HomeMy WebLinkAbout2018 CAFR
COMPREHENSIVE
ANNUAL
FINANCIAL
REPORT
FOR THE YEAR ENDED DECEMBER 31, 2018
MINNESOTA
- This page intentionally left blank -
1685 CROSSTOWN BOULEVARD N.W. ANDOVER, MINNESOTA 55304 (763) 755-5100
FAX (763) 755-8923 WWW.ANDOVERMN.GOV
.
Comprehensive Annual Financial Report
of the
City of Andover, Minnesota
For the Year Ended
December 31, 2018
Prepared By: Finance Department
City of Andover
CITY OF ANDOVER, MINNESOTA
TABLE OF CONTENTS
Page
ReferenceNo.
I. INTRODUCTORY SECTION
Letter of Transmittal2
Organization10
Organizational Chart11
Certificate of Achievement12
II. FINANCIAL SECTION
Independent Auditor's Report14
Management's Discussion and Analysis17
Basic Financial Statements:
Government-Wide Financial Statements:
Statement of Net PositionStatement 129
Statement of ActivitiesStatement 230
Fund Financial Statements:
Balance Sheet - Governmental FundsStatement 332
Statement of Revenues, Expenditures and Changes in Fund Balances -
Governmental FundsStatement 434
Reconciliation of the Statement of Revenues, Expenditures and Changes in
Fund Balances of Governmental Funds to the Statement of Activities Statement 537
Statement of Net Position - Proprietary FundsStatement 638
Statement of Revenues, Expenses and Changes in Net Position -
Proprietary FundsStatement 740
Statement of Cash Flows - Proprietary FundsStatement 842
Statement of Net Position - Fiduciary FundsStatement 944
Notes to Financial Statements45
Required Supplementary Information:
Budgetary Comparison Schedule - General FundStatement 1080
Schedule of Changes in the Total OPEB Liability and Related RatiosStatement 1182
Schedule of Proportionate Share of Net Pension Liability - General Employees Retirement FundStatement 1283
Schedule of Pension Contributions - General Employees Retirement FundStatement 1384
Schedule of Proportionate Share of Net Pension Liability - Public Employees Police and Fire FundStatement 1485
Schedule of Pension Contributions - Public Employees Police and Fire FundStatement 1586
Notes to Required Supplementary Information:
Budgets87
Modified Approach for City Streets and Trails Infrastructure Capital Assets87
OPEB Information88
Pension Information88
CITY OF ANDOVER, MINNESOTA
TABLE OF CONTENTS
Page
ReferenceNo.
Combining and Individual Fund Statements and Schedules:
Nonmajor Governmental Funds:
Combining Balance Sheet - Nonmajor Governmental FundsStatement 1693
Combining Statement of Revenues, Expenditures and Changes in Fund Balances -
Nonmajor Governmental FundsStatement 1794
Nonmajor Special Revenue Funds:
Subcombining Balance Sheet - Nonmajor Special Revenue FundsStatement 1896
Subcombining Statement of Revenues, Expenditures and Changes in
Fund Balances - Nonmajor Special Revenue FundsStatement 1998
Nonmajor Debt Service Funds:
Subcombining Balance Sheet - Nonmajor Debt Service FundsStatement 20102
Subcombining Statement of Revenues, Expenditures and Changes in
Fund Balances - Nonmajor Debt Service FundsStatement 21104
Nonmajor Capital Projects Funds:
Subcombining Balance Sheet - Nonmajor Capital Project FundsStatement 22108
Subcombining Statement of Revenues, Expenditures and Changes in
Fund Balances - Nonmajor Capital Project FundsStatement 23110
Special Revenue Funds:
Schedules of Revenues, Expenditures and Changes in
Fund Balances - Budget and Actual:
EDA GeneralStatement 24112
Community CenterStatement 25113
Drainage and MappingStatement 26114
LRRWMOStatement 27115
ForestryStatement 28116
Right-of-Way Management/UtilityStatement 29117
Charitable GamblingStatement 30118
Construction Seal CoatingStatement 31119
Internal Service Funds:
Combining Statement of Net Position - Internal Service FundsStatement 32121
Combining Statement of Revenues, Expenses and Changes in Net Position -
Internal Service FundsStatement 33122
Combining Statement of Cash Flows - Internal Service FundsStatement 34123
Agency Funds:
Combining Statement of Net Position - Fiduciary FundsStatement 35125
Combining Statement of Changes in Assets and Liabilities - Fiduciary FundsStatement 36126
III. STATISTICAL SECTION
Net Position by Component - Last Ten Fiscal Years Table 1128
Changes in Net Position - Last Ten Fiscal Years Table 2130
Fund Balances - Governmental Funds - Last Ten Fiscal Years Table 3134
Changes in Fund Balances - Governmental Funds - Last Ten Fiscal Years Table 4136
Assessed and Estimated Actual Value of Taxable Property - Last Ten Fiscal YearsTable 5138
CITY OF ANDOVER, MINNESOTA
TABLE OF CONTENTS
Page
ReferenceNo.
Property Tax Rates - Per $1,000 of Assessed Tax Capacity Value - Direct and Overlapping
Governments - Last Ten Fiscal YearsTable 6139
Property Tax Levies and Collections - Last Ten Fiscal YearsTable 7140
Principal Taxpayers - Current Year and Nine Years AgoTable 8141
Estimated Market Values and New Construction - Last Ten Fiscal YearsTable 9142
Special Assessment Levies and Collections - Last Ten Fiscal YearsTable 10143
Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita -
Last Ten Fiscal YearsTable 11144
Computation of Direct and Overlapping DebtTable 12145
Computation of Legal Debt Margin - Last Ten Fiscal YearsTable 13146
Pledged-Revenue Coverage - Last Ten Fiscal YearsTable 14149
Outstanding Debt by Type - Last Ten Fiscal YearsTable 15150
Demographic and Economic Statitistics - Last Ten YearsTable 16152
Principal Employers - Current Year and Nine Years AgoTable 17153
Full Time Equivalent Employees - City Government Employees by Function/Program -
Last Ten Fiscal YearsTable 18155
Operating Indicators by Function/Program - Last Ten YearsTable 19156
Capital Asset Statistics by Function/Program - Last Ten YearsTable 20158
IV. OTHER INFORMATION
Combined Schedule of IndebtednessExhibit 1160
Schedule of Tax Capacity Rates and LeviesExhibit 2162
Schedule of Deferred Tax Levies - General Obligation BondsExhibit 3163
Schedule of Fund TransfersExhibit 4164
I. INTRODUCTORY SECTION
1
1685 CROSSTOWN BOULEVARD N.W. ANDOVER, MINNESOTA 55304 (763) 755-5100
FAX (763) 755-8923 WWW.ANDOVERMN.GOV
May21, 2019
To the Honorable Mayor and City Council
City of Andover
1685 Crosstown Blvd. NW
Andover, Minnesota 55304
Dear Honorable Mayor and Council Members:
The Comprehensive Annual Financial Report is submitted in conformance with all applicable governing laws and regulations. The
following has set the standards forth:
*Andover City Policy and Code
*The State Auditor, State of Minnesota
*Government Finance Officers Association
*Governmental Accounting Standards Board
RESPONSIBILITY.Responsibility for both the accuracy of the presented data and the completeness of the financial statements
including all disclosures rests with the City. We believe the data, as presented, is accurate in all material aspects. This report has
been presented in a manner designed to fairly set forth the financial position and results of operations as measured by the financial
activity of its various funds.
FINANCIAL STATEMENT FORMAT.This Comprehensive Annual Financial Report is presented in three main sections:
I.Introductory
II.Financial
III.Statistical
The Introductionincludes a list of the City's principal officials as of December 31, 2018, the table of contents, the public officials,
organizational chart, and this Letter of Transmittal. The Financial Sectionincludes: (1) independent auditor's report; (2)
s;
(5) required supplementary information; (6) the combining statements, individual fund statements; and, (7) the supplemental
information. The Statistical Sectionincludes tables and reports of various economic, social, financial and fiscal data designed to
reflect trends and ratios.
Generally Accepted Accounting Principles (GAAP) requires that management provide a narrative introduction, overview, and
of transmittal is designed to complement the MD&A and shoul
can be found immediately following the report of the independent auditors.
REPORTING ENTITY.All City funds, departments, commissions, and other organizations for which the City of Andover is
Association does not meet the established criteria for inclusion in the reporting entity, and accordingly isexcluded from this report.
GENERAL INFORMATION.
Senator Grow spoke at a political campaignin Anoka that year, and the town name was changed to reflect Senator Grow because
of his strong advocacy of the Union cause. At that time, the population was 330 and included the geographical area we know today
as Ham Lake. In fact, the area of Ham Lakewas considered a part of Grow Township until 1871.
In 1972, the Grow Township Board of Supervisors recognized that the town was growing at a very rapid rate. They felt a village
form of government would provide better services to the community. Board supervisors then voted in favor of proceeding with
ame
Andover had historical interest. The historical interest, we believe, came from the Andover train station.
2
To the Honorable Mayor and City Council
City of Andover, Minnesota
a
research reveals that the name Andover first appeared in an article dated March 14, 1899 in the Anoka County Union Newspaper -
before train tracks were ever built in the city.
The article stated that the Eastern Minnesota line of the Great Northern Railway was in the process of constructing railroad tracks
from the Coon Creek Cut-off to the North. The railway announced that new railroad stations with mathematical precision were to
be located five miles apart from each other. Thenew stations (from Coon Creek to the North, along the new railroad line) were to
be named Andover, Cedar, Bethel, Isanti, Cambridge, Stanchfield, Braham, Grasston, Cornell, and Brook Park. On July 4, 1899,
the first train passed through the Andover station.Where the railway came up with the name Andover still remains unknown.
Andover Village was established in 1972 and then became the City of Andover, a city of the fourth class, in 1974. Today the City
ing it as a second class city.
The City of Andover as it exists today consists of 23,040 acres. Andover has a population estimated at 32,000. A growing suburb
of the northern metropolitan area, the City of Andover is approximately sixteen miles from Minneapolis.
SERVICES PROVIDED.The City of Andover provides various services to the residents in the community. The current services
are:
General Government:
Mayor and City councilFinancial administrationInformation systems
NewsletterElectionsFacility management
City clerkAssessingEngineering
AdministrationLegalRisk management
Human resourcesPlanning and zoning
Public Safety:
PoliceProtective inspectionAnimal control
Fire protectionCivil defense
Public Works:
Streets and highwaysStreet signsTraffic signals
Snow and ice removalCentral equipment maintenanceWater maintenance
Street lighting
Sanitation:
Storm sewersSanitary sewer maintenance
Parks and Recreation
Recycling
GOVERNMENT STRUCTURE.Andover is a statutory city with the City Council appointing a City Administrator. The City
Administrator has operating responsibilities for all City functions. A list of public officials and organizational chart canbe found
on page 10and 11respectively.
ECONOMIC CONDITION AND OUTLOOK
Moderate population growth is expected to continue in 2019and 2020, with an estimated population of 32,800by 2019. The rate
of residential growth as compared to the growth in the 19has significantly declined as the availability of
residentially zoned property decreased. The City has experienced a significant amount of commercial growth from 2000 through
current 2018.Continual commercial growth is anticipated over the next coupleyears, beyond that growth will slow as the amount
of undeveloped commercially zoned property also declines.
The City's General Fund has two major categories of revenue, which accounted for 85% of the total in 2018. They are general
property taxes at 77%and charges for services at 8%. In prior years, intergovernmental revenue was the second largest category
of revenue for the General Fund. Intergovernmental revenue includes state aids, such as local government aid (LGA), market value
homestead credit (MVHC), highway maintenance aid, fire relief aid and police aid; and county grants, such as recycling and
community development.
3
To the Honorable Mayor and City Council
City of Andover, Minnesota
During the past several years, the State of Minnesota has made numerous changes to laws pertaining to the distribution of LGA,
Homestead and Agricultural Credit Aid (HACA) and MVHC resulting in significant reductionsin intergovernmental revenue.
The City has beenable to make up this loss in aid through operational efficiencies and an increased tax levy, the most substantial
increasein the local tax rate took place in 2002. The tax laws that resulted in the 2002change also greatly reduced school district
property tax levies, resulting in no net tax increase for most residential property owners. Sweeping changes approved in 2003
resulted in the loss of approximately $590,000 in aid to Andover, that loss in aid was originally intended to be for two years (2003
& 2004) but that loss was extended to include years 2005 and 2006. The state allowed cities the ability to levy up to 60% of the
lost 2003 aid in 2004. Again, in 2008through 2012, the State of Minnesota significantly reduced MVHC to help deal with the
state budget deficit.In 2013, the State eliminated MVHC and instituted the new market value exclusion program.
In 2014, LGA wasreinstated for the City in the amount of $74,655. Due to the unpredictability of the State, those funds wereused
to help offsetthe growing needs of the Road and Bridge Capital Projects Fund for street improvements/replacements.The City is
not intending to rely on this funding for general operational needs.In 2015, LGA was eliminated again for the City.In 2016, the
City received $2,706 in LGA.In 2017and 2018, it was eliminated again for the City.
For 1998 through 2000, cities with populations over 2,500 were under levy limit restrictions imposed by the State. Levy limits
severely curb the ability of cities to generate additional tax revenue needed to respond to an increasing demand for services. For
1999 and 2000, the levy limit formula was modified to allow for increases based on commercial and industrial growth. This wasa
favorable change for Andover, as the City experienced a surge in commercial growth during that period. Levy limits were lifted
for 2001 but were reinstated for 2002 -2004. The 2004 levy limits were so severe that the State did not allow cities the ability to
capture residential and commercial market value growth. Levy limits were liftedfrom 2005 to2008, but reinstated for 2009 and
are still in place in some formyet today.
a substantial amount of revenue from licenses and permits. The past ten years are shown below:
RevenuesChange
2009$291,903n/a
2010329,901$ 37,998
2011387,20657,305
2012449,82662,620
2013536,70686,880
2014364,430(172,276)
2015452,42287,992
2016625,907173,485
2017546,378(79,529)
2018562,52516,147
Revenue from residential building continued to modestly increase from2010to2013,but it is unlikely that those revenues will
as a reduced number of new residential lots are being added to the overall lot inventory. The
decrease in2009is due to the continued downturn in the economy, especially the construction industry.From 2010to 2013, the
home building market showed signs of improvement andsome commercial activity taking placeaccounted for the increase in
permit revenue.In 2014, there was a decrease in both residential and commercial activity.There was a slight increase in
construction activity in 2015.In 2016, there was an increase in both residential and commercial construction.In 2017, there was
adecrease in single-family building permits issued going from 111 permits in 2016 to 94 in 2017.The decline in single-family
building permits continued in 2018 to a total of 60, but commercial permit valuations exceeded 2017 by over $10,000,000 thus the
increase in 2018.
wn
below:
4
To the Honorable Mayor and City Council
City of Andover, Minnesota
RevenuesChange
2009$ 701,289n/a
2010755,184$ 53,895
2011866,584111,400
2012973,605107,021
20131,122,461148,856
2014998,510(123,951)
2015804,228(194,282)
2016912,219107,991
2017843,023(69,196)
2018888,94745,924
The City analyzes user fees every year as part of the budget process and makes adjustments where appropriate. Thedecreasein
2009was expected due to the struggling economy.From2010to2013, the home building market showed signs of improvement
and some commercial activity taking place accounted for the increase in plan review revenue.In 2014, the decrease in both
residential and commercial activity resulted in a decrease as compared to 2013.A reduction in the scope of roadway projects
accounted for a large part of the reduction in 2015 for engineering fees charged as compared to 2014.The increase in 2016 pertains
to plan check fees associated with the increase in construction activity and engineering fees charged to roadway projects.The
slight decline in 2017 relates to the decrease in housing permits issued as compared to 2016.The increase in 2018 pertains to plan
check fees associated with the commercial construction activitytaking place.
In 2018, the City issued 60new single-family building permits with a total valuation of $19,703,856compared to 94new single-
family building permits with a total valuation of $27,847,716the prior year. The past ten years are shown below:
New ResidentialNew Commercial / Industrial
PermitsValuationPermitsValuation
200947$ 9,246,34713$ 767,430
20107114,700,800111,247,106
20115811,803,0002411,461,453
20128115,243,007255,042,964
20139820,351,892159,249,466
20145213,926,901144,285,281
20157419,631,775162,513,609
201611128,893,036714,009,200
20179427,847,716--
20186019,703,85622,860,000
Residential Development
nd
Addition, Winslow Cove and White
th
Pine Wilderness 4developments. Also 24 rural lots were approved in a development known as the Preserve at Petersen Farms.
The City currently has a supply of 196 urban lots and 32 rural lots (which includes the lots above).
Commercial Industrial Development
New institutional/commercial/industrial construction did occur in 2018.Growing Generations constructed a new 10,450 square
foot day-care facility at 15216 Bluebird Street NW. Fitaholic Fitness opened a facility within a new multipurpose building that is
st
11,941 square feet at 1714 Bunker Lake Boulevard NW. Muddy Paws acquired a vacant building at 3121 161Avenue NW and
repurposed the 5,640 square foot building into a pet daycare. Other businesses that came to Andover and did extensive tenant
finishes or remodels in existing multi-tenant buildings include: Realty One Group, State Farm Insurance Group, FedEx, Dominos
Andover High School is to receive close to $30 million in additions totaling 67,000 square feet, and other improvements to another
5,700 square feet of space in the school. Phase 1 additions and remodeling started in 2018. Priority among the projects is an
addition to the building to create safe and secure learning environments through the removal of 12 portable classrooms. The school
capacity
to 2,000 stu
space, staff planning areas, additional student lockers; expansion of administrative and guidance areas to support the expanded
capacity; and an auditorium expansion to increase seating and better serve the increased student capacity and community. In
s
5
To the Honorable Mayor and City Council
City of Andover, Minnesota
strength/fitnessspace to provide all students and school/community programs with opportunities before and after school; an
additional gymnasium attached to existing gym space to accommodate the expanded capacity and address storage deficiencies.
The Anoka County ParksDepartment is constructing two new outdoor gathering spaces at the Bunker Hills Activities Center. The
first area will remove the current ramps on the south side of the building and replace it with a 120 person capacity deck. This will
provide additionalspace for meetings, family gatherings, weddings, and other events. The second area converts the existing
greenhouse into an exterior patio area accessible from the inside as well as the outside. Construction on the deck and patio started
in 2018 and willbe complete in the spring of 2019.
