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2024-07-16 City Council Packet CITY OF MENDOTA HEIGHTS CITY COUNCIL REGULAR MEETING AGENDA July 16, 2024 at 7:00 PM Mendota Heights City Hall, 1101 Victoria Curve, Mendota Heights 1. Call to Order 2. Roll Call 3. Pledge of Allegiance 4. Moment of Silence in Memory of Officer Scott Patrick, EOW July 30, 2014 5. Approval of the Agenda The Council, upon majority vote of its members, may make additions or deletions to the agenda. These items may be submitted after the agenda preparation deadline. 6. Public Comments - for items not on the agenda Public comments provide an opportunity to address the City Council on items which are not on the meeting agenda. All are welcome to speak. Individuals should address their comments to the City Council as a whole, not individual members. Speakers are requested to come to the podium and must state their name and address. Comments are limited to three (3) minutes. No action will be taken; however, the Mayor and Council may ask clarifying questions as needed or request staff to follow up. 7. Consent Agenda Items on the consent agenda are approved by one motion of the City Council. If a councilmember requests additional information or wants to make a comment on an item, the item will be removed from the consent agenda and considered separately. Items removed from the consent agenda will be taken up as the next order of business. a. Approve Minutes from the July 2, 2024, City Council Meeting b. Acknowledge June 11, 2024, Parks and Recreation Commission Meeting Minutes c. Authorize Hiring of Police Cadets d. Award Contract for the Marie Avenue Bridge Repair Page 1 of 169 e.Approve Massage Therapist Licenses f.Approve Temporary On-Sale Liquor License - Holy Family Maronite Catholic Church g.Approve Out of the Metro Travel Authorization--Minesota Recreation and Park Association Conference h.Acknowledge May 2024 Fire Synopsis i.Approve the Purchase of a Rahn Groomer PH1200 Infield Groomer j.Set City Council Budget Work Shop Dates k.Approval of Claims List 8.Presentations 9.Public Hearings 10.New and Unfinished Business a.City of Mendota Heights FY2023 Audit Report 11.Community / City Administrator Announcements 12.City Council Comments 13.Adjourn Next Meeting Wednesday, August 7, 2024 at 7:00PM Information is available in alternative formats or with the use of auxiliary aids to individuals with disabilities upon request by calling city hall at 651-452-1850 or by emailing cityhall@mendotaheightsmn.gov. Regular meetings of the City Council are cablecast on NDC4/Town Square Television Cable Channel 18/HD798 and online at TownSquare.TV/Webstreaming Page 2 of 169 7.a CITY OF MENDOTA HEIGHTS DAKOTA COUNTY STATE OF MINNESOTA DRAFT Minutes of the Regular Meeting Held Tuesday, July 2, 2024 Pursuant to due call and notice thereof, the regular meeting of the City Council, City of Mendota Heights, Minnesota was held at 7:00 p.m. at City Hall, 1101 Victoria Curve, Mendota Heights, Minnesota. CALL TO ORDER Mayor Levine called the meeting to order at 7:00 p.m. Councilors Lorberbaum, Mazzitello, and Miller, were also present. Councilor Paper was absent. PLEDGE OF ALLEGIANCE Council, the audience, and staff recited the Pledge of Allegiance. AGENDA ADOPTION Mayor Levine presented the agenda for adoption. Councilor Mazzitello moved adoption of the agenda. Councilor Miller seconded the motion. Ayes: 4 Nays: 0 PUBLIC COMMENTS No one from the public wished to be heard. CONSENT CALENDAR Mayor Levine presented the consent calendar and explained the procedure for discussion and approval. Councilor Lorberbaum moved approval of the consent calendar as presented. a.Approval of June 18, 2024, City Council Minutes b. Approval of June 18, 2024, Council Work Session Minutes c.Acknowledge Minutes from the May 28, 2024, Planning Commission Meeting d.Resolution 2024-35 Authorizing an Application for the Community Roadside Landscape Partnership Program e.Resolution 2024-36 Accepting a Donation for Body Armor for the Police Department f.Resolution 2024-37 Approving an Amendment to Joint Powers Agreement with the Criminal Justice Network (CJN) g.Approve Police Captain Out of State Travel Request h. Accept Police Officer Resignation and Authorize Posting Page 3 of 169 July 2, 2024 Mendota Heights City Council Page 2 of 7 i.Approval of May 2024 Treasurer’s Report j.Approval of Claims List Councilor Mazzitello seconded the motion. Ayes: 4 Nays: 0 PRESENTATIONS No items scheduled. PUBLIC HEARING A) RESOLUTION 2024-34 EASEMENT VACATION FOR SPRINGMAN ADDITION Public Works Director Ryan Ruzek explained that the Council was being asked to hold proceedings for Resolution 2024-23, a public hearing on an easement vacation commenced by petition within the Somerset View plat. Councilor Miller moved to open the public hearing. Councilor Mazzitello seconded the motion. Ayes: 4 Nays: 0 There being no one coming forward to speak, Councilor Mazzitello moved to close the public hearing. Councilor Lorberbaum seconded the motion. Ayes: 4 Nays: 0 Councilor Mazzitello moved to approve RESOLUTION NO. 2024-34 APPROVING AN EASEMENT VACATION COMMENCED BY PETITION. Councilor Miller seconded the motion. Ayes: 4 Nays: 0 NEW AND UNFINISHED BUSINESS A)RESOLUTION 2024-39 APPROVING A PRELIMINARY AND FINAL PLAT OF SPRINGMAN ADDITION (PLANNING CASE NO. 2024-10) Community Development Manager Sarah Madden explained that the Council was being asked to consider adoption of Resolution 2024-39 approving a Preliminary and Final Plat of a four-lot residential subdivision to be known as Springman Addition located at 1170 Dodd Road and 8 Beebe Avenue. Councilor Mazzitello referenced the 38-foot access requested to be maintained to Dodd Road for the property at 8 Beebe Road, which would provide the property with two access points. He stated that if that property were to split, the portion accessing from Dodd Road would be a flag lot. He asked if, rather than Page 4 of 169 July 2, 2024 Mendota Heights City Council Page 3 of 7 the easement, access could be provided between the two property owners rather than a City permitted access. Community Development Manager Sarah Madden commented that the existing property owner desired this and expressed that they wish they would have done that as part of their last lot line adjustment rather than waiting for this purchase agreement. She stated that while there may be an ability for a property to have two access points, this would not be considered an access for a new buildable lot and is mentioned as such in the staff report. Councilor Lorberbaum commented that as a former member of the Planning Commission, there were many instances where a request comes forward for a variance because of an odd lot configuration. She stated that she could see this happening in the future and therefore appreciated the documentation of staff on why this 38-foot strip exists. Steve Norton, applicant, commented that the driveway access that exists for 8 Beebe does not go back to the garden lot, which is why the 38-foot access is desired to be maintained. He confirmed that is an easement between the two property owners and not a City approved access. Henry Holec, 8 Beebe, commented that the property being discussed has a large drop from his main property to the garden area. He commented that he owns the garden area, but it is shared by the neighborhood, and they raise food to donate to food shelves, explaining that they typically donate 7,000 pounds of produce in a season. He stated that they have invested in the soil for the garden and the only flat, level access is through 1160/1170 shared access which terminates in a paved parking area. He stated that there would still be a narrow access into the garden. He noted that if the access were to come from his property, there would be a large incline which would be too steep to haul things down. Councilor Mazzitello asked if this agreement has existed for many years. Mr. Holec confirmed that this shared access has existed since the 1960s. Councilor Miller moved to approve RESOLUTION NO. 2024-39 APPROVING THE PRELIMINARY AND FINAL PLAT OF SPRINGMAN