107,810 2016 $4,984,412 $11,817,350 $3,725,606 $5,458,990 2017 $5,148,448 $12,419,830 $4,041,044 $5,665,052 $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 General Fund Expenditures by Function Year Ended December 31, General Fund expenditures increased by $1,288,016, or 5.0 percent, from the prior year. General government expenditures increased $164,036, mainly in the community development department related to the comprehensive plan update. Public safety expenditures increased $602,480, mainly in the police protection and building inspection departments. The increase in expenditures in the public works department of $315,438 was mainly in the engineering and streets departments. Expenditures in parks and recreation increased $206,062, mainly in the aquatic swim center, Apple Valley Community Center, and parks and recreation administration departments. Typical to other cities we audit, public safety costs for the City comprise the largest portion of General Fund spending and have seen the largest increases over the past five years. -13- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which includes the Municipal Liquor, Municipal Golf Course, Sports Arena, Water and Sewer, Storm Drainage, Street Light Utility, and Cemetery Funds. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the years ended December 31, 2017 and 2016, presented both by classification and by fund: Increase 2016 (as restated)2017 (Decrease) Net position of enterprise funds Total by classification Net investment in capital assets 93,563,909$ 94,851,212$ 1,287,303$ Restricted 178,977 178,665 (312) Unrestricted 17,208,279 15,505,784 (1,702,495) Total enterprise funds 110,951,165$ 110,535,661$ (415,504)$ Total by fund Municipal Liquor 5,044,315$ 5,369,786$ 325,471$ Municipal Golf Course 887,471 523,387 (364,084) Sports Arena 1,031,749 1,088,091 56,342 Water and Sewer 70,353,622 69,827,460 (526,162) Storm Drainage 31,414,817 31,430,884 16,067 Street Light Utility 254,712 264,315 9,603 Cemetery 1,964,479 2,031,738 67,259 Total enterprise funds 110,951,165$ 110,535,661$ (415,504)$ Enterprise Funds Change in Financial Position Net Position as of December 31, In total, the net position ($110,535,661) of the City’s enterprise funds decreased by $415,504 during the year ended December 31, 2017. The increase in the net investment in capital assets reflects the continued investment in utility infrastructure and other capital assets. The decrease in unrestricted net position ($1,702,495) is due to the use of unrestricted net position for capital asset purchases in the current year. In the current year, the City reported a prior period adjustment in the Water and Sewer Fund and Storm Drainage Fund related to the City’s inventory of capitalized assets and the related useful lives. This prior period adjustment reduced beginning equity by $16,546,976 in the Water and Sewer Fund and $9,306,199 in the Storm Drainage Fund. The 2016 balances in the table above have been restated for this adjustment. -14- MUNICIPAL LIQUOR FUND The following graph presents five years of operating results for the Municipal Liquor Fund: 2013 2014 2015 2016 2017 Sales $9,380,818 $9,292,224 $8,480,414 $8,738,804 $9,183,272 Cost of Sales $6,695,446 $6,600,147 $6,037,204 $6,171,691 $6,473,275 Operating Expenses (Excluding Depreciation)$1,460,732 $1,479,096 $1,485,163 $1,546,028 $1,609,959 Operating Income (Loss) (Excluding Depreciation)$1,224,640 $1,212,981 $958,047 $1,021,085 $1,100,038 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Municipal Liquor Fund Year Ended December 31, The Municipal Liquor Fund ended 2017 with a net position of $5,369,786, an increase of $325,471 from the prior year. Of this net position, $2,414,288 represents the investment in liquor capital assets, $178,665 is restricted for debt service, and $2,776,833 is in unrestricted net position. Liquor sales for 2017 were $9,183,272, $444,468 (5.1 percent) higher than the prior year. The Municipal Liquor Fund generated operating income (excluding depreciation) of $1,100,038 in 2017, or 12.0 percent, of gross sales, which is an increase from the 11.7 percent reported in fiscal 2016. The Municipal Liquor Fund gross profit margin was 29.5 in fiscal 2017, slightly more than 29.4 in fiscal 2016. -15- MUNICIPAL GOLF COURSE FUND The following graph presents five years of operating results for the Municipal Golf Course Fund: 2013 2014 2015 2016 2017 Operating Revenue $1,167,654 $1,289,089 $1,387,821 $1,354,645 $1,173,102 Operating Expenses (Excluding Depreciation)$1,089,819 $1,135,917 $1,208,454 $1,301,452 $1,206,920 Cost of Goods Sold $231,404 $210,461 $256,331 $237,409 $188,557 Depreciation $159,987 $175,518 $174,033 $174,171 $183,693 Operating Income (Loss) (Excluding Depreciation)$(153,569)$(57,289)$(76,964)$(184,216)$(222,375) $(400,000) $(200,000) $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Municipal Golf Course Fund Year Ended December 31, The Municipal Golf Course Fund ended 2017 with a net position of $523,387, a decrease of $364,084 from the prior year. Of this net position, $4,046,698 represents the investment in golf course land and capital assets, leaving a deficit of ($3,523,311) in unrestricted net position. Municipal Golf Course Fund operating revenues for 2017 were $1,173,102, which is $181,543 less than the prior year, resulting from fewer rounds of golf played in 2017 attributed to the weather . Operating expenses (excluding depreciation) for 2017 were $1,206,920, a decrease of $94,532 from the prior year. On an annual basis, this fund has had to borrow from other funds to fund cash flow and capital needs. This interfund borrowing was a total of $3,123,789 at December 31, 2017. Interfund borrowing for cash flow needs totals $1,211,519 at December 31, 2017. The remainder, $1,912,270, is for capital needs and is to be repaid over multiple years. We recommend the City continue to monitor the financial results in this fund and update the long-range financial plan for this fund. -16- SPORTS ARENA FUND The following graph presents five years of operating results for the Sports Arena Fund: 2013 2014 2015 2016 2017 Sales and User Fees $643,855 $714,351 $722,270 $783,089 $732,919 Operating Expenses (Excluding Depreciation)$601,634 $697,754 $606,977 $618,747 $659,107 Nonoperating Revenue (Expense)$108,860 $152,162 $121,419 $123,022 $127,945 Income (Loss)$6,361 $19,779 $73,273 $135,513 $56,342 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 Sports Arena Fund Year Ended December 31, The Sports Arena Fund ended 2017 with a net position of $1,088,091, an increase of $56,342 from the prior year. Of the net position balance, $1,126,083 represents investments in sports arena capital assets, leaving a deficit of ($37,992) of unrestricted net position. Sports Arena Fund operating revenues for 2017 were $732,919, a decrease of $50,170 (6.4 percent) from the prior year. Operating expenses (including cost of goods sold and excluding depreciation) for 2017 were $659,107, an increase of $40,360 from the prior year. In the past, this fund has had to borrow from other funds to fund cash flow needs. The remaining interfund borrowing was a total of $52,915 at December 31, 2017. -17- WATER AND SEWER FUND The following graph presents five years of operating results for the Water and Sewer Fund: 2013 2014 2015 2016 2017 Operating Revenue $8,949,608 $8,911,018 $8,988,411 $9,450,362 $9,910,773 Operating Expenses (Excluding Depreciation)$6,186,463 $6,388,459 $6,102,574 $6,401,847 $7,016,546 Depreciation $1,590,047 $1,609,340 $1,847,507 $2,729,115 $2,768,547 Operating Income (Loss) (Excluding Depreciation)$2,763,145 $2,522,559 $2,885,837 $3,048,515 $2,894,227 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 $11,000,000 Water and Sewer Fund Year Ended December 31, The Water and Sewer Fund ended 2017 with a net position of $69,827,460, a decrease of $17,073,138 from the prior year. Of this net position, $57,880,536 represents the investment in water and sewer distribution system capital assets, leaving $11,946,924 of unrestricted net position. This fund recorded a prior period adjustment related to the City’s inventory of capitalized assets and the related useful lives that reduced beginning net investment in capital assets by $16,546,976. Water and Sewer Fund operating revenue was $9,910,773 for 2017, an increase of $460,411 (4.9 percent) from the prior year, due to an increase in rates. Operating expenses (excluding depreciation) of $7,016,546 were $614,699 (9.6 percent) higher than last year, mainly due to an increase in building repairs, consulting services related to the comprehensive plan, and the increased sewer charges. Although this fund is in a healthy financial position, we suggest that the City continue to review the water and sewer rates on an annual basis. Water and sewer rates are generally designed to cover operating costs and provide an accumulation of resources for significant repairs and replacements, and an operating cushion for potential negative years in financial operations. -18- STORM DRAINAGE FUND The following graph presents five years of operating results for the Storm Drainage Fund: 2013 2014 2015 2016 2017 Operating Revenue $1,505,136 $1,562,067 $1,629,361 $1,717,350 $1,769,842 Operating Expenses (Excluding Depreciation)$501,165 $695,341 $840,901 $823,837 $1,121,262 Depreciation $488,130 $500,774 $535,769 $575,256 $995,490 Operating Income (Loss) (Excluding Depreciation)$1,003,971 $866,726 $788,460 $893,513 $648,580 $– $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 Storm Drainage Fund Year Ended December 31, The Storm Drainage Fund ended 2017 with a net position of $31,430,884, a decrease of $9,290,132 from the prior year. Of this, $28,291,716 represents the investment in storm drainage capital assets and $3,139,168 of unrestricted net position. This fund recorded a prior period adjustment related to the City’s inventory of capitalized assets and the related useful lives that reduced beginning net investment in capital assets by $9,306,199. Storm Drainage Fund operating revenues for 2017 were $1,769,842, which was an increase of $52,492 (3.1 percent) from the prior year, due to the increased rates. Operating expenses (excluding depreciation) for 2017 were $1,121,262, which was $297,425 (36.1 percent) higher than the prior year, mainly due to an increase in contractual services related to the surface water management plan. -19- STREET LIGHT UTILITY FUND The following graph presents five years of operating results for the Street Light Utility Fund: 2013 2014 2015 2016 2017 Operating Revenue $449,885 $465,584 $483,680 $500,877 $507,360 Operating Expenses $444,106 $424,670 $446,644 $437,439 $483,752 Operating Income (Loss)$5,779 $40,914 $37,036 $63,438 $23,608 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Street Light Utility Fund Year Ended December 31, The Street Light Utility Fund ended 2017 with a net position of $264,315, an increase of $9,603 from the prior year, which is all in unrestricted net position. Street Light Utility Fund operating revenues for 2017 were $507,360, a slight increase of $6,483 from the prior year. Operating expenses for 2017 were $483,752, an increase of $46,313 from the previous year, mainly in utilities expense. -20- CEMETERY FUND The following graph presents five years of operating results for the Cemetery Fund: 2013 2014 2015 2016 2017 Operating Revenue $123,197 $104,128 $132,305 $160,716 $187,334 Operating Expenses (Excluding Depreciation)$32,408 $32,582 $30,022 $41,726 $108,158 Operating Income (Loss) (Excluding Depreciation)$90,789 $71,546 $102,283 $118,990 $79,176 $– $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 Cemetery Fund Year Ended December 31, The Cemetery Fund ended 2017 with a net position of $2,031,738, an increase of $67,259 from the prior year. Of the net position balance, $1,091,891 represents investments in cemetery capital assets, leaving $939,847 of unrestricted net position. Cemetery Fund operating revenues for 2017 were $187,334, an increase of $26,618 from the prior year. Operating expenses (excluding depreciation) for 2017 were $108,158, an increase of $66,432 from the prior year, mainly due to plans related to the expansion of the cemetery. -21- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what your city owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, the Statement of Net Position divides the net position into three components: • Net Investment in Capital Assets – The portion of net position reflecting equity in capital assets (i.e., capital assets minus related debt). • Restricted Net Position – The portion of net position equal to resources whose use is l egally restricted minus any noncapital-related liabilities payable from those same resources. • Unrestricted Net Position – The residual balance of net position after the elimination of net investment in capital assets and restricted net position. The following table presents the components of the City’s net position as of December 31, 2017 and 2016, for governmental activities and business-type activities: Increase 2016 (as restated)2017 (Decrease) Net position Governmental activities Net investment in capital assets 93,945,022$ 99,642,040$ 5,697,018$ Restricted 16,141,535 15,364,368 (777,167) Unrestricted 24,394,132 24,292,441 (101,691) Total governmental activities 134,480,689 139,298,849 4,818,160 Business-type activities Net investment in capital assets 93,563,909 94,851,212 1,287,303 Restricted 178,977 178,665 (312) Unrestricted 17,104,636 15,390,547 (1,714,089) Total business-type activities 110,847,522 110,420,424 (427,098) Total net position 245,328,211$ 249,719,273$ 4,391,062$ As of December 31, The City’s total net position at December 31, 2017 was $4,391,062 higher than the previous year-end, which was comprised of an increase of $4,818,160 in governmental activities and a decrease of $427,098 in business-type activities. In the current year, the City reported a prior period adjustment in the Water and Sewer Fund and Storm Drainage Fund, which is part of business-type activities on the entity-wide statements, related to the City’s inventory of capitalized assets and the related useful lives. This prior period adjustment reduced beginning equity by $25,853,175. The 2016 balances in the table above have been restated for this adjustment. -22- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net position. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2017 and 2016: 2016 2017 Net (expense) revenue Governmental activities General government (5,255,652)$ (4,301,558)$ Public safety (13,022,297) (11,743,736) Public works 281,992 (1,528,785) Parks and recreation (4,284,534) (5,777,548) Interest and fiscal charges (912,007) (886,283) Business-type activities Municipal liquor 866,781 934,487 Municipal golf course (372,169) (365,583) Sports arena 13,296 (65,423) Water and sewer 2,855,345 650,938 Storm drainage 1,431,756 (21,951) Cemetery 99,926 60,120 Street light utility 63,438 23,608 Total net (expense) revenue (18,234,125) (23,021,714) General revenues Property taxes 24,160,391 25,174,457 Other taxes 185,568 182,377 Franchise taxes 1,309,757 1,288,426 Grants and contributions not restricted to specific programs 37,719 56,751 Other general revenues 6,888 8,440 Investment earnings (net of market value adjustment)1,005,502 702,325 Total general revenues 26,705,825 27,412,776 Change in net position 8,471,700$ 4,391,062$ Net Change One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the way the City’s governmental and business-type operations are financed. The table clearly illustrates the dependence of the City’s governmental operations on general revenues, such as property taxes and unrestricted grants. It also shows if the City’s business-type activities are generating sufficient program revenues (service charges and program-specific grants) to cover expenses. This is critical given the current downward pressures on the general revenue sources. -23- LEGISLATIVE UPDATES The 2017 legislative session began with a full agenda, which included adopting a fiscal year 2018–2019 biennial state budget. The February 2017, state budget forecast projected that the state General Fund would end the 2016–2017 biennium with a surplus of $743 million, eliminating the need for budget cuts or transfers to balance the fund. However, the Legislature was expected to address several significant spending areas for which successful funding appropriations had not been passed in recent legislative sessions. The 2017 regular legislative session ended with four omnibus budget bills being vetoed, potentially leaving a number of these same areas without appropriations. After a three-day special session, the Governor and Legislature were able to agree on budget and appropriation bills addressing most of the state budgetary needs for the upcoming biennium, albeit not without several line item vetoes invoked by the Governor, including striking the appropriations for operating the House and Senate from the bills. The following is a summary of recent legislation affecting Minnesota cities: Omnibus Bonding Bill – The omnibus bonding bill authorizes financing for approximately $1.1 billion in capital improvements. Included in the approved funding was $255 million for transportation infrastructure, $83 million for economic development, $116 million for Public Financing Agency water infrastructure loans and grants to municipalities, and $4 million for Metropolitan Council inflow and infiltration improvement grants to metro area cities. Omnibus Transportation Bill – The omnibus transportation bill appropriates $2.95 billion in fiscal 2018 and $2.87 billion in fiscal 2019, for a wide variety of transportation related projects. Included in the appropriations are approximately $191 million and $198 million for municipal state aid street fund purposes in fiscal 2018 and fiscal 2019, respectively. Property Tax Relief – The omnibus tax bill contained a number of property tax relief measures, including: • Elimination of the implicit price deflator annual increase for the state general property tax levy, effectively freezing it at the payable 2018 level for many property classes; • Exempting the first $100,000 of each commercial-industrial parcel’s tax capacity from the state general property tax levy; • Expanding eligibility for homestead or agricultural property classification exemptions for certain types of resort and conservation property for general property taxes; and • Increasing the minimum value for a storage shed, deck, or similar structure on a leased mobile home to be considered taxable from $1,000 to $10,000. Local Government Aid – The annual appropriation for Local Government Aid (LGA) for cities was increased $15.0 million to $534.4 million for aid payable in 2018 and thereafter, and the LGA payment schedule was accelerated for fiscal 2019 only. Several corrections were also mad e to the city LGA formula calculation, and a sparsity adjustment was incorporated for certain medium and small cities beginning in 2018. Minnesota Investment Fund – The omnibus jobs and economic growth bill appropriates $12.5 million for each year of the biennium for the Minnesota Investment Fund, which is available for municipalities to provide loans to assist with the expansion of local businesses. Electronic Funds Transfers – Effective August 1, 2017, home rule charter cities of the second, third, or fourth class are added to the list of local government entities allowed to pay certain claims using electronic funds transfers. To be eligible, local governments must enact specified policy controls governing the initiation, authorization, and documentation of electronic funds transfers. Claims Declaration – The requirement to obtain a specific form of written claim declaration was also repealed based on the understanding that by making the claim, the party making the claim is declaring that the claim is just and correct and has not been paid previously. -24- City E-mail Address Required to Receive State Aid – Effective for state aids payable in 2018 and thereafter, cities will be required to register an official e-mail address with the Commissioner of the state Department of Revenue in order to receive state aid payments. Workforce Housing Tax Increment Financing – The omnibus tax bill created a new authorized use of tax increment financing (TIF), for workforce housing in cities located outside of the statutorily defined metropolitan area that meet certain criteria. Tax Increment Financing Interfund Loans – Interfund loan provisions for TIF were amended to make it easier for cities and development authorities to make and document interfund loans. Loans may now be made or documented up to 60 days after the actual transfer or expenditure occurs. Interfund loan resolutions may now be passed prior to the final approval of the related TIF plan. Loan terms may be amended after the loan has been made if the TIF district has not been decertified. Public Debt – The Legislature passed several amendments to statutes governing public debt that took effect on July 1, 2017, including: • Allowing both home rule charter and statutory cities to issue 20-year capital notes for projects to eliminate R-22 Freon-based refrigerant; • Increasing the maximum dollar limit on Housing and Redevelopment Authority general