EMPLOYMENT
-Hennepin School District has a significant presence
Office headquarters are located in Andover.
The City of Andover is best classified as a bedroom community, since a majority of the residents commute outside of Andover for
employment opportunities. The City does anticipate with the completion of development of the Andover Station Commercial Park
that additional employment opportunities will be provided to residents in the near future.
Major employers in Andover are as follows:
Number of
FirmType of Business / ProductEmployees
Anoka-Hennepin ISD No 11Elementary and secondary education928
Wal-MartRetail335
Fairview - Andover ClinicHealthcare300
Anoka County Sheriff's OfficeCounty government and services250
Kottkes' Bus Service, Inc.Bus transportation225
TargetRetail150
GAF Materials CorpRoofing materials-manufacturing150
Anoka County Highway DepartmentCounty government and services105
Bunker Hills Regional Park/Activity CenterCounty government and services100
YMCAYouth organization - fitness center100
MAJOR INITIATIVES
FOR THE YEAR. The City has many accomplishments to report for 2018. The following list is a summary of some of the major
initiatives completed throughout the year.
1)Ongoing implementation of a single-family rental housing license program to provide property owners/landlords with
educational materials and checklists on how to inspect and maintain the exterior of the property, a list of potential
ordinance violations that may occur with a rental property, and an exterior inspection of the building and grounds with
city staff. This program was authorized by the Andover City Council in 2009 and is reviewed annually, there were
close to 260 single family rental licenses issued throughout the City in 2018.
2)In 2018, the City again saw new residential development which included
ndth
Glen 2Addition, Winslow Cove and White Pine Wilderness 4developments. Also 24 rural lots were approved in
a development known as the Preserve at Petersen Farms. The City currently has a supply of 196 urban lots and 32
rural lots (which includes the lots above).
3)In 2018, the City issued 60 new single-family building permits with a total valuation of $19,703,857 compared to 94
new single-family building permits with a total valuation of $27,847,716 for thepreceding year.
4)In 2018, the City saw commercial construction throughout the community.Growing Generations constructed a new
10,450 square foot day-care facility, Fitaholic Fitness opened a facility within a new multipurpose building that is
st
11,941 square feet, Muddy Paws acquired a vacant building at 3121 161Avenue NW and repurposed the 5,640 square
foot building into a pet daycare. Many other businesses also came to Andover and did extensive tenant finishes or
remodels in existing multi-tenant buildings.
5)In 2017 and 2018, the City of Andover, in cooperation with the Anoka County Highway Department, worked through
the planning of the Hanson Boulevard expansion and reconstruction. Right of Way clearing and utility work has taken
6
To the Honorable Mayor and City Council
City of Andover, Minnesota
place in 2018 withfull construction to start in 2019, completion is anticipated 2020. This project will be financed
primarily by a federal grant. Trails and intersection improvements will also be constructed as part of the project.
6)Andover High School will receive closeto $30 million in additions totaling 67,000 square feet, and other improvements
adding another 5,700 square feet of space in the school. Phase 1 of the additions and remodeling started in 2018.
Priority among the projects is an addition to the building and the removal of 12 portable classrooms. The school was
capacity to 2,000 students.
7)In 2018, working with the Anoka County Parks Department, two new outdoor gathering spaces at the Bunker Hills
Activities Center started construction. The first area will remove the current ramps on the south side of the building
and replace it with a 120 person capacity deck. This will provide additional space for meetings, family gatherings,
weddings, and other events. The second area converts the existing greenhouse into an exterior patio area accessible
from the inside as well as the outside. The project will be complete in the spring of 2019.
8)The City of Andover EDA went through the public hearing process in 2011 to modify the City Development Plan to
create redevelopment areas of the community and to facilitate the opportunity to acquire dilapidated and substandard
multi-family homes within specified target areas. The EDA was successful in acquiring one 4-plex property in
November of 2011 to start the redevelopment process with hopes of continuing to add to the critical land mass
necessary to start marketing for a redevelopment project. In late 2017 the EDA was successful in acquiring three more
4-plex properties and one additional 4-plex in 2018. It is anticipated that the EDA will continue to acquire two 4-
plexes a year for the next few years.
9)In 2016, City Staff started work with the State of Minnesota Board of Soil and Water Resources on a wetland
restoration of the old Woodland Creek Golf Course parcel. The City acquired the old 74 acre golf course in late 2013,
subsequently a 6 acre parcel was sold to a developer and a 6 unit subdivision called Shadow Ponds was the outcome.
The remaining acreage is being restored to a wetland with passive nature trails. Construction bids were received in
late 2016 with the first phase of construction completed the summer and fall of 2017. Other restoration elements
will be open to the public in the summer of 2019.
10)The City completed the master planning concept layout of the City Campus site in 2016 to prepare for the facility
needs for the ultimate build out of the City. The master planning concept layout provides for the Public Works, Public
Safety, General Government and Recreational long term needs of the community. In 2017, the City hired two
architectural firms to start the design for a Public Works Maintenance Facility, cold storage building and to explore a
potential expansion of the Andover YMCA/Community Center. Both projects completed design in 2018. The Public
Works component was out for bid in late 2018 and is anticipating a bid award in early 2019. The Community Center
Expansion design has continued throughout 2018 and is anticipated to go out for bid in early 2019.
11)Andover residents continue to have one of the highest recycling rates per person for all recyclable materials in Anoka
County. In 2014, the City added a new Recycling Center to expand the current recycling opportunities for Andover
residents. In 2018, the City hosted monthly recycling events (on weekends), generally with a specific focus, such as
paper shredding and appliance or electronics collection.
12)A strategic planning session was held with the City Council, a final Council Community Vision and Organization
Goals and Values document was approved atthe July 7, 2015 City Council meeting. Direction provided in that
document is being integrated into various department work plans and budgets. The 2019 Budget does provide for a
new strategic planning process in early 2019.
13)The City's Comprehensive Annual Financial Report (CAFR) for the year ended December 31, 2017 was awarded the
document internally and recognized significant cost savings in the form of reduced financial consulting fees. This is
December 31, 2018 will also achieve this award.
14)For the seventeenth yearin a row, the City of Andover was awarded the Government Finance Officers Association
Distinguished Budget Presentation Award for the City's 2018 Annual Budget. This award recognizes excellence in the
document, an operations guide, as a financial plan and as a
communications device.
15)The City continues to make significant progress on the process of digitally imaging documents retained, this includes
standard and legal documents and large construction plan documents. The imaging project has helped the City reduce
7
To the Honorable Mayor and City Council
City of Andover, Minnesota
staffing through data storage retrieval efficiencies, eliminated the need for office expansion and has expedited City
research projects.
16)The City continues to utilize updates to our financialmanagement software to improve reporting and operating
efficiencies. These updates continue to yield reduced personnel costs and more timely reports. In 2018, the City saw
increased growth in the number of online and counter credit card payments for various City permits and services.
FOR THE FUTURE. The City continues to focus on quality of life improvements throughout the City. These efforts cover a
broad array of areas including: protecting and improving the environment, revitalization of parks and public areas, expanding
recreational opportunities, providing cost-effective city services, increased communication between city representatives and the
public and added commercial/retail opportunities.
The Cityutilizes many avenues to reach its residents, whether through community access television, electronic reader boards, the
City newsletter,Facebook, Twittergov). It is important to the Citythat our residents are
informed and have the ability to participate in the activities of their City. The City did conduct a community survey in 2006, with
the help of a polling firm, to secure opinions and suggestions from the public.The City initiatedand completeda community
survey in early 2014, the City received very high marks.
RELEVANT FINANCIAL POLICIES
The City has a policy regarding General Fund reserve balances. The City plans for anunassignedfund balance in the General Fund
equivalent to 6--annual property tax
settlements. Since the property tax settlements are received by the City in July and December,the City needs sufficient cash
reserves to avoid short-term borrowing to finance operations. The City also classifiesfund balances for prepaid items, inventories
and other legal obligations. The City may also classifya portion of fund balance for special purposes.
ring the
year is invested in certificates of deposit, commercial paper, and obligations of the U.S. Treasury and government agencies. Cash
balances from all City funds are pooled into an investment fund and investment income is distributed on a pro-rata basis at the end
of each quarter.Extended maturities are utilized to take advantage of higher yields but staggered in a way to meet projected
liquidity needs.
Capital financing for major improvements is provided through improvement bonds, general obligation bonds, tax increment bonds,
or revenue bonds. Depending on the project, special assessments may be levied upon properties to share in the cost of the
improvement project. The special assessments are collected over a period of time and are used to help satisfy the improvement
bond debt orreimburse the fund used to finance the project.
The City Council has also adopted financial management policies in order to allow for the planning of adequate funding of services
desired by the public, to manage City finances wisely, and to carefully account for public funds. These policies are reviewed each
year when the annual budget is adopted. The financial management policies included: operating budget policies; revenue policies;
accounting, auditing and financial reporting policies; investment policies; debt policies; capital improvement policies; and risk
management policies.
and is continually evaluated to assure the adequacy of internal accounting controls. Internal accounting controls are designed to
provide reasonable but not absolute assurance in the areas of: safeguarding assets against loss from unauthorized use or disposition,
reliability of financial records, and convenience of access for preparing financial statements and maintainingaccountability for
assets. The concept of reasonable assurance adopted by the City Council recognizes that the evaluation of cost and benefits requires
estimates and judgments by management, and the cost of a control should not exceed the benefits likelyto be derived. All internal
safeguard
nsactions.
OTHER INFORMATION
AWARDS.The Government Finance Officers Association (GFOA) of the United States and Canada presented a Distinguished
Budget Presentation Award to the City of Andover for its annual budget for the fiscal year beginning January 1, 2018. This is the
seventeenthyear in a row the City of Andover has received this award. In order to receive this award, a governmental unit must
publish a budget document that meets program criteria as a policy document, as an operations guide, as a financial plan and as a
communications device. This award is valid for a period of one year only. We believe that the annual budget for the fiscal year
8
To the Honorable Mayor and City Council
City of Andover, Minnesota
beginning January 1, 2019continues to conform to the program requirements and have submitted it to the GFOA to determine its
eligibility for another award.
The GFOA also presented the Certificate of Achievement for Excellence in Financial Reporting Award to the City of Andover for
its 2017Comprehensive Annual Financial Report. This is the sixteenthtime the City of Andover has received this award. In order
to receive this award, a government unit must publish an easily readable and efficiently organized comprehensive annual financial
report whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and
applicable legal requirements. This award is valid for a period of one year only. We believe this report for 2018continues to
conform to the Certificate of Achievement Program requirements and have submitted it to the GFOA to determine its eligibility
for another award.
INDEPENDENT AUDIT.State statutes require an annual audit by independent certified public accountants. Redpathand
Company, Ltd. was engaged by the City to render an opinion on the City's financial statements. The auditor's report on the basic
financial statements and combining and individual fund statements and schedules is included in the financial section of this report.
ACKNOWLEDGMENTS.The preparation of this report could not have been accomplished without the efficient services and
dedication of the Finance Department staff and the consultation of the City's auditing firm. Staff members: Lee Brezinka, Melissa
Knutsonand Brenda Fildes have my sincere appreciation for their contribution to the preparation of this report.
I also want to express our appreciation to the Mayor and members of the City Council for their interest and support in planning and
conducting the financial operations of the City in a fiscally responsible manner.
Respectfully submitted,
James Dickinson
City Administrator
9
CITY OF ANDOVER, MINNESOTA
ORGANIZATION
December 31, 2018
OfficeNameTerm
MayorJulie TrudeJanuary 1, 2019
Council MemberSheri BukkilaJanuary 5, 2021
Council MemberJim GoodrichJanuary 1, 2019
Council MemberValerie HolthusJanuary 1, 2019
Council MemberMichael KnightJanuary 5, 2021
City Administrator / City ClerkJames DickinsonAppointed
Community Development DirectorJoe JanishAppointed
Director of Public Works / City EngineerDavid BerkowitzAppointed
Finance ManagerLee BrezinkaAppointed
Building OfficialFred PatchAppointed
Fire ChiefJerry StreichAppointed
AttorneyHawkins & Baumgartner, P.A.Appointed
Fiscal ConsultantsEhlers & Associates, Inc.Appointed
10
CITY OF ANDOVER
Organizational Chart
City Council
City AttorneyCity AdministratorAdvisory Boards
AdministrativeBuilding InspectionsEngineeringFinanceFire ProtectionPlanningPublic WorksPolice Protection
Services
AdministrationCivil DefenseEngineeringFinancialFire ProtectionPlanning & ZoningStreets/Highways
ServicesAdministrationServices
Human ResourcesProtectiveRight-of-WayAssessingSnow & Ice
InspectionsManagementRemoval
NewsletterDrainage &FacilitiesStorm Sewer
MappingManagement
EconomicLower Rum RiverUnallocatedStreet Lighting
DevelopmentWatershed Mgmt
AuthorityOrganization
CommunityForestryCapital EquipmentSignage
CenterReserve
ElectionsTrail &Debt Service FundsTraffic Signals
Transportation
Animal ControlConstructionUnfinanced ProjectsParks & Recreation
Seal Coating
InformationWater TrunkTax IncrementRecycling
SystemsProjects
Storm SewerBuilding FundWater
City Clerk
Sewer TrunkPermanentSewer
Improvement
Revolving
Road & BridgeG.O. CapitalCentral Equipment
Notes
Park DedicationRisk
ProjectsManagement
11
12
II. FINANCIAL SECTION
13
Government
Auditing Standards
14
Required Supplementary Information
15
Other Information
Government Auditing Standards
Government Auditing Standards
Government Auditing Standards
16
CITY OF ANDOVER, MINNESOTA
December 31, 2018
s of the financial
activities of the City for the fiscal year ended December 31, 2018. We encourage readers to consider the information presented here in
conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages 2 through 9of this
report.
Financial Highlights
The assets of the Cityexceeded its liabilities at the close of the most recent fiscal year by $183,872,437(netposition). Of this amount,
$38,144,984(unrestricted net positionaccordance with
the City's fund designations and fiscal policies.
positionincreased by $4,038,736from current year activity, primarily due to the budget savingsandan increase in
commercial/residential constructionfees.
$44,143,951.
SpecialDebtCapital
GeneralRevenueServiceProjectsTotals
Nonspendable$ 112,971$ 2,386$ -$ -$ 115,357
Restricted-74,2441,045,33913,106,25614,225,839
Committed-518,617--518,617
Assigned-394,107-20,932,92921,327,036
Unassigned8,023,365--(66,263)7,957,102
$ 8,136,336$ 989,354$ 1,045,339$33,972,922$44,143,951
-term liabilities increased by $7,129,040during the current fiscal year, primarily due to the issuance of general obligation
bondsforthe construction of a new vehicle maintenance facility with a washbay and a cold storage building in 2018.
BeginningEnding
BalanceAdditionsReductionsBalance
Governmental activities:
Bonds payable$16,280,000$10,000,000$(1,416,000)$24,864,000
Other post employment benefits230,25326,193(5,000)251,446
Promissory note payable 196,717-(196,717)-
Compensated absences664,210401,452(373,283)692,379
Net pension liability3,698,358-(562,429)3,135,929
Total governmental activities21,069,53810,427,645(2,553,429)28,943,754
Business-type activities:
Bonds payable4,527,690-(698,316)3,829,374
Other post employment benefits31,39810,348(813)40,933
Compensated absences188,69195,491(85,255)198,927
Net pension liability471,732-(66,631)405,101
Total business-type activities5,219,511105,839(851,015)4,474,335
Total City long-term liabilities$26,289,049$10,533,484$(3,404,444)$33,418,089
Overview of the FinancialStatements
sic financial
statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial
statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
17
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview
-sector business.
The statement of net positionted as net
position. Over time, increases or decreases in net positionmay serve as a useful indicator of whether the financial position of the City is
improving or deteriorating.
netpositionchanged during the most recent fiscal year. All changes
in net positionare 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 inthis 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-widefinancial statements distinguish functions of the Citythat are principally supported by taxes and
intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs
through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety,
public works, sanitation, parks and recreation, recycling and economic development. The business-type activities of the City include water,
sewer and storm sewer.
The government-wide financial statements can be found on pages 29through31of this report.
Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated
for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate
compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds,
proprietary funds, and fiduciary funds.
Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the
government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements
focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal
-term financial 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
statement. By doing so, readers may better understand the long-term impact of the City's near-term financial decisions. Both the governmental
fund balance sheet and governmental fund statement of revenues, expendituresand change in fund balances provide a reconciliation to facilitate
this comparison between governmental funds and governmental activities.
The City maintains sixindividual major governmental funds. Information is presented separately in the governmental fund balance sheet and
in the governmental fund statement of revenues, expendituresand changes in fund balances for the following major funds: General Fundand
the following capital projectsfunds (CPF): Water Trunk, Sewer Trunk, Road and Bridge, 2018A G.O. Capital Improvement Plan Bonds, Tax
Increment Projects and Permanent Improvement Revolving.
Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major
governmental funds is provided in the form of combining statements elsewhere in this report.
The City adopts an annual appropriated budget for its general and special revenue funds.
A budgetary comparison statement has been provided for those funds to demonstrate compliance with this budget.
The basic governmental fund financial statements can be found on pages 32through 37of this report.
Proprietary funds. When the City charges customers for the services it provided whether to outside customers or to other departments of
the City these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are
reported in the statement of net positionand the statement of revenues, expenses and changes in net position.
The enterprise funds are the same as the business-type activities reported in the government-wide statements but provide more detail and
additional information, such as cash flows, for proprietary funds. The City uses enterprise funds to account for its water, sanitary sewer and
storm sewer operations.
departments, such as the equipment
maintenance and insurance funds. The internal service funds are reported with governmental activities in the government-wide financial
statements.
The basic proprietary fund financial statements can be found on pages 38through43of this report.
18
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not
reflected in the government-wide financial statements because the
The accounting used for fiduciary funds is much like that used for proprietary funds.
The basic fiduciary fund financial statement can be found on page 44of this report.
Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in
the governmentwide and fund financial statements. The notes to the financial statements can be found on pages 45through78of this report.