ADDITION LOCATED AT 1170 DODD ROAD AND 8 BEEBE AVENUE (PLANNING CASE NO. 2024-10), WITH AN ADDED CONDITION NINE TO STATE, “THE 38-FOOT-WIDE LOT REQUESTED TO BE USED FOR ACCESS TO THE REAR OF THE PROPERTY AT 8 BEEBE IS ESTABLISHED AS A PRIVATE EASEMENT BETWEEN THE OWNERS OF 8 BEEEBE AND 1160 DODD ROAD AND IS NOT TO BE CONSIDERED AS ACCESS FOR FUTURE DEVELOPMENT”. Councilor Mazzitello seconded the motion. Ayes: 4 Nays: 0 B)RESOLUTION 2024-40 APPROVING A CONDITIONAL USE PERMIT TO ALLOW A FENCE GREATER THAN 6 FEET IN HEIGHT AT 1270 NORTHLAND DRIVE (PLANNING CASE NO. 2024-11) Page 5 of 169 July 2, 2024 Mendota Heights City Council Page 4 of 7 Community Development Manager Sarah Madden provided a brief background on this item. The Council was being asked to consider adoption of Resolution 2024-40 approving a Conditional Use Permit (CUP) to allow the construction of a fence greater than six feet in height at 1270 Northland Drive. Councilor Lorberbaum asked if there is a maximum height allowed for fences. Community Development Manager Sarah Madden commented that there is not a maximum height listed in the zoning regulations and noted that it does specifically state that a fence can be above six feet in this zoning district through a CUP. Dennis Meadows, applicant, stated that this amenity has assisted in securing a large tenant to the space. He stated that a six-foot fence would not prevent the ball from leaving the court, whereas ten feet is the typical height for a pickleball court. He noted that they would have signage stating that the court is private, and they would have key card access for their tenants. Councilor Miller appreciated the outside of the box thinking in how to create opportunities for new users to come into the space. Councilor Lorberbaum moved to adopt RESOLUTION NO. 2024-40 APPROVING A CONDITIONAL USE PERMIT TO ALLOW A FENCE GREATER THAN 6-FEET IN HEIGHT AT THE PROPERTY LOCATED AT 1270 NORTHLAND DRIVE (PLANNING CASE 2024-11). Councilor Mazzitello seconded the motion. Further discussion: Mayor Levine acknowledged the goal of the City to revitalize the office park and appreciated the effort of the property owner to think of a creative way to bring new tenants into the space. Ayes: 4 Nays: 0 C) RESOLUTION 2024-41 APPROVING A VARIANCE TO ALLOW NEW ACCESSORY STRUCTURES AT 949 MENDOTA HEIGHTS ROAD (PLANNING CASE NO. 2024-12) Community Development Manager Sarah Madden provided a brief background on this item. The Council was being asked to consider adoption of Resolution 2024-41 approving a Variance to allow new accessory structures on the St. Thomas Academy campus property located at 949 Mendota Heights Road. Councilor Mazzitello commented that the City is currently working on updates to the zoning code to allow school uses in the residential zoning district certain permissions. He asked if the variance would still be needed after that zoning update is complete or whether this would have been a request for a Conditional Use Permit (CUP). Community Development Manager Sarah Madden replied that when reviewed against the draft updates, some components would have qualified while the height may still have required a variance. Councilor Mazzitello acknowledged that the City is working to make the process easier for schools within residential zones. Page 6 of 169 July 2, 2024 Mendota Heights City Council Page 5 of 7 Councilor Mazzitello moved to adopt RESOLUTION NO. 2024-41 APPROVING VARIANCES TO ALLOW THE CONSTRUCTION OF NEW ACCESSORY STRUCTURES, ALL PART OF ST. THOMAS ACADEMY’S BASEBALL FIELD IMPROVEMENTS LOCATED AT 949 MENDOTA HEIGHTS ROAD (PLANNING CASE 2024-12). Councilor Lorberbaum seconded the motion. Ayes: 4 Nays: 0 D) RESOLUTION 2024-38 APPROVING A PRELIMINARY AND FINAL PLAT OF MCMILLAN ESTATES (PLANNING CASE NO. 2024-01) Community Development Manager Sarah Madden provided the background on this item. The Council was being asked to consider adoption of Resolution 2024-38 approving a Preliminary and Final Plat of a three-lot residential subdivision to be known as McMillan Estates located at 1707 Delaware Avenue and two vacant parcels owned in common and generally located at the north end of Ridgewood Drive. She stated that the applicant agreed to an extension of the review period, to August 21, 2024, and is requesting that the item be tabled to allow them the ability to request quotes related to the installation of the cul-de- sac. Spencer McMillan, applicant, commented that this has been a long process and they have worked diligently with staff to meet City Code. He stated that they reviewed a number of different iterations for the 16 acres, but noted the challenge in that there is only 60 feet of frontage on Ridgewood Drive for the entire area, which is below the required frontage for even one lot. He stated that they reviewed alternative options for access off Delaware Avenue but under any scenario there is not enough frontage for future subdivision, which is required by City Code. He stated that it would seem that the only option to subdivide would be to create new frontage, which would be done through the creation of a cul-de-sac. He stated that it was never their intention to have a cul-de-sac, nor did he believe that the neighboring property owners want a cul-de-sac. He stated that he reached out to a company to obtain a rough estimate on a cul- de-sac and was given an estimate of $750,000, which makes it prohibitively expensive to create one extra lot. He noted that a cul-de-sac would also impact the adjacent wetlands. He stated that in order to recoup the cost of a cul-de-sac, there would need to be more lots. He commented that it would not be feasible to build a cul-de-sac for the desired use of the lot, to have a home. He stated that if the cul-de-sac were required, he would most likely sell the properties to a developer as there could then be seven buildable lots. He stated that his desire is to dedicate the cul-de-sac which would provide the frontage for them to use the lot as they desire. He asked the Council that he not be required to construct the cul-de-sac which would allow him to build his home and one additional lot as an interim step, noting that future subdivision could occur on the larger lot and the cul-de-sac would be triggered at that time. He provided details on his timeline, noting that he would sell the other lot and then would not plan to build his home on the larger lot for about ten years. He believed that this could be a step towards developing on a small scale without fully developing on a larger scale. He believed the biggest concern of the neighbors is lot three as neighbors do not want a home near them. He commented that it will still be a private home with vegetation and did not believe that would cause issues. He noted that the alternative would be seven lots, one of which still being lot three, and did not believe the neighbors would like that better. Mayor Levine commented that she believed the request from the applicant was to table the request. Page 7 of 169 July 2, 2024 Mendota Heights City Council Page 6 of 7 Mr. McMillan acknowledged that he requested a preliminary quote on the cul-de-sac, which he provided in his statement. He stated that in speaking to staff, the consensus was that he would have to construct the cul-de-sac and therefore he would like to complete due diligence with a more formalized quote to make an informed decision. Mayor Levine stated that if the Council were going to table the item, she would prefer to hold off on discussion until the future meeting when the item would be considered, or the Council could choose not to table this and vote tonight. Mr. McMillan commented that if the Council is open to not requiring construction of the cul-de-sac, he would be okay with the Council voting tonight. Councilor Mazzitello moved to TABLE ITEM 9D TO THE AUGUST 7, 2024 CITY COUNCIL MEETING. Mayor Levine seconded the motion. Further discussion: Councilor Mazzitello commented that this is a bizarre application and nothing he has seen before, therefore he believes that they owe it to the applicant to provide them with an application that would be