obligation bond issues from $3 million to $5 million; and • Modifying the requirements for street reconstruction bonds to be approved by a two-thirds majority of the governing body rather than requiring unanimous approval. Local Housing Trust Funds – The omnibus jobs and economic growth appropriations bill established authority for cities to create a local housing trust fund by ordinance, or to participate in a joint powers agreement to establish a regional housing trust fund. The funds, which may be financed from sources such as local government appropriations or housing and redevelopment authority levies, may be used for grants or loans for development, rehabilitation, financing of housing to match federal or state or private funds for housing, down payment assistance, rental assistance, or homebuyer counseling. Long-Term Equity Investment Authority – Effective July 1, 2017, cities with a population of more than 100,000 or those that had their most recently issued general obligation bonds rated in the highest category, are authorized to invest in an expanded list of authori zed investments that includes certain equity-based investments. The amount invested in equity-based investments cannot exceed 15 percent of the sum of a city’s assigned cash, cash equivalents, deposits, and investments. Before investing in the expanded list of authorized investments, the governing body of the municipality must adopt a resolution acknowledging the risks assumed. Border-to-Border Broadband Grants – The Legislature appropriated $20 million in fiscal 2018 for the Border-to-Border Broadband Grant Program. The grants, available through the Office of Broadband Development in the Department of Employment and Economic Development, provide funding to help communities meet state goals for the development of state-wide, high-speed broadband access, focusing on areas currently considered to be underserved or with a high concentration of low-income households. Elections – An omnibus elections law was passed making several modifications to election administration, including: requiring special elections conducted by local governments be held on one of five uniform election dates, clarifying the timeline for municipalities to change from odd to even -year election cycles or vise-versa, allowing municipalities to canvass the results of a primary election on the second or third day after the primary, and appropriating $7 million for grants to replace aging election equipment or purchase electronic poll books. -25- Workers’ Compensation and PERA Retirement Benefits – A statutory change was adopted based on the results of recent court rulings that Public Employees Retirement Association (PERA) retirement benefits should not be offset against workers’ compensation permanent total disability benefits. Under the new law, claimants would receive all past and future permanent and total disability benefits without a PERA retirement offset. Effective January 1, 2019, the contribution rates for the Police and Fire Plan will increase. Employee and employer rates will increase by 1.0 percent and 1.5 percent , respectively, phased in over a two-year period. Notice of Proposed Ordinances – A new statute was created requiring cities to provide a 10-day notice prior to a scheduled final vote on most new proposed ordinances or amendments to ordinances, and specifying the various acceptable means of providing the required notification. State Building Code Applicability – Construction, additions, and alterations to places of public accommodation; defined as publicly or privately-owned facilities designed for occupancy by 200 or more people as a sports or entertainment arena, stadium, theater, community or convention hall, special event center, indoor amusement facility or water park, or indoor swimming pool; must comply with the state building code. Sunday Liquor Sales – Minnesota Statutes were amended to allow for the sale of intoxicating liquor on Sundays between the hours of 11:00 a.m. and 6:00 p.m. by off-sale licensees, effective July 1, 2017. REAL ID Act – Minnesota Statutes were amended to make the state compliant with federal REAL ID Act requirements, which will change identity verification and security related to state-issued identification cards and driver’s licenses. THIS PAGE INTENTIONALLY LEFT BLANK -26- ACCOUNTING AND AUDITING UPDATES GASB STATEMENT NO. 75, ACCOUNTING AND FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with other post-employment benefits (OPEB), as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. Similar to changes implemented for pensions, this statement requires the liability of employer and nonemployer contributing entities to employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. Note disclosure and RSI requirements about defined benefit OPEB also are addressed. The requirements for this statement are effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. GASB STATEMENT NO. 83, CERTAIN ASSET RETIREMENT OBLIGATIONS This statement addresses accounting and financial reporting for certain asset retirement obligations (ARO), which are legally enforceable liabilities associated with the retirement of a tangible capital asset. This statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for ARO. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability when it is both incurred and reasonably estimable. The measurement of an ARO is required to be based on the best estimate of the current value of outlays expected to be incurred, and a deferred outflow of resources associated with an ARO is required to be measured at the amount of the corresponding liability upon initial measurement. This statement requires the current value of a government’s AROs to be adjusted for the effects of general inflation or deflation at least annually, and a government to evaluate all relevant fac tors at least annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. A government should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays. Deferred outflows of resources should be reduced and recognized as outflows of resources in a systematic and rational manner over the estimated useful life of the tangible capital asset. If a government owns a minority interest in a jointly owned tangible asset where a nongovernmental entity is the majority owner or has operational responsibility for the jointly owned asset, the government’s minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability measurement and recognition requirements of this statement. -27- The statement also requires disclosures of any funding or financial assurance requirements a government has related to the performance of asset retirement activities, along with any assets restricted for the payment of the government’s AROs. This statement also requires disclosure of information about the nature of a government’s AROs, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor. This statement requires similar disclosures for a government’s minority shares of AROs. The requirements of this statement are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 84, FIDUCIARY ACTIVITIES 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 post-employment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements, which should present a statement of fiduciary net position and a statement of changes in fiduciary net position. This statement 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. A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds. 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, defined as 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. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. GASB STATEMENT NO. 85, OMNIBUS 2017 The objective of this statement is to address issues that have been identified during implementation and application of certain GASB statements. The statement addresses a variety of topics, including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits (pensions and OPEB). The statement is meant to enhance consistency in the application of recent accounting and financial reporting standards. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. -28- GASB STATEMENT NO. 86, CERTAIN DEBT EXTINGUISHMENT ISSUES Current GASB guidance requires that debt be considered defeased in substance when the debtor irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. This new standard establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. The primary objective of this statement is to improve 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—resources other than the proceeds of refunding debt—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 financial statements for debt that is defeased in substance. The requirements of this statement are effective for reporting periods beginning after June 15, 2017. GASB STATEMENT NO. 87, LEASES A lease is a contract that transfers control of the right to use another entity’s nonfinancial 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. Governments enter into leases for many types of assets. Under the previous guidance, leases were classified as either capital or operating depending on whether the lease met any of four tests. In many cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease financing transactions. The goal of this statement is to better meet the information needs of users by improving accounting and financial reporting for leases by governments. It establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. This statement increases the usefulness of 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. 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 the relevance and consistency of information about governments’ leasing activities. To reduce the cost of implementation, this statement includes an exception for short-term leases, 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. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. THIS PAGE INTENTIONALLY LEFT BLANK CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA Special Purpose Audit Reports Year Ended December 31, 2017 THIS PAGE INTENTIONALLY LEFT BLANK Page Independent Auditor’s 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 1–2 Independent Auditor’s Report on Minnesota Legal Compliance 3 Schedule of Findings and Responses 4–5 Table of Contents CITY OF APPLE VALLEY DAKOTA COUNTY, MINNESOTA THIS PAGE INTENTIONALLY LEFT BLANK C ERTIFIED A CCOUNTANTS P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com -1- INDEPENDENT AUDITOR’S 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 To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 25, 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. 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 have not been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be a material weakness. We did identify certain deficiencies in internal control, described in the accompanying Schedule of Findings and Responses as item 2017-001, that we consider to be a significant deficiency. (continued) -2- 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 FINDING The City’s response to the finding identified in our audit is described in the accompanying Schedule of Findings and Responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota June 25, 2018 C ERTIFIED A CCOUNTANTS P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com -3- INDEPENDENT AUDITOR’S REPORT ON MINNESOTA LEGAL COMPLIANCE To the City Council and Management City of Apple Valley, 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 Apple Valley, Minnesota (the City) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 25, 2018. MINNESOTA LEGAL COMPLIANCE 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 failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities, except as described in the Schedule of Findings and Responses as items 2017-002 and 2017-003. 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. CITY’S RESPONSES TO FINDINGS The City’s responses to the legal compliance findings identified in our audit have been included in the Schedule of Findings and Responses. The City’s responses were not subject to the auditing procedures applied in our audit of the financial statements and, accordingly, we express no opinion on them. PURPOSE OF THIS REPORT 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 report is not suitable for any other purpose. Minneapolis, Minnesota June 25, 2018 CITY OF APPLE VALLEY Schedule of Findings and Responses Year Ended December 31, 2017 -4- A. FINDINGS – SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER FINANCIAL REPORTING 2017-001 INADEQUATE SEGREGATION OF DUTIES Criteria – Internal control over financial reporting. Condition – The City of Apple Valley, Minnesota (the City) has limited segregation of duties over cash receipts, community center refunds and reimbursements, golf course inventory, and utility billing adjustments. Context – This is a current year and prior year finding. Cause – The limited segregation of duties is primarily caused by the limited size of the City’s finance and recreation department staff. Effect – One important element of internal accounting controls is an adequate segregation of duties such that no one individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. A lack of segregation of duties subjects the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. Recommendation – We recommend that the City continue to review its accounting procedures and internal controls and make improvements on an ongoing basis within the limits of the staff available. Management Response – There is no disagreement with the audit finding. The City has made improvements during the current year and is in the process of making additional improvements to its internal control structure to maximize the segregation of duties in all areas within the limits of the staff available. B. FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT 2017-002 RESPONSIBLE CONTRACTOR LANGUAGE Criteria – Minnesota Statutes § 16C.285. Condition – Minnesota Statutes require the City to include responsible contractor language for each construction contract in excess of $50,000, awarded pursuant to a lowest responsible bidder or best value process. The successful contractor must submit a verificati on of compliance signed under oath by an owner or officer verifying compliance with the minimum criteria set forth in Minnesota Statutes § 16C.285. Context – One of four bids tested was not in compliance. This is a current year finding. Cause – This was an oversight by city personnel. CITY OF APPLE VALLEY Schedule of Findings and Responses (continued) Year Ended December 31, 2017 -5- B. FINDINGS – MINNESOTA LEGAL COMPLIANCE AUDIT (CONTINUED) 2017-002 RESPONSIBLE CONTRACTOR LANGUAGE (CONTINUED) Effect – One bid approved in 2017 was not in compliance with this statute for responsible contractor requirements. Recommendation – We recommend that the City review applicable statutes and bid procedures to ensure future compliance. Management Response – There is no disagreement with the audit finding. The City will review its procedures to ensure that verifications are obtained in the future. 2017-003 CLAIMS AND DISBURSEMENTS Criteria – Minnesota Statutes § 471.425, Subd. 2. Condition – Minnesota Statutes require cities to pay each vendor obligation according to the terms of each contract or within 35 days after the receipt of the goods or services , or the invoice for the goods or services. If such obligations are not paid within the appropriate time period, cities must pay interest on the unpaid obligations at the rate of 1.5 percent per month or part of a month. For one disbursement selected for testing, the City did not pay the obligation within the required time period, and did not pay interest on the unpaid obligation. Context – One of twenty-five disbursements tested were not in compliance. This is a current year finding. Cause – This was an oversight by city personnel by not submitting invoices to the centralized accounts payable function. Effect – One payment made to a vendor was not paid within the timeframe as required by state statutes, and the vendor was not paid interest to which they were entitled. Recommendation – We recommend that the City review claims and disbursements payment procedures in place to ensure future compliance with this statute. Management Response – The City agrees with the finding. The City will review its payment procedures and monitor vendor submissions of invoices to ensure they are submitted to the centralized accounts payable function. THIS PAGE INTENTIONALLY LEFT BLANK City of Apple Valley Popular Annual Financial Report To The Community FOR THE YEAR ENDED DECEMBER 31, 2017 Dear Apple Valley Resident, We are pleased to present the City of Apple Valley’s Popular Annual Financial Report (PAFR). This report provides a summary of the City’s financial information in a simplified, easy to read format. We trust this report gives you a better understanding on city government and our financial condition. Information in this report comes from Apple Valley’s 2017 Comprehensive Annual Financial Report (CAFR). The CAFR was prepared in conformity with Generally Accepted Accounting Principles (GAAP), was audited by MMKR and received an unmodified opinion, which is the best audit opinion possible. In order for Apple Valley to manage the community finances smoothly, it divides various activities into several different funds. Governmental funds account for tax-supported activities and include:  General Fund activities that provide for basic operations of the City, i.e. administration, building maintenance, police & fire, street & park maintenance, recreation activity, community development and planning.  Special Revenue Funds account for activities restricted to specific purposes like the City’s Economic Development Authority.  Debt Service Funds track revenues and expenses related to repayment of long -term debt.  Capital Projects Funds collect revenue from special assessments, state and county aids and allots them toward construction or major capital expenses.  Proprietary Funds account for activities that operate as a public enterprise which are paid for by user fees, i.e. water, sanitary sewer, storm sewer, liquor stores, and Valleywood Golf Course.  Internal Service Funds account for the acquisition, operation, and maintenance of governmental facilities and services, which are entirely or predominately self-supported by user charges to the governmental funds. If you would like a copy of the CAFR, visit the City’s website at CityofAppleValley.org or contact the Finance Department at: 952-953-2540 Dividing Up Your Property Tax Dollar Your tax dollar is divided up into several governmental entities. Apple Valley collects 35 cents of every tax dollar for City services. The remaining portions are divided among Dakota County, the school district, and other agencies. These tax rates are based on a residential home valued at $224,100. City of Apple Valley 7100 147th Street West Apple Valley, MN 55124 952-953-2500 CityofAppleValley.org Elected Officials: MAYOR: Mary Hamann-Roland CITY COUNCIL: John Bergman Tom Goodwin Ruth Grendahl Clint Hooppaw INSIDE THIS ISSUE: Introduction 1 Dividing up your 1 Tax Dollar Monthly Bill 2 Tax Cost 2 Comparison General Fund 3 Special Revenue 4 Funds Long-Term Debt 4 Internal Service 4 Funds Capital Funds 5 Enterprise Funds 5-6 CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 2 How Tax Dollars Buy City Services Residents receive a variety of City services for an affordable price. The cost of City services in 2017 for the owner of a single-family home in Apple Valley with an assessor’s market value of $224,100 was $80.40 per month. The tax cost per month of $80.40 is the amount left requiring tax support after allocatfng grants, program fees, lodging taxes and other non-property tax revenue to the appropriate services. Quarterly Cost of Utilities Based on an average usage of 21,000 gallons of water and 15,000 gallons of sewer per quarter, the cost of utflitfes for a home in Apple Valley was $131.56 in 2017. Apple Valley bills on a quarterly basis. Services include water, sewer, storm water, and street lightfng. Police $24.09 Parks $12.84 Public Works $9.44 Street Reconstruction $9.36 Fire $5.96 General Gov. $12.92 Debt Service $4.22 Insurance $1.57 TOTAL $80.40 Below is a 2017 comparison of monthly city property taxes paid on a median valued home with twelve similar sized com- munitfes in the metro area. Using the median home value in each community, we compared the property tax cost per month for each city. Monthly City Property Tax Cost Comparison * *Apple Valley’s tax rate supports road reconstructfon projects within the City without the need for special assessments. Other citfes routfnely levy special assessments against their property owners to support such costs. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 3 General Fund Revenue The City’s General Fund is the largest Governmental fund and also one of the most vital to the City’s operatfon. The General Fund is the primary fund that accounts for everyday general expenditures like street and park maintenance, police protectfon, and fire protectfon while at the same tfme supportfng the annual street and utflity infrastructure program. Like most funds, the General Fund relies on the inflow of cash, shown as revenues and subsequently the outilow listed as expenditures. The primary revenue for the General Fund is property taxes. Intergovernmental revenues include state or county aids and grants. For the year end of 2017, the City’s revenue total was $32,199,813 which was a $2,146,249 (7.1%) increase from the previous year. The increase is related to an increase in collectfon of development related fees ($1,200,000) and property taxes. ($800,000). City Departments General Fund Expenditures The City’s total General Fund expenditures for 2017 were $27,274,374 which was $1,541,986 (5.4%) under the final 2017 budget. Overall, General Fund expenditures increased $1,288,016 (5.0%) primarily in the public safety area. The chart below highlights the amount funded to each of the City’s functfons. Administration: This department provides the overall directfon for the City as determined by the City Council. It is responsible for maintaining City records, issuing licenses, administering Council policies, and overseeing electfon procedures. Finance: This department conducts the financial affairs of the City of Apple Valley in accordance with the Government Accountfng Standards Board (GASB) and Generally Accepted Accountfng Principals (GAAP). Planning & Community Development: This department is responsible for ensuring that laws, ordinances, and zoning codes are enforced. It is also responsible for Economic Development within the City. Public Works: This department is responsible for maintaining the City’s infrastructure, vehicles, and buildings as well as civil and traffi c engineering, inspectfons, natural resources, and the City cemetery. Parks & Recreation: This department is responsible for providing recreatfon actfvitfes in the City and maintain the City’s parks and trails. Public Safety: This department is responsible for maintaining the peace and the protectfon of the community through diligent enforcement of laws and effectfve response to calls for service. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 4 Special Revenue Funds Special Revenue Funds are used to account for general government financial resources that are RESTRICTED by law or contractual agreement to specific purposes other than debt service or major capital projects. The City of Apple Valley has the following Special Revenue Funds:  Cable TV—This fund accounts for the operatfng costs of the cable TV functfons funded by cable franchise fees.  EDA Operations—This fund accounts for the operatfng actfvitfes of the Apple Valley Economic Development Authority.  Lodging Tax—This fund administers the resources from the lodging tax process. *Please note that Solid Waste Grant and Police Forfeiture are not recognized in this report, but are included in the CAFR. Long-Term Bonded Debt Apple Valley received a “AAA” ratfng from Standard and Poor’s and a “Aaa” ratfng from Moody’s. These are the highest possible ratfngs you can receive. A high bond ratfng translates into lower future borrowing costs. This ratfng is based on the City’s:  Moderately-sized tax base with recent improvement in its valuatfon after a trend decline.  Sound financial positfon characterized by healthy reserves.  Average debt burden with quick principal amortfzatfon.  Favorably located in the Twin Citfes metropolitan area. In 2017, the City did not issue any new debt, nor did it partfcipate in refinancing of any old debt. In late December 2017, the City called debt (paid off early) totaling $15,645,000, contributfng to the lowering of total net bonded debt to $20,925,516 and net debt per capita to $400. Once again the City received the Certfficate of Achievement for Excellence in Financial Reportfng awarded by the Government Finance Officers Associatfon for the City’s Comprehensive Annual Financial Report (CAFR). Although the financial numbers in the CAFR come from an audited source, they are presented in this report in a condensed, unaudited, non-GAAP format. Internal Service Funds Internal service funds are an accountfng procedure used to accumulate and allocate costs internally among the City’s various functfons. The City maintains internal service funds for the following services: $- $100 $200 $300 $400 $500 $600 $700 2013 2014 2015 2016 2017 Net Bonded Debt per capita CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 5 Capital Projects Funds Road Improvement Fund: This fund finances street overlays and reconstructfon projects per the City’s Pavement Management Plan. The ending balance in this fund for 2017 was negatfve $5,174,280. Future Capital Projects Fund: This fund accumulates resources directly from the General Fund. City Council policy calls for amounts in the General Fund that exceed a maximum level to be moved into the Future Capital Projects Fund. Funds are used to pay for any capital improvement costs needed in the future. The ending fund balance in this fund for 2017 was $15,353,401. Non-Major Capital Projects Funds: The City has an additfonal 27, non-major capital project funds that are used to account for various project-related costs. The net ending fund balance in these funds for 2017 was $11,483,537. Please see the 2017 CAFR for further detail Enterprise Funds The Enterprise Funds account for the City’s utflitfes (water, sewer, storm drainage, and street lights), liquor stores, golf course, sports arena, and cemetery, which are all run like businesses in that they rely on fees and charges for revenue to cover expenditures. Utilities: Water, Sewer, Storm Water, & Street Light About this Report The City of Apple Valley reports financial year-end results in the Comprehensive Annual Financial Report (CAFR). The Popular Annual Financial Report (PAFR) is an unaudited report that summarizes the most significant data from the 2017 CAFR, and is consistent with Generally Accepted Accounting Principles. The report reflects the net tax cost by service expenditure, developed by crediting related revenues against appropriate expenditures and allocating local taxes against the remaining balance. For a complete review of the City’s financial position for 2017, consult the 2017 CAFR available on the City’s website at CityofAppleValley.org, or from the Finance Department at 952-953-2540. These funds consist of utflity services provided to the community by the City such as water & sewer, storm drainage, and street lightfng. Revenues from these funds go to support operatfons, maintenance, and improvements of the City’s utflitfes. CITY OF APPLE VALLEY POPULAR ANNUAL FINANCIAL REPORT PAGE 6 Municipal Liquor The City owns and operates three municipal liquor stores. Profits from your purchases stay in the City of Apple Valley to help aid in providing funding for police, fire, and public works vehicles, maintaining and improving city parks along with other General Fund services. Valleywood Golf Course Valleywood Golf Course features an 18-hole, par 71 course along with a large banquet space, full scale bar, restaurant, and outdoor patfo. Valleywood was recently named MGA Member Club of the Year for 2015. Sports Arena The Sports Arena offers tennis lessons during the summer and ice skatfng during the winter. Hayes Park Arena offers ice tfme from mid- June to mid-March and indoor turf tfme from mid-March to mid-June. City Facts  Populatfon: 52,361  Per Capita $38,684 Personal Income  High School 95.0% Graduatfon Rate  Unemployment 2.5% Rate Home of the MN Zoo 50 parks 78 miles of trails Valleywood Golf Course Sports Arena Aquatfc Center Senior Center Community Center Amenities In the general electfon of 1968, the residents voted to incorporate the Town of Lebanon as the Village of Apple Valley. A mayor and four councilmembers were elected and took office on January 1, 1969. On January 1, 1974, Apple Valley became a statutory city. History I T E M: 4.E. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution Establishing Speed L imit along 157th S treet from F inch Avenue to P ilot Knob Road for P roject 2015-103, 157th S treet & J ohnny Cake Ridge Road I mprovements S taff Contact: B randon A nderson, City Engineer Department / Division: E ngineering Division AC T I O N RE Q UE S T E D: Adopt resolution establishing speed limit along 157th Street from Finch Avenue to Pilot Knob Road for Project 2015-103, 157th Street & J ohnny Cake Ridge Road Improvements. S UM M ARY: On November 22, 2017, the C ity of Apple Valley received notice from the Minnesota Department of Transportation (MnD O T ) regarding the results of a speed study along 157th Street from the intersection of Finch Avenue and the intersection with Pilot Knob Road. MnD O T completed an engineering and traffic investigation to determine reasonable and safe speed limits for 157th Street (MSA S 113) between the intersection with Finch Avenue and the intersection with Pilot Knob Road. Based on the results of the investigation, MnD O T recommends authorization of the following speed limits for 157th Street (MSA S 113): 35 mph – Between the intersection with Finch Avenue and point approximately 1350 feet east of the intersection with Finch Avenue 40 mph – Between a point approximately 1350 feet east of the intersection with Finch Avenue and the intersection with Pilot Knob Road T he recommended 35 mph speed limit serves as a transition zone (transitioning from a more urban area to a primary rural residential area). Attached are the speed samples that were obtained for the speed study and a map showing the statutory and the recommended speed limits (Figure: 1). B AC K G RO UND: City C ouncil adopted Resolution Number 2017-7 on J anuary 12, 2017, requesting the Minnesota Department of Transportation (MnD O T ) to complete a Speed Study on 157th Street – SA P 186-113-003, from Finch Avenue to Pilot Knob Road, for Project 2015-103, 157th Street & J ohnny Cake Ridge Road Improvements. B UD G E T I M PAC T: N/A AT TAC HM E NT S : Resolution Exhibit Map CITY OF APPLE VALLEY RESOLUTION NO. 2018- ADOPT RESOLUTION ESTABLISHING SPEED LIMIT ALONG 157TH STREET FROM FINCH AVENUE TO PILOT KNOB ROAD FOR PROJECT 2015-103 157TH STREET & JOHNNY CAKE RIDGE ROAD IMPROVEMENTS WHEREAS, the City of Apple Valley did request that the Minnesota Department of Transportation (MnDOT) conduct a speed study on the segment of 157th Street from Finch Avenue to Pilot Knob Road, WHEREAS, the authority to determine the safe and reasonable speed on a roadway resides with the Commissioner of the Minnesota Department of Transportation (MnDOT), NOW THEREFORE BE IT RESOLVED, by The City Council of The City of Apple Valley, Minnesota, hereby requests that the speed limit on the above referenced segment be set at: • 35 mph – Between the intersection with Finch Avenue and point approximately 1350 feet east of the intersection with Finch Avenue • 40 mph – Between a point approximately 1350 feet east of the intersection with Finch Avenue and the intersection with Pilot Knob Road Adopted this 12th day of July, 2018 __________________________________ Mary Hamann-Roland, Mayor ATTEST: _________________________________ Pamela J. Gackstetter, City Clerk EXHIBIT A 158TH CT W 158TH ST W FAIR HILL WAYEVERGREEN AVEENGLISH AVE160TH ST WFINCH AVE158TH ST WJOHNNY CAKERIDGE RD157TH ST CITY OF APPLE VALLEY DATE:PROJECT NO. FIGURE: 157TH 157TH 1 2015-1037/2/2018 40 MPH40 MPH 35 MPH35 MPH ST SPEED STUDY ST I T E M: 4.F. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution Setting P ublic Hearing at 7:00 p.m. on August 9, 2018, to Vacate Drainage and Utility E asements on L ot 1, B lock 1, Rumoulington Addition, and L ot 15, B lock 3, and the South Half of L ot 16, B lock 3, L ebanon Hills F irst Addition (135 S urrey Trail S outh and 129 Surrey Trail S outh) S taff Contact: K athy Bodmer, A I C P, Planner Department / Division: Community Development Department Applicant: Gene R. and S helby J . Splinter and Dan Moulin P roject Number: P C18-20-S V G F Applicant Date: 6/27/2018 60 Days: 8/25/2018 120 Days: 10/24/2018 AC T I O N RE Q UE S T E D: Adopt resolution setting public hearing at 7:00 p.m. on August 9, 2018, to vacate drainage and utility easements on Lot 1, Block 1, Rumoulington Addition, and Lot 15, Block 3, and the South Half of Lot 16, Block 3, Lebanon Hills First Addition (135 Surrey Trail South and 129 Surrey Trail South). S UM M ARY: T he C ity Council is asked to set a public hearing to consider vacation of easements at 135 Surrey Trail South and 129 Surrey Trail South. Two residential property owners wish to adjust the location of an existing shared lot line. T he vacation is requested so that new property lines can be established and new easements dedicated along the new property lines with the new plat. B AC K G RO UND: N/A B UD G E T I M PAC T: N/A AT TAC HM E NT S : Resolution CITY OF APPLE VALLEY RESOLUTION NO. 2018-___ A RESOLUTION SETTING A PUBLIC HEARING ON PROPOSED VACATION OF PUBLIC GROUNDS BE IT RESOLVED by the City Council of the City of Apple Valley, Dakota County, Minnesota, that the City Clerk be, and hereby is, directed to schedule the public hearing specified in the notice attached hereto as Exhibit A and is further directed to cause said notice to be published for two weeks in the Apple Valley Sun Thisweek. The City Clerk is further directed to post copies of Exhibit A, pursuant to Minnesota Statutes Chapter 412.851, at least two weeks prior to the scheduled date of said hearing. ADOPTED this 12th day of July, 2018. __________________________________ Mary Hamann-Roland, Mayor ATTEST: ___________________________________ Pamela J. Gackstetter, City Clerk NOTICE OF HEARING ON PROCEEDINGS FOR VACATION OF PUBLIC GROUNDS IN THE CITY OF APPLE VALLEY TO WHOM IT MAY CONCERN: NOTICE IS HEREBY GIVEN that the City Council of the City of Apple Valley, Dakota County, Minnesota, will meet at the Municipal Center, 7100 West 147th Street, at 7:00 p.m., or as soon thereafter as possible, on Thursday, August 9, 2018, to consider the matter of vacation of the following described public grounds in the City of Apple Valley, pursuant to Minnesota Statutes 412.851: All drainage and utility easements upon and across Lot 1, Block 1, RUMOULINGTON ADDITION and Lot 15, Block 3 and the south half of Lot 16, Block 3, LEBANON HILLS FIRST ADDITION, according to the recorded plats thereof, on file at the Recorder's Office, Dakota County, Minnesota. Such persons as desire to be heard with reference to the proposal will be heard at this meeting. DATED this 12th day of July, 2018. __________________________________ Pamela J. Gackstetter, City Clerk I T E M: 4.G. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution A pproving 10 F t. Variance for 340 Sq. Ft. Garage A ddition on L ot 8, Block 1, A pple Valley T hird Addition (216 E dgewood L ane) S taff Contact: K athy Bodmer, A I C P, Planner Department / Division: Community Development Department Applicant: E lliot Grier and MacGregor Grier P roject Number: P C18-15-V Applicant Date: 6/5/2018 60 Days: 8/3/2018 120 Days: 10/2/2018 AC T I O N RE Q UE S T E D: Adopt resolution approving 10' variance for 340 sq. ft. garage addition at 216 Edgewood Lane (Lot 8, Block 1 Apple Valley Third Addition). S UM M ARY: A variance is requested at 216 Edgewood Lane to reduce the front yard setback from 30' to 20' (10' variance) to replace an existing single stall garage with 772 sq. ft. garage. Of the 340 sq. ft. addition, approximately 220 sq. ft. extends into the setback area. T he home was constructed in 1965 with a single stall garage. T he garage and home were recently damaged by fire and need significant repair. T he owner would like to reconstruct the garage by constructing a two stall garage in front of the existing garage and then creating a tandem garage stall connecting the front portion of the garage to the existing single garage stall. T he property is located at the end of a loop street immediately south of Alimagnet Park. T he home is located 36' from the front property line; the minimum front yard setback is 30'. T he fact that the home is set back an additional 6' provides additional room in front of the home for an addition. T he rear yard is heavily wooded with the elevation increasing 10' from the back of the house to the rear property line. T he owner states that constructing the garage behind the house isn't feasible. Reconstructing and redeveloping existing properties is challenging and often requires some degree of flexibility. Allowing a front yard variance will reduce the length of the driveway, but with 36' of driveway remaining, more than sufficient room will remain for parking outside on the driveway. C onstructing the garage in front of the house rather than behind the house will minimize impervious surface area on the lot. T he garage addition will replace existing impervious driveway. An addition to the rear of the home would require tree removal and grading and increase the amount of impervious surface area on the lot. It is staff's view that a single stall garage restricts the use of the property. A family in the 1960s might have functioned with little difficulty with a single stall garage. Today, most families have at least two cars and need room for additional storage. T he variance request will reasonably adapt the property for today's use without negatively impacting neighboring properties. B AC K G RO UND: At its meeting of J une 20, 2018, the Planning C ommission voted unanimously to recommend approval of the variance with conditions based on a number of findings. T he conditions and findings have been incorporated into the draft resolution approving the variance. Planning C ommission Findings: 1. T he home was constructed in 1965 with a single stall garage. A single garage stall restricts the use of the property. T he variance is requested to make reasonable use of the property. 2. T he existing garage is located 9' from the side property line. T here is insufficient space available to construct a second garage stall beside the existing stall. 3. T he rear yard is heavily wooded and has a 10' elevation change to the rear lot line. Constructing the garage on the rear of the home would require tree removal and substantial grading. 4. T he front of the home is located 6' back from the minimum front setback line, providing additional room for an addition to the front of the home. 5. Constructing the garage addition on the front of the home will create less site disturbance and result in less impervious surface area than an addition on the rear of the home. 6. T he C omprehensive Plan states: "T he City encourages the maintenance of property and the reinvestment in existing homes. Improvements to existing homes must be compatible in use, size, and scale with adjacent properties." T he proposed addition is a reinvestment in the property to make the property suitable for today's homeowners. B UD G E T I M PAC T: N/A AT TAC HM E NT S : Background Material Resolution Applicant L etter Survey Site P lan Elevations Photo Correspondence Grier Garage Variance PROJECT REVIEW Existing Conditions Property Location: 216 Edgewood Lane Legal Description: Lot 8, Block 1 APPLE VALLEY 3RD ADDITION Comprehensive Plan Designation “LD” (Low Density Residential, 2-6 units/acre) Zoning Classification “R-3” (Single family residential, minimum lot size 11,000 sq. ft.) Existing Platting Platted Lot Current Land Use Single family residential Size: 11,322 (0.26 acres) Topography: Flat Existing Vegetation Vegetation consistent with established residential neighborhood. Other Significant Natural Features NA Adjacent Properties/Land Uses NORTH Alimagnet Park Comprehensive Plan PARK - Park Zoning/Land Use P-Institutional SOUTH Lot 7, Block 1 Apple Valley Third Addition Comprehensive Plan LD-Low density residential, 2-6 units/acre Zoning/Land Use R-3 Single family, 11,000 sq. ft. min. lot EAST Lot 2, Block 1 Apple Valley Third Addition Comprehensive Plan LD-Low density residential, 2-6 units/acre Zoning/Land Use R-3 Single family, 11,000 sq. ft. min. lot WEST Lot 15, Block 3 Apple Valley Third Addition Comprehensive Plan LD-Low density residential, 2-6 units/acre Zoning/Land Use R-3 Single family, 11,000 sq. ft. min. lot Variance Review Considerations: Definition of “Practical difficulties”:  The applicant proposes to use the property in a reasonable manner not permitted by the zoning provisions of the code;  The plight of the applicant is due to circumstances unique to the property not created by the applicant; and  The variance, if granted, will not alter the essential character of the locality.  Economic considerations alone do not constitute practical difficulties. In order to grant a variance, the City considers the following factors to determine whether the applicant established that there are practical difficulties in complying with the provision(s) of this Chapter: 1. Special conditions apply to the structure or land in question that are particular to the property and do not apply generally to other land or structures in the district or vicinity in which the land is located;The granting of the proposed variance will not be contrary to the intent of this chapter;The special conditions or circumstances do not result from the actions of the owner/applicant; 4. The granting of the variance will not merely serve as a convenience to the applicant, but is necessary to alleviate practical difficulties in complying with the zoning provisions of this Code; and 5. The variance requested is the minimum variance necessary to alleviate the practical difficulty. Planning Commission Action: At its meeting of June 20, 2018, the Planning Commission voted unanimously to recommend approval of the variance with conditions. Below is the Planning Commission’s motion with the conditions and findings: Recommend approval of a variance at 216 Edgewood Lane to reduce the front yard setback from 30' to 20’' (10' variance) to construct a 340 sq. ft. garage addition subject to compliance with all City Codes and in accordance with the approved plans and the following conditions, based on the findings listed below: Conditions: 1. Owner shall submit overall reconstruction plans at the time of construction of the garage to confirm size of house vs. size of garage. 