Other information. The combining statements referred to earlier in connection with non-major governmental funds is presented immediately
following the required supplementary information on budgetary comparisons,the modified approach for streets and trails infrastructureand
pension information. Combining and individual fund statements and schedules can be found on pages 92through 126of this report.
Government-wide Financial Analysis
As noted earlier, net positionmay serve over time as a useful indicator of a government's financial position. In the case of the City, assets
exceeded liabilities by $183,872,437at the close of the most recent fiscal year.
position($140,646,223or 77percent) reflects its investment in capital assets (e.g. land, buildings,
machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. It does not include any refunding debt
that has not met the refunding date of the original issue. The City uses these capital assets to provide services to citizens; consequently, these
assets are not available for future spending. Althoughthe City's investment in its capital assets is reported net of related debt, it should be noted
that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate
these liabilities.
POSITION
Governmental ActivitiesBusiness-Type ActivitiesTotals
201720182017201820172018
Current and other assets$ 38,325,140$ 48,786,279$ 9,086,720$10,527,200$ 47,411,860$ 59,313,479
Capital assets118,079,364118,615,23641,702,50740,898,073159,781,871159,513,309
Total assets156,404,504167,401,51550,789,22751,425,273207,193,731218,826,788
Deferred outflows of resources1,406,741949,991116,91572,2151,523,6561,022,206
Long-term liabilities
outstanding21,069,53828,943,7545,219,5114,474,33526,289,04933,418,089
Other liabilities1,223,3001,084,990(29,364)21,8461,193,9361,106,836
Total liabilities22,292,83830,028,7445,190,1474,496,18127,482,98534,524,925
Deferred inflows of resources1,306,4651,344,70594,236106,9271,400,7011,451,632
Net position:
Net investment in capital
assets101,602,647103,577,52437,174,81737,068,699138,777,464140,646,223
Restricted4,935,3755,081,230--4,935,3755,081,230
Unrestricted27,673,92028,319,3038,446,9429,825,68136,120,86238,144,984
Total net position$134,211,942$136,978,057$45,621,759$46,894,380$179,833,701$183,872,437
A portion of the City's net positionrepresents resources that are subject to external restrictions on how they may be used. The remaining
balance of unrestricted net position($38,144,984) 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 Cityas a
whole, as well as for its separate governmental and business-type activities.
19
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Government-wide Activities
Governmental activities increased the City's net positionby $2,766,115and business-type activities increased net positionby $1,272,621. Key
elements of the activities are as follows:
City of Andover's Changes in Net Position
20
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Governmental Activities
Following are specific graphs that provide comparisons of the governmental activities revenues and expenses:
Governmental Activities -Revenues
Unrestricted
Grants and
Charges for services
investments earnings
contributions not
17.2%
2.9%
restricted to specific
programs
Tax increment
0.1%
0.4%
Gain on sale of capital
assets
0.1%
Capital grants and
contributions
8.3%
Property taxes
63.7%
Operating grants and
contributions
7.2%
Governmental Activities -Expenses
Interest on long-term
debt
2.2%
Economic
General government
development
19.0%
1.5%
Parks and recreation
19.7%
Recycling
1.2%
Public safety
31.2%
Public works
25.2%
21
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Business-Type Activities
Followingare graphs showing the business-type activities revenue and expense comparisons:
Business-Type Activities -Revenues
Capital grants and
contributions
7.70%
Unrestricted
investments earnings
1.80%
Charges for services
90.50%
Business-Type Activities -Expenses
Storm sewer
12.06%
Water
45.25%
Sewer
42.69%
22
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Financial Analysis of the Government's Funds
Governmental Funds-term inflows, outflows, and balances of
trictedfund balance may
At the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $44,143,951. Approximately
18.0percent of this total amount ($7,957,102) constitutes unassignedfund balance. The remainder of the fund balance ($36,186,8490) is not
available for new spending because it is either1) nonspendable($115,357), 2) restricted($14,225,839), 3) committed($518,617)or4)assigned
($21,327,036).
Major Funds
The general fund increased by $346,720in 2018, which was a $771,497change from the final budget. The final budget showed adecrease in
fund balance of $424,777. The changein fund balance is due to various departments under-spendingand revenues exceeding budgetsrelated
to residential and commercial construction activity and a one-time transfer out of $230,000.
The water and sewer trunk capital projects funds fluctuate based on development activity and whether there is any cost sharing for pipe over-
nd
sizing, extra depth, etc. The addition of the following developments has increase connection feesand special assessments: Catchers Creek2
rdndth
Addition, Country Oaks North3addtion,Addition, Winslow Coveand White Pine Wilderness 4Addition. The sewer
trunk fund continues to receive funds from the sewer enterprise fund to be set aside for future infrastructure replacements($400,000).
The road and bridge capital projects fund increased by $73,856primarily due to the increased collection of special assessments in 2018.
The 2018A G.O. capital improvement plan bonds capital projects fund increased due to the sale of bonds in late December with construction
planned in the spring of 2019.
The tax increment capital projects fund decreased by $256,451primarily due to thepurchase of a4-plex rental property.
The permanent improvement revolving capital projects fund increased by $78,800duetothe collection of assessments, both through a tax
forfeit land sale and the normal collection process.
Nonmajor Funds
The eda general special revenue fund decreased $47,329 due to the tax increment administration fee revenue diminishing.
The community centerspecial revenue fund increased $145,016due to departments under-spending and revenues exceeding the budget.
The 2012CG.O. abatement bondsdebt service fund increased by $53,061due to revenues and transfers in exceedingdebt service payments.
The building capital projects fund decreased by $175,987primarilydue to thefinalpromissory note paymentmade in 2018.
The capital equipment reserve capital projects fund decreased by $300,451primarily due to the city campus expansion plan.
Proprietary fundsin the government-wide financial statements,
but in more detail.
The unrestricted net positionin the respective proprietary funds are enterprise funds of $9,679,253(water $5,015,416, sewer $4,034,016and
storm sewer $629,821) and internal service funds of $1,106,415. The enterprise funds had a net increase in net positionfrom current year
activityof $1,276,182(water $1,177,078, sewer($111,018)and storm sewer $210,122). Internal service funds had a net increase in net position
of $24,510.
Capital Asset and Debt Administration
Capital assetsr its governmental and business-type activities as of December 31, 2018, amounts to
$159,513,309(net of accumulated depreciation). This investment in capital assets includes land, buildings, infrastructure, machinery and
equipment.
The City has elected to use the modified approach as defined in GASB Statement No. 34 for infrastructure reporting for its Pavement
Management Program, which includes streets and trails. Under GASB Statement No. 34, eligible infrastructure capital assets are not required
to be depreciated under the following requirements:
23
CITY OF ANDOVER, MINNESOTA
December 31, 2018
1)The City manages the eligible infrastructure capital assets using an asset management system with characteristics of (a) an up-to-date
inventory; (b) perform condition assessments and summarize the results using a measurement scale; and (c) estimate annual amount
to maintain and preserve at the established condition assessment level.
2)The City documents that the eligible infrastructure capital assets are being preserved approximately at or above the established and
disclosed condition assessment level.
Prior to 2013, the continuous scale was from 0 to 100 where 0 is assigned to the least acceptable physical condition and 100 is assigned to a
new street or trail. Starting in 2013, the continuous scale was from 0 to 10, where 0 is assigned to the least acceptable physical condition and
10 is assigned the physical characteristics of a new street or trail. which is 6 6.9
(5670old scale) for all streets and trails. In the fall of 2017, the City conducted a physical condition assessment of the streets and trails
constructed since 1974. This assessment will be completed every three years. As of December 31, 2018
rated at an Overall Condition Index (OCI) of 6.4.
-
violet rays drying out and breaking down the top layer of pavement; (3) utility company/private development trenching operations; (4) water
damage from natural precipitation; and (5) frost heave. The City is continuously taking actions to prolong the life of the system through short-
term maintenance activities such as pothole patching, crack sealing, seal coating and overlaying. The City expended $2,274,146on street and
trail maintenance for the year ending December 31, 2018. These expenditures delayed deterioration andthe overall condition of the system
remainsat an appropriate OCIlevelthrough these maintenance expenditures. The City has estimated that the amount of annual expenditures
and trail system at the average OCI rating of good is approximately $1,150,000.
MaintenanceActualOCI
YearEstimateExpendituresRating
2009$1,150,000$ 1,666,21681
20101,150,0001,457,08283
20111,150,0001,770,98083
20121,150,0003,894,78483
20131,150,0002,471,1236.9
20141,150,0002,029,0266.7
20151,150,0001,114,9006.7
20161,150,0001,585,7566.3
20171,150,0003,548,3276.4
20181,150,0002,274,1466.4
24
CITY OF ANDOVER, MINNESOTA
December 31, 2018
Primary Government
BeginningEnding
BalanceAdditionsDeletionsBalance
Governmental activities:
Land and improvements$ 10,800,015$ 289,990$ -$ 11,090,005
Streets and trails85,084,915638,895-85,723,810
Construction in progress31,566866,358-897,924
Buildings and improvements27,485,14493,463(25,919)27,552,688
Furniture and equipment881,65641,218(15,187)907,687
Machinery and equipment8,909,915291,437(254,808)8,946,544
Other park improvements8,093,74179,489(53,437)8,119,793
Total capital assets 141,286,9522,300,850(349,351)143,238,451
Less accumulated depreciation for:
Buildings and improvements12,551,625921,703(25,919)13,447,409
Furniture and equipment539,97366,261(15,187)591,047
Machinery and equipment6,166,407401,320(222,268)6,345,459
Other park improvements3,949,583343,154(53,437)4,239,300
Total accumulated depreciation23,207,5881,732,438(316,811)24,623,215
Governmental activities
capital assets - net118,079,364568,412(32,540)118,615,236
Business-type activities:
Land and improvements730,243--730,243
Buildings and improvements15,877,590--15,877,590
Furniture and equipment52,110-(10,000)42,110
Machinery and equipment1,281,384278,554(122,145)1,437,793
Collection and distribution57,750,743639,892-58,390,635
Total capital assets
being depreciated75,692,070918,446(132,145)76,478,371
Less accumulated depreciation for:
Buildings and improvements9,415,613489,751-9,905,364
Furniture and equipment51,177934(10,000)42,111
Machinery and equipment931,98062,990(122,145)872,825
Collection and distribution23,590,7931,168,905-24,759,698
Total accumulated depreciation33,989,5631,722,580(132,145)35,579,998
Business-type activities
capital assets - net41,702,507(804,134)-40,898,373
Total capital assets - net $159,781,871$ (235,722)$ (32,540)$159,513,609
Note 5.
Long-term debt. At the end of the current fiscal year, the City had total long-term debt outstanding of $29,584,680, anincrease of $7,727,372
from 2017. General obligation abatement bonds ($13,270,000) were used to refund the 2006 and 2007 EDA lease revenue refunding bonds.
General obligation revenue bonds ($3,775,000) were used for anadditionto the water treatment plant and the refunding of portions of the water
treatment plant bonds. Certificates of indebtedness ($939,000) financed capital equipment purchases. Capital improvement bonds
($10,000,000) were used to construct a new vehicle maintenance facility with a washbay and a cold storage building. Referendum bonds
($655,000) were used to finance land acquisitions for the preservation of open space.
Additional long-term debt in the amount of $891,306is for compensated absences.
25
CITY OF ANDOVER, MINNESOTA
December 31, 2018
GovernmentalBusiness-Type
ActivitiesActivitiesTotal
Bonds payable:
Abatement bonds$13,270,000$ -$13,270,000
G.O. revenue bonds-3,775,0003,775,000
Certificates of indebtedness939,000-939,000
Capital improvement bonds 10,000,000-10,000,000
Referendum bonds655,000-655,000
Total bonds payable24,864,0003,775,00028,639,000
Issuance premiums -54,37454,374
Compensated absences692,379198,927891,306
Total$25,556,379$ 4,028,301$29,584,680
The City maintains an AA+
State statutes limit the amount of general obligation debt a Minnesota city may issue to 3% of total Estimated Taxable Market Value. The
current debt limitation for the Cityis $88,782,344. Only $23,831,396of the City's outstanding debt is counted within the statutory limitation.
-term debt can be found in Notes6 and 7.
Requests for information. This financial report is
r additional financial
information should be addressed to the City of Andover, Attn: Finance Manager, 1685 Crosstown Boulevard NW, Andover, Minnesota 55304
or by calling 763-755-5100.
26
BASIC FINANCIAL STATEMENTS
27
-This page intentionally left blank -
28
29
CITY OF ANDOVER, MINNESOTA
STATEMENT OF ACTIVITIES
For The Year Ended December 31, 2018
With Comparative Actual Amounts For The Year Ended December 31, 2017
Program Revenues
ChargesOperatingCapital
ForGrants andGrants and
ExpensesServicesContributionsContributions
Functions/Programs
Primary government:
Government activities:
General government $ 3,209,512$ 647,452$ 104,195$ -
Public safety 5,263,071721,078431,568-
Public works 4,257,014331,620749,6881,507,310
Parks and recreation 3,321,7931,504,647-100,819
Recycling 206,33549,453121,766-
Economic development 249,66987,891--
Interest on long-term debt 377,314---
Total government activities 16,884,7083,342,1411,407,2171,608,129
Business-type activities:
Water 2,306,0133,061,920-215,375
Sewer 2,175,3312,325,456-170,681
Storm sewer 614,816537,422-118,211
Total business-type activities 5,096,1605,924,798-504,267
Total primary government $ 21,980,868$ 9,266,939$ 1,407,217$ 2,112,396
The accompanying notes are an integral part of these financial statements.
30
Statement 2
Net (Expense) Revenue and Changes in Net Position
Primary Government
Totals
GovernmentalBusiness-Type
ActivitiesActivities20182017
$ (2,457,865)$ -$ (2,457,865)$ (1,947,057)
(4,110,425)-(4,110,425)(4,062,606)
(1,668,396)-(1,668,396)(1,205,179)
(1,716,327)-(1,716,327)(1,822,141)
(35,116)-(35,116)(631)
(161,778)-(161,778)(637,006)
(377,314)-(377,314)(403,200)
(10,527,221)-(10,527,221)(10,077,820)
-971,282971,282659,044
-320,806320,806255,617
-40,81740,817(54,937)
-1,332,9051,332,905859,724
(10,527,221)1,332,905(9,194,316)(9,218,096)
General revenues:
General property taxes 12,423,060-12,423,06011,874,354
Tax increment collections 82,874-82,87474,771
Grants and contributions not
restricted to specific programs 12,917-12,91713,638
Unrestricted investment earnings 560,133117,637677,770439,386
Gain on sale of capital assets 36,431-36,43153,344
Transfers 177,921(177,921)--
Total general revenues, gain on sale of
capital assets and transfers 13,293,336(60,284)13,233,05212,455,493
Change in net position 2,766,1151,272,6214,038,7363,237,397
Net position - beginning 134,211,94245,621,759179,833,701176,596,304
Net position - ending $ 136,978,057$ 46,894,380$ 183,872,437$ 179,833,701
31
32
33
34
35
-This page intentionally left blank -
36
CITY OF ANDOVER, MINNESOTA
RECONCILIATION OF THE STATEMENT OF REVENUES, Statement 5
EXPENDITURES AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
For The Year Ended December 31, 2018
With Comparative Actual Amounts For The Year Ended December 31, 2017
20182017
Amounts reported for governmental activities in the
statement of activities (page 30) are different because:
Net changes in fund balances - total governmental funds (page 35) $ 10,481,233$ 452,634
Governmental funds report capital outlays as expenditures. However, in the statement of
activities the cost of those assets is allocated over their estimated useful lives and reported
as depreciation expense. This is the amount by which capital outlays exceeded depreciation
in the current period. 533,991(167,011)
The net effect of various miscellaneous transactions involving capital assets is to increase
(decrease) net position (i.e., sales, trade-ins, and donations). 341,768285,628
Revenues in the statement of activities that do not provide current financial resources are not
reported as revenues in the funds. 81,904417,830
The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to
governmental funds, while the repayment of the principal of long-term debt consumes the
current financial resources of governmental funds. Neither transaction, however, has any
effect on net position. This amount is the net effect of these differences in the treatment of
long-term debt and related items. (8,387,283)1,996,719
Vested post employment benefits are reported in the governmental funds when amounts are
paid. The statement of activities reports the benefits earned during the years. This amount (10,641)(2,018)
is the net effect of employee benefits earned and paid during the year.
Transfer out of governmental capital assets contributed to Enterprise Funds. (339,887)(52,527)
Some expenses reported in the statement of activities do not require use of current financial
resources and, therefore, are not reported as expenditures in governmental funds. (19,928)(22,146)
Governmental funds report pension contributions for defined benefit plans as expenditures,
however, pension expense is reported in the Statement of Activities. This is the amount by
which pension expense differs from pension contributions:
Pension contributions $ 333,948
Pension expense (277,061)56,887(215,288)
Internal service funds are used by management to charge the cost of equipment maintenance
and insurance to individual funds. This amount is the portion of net revenue attributable to
governmental activities. 28,071105,971
Change in net position of governmental activities (page 31) $ 2,766,115$ 2,799,792
The accompanying notes are an integral part of these financial statements.
37
38
39
40
41
42
43
44
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Andover was incorporated in 1974 and operates under the State of Minnesota Statutory Plan A form of government. The
governing body consists of a five-member City council elected by voters of the City.
The financial statements of the City have been prepared in conformity with generally accepted accounting principles as applied to
governmental units by the Governmental Accounting Standards Board (GASB). The following is a summary of the significant accounting
policies.
A. FINANCIAL REPORTING ENTITY
As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City
(the primary government) and its component units. The component units discussed below are included in the City's reporting
entity because of the significance of their operational or financial relationships with the City.
COMPONENT UNITS
In conformity with generally accepted accounting principles, the financial statements of the component units have been included
in the financial reporting entity as blended component units.
The Andover Economic Development Authority (EDA) is an entity legally separate from the City. However, for financial
reporting purposes, the EDA is reported as if it were part of the City's operations because the members of the City Council serve
as EDA Board Members and its purpose is to promote development within the City. The activity of the EDA is reported in the
EDA General Special Revenue Fund. Separate financial statements are not prepared for the EDA.
B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information
on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund
activity has been removed from these statements. Governmental activities, which normally are supported by taxes and
intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and
charges for support.