compliant with meeting Code requirements, the Comprehensive Plan, and general way of doing business. He commented that a lot must front on a public street, which is defined as a transportation facility. He commented that if the standard were to plat cul-de-sacs, there would be many undeveloped cul-de-sacs in the community. He believed that it would only be fair to allow the applicant the time to complete his due diligence to provide the Council with as much information as possible. Mayor Levine commented that when an applicant requests more time, she is inclined to grant it. Councilor Lorberbaum commented that while she agrees with both the statements made, postponing this would not provide the opportunity for another public hearing. Mayor Levine clarified that there was not a public hearing tonight either as that was held at the Planning Commission. She stated that the Council does generally still accept public comments at its meeting, even though it is not a public hearing. Councilor Miller agreed that it is pragmatic for both sides to have additional time to digest this as this is a very unique case. He commented that he has never seen a cul-de-sac into another cul-de-sac in his life. Public Works Director Ryan Ruzek commented that the existing cul-de-sac would be removed and turned into a straight roadway. Councilor Miller commented that he appreciates the additional time for everyone to review this request. Ayes: 4 Nays: 0 Page 8 of 169 July 2, 2024 Mendota Heights City Council Page 7 of 7 COMMUNITY ANNOUNCEMENTS City Administrator Cheryl Jacobson announced upcoming community events and activities. COUNCIL COMMENTS Councilor Lorberbaum commented that the City has received a lot of compliments on its staff recently, and thanked staff for the quality of work they perform. She stated that about 18 months ago the City changed the way it completes inspections. She stated that she recently built a deck and had a great experience with that inspection company. She thanked all members of Boards and Commissions who volunteer their time to enhance their community. She wished people a safe and meaningful Fourth of July. She commented on the upcoming Primary Election on August 13th, noting that while the City does not have anything in the Primary, the City will have elections for Mayor and Council in November. She commented that there will be people elected in the Primary for other positions and provided an overview of those offices. Councilor Miller commented that former City Administrator Mark McNeil is a great guitarist and encouraged residents to go watch that show. He wished everyone a safe and plentiful Fourth of July, encouraging people to be safe with fireworks. He directed staff to provide an update on the status of the old bonfire site at an upcoming meeting. Councilor Mazzitello commented that this will be the 238th anniversary of the U.S. declaring its independence on July 4th. He commented on his recent experience in the Black Hills of South Dakota and why those four people were chosen to be represented on the monument. He encouraged people to reflect on the sacrifices that those before have given. ADJOURN Councilor Mazzitello moved to adjourn. Councilor Lorberbaum seconded the motion. Ayes: 4 Nays: 0 Mayor Levine adjourned the meeting at 8:32 p.m. ____________________________________ Stephanie B. Levine Mayor ATTEST: _______________________________ Nancy Bauer City Clerk Page 9 of 169 This page is intentionally left blank CITY OF MENDOTA HEIGHTS, DAKOTA COUNTY, MINNESOTA PARKS AND RECREATION MEETING MINUTES JUNE 11, 2024 The June meeting of the Mendota Heights Parks and Recreation Commission was held on Tuesday, June 11, 2024, at Mendota Heights City Hall, 1101 Victoria Curve. 1.Call to Order – Chair Jaffrey Blanks called the meeting to order at 6:30 p.m. 2. Roll Call – The following Commissioners were present: Chair Jaffrey Blanks, Commissioners: Tica Hanson, (arrived at 6:35 p.m.) Michelle Muller, Jo Schifsky, and Michael Toth; absent: Commissioner Stephanie Meyer, Dan Sherer, and Student Representative Meg Murphy. Staff present: Parks and Recreation Director Meredith Lawrence, Recreation Program Coordinator Willow Eisfeldt, Public Works Director Ryan Ruzek, Assistant City Engineer Lucas Ritchie, and Parks Summer Intern Sydnee Yengo. 3.Pledge of Allegiance The Pledge of Allegiance was recited. 4.Approval of Agenda Motion Muller/second Schifsky, to approve the agenda. AYES 4: NAYS 0 5.a Approval of Minutes from May 14, 2024 Regular Meeting Motion Schifsky/second Muller to approve the minutes of the May 14, 2024 Parks and Recreation Commission Regular Meeting. AYES 4: NAYS 0 6.Citizen Comment Period (for items not on the agenda) None. 7.Acknowledgement of Reports Chair Blanks read the titles of the three updates (Par 3, Recreation, Park Improvement, Park System Master Plan, and Park and Recreation Strategic Planning Updates) and polled the Commissioners for questions. Parks and Recreation Director Meredith Lawrence introduced the new Parks Summer Intern Sydnee Yengo and reviewed some of the tasks she will assist with. 7.a Par 3 Update Parks and Recreation Director Meredith Lawrence commented that the Par 3 is off to a good start and provided statistics from the month of May, noting that rain has had a slight impact on the number of rounds. She stated that there was an underground leak in the irrigation system which has been repaired. She provided an update on capital projects for this year as well as ongoing maintenance activities at the course. She stated that there has been an increase of vandalism at the Par 3 and therefore staff continues to attempt to mitigate that behavior. Commissioner Toth asked if the irrigation system is repaired internally by staff or contracted out. Ms. Lawrence commented that the seasonal Par 3 staff work to address those types of issues. She stated that if the issue goes beyond the scope of her and the Par 3 staff, they would contract out for that service. Page 10 of 169 7.b Commissioner Hanson arrived. 7.b Recreation Update Recreation Coordinator Willow Eisfeldt stated that the seasonal camps and programs have begun and provided an overview of the current offerings for youth and adults. She stated that the Parks Celebration is planned to occur August 9th – 11th and will feature a number of parks throughout the community. Commissioner Schifsky stated she attended the Tour de Rec fishing event today and commented that all the children were having a great time. 7.c Parks Improvement Update Parks and Recreation Director Meredith Lawrence provided an update on recently completed projects as well as the status and timing for upcoming park projects. 7.d Park System Master Plan Update Parks and Recreation Director Meredith Lawrence provided an update on the Park System Master Plan process. 7.e Parks and Recreation Strategic Planning Update Parks and Recreation Director Meredith Lawrence reported that there have not been many major changes and provided a brief update. 8.New Business 8.a Trail Improvement and Maintenance Plan Summary Public Works Director Ryan Ruzek provided background information on the City improvement and maintenance plans. He provided an overview of the Trail Improvement and Maintenance Plan (TIMP) as well as an overview of the park and trail system. He reviewed the existing trail system and the goals of the TIMP, TIMP project details, and the proposed trail system over the next five years. Commissioner Toth asked about a trail that he did not see on the map. Mr. Ruzek replied that is shown on the existing trail system map, but not the proposed improvement map. Commissioner Muller referenced a trail connection from Marie and commented that segment was not showing on Google maps. Mr. Ruzek replied that there is an improvement project at the Lilydale lift station, so a segment of the trail is closed along with the Mendota bridge. Commissioner Muller noted a trail connection that was discussed at Hagstrom King at the last meeting and was surprised to see the timing of that potential project shown later than discussed. Mr. Ruzek replied that the intention was to complete that connection with the Hampshire Drive road project and if the Commission recommends that to be done sooner, special park funds would need to be used. Page 11 of 169 Commissioner Muller commented that she believes that people in the neighborhood would like to see that done prior to 2028. 