2. At the time of application of the building permit, owner shall submit a calculation of impervious surface coverage that demonstrates that impervious coverage is less than 35% of the lot area. 3. The variance allows the property owner to have a 3-stall garage on the property. No other storage buildings may be constructed on the property. 4. Prior to any site work or tree removal, owner shall obtain a Natural Resources Management Permit (NRMP) and shall comply with the NRMP ordinance requirements. 5. The driveway grade may not exceed 10% slope. Owner shall modify plans as required to meet the maximum 10% slope requirement. Findings: 1. The home was constructed in 1965 with a single stall garage. A single garage stall restricts the use of the property. The variance is requested to make reasonable use of the property. 2. The existing garage is located 9' from the side property line. There is insufficient space available to construct a second garage stall beside the existing stall. 3. The rear yard is heavily wooded and has a 10' elevation change to the rear lot line. Constructing the garage on the rear of the home would require tree removal and substantial grading. 4. The front of the home is located 6' back from the minimum front setback line, providing additional room for an addition to the front of the home. 5. Constructing the garage addition on the front of the home will create less site disturbance and result in less impervious surface area than an addition on the rear of the home. 6. The Comprehensive Plan states: "The City encourages the maintenance of property and the reinvestment in existing homes. Improvements to existing homes must be compatible in use, size, and scale with adjacent properties." The proposed addition is a reinvestment in the property to make the property suitable for today's homeowners. The City's experience is that one property owner making a significant investment in his or her property will encourage neighboring properties to make updates and improvements to their homes. Edgewood Lane in scheduled to be reconstructed in the near future which will also encourage property owners to update and improve their properties. SITEApple ValleyBurnsvilleAlimagnetPark AlimagnetLake WALNUT LN P IN E W O O D D R S P R U C E D RHOLL ANDAVELINDEN DRPARK LNEDGEWOODLN144THST R E E T C T HOLLANDCT1 4 4 T H ST W 145TH ST W RI DGE VIE W D R REDWOODDR1 4 3 R D S T R E E T CT Dakota County GIS GRIER GARAGEVARIANCE µ AERIAL MAP ^ SITE P R-5 R-3 R-3 R-3 R-3 R-3 R-3 R-3 R-3 R-3 R-CL R-CL R-CL R-CL GARDEN VIEW DRWALNUT LN PINEWOOD DR LINDEN DRSPRUCE DR144THST W REDWOODDRHOLLAN D AVE JUNIPER LNEDGEWOOD LNHOLIDAY CTL I N D E N C I R144THSTREETCTHOLLANDCT 143RD ST W PINEWOOD CIR 1 4 5 TH ST W RI DGE VIE W D R 1 4 3 R D S T R E E T C T 1 µ GRIER GARAGEVARIANCE ZONING MAP ^ CITY OF APPLE VALLEY RESOLUTION NO. 2018 - A RESOLUTION APPROVING GRIER GARAGE VARIANCE AND ATTACHING CONDITIONS THERETO WHEREAS, pursuant to Minnesota Statutes 462.357 the City of Apple Valley has adopted, as Title XV of the City Code of Ordinances, zoning regulations to control land uses throughout the City; and WHEREAS, pursuant to the City’s said regulations, a “variance” is an exception granted by the City Council from the literal provisions of the zoning regulations where unique conditions exist which do not apply to the area in general; and WHEREAS, MacGregor Grier and Elliot Grier filed an application for a variance to reduce the front yard setback from 30’ to 20’ (10’ variance) for a newly constructed 340 sq. ft. garage addition attached to their home located at 216 Edgewood Lane and legally described as: Lot 8, Block 1, APPLE VALLEY THIRD ADDITION. WHEREAS, the Apple Valley Planning Commission reviewed the variance request at a public meeting held on June 20, 2018, and recommended approval of the variance based on the following determinations: 1. The home was constructed in 1965 with a single stall garage. A single garage stall restricts the use of the property. The variance is requested to make reasonable use of the property. 2. The existing garage is located 9' from the side property line. There is insufficient space available to construct a second garage stall beside the existing stall. 3. The rear yard is heavily wooded and has a 10' elevation change to the rear lot line. Constructing the garage on the rear of the home would require tree removal and substantial grading. 4. The front of the home is located 6' back from the minimum front setback line, providing additional room for an addition to the front of the home. 5. Constructing the garage addition on the front of the home will create less site disturbance and result in less impervious surface area than an addition on the rear of the home. 6. The Comprehensive Plan states: "The City encourages the maintenance of property and the reinvestment in existing homes. Improvements to existing homes must be compatible in use, size, and scale with adjacent properties." The 2 proposed addition is a reinvestment in the property to make the property suitable for today's homeowners. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Apple Valley, Dakota County, Minnesota, that a variance to construct a garage addition with a 20’ front setback (10’ variance) on Lot 8, Block 1, APPLE VALLEY THIRD ADDITION is hereby approved, subject to all applicable City Codes and standards and the following conditions: 1. If the Building Permit is not paid for and issued within one (1) year of the date of approval, the variance approval shall lapse. 2. The variance is approved due to the findings as presented by the Planning Commission at its June 20, 2018, meeting. 3. Prior to issuance of the building permit, the owner shall record this Resolution in the office of the Dakota County Recorder and provide to the City verification of the recording. 4. Construction shall occur in conformance with the site plan received in City Offices on June 28, 2018, on file in City offices. 5. Construction shall occur in general conformance with the elevation plan received in City Offices on June 5, 2018, noting the home may be constructed as a one- or two- story single family home. 6. Owner shall submit overall construction plans for garage and house prior to construction of the garage to confirm size of house vs. size of garage. 7. Owner shall submit a calculation of impervious surface coverage at the time of application of the building permit that demonstrates that impervious coverage is less than 35% of the lot area as required by City Code. 8. No additional accessory storage buildings may be constructed on the property. 9. Owner shall obtain a Natural Resources Management Permit (NRMP) and shall comply with the NRMP ordinance requirements prior to any site disturbance or tree removal on the site. 10. The driveway grade may not exceed 10% slope. Owner shall modify plans as required to meet the maximum 10% slope requirement. 11. Site grading shall occur in conformance with a Natural Resources Management Plan (NRMP) which shall include final grading plan to be submitted for review and approval by the City Engineer. 3 12. Construction shall be limited to the hours of 7:00 a.m. to 7:00 p.m. Monday through Friday. Weekend construction shall be limited to 8:00 a.m. to 5:30 p.m. Saturdays. 13. Earthmoving activities shall not occur when wind velocity exceeds thirty (30) miles per hour. Watering to control dust shall occur as needed and whenever directed by the Apple Valley Building Official or Zoning Administrator. 14. Issuance of a Building Permit and a final certificate of occupancy is contingent upon the project being constructed in conformance with all the preceding conditions as well as all applicable performance standards of the current zoning regulations. In the event that a certificate of occupancy is requested prior to completion of all required site improvements, a suitable financial guarantee in the amount of 125% of the estimated cost of the unfinished improvements shall be required along with an agreement authorizing the City or its agents to enter the premises and complete the required improvements if they are not completed by a reasonably stipulated deadline, with the cost of such City completion to be charged against the financial guarantee. 15. The ongoing use and occupancy of the premises is predicated on the ongoing maintenance of the structure and all required site improvements as listed in the preceding. No alteration, removal, or change to the preceding building plans or required site improvements shall occur without the express authorization of the City. Site improvements which have deteriorated due to age or wear shall be repaired or replaced in a timely fashion. BE IT FURTHER RESOLVED that such issuance is subject to a finding of compliance of the construction plans with the Minnesota State Building Code, as determined by the Apple Valley Building Official, and with the Minnesota State Uniform Fire Code, as determined by the Apple Valley Fire Marshal. ADOPTED this 12th day of July, 2018. __________________________________ Mary Hamann-Roland, Mayor ATTEST: ___________________________________ Pamela J. Gackstetter, City Clerk CERTIFICATE 4 I, Pamela Gackstetter, City Clerk, hereby certify that the above resolution is a true and correct copy of a resolution adopted by the City Council of the City of Apple Valley, Dakota County, Minnesota, on the 12th day of July, 2018. ________________________________ Pamela J. Gackstetter, City Clerk To whom it may concern, The home at 216 Edgewood Ln was involved in a fire March 17th which destroyed the garage and resulted in extensive damage to the rest of the house. We would like to take this opportunity while rebuilding to expand the garage to fit two cars side by side. Because of where the house is situated on the property we feel the best option is to build the garage in front of where the existing one car garage was. We are therefore requesting a 13 foot variance to the front setback to allow the garage to be built up to 17’ away from the west property line. If a 13’ variance is not approved we ask that a 10’ variance would be considered. Although a 10’ variance would allow a 2-car garage to be built, it would require borrowing some space from existing house which is not optimal. The lot sits at the end of a street that gets very little traffic. We have discussed this proposal with the neighbors and they did not bring up any objections. This is also the only house in the neighborhood with a one car garage. Regards, MacGregor Grier, Janelle Grier, Stephen Grier, Diane Grier, Elliott Grier and Emily Grier 1.Subject property's address is 216 Edgewood Lane, Apple Valley, Minnesota, its property identification number is 01-11702-01-080. 2.The bearing system is based on the North line of Lot 8, Block 1, APPLE VALLEY THIRD ADDITION which is assumed to bear North 89 degrees 04 minutes 05 seconds East. 3.Field work was completed 5/29/2018 . 4.The building(s) and exterior dimensions of the outside wall at ground level are shown on the survey. It may not be the foundation wall. 5.No specific title search for existence or non-existence of recorded or un-recorded easements has been conducted by the surveyor as a part of this survey. Only easements per the recorded plat are shown. 6.The gross area of the subject property is 0.260 Acres or 11,321 square feet. NOTES Lot = 11,321 sq. ft. House/Garage = 1,594 sq. ft. Stoop = 26 sq. ft. Concrete surfaces = 908 sq. ft. Paver surfaces front = 143 sq. ft. Paver surfaces rear and steps = 206 sq. ft. Total Impervious = 2,877 sq. ft. or 25.4% of lot HARD COVER CALCULATIONS Lot 8, Block 1, APPLE VALLEY THIRD ADDITION, Dakota County, Minnesota. PROPERTY DESCRIPTION I hereby certify that this survey, plan or report was prepared by me or under my direct supervision and that I am a duly Licensed Land Surveyor under the laws of the State of Minnesota. That this survey does not purport to show all improvements, easements or encroachments, to the property except as shown thereon. Signed this 1st day of May, 2018 Marcus F. Hampton MN L.S. No. 47481 SURVEYOR'S CERTIFICATE The vertical datum is NAVD88 . Benchmark #1 Sanitary sewer rim at Lot 8, Block 1. Elevation = 1017.23 BENCHMARK LEGEND FOUND IRON PIPE SET IRON PIPE AIR CONDITIONER UNIT STONE RETAINING WALL OVERHEAD UTILITY ELECTRIC METER POWER POLE GAS METER SANITARY MANHOLE CURB STOP DECIDUOUS CONIFEROUS CHAIN LINK FENCE PAVER SURFACE BITUMINOUS SURFACE CONCRETE SURFACE 2500 WEST C.R. 42, SUITE 120, BURNSVILLE, MN 55337PHONE: 952.890.6044 www.jrhinc.comPLANNERS / ENGINEERS / SURVEYORS216 Edgewood Lane SiteAPPLE VALLEY, MINNESOTACertificate of SurveyFORHighmark Builders, Inc.WOOD RETAINING WALL Received June 28, 2018 Front Elevation 3-D Rendering Received June 5, 2018 Street View Photos Signature Signature I T E M: 4.H. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution A pproving P lans and Specifications for P roject 2018-154, A pple Valley Community Center and Hayes Park A rena Roofing, and Authorizing Advertising for Receipt of B ids at 2:00 p.m. on A ugust 16, 2018 S taff Contact: B arry B ernstein, Director of P arks and Recreation Department / Division: Parks and Recreation Department AC T I O N RE Q UE S T E D: Adopt resolution approving plans and specifications for Project 2018-154, Apple Valley Community Center and Hayes Park Arena Roofing, and authorizing advertising for receipt of bids at 2:00 p.m. on T hursday, August 16, 2018. S UM M ARY: Staff is seeking authorization to go out for bids for re-roofing of Apple Valley Community Center's sport court gymnasium portion of the building and the entire Hayes Park Arena. B AC K G RO UND: Numerous roof repairs have occurred over the last several years and staff is of the opinion that useful life of the original roofing of both facilities has met its end. Staff has researched options for roofing and believes a Firestone white T P O would be the best product for replacement. B UD G E T I M PAC T: Funding has been allocated within the 2018 Budget for this project. AT TAC HM E NT S : Resolution Advertisement for Bid Background Material CITY OF APPLE VALLEY RESOLUTION NO. 2018 - RESOLUTION APPROVING SPECIFICATIONS AND DIRECTING RECEIPT OF SEALED BIDS FOR PROJECT NO.2018 - 154, APPLE VALLEY COMMUNITY CENTER AND HAYES PARK ARENA ROOFING WHEREAS, the Apple Valley City council has reviewed specifications for “Apple Valley Community Center and Hayes Arena Roofing Project,” copies of which are on file in the Office of the Parks and Recreation Department, 14603 Hayes Road, Apple Valley, MN; and WHEREAS, the City Council believes that the interest of the City would be best served by receiving sealed proposals based on said specification. NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Apple Valley, Dakota County, Minnesota, as follows: 1. The City Clerk is hereby authorized to receive sealed bids at the time and place specified in the form of notice attached hereto as Exhibit A. 2. The City Clerk is authorized and directed to cause an advertisement for said bids to be posted on the City’s website and on the online Quest Construction Data Network, not less than ten (10) days prior to the opening of said bids. ADOPTED this 12th day of July, 2018. Mary Hamann-Roland, Mayor ATTEST: Pamela J. Gackstetter, City Clerk Exhibit A ADVERTISEMENT FOR BIDS CITY OF APPLE VALLEY Sealed bids will be received until 2:00 p.m., Thursday, August 16, 2018, at the office of the City Clerk, City of Apple Valley, 7100 - 147th Street West, Apple Valley, Minnesota 55124, at which time they will be publicly opened and read, for the purpose of securing a contractor to provide: PROJECT NO. 2018 – 154, APPLE VALLEY COMMUNITY CENTER AND HAYES PARK ARENA ROOFING Each bid shall be accompanied by a certified check, cashier’s check or a bid bond in the amount of five percent (5%) of the gross bid, made payable to the City of Apple Valley, which shall be forfeited to the City in the event the bidder fails to deliver the services. The City Council reserves the right to retain the deposits of the bidders for a period not to exceed 60 days after the date and time set for the opening of bids. No bids may be withdrawn for a period of 30 days after the date and time set for the opening of bids. Specifications and proposal forms may be obtained from the Parks and Recreation Department at 14603 Hayes Road, Apple Valley, Minnesota 55124. Direct inquiries to Arenas Manager Brian Christianson at 952-953-2367 or Recreation Manager Susan Muelken at 952- 953-2311. The City Council reserves the right to reject any and all bids, to waive irregularities and informalities therein and further reserves the right to award the contract to the best interests of the City. Dated this 12th day of July, 2018. Pamela J. Gackstetter, City Clerk Project 2018 – 154, Apple Valley Community Center and Hayes Arena Roofing- INFO FOR BIDDERS Page 1 of 2 CITY OF APPLE VALLEY PROJECT No. 2018 - 154 APPLE VALLEY COMMUNITY CENTER AND HAYES PARK ARENA ROOFING INFORMATION FOR BIDDERS July 12, 2018 The City of Apple Valley is seeking sealed bids for the purpose of entering into a written agreement for installing a Firestone TPO roofing system or comparable on the addition portion (Sport Court) of the Apple Valley Community Center (AVCC) and the entire roof of Hayes Park Arena. The AVCC is located at 14603 Hayes Road in Apple Valley. Hayes Park Arena is located at 14595 Hayes Road in Apple Valley. DETAIL SPECIFICATIONS: 1. Remove loose gravel from the roof by vacuum and haul away. 2. Demolition and disposal of existing roofing membrane and sheet metal components. 3. Inspect the existing insulation for evidence of past leakage. The intention of the City of Apple Valley will be to replace deteriorated insulation to current industry standards. Discuss issue with project manager and inspector, so a change order for the project can be issued. 4. Provision and installation of Firestone 1” Isocyanurate board over existing insulation. Fasten all insulation to the structural roof decking using screws and Firestone Invisi- Weld Plates. 5. Install a 60 mil white Firestone TPO Membrane roofing system, (full 20 year warranty) mechanically fastened to the roof deck in accordance with manufacture’s specifications. 6. Application of appropriate flashing details at all mechanical penetrations, vent pipe flashing, roof to wall terminations, roof drains and scupper locations. 7. Walk mats at roof access point locations as per Firestone requirements. 8. Install new 24 gauge pre-finished steel flashing in a standard non-metallic color including counter flashing at roof to wall transitions, and coping flashing at the roof perimeter, scuppers and downspouts where existing are now. 9. Clean-up and removal of all debris associated with this project. Project 2018 – 154, Apple Valley Community Center and Hayes Arena Roofing- INFO FOR BIDDERS Page 2 of 2 GENERAL INFORMATION: 1. Sealed bids will be opened in the City Council Chambers on August 16, 2018, at 2:00 p.m. Apple Valley Municipal Center is located at 7100-147th Street West. 2. Bid will be scheduled to be awarded at the City Council meeting on August 23, 2018. 3. This project is to be completed by December 31, 2018. 4. All bid prices shall be the final price, including applicable taxes, with the exception of potential additional insulation work. 5. This project will require payment and performance bonds based upon value. Bonds are required on projects of $75,000 or more. Examples of these are included with this package. 6. All interested parties shall familiarize themselves with the area of work, verify the area specifics, and get acquainted with all physical conditions involved in completion of the work prior to submitting a proposal. Questions and /or to arrange a site visit please contact Brian Christianson (Arenas Manager) at 952- 953-2367 or Susan Muelken (Recreation Manager) at 952-953-2311. 7. Successful contractor is responsible for clean-up and disposal of all construction debris. 8. Contractor will be responsible to secure the area to ensure safety during the installation process. 9. A minimum of standard manufacturer’s warranty on products and workmanship shall apply. 10. A onetime payment in full will be made upon completion and acceptance of the project. An application for final payment and all other necessary paperwork must be delivered to City Clerk’s office prior to final payment. This may include Consent of Surety for Final Payment (as completed by Surety Company), Affidavit of Payment of Debts and Claims, Contractor’s Affidavit of Release of Liens, Receipt and Waiver of Mechanics’ Lien Rights, and Minnesota Dept. of Revenue Form IC-134 11. In addition to a written agreement, payment and performance bonds will be necessary with this project. 