The statement of activities demonstrates the degree to which the direct expenses of a given function or business-type activity are
offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or business-type
activity. 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 business-type activity and 2) grants and contributions that are restricted to
meeting the operational or capital requirements of a particular function or business-type activity. Taxes and other items not
included among program revenues are reported instead as general revenues.
Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter
are excluded from the government-wide financial statements. Major individual governmental funds and major individual
enterprise funds are reported as separate columns in the fund financial statements.
C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis
of accounting, as are the Proprietary Fund financial statements. Revenues are recorded when earned and expenses are recorded
when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year
for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by
equal liabilities) and do not involve measurement of results of operations.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified
accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are
considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the
current period. For this purpose, the City considers all revenues, except reimbursement grants, to be available if they are collected
within 60 days of the end of the current fiscal period. Reimbursement grants are considered available if they are collected within
one year of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual
45
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and
judgments, are recorded only when payment is due.
Property taxes, special assessments, intergovernmental revenues, charges for services and interest associated with the current
fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period.
Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual
as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is
received by the City.
The City reports the following major governmental funds:
The General Fund is the City
except those required to be accounted for in another fund.
The Water Trunk Capital Projects Fund (CPF) is used to account for water access fees and trunk improvements as part of
development. It is also used to reserve monies that will be needed for capital infrastructure replacements in the future.
The Sewer Trunk CPF is used to account for sewer access fees and sanitary sewer improvements.
The Road and Bridge CPF accounts for all road projects and the pavement management program, which includes annual
seal coating, crack sealing and overlays for roads.
The 2018A General Obligation (G.O.) Capital Improvement Plan Bonds CPF accounts for the construction of a new vehicle
maintenance facility with a wash bay and a cold storage building.
The Tax Increment Projects CPF is used to account for activities in TIF districts 1-2, 1-5, 1-6 and all TIF land sales and
expenditures to reach the goals of the TIF district plans.
The Permanent Improvement Revolving CPF serves as a long-term funding source for large capital improvement
expenditures.
The City reports the following major proprietary funds:
The Water Fund accounts for the water service charges, which are used to finance the water system operating expenses.
The Sewer Fund accounts for the sewer service charges, which are used to finance the sanitary sewer system operating
expenses.
The Storm Sewer Fund accounts for the storm sewer utility charges, which are used to finance the storm sewer operating
expenses.
Additionally, the City reports the following fund types:
Internal Service Funds (ISF) are used to provide equipment maintenance and insurance to other departments of the City on
a cost reimbursement basis.
The Agency Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private
organizations, and/or other governmental units. It is used to account for the collection and distribution of funds relating to
development activities and retiree insurance premiums.
As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions
to this general rule are transactions that would be treated as revenues, expenditures or expenses if they involved external
organizations, such as buying goods and services or payments in lieu of taxes, are similarly treated when they involve other funds
of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions
concerned.
Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided,
2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated
resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.
46
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses
general
ongoing operations. The principal operating revenues of the water and sewer enterprise funds are charges to customers for sales
and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and
expenses.
When both restricted and unrestricted resources are available for an allowable use, it is the City
first, and then unrestricted resources as they are needed.
D. BUDGETS
Budgets are legally adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets
are legally adopted for the General and Special Revenue Funds. Budgeted expenditure appropriations lapse at year-end.
Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are
recorded in order to reserve that portion of the appropriation, is not employed by the City because it is at present not considered
necessary to assure effective budgetary control or to facilitate effective cash management.
E. LEGAL COMPLIANCE - BUDGETS
The City follows these procedures in establishing the budgetary data reflected in the financial statements:
1.The City Administrator submits to the City Council a proposed operating budget for the fiscal year commencing the
following January 1. The budget includes proposed expenditures and the means of financing them.
2. Public hearings are conducted to obtain taxpayer comments.
3. The budget is legally enacted through City Council action.
4. Expenditures may legally exceed budgeted appropriations at the fund level through City Council action. Also, the City
Council may authorize transfers of budgeted amounts between departments within any fund.
5. Formal budgetary integration is employed as a management control device during the year for the General Fund and
Special Revenue Funds. Budgetary control for Capital Projects Funds is accomplished through the use of project
controls.
6.The legal level of budgetary control is at the department level for the General Fund and at the fund level for the Special
Revenue Funds. Also inherent in this controlling function is the management philosophy that the existence of a
particular item or appropriation in the approved budget does not automatically mean that it will be spent. The budget
process has flexibility in that, where need has been properly demonstrated, an adjustment can be made within the
department budget by the City Administrator or between departments by the City Council.
7. The City Council made supplemental budget appropriations throughout the year. Individual amendments were not
material in relation to the original appropriations which were adjusted.
The following is a listing of Special Revenue Funds whose expenditures exceed budget appropriations:
FinalOver
BudgetActualBudget
Special Revenue Funds:
Charitable Gambling$ 26,300$ 68,142$ 41,842
The expenditures over budget were funded by greater than anticipated revenues and/or available fund balance.
47
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
F. CASH AND INVESTMENTS
Cash balances from all funds are combined and invested to the extent available in authorized investments. Earnings from such
investments are allocated to the individual funds on the basis of applicable cash balance participation of each fund.
The City provides temporary advances to funds that have insufficient cash balances by means of an advance from another fund
shown as interfund receivables in the advancing fund, and an interfund payable in the fund with the deficit, until adequate
resources are received. These interfund balances are eliminated on the government-wide financial statements.
Investments are stated at fair value, except for investments in external investment pools that meet GASB 79 requirements, are
stated at amortized cost. Short-term
cost.
For purposes of the Statement of Cash Flows of Proprietary Fund Types, cash equivalents are defined as short-term, highly liquid
investments that are both:
a. readily convertible to known amounts of cash, or
b. so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
eria and have original maturities of three months
or less.
G. RECEIVABLES AND PAYABLES
During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered.
Short-term interfund loans are classi-term interfund receivables and payables
at December 31, 2018 are planned to be eliminated in 2019. Long-
balances outstanding between the governmental activities and business-type activities are
reported in the government-
Interfund loan receivables, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable
governmental funds to indicate that they are not available for appropriation and are not expendable, available financial resources.
Property taxes and special assessments receivable have been reported net of estimated uncollectible accounts. (See Note 1 H and
I). Because utility bills are considered liens on property, no estimated uncollectible amounts are established. Uncollectible
amounts are not material for other receivables and have not been reported.
H. PROPERTY TAX REVENUE RECOGNITION
The City levies its property tax for the subsequent year during the month of December and it is certified to Anoka County.
December 30th is the last day the City can certify a tax levy to the County Auditor for collection the following year. Such taxes
become a lien on the following January 1. Anoka County is the collecting agency for the levy and remits the collections to the
City three times a year. Taxes not collected as of December 31 each year are shown as delinquent taxes receivable.
The County Auditor prepares the tax list for all taxable property in the City, applying the applicable tax rate to the tax capacity
of individual properties, to arrive at the actual tax for each property. The County Auditor also collects all special assessments,
except for certain prepayments paid directly to the City.
The County Auditor submits a list of taxes to be collected on each parcel of property to the County Treasurer in January of each
year. The County Treasurer collects all taxes and is required to mail copies of all personal property tax statements by April 15,
and copies of all real estate tax statements by April 15, of each year. Property owners are required to pay one-half of their real
estate taxes due by May 15 and the balance by October 15.
If taxes due May 15 are not paid on time, a penalty of 3% is assessed on homesteaded property and 7% on non-homesteaded
property. An additional 1% penalty is added each month the taxes remain unpaid, until October 15. If the taxes due May 15 are
not paid by October 15, a 2% penalty per month is added to homesteaded property and 4% per month to non-homesteaded
property until January 1.
If the taxes are not paid by January 1, further penalties are added. Penalties and interest apply to both taxes and special
assessments. There are some exceptions to the above penalties, but they are not material.
48
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Within 30 days after the tax settlement date, the County Treasurer is required to pay 70% of the estimated collections of taxes
and special assessments to the City Treasurer. The County Treasurer must pay the balance to the City Treasurer within 60 days
after settlement, provided that after 45 days interest accrues at the rate of 8% per annum.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
The City recognizes property tax revenue in the period for which the taxes were levied. Uncollectible property taxes are not
material and have not been reported.
GOVERNMENTAL FUND FINANCIAL STATEMENTS
The City recognizes property tax revenue when it becomes both measurable and available to finance expenditures of the current
period. In practice, current and delinquent taxes and State credits received by the City in July, December and January are
recognized as revenue for the current year. Taxes collected by the County by December 31 (remitted to the City the following
January) and taxes and credits not received at the year-end are classified as delinquent and due from County taxes receivable.
The portion of delinquent taxes not collected by the City in January is fully offset by deferred inflow of resources because they
are not available to finance current expenditures.
I.SPECIAL ASSESSMENT REVENUE RECOGNITION
Special assessments are levied against benefited properties for the cost or a portion of the cost of special assessment improvement
projects in accordance with State Statutes. These assessments are collectible by the City over a term of years usually consistent
with the term of the related bond issue. Collection of annual installments (including interest) is handled by the County Auditor
in the same manner as property taxes. Property owners are allowed to (and often do) prepay future installments without interest
or prepayment penalties.
Once a special assessment roll is adopted, the amount attributed to each parcel is a lien upon that property until full payment is
made or the amount is determined to be excessive by the City Council or court action. If special assessments are allowed to go
delinquent, the property is subject to tax forfeit sale. Proceeds of sales from tax forfeit properties are allocated first t
costs of administering all tax forfeit properties. Pursuant to State Statutes, a property shall be subject to a tax forfeit sale after
three years unless it is homesteaded, agricultural or seasonal recreational land in which event the property is subject to such sale
after five years.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
The City recognizes special assessment revenue in the period that the assessment roll was adopted by the City Council.
Uncollectible special assessments are not material and have not been reported.
GOVERNMENTAL FUND FINANCIAL STATEMENTS
The City recognizes revenue from special assessments when it becomes measurable and available to finance expenditures of the
current fiscal period. In practice, current and delinquent special assessments received by the City are recognized as revenue for
the current year. Special assessments that are collected by the County by December 31 (remitted to the City the following
January) are also recognized as revenue for the current year. All remaining delinquent, deferred and special deferred assessments
receivable in governmental funding are completely offset by deferred inflow of resources.
J.INVENTORIES
Inventories of the Governmental Funds and the Proprietary Funds are stated at cost, which approximates market, using the first-
in, first-out (FIFO) method.
Inventories of Governmental Funds are recorded as expenditures when consumed rather than when purchased.
K. PREPAID ITEMS
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both
government-wide and fund financial statements. Prepaid items are reported using the consumption method and recorded as
expenditures/expenses at the time of consumption.
49
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
L. 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 attract new business. These assets are stated at the lower of cost or net realizable value.
M. CAPITAL ASSETS
Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar
items) and intangible assets such as easements and computer software, are reported in the applicable governmental or business-
type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an
initial, individual cost of more than $5,000 (except for easements which is $10,000) and an estimated useful life in excess of one
year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets
are recorded at acquisition value at the date of donation. The City has chosen the modified approach for reporting street and trail
system capital assets.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not
capitalized.
Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the
construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed.
For the year ended December 31, 2018, no interest was capitalized in connection with construction in progress.
The City implemented GASB Statement No. 51. Accounting and Financial Reporting for Intangible Assets effective January 1,
2010 which required the City to capitalize and amortize intangible assets. Intangible assets include easements and computer
software. Pursuant to GASB Statement 51, in the case of initial capitalization of intangible assets, the City chose to capitalize
intangible assets retroactively to 1980, except for permanent easements and internally generated software. The City has already
accounted for computer software at historical cost and therefore retroactive reporting was not necessary. The City does not have
any temporary easements to record that meet the threshold of $10,000.
Property, plant and equipment of the primary government, as well as the component units, are depreciated/amortized using the
straight line method over the following estimated useful lives:
AssetsLife
Buildings and improvements10 - 30 years
Furniture and equipment (including software)5 - 10 years
Machinery and equipment5 - 10 years
Other park improvements10 - 30 years
Storm sewer50 years
Distribution and collection systems50 years
Temporary easements5 - 15 years
The City elected to use the modified approach as defined by GASB Statement No. 34 for infrastructure reporting of its streets
and trails. The City conducted a physical assessment in the fall of 2017 of the condition of the streets and trails constructed since
1974. This condition assessment will be performed every 3 years. Each segment of City owned street or trail was assigned a
physical condition based on potential defects. An Overall Condition Index (OCI) was assigned to each segment. The index is
expressed in a continuous scale from 0 to 10, where 0 is assigned to the least acceptable physical condition and 10 is assigned to
those segments that have the characteristic of a new street or trail. The following conditions were defined:
RangeDescription
8 - 10Excellent
7 - 7.9Very good
6 - 6.9Good
4 - 5.9Fair
2 - 3.9Poor
1 - 1.9Very poor
0 - .9Substandard
50
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
nts.
This acceptable rating allows minor cracking and patching of the pavement along with minor roughness that could be noticeable
to the users of the system.
N. COMPENSATED ABSENCES
City employees earn vacation and sick pay accruing each payroll period. Unused vacation can be accrued by the employees up
to a maximum of 200 hours (240 hours if on the annual leave plan)
with the City, unless a specific authorization is granted to an employee. All vacation pay is accrued when incurred in the
government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only
if they have matured, for example, as a result of employee resignations and retirements.
Employees can also accrue an unlimited amount of unused sick leave. Employees with two or more years of service are entitled
to receive severance pay equal to a percentage of unused sick pay ranging from 20-50 percent based on years of service, up to a
maximum of 400 hours. The liability for severance pay is accounted for the same as accrued vacation pay.
O. LONG-TERM OBLIGATIONS
In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other
long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary
fund type statement of net position. Bond premiums and discounts are amortized over the life of the related debt.
In the fund financial statements, governmental fund types recognize bond premiums and discounts 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.
P. FUND BALANCE CLASSIFICATIONS
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.
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. These constraints are established by Resolution of the City Council.
Assigned consists of internally imposed constraints. These constraints reflect the specific purpose for wh
intended use. These constraints are established by the City Council and/or management. Pursuant to City Council
are authorized to establish assignments of fund balance.
Unassigned is the residual classification for the general fund and also reflects negative residual amounts in other funds.
to first use restricted resources, and
then use unrestricted resources as they are needed. When unrestricted resources
use resources in the following order: 1) committed, 2) assigned, and 3) unassigned.
Q. INTERFUND TRANSACTIONS
Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute
reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are
recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is
reimbursed. Interfund loans are reported as an interfund loan receivable or payable which offsets the movement of cash between
funds. All other interfund transactions are reported as transfers.
51
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
R. USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) requires
management to make estimates that affect amounts reported in the financial statements during the reporting period. Actual results
could differ from such estimates.
S. RECLASSIFICATIONS
Certain amounts presented in prior year data have been reclassified in order to be consistent with the
T. COMPARATIVE TOTALS
The basic financial statements and combining and individual fund financial statements and schedules include certain prior-year
summarized comparative information in total but not at the level of detail required for a presentation in conformity with generally
statements for the year ended December 31, 2017, from which the summarized information was derived.
U. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of
resources.This separate financial statement element, deferred outflows of resources, represents a consumption of net position
that applies to a future period(s) and so will notbe recognized as an outflow of resources (expense/expenditure) until then.The
government has twoitemsthat qualifyfor reporting in the category.It isother post employment benefits and the pension related
deferred outflows of resources reported in the government-wide Statement of Net Position and the proprietary funds Statement
of Net Position.
In addition to liabilities, the statement of financial position will sometimes report a separate section fordeferred inflows of
resources.This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that
applies to a future period(s) and so will notbe recognized as an inflow of resources (revenue) until that time.The government
has pension related deferred inflows of resources reported in the government-wide Statement of Net Position and the proprietary
funds Statement of Net Position.The government also has a type of item, which arises only under a modified accrual basis of
accounting, that qualifies for reporting in this category.Accordingly, the item, unavailable revenue, is reported only in the
governmental funds balance sheet.The governmental funds report unavailable revenues from the following sources:property
taxes, special assessments, certified bills, due from other governmental units, and loans receivable.
V.DEFINED BENEFIT PENSION PLANS -STATEWIDE
Pensions.For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense,
information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions
fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit
payments and refundsare recognized when due and payable in accordance with the benefit terms. Investments are reported at
fair value.
W. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
1. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND
THE GOVERNMENT-WIDE STATEMENT OF NET POSITION
The governmental fund balance sheet includes a reconciliation between fund balance total governmental funds and net
position governmental activities as reported in the government-wide statement of net position. One element of that
-term liabilities, including bonds payable, other post employment benefits and net pension
liability, are not du
($29,102,245) difference are as follows:
52
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Bonds payable$(24,864,000)
Accrued interest payable(158,491)
Other post employment benefits(251,446)
Compensated absences(692,379)
Net pension liability(3,135,929)
Net adjustment to reduce fund balance - total governmental
funds to arrive at net position - governmental activities$(29,102,245)
service funds are used by management to charge the cost of
equipment maintenance and insurance to individual funds. The assets and liabilities are included in the governmental
activities statement of net position along with a deduction of net revenue attributable to business-
of this $959,987 difference are as follows:
Internal Service Funds net position$ 1,106,415
Net revenue attributable to business-type activities(146,428)
Net adjustment to increase fund balance - total governmental
funds to arrive at net position - governmental activities$ 959,987
2. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF
REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-WIDE
STATEMENT OF ACTIVITIES
The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between
net changes in fund balances total governmental funds and changes in net position of governmental activities as reported
in the government-Funds report
capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their
533,991 difference are as follows:
Capital outlay$ 2,102,030
Construction/acquisition costs164,399
Depreciation expense(1,732,438)
Net adjustment to increase net changes in fund balances - total governmental
funds to arrive at changes in net position of governmental activities $ 533,991
The net effect of various miscellaneous transactions involving capital
assets (i.e., sales, trade-ins, and donations) is to increase (decrease) net position341,768 difference
are as follows:
In the statement of activities, only the gain on the sale of capital assets is
reported. However, in the governmental funds, the proceeds from the sale
increase financial resources. Thus, the change in net position differs from the
change in fund balance by the cost of the capital assets sold.$ (32,540)
Donations of capital assets increase net position in the statement of activities,
but do not appear in the governmental funds because they are not financial
resources.374,308
Net adjustment to decrease net changes in fund balances - total governmental
funds to arrive at changes in net position of governmental activities.$ 341,768
Another element of that rn the Statement of Activities that do not provide current financial
81,904 difference are as follows:
53
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Unavailable revenue - general property taxes:
At December 31, 2017$ (101,544)
At December 31, 201890,953
Unavailable revenue - tax increment taxes:
At December 31, 2017(5,952)
At December 31, 20182,032
Unavailable revenue - special assessments:
At December 31, 2017(2,041,442)
At December 31, 20181,837,857
Unavailable revenue - land held for resale:
At December 31, 2017(525,000)
At December 31, 2018825,000
Net adjustments to decrease net changes in fund balances - total governmental
funds to arrive at changes in net position of governmental activities$ 81,904
-term debt (e.g., bonds, leases) provides current financial
resources to governmental funds, while the repayment of the long-term debt consumes the current financial resources of
government position. The details of this ($8,387,283)
difference are as follows:
Debt issued or incurred:
Issuance of capital improvement plan bonds $(10,000,000)
Principal repayments:
Abatement bonds 870,000
Referendum bonds 155,000
Certificates of indebtedness391,000
Promissory note payable 196,717
Net adjustment to increase net changes in fund balances - total governmental
funds to arrive at changes in net position of governmental activities$ (8,387,283)
s
($19,928) difference are as follows:
Compensated absences$ (28,169)
Accrued interest8,241
Net adjustment to decrease net changes in fund balances - total governmental
funds to arrive at changes in net position of governmental activities$ (19,928)
Another element of that reconciliation
equipment maintenance and insurance to individual funds. This amount is the portion of net revenue attributable to
28,071 difference are as follows:
Internal Service Funds change in net position$ 24,510
Net revenue attributable to business-type activities3,561
Net adjustment to increase fund balance - total governmental
funds to arrive at net position - governmental activities$ 28,071
54
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 2 DEPOSITS AND INVESTMENTS
DEPOSITS
In accordance with Minnesota Statutes, the City maintains deposits at those depository banks authorized by the City Council, all of
which are members of the Federal Reserve System.
Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral
pledged must equal 110% of the deposits not covered by insurance or bonds.
Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City Clerk/Treasurer or in a financial
institution other than that furnishing the collateral. Authorized collateral includes the following:
a)United States government treasury bills, treasury notes, treasury bonds;
b)Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available
to the government entity;
c)General obligation securities of any state or
etter
by a national bond rating service;
d)Unrated general obligation securities of a local government with taxing powers may be pledged as collateral against funds
deposited by that same local government entity;
e)Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by written evidence that
f)Time deposits that are fully insured by the Federal Deposits Insurance Corporation.
Custodial Credit Risk Deposits
returned to it. State statutes require that insurance, surety bonds or collateral protect all City deposits. The market value of collateral
pledged must equal 110% of deposits not covered by insurance or bonds. As of December 31, 2018, $176,600 of the bank balance of
not covered by federal depository insurance or covered by perfected collateral pledged and h
name. The City has no additional deposit policies addressing custodial credit risk.
INVESTMENTS
Minnesota Statutes authorize the City to invest in the following:
a) Direct obligations or obligations guaranteed by the United States or its agencies, its instrumentalities or organizations created by
an act of congress, excluding mortgage-backed securities defined as high risk.
b) Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are
in securities described in (a) above, general obligation tax-exempt securities, or repurchase or reverse repurchase agreements.
c)Obligations of the State of Minnesota or any of its municipalities as follows:
1)any
by a national bond rating service;
2)any security which is a revenue obligation of any state or local government with taxing powers which
by a national bond rating service; and
3)a general obligation of the Minnesota housing finance agency which is a moral obligation of the State of Minnesota and is
d) Bankers acceptance of United States banks eligible for purchase by the Federal Reserve System.
e) Commercial paper issued by United States corporations or their Canadian subsidiaries, of the highest quality, and maturing in
270 days or less.
55
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
f)Repurchase or reverse repurchase agreements with banks that are members of the Federal Reserve System with capitalization
exceeding $10,000,000; a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York;
certain Minnesota securities broker-dealers; or, a bank qualified as a depositor.
g)General obligation temporary bonds of the same governmental entity issued under section 429.091, subdivision 7; 469.178,
subdivision 5; or 475.61, subdivision 6.
As of December 31, 2018, the City had the following investments and maturities:
Investment Maturities (in Years)
CreditFairLess ThanMore Than
Investment TypeRatingValue11 - 56 - 1010
Money market fundsN/A$ 3,504,282$ 3,504,282$ -$ -$ -
Minnesota Municipal
Money Market Fund (4M)N/A11,083,12611,083,126---
Certificates of depositN/A13,133,5808,729,9674,403,613--
Local/State governments A/A1/A2546,452184,155262,152100,145-
AA1/AA2/AA36,532,8331,615,3203,571,7091,244,487101,317
AAA5,256,432888,4073,589,493778,532-
U.S. agenciesAAA11,982,8765,520,0706,307,414155,392-
U.S. agenciesN/A99,79599,795---
Total investments52,139,376$31,625,122$18,134,381$2,278,556$101,317
Deposits1,679,270
Total cash and investments$53,818,646
The f18:
Government-wide statement of net position:
Cash and investments$53,460,504
Cash and investments with escrow agent176,788
Fiduciary funds statement of net position181,354
Total$53,818,646
The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting
principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. The hierarchy has three levels.
Level 1 investments are valued using inputs that are based on quoted prices in active markets for identical assets. Level 2 investments
are valued using inputs that are based on quoted prices for similar assets or inputs that are observable, either directly or indirectly.
Level 3 investments are valued using inputs that are unobservable.
The City has the following recurring fair value measurements as of December 31, 2018:
56
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Fair Value Measurement Using
Investment Type12/31/2018Level 1Level 2Level 3
Investments at fair value:
Federal Home Loan Bank$2,971,989$ -$2,971,989$ -
Federal Farm Credit Bank3,623,436-3,623,436-
Federal Home Loan Mortgage Corporation3,895,590-3,895,590-
Federal National Mortgage Association1,295,999-1,295,999-
Financing Corporation99,795-99,795-
Resolution Funding Corporation195,862-195,862-
Municipal Bonds12,335,717-12,335,717-
Brokered Certificates of Deposit13,133,580-13,133,580-
Total investments at fair value37,551,968$ -$37,551,968$ -
Investments not categorized:
External investment pool:
4M11,083,126
Wells Fargo Bank Money Market3,504,282
Total investments not categorized 14,587,408
Total$52,139,376
The 4M Fund is an external investment pool investment which is regulated by Minnesota Statutes and the Board of Directors of the
League of Minnesota Cities. It is an unrated pool and the fair value of the position in the pool is the same as the value of pool shares.
The pool is managed to maintain a portfolio weighted average maturity of no greater than 60 days and seeks to maintain a constant
net asset value (NAV) per share of $1. The pool measures their investments in accordance with Government Accounting Standards
Board Statement No. 79, at amortized cost. The 4M Plus Fund requires funds to be deposited for a minimun of 14 calendar days.
Withdrawals prior to the 14-day restriction period are subject to a penalty equal to 7 days interest on the amount withdrawn.
Custodial Credit Risk - Investments For investments in securities, custodial credit risk is the risk that in the event of a failure of the
counterparty, the City will not be able to recover the value of its investment securities that are in the possession of an outside party.
As of December 31, 201852,139,376 investments was uninsured and unregistered, with securities held in
the
Interest Rate Risk - The City has a formal investment policy that states the City will minimize the risk that the market value of
securities in the portfolio will fall due to the changes in general interest rates, by:
1)Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby
avoiding the need to sell securities on the open market prior to maturity.
2)Investing operating funds primarily in shorter-term securities, money market mutual funds or similar investment pools.
Credit Risk - The City has a formal investment policy that states the City will minimize the credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
1)Limiting investments to the safest types of securities.
2)Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisers with which the City will do business.
A list will be maintained of financial institutions authorized to provide investment services. In addition, a list also will be
maintained of approved security
regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1.
All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply: audited
financial statements, proof of National Association of Securities Dealers (NASD) certification, proof of state registration,
completed broker/dealer questionnaire, and certification of having read and understood and agreeing to comply with the
57
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be
conducted by the City Administrator.
Concentration of Credit Risk - More than 23
Loan Bank (5.7%), Federal Farm Credit Bank (7.0%), Federal National Mortgage Association (2.5%), Federal Home Loan Mortgage
Corporation (7.5%) and U.S. Treasury (0.6
1) Diversification - The investments shall be diversified by:
a) investments to avoid over concentration in securities from a specific issuer or business sector (excluding U.S.
Treasury securities),
b) limiting investment in securities that have higher credit risks,
c) investing in securities with varying maturities, and
d) continuously investing a portion of the portfolio in readily available funds such as local government investment
pools (LGIPs), money market funds or overnight repurchase agreements to ensure that appropriate liquidity is
maintained in order to meet ongoing obligations.
2) Maximum Maturities - To the extent possible, the City shall attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing, or having
average lifes, of more than five (5) years from the date of purchase or in accordance with state and local statutes and
ordinances.
Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding five (5) years
if the maturity of such investments are made to coincide as nearly as practicable with the expected use of funds. The intent
to invest in securities with longer maturities shall be disclosed in writing to the legislative body.
Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be
continuously invested in readily available funds such as local government investment pools, money market funds, or
overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations.
Note 3RECEIVABLES
Significant receivables balances not expected to be collected within one year of December 31, 2018 are as follows:
DelinquentDelinquentSpecial
PropertyTaxAssessment
TaxesIncrementReceivableTotal
Major Funds:
General Fund$ 19,240$ -$ 14,290$ 33,530
Water Trunk CPF--422,087422,087
Sewer Trunk CPF--108,392108,392
Road and Bridge CPF2,826-806,293809,119
Tax Increment Projects CPF-691-691
Permanent Improvement Revolving CPF--236,700236,700
Nonmajor Funds6,128--6,128
Total$ 28,194$ 691$1,587,762$1,616,647
Note 4UNAVAILABLE REVENUES
Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available
to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of unavailable revenue reported
in the governmental funds were as follows:
58
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
PropertyTaxSpecialLand Held
TaxesIncrementAssessmentsfor ResaleTotal
Major Funds:
General Fund$ 62,066$ -$ 14,290$ -$ 76,356
Water Trunk CPF--478,019-478,019
Sewer Trunk CPF--132,452-132,452
Road and Bridge CPF9,116-974,405-983,521
Tax Increment Projects CPF-2,032-825,000827,032
Permanent Improvement Revolving CPF--238,691-238,691
Nonmajor Funds19,771---19,771
Total$ 90,953$ 2,032$1,837,857$ 825,000$2,755,842
Note 5CAPITAL ASSETS
In accordance with GASB Statement No. 34, the City has reported all capital assets including infrastructure in the government-wide
statement of net position. The City elected to use the modified approach as defined by GASB Statement No. 34 for infrastructure reporting
for its streets and trails. As a result, no accumulated depreciation or depreciation expense has been recorded for this system. A more
detailed discussion of the modified approach is presented in the Required Supplementary Information section of this report. All other
capital assets including other infrastructure systems were reported using the basic approach whereby accumulated depreciation and
depreciation expense have been recorded. Capital asset activity for the year ended December 31, 2018 was as follows:
BeginningEnding
Primary GovernmentBalanceAdditionsDeletionsBalance
Governmental activities:
Capital assets not being depreciated:
Land and improvements$ 10,800,015$ 289,990$ -$ 11,090,005
Streets and trails85,084,915638,895-85,723,810
Construction in progress31,566866,358-897,924
Total capital assets not being depreciated95,916,4961,795,243-97,711,739
Capital assets being depreciated:
Buildings and improvements27,485,14493,463(25,919)27,552,688
Furniture and equipment (including software)881,65641,218(15,187)907,687
Machinery and equipment8,909,915291,437(254,808)8,946,544
Other park improvements8,093,74179,489(53,437)8,119,793
Total capital assets being depreciated45,370,456505,607(349,351)45,526,712
Less accumulated depreciation for:
Buildings and improvements12,551,625921,703(25,919)13,447,409
Furniture and equipment539,97366,261(15,187)591,047
Machinery and equipment6,166,407401,320(222,268)6,345,459
Other park improvements3,949,583343,154(53,437)4,239,300
Total accumulated depreciation23,207,5881,732,438(316,811)24,623,215
Total capital assets being depreciated - net22,162,868(1,226,831)(32,540)20,903,497
Governmental activities capital assets - net$ 118,079,364$ 568,412$ (32,540)$118,615,236
59
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Business-type activities:
Capital assets not being depreciated:
Land and improvements$ 730,243$ -$ -$ 730,243
Capital assets being depreciated:
Buildings and improvements15,877,590--15,877,590
Furniture and equipment (including software)52,110-(10,000)42,110
Machinery and equipment1,281,384278,554(122,145)1,437,793
Collection and distribution57,750,743639,892-58,390,635
Total capital assets being depreciated74,961,827918,446(132,145)75,748,128
Less accumulated depreciation for:
Buildings and improvements9,415,613489,751-9,905,364
Furniture and equipment51,177934(10,000)42,111
Machinery and equipment931,98062,990(122,145)872,825
Collection and distribution23,590,7931,168,905-24,759,698
Total accumulated depreciation33,989,5631,722,580(132,145)35,579,998
Total capital assets being depreciated - net40,972,264(804,134)-40,168,130
Business-type activities capital assets - net$ 41,702,507$ (804,134)$ -$ 40,898,373
Depreciation/amortization expense was charged to functions/programs of the primary government as follows:
Governmental activities:
General government$ 82,588
Public safety305,490
Public works217,023
Parks and recreation1,109,761
Recycling 6,862
Economic development10,714
Total depreciation/amortization expense - governmental activities$ 1,732,438
Business-type activities:
Water$ 892,585
Sewer566,260
Storm sewer263,735
Total depreciation/amortization expense - business-type activities$ 1,722,580
CONSTRUCTION COMMITMENTS
At December 31, 2018, the Cityhad the following construction project contracts in progress:
ContractRemaining
Project #ProjectAmountCommitment
17-26Community Center Expansion$ 1,021,696$ 567,897
17-27Public Works - VM/Cold Storage/Site Work386,185193,425
$ 1,407,881$ 761,322
60
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 6LONG-TERM DEBT
The City issues general obligation bonds,equipment certificatesand promissory notesto provide funds for the acquisition andconstruction
-term debt is segregated between the amounts to be repaid from governmental
activities and amounts to be repaid from business-type activities.
IssueMaturityInterestOriginalPayable
DateDateRateIssue12/31/18
GOVERNMENTAL ACTIVITIES:
Abatement Bonds:
2012C G.O. Abatement Bonds12/27/20122/1/20311.00-3.00%$17,315,000$13,270,000
Certificates of Indebtedness:
2014A G.O. Equipment Certificates5/29/20142/1/20201.50-2.00%1,555,000545,000
2016A G.O. Equipment Certificates2/19/20162/1/20211.90%520,000394,000
Total certificates of indebtedness2,075,000939,000
Capital Improvement Bonds:
2018A G.O. Capital Improvement Plan Bonds12/27/20182/1/20443.00-5.00%10,000,00010,000,000
Referendum Bonds:
2010A G.O. Open Space Referendum Bonds2/18/20102/1/20222.00-3.12%1,660,000655,000
Total - bonded indebtedness31,050,00024,864,000
Compensated absences payable-692,379
Total governmental activities indebtedness31,050,00025,556,379
BUSINESS-TYPE ACTIVITIES:
General Obligation Revenue Bonds:
2009A G.O. Water Revenue Bonds3/26/20092/1/20242.00-4.25%1,025,000465,000
2016B G.O. Water Revenue Refunding Bonds12/7/20162/1/20232.00%3,925,0003,310,000
Total general obligation revenue bonds4,950,0003,775,000
Issuance premiums -54,374
Compensated absences payable-198,927
Total business-type activities indebtedness4,950,0004,028,301
Total City indebtedness$36,000,000$29,584,680
For the governmental activities, compensated absences are generally liquidated by the General and Special Revenue Funds.
Annual debt service requirements to maturity for general obligation bonds are as follows:
61
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
It is not practical to determine the specific year for payment of long-term accrued compensated absences.
62
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
CHANGE IN LONG-TERM LIABILITIES
Long-term liability activity for the year ended December 31, 2018, was as follows:
For the governmental activities, bonds and the promissory note payable can be summarized in the following categories:
The abatement bonds were used to purchase the 132,000 square foot building from the EDA. The bonds are general obligations
of the City for which it pledges its full faith, credit and taxing powers to the payment of principal and interest on the bonds.
The certificates of indebtedness are used to finance the purchase of capital equipment. The certificates are general obligations
of the City for which it pledges its full faith, credit and taxing powers to the payment of principal and interest on the certificates.
The capital improvement bonds are used to finance the construction of the public works maintenance facility with a wash bay
and a cold storage building. The bonds are general obligations of the City for which it pledges its full faith, credit and taxing
powers to the payment of principal and interest on the bonds.
The referendum bonds were used to finance various land acquisitions for open space preservation within the City. The bonds are
general obligations of the City for which it pledges its full faith, credit and taxing powers to the payment of principal and interest
on the certificates.
The promissory note payable was used to finance the purchase of 13 acres adjacent to the city hall campus for future expansion.
The note is payable from monies set aside in the Building Capital Projects Fund.
For the governmental activities, compensated absences are generally liquidated through the General Fund.
For the business-type activities, the G.O. revenue bonds were used to finance the construction of a water treatment plant. The bonds
are payable from net revenues of the water system and are general obligations of the City for which its full faith, credit and taxing
powers are pledged.
63
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
REVENUES PLEDGED
2012C G.O. Abatement Bonds. The City has pledged future lease revenue, operating revenues (net of operating expenses) and, if
necessary, a debt service tax levy to repay the $17,315,000 bonds issued in December 2012. Proceeds from this bond refunded the
2004 EDA Public Facility Lease Revenue Bonds. Lease revenues were projected to produce 100% of the debt service requirements
over the life of the bonds. Total principal and interest remaining on the bonds is $15,745,858, payable through February 2031. For
the current year, principal and interest paid and total property tax revenues were $1,211,481 and $970,085, respectively.