9.Unfinished Business 9.a 2025 Budget Recommendation Parks and Recreation Director Meredith Lawrence reviewed the budget timeline and provided information on the 2024 budget, including the total general fund budget and individual budgets for recreation, parks maintenance, and the Par 3. She reviewed the Council strategic priorities, which are used in the budgeting process. She stated that at the May meeting the Commission narrowed the potential list of projects for 2025 to ten and provided further direction to staff. She stated that since that time staff were able to better refine the project details and estimates for certain items and presented that information to the Commission. She stated that a survey was then conducted of the Commission members on the preferred priorities for the 2025 projects and reviewed those results. She asked for input on the Commission on the rankings which resulted from the Commission survey, explaining that not all ten projects will be approved by the Council which is why the prioritization is important. She stated that the parks and Par 3 CIPs have not yet been updated and noted that staff will bring those back for further review once a recommendation for the 2025 budget is completed. Commissioner Muller commented that she did not believe that the Commission desired to update two playgrounds and therefore believes that the Valley playground could be removed from the list. Commissioner Toth commented that each member was allowed the ability to rank the projects, and everyone has their reasons for their own rankings. He stated that he does accept the list as proposed with the understanding that the bottom three may not be included in the final budget. Commissioner Muller agreed, noting that she would feel comfortable recommending the list through project six. She also recognized that would use the balance of the special parks fund, which may not be replenished, and therefore the Council should be made aware of the need for a funding source in the future. Commissioner Toth stated that there is already something at Rogers Lake that has been updated recently, and therefore if there is a decision needing to be made on shelters, he would prefer to do Valley and delay Rogers Lake. Ms. Lawrence commented that she would agree that this list would provide equity in terms of both location and amenities throughout the parks system. Chair Blanks asked if the Council has provided direction on the park's budget for 2025. Ms. Lawrence replied that she does not have such a recommendation. She noted that the Parks System Master Plan completion will time up nicely later this year to continue the discussion on funding needs for the parks in the future. She recognized that not all the projects on the list may be approved and therefore she wants to be confident that the preferences of the Commission are known if items are removed from the list. Commissioner Muller asked if there would be a cost savings for bidding certain projects together, such as the basketball court projects. Page 12 of 169 Ms. Lawrence agreed that could be an option. Chair Blanks commented that he would want to see project seven included in the list and the Commission agreed. Adrian Waltz, 642 Hampshire Drive, commented that he and his neighbors hope that the Hagstrom King connection would be on the priority list for 2025 as that area is heavily used by the neighborhood. He commented that people currently walk and bike through the grass. He commented that the improvement would benefit walkers, accessibility, and for anyone using wheels such as strollers and bikes. He stated that if the picnic area at Valley Park is going to be improved, he would hope that the playground is going to be updated as well. He noted that playground currently does not include much for older kids. He commented that many of the features at the park are older and people will not be drawn to the picnic area if the amenities are outdated. Ms. Lawrence suggested that staff provide clarity to the Hagstrom King connection to ensure everyone is on the same page. Mr. Ruzek provided additional details on the proposed connection, noting that two different connections were mentioned. He stated that staff assumed that the Hampshire Drive connection would occur with the 2028 road project and would then be funded through the street project. He noted that both connections could be included with the road project and then not use special parks funds, but would then be delayed to 2028. He confirmed that staff could reach out to some of the direct neighbors if that is desired as well. Commissioner Schifsky commented that she would support completing that project as soon as possible to provide access. Ms. Lawrence noted that the portion of the project as described had the estimate of $30,000 and therefore wanted to ensure that was the desired segment. It was confirmed that the other segment described by Mr. Ruzek is proposed to be completed with the road project in 2028. Commissioner Schifsky stated that she would support adding that additional segment and not waiting for the road project. Commissioner Muller noted that would complete a missing link in a larger trail circle. Ms. Lawrence commented that staff could provide updated information on that additional segment to include in the request to the Council if that is desired. Commissioner Toth asked if there is an estimate of funds that would potentially be saved by combining the two trail projects into one, rather than completing one next year and another in the future. Mr. Ruzek confirmed there would be some savings as costs continue to rise each year but did not feel comfortable attempting to provide a percentage or figure that could be saved. Commissioner Schifsky commented that the Commission seems to fully support both segments, noting that there was also support from the community expressed. Page 13 of 169 Commissioner Muller commented that Two Rivers Athletic Association provided an email communication with their priorities and provided a summary of those requests and how she believes that the Commission has addressed those or will address those in the future. She noted that the Commission discussion was well underway before receiving this communication. Ms. Lawrence commented that user groups were asked to provide their requests by April 1st. She stated that she will continue to work with TRAA to gain their input on the field renovation project suggested for 2025. Commissioner Muller recognized that the Commission ranked the playground replacement at Ivy Hills as the highest and therefore that will move forward as the recommendation in 2025 and noted that the Valley Park playground will most likely then move forward as a recommendation in 2026. Motion Blanks/second Muller to recommend that priorities one through seven move forward to the City Council with an update to the Hagstrom trail connection as discussed. AYES 5: NAYS 0 Ms. Lawrence noted the proposed budgets for the Par 3 and recreation budgets and explained how staff develops those. Commissioner Muller recognized the need for an online tee reservation system and therefore would support whatever is necessary to bring that to fruition. Chair Blanks agreed and noted that a security camera system would also help to mitigate the vandalism that is occurring. Ms. Lawrence commented that staff also continue to look into options for a stronger internet connection to provide those services without fiber. She confirmed the consensus of the Commission that the online tee reservation system, stronger internet service, and security cameras would be priorities for 2025. Commissioner Muller asked if members from the public can request a reservation for a picnic shelter online or for field use requests. Ms. Lawrence commented that service is available for picnic shelter requests, noting that staff still review those requests for approval/denial. She was unaware of a system available like that for field use. She explained how staff reviews the field use requests from user groups. 