12. A 5% bid bond will be required with the bid. 13. Bid shall be sealed, clearly marked with the project number, and delivered to the Office of the City Clerk by bid opening date and time. 14. The City of Apple Valley reserves the right to reject any or all portions of the quotes, and will make a decision in the best interest of the City. I T E M: 4.I . C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A dopt Resolution A pproving J oint P owers Agreement for Pharmaceutical Drug Disposal P rogram S taff Contact: Nick Francis, Police Captain Department / Division: P olice Department AC T I O N RE Q UE S T E D: Adopt resolution approving the J oint Powers Agreement with Dakota C ounty for Pharmaceutical Drug Disposal Program. S UM M ARY: T he Apple Valley Police Department has participated in a drug disposal program with Dakota C ounty since 2012 under a joint powers agreement. T he agreement has been updated and is needed to continue with the program. B AC K G RO UND: In 2012, the Apple Valley Police D epartment offered the public a convenient, safe and free method to discard unwanted pharmaceuticals. A mailbox type collection site was placed in the police department lobby. T he collection site has become very popular in our community. Statistics on drug disposals shows a continued need for this collection service. 2012 - 96 pounds disposed 2013 - 535 pounds disposed 2014 - 864 pounds disposed 2015 - 1,168 pounds disposed 2016 - 1,489 pounds disposed 2017 - 1,631 pounds disposed T hrough this agreement, participating agencies collect pharmaceutical drugs which are then destroyed by incineration. Each agency participating in the program is signing a new joint powers agreement with Dakota County which will last through 2022. B UD G E T I M PAC T: N A AT TAC HM E NT S : Resolution Agreement CITY OF APPLE VALLEY RESOLUTION NO. 2018-102 A RESOLUTION APPROVING JOINT POWERS AGREEMENT BETWEEN THE COUNTY OF DAKOTA, THE CITY OF APPLE VALLEY AND THE DAKOTA COUNTY DRUG TASK FORCE FOR PHARMACEUTICAL DRUG DISPOSAL PROGRAM WHEREAS, Minn. Stat. §471.59 authorizes local governmental units to jointly or cooperatively exercise any power common to the contracting parties; and WHEREAS, County of Dakota (“County”), and the City of Apple Valley (“City”), are political subdivisions of the State of Minnesota; and WHEREAS, the Dakota County Drug Task Force (DCDTF) is a joint powers organization created under Minn. Stat. §471.59 acting through the Dakota County Drug Task Force Administrative Board; and WHEREAS, the nonmedical use of and disposal of prescription drugs are growing problems in the United States; and WHEREAS, expired or unwanted prescriptions or over-the-counter medications from households have traditionally been disposed of by flushing them down the toilet or drain which can cause pollution in wastewater and which has been demonstrated to cause adverse effects to fish and other aquatic life; and WHEREAS, prescription drugs are highly susceptible to diversion, misuse and abuse; and WHEREAS, according to the 2016 National Survey on Drug Use and Health, more Americans currently abuse prescription drugs than the number of those using cocaine, hallucinogens, and heroin combined; and WHEREAS, studies show that people who abuse prescription drugs often obtain them from family and friends, including from the home medicine cabinet; and WHEREAS, medications are also a significant cause of accidental poisoning and death; and WHEREAS, removing expired or unwanted prescriptions or over-the-counter medications (collectively referred to herein as “pharmaceutical drugs”) from the possibility of potential abuse and keeping them out of the environment is an important goal; and WHEREAS, the City desires to establish a pharmaceutical drug disposal program to facilitate the collection and proper disposal of unused, unwanted, or expired pharmaceutical 2 drugs, including controlled substances (“Program”) and the County and DCDTF desire to provide assistance for the Program. NOW, THEREFORE BE IT RESOLVED in consideration of the mutual promises and benefits that the County, the City, and DCDTF shall derive from this Agreement, the County, the City, and DCDTF hereby enter into this Agreement for the purposes stated herein. ADOPTED this 12th day of July, 2018 ____________________________________ Mary Hamann-Roland, Mayor ATTEST: ____________________________________ Pamela J. Gackstetter, City Clerk Dakota County Contract #C0030505 JOINT POWERS AGREEMENT BETWEEN THE COUNTY OF DAKOTA THE CITY OF APPLE VALLEY AND THE DAKOTA COUNTY DRUG TASK FORCE FOR PHARMACEUTICAL DRUG DISPOSAL PROGRAM WHEREAS, Minn. Stat. § 471.59 authorizes local governmental units to jointly or cooperatively exercise any power common to the contracting parties; and WHEREAS, County of Dakota (“County”), and the City of Apple Valley (“City”), are political subdivisions of the State of Minnesota; and WHEREAS, the Dakota County Drug Task Force (DCDTF) is a joint powers organization created under Minn. Stat. § 471.59 acting through the Dakota County Drug Task Force Administrative Board; and WHEREAS, the nonmedical use of and disposal of prescription drugs are growing problems in the United States; and WHEREAS, expired or unwanted prescriptions or over-the-counter medications from households have traditionally been disposed of by flushing them down the toilet or drain which can cause pollution in wastewater and which has been demonstrated to cause adverse effects to fish and other aquatic life; and WHEREAS, prescription drugs are highly susceptible to diversion, misuse and abuse; and WHEREAS, according to the 2016 National Survey on Drug Use and Health, more Americans currently abuse prescription drugs than the number of those using cocaine, hallucinogens, and heroin combined; and WHEREAS, studies show that people who abuse prescription drugs often obtain them from family and friends, including from the home medicine cabinet; and WHEREAS, medications are also a significant cause of accidental poisoning and death; and WHEREAS, removing expired or unwanted prescriptions or over-the-counter medications (collectively referred to herein as “pharmaceutical drugs”) from the possibility of potential abuse and keeping them out of the environment is an important goal; and WHEREAS, the City desires to establish a pharmaceutical drug disposal program to facilitate the collection and proper disposal of unused, unwanted, or expired pharmaceutical drugs, including controlled substances (“Program”) and the County and DCDTF desire to provide assistance for the Program. NOW, THEREFORE, in consideration of the mutual promises and benefits that the County, the City, and DCDTF shall derive from this Agreement, the County, the City, and DCDTF hereby enter into this Agreement for the purposes stated herein. SECTION 1 PURPOSE The purpose of this Agreement is to define the responsibilities and obligations of the County, the City, and DCDTF for the organization and implementation of the Program. SECTION 2 PARTIES The parties to this Agreement are the County, the City, and DCDTF, collectively referred to as the “Parties”. Dakota County Contract #C0030505 Page | 1 of 6 Joint Powers Agreement SECTION 3 TERM This Agreement shall be effective upon execution by the Parties to this Agreement and shall remain in effect until December 31, 2022, unless earlier terminated by law or according to the provisions of this Agreement. SECTION 4 COOPERATION The Parties agree to cooperate and use their reasonable efforts to ensure prompt implementation of the various provisions of this Agreement and to, in good faith, undertake resolution of any dispute in an equitable and timely manner. SECTION 5 OBLIGATIONS OF THE PARTIES 5.1 RESPONSIBILITIES OF THE PARTIES. A. Program Approval and Reporting Requirements. • The County shall obtain any necessary approvals from the Minnesota Pollution Control Agency (“MPCA”) for conducting the Program, including obtaining a hazardous waste generator number if necessary. • In accordance with federal law, the County shall obtain any necessary approvals from the U.S. Drug Enforcement Administration Program (“DEA”) for conducting the Program. • The County shall obtain any necessary approvals from the Minnesota Board of Pharmacy (“MBP”) for conducting the Program. • The County is responsible for generating and filing any necessary reports with the MPCA, the DEA, and the MBP, or with any other local, state, or federal government or agency as required by any applicable law, statute, ordinance, rule or regulation. B. Drop Box. • The City may maintain a drop box in a secure location at the City’s Police Department. The costs associated with maintaining the drop box shall be the responsibility of the City. • If requested by the City, the County, through its Communications Department and Sheriff’s Office, will provide signage for the drop box consistent with signage provided by the County to other cities participating in the Program. C. Collection, Monitoring and Transportation to Dakota County Drug Task Force. • The drop box must be emptied by licensed peace officers employed by the City. • The City, through the use of its licensed peace officers, is responsible for collecting and packaging pharmaceutical drugs deposited in the drop box. Packaging shall be provided to the City by the County at no cost to the City. The packaging must be of a type that is appropriate for the waste and will be accepted by the incinerator selected by the County pursuant to Section 5.1(E) of this Agreement. • The costs associated with monitoring the drop box and collecting/packaging/storing the deposited pharmaceutical drugs shall be the responsibility of the City. • After removing the collected pharmaceutical drugs from the drop box, licensed peace officers of the City’s Police Department shall store the collected pharmaceutical drugs in a secure location at the police department until the pharmaceutical drugs are either properly disposed of or transferred to the Dakota County Drug Task Force for disposal. • The City, through the use of licensed peace officers employed by the City, is responsible for transporting the collected pharmaceutical drugs to the Dakota County Drug Task Force to relinquish the collected pharmaceutical drugs for the purpose of disposal. The City shall be responsible for the costs associated with transportation of the pharmaceuticals to the Dakota County Drug Task Force. Prior to relinquishing possession of the collected pharmaceutical drugs, the City shall record the weight of the pharmaceuticals and the number of containers given to the Dakota County Drug Task Force and shall report this information to the County’s liaison. Dakota County Contract #C0030505 Page | 2 of 6 Joint Powers Agreement • The County and the City will develop a mutually agreed upon chain of custody process to document the transfer and disposal of collected pharmaceutical drugs. • The DCDTF shall store the pharmaceutical drugs until such time as County, through its Sheriff’s Office, collects them for transport for disposal at the incineration facility selected by the County. D. Collection and Disposal of Unacceptable Wastes. • The following wastes will not be accepted for collection in the drop box: sharps; thermometers; cancer medications (chemotherapy or radioactive pharmaceutical wastes); and medical waste or items contaminated with bodily fluids (e.g., bandaging, empty IV bags, etc.). • If any such unacceptable wastes or other hazardous material are deposited into the drop box, the City is responsible for managing these wastes by removing them from the drop box and packaging them in appropriate containers. • The City shall be responsible for delivering the unacceptable waste to the Dakota County Recycling Zone, 3365 Dodd Rd, Eagan, or to another mutually agreed upon location. The County, at County expense, will properly dispose of these unacceptable wastes. Medical waste or items contaminated with bodily fluids (e.g., bandaging, empty IV bags, etc.) will not be accepted at the Dakota County Recycling Zone and the City shall be responsible for the management of any such waste, including the disposal thereof. • The City shall be responsible for the management of any trash (e.g., cans, bottles, paper bags, etc.) deposited into the drop box, including the disposal thereof. E. Disposal of Collected Pharmaceutical Drugs. • The County, through the Dakota County Sheriff’s Office, shall be responsible for transporting the pharmaceutical drugs for disposal. The County shall be responsible for the costs associated with transportation of the pharmaceuticals drugs for disposal. • The final method of disposal will be by incineration at a licensed/permitted incinerator chosen by the County. The County, through its Environmental Resources Department, shall select and execute a contract with the disposal facility for the disposal of the collected pharmaceutical drugs. • During each calendar year of the term of this Agreement, the County shall pay for the costs of disposing the pharmaceutical drugs at the selected incinerator(s). F. Training. • The County, through its Environmental Resources Department and Sheriff’s Office, will provide training to City employees on managing pharmaceutical wastes, as agreed to between the Environmental Resources Department, the Sheriff’s Office and the City’s liaison. G. Program Promotion and Acknowledgment. • The City is responsible for local promotion of the Program. • The County and City shall appropriately acknowledge each other in any promotional materials, signage, reports, publications, notices, and presentations relating to the Program. This section shall survive the expiration or termination of this Agreement. 5.2 COSTS OF EMPLOYEES. In carrying out their respective obligations under this Agreement, each party shall be responsible for payment to their own employees. No party shall be liable to any other party for any remuneration to the other party’s employees. 5.3 COMPLIANCE WITH LAWS/STANDARDS. The City, County, and DCDTF shall abide by all federal, state, or local laws, statutes, ordinances, rules and regulations in conducting the Program . SECTION 6 INDEMNIFICATION Each party to this Agreement shall be liable for the acts of its officers, employees or agents and the results thereof to the extent authorized by law and shall not be responsible for the acts of the other party, its officers, employees or agents. The provisions of the Municipal Tort Claims Act, Minn. Stat. ch. 466 and other applicable laws govern liability of the County, the City, and DCDTF. The provisions of this section shall survive the expiration or termination of this Agreement. Dakota County Contract #C0030505 Page | 3 of 6 Joint Powers Agreement SECTION 7 AUTHORIZED REPRESENTATIVES AND LIAISONS 7.1 AUTHORIZED REPRESENTATIVES. The following named persons are designated the authorized representatives of the Parties for purposes of this Agreement. These persons have authority to bind the party they represent and to consent to modifications, except that the authorized representative shall have only the authority specifically or generally granted by their respective governing boards. Notice required to be provided pursuant to this Agreement shall be provided to the following named persons and addresses unless otherwise stated in this Agreement, or in a modification of this Agreement: TO THE COUNTY: Matt Smith, or successor, Manager County of Dakota 1590 Highway 55 Hastings, MN 55033 TO THE CITY: Mary Hammann-Roland, or successor, Mayor 7100 147th St W Apple Valley, MN 55124 TO THE DCDTF: Lt. Brian Sturgeon or successor, Chair Dakota County Drug Task Force Administrative Board West St. Paul Police Department 1616 Humboldt Ave. West St. Paul, MN 55118 In addition, notification to the County regarding termination of this Agreement by the other party shall be provided to the Office of the Dakota County Attorney, Civil Division,1560 Highway 55, Hastings, Minnesota 55033. 7.2 LIAISONS. To assist the Parties in the day-to-day performance of this Agreement and to ensure compliance and provide ongoing consultation, a liaison from each party shall be designated by each party. The Parties shall keep each other continually informed, in writing, of any change in the designated liaison. At the time of execution of this Agreement, the following persons are the designated liaisons: County Sheriff Liaison: Dan Bianconi, or successor Telephone: (651) 4384721 Email: Daniel.bianconi@co.dakota.mn.us City Liaison: Dennis Schweitzer, or successor Telephone: (952) 953-2817 Email: Dschweitzer@ci.apple-valley.mn.us County Environmental Resources Liaison: Laura Villa, or successor Telephone: (952) 891-7548 Email: laura.villa@co.dakota.mn.us DCDTF Liaison: Sgt. James Gabriel, or successor Telephone: (651) 994-6221 Email: james.gabriel@co.dakota.mn.us SECTION 8 TERMINATION 8.1 IN GENERAL. Any party may terminate this Agreement for cause by giving seven days’ written notice or without cause by giving 45 days’ written notice, of its intent to terminate, to the other Parties. Such notice to terminate for cause shall specify the circumstances warranting termination of the Agreement. Cause shall mean a material breach of this Agreement and any supplemental agreements or amendments thereto. Notice of Termination shall be made by certified mail or personal delivery to the authorized representative of the other Parties. Termination of this Agreement shall not discharge any liability, responsibility or right of any party, which arises from the performance of or failure to adequately perform the terms of this Agreement prior to the effective date of termination. Dakota County Contract #C0030505 Page | 4 of 6 Joint Powers Agreement 8.2 TERMINATION FOR LACK OF FUNDING. Notwithstanding any provision of this Agreement to the contrary, any party may immediately terminate this Agreement if it does not obtain funding from the Minnesota Legislature, Minnesota Agencies, or other funding source, or if funding cannot be continued at a level sufficient to allow payment of the amounts due under this Agreement. Written notice of termination sent by the terminating party to the other Parties by facsimile is sufficient notice under this section. The terminating party is not obligated to pay for any services that are provided after written notice of termination for lack of funding. No party will be assessed any penalty or damages if the Agreement is terminated due to lack of funding. SECTION 9 GENERAL PROVISIONS 9.1 SUBCONTRACTING. The Parties shall not enter into any subcontract for the performance of the services contemplated under this Agreement nor assign any interest in the Agreement without prior written consent of all Parties and subject to such conditions and provisions as are deemed necessary. Such consent shall not be unreasonably withheld. The subcontracting or assigning party shall be responsible for the performance of its subcontractors or assignors unless otherwise agreed. 9.2 EXCUSED DEFAULT – FORCE MAJEURE. No party shall be liable to the other Parties for any loss or damage resulting from a delay or failure to perform due to unforeseeable acts or events outside the defaulting party's reasonable control, providing the defaulting party gives notice to the other party as soon as possible. Acts and events may include acts of terrorism, war, fire, flood, epidemic, acts of civil or military authority, and natural disasters. 9.3 CONTRACT RIGHTS CUMULATIVE NOT EXCLUSIVE. A. All remedies available to all Parties for breach of this Agreement are cumulative and may be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed an election of such remedy to the exclusion of other remedies. The rights and remedies provided in this Agreement are not exclusive and are in addition to any other rights and remedies provided by law. B. Waiver for any default shall not be deemed to be a waiver of any subsequent default. Waiver of breach of any provision of this Agreement shall not be construed to be modification for the terms of this Agreement unless stated to be such in writing and signed by authorized representatives of the County, the City, and DCDTF. 9.4 MODIFICATIONS. Any alterations, variations, modifications, or waivers of the provisions of this Agreement shall only be valid when they have been reduced to writing, signed by the authorized representatives of the County, the City, and DCDTF. 9.5 MINNESOTA LAW TO GOVERN. This Agreement shall be governed by and construed in accordance with the substantive and procedural laws of the State of Minnesota, without giving effect to the principles of conflict of laws. All proceedings related to this Agreement shall be venued in Dakota County, Minnesota. The provisions of this section shall survive the expiration or termination of this Agreement. 9.6 MERGER. This Agreement is the final expression of the agreement of the Parties and the complete and exclusive statement of the terms agreed upon and shall supersede all prior negotiations, understandings, or agreements. 