2014A G.O. Equipment Certificates. The City has pledged future property tax revenue to repay the $1,555,000 bonds issued in May
2014. Proceeds from the bonds were used to finance the purchase of capital equipment. Property taxes were projected to produce
100% of the debt service requirements over the life of the bonds. Total principal and interest remaining on the bonds is $555,950,
payable through February 2020. For the current year, principal and interest paid and total property tax revenues were $278,550 and
$294,347, respectively.
2016A G.O. Equipment Certificates. The City has pledged future property tax revenue to repay the $520,000 bonds issued in February
2016. Proceeds from the bonds were used to finance the purchase of capital equipment. Property taxes were projected to produce
100% of the debt service requirements over the life of the bonds. Total principal and interest remaining on the bonds is $405,324,
payable through February 2021. For the current year, principal and interest paid and total property tax revenues were $134,683 and
$143,020, respectively.
2018A G.O. Capital Improvement Plan Bonds. The City has pledged future property tax revenue to repay the $10,000,000 bonds
issued in December 2018. Proceeds from the bonds were used to finance the construction of a public works maintenance facility with
a wash bay and a cold storage building. Property taxes were projected to produce 100% of the debt service requirements over the life
of the bonds. Total principal and interest remaining on the bonds is $15,278,921, payable through February 2044.
2010A G.O. Open Space Referendum Bonds. The City has pledged future property tax revenue to repay the $1,660,000 bonds issued
in February 2010. Proceeds from the bonds were used to finance various land acquisitions for open space preservation within the
City. Property taxes were projected to produce 100% of the debt service requirements over the life of the bonds. Total principal and
interest remaining on the bonds is $695,862, payable through February 2022. For the current year, principal and interest paid and
total property tax revenues were $176,841 and $188,916 respectively.
2009A G.O. Water Revenue Bonds. The City has pledged future water customer revenues, net of operating expenses, to repay the
$1,025,000 bonds issued in March 2009. Proceeds of the bonds provided financing for the addition to the water treatment plant. The
bonds are payable from water customer net revenues and are payable through 2024. The total principal and interest remaining on the
bonds is $523,772. The principal and interest paid for the current year and total customer net revenues were $89,492 and $1,728,522,
respectively.
2016B G.O. Water Revenue Refunding Bonds. The City has pledged future water customer revenues, net of operating expenses, to
repay the $3,925,000 bonds issued in December 2016. Proceeds of the bonds refunded the Series 2007B Bonds. The bonds are
payable from water customer net revenues and are payable through 2023. The total principal and interest remaining on the bonds is
$3,478,200. The principal and interest paid for the current year and total customer net revenues were $687,350 and $1,728,522,
respectively.
CURRENT REFUNDING
On December 7, 2016, the City issued $3,925,000 in Water Revenue Refunding Bonds, Series 2016B with an average interest rate of
2.00% to advance refund $3,935,000 of outstanding 2007B Series Bonds with an average interest rate of 4.12%. The net proceeds of
$3,938,608 were used to purchase U.S. Government Securities. Those securities were deposited in an irrevocable trust with an escrow
agent to provide for the called principal on the refunded bonds on February 1, 2017.
The City refunded a portion of the 2007B G.O. Water Revenue Refunding Bonds to reduce its total debt service payments over the
last six years of the bond by $309,113 and to obtain an economic gain (difference between the present value of the debt service
payments on the old and new debt) of $294,725.
Note 7LEGAL DEBT MARGIN
The City is subject to a statutory limitation by the State of Minnesota for bonded indebtedness payable principally from property taxes.
The City's legal debt margin for 2018 and 2017 is computed as follows:
64
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
December 31,
20182017
Estimated taxable market value$2,959,411,470$2,633,480,159
Debt limit (3% of market value)88,782,34479,004,405
Amount of debt applicable to debt limit:
Total bonded debt$ 28,639,000$ 20,740,000
Less: Nonapplicable debt
G.O. water revenue bonds(3,775,000)(4,460,000)
Less: Cash and investments in related
debt service funds(1,032,604)(943,862)
Total debt applicable to debt limit23,831,39615,336,138
Legal debt margin$ 64,950,948$ 63,668,267
Note 8DEFINED BENEFIT PENSION PLANS - STATEWIDE
A.PLAN DESCRIPTION
The Cityparticipates in the following cost-sharing multiple-employer defined benefit pension plans administered by the Public
administered in accordanc
qualified plans under Section 401 (a) of the Internal Revenue Code.
1.General Employees Retirement Plan (General Employees Plan; accounted for in the General Employees Fund)
All full-time(with exception of employees covered by the Public Employees Police and Fire Plan)and certain part-time
employees of the Cityare covered by the General Employees Plan. General Employees Planmembers belong to the
Coordinated Plan. Coordinated Plan members are covered by Social Security.
2.Public Employees Police and Fire Plan (Police and Fire Plan; accounted for in the Police and Fire Fund)
The Police and Fire Plan, originally established for police officers and firefighters not covered by a local relief association,
now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the Police and Fire Planalso covers
police officers and firefighters belonging to a local relief associationthat elected to merge with and transfer assets and
administration to PERA.
B.BENEFITS PROVIDED
PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be
modified by the state legislature. 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.General Employees PlanBenefits
General Employees Plan b
service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated
Plan members. Members hired priorto July 1, 1989, receive the higher of Method 1 or Method 2formulas.Only Method 2
is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated Plan membersis 1.2%for
each of the first ten yearsof serviceand 1.7% for each additionalyear. The rates are 2.2% and 2.7%, respectively, for Basic
members. Under Method 2, the accrual ratefor Coordinated membersis1.7% for allyearsof service, and 2.7% for Basic
members.The accrual rates for former MERF members is 2.0% for each of the first 10 years of service and 2.5% for each
additional year.For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90
65
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced
Social Security benefits capped at 66.
Beginning January 1, 2019, benefit recipients will receive a future annual increase equal to 50 percent of the Social Security
Cost of Living Adjustment, not less than 1.0 percent and not more than 1.5 percent. For retirements on or after January 1,
2024, the first benefit increase is delayed until the retiree reaches Normal Retirement Age (not applicable to Rule of 90
retirees, disability recipients, or survivors). A benefit recipient who has been receiving a benefit for at least 12 full months
as of June 30 will receive a full increase. Members receiving benefits for at least one month but less than 12 full months as
of June 30 will receive a pro rata increase.
2.Police and FireBenefits
Benefits for Police and Firemembers first hired after June 30, 2010 but before July 1, 2014, vest on a prorated basis from
50percentafter five years up to 100percentafter ten years of credited service. Benefits for Police and Firemembers first
hired after June 30, 2014 vest on a prorated basis from 50% after ten years up to 100% after twenty years of credited service.
The annuity accrual rate is 3percentof average salary for each year of service. For Police and Firememberswho were first
hired prior to July 1, 1989 a full annuity is available when age plus years of service equal at least 90.
Beginning in 2019, COLA will be fixed at 1 percent. Under funding measurements from 2017, the 2.5 percent COLA
trigger was never expected to occur and was subsequently removed from law. Post retirement increases are given each year
except for annuitants who have been receiving a benefit for only 31 to 41 months. These annuitants will receive a prorated
amount of the increase on a sliding scale.
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.General Employees FundContributions
Coordinated Plan members were required to contribute 6.50percentof their annual covered salary in fiscalyear 2018; the
Citywas required to contribute 7.5 percent for Coordinated Plan members.The contributions to the General
Employees Fundfor the year ended December 31, 2018were $301,507. The contributions were equal to the required
contributions as set by state statute.
2.Police and Fire FundContributions
Legislation increased both employee and employer contribution rates in the Police and Fire Plan. Employee rates increased
from 10.80 percent of pay to 11.30 percent and employer rates increase from 16.20 percent to 16.95 percent on January 1,
2019. On January 1, 2020 employee rates increase to 11.80 percent and employer rates increase to 17.70 percent. The
The
contributions were equal to the required contributions as set by state statute.
D.PENSION COSTS
1.General Employees FundPension Costs
At December 31, 2018theCityreported a liability of $3,256,435for its proportionate share of the General Employees
net pension liability.
contribution of $16 million to the fund in 2018. The State of Minnesota is considered a non-employer contributing entity
of the net pension liability associated with the City totaled $106,772. The net pension liability was measured as of June 30,
2018and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
that date. The proportion of the net pension liability was based on the contributions received by PERA during
the measurement period foremployer payroll paid dates from July 1, 2017through June 30, 2018relative to the total
8the proportion was
0.0587 percentwhich was adecrease of 0.0007 percentfrom its proportion measured as of June 30, 2017.
66
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Post-retirement benefit increases were changed from 1.0% per year with a provision to increase to 2.5% upon attainment of
a 90% funding ratio to 50% of the Social Security Cost of Living Adjustment, not less than 1.0% and not more than 1.5%,
beginning January 1, 2019.
Forthe year ended December 31, 2018theCityrecognized pension expense of $241,363for its proportionate share of the
Gpension expense. Inaddition, the City recognized an additional $24,899of pension expense (and
16 million to the General Employees
Fund.
At December 31, 2018, the Cityreported its proportionate share of the Gdeferred outflows of
resources and deferred inflows of resources related to pensions from the following sources:
DeferredDeferred
OutflowsInflows
of Resourcesof Resources
Differences between expected and actual economic experience$ 86,193$ 94,412
Changes in actuarial assumptions309,217365,895
Differences between projected and actual investment earnings-334,823
Changes in proportion22,31264,417
Contributions paid to PERA subsequent to the measurement date148,645-
Total$ 566,367$ 859,547
$148,645reported as deferred outflows of resources related to pensions resulting from Citycontributions subsequent to the
measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2019. Other
amounts reportedas deferred outflows and inflows of resources related to pensions will be recognized in pension expense
as follows:
Pension
Year EndedExpense
December 31,Amount
2019$ 83,668
2020(179,475)
2021(278,052)
2022(67,966)
Thereafter-
2.Police and Fire FundPension Costs
At December 31, 2018the City reported a liability of $284,595for its proportionate share of the Pnet
pension liability. The net pension liability was measured as of June 30, 2018and the total pension liability used to calculate
the net pension liability was determined by an actuarial valuation as of that date. The proportion of the net pension
liability was based on the contributions received by PERA during the measurement period for employer payroll paid
dates from July 1, 2017through June 30, 2018relative to the total emplo
participating employers. At June 30, 2018the proportion was 0.0267% which was a decrease of 0.0013% from its
proportion measured as of June 30, 2017.The City also recognized $2,403for the year ended December 31, 2018asrevenue
andan offsetting reduction of new pension liability-behalf
contributions to the Police and Fire Fund. Legislation passed in 2013 required the State of Minnesota to begin contributing
$9 million to the Police and Fire Fundeach year, starting in fiscal year 2014.
Beginning in January 1, 2019, COLA will be fixed at 1 percent. Under funding measurements from 2017, the 2.5 percent
COLA trigger was never expected to occurand was subsequently removed from law.
For the year ended December 31, 2018theCityrecognized pension expense of $44,544for its proportionate share of the
Ppension expense.
67
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
At December 31, 2018, the Cityreported its proportionate share of the Pdeferred outflows of resources
and deferred inflows of resources related to pensions from the following sources:
DeferredDeferred
OutflowsInflows
of Resourcesof Resources
Differences between expected and actual economic experience$ 11,472$ 68,567
Changes in actuarial assumptions349,515418,960
Differences between projected and actual investment earnings-61,261
Changes in proportion59,02043,297
Contributions paid to PERA subsequent to the measurement date23,521-
Total$ 443,528$ 592,085
$23,521reported as deferred outflows of resources related to pensions resulting from Citycontributions subsequent to the
measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2019. Other
amounts reportedas deferred outflows and inflows of resources related to pensions will be recognized in pension expense
as follows:
Pension
Year EndedExpense
December 31,Amount
2019$ (668)
2020(13,235)
2021(32,383)
2022(116,912)
2023(8,880)
Thereafter-
E.ACTUARIAL ASSUMPTIONS
The total pension liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assumptions:
General Employees PlanPolice and Fire Plan
Inflation2.5% per year2.5% per year
Salary Growth3.25% after 26 years of service3.25% after 25 years of service
Investment Rate of Return7.50%7.50%
Total pension liability for each of the defined benefit cost-sharing plans was determined by an actuarial valuation as of June 30,
2018, using the entry age normal actuarial cost method. Inflation is assumed to be 2.50 percent for the General Employees and
Police and Fire Plans. Salary growth assumptions in the General Employees Plan decrease in annual increments from 11.25
percent after one year of service, to 3.25 percent after 26 years of service. In the Police and Fire Plan, salary growth assumptions
decrease from 12.25 percent after one year of service to 3.25 percent after 25 years of service.
Mortality rates for all plans are based on RP-2014 mortality tables.
Actuarial assumptions for the General Employees Plan are reviewed every four to six years. The most recent six-year study for
the General Employees Plan was completed in 2015. The most recent four-year experience study for the Police and Fire Plan
was completed in 2016.
The followingchanges in actuarial assumptions occurred in 2018:
General Employees Fund
The mortalityprojection scale was changed from MP-2015 to MP-2017.
68
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The assumed benefit increase was changed from 1.00 percentper year through 2044 and 2.50percent thereafterto 1.25
percent per year.
Police and Fire Fund
The mortality projection scale was changed from MP-2016 to MP-2017.
The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular
basisof the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future
rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of
return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best
estimates of geometricreal rates of return for each major asset class are summarized in the following table:
TargetLong-Term Expected
Asset ClassAllocationReal Rate of Return
Domestic Stocks36%5.10%
International Stocks17%5.30%
Bonds (Fixed Income) 20%0.75%
Alternative Assets (Private Markets) 25%5.90%
Cash2%0.00%
Total100%
F.DISCOUNT RATE
The discount rate used to measure the total pension liability in 2018was 7.50%. The projection of cash flows used to determine
the discount rate assumed that contributions from plan members and employers will be made at ratesset in Minnesota Statutes.
Based on theseassumptions,thefiduciary net position of the General Employees Fundand Police and Fire Fundwereprojected
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 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 proportionate share of the net pension liability
would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current
discount rate:
1% Decrease in1% Increase in
Discount RateDiscount RateDiscount Rate
(6.5%)(7.5%)(8.5%)
City's proportionate share of the General
Employees Fund net pension liability$ 5,292,124$ 3,256,435$ 1,576,032
City's proportionate share of the Police
and Fire Fund net pension liability610,188284,59515,342
H.PENSION PLAN FIDUCIARY NET POSITION
position is available in a separately-issued PERA financial report
that includes financial statements and required supplementary information. That report may be obtained on the Internet at
www.mnpera.org.
69
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
I.PENSION EXPENSE
Pension expense recognized by the City for the fiscal year ended December 31, 2018is as follows:
General Employees Fund266,262$
Police and Fire Fund44,544
Total$ 310,806
For the governmental activities, pension liabilities are generally liquidated by the General and Special Revenue Funds.
Note 9.DEFINED CONTRIBUTIONLUMP SUM SERVICE PENSION PLANVOLUNTEER FIREFIGHTERS RELIEF
ASSOCIATION
PLAN DESCRIPTION
iation. The Association is the
administrator of a single-employer defined contribution plan available to firefighters that was established October 9, 1979 and operates
under the provisions of Minnesota Statutes Section 424A. It is governed by a board of six members elected by the members of the
Association for three-Mayor,Finance Managerand Fire Chief are ex-officio members of the Board of Trustees.
The Association provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible
members.
1.Twenty-Year Service Pension In order to be entitled to a pension benefit, a firefighter must have completed a minimum of
five years of service with the Department and five years membership in the Association and attain the age of 50 years. The
firefighter will then be 40% vested. This percentage increases 4% per year until the twentieth year when 100% vesting will
occur. Because this is a defined contribution plan, the amount of the retirement benefit is not predetermined, but rather is
b
2.Deferred Pension If the retired or terminated member has not attained age 50 and is otherwise eligible for the pension benefit,
Minnesota StatutesSection
424.A02, Subd.7.
3.Disability Benefit If a member of the Association becomes totally and permanently disabled due to injury, disability, sickness
or dismemberment as a result of performance of duty, a disability payment will be made after one hundred days of disability.
4.Death Benefit nt balance will
be paid to the surviving spouse, surviving children or the estate of the member after approval by the Board.
The Association issues a publicly available financial report that includes financial statements and required supplementary information.
NW, Andover,
Minnesota 55304.
FUNDING POLICY
The State of Minnesota contributes amortization aid, or two percent fire aid, in accordance with state statute requirements. Plan
members are not required to contribute to the plan. The state legislature may amend contribution requirements of the City and State.
The City is allowed to make voluntary contributions of other public funds pursuant to Minnesota Statutes Chapter 69. The City
receives the State aid contribution and is required by state statutes to pass this through as payment to the Association. This transaction
ows:
70
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Year
EndingCityStateTotal
12/31/2016$ 55,000$ 167,844$ 222,844
12/31/201755,000167,893222,893
12/31/201855,000176,391231,391
Note10OTHER POST EMPLOYMENT BENEFITS(OPEB)
In 2018, the City implemented the requirement of a new accounting pronouncement, GASB Statement No. 75, Accounting and Financial
Reporting for Postemployment Benefits Other than Pensions.Net pension has not been restated as a result of the change in accounting
principle because its effects on the financial statements were not material.
A.PLAN DESCRIPTION
In addition to providing the pension benefits described in Note 8, the City provides post employment health care benefits (as
defined in paragraph B) for retired employees through a single employer defined benefit plan. The term plan
requirement by State Statute to provide retirees with access to health insurance. The OPEB plan is administered by the City.
The authority to provide these benefits is established in Minnesota Statutes Sections 471.61 Subd. 2a, and 299A.465. The
benefits, benefit levels, employee contributions and employer contributions are governed by the City and can be amended by the
City through its personnel manual and collective bargaining agreements with employee groups. The Plan is not accounted for as
a trust fund, as an irrevocable trust has not been established to account for the plan. The Plan does not issue a separate report.
B.BENEFITS PROVIDED
Retirees
f the
individual terminates service with the City through service retirement or disability retirement. Employees who satisfy the rule
of90 or attain age 55 and have completed 10 years of service at termination can immediately commence medical benefits.
Retirees may obtain dependent coverage while the participating retiree is under age 65. Covered spouses may continue coverage
afte
required to pay 100% of their
premium cost for the City-sponsored group health insurance plan. The premium is a blended rate determined bythe entire active
and retiree population. Since the projected claims costs for retirees exceed the blended premium paid by retirees, the retirees are
receiving an implicit rate subsidy (benefit). The coverage levels are the same as those afforded to active employees. Upon a
becomes secondary.