10.Staff Announcements Parks and Recreation Director Meredith Lawrence shared the following announcements: •Noted July fireworks which will occur before the next meeting •Great opportunities for recreation are available online •Thanked seasonal staff for all the work they do •Other events can be found on the City’s website 11.Student Representative Update None. 12.Commission Comments and Park Updates Page 14 of 169 Commissioner Hanson •Commented that she is listing her home for sale and will be moving to Eagan, therefore this will be her last Commission meeting •It has been a pleasure to serve on the Commission Ms. Lawrence thanked Commissioner Hanson for her service and the things that she has advocated for in her time on the Commission. She noted that Commissioner Hanson will also be recognized at an upcoming Council meeting. She stated that the Council will consider the resignation of Commissioner Hanson at their next meeting and will then authorize the posting for the vacant seat on the Commission. She reviewed the timeline, noting that she would hope that a new Commissioner would join the Commission in August. Commissioner Schifsky •Commented that she has enjoyed serving with Commissioner Hanson •Ivy Hills and Wentworth are both looking great, and residents were happily enjoying both parks Chair Blanks •Valley and Market Square parks are both great •Music in the Park has been great with good attendance •Valley continues to be well used by the public as well Commissioner Muller •Kensington is lush, green and looking good •Has noticed many people playing pickleball at Friendly Hills •All the parks are great noting that her family visits many of the parks throughout the community Commissioner Toth •Thanked Commissioner Hanson for her service •The users at the skate park are enjoying the new amenities and the amenity is well used •He continues to remind park users about the fishing pier at Rogers Lake •This is a great time of year to gather at the parks but encouraged users to keep an eye on their children, noting the recent loss of life of a young child in another community 13. Adjourn Motion Schifsky/Second Toth to adjourn the meeting at 8:14 PM AYES 5: NAYS 0 Minutes drafted by: Amanda Staple TimeSaver Off Site Secretarial, Inc. Page 15 of 169 7.c REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Authorize Hiring of Police Cadets ITEM TYPE: Consent Item DEPARTMENT: Administration CONTACT: Kelly Torkelson, Assistant City Administrator Kelly McCarthy, Police Chief ACTION REQUEST: Authorize the hiring of Dave Perrault and Madeline Spencer as Police Cadets in the Mendota Heights Police Department. BACKGROUND: The City Council authorized the restructuring of the City's Community Service Officer Position into a Police Cadet program as a part of the city's ongoing strategy to maximize recruitment efforts and set the department and staff up for hiring top candidates. The Cadet Program was initially approved with a single position, however, the department has had an officer resignation since that time and staff is recommending filling that police officer position with an additional police cadet candidate in order to fill two current police officer vacancies. Staff recommends the hiring of Madeline Spencer and Dave Perrault to the position of Police Cadet with the Mendota Heights Police Department. These would be non-exempt, benefit eligible positions. It is recommended that they each be compensated at a rate of $26.45 per hour. Upon successful completion of the Cadet Program requirements, these candidates would each be promoted to police officers with the Mendota Heights Police Department and would start employment compensated at a rate of $37.02 per hour per the 2024-2025 LELS employment contract. Madeline Spencer has completed an internship with the Department of Juvenile Justice and has worked for Probation and Parole with the Department of Corrections. She has a bachelors degree in criminal justice and will complete final skills requirements to become a police officer through the Police Cadet Program. Madeline Spencer, has already completed some of the requirements of the cadet program and would be able to start as a full-time officer sooner than the program initially anticipated. Page 16 of 169 Dave Perrault currently serves as a Mendota Heights Firefighter and will be transitioning from his current role as a City Administrator to build on his public safety experience with the City of Mendota Heights as a police cadet. In addition to his experience working in city government, Mr. Perrault has also served in the U.S. Navy. FISCAL AND RESOURCE IMPACT: The City currently has two budgeted vacant police officer positions that these candidates would fill upon completion of the cadet program. Any funding needed for the cadet program would be covered by the Police Department budget. Dave Perrault will be compensated at 1.5x the firefighter wage for his supplementary employment with the Mendota Heights Fire Department due to Fair Labor Standards Act Requirements. ATTACHMENTS: None CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 17 of 169 7.d REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Award Contract for the Marie Avenue Bridge Repair ITEM TYPE: Consent Item DEPARTMENT: Engineering CONTACT: Lucas Ritchie, Asssitant City Engineer ACTION REQUEST: Award a contract to Diamond Surface, Inc. for the Marie Avenue Bridge Repair project. BACKGROUND: The city of Mendota Heights constructed a land bridge in 1974 to bridge soft soils. This bridge was rehabilitated in 2020 as part of the Marie Avenue Street Improvements which installed a concrete wearing course. After completion of the rehabilitation work in 2020, the city has received complaints of excessive noise from the concrete surface. Bolton & Menk provided a study and subsequently a recommendation to plane the bridge deck surface to mitigate excessive noise and presented to City Council at its April 2, 2024 meeting. City staff had plans procured and reviewed by the State prior to requesting quotes from three contractors to perform the bridge deck planing. FISCAL AND RESOURCE IMPACT: Quotes were solicited from three qualified contractors including a locally based contractor, Diamond Surface, Inc., and two regionally based contractors, Wagman, Inc. and Penhall Company. Given the specialized nature of the concrete grinding, only one local contractor, Diamond Surface, Inc., was able to provide a quote. Diamond Surface, Inc. provided a quote of $69,828.99 for the bridge planing efforts and associated traffic control measures. This work is State Aid eligible for the $69,828.99 of improvements. State Aid will cap the engineering at 25% or $17,457.25. The original study with Bolton & Menk was $25,455 with an additional $10,000 for procuring plans and soliciting bids. The city will need to utilize alternate funding for the overage Page 18 of 169 ($18k). The infrastructure fund would have funds for the difference and staff would work with finance on the funding source. ATTACHMENTS: 1.Marie Avenue Bridge Repair Recommendation and Bid Results CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure, Inclusive and Responsive Government Page 19 of 169 M E M O R A N D U M Date: July 1, 2024 To: Lucas Ritchie, P.E., Assistant City Engineer Ryan Ruzek, P.E., City Engineer / Director of Public Works From: Kevin Kielb, P.E., Principal Engineer Subject: Bid Results and Recommendation Marie Avenue Bridge Repair One quote was received for the Marie Avenue Bridge Repair project. The Request for Quotes was sent to three qualified firms and were due on Friday, June 28, 2024 at 1:00 P.M. Because of the specialized nature of concrete grinding, there is only one local company, Diamond Surface, Inc., who performs the work. Others, such as Wagman, Inc. and Penhall Company, are more regionally based and did not return quotes for the project. Diamond Surface’s quote for the work was $69,828.99. This exceeds the budgetary estimate we received for the work and also exceeds the Engineer’s estimate for the work. Representatives from Diamond Surface indicated there could be potential savings if the City were able to assist with items such as traffic control and striping. We recommend awarding the project to Diamond Surface, Inc. and then discussing potential cost savings with them after the award. If you have any questions, please contact me at (651) 968-7760. Page 20 of 169 This page is intentionally left blank 7.e REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Approve Massage Therapist Licenses ITEM TYPE: Consent Item DEPARTMENT: Administration CONTACT: Nancy Bauer, City Clerk ACTION REQUEST: Approve massage therapist licenses. BACKGROUND: Cindy Messer, Jessica Foss, and Nikita Schanzenbach have applied for massage therapist licenses. They have completed the application requirements including a successful background investigation. Cindy Messer and Jessica Foss will be working at Green Lotus LLC d/b/a Green Lotus Yoga & Healing Center and Nikita Schanzenbach will be working at Hush Therapeutic Massage. FISCAL AND RESOURCE IMPACT: N/A ATTACHMENTS: None CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 21 of 169 This page is intentionally left blank 7.f REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Approve Temporary On-Sale Liquor License - Holy Family Maronite Catholic Church ITEM TYPE: Consent Item DEPARTMENT: Administration CONTACT: Nancy Bauer, City Clerk ACTION REQUEST: Approve a temporary on-sale liquor license for Holy Family Maronite Catholic Church and use the City Hall upper parking lot for overflow parking during their event. BACKGROUND: Pursuant to State Statues and City Code, no person shall sell or give away liquor without first having received a license. Temporary On-Sale Liquor licenses shall be granted only to clubs and charitable, religious or non-profit organizations for the sale of intoxicating liquor. The licenses are subject to final approval by the Director of Alcohol and Gambling Enforcement. Holy Family Maronite Catholic Church, located at 1960 Lexington Avenue South, is planning their annual festival on their property for September 6-8, 2024. They have submitted an application for a temporary on-sale liquor license for the sale of wine and beer at their event. Liquor liability insurance has also been obtained. It should be noted that Temporary On-Sale Liquor Licenses have been issued in the past to charitable, non-profit, and religious organizations within the city with no negative reports. The church also requested use of the City Hall upper parking lot for overflow parking during their event. This has also been approved in the past with no problems or issues reported. FISCAL AND RESOURCE IMPACT: N/A ATTACHMENTS: None Page 22 of 169 CITY COUNCIL PRIORITY: Inclusive and Responsive Government Page 23 of 169 7.g REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Approve Out of the Metro Travel Authorization--Minesota Recreation and Park Association Conference ITEM TYPE: Consent Item DEPARTMENT: Parks and Recreation CONTACT: Meredith Lawrence, Parks and Recreation/Assistant Public Works Director ACTION REQUEST: Approve the out of the metro travel for Meredith Lawrence, Parks and Recreation Director/Assistant Public Works Director and Willow Eisfeldt, Recreation Program Coordinator to attend the 2024 MRPA Conference in Mankato, Minnesota. BACKGROUND: The City's Travel Authorization and Expense Reimbursement Policy requires that all out of the metro conferences, seminars and other education related expenses be approved in advance by the City Council and must include an estimate of the costs of travel, meals, lodging and programming. The MRPA conference is recognized as the premiere annual conference for Parks and Recreation professionals in Minnesota. This state conference brings together park and recreation professionals, students, citizen advocates and industry suppliers and offers attendees the opportunity to participate in educational seminars, classes and professional development/networking. FISCAL AND RESOURCE IMPACT: Funds for the costs are available in the Recreation budget. The estimated total costs for attending are as follows: Conference Registration: $860 ($430 each) Lodging: $373.58 (Recreation Program Coordinator) Mileage: $100 Meals: $212 ($106 x 2) Total costs are estimated to be $1,546 Page 24 of 169 ATTACHMENTS: None CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure, Inclusive and Responsive Government Page 25 of 169 7.h REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Acknowledge May 2024 Fire Synopsis ITEM TYPE: Consent Item DEPARTMENT: Fire CONTACT: Assistant Fire Chief Scott Goldenstein ACTION REQUEST: Acknowledge the attached May 2024 Fire Synopsis BACKGROUND: The Fire Synopsis is for your information. FISCAL AND RESOURCE IMPACT: None. ATTACHMENTS: 1.May 2024 Fire Synopsis CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 26 of 169 May 2024 Fire Synopsis: Fire Calls: 33 For May 2024, the Fire Department paged for service a total of 33 times. Mendota Heights 21 call(s) Lilydale 3 call(s) Mendota 2 call(s) Sunfish Lake 1 call(s) Other 6 call(s) Types of Calls: Fires: 2 The Mendota Heights Fire Department responded to two vehicle fires in May. Medical/Extrication: 3 In May there were three medicals, one of which involved extrication, and one medical that involved a search for a victim. Hazardous Situations: 3 In May the fire department responded to one natural gas leak and two calls for arcing/shorted power lines. False Alarms/System Malfunctions: 7 System malfunctions accounted for three calls in May, while unintentional activations accounted for an additional three calls. One call was coded as a malicious activation and one call was due to a sprinkler system activation. Good Intent: 3 One call for a smoke scare and two for hazmat investigations with no hazmat found occurred in May. Dispatched and Cancelled En-route: 9 Calls were cancelled before our units arrived on scene nine times in May. Mutual/Auto-Aid Other: 6 In May the MHFD was paged for six calls that were auto/mutual aid in nature: One in Inver Grove Heights, three in West Saint Paul, one in South Saint Paul and one in Eagan. Page 27 of 169 May Trainings: Mon, May 6 18:30 Mandatory Ladder Co Ops (Option 1) This drill was dedicated to multiple stations focused on proper deployment and usage of both ground ladders and working from and with the aerial on the ladder truck. It also covered proper roof firefighting procedures. Thurs, May 9 07:00 Mandatory Ladder Co Ops (Option 2) This drill was dedicated to multiple stations focused on proper deployment and usage of both ground ladders and working from and with the aerial on the ladder truck. It also covered proper roof firefighting procedures. Wed, May 15 18:30 Mandatory Ladder Co Ops (Option 3) This drill was dedicated to multiple stations focused on proper deployment and usage of both ground ladders and working from and with the aerial on the ladder truck. It also covered proper roof firefighting procedures. Tue, May 21 07:00 Ground Ladders/VEIS (Option 1) This drill was performed in the fire station and refreshed the fireground procedures for accessing rooms via a ladder and performing VEIS (Vent-Isolate-Enter-Search) in an efficient and safe manner. Wed, May 22 18:30 Ground Ladders/VEIS (Option 2) This drill was performed in the fire station and refreshed the fireground procedures for accessing rooms via a ladder and performing VEIS (Vent-Isolate-Enter-Search) in an efficient and safe manner. Page 28 of 169 Number of Calls 33 Total Calls for Year:144 FIRE ALARMS DISPATCHED:NUMBER STRUCTURE CONTENTS MISC.TOTALS TO DATE ACTUAL FIRES Structure - MH Commercial $0 Structure - MH Residential $3,500 Structure - Contract Areas $0 Cooking Fire - confined $0 Vehicle - MH 2 $46,124 $46,124 Vehicle - Contract Areas $0 Grass/Brush/No Value MH Grass/Brush/No Value Contract TOTAL MONTHLY FIRE LOSSES Other Fire OVERPRESSURE RUPTURE $46,124 $0 $0 Excessive heat, scorch burns MEDICAL Emergency Medical/Assist 1 Vehicle