9.7 SEVERABILITY. The provisions of this Agreement shall be deemed severable. If any part of this Agreement is rendered void, invalid, or unenforceable, such rendering shall not affect the validity and enforceability of the remainder of this Agreement unless the part or parts that are void, invalid or otherwise unenforceable shall substantially impair the value of the entire Agreement with respect to any party. 9.8 WAIVER. If any party fails to enforce any provision of this Agreement, that failure does not waive the provision or right to enforce it. Dakota County Contract #C0030505 Page | 5 of 6 Joint Powers Agreement IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date(s) indicated below. APPROVED AS TO FORM: DAKOTA COUNTY /s/Helen R. Brosnahan 6/21/18 By __________________________________________ Assistant County Attorney/Date Matt Smith, Manager KS-18-98-001 County of Dakota County Board Res. No. 18-324 Date of Signature: ___________________________ CITY OF APPLE VALLEY __________________________________ By __________________________________________ City Attorney ____________, Mayor By:___________________________________ Date: Date of Signature: ___________________________ By __________________________________________ ______________________________, City Clerk Date of Signature: ___________________________ DAKOTA COUNTY DRUG TASK FORCE By: Lt. Brian Sturgeon Chair, Administrative Board Date of Signature Dakota County Contract #C0030505 Page | 6 of 6 Joint Powers Agreement I T E M: 4.J . C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Third A mendment to Antenna L ease A greement with T-Mobile Central, L L C, for L ongridge Reservoir (Removed from agenda) S taff Contact: Carol Blommel J ohnson, Public Works Superintendent - Utilities Department / Division: Utilities Division AC T I O N RE Q UE S T E D: Approve T hird Amendment to A ntenna Lease Agreement with T-Mobile C entral, LLC , for the Longridge Reservoir. S UM M ARY: T he attached lease amendment is for T-Mobile’s L1900 upgrade for radio improvements to both the antenna and ground equipment. T he upgrade will add a radio device to three of the nine exisiting antenna configurations, and add radio devices and wiring to the present ground equipment within the current lease area. No coax or cable is required to be added or replaced with this work. T he amendment has been approved by the City Attorney. T he construction plans have been reviewed and approved by KLM Engineering. B AC K G RO UND: In 2002, an antenna lease agreement was approved with T-Mobile C entral, LLC , for the installation of ground equipment and antennas on the Longridge Reservoir site located at 8351 160th Street W. Lease amendments were approved in 2012 and 2014. B UD G E T I M PAC T: T he lease amendment adjusts the lease rent rate to conform with the approved rate structure. T he lease rental increase is $7,429.81. AT TAC HM E NT S : Plan S et Agreement MN Longridge Page 1 Third Amendment to Lease Agreement Sub-ledger 20053008 Tenant Site#: A1Q0719B Market – Minnesota Landlord Site Name: Longridge THIRD AMENDMENT TO LEASE AGREEMENT This Third Amendment to Lease Agreement (“Amendment”) is made as of the date set forth below by and between the City of Apple Valley, a Minnesota municipal corporation (“Landlord”) and T-Mobile Central LLC, a Delaware limited liability company (“Tenant”). Landlord and Tenant are jointly hereinafter referred to as the “Parties”. RECITALS: A. Landlord and Tenant entered into a Lease Agreement dated October 24, 2002 which lease was amended on August 23, 2012 and December 23, 2014 (collectively the “Lease”), with respect to Premises (as defined in the Lease) located at 8350 – 160th Street, Apple Valley, Minnesota 55124 (“Property”). B. Landlord and Tenant desire to enter into this Amendment in order to modify and amend certain provisions of the Lease. AGREEMENT NOW, THEREFORE, in consideration of the facts set forth in the Recitals above, the mutual covenants and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows: 1. Installation of New Equipment. Effective as of the date this Amendment is fully executed by both parties, Tenant is hereby allowed to remove, replace and install such additional equipment as specifically set forth on Exhibit A attached hereto and incorporated herein (“Additional Equipment”). The Additional Equipment set forth on Exhibit A shall be constructed and installed in accordance with the plans and specifications as set forth on Exhibit A and in accordance with the rules and regulations of Landlord and state and local laws and building codes. Except as set forth on Exhibit A, Tenant shall not be allowed to make any other additions or replacements of any equipment or Antenna Facilities without Landlord’s prior written consent. Nothing contained in this Amendment shall be deemed a waiver of any provision(s) in the Lease that requires Tenant to obtain Landlord’s consent for any improvements or changes to Tenant’s equipment in the future. 2. Construction Standards. All work to be performed by Tenant and its contractors, agents, and employees shall be done in a good and workmanlike manner and in accordance with the MN Longridge Page 2 Third Amendment to Lease Agreement Sub-ledger 20053008 plans and specifications set forth on Exhibit A. Tenant shall not be permitted in any material way to vary its construction from the plans and specifications set forth on Exhibit A without Landlord’s prior written consent. Tenant shall pay for all work set forth on Exhibit A attached hereto to be performed upon the Property and shall not allow a lien to attach to the Property. Tenant shall defend, indemnify and hold harmless Landlord from any and all costs, charges, liens, suits, actions, and expenses including but not limited to attorney’s fees and court costs, (collectively, “Costs”) arising out of or related to: (1) Tenant’s negligence or misconduct in the installation, use, operation, maintenance and presence of the Additional Equipment, Tenant’s Antenna Facilities or any other equipment of Tenant or its agents, contractors or assigns, except to the extent such Costs are caused by the gross negligence or willful misconduct of Landlord, its agents, contractors or employees; (2) Tenant’s, or tenant’s agent’s, contractor’s or employee’s entry or presence upon the Property; and (3) any default, beyond any applicable cure periods, by Tenant under the Lease and any amendments thereto. The terms and conditions of this paragraph shall survive the expiration or earlier termination of the Lease and this Amendment. 3. Cost of Review. Tenant shall be responsible for all reasonable costs of Landlord’s inspection, installation, project management costs, review fees, staff time, and any and all other fees and expenses incurred by Landlord in reviewing and approving Tenant’s application for this Amendment of the Lease and any future amendments to the Lease. All such fees shall include all attorneys’ fees, staff and administrative review time and third party consultant fees and expenses all of which shall be at the expense of Tenant. All such fees and invoices must be paid by Tenant to Landlord within thirty (30) days after Landlord sends Tenant an invoice for the same. Any invoices or other sums owed to Landlord, under the Lease or this Amendment, which are not paid by Tenant within thirty (30) days after such sums become due and owing shall: (1) be a material default under the Lease; and (2) bear interest at the lesser of fifteen percent (15%) per annum or the maximum rate allowed by law. The terms of this paragraph shall survive the expiration or earlier termination of the Lease. 4. Failure to Remove Improvements. Upon termination of the Lease for any reason, Tenant shall remove its Antenna Facilities (including all Additional Equipment) from the Property on or before the date of termination, and shall repair any damage to the Property caused by such equipment, normal wear and tear, and casualty excepted; all at Tenant’s sole cost and expense, whether removed by Tenant or Landlord. Any such personal property or facilities which are not removed on or before the date this Lease terminates shall, at Landlord’s option, be deemed abandoned and become the property of Landlord. In the event Tenant leaves any personal property, equipment or any portion of its facilities on the Property without Landlord’s written consent, Tenant shall reimburse Landlord for the cost of removing and disposing of the same. Tenant shall be responsible for paying Base Rent and all other sums owed under this Lease until MN Longridge Page 3 Third Amendment to Lease Agreement Sub-ledger 20053008 such time that Landlord or Tenant has removed the Antenna Facilities from the Property. In the event Landlord attempts to collect on any unpaid sums owed by Tenant under the Lease or this Amendment or Landlord brings any other action to enforce the terms of the Lease, as amended, Tenant shall be responsible for costs of collection including, but not limited to, attorneys’ fees, court costs, and expert witness fees whether or not Landlord files suit against Tenant. The terms of this Section shall survive the termination or other expiration of this Lease. 5. Indemnification. Tenant further agrees to indemnify, defend and hold Landlord harmless from any and all claims, costs, penalties, fines, lawsuits, demands, and expenses, including attorney’s fees and court costs, arising out of or related to any negligence or misconduct in any entry upon the Property by Tenants agents, contractors, and employees, except to the extent caused by the gross negligence or willful misconduct of Landlord, its agents, contractors and employees. All indemnification obligations of Tenant as set forth in the Lease and his Amendment shall survive the termination or expiration of the Lease. Notwithstanding anything to the contrary in this Amendment, Tenant will not be liable to Landlord for, or indemnify Landlord against, punitive, indirect, incidental, special or consequential damages, including, without limitation, loss of income or business opportunities. 6. Limitation of Landlord’s Liability; Early Termination. Landlord’s liability for damages to Tenant under the Lease and this Amendment shall be limited to the actual and direct costs of equipment removal and shall specifically exclude any recovery for value of the business of Tenant as a going concern, future expectation of profits, loss of business or profit or related damages to Tenant; provided, however, that this provision shall not prohibit an action by Tenant for specific performance of this Lease or other equitable or injunctive relief, so long as there is no monetary penalty or damage to Landlord. 7. No Waiver. Nothing contained in this Amendment shall be construed as waiving a party’s right to insist that the other party comply with each and every provision of the Lease, including, but not limited to Tenant’s obligation to seek Landlord’s approval before Tenant may install or replace any equipment beyond that shown and identified in the exhibits to the Lease, Exhibit A attached hereto and any other amendments to the Lease. 8. Notice. Tenant’s notice addresses shall be as follows: T-Mobile Central LLC 12920 SE 38th Street Bellevue, WA 98006 Attn: Lease Compliance Site # A1Q0719B MN Longridge Page 4 Third Amendment to Lease Agreement Sub-ledger 20053008 Landlord and Tenant acknowledge and agree that Landlord may contact Tenant at the phone numbers and e-mail addresses set forth below in connection with any operational or site issues for which legal notice is not necessary: For lease or payment issues: Mick McManman (612) 812-1518 Mick.McManman@T-Mobile.com Re: Cell Site #: A1Q0719B Longridge - Apple Valley For emergency operational issues: T-Mobile Network Operations Center (NOC) (866) 783-9557 Re: Cell Site#: A1Q0719B Longridge - Apple Valley Landlord’s notices shall be sent to: City of Apple Valley Attn: City Clerk 7100 – 147th Street West Apple Valley, MN 55124 with a copy to: Dougherty, Molenda, Solfest, Hills & Bauer P.A. Attn.: Michael G. Dougherty, City Attorney 14985 Glazier Avenue,Suite 525 Apple Valley, MN 55124 9. Conflict. In the event of a conflict between any of the terms contained in this Amendment and any terms contained in the Lease, the terms of this Amendment shall govern. 10. Affirmation of Lease. Except as modified herein, all terms and conditions of the Lease shall remain in full force and effect. 11. Construction. Landlord and Tenant agree that each of them has participated in the drafting of the Lease and this Amendment (collectively the “Agreement”) and that the Agreement shall not be construed against the party that drafted it. Both Landlord and Tenant acknowledge and agree that any Court interpreting the Agreement shall not construe any portion of the Agreement in favor of or against Landlord or Tenant based upon any rule of law or construction that would construe the Agreement against the party that drafted it. MN Longridge Page 5 Third Amendment to Lease Agreement Sub-ledger 20053008 12. Authority. Each person signing this Amendment represents and warrants that he or she has the right, power and legal capacity to enter into this Amendment and that such signature will bind the party for who such signor signs the Amendment. 13. Counterparts. This Amendment may be executed in duplicate counterparts, each of which will be deemed an original. The parties may also execute this document by electronic means, including but not limited to fax, pdf or other electronic means and delivery of this Amendment by electronic means shall be effective as an original. [The remainder of this page has been intentionally left blank. Signature page to follow.] MN Longridge Page 6 Third Amendment to Lease Agreement Sub-ledger 20053008 IN WITNESS WHEREOF, the Parties have set their hands as of the date set forth below. CITY OF APPLE VALLEY Date By Mary Hamann-Roland, Its: Mayor Date And Pamela J. Gackstetter, City Clerk Its: City Clerk Date T-MOBILE CENTRAL LLC By: Its: MN Longridge Page 7 Third Amendment to Lease Agreement Sub-ledger 20053008 EXHIBIT A PLANS AND SPECIFICATIONS (See attached.) I T E M: 4.K. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Third A mendment to Antenna L ease A greement with T-Mobile Central, L L C, for Quarry P oint Water Tower (Removed from agenda) S taff Contact: Carol Blommel J ohnson, Public Works Superintendent - Utilities Department / Division: Utilities Division AC T I O N RE Q UE S T E D: Approve T hird Amendment to A ntenna Lease Agreement with T-Mobile C entral, LLC , for the Quarry Point Water Tower. S UM M ARY: T he attached lease amendment is for T-Mobile’s L1900 upgrade for radio improvements to both the antenna and ground equipment. T he upgrade will add a radio device to three of the nine existing antenna configurations, and add radio devices and wiring to the present ground equipment within the current lease area. No coax or cable is required to be added or replaced with this work. T he amendment has been approved by the City Attorney. T he construction plans have been reviewed and approved by KLM Engineering. B AC K G RO UND: In 2008, an antenna lease agreement was approved with T-Mobile C entral, LLC , for the installation of ground equipment and antennas on the Quarry Point Water Tower site located at 5551 160th Street W. Lease amendments were approved in 2012 and 2016. B UD G E T I M PAC T: T he lease amendment adjusts the lease rent rate to conform with the approved rate structure. T he lease rental increase is $3,048.52. AT TAC HM E NT S : Plan S et Agreement Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED -NORTH C-1 SITE PLAN 0'40' 22" x 34" - 1" = 20' SCALE: 11" x 17" - 1" = 40' 20'20' AND PREVIOUS DRAWINGS BASED ON PHOTOS, FIELD MEASUREMENTS, NO NEW SURVEY PROVIDED. SITE LAYOUT NOTE: 2 3 1 C-1 AERIAL OVERVIEW C-1 3 2 EXISTING WATER TOWER [LOOKING NORTHEAST] SITE OVERVIEW ASPHALT DRIVE EXISTING FENCE GRASS GRASS ON CONCRETE EXISTING OTHER CARRIER EQUIPMENT EXISTING FENCED COMPOUND [LOOKING NORTHWEST] SITE OVERVIEW PROPERTY LINEPROPERTY LINE RIGHT OF WAY RIGHT OF WAY15'-0" x 20'-0" T-MOBILE LEASE AREA EXISTING T-MOBILE EQUIPMENT ON RAISED CONCRETE SLAB ON CONCRETE SLAB EXISTING ZAYO EQUIPMENT ACCESS GATE Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED -C-2 SITE PLAN ENLARGED NORTH 0' 2 2 AND PREVIOUS DRAWINGS BASED ON PHOTOS, FIELD MEASUREMENTS, NO NEW SURVEY PROVIDED. SITE LAYOUT NOTE: 1 2 C-2 C-2 2'2' EQUIPMENT COMPOUND EXISTING OTHER CARRIER 22" x 34" - 1" = 2' SCALE: 11" x 17" - 1" = 4' 4' EQUIPMENT PLATFORM EXISTING T-MOBILE EXISTING FENCED COMPOUND EXISTING HAND HOLE PVC PIPING TO ROUTE UNDERGROUND CONDUIT EXISTING OTHER CARRIER EQUIPMENT FENCED COMPOUND EXISTING LOWER COVP DOUBLE SWING GATE EXISTING 12'-0" 15'-0" X 20'-0" T-MOBILE LEASE AREA 12'-0" X 7'-0" CONCRETE SLAB, EXISTING RAISED RE-USED HYBRID CABLES, TO BE EXISTING 1-5/8" COAX AND CABINETS T-MOBILE EXISTING TO REMAIN CARRIER METER; EXISTING OTHER EXISTING UTILITY (TYP.) EXISTING UTILITY (TYP.) ON H-FRAME EXISTING ZAYO CABINET MOUNTED RADIO UNITS EXISTING TMO GROUND FSME (U1900) EQUIPMENT TO BE REMOVED: FBBC (L1900) FSMF (U1900) FSMF (L1900) PROPOSED EQUIPMENT: UPGRADE PROJECT MOUNTED EQUIPMENT AS PART OF L1900 CHANGES ARE TO BE MADE TO GROUND GROUND MOUNTED EQUIPMENT 9"2'-5"2'-5"EXISTING TMO METER TO EXISTING FLEXI TABLE EQUIPMENT MOUNTED PROPOSED T-MOBILE NOKIA A-1 ELEVATION TOWER 1 TOWER ELEVATION 22" x 34" - 1'-0" = 10'-0" SCALE: 11" x 17" - 1'-0" = 20'-0" TOWER ELEVATION (NORTH ELEVATION) GAMMA SECTOR ANTENNAS EXISTING T-MOBILE ALPHA SECTOR ANTENNAS EXISTING T-MOBILE BETA SECTOR ANTENNAS EXISTING T-MOBILE HAND RAILINGS. ACCESS TO THE CLIMBING LADDERS, MANWAY HATCHESS, OR AS NOT TO CREATE A TRIPPING HAZARD OR INTERFERE WITH NEW AND EXISTING COMPONENTS/CABLES SHALL BE INSTALLED SO NOTE: Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED -EXISTING FENCED COMPOUND EXISTING HYBRID & COAX CABLING UP TANK INTERIOR, TO BE REUSED ON CONCRETE EXISTING T-MOBILE EQUIPMENT EXISTING 145' WATER TOWER PANEL ANTENNA EXISTING OTHER CARRIER TOP OF WATER TOWER @ 145'-0" A.G.L.C/L OF PROPOSED RADIOS & TMAs @ 150'-6" A.G.L. C/L OF EXISTING T-MOBILE PANEL ANTENNAS @ 150'-0" A.G.L.C/L OF PROPOSED RADIOS & TMAs @ 150'-6" A.G.L. A-2 1 SCALE: NTS COLOR CODING TO BE VERIFIED BY T-MOBILE CONFIGURATION ANTENNA NORTH 3 SCALE: NTS2SCALE: NTS 240° GAMMA SECTOR 0° ALPHA SECTOR 120° BETA SECTOR ANTENNA LEGEND: NORTH EXISTING WATER TOWER ANTENNAS, TO REMAIN EXISTING OTHER CARRIER PANEL EXISTING COVP 240° GAMMA SECTOR 0° ALPHA SECTOR 120° BETA SECTOR ANTENNA AND COAXIAL CABLE SCHEDULE PROPOSED EXISTING GROUND LEVEL. NOT SHOWN FOR CLAIRTY. & ADDING (1) FBBC UNIT, (2) FSMF UNITS & (1) FXFB UNIT AT SCOPE OF WORK ALSO INCLUDES REMOVAL OF (1) FSME UNIT NOT INCLUDED ON SCHEDULE/PLAN: EXISTING EQUIPMENT PLAN EXISTING DISH, TO REMAIN AND REPLACED (TYP. 1 PER SECTOR) EXISTING RADIO UNIT, TO BE REMOVED PER SECTOR), TO REMAIN EXISTING PANEL ANTENNA (TYP. 3 TO REMAIN (TYP. 1 PER SECTOR) EXISTING RADIO UNIT, EXISTING DISH, TO REMAIN EXISTING DISH, TO REMAIN PER SECTOR), TO REMAIN EXISTING PANEL ANTENNA (TYP. 3 EXISTING WATER TOWER EXISTING COVP TO REMAIN (TYP. 1 PER SECTOR) EXISTING RADIO UNIT, EXISTING DISH, TO REMAIN ANTENNAS, TO REMAIN EXISTING OTHER CARRIER PANEL EXISTING COVP REMOVED EXISTING RADIO, TO BE EXISTING RADIO, TO REMAIN PANEL ANTENNA; TO REMAIN EXISTING OTHER CARRIER TO REMAIN EXISTING PANEL ANTENNA; ANTENNA LEGEND: EXISTING COVP PROPOSED TMA UNIT PROPOSED RADIO UNIT EXISTING RADIO UNIT PANEL ANTENNA EXISTING OTHER CARRIER EXISTING PANEL ANTENNA OF WHITE TAPE. PROTECTED BY A NEOPRENE BARRIER TAPED IN PLACE ALL ATTACHEMENTS TO TOWER STEEL ARE TO BE NOTE: - ALL TEXT IN RED REPRESENTATIVE OF PROPOSED EQUIPMENT FXFB - FOR GSM/UMTS PCS *FRLB - GROUND MOUNTED REMOVED FROM THE TOWER. ALL UNUSED COMPONENTS/CABLES SHALL BE NOTE: WEATHERPROOF BOOT. COMPLETELY SEALED WITH THE APPROPRIATE ALL TOWER PENETRATIONS ARE REQURIED TO BE NOTE: PROPOSED EQUIPMENT PLAN (FINAL LAYOUT) PIPE (TYP. 1 PER SECTOR) MOUNTED TO EXISTING MAST PROPOSED TMA UNIT MAST PIPE (TYP. 1 PER SECTOR) PROPOSED RADIO UNIT MOUNTED TO EXISTING **FXFB - GROUND MOUNTED FOR PCS GSM (ONLY NEED 1 FOR ALL 3 SECTORS) *FRLB - GROUND MOUNTED Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED - A-3 1 SCALE: NTS 3 SCALE: NTS PAINTING NOTES: A. Painting of all new items, and repair of all damaged areas of the tower will be required. Surface preparation and painting requirements are as follows: B. Remove all surface contaminants in accordance with SSPC-SP-1 Solvent Cleaning. Do not use hydrocarbon solvents on surfaces to be coated with water based coating. C. Under the direction of the Engineer, spot repair the tank and tower surfaces where the coating has been damaged by structural repairs and modifications, to an SSPC-SP-10 Near White Metal Blast Clean. This work includes all new items and at other damaged by structural repairs or modifications. Feather edges of existing coating, at spot blasted areas, using SSPC-SP-3 Power Tool Cleaning methods. D. Before any primer or coating is applied, metal surfaces shall be completely dry, dust free, inspected and approved by the Engineer. E. No coating shall be permitted when the relative humidity is expected to exceed 85% or temperature is expected to drop below 40 degrees within 8 hours after the application of the coating. Proceed