C.PARTICIPANTS
As of the actuarial valuation dated January 2018, participants consisted of:
Retirees and beneficiaries currently
purchasing health insurance through the City2
Active employees55
Total57
Participating employers1
71
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
D.TOTAL OPEB LIABILITY AND CHANGES IN TOTAL OPEB LIABILITY
The 7, andwas determined by an actuarial valuation
using the alternative measurement method as of December31, 2016. Changes in the total OPEB liability during 2018 were:
Balance - beginning of year$ 261,651
Changes for the year:
Service Cost14,090
Interest10,482
Changes of benefit terms-
Differences between expected and actual experience-
Changes in assumptions11,969
Benefit payments(5,813)
Net Changes30,728
Balance - end of year$ 292,379
For governmental activities, OPEB liabilities are generally liquidatedby the General and Special Revenue Funds.
E.ACTUAL ASSUMPTIONS AND OTHER INPUTS
The total OPEB liability in the January 1, 2018 actuarial valuation was determined using the following actuarial assumptions and
other inputs, applied to all periods included in the measurement, unless otherwise specified:
Inflation2.75%
Salary increases3.50%
Discount rate3.31%
Investment rate of return3.31%
Healthcare cost trend ratesActual premium increase rates for FY2018 and 6.90% for FY2019, gradually
decreasing over several decades to an ultimate rate of 4.40% in FY2075 and
later years.
-related costs100%
Since the plan is funded on a pay-as-you-go basis, both the discount rate and the investment rate of return was based an index
rate for 20-year tax-exempt municipal bonds (Fidelity 20-Year Municipal G.O. AA Index).
Mortality rates were based on the RP-2014 mortality tables with projected mortality improvements based on scale MP-2016, and
other adjustments.
Based on past experience of the plan, 75% of future retirees are assumed to continue medical coverage until age 65. 50% of
police/fire employees are assumed to retire at age 55, the balance at 65. 50% of other City employees are assumed to retire at
age 62, the balance at age 65.
F.SENSITIVITY OF THE TOTAL OPEB LIABILITY TO CHANGES IN THE DISCOUNT RATE
Thefollowing presents the total OPEB liability of the
calculated using a discount rate that is 1% lower (2.31%) or 1% higher (4.31%) thanthe current rate:
1% Decrease in1% Increase in
Discount RateDiscount RateDiscount Rate
(2.31%)(3.31%)(4.31%)
Total OPEB liability$ 312,467$ 292,379$ 273,248
72
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
G.SENSITIVITY OF THE TOTAL OPEB LIABILITY TO CHANGES IN THE HEALTHCARE COST TREND RATES
ere
calculated using healthcare cost trend rates that are 1% lower or 1% higher than the current rate:
1% Decrease in1% Increase in
Healthcare CostHealthcare CostHealthcare Cost
Trend RateTrend RateTrend Rate
Total OPEB liability$ 262,626$ 292,379$ 327,163
H.OPEBEXPENSE AND DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES RELATED TO OPEB
For the year ended December 31, 2018, the City recognized $18,417of OPEB expense. At December 31, 2018, the City reported
deferred outflows and inflows of resources related to OPEB from the following sources:
Deferred OutflowsDeferred Inflows
of Resourcesof Resources
Contributions between measurement
date and reporting date$ 12,311$ -
$12,311reported as deferred outflows of resources related to OPEBresulting from City contributions subsequent to the
measurement date will be recognized as a reduction of the OPEBliability in the year ended December 31, 2019.
Note11INTERFUND RECEIVABLES/PAYABLES, LOANS AND TRANSFERS
Individual fund interfund receivable and payable balances at December 31, 2018are as follows:
FundReceivablePayable
Governmental Funds:
Major Funds:
General Fund$ 70,000$ -
Nonmajor Governmental Funds-70,000
Total governmental funds$ 70,000$ 70,000
Interfund receivables and payables are representative of lending/borrowing arrangements to cover deficit cash balances at the end of the
fiscal year.
The City made the following interfund transfersduring the year:
73
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Transfer InTransfer OutAmountPurpose
General FundWater Fund$ 90,700Admin allocation
General FundSewer Fund70,012Admin allocation
General FundStorm Sewer Fund17,846Admin allocation
Sewer Trunk CPFSewer Fund400,000Replacement reserve
Road & Bridge CPF Nonmajor Fund5,300Roadway degredation
Water FundWater Trunk Fund CPF114,850Debt service allocation
2018A G.O. CIP BondsNonmajor Fund31,566Reimburse PY expenditures
Nonmajor FundGeneral Fund230,000Trail funding
Nonmajor FundStorm Sewer Fund23,500City Campus Expansion Plan
Nonmajor FundNonmajor Fund11,071Equipment purchase
Nonmajor FundNonmajor Fund300,000Debt service allocation
$ 1,294,845
Additionally, computer service fees paid by the Water, Sewer and Storm Sewer Enterprise Funds to the General Fund have been
reclassified as transfers on the Government-Wide Statement of Activities as follows:
Transfer InTransfer Out
Governmental Activities$ 30,600$ -
Business-Type Activities-30,600
Total$ 30,600$ 30,600
Note 12TAX INCREMENT DISTRICTS
The City is the administering authority for the following tax increment finance districts:
1.Name of District:Tax Increment Financing District 1-5
Type of District:Redevelopment
Authorizing Law:M.S. Section 469
Established:2012
Duration of District:Through 2039
Original net tax capacity:$ 6,139
Current net tax capacity:82,321
Captured net tax capacity - retained by the City$ 76,182
2.Name of District:Tax Increment Financing District 1-6
Type of District:Redevelopment
Authorizing Law:M.S. Section 469
Established:2014
Duration of District:Through 2024
Original net tax capacity:$ 21,998
Current net tax capacity:63,500
Captured net tax capacity - retained by the City$ 41,502
74
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 13DEFICIT FUND BALANCES
The City has deficit fund balances at December 31, 2018as follows:
FundAmount
Nonmajor Capital Projects Funds:
Storm Sewer Project$ 66,263
Note 14CONTINGENCIES
A.RISK MANAGEMENT
The City is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets; errors and omissions;
injuries to employees;and natural disasters. The City participates in the League of Minnesota Cities Insurance Trust (LMCIT),
coverages.
Workers compensation coverage is provided through a pooled self-insurance program through the LMCIT. The City pays an
annual premium to LMCIT. The City is subject to supplemental assessments if deemed necessary by the LMCIT. The LMCIT
reinsures through Workers Compensation Reinsurance Association (WCRA) as required by law. The City also has a $2,500
deductible per occurrence to further decrease the cost of coverage. Final premiums are determined after an audit of payroll
subsequent to the close of the agreement year and are subject to revisions in rates, payrolls and experience modification. The
amount of premium adjustment, if any, is considered immaterial and not recorded until received or paid.
Property, casualty, and automobile insurance coverage are provided through a pooled self-insurance program through the LMCIT.
The City pays an annual premium to the LMCIT. The LMCIT reinsures through commercial companies for claims in excess of
various amounts. The City retains risk for the deductible portions. These deductibles are considered immaterial to the financial
statements.
The City continues to carry commercial insurance for all other risks of loss, including employee health and disability insurance.
There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any
of the past three fiscal years.
B.LITIGATION
The City is not aware of any existing or pending lawsuits, claims or other actions in which the City is a defendant.
C.FEDERAL AND STATEFUNDS
The City receives financial assistance from federal and state governmental agencies in the form of grants. The disbursement of
funds received under these programs generally requires compliance with the terms and conditions specified in the grant
agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a
liability of the applicable fund. However, in the opinion of management, any such disallowed claims will not have a material
effect on any of the financial statements of the individual fund types included herein or on the overall financial position of the
City at December 31, 2018.
D.TAX INCREMENT DISTRICTS
subject to review by the State of Minnesota Office of the State Auditor (OSA). 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 that would have a material effect on the financial statements.
75
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
E.TAX ABATEMENTS -PAY-AS-YOU-GO TAX INCREMENT
The City provides tax abatements pursuant to Minnesota Statutes 469.174 to 469.1794 (Tax Increment Financing) through a pay-
as-you-go note program. Tax increment financing (TIF) can be used to encourage private development, redevelopment,
renovation and renewal, growth in low-to-moderate-income housing, and economic development within the City. TIF captures
the increase in tax capacity and property taxes from development or redevelopment to provide funding for the related project.
The City has onetax increment pay-as-you-go agreement. The agreement isnot a general obligation of the City and ispayable
solely fromavailabletax increment. Accordingly, this agreementisnot reflected in the financial statements of the City. Details
of the pay-as-you-go are as follows:
TIF District #1-5, Arbor Oaks Project:
Issued in 2012 in the principal sum of $540,000 with an interest rate of 5.00% per annum. Principal and interest shall be
paid on August 1, 2014 and each February and August thereafter to and including February 1, 2029. Payments are payable
solely from available tax increment derived from the developed/redeveloped property and paid to the City. The pay-as-you-
gonoteprovides for payment to the developer equal to 90% of all tax increment received in the prior six months. The
payment reimburses the developer for street, utilities, right-of-way, land acquisition, and other public improvements.
Principal and interest payments will be completed February 1, 2029. The City shall have no obligation to pay any unpaid
balance of principal or accrued interest that may remain after the final payment on February 1, 2029. The current year
abatement (TIF note payments) amounted to $63,029. At December 31, 2018, the principal amount outstanding on the note
was $404,129.
Note 15DEFERRED AD VALOREM TAX LEVIES -BONDED DEBT
General Obligation bond issues sold by the City are financed by ad valorem tax levies and special assessment bond issues soldby the City
are partially financed by ad valorem tax levies in addition to special assessments levied against the benefiting properties. When a bond
issue to be financed partially or completely by ad valorem tax levies is sold, specific annual amounts of such tax levies arestated in the
bond resolution and the County Auditor is notified and instructed to levy these taxes over the appropriate years. The future tax levies are
subject to cancellation when and if the City has provided alternative sources of financing. The City Council is required to levy any
additional taxes found necessary for full payment of principal and interest.
These future scheduled tax levies are not shown as assets in the accompanying financial statements at December 31, 2018. Future scheduled
tax levies for all bonds outstanding at December 31, 2018totaled $32,288,102.
Note 16FUND BALANCE
A.CLASSIFICATIONS
At December 31, 2018, a summary of the governmental fund balance classifications are as follows:
76
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
2018A G.O.
CapitalTaxPermanent
WaterSewerRoad &ImprovementIncrementImprovementOther
TrunkTrunkBridgePlan BondsProjectsRevolvingGovernmental
GeneralCPFCPFCPFCPFCPFCPFFundsTotal
Nonspendable:
Inventory$ 112,971$ -$ -$ -$ -$ -$ -$ 2,386$ 115,357
Restricted for:
Debt service-------1,045,3391,045,339
Capital improvements----9,826,288---9,826,288
Tax increment-----3,279,968--3,279,968
Public services-------74,24474,244
Total restricted----9,826,2883,279,968-1,119,58314,225,839
Committed to:
Economic development-------247,431247,431
City's mapping system-------158,562158,562
Surface water management-------44,31144,311
Public right of ways management-------58,52258,522
Seal coating new developments-------9,7919,791
Total committed-------518,617518,617
Assigned to:
Water system 3,666,786-------3,666,786
Sanitary sewer system- 7,360,496------7,360,496
Street rehabilitation-- 6,603,576-----6,603,576
Development purposes----- 1,002,715--1,002,715
Community center -------383,159383,159
Forest resources programs-------5,1325,132
Public services -------5,8165,816
Park improvements-------158,707158,707
Facilities management-------244,859244,859
Pedestrian trails-------509,126509,126
Capital improvements------ 1,386,664-1,386,664
Total assigned 3,666,786-7,360,4966,603,576- 1,002,715-2,693,46321,327,036
Unassigned8,023,365------(66,263)7,957,102
Total$ 8,136,336$ 3,666,786$ 7,360,496$ 6,603,576$ 9,826,288$3,279,968$1,002,715$ 4,267,786$ 44,143,951
B. MINIMUM UNASSIGNED FUND BALANCE POLICY
The City Council has formally adopted a policy regarding the minimum unassigned fund balance for the General Fund. The
most significant revenue source of the General Fund is property taxes. This revenue source is received in two installments during
the year July and December. As such, it is
operations between each semi-annual receipt of property taxes.
The policy established a year-end targeted unassigned fund balance amount for cash-flow timing needs in the range of 51-53%
8, the unassigned fund balance of the General Fund targeted
for cash-flow needs was 68
Note 17CONDUIT DEBT OBLIGATION
Conduit debt obligations are certain limited-obligation revenue bonds or similar debt instruments issued for the express purpose of
providing capital financing for a specific third party. The City has issued various revenue bonds to provide funding to private-sector entities
for projects deemed to be in the public interest. Although these bonds bear the name of the City, the City has no obligationfor such debt
beyond the resources provided by related leases or loans. Accordingly, the bonds are not reported as liabilities in the financial statements
of the City.
As of December 31, 2018, the following revenue bonds were outstanding:
77
CITY OF ANDOVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Date ofOriginalOutstanding
ProjectIssueIssueRetired12/31/2018
Presbyterian Homes of Andover, Inc.11/1/2003$13,145,000$ (4,309,606)$ 8,835,394
Note 18OPERATING LEASES
The City received revenue from agreements for the lease of space for antennas placed on the water towerand an emergency siren pole.
The City also has leaseswith the Greater Minneapolis YMCA,Subway Real Estate, LLCfor building space at the Andover YMCA
Community Centerand various tenants in three residential 4-plexes. Terms of each lease are as follows:
2018
LeaseAnnual LeaseExpirationRenewal
LocationLesseeAmountAdjustment FactorDateOptions
City Hall water towerSprint Nextel$30,0003% annually12/31/20223 - 5 year terms
City Hall water towerT-Mobile USA, Inc25,9563% annually12/31/20263 - 5 year terms
City Hall water towerVerizon28,0193% annually5/31/20243 - 5 year terms
Emergency Siren PoleT-Mobile USA, Inc12,000$1,000 annual increase9/22/20231 - 5 year terms
Andover YMCA Comm CtrGreater Minneapolis YMCA634,774None8/1/2035N/A
Rose Park water towerSprint Nextel17,9263% annually7/31/20204 - 5 year terms
Rose Park water towerVerizon24,0163% annually5/31/20243 - 5 year terms
Andover YMCA Comm CtrSubway Real Estate, LLC16,028None10/2/2021N/A
10 Rental Housing UnitsVarious Tenants78,871NoneMonthlyN/A
Future minimum lease payments are unavailable at this time due to changing variables: CPI and the completion of the capital campaign
for the community center.
Note19RECENTLY ISSUED ACCOUNTING STANDARDS
The Governmental Accounting Standards Boards (GASB) recently approved the following statements which were not implemented for
these financial statements:
Statement No. 83Certain Asset Retirement Obligations.The provisions of this Statement are effective for reporting periods
beginning after June 15, 2018.
Statement No. 84Fiduciary Activities.The provisions of this Statement are effective for reporting periods beginning after
December 15, 2018.
Statement No. 87Leases.The provisions of this Statement are effective for reporting periods beginning after December 15, 2019.
Statement No. 88Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements.The provisions of this
Statement are effective for reporting periods beginning after June 15, 2018.
Statement No. 89Accounting for Interest Cost Incurred before the End of a Construction Periods.The provisions of this Statement
are effective for reporting periods beginning after December 15, 2019.
Statement No. 90Majority Equity Interests.The provisions of this Statement are effective for reporting periods beginning after
December 15, 2018.
The effect these standards may have on future financial statements is not determinable at this time, but it is expected that Statement No.
87 may have a material impact.
78
REQUIRED SUPPLEMENTARY INFORMATION
79
80
81
CITY OF ANDOVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION Statement 11
SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS
For The Year Ended December 31, 2018
2018
Total OPEB liability:
Service cost$ 14,090
Interest10,482
Changes of benefit terms -
Differences between expected and actual experience -
Changes in assumptions11,969
Benefit payments(5,813)
Net change in total OPEB liability30,728
Total OPEB liability - beginning261,651
Total OPEB liability - ending$ 292,379
Covered-employee payroll$4,469,146
Total OPEB liability as a percentage of covered-employee payroll6.5%
The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2018 and is intended to
show a ten year trend. Additional years will be added as they become available.
82
83
84
85
86
CITY OF ANDOVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
December 31, 2018
Note ABUDGETS
The General Fund budget is legally adopted on a basis consistent with accounting principles generally accepted in the United States of
America. The legal level of budgetary control is at the departmental level for the General Fund. The following is a listing of General
Fund departments whose expenditures exceed budget appropriations.
FinalOver
BudgetActualBudget
General Fund:
Current:
Public Works:
Snow and ice removal$ 562,706$ 599,028$ 36,322
Recycling 157,216199,18241,966
Note BMODIFIED APPROACH FOR CITY STREETS AND TRAILS INFRASTRUCTURE CAPITAL ASSETS
In accordance with GASB Statement No. 34, the City is required to account for and report infrastructure capital assets. The City defines
infrastructure as the basic physical assets including the street and trail system; water treatment and distribution system; wastewater
collection system; parkand recreation lands and improvement system; storm water conveyance system; and building combined with site
amenities such as parking and landscape areas used by the City in the conduct of its business. Each major infrastructure canbe divided
into subsystems. For example, the street and trail system can be divided into pavement widths, curb type and sidewalk. City owned streets
could further be classified as collector or local. Subsystem detail is not presented in these basic financial statements; however, the City
maintains detailed information on these subsystems.
The City has elected to use the modified approach as defined in GASB Statement No. 34 for infrastructure reporting for its Pavement
Management Program. Under GASB Statement No. 34, eligible infrastructure capital assets are not required to be depreciated under the
following requirements:
1)The City manages the eligible infrastructure capital assets using an asset management system with characteristics of (1) an up to-
date inventory; (2) perform condition assessments and summarize the results using a measurement scale; and (3) estimate annual
amount to maintain and preserve at the established condition assessment level.
2)The City documents that the eligible infrastructure capital assets are being preserved approximately at or above the established
and disclosed condition assessment level.
nts. This
acceptable rating allows minor cracking and patching of the pavement along with minor roughness that could be noticeable to the users of
the system.