with surface preparation and coating application only when air and surface temperatures are above the manufacturer's recommended minimum surface temperature and below 100 degrees F, and surface temperature is at least (5) degrees above wet bulb air temperature reading. Coating shall not be applied to dusty, wet, or damp surfaces and shall not be applied in rain, snow, fog, or mist. If working conditions are questionable, the Engineer shall make the decision and the Contractor shall accept the Engineer's interpretation as final and binding. F. Prime coat must be applied within 8 hours of abrasive blasting. G. Apply by brush one (1) additional coat of primer to insure a uniform coat of primer thoroughly worked into and around all seams, welds, bolt assemblies, plate overlap seams, and other irregularities in the surface. H. Finish coat shall be uniform in color and sheen without streaks, laps, runs, sags, or missed areas. I. Antennas, exterior coax cables and exterior jumper cables to be painted to match existing tank color. All items attached directly to the tank, such as mounting brackets and supports, should be painted to match existing tank coating system and color. Cables may require scarification prior to coating. J. Exposed coaxial cables: Solvent wipe all exposed cables, prior to priming with the recommended solvent. Prime the cables and jumper cables with (2) coats of X-I-M Coax Cable Bonder & Sealer (Product No. 1138). Manufacturer's phone number is (800) 262-8469. After priming, apply one (1) finish coat to the cables as directed by the Engineer. K. If galvanized materials used, the galvanized surfaces must be solvent wiped and brush-blasted prior to coating. L. Specifications apply to both shop and field coating. M. Exterior surface spot repair and re-coating: i. Spot prime and finish coat repaired areas as specified by manufacturer. The coating system shall match the existing coating system being applied to the tower. The exterior primer shall be Tnemec Hydro-Zinc Series 90-H20 at 2.5-3.5 mils DFT. The DFT of the primer at any individual spot measurement location shall be 2.5 mils minimum. The first intermediate coat shall be Tnemec Hi-Build Epoxoline Series 66 or Tnemec-Fascure Series 161 at 4.0-6.0 mils DFT. The DFT of the primer plus first intermediate coat at any individual spot location shall be 6.5 mils minimum. The second intermediate coat shall be Tnemec Endurashield II Series 1075 at 3.0-5.0 mils DFT. The DFT of the primer plus both intermediate coats at any individual spot measurement location shall be 9.5 mils minimum. The exterior finish coat shall be Tnemec Series 1075 at 3.0-5.0 mils DFT. The total dry film thickness including the primer and the finish coat shall be 12.5 mils minimum - 19.5 mils with an average of 16.0 mils DFT. The minimum dry film thickness of the coating at any individual spot location shall be 12.5 mils. Color shall match the existing Coating to the Owner's satisfaction. ii. Exterior coating shall be by brush and roller only. N. Interior dry spot repair and re-coating: i. The interior dry coating system shall match the new coating system on the tank. The interior dry primer shall be Tnemec Hydrp-Zinc Series 91-H20 at 2.5-3.5 mils DFT. The DFT of the primer at any individual spot measurement location shall be 2.5 mils minimum. The intermediate coat shall be Tnemec Pota-Pox Plus Series N140 at 4.0 to 6.0 mils DFT. The DFT of the primer plus intermediate at any individual spot measurement location shall be 6.5 mils minimum. Interior dry finish coat shall be Tnemec Series N140 Pota-Pox Plus at 4.0-6.0 mils DFT. The total dry film thickness including the primer, intermediate and finish coats shall be 10.5 mils minimum - 15.5 mils with an average of 13.0 mils. The minimum dry film thickness of the coating at any individual spot location shall be 10.5 mils. The color shall match the existing interior dry color to the Owner's satisfaction. O. Interior wet surface spot repair and re-coating. i. Interior wet coating repairs are not anticipated, however if the plans are modified such that welding will be performed adjacent to interior wet areas, repair of those areas shall follow these guidelines. ii. Spot blast the interior wet area of the tank at locations damaged during installation of new exterior and interior dry items, including antenna and cable support brackets and handrail, to an SSPC-SP-10 Near White Metal Blast. Feather edges of existing coating, at spot blasted areas, using SSPC-SP-3 Power Tool Cleaning methods. iii. The interior wet coating system shall be compatible with the existing coating system on the tank. The interior wet primer shall be Tnemec Hydro-Zinc Series 91-H20 at 2.5-3.5 mils DFT. The DFT of the primer at any individual spot measurement locations shall be 2.5 mils minimum. The intermediate coat shall be Tnemec Pota-Pox Plus Series N140 at 4.0-6.0 mils DFT. The DFT of the primer plus the intermediate coat at any individual spot measurement location shall be 6.5 mils minimum. The interior finish coat shall be Tnemec Pota-Pox Plus Series N140 at 4.0-6.0 mils DFT. The total dry film thickness including the primer, intermediate and finish coats shall be 10.5 mils minimum - 15.5 mils with an average of 13.0 mils. The minimum dry film thickness of the coating system at any individual spot location shall be 10.5 mils. The color shall match the existing interior wet color to the Owner's satisfaction. 2 SCALE: NTS KLM PAINTING NOTES MAST PIPE SECURED W/ PIPE TO PIPE CLAMPS EXISTING HAND RAIL EXISTING WATER TOWER ROOF RADIO MOUNT DETAIL PROPOSED RADIO SPECIFICATIONS DETAILS RADIO SUPPORTS 4TX MIMO AND 4RX DIVERSITY. AMPLIFIERS (PAS). IT IS A ONE SECTOR RADIO THAT THE FHFB RRH IS A 4TX/4RX UNIT WITH FOUR 40W POWER ANTENNA LINE. THE RRH DOES NOT HAVE ANY FANS. PROVIDES CONTROL AND POWER SUPPLY TO THE FLEXI STATION. THE RRH HOSTS THE RF FUNCTIONALITY AND IT SUPPORTS ONE SECTOR IN A FLEXI MULTIRADIO BASE TRANSCEIVER MODULE WITH INTEGRATED ANTENNA FILTERS. THE RRH IS A STAND-ALONE FULLY OPERATIONAL LTE1149. IN WCDMA16, THE FEATURE ID IS RAN3103. AVAILABLE SW LEVEL. IN L15 (RL70), THE FEATURE ID IS THE RADIO CAN BE USED IN LTE OR UMTS DEPENDING ON THE REMOTE RADIO HEAD RRH OR REMOTE RADIO UNIT RRU). FHFB IS FOR FEEDERLESS INSTALLATIONS (ALSO CALLED (UPLINK: 1850-1915 MHZ, DOWNLINK: 1930-1995 MHZ). THE 1850-1910 MHZ, DOWNLINK: 1930-1990 MHZ) AND BAND 25 FHFB WITH 4TX/4RX FOR 1900 MHZ 3GPP BAND 2 (UPLINK: THIS FEATURE INTRODUCES A NEW FLEXI RF MODULE CALLED COOLING -IP65 WITH -35 TO +50 °C WITH CONVECTION ONE DEDICATED TO CHAINING) OPTICAL CONNECTORS WITH 6 GBIT/S INTERFACES, -OPTICAL CHAINING SUPPORTED BY HW (THREE (MRC) HW SUPPORT (LTE72 SW FEATURE) -4-WAY UPLINK RX MAXIMUM RATIO COMBINING SECTOR. -TWO LTE CELLS WITH 4TX MIMO UP TO 40 MHZ LTE PER SECTOR. -ONE LTE CELL WITH 4TX MIMO UP TO 20 MHZ LTE PER -65 MHZ INSTANTANEOUS BANDWIDTH -RX RANGE: 1850 1915 MHZ -TX RANGE: 1930 1995 MHZ 25 (EXT 1900 MHZ) -40 MHZ LTE OCCUPIED BANDWIDTH AT 3GPP BAND FEATURES AND OPERATOR BENEFITS: HSPA+ AND WCDMA HAS THE FOLLOWING MAIN THE FHFB RF MODULE WHICH CAN BE USED FOR LTE, FHFB PORT DIAGRAM FHFB (LTE1149/RAN3103) WIDTH: DEPTH: HEIGHT (W/O BRACKETS): DIMENSIONS: 12.6 IN. 7.8 IN. 23.0 IN. SPECIFICATIONS MAST PIPE PER MANUFACTURER PROPOSED RADIO UNIT SECURED TO EXISTING PANEL ANTENNA EXISTING MAST PIPE PIPES. WELDED/FITTED END CAPS ARE REQUIRED ON ALL EXTERIOR DETAIL FOR CLARITY. MANUFACTURER SPECIFICATIONS, NOT SHOWN IN THIS TMA TO MOUNT TO IDENTICAL MAST PIPE, PER AROUND THE CLAMPS, ANGLE ADAPTERS, ETC. MATCH THE TOWER) AS NECESSARY BENEATH AND INCLUDE NEOPRENE, A METAL SHIM AND COLORED TAPE (TO :NOTES Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED - GN-1 SPECIFICATIONS AND GENERAL NOTES DOCUMENTS. FAILURE OR OMISSION ON THE PART OF THE CONTRACTOR TO FULFILL THE REQUIREMENTS OF THE CONTACT OTHER RELEVANT MATTER CONCERNING THE WORK TO BE PERFORMED WILL BE ACCEPTED AS A REASON FOR ANY D. NO PLEA OF IGNORANCE OF CONDITIONS THAT EXIST, OR OF DIFFICULTIES THAT MAY BE ENCOUNTERED OR OF ANY ANY MATTER OR THING WHICH THE CONTRACTOR MIGHT NOT HAVE FULLY INFORMED HIMSELF PRIOR TO BIDDING. C. THE CONTRACTOR, IF AWARDED THE CONTRACT, WILL NOT BE ALLOWED ANY EXTRA COMPENSATION BY REASON OF APPROVED BY THE A & E. E AND SHALL INCUR ANY EXPENSES REQUIRED TO RECTIFY THE SITUATION. THE METHOD OF CORRECTION SHALL BE INCONSISTENCIES AFTER THE START OF CONSTRUCTION THAT HAVE NOT BEEN BROUGHT TO THE ATTENTION OF THE A & LIMITED TO DEMOLITION. THE CONTRACTOR SHALL BE RESPONSIBLE FOR CORRECTING ANY ERRORS, OMISSIONS, OR DISCOVERED IN THE PLANS, SPECIFICATIONS AND NOTES PRIOR TO STARTING CONSTRUCTION, INCLUDING BUT NOT B. THE CONTRACTOR SHALL NOTIFY A & E OF ANY ERRORS, OMISSIONS, OR DISCREPANCIES AS THEY MAY BE BEFORE THE CONTRACTOR PROCEEDS WITH WORK IN THE AFFECTED AREAS. INADVERTENTLY OCCUR SHALL BE SUBMITTED TO THE SDM OR DESIGNATED REPRESENTATIVES FOR CONSIDERATION INDICATED ON THE CONSTRUCTION DRAWINGS. ANY SUCH DISCREPANCY IN DIMENSIONS WHICH MAY COMPENSATION SHALL BE ALLOWED DUE TO DIFFERENCES BETWEEN ACTUAL DIMENSION AND DIMENSIONS AT THE SITE BEFORE ORDERING ANY MATERIALS OR PERFORMING ANY WORK. NO EXTRA CHARGE OR A. THE CONTRACTOR AND EACH SUBCONTRACTOR SHALL BE RESPONSIBLE FOR VERIFICATION OF ALL MEASUREMENTS 1.03 CONFLICTS - FEDERAL AVIATION REGULATIONS - UFE SAFETY CODE NIFFA - 101 - AMERICAN INSTITUTE FOR STEEL CONSTRUCTION OR SPECIFICATIONS (AISC) - NATIONAL ELECTRICAL CODE (NEC) WITH ALL AMENDMENTS - BUILDING OFFICIALS & CODE ADMINISTRATION (BOCA) - UNIFORM BUILDING CODE (UBC) - ANSI/EIA - 222 - E - AMERICAN SOCIETY FOR TESTING AND MATERIALS (ASTM) - AMERICAN CONCRETE INSTITUTE (ACI) - ALL APPLICABLE LOCAL, STATE, AND FEDERAL CODES AND REGULATIONS - LATEST LOCAL JURISDICTIONAL BUILDING CODES. THE FOLLOWING CODES/SPECIFICATIONS: - ALL WORK PERFORMED AND MATERIALS INSTALLED SHALL CONFORM TO THE REQUIREMENTS OF THE LATEST EDITIONS OF INSTALLATION OF ITEMS INDICATED ON THE DRAWINGS. - THE CONTRACTOR SHALL PROVIDE ALL NECESSARY BLOCKING, BACKING, FRAMING, HANGERS OR SUPPORTS FOR ANY LIABILITY IN FURNISHING THE REQUIRED MATERIALS OR LABOR SPECIFIED. GENERAL ACCEPTANCE OR REVIEW AND SHALL NOT RELIEVE THE CONTRACTOR AND/OR HIS SUB-CONTRACTORS OF - ANY REFERENCE TO THE WORDS APPROVED OR APPROVAL IN THESE DOCUMENTS SHALL BE HERE DEFINED TO MEAN - NO CHANGES ARE TO BE MADE TO THESE PLANS WITHOUT THE KNOWLEDGE AND WRITTEN CONSENT OF THE A & E. COLOR EXCEPT AS NOTED IN THE PLANS. - NEW CONSTRUCTION ADDED TO EXISTING CONSTRUCTION SHALL BE MATCHED IN FORM, TEXTURE, MATERIAL AND PAINT MEMBERS. ANY DISCREPANCIES SHALL IMMEDIATELY BE BROUGHT TO THE ATTENTION OF THE A & E. CONTRACTOR SHALL MAKE ALL MEASUREMENTS NECESSARY FOR FABRICATION AND ERECTION OF STRUCTURAL OF NEW PORTION OF THE WORK AND ALIGNMENT OF THE NEW PORTION OF THE WORK TO THE EXISTING WORK. THE - THE CONTRACTOR SHALL FIELD VERIFY THE DIMENSIONS, ELEVATIONS, ETC. NECESSARY FOR THE PROPER CONSTRUCTION MAY ADVERSELY AFFECT THE WORK OR THE COST OF THE WORK. THE COMPLETION OF THE PROJECT. THE CONTRACTOR SHALL VISIT THE SITE PRIOR TO BID TO ASSESS CONDITIONS THAT - THE CONTRACTOR SHALL BE RESPONSIBLE FOR THE COMPLETE SECURITY OF THE SITE FROM THE START OF THE PROJECT TO - ALL DIMENSIONS TAKE PRECEDENCE OVER SCALE UNLESS OTHERWISE NOTED. PENETRATIONS THROUGH FIRE RATED ASSEMBLIES. - THE CONTRACTOR SHALL PROVIDE THE MATERIALS APPROVED BY THE FIRE MARSHALL FOR FILLING OR SEALING GOVERNING AGENCY RESPONSIBLE FOR RECORDING THE RESULTS. - WHERE SPECIFIED, MATERIALS TESTING SHALL BE TO THE LATEST STANDARDS AVAILABLE AS REQUIRED BY THE LOCAL QUESTION REGARDING THEIR EXACT MEANING THE ARCHITECT/ENGINEER SHALL BE NOTIFIED FOR CLARIFICATIONS. - ALL SYMBOLS AND ABBREVIATIONS ARE CONSIDERED CONSTRUCTION INDUSTRY STANDARDS. IF A CONTRACTOR HAS A CONDITIONS WHICH ARE NOT SPECIFICALLY SHOWN OTHERWISE. THE WORK. ALL GENERAL NOTES AND STANDARD DETAILS ARE THE MINIMUM REQUIREMENTS TO BE USED IN - THE CONTRACTOR SHALL BE RESPONSIBLE FOR COMPLYING WITH ALL SAFETY PRECAUTIONS AND REGULATIONS DURING 1.00 GENERAL REQUIREMENTS PART 1 GENERAL 7. FEDERAL AVIATION REGULATIONS 6. LIFE SAFETY CODE NFFA - 101 5. AMERICAN INSTITUTE FOR STEEL CONSTRUCTION OR SPECIFICATIONS (AISC) 4. NATIONAL ELECTRICAL CODE (NEC) WITH ALL AMENDMENTS 3. BUILDING OFFICIALS & CODE ADMINISTRATION (BOCA) 2. UNIFORM BUILDING CODE (UBC) 1. ANSI/EIA - 222 - G THE JOB SPECIFICATIONS, OR AS DIRECTED BY THE SDM. E. THE CONTRACTOR SHALL COMPLY WITH ALL ZONING AND SITE ACQUISITION SPECIAL STIPULATIONS AS OUTLINED IN EXEMPTED FROM ALL TITLE 24 ACCESS REQUIREMENTS. IMPAIRMENT TO MOBILITY, SIGHT OR HEARING, THEREFORE, PER THE APPLICABLE CODES; THIS FACILITY SHALL BE WORK TO BE PERFORMED IN THIS FACILITY CANNOT REASONABLY BE PERFORMED BY PERSONS WITH A SEVERE D. THE TELECOMMUNICATIONS EQUIPMENT SPACE SHOWN IN THESE DRAWINGS IS NOT CUSTOMARILY OCCUPIED. EDITION CURRENT AT THE TIME OF AWARD OF THE CONTRACT. C. REFERENCES TO ANY STANDARD OR CODE OF PRACTICES IN THIS SPECIFICATION SHALL BE DEEMED TO MEAN THE SDM OF ANY DISCREPANCIES PRIOR TO PERFORMING WORK. B. IT IS THE CONTRACTOR'S RESPONSIBILITY TO VERIFY COMPLIANCE WITH THE GOVERNING CODES AND TO NOTIFY THE DOCUMENT STATEMENT SHALL BE FURNISHED TO THIS EFFECT. UNIFORM BUILDING CODE AND/OR THE SPECIFICATIONS HEREIN, WHICHEVER IS MORE STRINGENT AND A DOCUMENTS TO VERIFY SUCH COMPLIANCES. WHERE NO CODES EXIST, THE WORK SHALL CONFORM TO THE JOB SITE PERMITTED PLANS AND INSPECTION CARD WITH ALL FINAL INSPECTION SIGNATURES AND OTHER LEGAL OF THE WORK, THE CONTRACTOR SHALL PROVIDE CARRIER WITH THE CERTIFICATES OF OCCUPANCY (IF REQUIRED), LISTED HEREIN) ORDINANCES, AND AUTHORITIES HAVING JURISDICTION OVER THE WORK. UPON THE COMPLETION A. ALL MATERIALS, DESIGN AND WORKMANSHIP SHALL BE IN ACCORDANCE WITH ALL APPLICABLE CODES (SOME ARE 1.15 COMPLIANCE SAMPLES TO THE SDM FOR APPROVAL IN LIEU OF CUT SHEETS. AND MATERIALS BEING INSTALLED. THE CONTRACTOR SHALL, IF DEEMED NECESSARY BY THE SDM, SUBMIT ACTUAL B. ALL NECESSARY PRODUCT DATA AND CUT SHEETS SHOULD PROPERLY INDICATES AND DESCRIBE ITEMS, PRODUCTS NUMBERS, AND COMPLETE DOCUMENTATION SHOWING COMPLIANCE WITH THE REQUIREMENTS FOR SUBSTITUTIONS. INSTALLATION METHOD TO BE REPLACED BY THE SUBSTITUTION. INCLUDE RELATED INPSECTIONS AND DRAWING A. SUBMIT 3 COPIES OF EACH REQUEST FOR SUBMISSION. IN EACH REQUEST IDENTIFY THE PRODUCT FABRICATION OR 1.14 PRODUCTS AND SUBSTITUTIONS TO THE SDM. C. ALL SHOP DRAWINGS TO BE REVISED, CHECKED AND CORRECTED BY GENERAL CONTRACTOR PRIOR TO SUBMITTAL ACCEPTED IN WRITING. SPECIFICALLY NOTED OTHERWISE; CONTRACTOR SHALL NOT FABRICATE STEEL UNTIL DRAWINGS HAVE BEEN B. SHOP DRAWINGS FOR ALL STRUCTURAL STEEL SHALL BE SUBMITTED TO THE ENGINEER OF RECORD UNLESS GENERAL CONTRACT TO THE SDM FOR APPROVAL. A. CONTRACTOR TO SUBMIT SHOP DRAWINGS AS REQUIRED AND LISTED IN THESE SPECIFICATIONS AND THROUGH THE 1.13 SHOP DRAWINGS FOR SUPERVISING, SEQUENCING AND COORDINATING ALL PORTIONS OF THE WORK. SKILLS. HE IS SOLELY RESPONSIBLE FOR ALL CONSTRUCTION MEANS, METHODS, TECHNIQUES AND PROCEDURES, AND B. THE CONTRACTOR SHALL SUPERVISE AND COORDINATE ALL WORK, USING HIS PROFESSIONAL KNOWLEDGE AND GENERAL CONTRACTOR. WORK EACH CONTRACTOR JUST REFERS ALL DRAWINGS. ALL COORDINATION TO BE THE RESPONSIBILITY OF THE A. GENERAL CARPENTRY, ELECTRICAL AND ANTENNA DRAWINGS ARE INTERRELATED. IN PERFORMANCES OF THE 1.12 RELATED DOCUMENTS AND COORDINATION ANTI-STATIC TYPE. D. CONTRACTOR SHALL WASH AND WAX FLOOR PRIOR TO FINAL ACCEPTANCE FROM SDM. WAX SHALL BE THE 2. REMOVE PAINT DROPPINGS, SPOTS, STAINS AND DIRT FROM FINISHED SURFACES. 1. REMOVE ALL TRACES OF SPLASHED MATERIALS FROM ADJACENT SURFACES. AND OTHER FOREIGN MATTER. C. INTERIOR: VISUALLY INSPECT INTERIOR SURFACES AND REMOVE ALL TRACES OF SOIL, WASTE MATERIAL, SMUDGES 2. IF NECESSARY TO ACHIEVE A UNIFORM DEGREE OF CLEANLINESS, HOSE DOWN THE EXTERIOR OF THE STRUCTURE. 1. REMOVE ALL TRACES OF SPLASHED MATERIALS FROM ADJACENT SURFACES. SMUDGES, AND OTHER FOREIGN MATTER. B. EXTERIOR: VISUALLY INSPECT EXTERIOR SURFACES AND REMOVE ALL TRACES OF SOIL, WASTE MATERIAL, DUST, THE WORK AREA CLEAN AND READY FOR USE EACH DAY. FROM AND ABOUT THE BUILDING, INCLUDING ALL TOOLS, SCAFFOLDING AND SURPLUS MATERIALS, AND SHALL LEAVE CAUSED BY THEIR EMPLOYEES AT WORK, AND AT THE COMPLETION OF THE WORK, THEY SHALL REMOVE ALL RUBBISH A. THE CONTRACTOR SHALL AT ALL TIMES KEEP THE SITE FREE FROM ACCUMULATION OF WASTE MATERIALS OR RUBBISH 1.10 CLEAN UP OWNER TO JUSTIFY EXTENSION IN THE CONTRACT TIME FOR COMPLETION. B. ADDITIONAL TIME THAT IS REQUIRED TO SECURE REPLACEMENTS AND TO MAKE REPAIRS WILL NOT BE CONSIDERED BY AND REPAIRS AT NO ADDITIONAL COST TO OWNER. A. IN EVENT OF DAMAGES, THE CONTRACTOR SHALL NOTIFY OWNER SDM, THEN PROMPTLY MAKE ALL REPLACEMENTS 1.08 REPAIRS AND REPLACEMENTS SHALL BEAR THE EXPENSE OF REPAIRING OR REPLACING ANY DAMAGED AREAS. SHALL BE IMMEDIATELY REPAIRED OR REPLACED TO THE SATISFACTION OF THE PROPERTY OWNER. THE CONTRACTOR OCCUR DURING CONSTRUCTION. ANY DAMAGE TO NEW OR EXISTING SURFACES, STRUCTURES OR EQUIPMENT D. PRIOR TO STARTING CONSTRUCTION, THE CONTRACTOR SHALL PROTECT ALL AREAS FROM DAMAGE WHICH MAY SDM. C. MAINTAIN FINISHED SURFACES CLEAN, UNMARRED AND SUITABLY PROTECTED UNTIL JOB SITE IS ACCEPTED BY THE MOVED OVER SUCH SURFACES. B. PROVIDE PROTECTION FOR EQUIPMENT ROOM SURFACES PRIOR TO ALLOWING EQUIPMENT OR MATERIAL TO BE AND MATERIALS WILL PASS. A. PROTECT FINISHED SURFACES, INCLUDING JAMBS AND WALLS USED AS PASSAGEWAYS THROUGH WHICH EQUIPMENT 1.07 PROTECTION SATISFACTION OF THE OWNER. LANDSCAPING AND STRUCTURES. ANY DAMAGED PART SHALL BE REPAIRED AT THE CONTRACTORS EXPENSE TO THE THE CONTRACTOR AND SUBCONTRACTORS SHALL PROTECT EXISTING IMPROVEMENTS, PAVEMENTS, CURBS, V. AT THE TOP STIFFENER (WHERE THEY TRANSITION FROM VERTICAL TO HORIZONTAL) AND AT THE ANTENNA LOCATION INCLUDE A TAG CLEARLY IDENTIFYING IT AS T-MOBILE EQUIPMENT. CABLES SHALL BE MARKED AT THE BASE OF THE TOWER, EACH CABINET, MOUNTING PIPE, ANTENNA, RADIO, CABLE, OR GROUP OF CABLES (IF ROUTED TOGETHER), SHOULD U. INTACT PAINT SYSTEM OR SYSTEMS. PROTECT ALL AREAS ADJACENT TO WELDING AND / OR GRINDING OPERATIONS TO PREVENT DAMAGE OF SURRONDING T. GROUND BEFORE ANY WELDING IS STARTED. REMOVE ALL COATINGS BEFORE WELDING. ALL AREAS THAT REQUIRE WELDING ARE TO BE ABRASIVE BLASTED OR NO WELDING OVER COATED STEEL SURFACES IS PERMISSIBLE. THE CONTRACTOR IS RESPONSIBLE TO ADEQUATELY S. R. CONTRACTOR TO VERIFY OWNER APPROVAL OF ANY PLANNED OUTAGES PRIOR TO SUBMITTAL OF BID. BEFORE THE START OF ANY WORK AND ORDERING OF ANY MATERIAL. Q. CONTRACTOR TO VERIFY ACCEPTANCE OF THESE PLANS AND DESIGNS WITH THE LOCAL UTILITY COMPANY ENGINEER CORING AND OTHER TENANT IMPACTING ACTIVITIES. RESTRICTIONS, ELEVATOR RESTRICTIONS, AND UNDERSTANDS OWNER EXPECTATION REGARDING TO THE SCHEDULE OF P. SUBMITTAL OF BID INDICATES CONTRACTOR IS AWARE AND WILL CONFORM TO ALL LOADING AND UNLOADING OWNER FACILITIES ASSOCIATED WITH THE WORK. APPEARANCE; THE CONTRACTOR SHALL BE RESPONSIBLE FOR ALL PROTECTION, CLEAN-UP AND RESTORATION OF O. ALL WORK TO BE EXECUTED IN A WORKMAN LIKE MANNER AND SHALL PRESENT A NEAT, UNIFORM, AND WELL INSTALLED WIRING, AND GROUNDING. SYSTEMS INCLUDING LIGHTING, LOW VOLTAGE SYSTEMS, PANELS, POWER AND TELEPHONE DATA SERVICE, CONTROL N. ELECTRICAL WORK SHALL INCLUDE BUT NOT LIMITED TO ALL MATERIALS AND LABOR TO COMPLETE ALL ELECTRICAL RESOLVED. PROCEEDS; ALL CLARIFICATIONS MUST BE RECEIVED IN WRITING IN ORDER FOE THE MATTER TO BE CONSIDERED AMBIGUITIES, IN THESE DESIGN DRAWINGS SHALL BE BROUGHT TO THE ATTENTION OF THE ENGINEER BEFORE WORK M. ALL THINGS, WHICH IN THE OPINION OF THE CONTRACTOR ARE DEFICIENCIES, OMISSIONS, CONTRADICTIONS, OR RESTRICTIVE METHOD UNTIL A CLARIFICATION IS MADE. L. IN THE EVENT OF A CONFLICTING DESIGN OR NOTATION, THE CONTRACTOR SHALL ASSUME THE MOST EXPENSIVE OR ELECTRICIAN TO CONSIDER ALL ASPECTS OF THIS PROJECT WHEN BIDDING AND PLANNING THE WORK. K. THE ELECTRICAL PORTION OF THESE DRAWINGS IS ONLY A PART OF THE OVERALL DESIGN. IT IS NECESSARY FOR THE AS DETAILED AND OUTLINED IN THESE DRAWINGS. J. SUBMITTAL OF BID INDICATES CONTRACTOR IS FAMILIAR WITH ALL JOB SITE CONDITIONS AND WORK TO BE PERFORMED GENERAL NOTES: I. CORING SHALL NOT BE PERFORMED DURING WORKING HOURS UNLESS OTHERWISE APPROVED BY THE OWNER. OWNER REPRESENTATIVE. H. CORING THROUGH FLOORS AND WALLS SHALL NOT BE DONE WITHOUT FINAL APPROVAL OF BUILDING OWNER OR G. ELECTRICAL METALLIC TUBING SHALL BE U.L. LABEL; FITTING SHALL BE GLAND RING COMPRESSION TYPE. WALLS, OR EXPOSED ON BUILDING EXTERIOR. WHEN INSTALLED IN OR UNDER CONCRETE SLABS, IN CONTACT WITH EARTH, UNDER PUBLIC ROADWAYS, IN MASONRY F. RIGID CONDUIT SHALL BE U.L. LABEL GALVANIZED ZINC COATED WITH GALVANIZED ZINC INTERIOR AND SHALL BE USED CONDUIT NOTES: OTHERWISE. E. ALL WIRING SHALL BE COPPER WITH THHN/THWN DUAL RATED 600V, COLOR CODED, #12 AWG MINIMUM UNLESS NOTED HEIGHT SHALL BE ¼”; ALL NAMEPLATES TO BE FASTENED WITH (2) STAINLESS STEEL SCREWS, NOT ADHESIVE.D. ALL ELECTRICAL EQUIPMENT SHALL HAVE A PERMANENTLY AFFIXED NEOPRENE PLASTIC LABEL – BLACK ON WHITE; LETTER C. C. ALL ELECTRICAL EQUIPMENT, CONDUITS, AND SUPPORT SHALL BE ABLE TO WITHSTAND 80 M.P.H. WIND SPEED; EXPOSURE FAULT CURRENT AT THE SUPPLY TERMINAL. INSTALLATION SHALL BE FREE FROM ALL FAULTS AND GROUNDS. B. SERVICE EQUIPMENT SHALL HAVE A FAULT WITHSTAND RATING EQUAL TO OR EXCEEDING THE MAXIMUM AVAILABLE APPLICABLE CODES. HEIGHTS WITH OWNER; PLACEMENT AND ROUTING OF ALL COMPONENTS SHALL BE IN ACCORDANCE WITH ALL A. ELECTRICAL PLANS, DETAILS, AND DIAGRAMS ARE DIAGRAMMATIC ONLY; VERIFY EXACT LOCATIONS AND MOUNTING SERVICE NOTES: Edge Consulting Engineers, Inc. 7 6 5 4 3 2 1 A B C D E F G H REV.DATE:DESCRIPTION: A 04/27/17 DRAWN BY: TKB CHECKED BY: OGD PRELIMINARY CDS G 8 OFFICE: 612.701.2069 EDINA, MN 55439 SUITE 400 8000 WEST 78TH STREET T-MOBILE USA, INC. PROJECT NO: 16278 OFFICE: 773.960.8781 OAKBROOK TERRACE, IL 60181 SUITE 140 1s660 MIDWEST ROAD APPLE VALLEY, MN 55124 5551 160TH STREET W. SITE ADDRESS: PRELIMINARY CDS05/25/17B C 06/08/17 PRELIMINARY CDS www.edgeconsult.com 608.644.1449 BURNSVILLE, MN 55337 2101 HIGHWAY 13 WEST (A1Q0612A) WT APPLE VALLEY 0 02/16/18 FINAL CDSENGINEER'S SEALSEE T-1 FOR - APPROVED - MN Quarry Point Page 1 Third Amendment to Lease Agreement Sub-ledger 20053020 Tenant Site#: A1Q0612A Market – Minnesota Landlord Site Name: Quarry Point THIRD AMENDMENT TO LEASE AGREEMENT This Third Amendment to Lease Agreement (“Amendment”) is made as of the date set forth below by and between the City of Apple Valley, a Minnesota municipal corporation (“Landlord”) and T-Mobile Central LLC, a Delaware limited liability company (“Tenant”). Landlord and Tenant are jointly hereinafter referred to as the “Parties”. RECITALS: A. Landlord and Tenant entered into a Lease Agreement dated November 25, 2008 which lease was amended on August 23, 2012 and November 10, 2016 (collectively the “Lease”), with respect to the Facility and Site (as defined in the Lease) located at 5551 160th St W., Apple Valley, Minnesota 55124 (“Property”). B. Landlord and Tenant desire to enter into this Amendment in order to modify and amend certain provisions of the Lease. AGREEMENT NOW, THEREFORE, in consideration of the facts set forth in the Recitals above, the mutual covenants and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows: 1. Installation of New Equipment. Effective as of the date that this Amendment is fully executed by both parties, Tenant is hereby allowed to remove, replace and install such additional equipment as specifically set forth on Exhibit A attached hereto and incorporated herein (“Additional Equipment”). The Additional Equipment set forth on Exhibit A shall be constructed and installed in accordance with the plans and specifications as set forth on Exhibit A and in accordance with the rules and regulations of Landlord and state and local laws and building codes. Except as set forth on Exhibit A, Tenant shall not be allowed to make any other additions or replacements of any equipment or Antenna Facilities without Landlord’s prior written consent. Nothing contained in this Amendment shall be deemed a waiver of any provision(s) in the Lease that requires Tenant to obtain Landlord’s consent for any improvements or changes to Tenant’s equipment in the future. 2. Construction Standards. All work to be performed by Tenant and its contractors, agents, and employees shall be done in a good and workmanlike manner and in accordance with the MN Quarry Point Page 2 Third Amendment to Lease Agreement Sub-ledger 20053020 plans and specifications set forth on Exhibit A. Tenant shall not be permitted in any material way to vary its construction from the plans and specifications set forth on Exhibit A without Landlord’s prior written consent. Tenant shall pay for all work set forth on Exhibit A attached hereto to be performed upon the Property and shall not allow a lien to attach to the Property. Tenant shall defend, indemnify and hold harmless Landlord from any and all costs, charges, liens, suits, actions, and expenses including but not limited to attorney’s fees and court costs, (collectively, “Costs”) arising out of or related to: (1) Tenant’s negligence or misconduct in the installation, use, operation, maintenance and presence of the Additional Equipment, Tenant’s Antenna Facilities or any other equipment of Tenant or its agents, contractors or assigns, except to the extent such Costs are caused by the gross negligence or willful misconduct of Landlord, its agents, contractors or employees; (2) Tenant’s, or tenant’s agent’s, contractor’s or employee’s entry or presence upon the Property; and (3) any default, beyond any applicable cure periods, by Tenant under the Lease and any amendments thereto. The terms and conditions of this paragraph shall survive the expiration or earlier termination of the Lease and this Amendment. 3. Cost of Review. Tenant shall be responsible for all reasonable costs of Landlord’s inspection, installation, project management costs, review fees, staff time, and any and all other fees and expenses incurred by Landlord in reviewing and approving Tenant’s application for this Amendment of the Lease and any future amendments to the Lease. All such fees shall include all attorneys’ fees, staff and administrative review time and third party consultant fees and expenses all of which shall be at the expense of Tenant. All such fees and invoices must be paid by Tenant to Landlord within thirty (30) days after Landlord sends Tenant an invoice for the same. Any invoices or other sums owed to Landlord, under the Lease or this Amendment, which are not paid by Tenant within thirty (30) days after such sums become due and owing shall: (1) be a material default under the Lease; and (2) bear interest at the lesser of fifteen percent (15%) per annum or the maximum rate allowed by law. The terms of this paragraph shall survive the expiration or earlier termination of the Lease. 4. Failure to Remove Improvements. Upon termination of the Lease for any reason, Tenant shall remove its Antenna Facilities (including all Additional Equipment) from the Property on or before the date of termination, and shall repair any damage to the Property caused by such equipment, normal wear and tear, and casualty excepted; all at Tenant’s sole cost and expense, whether removed by Tenant or Landlord. Any such personal property or facilities which are not removed on or before the date this Lease terminates shall, at Landlord’s option, be deemed abandoned and become the property of Landlord. In the event Tenant leaves any personal property, equipment or any portion of its facilities on the Property without Landlord’s written consent, Tenant shall reimburse Landlord for the cost of removing and disposing of the same. Tenant shall be responsible for paying Base Rent and all other sums owed under this Lease until MN Quarry Point Page 3 Third Amendment to Lease Agreement Sub-ledger 20053020 such time that Landlord or Tenant has removed the Antenna Facilities from the Property. In the event Landlord attempts to collect on any unpaid sums owed by Tenant under the Lease or this Amendment or Landlord brings any other action to enforce the terms of the Lease, as amended, Tenant shall be responsible for costs of collection including, but not limited to, attorneys’ fees, court costs, and expert witness fees whether or not Landlord files suit against Tenant. The terms of this Section shall survive the termination or other expiration of this Lease. 5. Indemnification. Tenant further agrees to indemnify, defend and hold Landlord harmless from any and all claims, costs, penalties, fines, lawsuits, demands, and expenses, including attorney’s fees and court costs, arising out of or related to any negligence or misconduct in any entry upon the Property by Tenants agents, contractors, and employees, except to the extent caused by the gross negligence or willful misconduct of Landlord, its agents, contractors and employees. All indemnification obligations of Tenant as set forth in the Lease and his Amendment shall survive the termination or expiration of the Lease. Notwithstanding anything to the contrary in this Amendment, Tenant will not be liable to Landlord for, or indemnify Landlord against, punitive, indirect, incidental, special or consequential damages, including, without limitation, loss of income or business opportunities. 6. Limitation of Landlord’s Liability; Early Termination. Landlord’s liability for damages to Tenant under the Lease and this Amendment shall be limited to the actual and direct costs of equipment removal and shall specifically exclude any recovery for value of the business of Tenant as a going concern, future expectation of profits, loss of business or profit or related damages to Tenant; provided, however, that this provision shall not prohibit an action by Tenant for specific performance of this Lease or other equitable or injunctive relief, so long as there is no monetary penalty or damage to Landlord. 7. No Waiver. Nothing contained in this Amendment shall be construed as waiving a party’s right to insist that the other party comply with each and every provision of the Lease, including, but not limited to Tenant’s obligation to seek Landlord’s approval before Tenant may install or replace any equipment beyond that shown and identified in the exhibits to the Lease, Exhibit B-1 attached hereto and any other amendments to the Lease. 8. Notice. Tenant’s notice addresses shall be as follows: T-Mobile USA Inc. 12920 SE 38th Street Bellevue, WA 98006 Attn: Lease Compliance Site # A1Q0612A MN Quarry Point Page 4 Third Amendment to Lease Agreement Sub-ledger 20053020 Landlord and Tenant acknowledge and agree that Landlord may contact Tenant at the phone numbers and e-mail addresses set forth below in connection with any operational or site issues for which legal notice is not necessary: For lease or payment issues: Mick McManman (612) 812-1518 Mick.McManman@T-Mobile.com Re: Cell Site #: A1Q0612A Quarry Point - Apple Valley For emergency operational issues: T-Mobile Network Operations Center (NOC) (866) 783-9557 Re: Cell Site#: A1Q0612A Quarry Point - Apple Valley Landlord’s notices shall be sent to: City of Apple Valley Attn: City Clerk 7100 – 147th Street West Apple Valley, MN 55124 with a copy to: Dougherty, Molenda, Solfest, Hills & Bauer P.A. Attn.: Michael G. Dougherty, City Attorney 14985 Glazier Avenue, Suite 525 Apple Valley, MN 55124 9. Conflict. In the event of a conflict between any of the terms contained in this Amendment and any terms contained in the Lease, the terms of this Amendment shall govern. 10. Affirmation of Lease. Except as modified herein, all terms and conditions of the Lease shall remain in full force and effect. 11. Construction. Landlord and Tenant agree that each of them has participated in the drafting of the Lease and this Amendment (collectively the “Agreement”) and that the Agreement shall not be construed against the party that drafted it. Both Landlord and Tenant acknowledge and agree that any Court interpreting the Agreement shall not construe any portion of the Agreement in favor of or against Landlord or Tenant based upon any rule of law or construction that would construe the Agreement against the party that drafted it. MN Quarry Point Page 5 Third Amendment to Lease Agreement Sub-ledger 20053020 12. Authority. Each person signing this Amendment represents and warrants that he or she has the right, power and legal capacity to enter into this Amendment and that such signature will bind the party for who such signor signs the Amendment. 13. Counterparts. This Amendment may be executed in duplicate counterparts, each of which will be deemed an original. The parties may also execute this document by electronic means, including but not limited to fax, pdf or other electronic means and delivery of this Amendment by electronic means shall be effective as an original. [The remainder of this page has been intentionally left blank. Signature page to follow.] MN Quarry Point Page 6 Third Amendment to Lease Agreement Sub-ledger 20053020 IN WITNESS WHEREOF, the Parties have set their hands as of the date set forth below. CITY OF APPLE VALLEY Date By Mary Hamann-Roland, Its: Mayor Date And Pamela J. Gackstetter, City Clerk Its: City Clerk Date T-MOBILE CENTRAL LLC By: Its: MN Quarry Point Page 7 Third Amendment to Lease Agreement Sub-ledger 20053020 EXHIBIT A PLANS AND SPECIFICATIONS (See attached.) I T E M: 4.L . C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Change Order No. 1 to A greement with Sewer Services, I nc., for P roject 2018-137, 2018 Sump Catch B asin Cleaning, and Approve A cceptance and F inal Payment S taff Contact: Carol Blommel J ohnson, Utilities Superintendent Department / Division: Utilities Division AC T I O N RE Q UE S T E D: Approve C hange Order No. 1 to the agreement with Sewer Services, Inc., for a deduction of $115 for Project 2018-137, 2018 Sump Catch Basin C leaning, and approve acceptance and final payment in the amount of $40,595.00. S UM M ARY: Sewer Services, Inc., has removed the sediment from 353 sump catch basins on County State Aid Highways. Sediment removal from sump catch basins is a requirement of the N PD ES (National Pollution Discharge Elimination System) Permit. B AC K G RO UND: On May 10, 2018, the City C ouncil approved an agreement with Sewer Services, Inc. for sediment removal from approximately 354 sump catch basins on County State Aid Highways. Sump catch basins along Pilot Knob in the County's overlay project were eliminated from this years project. A unit price of $115.00 per structure was quoted for the project. Sewer Services, Inc. cleaned 353 sump catch basins for a total cost of $40,595.00. B UD G E T I M PAC T: Funding for this project is included in the Public Works Utilities Division operating budget, Storm Water 5505-6249. Project C ost 2018-137 5505.6249 Agreement Amount (354 Sump Catch Basins)$40,710.00 Less 1 Sump Catch Basin Cleaned $ 115.00 Invoice Amount $40,595.00 Final Project C ost $40,595.00 AT TAC HM E NT S : Change Order Document(s) F inal Pay Documents F inal Pay Documents F inal Pay Documents I T E M: 4.M. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Acceptance and Final P ayment on Agreement with K lar Dig Construction, I nc., for P roject 2017-167, Cobblestone L ake Park Pavilion and Restroom B uilding S taff Contact: B arry B ernstein, Director Department / Division: Parks and Recreation Department AC T I O N RE Q UE S T E D: Accept Project 2017-167, C obblestone Lake Park Pavilion and Restroom Building, as complete and authorizing final payment in the amount of $30,935.00. S UM M ARY: Klar D ig C onstruction, Inc., has completed the specified work on the pavilion and restroom building located at C obblestone Lake Park. T hey have also submitted applicable final paperwork for payment. Staff finds the results of the project acceptable and recommends final payment on Project 2017-167, Cobblestone Lake Park Pavilion and Restroom Building. B AC K G RO UND: Klar Dig C onstruction, Inc., was contracted to construct a park pavilion and restroom building. T he vendor has completed the work and submitted the associated paperwork. Staff finds the work acceptable and recommends final payment to Klar Dig Construction, Inc. B UD G E T I M PAC T: $30,935.00 T he full project has been funded through a combination of Park Bond and Park Dedication monies. AT TAC HM E NT S : F inal Pay Documents I T E M: 4.N. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove P ersonnel Report S taff Contact: Melissa Haas, Human Resources Manager Department / Division: Human Resources Division AC T I O N RE Q UE S T E D: Approve the personnel report. S UM M ARY: T he employment actions attached to this memo are recommended for City C ouncil Approval. B AC K G RO UND: T he City Council's approval of the Personnel Report includes the ratification of the City Administrator's actions in carrying out the terms and conditions of the employment of the City personnel. B UD G E T I M PAC T: Budgeted positions. AT TAC HM E NT S : Personnel Report PERSONNEL REPORT July 12, 2018 City of Apple Valley Human Resources EMPLOYMENT ACTIONS The following employment actions are recommended for City Council approval: First Name Last Name Action Position Status Dept. Base Pay Rate Pay Type Pay Scale Date (on or about) Cole Brenno Rehire Lifeguard I Casual, Seasonal 1940 $ 11.00 Hourly C-02 7/7/2018 Jake Foster Rehire Lifeguard I Casual, Seasonal 1940 $ 10.75 Hourly C-02 7/7/2018 James Hendrickson HIre Maintenance I Full-Time, Regular 5305 $ 19.30 Hourly UM1 7/16/2018 Thomas Keating Rehire Lifeguard I Casual, Seasonal 1940 $ 11.00 Hourly C-02 7/7/2018 Anna Lee Hire Facility Attendant Casual, Seasonal 1940 $ 10.00 Hourly C-01 7/7/2018 Jordan Mack HIre Police Officer Full-Time, Regular 1200 $ 4,881.00 Monthly U-P 7/30/2018 Dylan Ordorff HIre Police Officer Full-Time, Regular 1200 $ 4,881.00 Monthly U-P 7/30/2018 Samantha Richardson Hire Sales Clerk Casual, Variable Hour 5060 $ 11.00 Hourly L-1 7/9/2018 The Council’s approval of the Personnel Report includes the ratification of the City Administrator’s actions in carrying out the terms and conditions of the employment of the City personnel. Page 1 of 1 I T E M: 4.O. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Consent A genda Description: A pprove Claims and B ills S taff Contact: Ron Hedberg, Finance Director Department / Division: Finance Department AC T I O N RE Q UE S T E D: Approve claims and bills. S UM M ARY: Attached for C ity C ouncil review and approval are check registers for recent claims and bills. B AC K G RO UND: N/A B UD G E T I M PAC T: Check registers dated J une 20, 2018, and J une 27, 2018, in the amounts of $2,066,967.53, and $289,493.88, respectively. AT TAC HM E NT S : Claims and Bills Claims and Bills I T E M: 5.A. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Regular A genda Description: I ntroduction of Police S ergeant A lan Spillers S taff Contact: J on Rechtzigel, Police Chief Department / Division: P olice Department AC T I O N RE Q UE S T E D: N/A S UM M ARY: T he Police C hief will introduce Police Sergeant Spillers. B AC K G RO UND: Sergeant Spillers was promoted in May 2018 to fill a vacancy. B UD G E T I M PAC T: N/A I T E M: 5.B. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Regular A genda Description: I ntroduction of Police K -9 K oda and Handler P olice Officer J ustin Drogseth S taff Contact: J on Rechtzigel, Police Chief Department / Division: P olice Department AC T I O N RE Q UE S T E D: N/A S UM M ARY: T he Police C hief will introduce Police K-9 Koda and his handler Police Officer J ustin Drogseth. B AC K G RO UND: K-9 Koda and Officer Drogseth began training in March 2018 and have since completed the K-9 handler training course. B UD G E T I M PAC T: N/A I T E M: 5.C. C O UNC I L ME E T I NG D AT E :J uly 12, 2018 S E C T I O N:Regular A genda Description: I ntroductions and Oaths of Office of Police Officers April Ehmke, Colleen S trohmayer, and Courtney Wahl S taff Contact: J on Rechtzigel, Police Chief Department / Division: P olice Department AC T I O N RE Q UE S T E D: Introduce Police Officers April Ehmke, C olleen Strohmayer, and C ourtney Wahl and administer oaths of office. S UM M ARY: T he Police C hief will introduce Officers April Ehmke, C olleen Strohmayer, and C ourtney Wahl and the City C lerk will administer them the oath of office. B AC K G RO UND: Officers Ehmke, Strohmayer, and Wahl were hired in February 2018 to fill vacancies and they have since completed their field training program. B UD G E T I M PAC T: N/A I T E M: 7. C OUNC I L ME E T I NG D AT E:J uly 12, 2018 S E C T I ON:C alendar of Upcoming Events D escription: Approve Calendar of Upcoming Events Staff C ontact: Stephanie Marschall, D eputy City Clerk Department / Division: City Clerk’s Office AC T ION RE QUE S T E D : Approve the calendar of upcoming events as listed in the summary below, and noting each event listed is hereby deemed a Special Meeting of the City Council. S UM M ARY: Day/Date Time L ocation Ev ent Wed./J uly 11 7:00 p.m.Municipal C enter Traffic Safety Advisory Committee Meeting T hur./J uly 12 5:30 p.m.Municipal C enter Informal C ity Council Meeting T hur./J uly 12 7:00 p.m.Municipal C enter Regular C ity C ouncil Meeting * Fri./J uly 13 6:00-9:00 p.m.Kelley Park Apple Valley Arts Foundation Music in Kelley Park Concert Series Tue./J uly 17 2:00 p.m.Municipal C enter Cemetery Advisory Committee Meeting C ANC E L E D Wed./J uly 18 7:00 p.m.Municipal C enter Planning C ommission Meeting T hur./J uly 19 6:00 p.m.Municipal C enter Informal Parks & Recreation Advisory Committee Meeting - Park Tour T hur./J uly 19 7:00 p.m.Municipal C enter Regular Parks & Recreation Advisory Committee Meeting Fri./J uly 20 6:00-9:00 p.m.Kelley Park Apple Valley Arts Foundation Music in Kelley Park Concert Series Tue./J uly 24 6:00 p.m.Municipal C enter Urban Affairs Advisory C ommittee Meeting Wed./J uly 25 9:00 a.m.Municipal C enter Firefighters Relief Association Meeting T hur./J uly 26 3:00 p.m.T he Legends of Apple Valley Ribbon Cutting Ceremony T hur./J uly 26 6:00 p.m.Municipal C enter ED A Meeting T hur./J uly 26 7:00 p.m.Municipal C enter Regular C ity C ouncil Meeting * Fri./J uly 27 6:00-9:00 p.m.Kelley Park Apple Valley Arts Foundation Music in Kelley Park Concert Series Tue./J uly 31 10:00 a.m.Orchard Path Ribbon Cutting Ceremony B AC K G RO UND: Each event is hereby deemed a Special Meeting of the City Council, the purpose being informational or social gathering. Only at events marked with an asterisk will any action of the Council take place. B UD G E T IM PAC T: N/A