In the fall of 2017, the City conducted a physical condition assessment of the streets and trails constructed since 1974. This assessment
will be performed every three years. Each street and trail segment was assigned a physical condition based on potential defects. An Overall
Condition Index (OCI) was assigned to each street and trail and expressed in a continuous scale. Prior to 2013, the continuous scale was
from 0 to 100 where 0 is assigned to the least acceptable physical condition and 100 is assigned to a new street or trail. Starting in 2013,
the continuous scale wasfrom 0 to 10, where 0 is assigned to the least acceptable physical condition and 10 is assigned the physical
characteristics of a new street or trail. The following conditions were defined:
Prior to 2013Current
ConditionRating ScaleRating Scale
Excellent86 - 1008 - 10
Very Good71 - 857 - 7.9
Good56 - 706 - 6.9
Fair41 - 554 - 5.9
Poor26 - 402 - 3.9
Very Poor11 - 251 - 1.9
Substandard0 - 100 - .9
87
CITY OF ANDOVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
December 31, 2018
As of December 31, 20186.4on the average with detail condition as follows:
% of Street
Conditionand Trails
Excellent to Good66.0%
Fair29.0%
Poor to Substandard5.0%
-
violet rays drying out and breaking down the top layer of pavement; (3) utility company/private development trenching operations; (4)
water damage from natural precipitation; and (5) frost heave. The City is continuously taking actions to prolong the life of the system
through short-term maintenance activities such as pothole patching, crack sealing, seal coating and overlaying. The City expended
$2,274,146on street and trail maintenance for the year ending December 31, 2018. These expenditures delayed deterioration; however,
the overall condition of the system was not improved through these maintenance expenditures. The City has estimated that theamount of
annual expenditures required toand trail system at the average OCI rating of good is approximately $1,150,000.
MaintenanceActualOCI
YearEstimateExpendituresRating
2009$1,150,000$ 1,666,21681
20101,150,0001,457,08283
20111,150,0001,770,98083
20121,150,0003,894,78483
20131,150,0002,471,1236.9
20141,150,0002,029,0266.7
20151,150,0001,114,9006.7
20161,150,0001,585,7566.3
20171,150,0003,548,3276.4
20181,150,0002,274,1466.4
The City has an on-going street and trail rehabilitation program funded in the Capital Improvement Program that is intended to improve
the conditionrating of the City streets and trails. The rehabilitation program is formulated based on the deficiencies identified as a part of
its Pavement Management Program.
Note COPEB INFORMATION
No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75 to pay related benefits. There are no
factors that affect trends in the amounts reported, such as changes in benefit terms or assumptions.
NoteDPENSION INFORMATION
PERAGeneral Employees Retirement Fund
2018 Changes in Actuarial Assumptions:
The mortality projection scale was changed from MP-2015 to MP-2017.
The assumed benefit increase was changed from 1.0 percent per year through 2044 and 2.5 percent per year thereafter to
1.25 percent per year.
2017 Changes in Actuarial Assumptions:
The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent for vested
and non-vested members. The revised CSA loads are now 0.0 percent for active member liability, 15.0 percent for vested
deferred member liability and 3.0 percent for non-vested deferred member liability.
88
CITY OF ANDOVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
December 31, 2018
The assumed post-retirement benefit increase rate was changed from 1.0% per year for all years to 1.0% per year through
2044 and 2.5 percent per year thereafter.
2016Changes in Actuarial Assumptions:
The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2035 and 2.5% per year
thereafter to 1.0% per year for all future years.
The assumed investment return was changed from7.9% to 7.5%. The single discount rate was changed from 7.9% to 7.5%.
Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases,
payroll growth, and inflation were decreased by 0.25% to 3.25% for payroll growth and 2.5% for inflation.
PERAPublic Employees Police and Fire
2018 Changes in Actuarial Assumptions:
The mortality projection scale was changed from MP-2016 to MP-2017.
2017 Changes in Actuarial Assumptions:
The single discount rate was changed from 5.6 percent to 7.5 percent.
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 Combined Service Annuity (CSA) load was 30 percent for vested and non-vested deferred members. The CSA has
been changed to 33 percent for vested members and 2 percent for non-vested members.
The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully
generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale
was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-
2000 disabled mortality table to the mortality tables assumed for healthy retirees.
Assumed termination rates were decreased to 3.0 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 differencewas 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 2.5 percent thereafter.
2016Changes in Actuarial Assumptions:
The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2037 and 2.5% per year
thereafter to 1.0% per year for all future years.
The assumed investment return was changed from 7.9% to 7.5%. The single discount rate was changed from 7.9% to 5.6%.
The assumed future salary increases, payroll growth, and inflation were decreased by 0.25% to 3.25% for payroll growth
and 2.5% for inflation.
89
-This page intentionally left blank -
90
COMBINING AND INDIVIDUAL FUND STATEMENTSAND SCHEDULES
91
NONMAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
A Special Revenue Fund is used to account for the proceeds of specific revenue sources that are legally restricted to
expenditures for specified purposes. Revenues for these funds can come from a variety of sources, such as taxes, fees,
gifts and grants or contributions from other governmental entities. Expenditures from these funds are normally
restricted by statute, local ordinance or grant agreements. The funds may be used for either operations or capital
outlay as legal restrictions mandate.
DEBT SERVICE FUNDS
A Debt Service Fund accounts for the accumulation of resources for, and the payment of general long-term principal,
interest and other related costs.
CAPITAL PROJECTS FUNDS
A Capital Projects Fund is used to account for acquisition or construction of major capital facilities financed mainly
with governmental fund resources, general obligation debt, special assessments, special assessment debt, grants or
other resources that are not part of Proprietary Funds or Trust Funds.
92
93
94
NONMAJOR SPECIAL REVENUE FUNDS
The City of Andover had the following Special Revenue Funds during the year:
EDA General - This fund was established to account for activities designed to promote quality economic development
within the community.
Community Center - This fund is used to account for the operations of the Andover YMCA/Community Center,
operations of the YMCA.
Drainage and Mapping - This fund accounts for resources necessary to maintain existing maps and developing new
maps and mapping systems for the City.
LRRWMO -
Management Organization (LRRWMO).
Forestry - This fund was established to account for the protection of forest resources and the development of control
plans to ensure preservation or restoration of these resources.
Right-of-Way Management/Utility - This fund is used to account for activity associated with the management of the
public right-of-ways.
Charitable Gambling - This fund accounts for the 10% of net profits received from gambling activities by local non-
profit organizations. According to state statute, all expenditures from this fund must be for public services and police,
fire and other emergency or public safety-related services, equipment, and training, excluding pension obligations.
Construction Seal Coating - This fund accounts for the contributions associated with land development to be used for
the respective developments first application of crack seal and seal coat.
95
96
97
98
99
-This page intentionally left blank -
100
NONMAJOR DEBT SERVICE FUNDS
The City's Debt Service Funds account for four types of bonded indebtedness:
Certificates of Indebtedness
Capital Improvement Bonds
Abatement Bonds
Referendum Bonds
Certificates of Indebtedness - (G.O. Equipment Certificates - 2014A and 2016A) are repaid primarily from general
property taxes.
Abatement Bonds - (G.O. Abatement Bonds of 2012C) are repaid from annual lease payments from the YMCA,
Community Center operations and general property tax.
Referendum Bonds (Open Space Referendum Bonds of 2010A) are used to finance the purchase of land to remain
as open space.
101
102
103
104
105
-This page intentionally left blank -
106
NONMAJOR CAPITAL PROJECTS FUNDS
The City of Andover had the following Capital Projects Funds during the year:
Storm Sewer Project - This fund was established to account for storm sewer fees and improvements as part of
development and ongoing maintenance.
Park Dedication - This fund was established to account for contributions associated with land development to be used
for construc
Building Fund - This fund was established to account for miscellaneous building improvements for all facilities.
Trail and Transportation - This fund is used to account for contributions associated with land development to be used
Capital Equipment Reserve - This fund is used to account for the capital equipment/projects levy and the various
capital expenditures it will be used for.
107
108
109
110
111
112
113
114
115
116
117
118
CITY OF ANDOVER, MINNESOTA
SPECIAL REVENUE FUND - CONSTRUCTION SEAL COATING Statement 31
SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
For The Year Ended December 31, 2018
With Comparative Actual Amounts For The Year Ended December 31, 2017
Variance with
Final Budget -
Budgeted Amounts
2018Positive2017
OriginalFinalActual(Negative)Actual
Revenues:
Charges for services $ 10,000$ 10,000$ 4,316$ (5,684)$ 7,173
Investment income 7507502,9422,1921,900
Total revenues 10,75010,7507,258(3,492)9,073
Expenditures:
Current:
Public works 10,00010,0004,3165,6847,172
Net increase (decrease) in fund balance $ 750$ 7502,942$ 2,1921,901
Fund balance (deficit) - January 1 6,8494,948
Fund balance (deficit) - December 31 $ 9,791$ 6,849
119
INTERNAL SERVICE FUNDS
Internal Service Funds are used to account for the financing of goods or services provided by one department or agency
to other departments or agencies of the government and to other government units, on a cost reimbursement basis.
The City of Andover had the following Internal Service Funds during the year:
Central Equipment Maintenance This fund accounts for the maintenance of the equipment for the City.
Risk Management This fund accounts for the expenditures in payment of insurance deductibles, loss reduction,
safety training and administrative expense.
120
CITY OF ANDOVER, MINNESOTA
COMBINING STATEMENT OF NET POSITION Statement 32
INTERNAL SERVICE FUNDS
December 31, 2018
With Comparative Totals for December 31, 2017
Central
Totals
EquipmentRisk
MaintenanceManagement20182017
Assets:
Current assets:
Cash and cash equivalents $ 407,187$ 598,760$ 1,005,947$ 988,092
Accrued interest 2,5073,0595,5664,893
Accounts receivable-5,6525,652-
Inventories - at cost 112,580-112,580112,660
Total assets 522,274607,4711,129,7451,105,645
Liabilities:
Current liabilities:
Accounts payable 10,9106,37217,28218,502
Due to other governmental units ---359
Salaries payable 5,7343146,0484,879
Total liabilities 16,6446,68623,33023,740
Net position:
Unrestricted $ 505,630$ 600,785$ 1,106,415$ 1,081,905
121
CITY OF ANDOVER, MINNESOTA
COMBINING STATEMENT OF REVENUES, EXPENSES AND Statement 33
CHANGES IN NET POSITION
INTERNAL SERVICE FUNDS
For The Year Ended December 31, 2018
With Comparative Totals For The Year Ended December 31, 2017
Central
Totals
EquipmentRisk
MaintenanceManagement20182017
Operating revenues:
User charges $ 698,994$ 468,704$ 1,167,698$ 1,155,907
Other 11621,40721,52326,074
Total operating revenues 699,110490,1111,189,2211,181,981
Operating expenses:
Personal services 293,888166,243460,131446,274
Supplies 324,78623,038347,824289,765
Other service charges 117,973244,173362,146331,546
Total operating expenses 736,647433,4541,170,1011,067,585
Operating income (loss) (37,537)56,65719,120114,396
Nonoperating revenues (expenses):
Investment income 7,8848,57716,46110,611
Transfers:
Transfers out (11,071)-(11,071)-
Change in net position (40,724)65,23424,510125,007
Net position - January 1 546,354535,5511,081,905956,898
Net position - December 31 $ 505,630$ 600,785$ 1,106,415$ 1,081,905
122
CITY OF ANDOVER, MINNESOTA
COMBINING STATEMENT OF CASH FLOWS Statement 34
INTERNAL SERVICE FUNDS
For The Year Ended December 31, 2018
With Comparative Totals For The Year Ended December 31, 2017
Central
EquipmentRiskTotals
MaintenanceManagement20182017
Cash flows from operating activities:
Receipts from customers and users $ 699,110$ 484,459$ 1,183,569$ 1,181,981
Payment to suppliers (449,798)(261,671)(711,469)(631,718)
Payment to employees (292,780)(166,182)(458,962)(446,083)
Net cash flows from operating activities (43,468)56,60613,138104,180
Cash flows from noncapital financing activities:
Transfers out(11,071)-(11,071)-
Cash flows from investing activities:
Investment income 7,8937,89515,7889,465
Net increase (decrease) in cash and cash equivalents (46,646)64,50117,855113,645
Cash and cash equivalents - January 1 453,833534,259988,092874,447
Cash and cash equivalents - December 31 $ 407,187$ 598,760$ 1,005,947$ 988,092
Reconciliation of operating income to net cash provided
(used) by operating activities:
Operating income (loss) $ (37,537)$ 56,657$ 19,120$ 114,396
Adjustments to reconcile operating income (loss)
to net cash flows from operating activities:
Changes in assets and liabilities:
Decrease (increase) in accounts receivable-(5,652)(5,652)-
Decrease (increase) in inventory 80-80(1,062)
Increase (decrease) in accounts payable (7,119)5,899(1,220)(2,466)
Increase (decrease) in due to other governmental units -(359)(359)(6,879)
Increase (decrease) in salaries payable 1,108611,169191
Total adjustments (5,931)(51)(5,982)(10,216)
Net cash provided (used) by operating activities $ (43,468)$ 56,606$ 13,138$ 104,180
123
AGENCY FUNDS
Agency Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private
organizations and/or other governmental units. The City of Andover had the following Agency Funds during the year:
General Escrow This fund is used to account for distribution of funds for insurance premiums of retirees.
General Agency This fund is used to account for the collection and distribution of funds relating to building and
land development activities.
124
CITY OF ANDOVER, MINNESOTA
COMBINING STATEMENT OF NET POSITION Statement 35
FIDUCIARY FUNDS
December 31, 2018
GeneralGeneral
EscrowAgencyTotal
Assets:
Cash and investments $ 15,949$ 165,405$ 181,354
Liabilities:
Accounts payable 551,0941,149
Deposits payable 15,894164,311180,205
Total liabilities $ 15,949$ 165,405$ 181,354
125
126
127
CITY OF ANDOVER, MINNESOTA
NET POSITION BY COMPONENT
Last Ten Fiscal Years
(accrual basis of accounting)
2009201020112012
Governmental Activities
Net investment in capital assets$ 83,394,872$ 87,206,607$ 90,859,970$ 89,592,661
Restricted8,252,6916,364,7143,107,2534,461,020
Unrestricted19,442,00821,071,21223,353,00925,589,728
Total governmental activities net position111,089,571114,642,533117,320,232119,643,409
Business-Type Activities
Net investment in capital assets36,939,96236,140,05036,031,31934,922,691
Unrestricted4,875,3844,912,8225,100,6285,784,313
Total business-type activities net position41,815,34641,052,87241,131,94740,707,004
Primary Government
Net investment in capital assets120,334,834123,346,657126,891,289124,515,352
Restricted8,252,6916,364,7143,107,2534,461,020
Unrestricted24,317,39225,984,03428,453,63731,374,041
Total primary government net position$ 152,904,917$ 155,695,405$ 158,452,179$ 160,350,413
GASB 68 was implemented in 2015. Net position was restated for 2014 to reflect the reporting of net pension liability and pension
related deferred outflows and inflows of resources. Net position for years prior to 2014 were not restated.
128
Table 1
201320142015201620172018
$ 93,393,474$ 94,533,473$ 95,998,027$ 99,539,838$ 101,602,647$ 103,577,524
3,792,3234,776,0475,755,1625,787,0724,935,3755,081,230
22,936,03223,175,07724,457,25326,085,24027,673,92028,319,303
120,121,829122,484,597126,210,442131,412,150134,211,942136,978,057
34,864,65934,787,38235,507,38537,531,81537,174,81737,068,699
6,310,8306,292,8507,004,5637,652,3398,446,9429,825,681
41,175,48941,080,23242,511,94845,184,15445,621,75946,894,380
128,258,133129,320,855131,505,412137,071,653138,777,464140,646,223
3,792,3234,776,0475,755,1625,787,0724,935,3755,081,230
29,246,86229,467,92731,461,81633,737,57936,120,86238,144,984
$ 161,297,318$ 163,564,829$ 168,722,390$ 176,596,304$ 179,833,701$ 183,872,437
129
130
131
132
133
CITY OF ANDOVER, MINNESOTA
FUND BALANCES - GOVERNMENTAL FUNDS
Last Ten Fiscal Years
(modified accrual basis of accounting)
2009201020112012
General Fund
Reserved$ 207,515$ 206,666$ -$ -
Unreserved4,120,8974,904,239--
Nonspendable--222,641160,177
Unassigned--5,665,4966,227,664
Total general fund4,328,4125,110,9055,888,1376,387,841
All Other Governmental Funds
Reserved20,756,19519,258,490--
Unreserved reported in:
Special revenue funds1,233,2021,135,919--
Capital project funds14,170,26614,714,140--
Nonspendable--16,0741,471
Restricted--19,741,21421,307,923
Committed--650,766681,413
Assigned--14,451,30616,420,228
Unassigned--(517,251)(314,734)
Total all other governmental funds36,159,66335,108,54934,342,10938,096,301
Total governmental funds$ 40,488,075$ 40,219,454$ 40,230,246$ 44,484,142
In 2011, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting
and Governmental Fund Type Definitions.
134
Table 3
201320142015201620172018
$ - $ - $ - $ - $ - $ -
------
106,445137,001131,813146,417117,253112,971
6,853,7917,065,1337,136,0917,650,3287,672,3638,023,365
6,960,2367,202,1347,267,9047,796,7457,789,6168,136,336
------
------
------
1,3161,5621,8002,0272,0412,386
21,274,4445,022,9675,674,4175,852,4444,550,55714,225,839
588,516591,289531,729513,916530,505518,617
13,481,78616,095,39517,907,92919,109,14520,855,18421,327,036
(276,829)(114,344)(63,357)(64,193)(65,185)(66,263)
35,069,23321,596,86924,052,51825,413,33925,873,10236,007,615
$ 42,029,469$ 28,799,003$ 31,320,422$ 33,210,084$ 33,662,718$ 44,143,951
135
136
137
138
139
140
141
142
143
144
145
146
147
-This page intentionally left blank -
148
149
150
151
152
153
-This page intentionally left blank -
154
155
156
157
158
IV.OTHER FINANCIAL INFORMATION
159
160
161
162
163
164