accident w/ no injuries 1 Extrication ALL FIRES, ALL AREAS (MONTH)$46,124 Medical, other 1 HAZARDOUS SITUATION $46,124 Spills/Leaks 1 Carbon Monoxide Incident Power line down Arcing, shorting 2 $3,500 Hazardous, Other SERVICE CALL Smoke or odor removal $0 Assist Police or other agency Service Call, other GOOD INTENT Good Intent Dispatched & Cancelled 9 Current To Date Last Year Smoke Scare 1 21 104 123 HazMat release investigation 2 3 11 9 Good Intent, Other 2 4 4 FALSE ALARMS 1 7 16 False Alarm 6 18 18 Malfunction 3 Unintentional 3 Total:33 144 170 False Alarm, other 1 MUTUAL AID 6 FIRE MARSHAL'S TIME FOR MONTH Total Calls 33 Inspections Investigations WORK PERFORMED Hours To Date Last Year Re-Inspection Fire Calls 448.5 1838.5 2185 Meetings 39.5 459.75 289 Meetings Training 421.5 1909.5 1662.5 Special Activity 121.5 199 239 Administration Fire Marshal 0 0 0 Plan Review/Training TOTALS 1031 4406.75 4375.5 TOTAL:0 Mendota Heights Only Structure/Contents Mendota Heights Only Miscellaneous Mendota Heights Total Loss to Date Contract Areas Loss to Date Mendota Heights Lilydale Mendota Sunfish Lake Mutual Aid MENDOTA HEIGHTS FIRE DEPARTMENT MAY 2024 MONTHLY REPORT FIRE LOSS TOTALS LOCATION OF FIRE ALARMS Page 29 of 169 7.i REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Approve the Purchase of a Rahn Groomer PH1200 Infield Groomer ITEM TYPE: Consent Item DEPARTMENT: Public Works CONTACT: John Boland, Public Works Superintendent ACTION REQUEST: Approve the purchase of a Rahn Groomer from Midwest Machinery. BACKGROUND: The Public Works Parks department grooms 12 baseball fields daily throughout the year when fields are permitted, and routinely over the rest of the season. The process is to nail drag the fields first when conditions are right, and follow this up with a groomer after the material has dried. If conditions don’t allow for nail dragging, the fields are only groomed. Presently, the City owns an 8-foot groomer and a 5-foot nail drag, which are two separate implements that are mounted on a John Deere gator. Staff would like to purchase a 12-foot combination nail drag and groomer, which would be mounted on the John Deere Utility tractor. This piece of equipment would provide the same finished product, but could be done more efficiently with its bigger size, and as an all-in-one unit. FISCAL AND RESOURCE IMPACT: A quote in the amount of $6500 was received from Midwest Machinery. The funds for this implementation would come out of the Parks Maintenance budget, which has a sufficient balance. ATTACHMENTS: None CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 30 of 169 This page is intentionally left blank 7.j REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: Set City Council Budget Work Shop Dates ITEM TYPE: Consent Item DEPARTMENT: Administration CONTACT: Cheryl Jacobson, City Administrator ACTION REQUEST: Set City Council budget work shop dates for August 12 at 5:00 pm and August 20 at 4:00 pm. BACKGROUND: It is expected that staff will have budget proposals ready for distribution and discussion the week of August 5. The City Council usually establishes up to three work sessions to review the proposals. To allow staff enough time to finalize the preliminary budget, the work sessions will need to be held between August 12 and August 23. Looking at city council and staff calendars, August 12 and August 20 are available dates. A third date, if needed, will be determined after the first meeting. The preliminary budget must be approved by the city council by September 30. FISCAL AND RESOURCE IMPACT: None ATTACHMENTS: None CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 31 of 169 This page is intentionally left blank Page 32 of 1697.k Page 33 of 169 Page 34 of 169 Page 35 of 169 Page 36 of 169 Page 37 of 169 Page 38 of 169 Page 39 of 169 Page 40 of 169 Page 41 of 169 Page 42 of 169 Page 43 of 169 Page 44 of 169 Page 45 of 169 Page 46 of 169 This page is intentionally left blank 10.a REQUEST FOR CITY COUNCIL ACTION MEETING DATE: July 16, 2024 AGENDA ITEM: City of Mendota Heights FY2023 Audit Report ITEM TYPE: New and Unfinished Business DEPARTMENT: Finance CONTACT: Kristen Schabacker, Finance Director ACTION REQUEST: Accept the audit and ask any questions that you may have. BACKGROUND: BerganKDV has completed the audit for 2023. The reports for 2023 are the Annual Report & Basic Financial Statements and the Communication Letter. These reports are included in the meeting packet. Caroline Stutsman from BerganKDV will be presenting the Annual Audit Review for 2023. FISCAL AND RESOURCE IMPACT: There is no budget impact. ATTACHMENTS: 1.FS - 2023 City of Mendota Heights - Final 2.CL - 2023 City of Mendota Heights - Final CITY COUNCIL PRIORITY: Premier Public Services & Infrastructure Page 47 of 169 City of Mendota Heights Annual Report and Basic Financial Statements December 31, 2023 Page 48 of 169 City of Mendota Heights Table of Contents Elected Officials and Administration 1 Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 17 Fund Financial Statements Balance Sheet – Governmental Funds 18 Reconciliation of the Balance Sheet to the Statement of Net Position – Governmental Funds 21 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds 22 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds 24 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund 25 Statement of Net Position – Proprietary Funds 26 Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Funds 27 Statement of Cash Flows – Proprietary Funds 28 Notes to Basic Financial Statements 29 Required Supplementary Information Schedule of Changes in Total OPEB Liability and Related Ratios 64 Schedule of City's Proportionate Share of Net Pension Liability General Employees Retirement Fund 66 Schedule of City's Proportionate Share of Net Pension Liability Public Employees Police and Fire Retirement Fund 66 Schedule of City Contributions General Employees Retirement Fund 67 Schedule of City Contributions Public Employees Police and Fire Retirement Fund 67 Notes to Required Supplementary Information 68 Supplementary Information Combining Balance Sheet – Nonmajor Governmental Funds 76 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – Nonmajor Governmental Funds 82 Combining Statement of Net Position – Internal Service Funds 88 Combining Statement of Revenues, Expenses, and Changes in Net Position – Internal Service Funds 89 Combining Statement of Cash Flows – Internal Service Funds 90 Detailed Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund 91 Page 49 of 169 City of Mendota Heights Table of Contents Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 95 Minnesota Legal Compliance 97 Schedule of Finding and Response on Internal Control 98 Page 50 of 169 1 City of Mendota Heights Elected Officials and Administration December 31, 2023 Elected Officials Position Term Expires Stephanie Levine Mayor December 31, 2024 Joel Paper Council Member December 31, 2024 Jay Miller Council Member December 31, 2024 Sally Lorberbaum Council Member December 31, 2026 John Mazzitello Council Member December 31, 2026 Administration Cheryl Jacobson City Administrator Appointed Nancy Bauer City Clerk Appointed Kristen Schabacker Finance Director Appointed Page 51 of 169 2 Independent Auditor's Report Honorable Mayor and Members of the City Council City of Mendota Heights Mendota Heights, Minnesota Report on the Audit of the Financial Statements Opinions We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Mendota Heights, Minnesota, as of and for the year ended December 31, 2023, and the related notes to financial statements, which collectively comprise the City's basic financial statements as listed in the Table of Contents. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Mendota Heights, Minnesota, as of December 31, 2023, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City of Mendota Heights and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management for the Financial Statements The City of Mendota Heights' management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City of Mendota Heights' ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Page 52 of 169 3 Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of City of Mendota Heights' internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about City of Mendota Heights' ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, which follows this report letter, and Required Supplementary Information as listed in the Table of Contents be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board (GASB), who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Page 53 of 169 4 Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Mendota Heights' basic financial statements. The accompanying supplementary information identified in the Table of Contents is presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 8, 2024 on our consideration of the City of Mendota Heights' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Mendota Heights' internal control over financial reporting and compliance. St. Cloud, Minnesota July 8, 2024 Page 54 of 169 City of Mendota Heights Management’s Discussion and Analysis 5 As management of the City of Mendota Heights, Minnesota (the “City”), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the year ended December 31, 2023. FINANCIAL AND DEVELOPMENT HIGHLIGHTS The assets and deferred outflows of resources of the City exceeded liabilities and deferred inflows of resources at the close of the most recent year by $59,664,947 (net position). Of this amount, $14,431,282 (unrestricted net position) may be used to meet the City’s ongoing obligations to citizens and creditors. The City’s total net position increased by $2,718,336. Governmental activities resulted in an increase of net position of $1,982,438. Business activities had net position increase of $735,898. As of the close of the current year, the City’s governmental funds reported a combined ending fund balance of $21,971,135, an increase of $1,419,707 from the prior year. At the end of the year the General Fund had an unassigned fund balance of $12,090,906, or 106.51% of total General Fund expenditures. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements The government-wide financial statements on pages 16 and 17 are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the City’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) and 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, and public works. The business-type activities of the City include sewer and storm water. Page 55 of 169 City of Mendota Heights Management’s Discussion and Analysis 6 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: Governmental Funds and Proprietary Funds. Governmental Funds Governmental Funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resource, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-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, Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains three individual major governmental funds. Information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the following major funds: General Fund Special Assessments Debt Service Fund Street Capital Projects Fund Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. 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 18 through 25 of this report. Proprietary Funds The City maintains two enterprise funds and two internal service funds as a part of its proprietary fund type. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its sewer and storm water operations. Page 56 of 169 City of Mendota Heights Management’s Discussion and Analysis 7 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Proprietary Funds (Continued) Proprietary Funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the following funds: Enterprise Funds Sewer Utility Fund Storm Water Utility Fund Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for compensated absences and city hall functions. The internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 26 through 28 of this report. Notes to Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements can be found on pages 29 through 60 of this report. Other Information The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the required supplementary information on budgetary comparisons. Combining and individual fund statements and schedules can be found on pages 76 through 90 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $59,664,947 at the close of the most recent year. Page 57 of 169 City of Mendota Heights Management’s Discussion and Analysis 8 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) The largest portion of the City’s net position ($36,616,141 or 61.37%) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment, sewer main lines and storm sewers and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Net Position 2023 2022 2023 2022 2023 2022 Assets Current and other assets 28,675,972$ 26,832,745$ 3,603,191$ 2,658,383$ 32,279,163$ 29,491,128$ Capital assets 43,988,299 43,936,974 14,678,732 14,837,512 58,667,031 58,774,486 Deferred outflows of resources related to pensions and OPEB 5,351,785 6,495,687 30,966 50,886 5,382,751 6,546,573 Total assets and deferred outflows of resources 78,016,056$ 77,265,406$ 18,312,889$ 17,546,781$ 96,328,945$ 94,812,187$ Liabilities Long-term liabilities outstanding 25,477,620$ 31,916,926$ 124,486$ 175,829$ 25,602,106$ 32,092,755$ Other liabilities 3,699,537 3,997,301 228,553 183,662 3,928,090 4,180,963 Deferred inflows of resources related to pensions, OPEB and leases 7,094,668 1,589,386 39,134 2,472 7,133,802 1,591,858 Total liabilities and deferred inflows of resources 36,271,825$ 37,503,613$ 392,173$ 361,963$ 36,663,998$ 37,865,576$ Net Position Net investment in capital assets 21,937,409$ 21,403,958$ 14,678,732$ 14,837,512$ 36,616,141$ 36,241,470$ Restricted 8,617,524 6,565,386 - - 8,617,524 6,565,386 Unrestricted 11,189,298 11,792,449 3,241,984 2,347,306 14,431,282 14,139,755 Total net position 41,744,231$ 39,761,793$ 17,920,716$ 17,184,818$ 59,664,947$ 56,946,611$ Governmental Activities Business-Type Activities Totals A portion of the of the City’s net position ($8,617,524) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($14,431,282) may be used to meet the City’s ongoing obligations to citizens and creditors. At the end of the current year, the City is able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. Page 58 of 169 City of Mendota Heights Management’s Discussion and Analysis 9 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) Governmental Activities Governmental activities increased the City’s net position by $1,982,438. Key elements of this increase are as follows: City’s Changes in Net Position 2023 2022 2023 2022 2023 2022 Revenues Program revenues Charges for services 2,001,237$ 2,306,824$ 3,120,321$ 3,018,672$ 5,121,558$ 5,325,496$ Operating grants and contributions 1,411,285 1,330,988 58,219 3,818 1,469,504 1,334,806 Capital grants and contributions 920,277 2,215,900 - - 920,277 2,215,900 General revenues Taxes 11,916,771 11,223,593 - - 11,916,771 11,223,593 Tax Increment 287,493 248,592 - - 287,493 248,592 Unrestricted investment earnings 876,019 (262,196) 102,092 (19,893) 978,111 (282,089) Gain on sale of asset - 92,313 - - - 92,313 Total revenues 17,413,082 17,156,014 3,280,632 3,002,597 20,693,714 20,158,611 Expenses General government 2,391,098 2,607,449 - - 2,391,098 2,607,449 Public safety 6,422,123 5,748,716 - - 6,422,123 5,748,716 Public works 5,855,615 5,320,230 - - 5,855,615 5,320,230 Economic Development 266,151 226,594 - - 266,151 226,594 Interest on long-term debt 561,133 505,080 - - 561,133 505,080 Sewer - - 2,030,589 2,169,268 2,030,589 2,169,268 Storm water - - 448,669 190,036 448,669 190,036 Total expenses 15,496,120 14,408,069 2,479,258 2,359,304 17,975,378 16,767,373 Increase (decrease) in net position before transfers 1,916,962 2,747,945 801,374 643,293 2,718,336 3,391,238 Transfers 65,476 251,557 (65,476) (251,557) - - Increase (decrease) in net position 1,982,438 2,999,502 735,898 391,736 2,718,336 3,391,238 Net position - beginning 39,761,793 36,762,291 17,184,818 16,793,082 56,946,611 53,555,373 Net position - ending 41,744,231$ 39,761,793$ 17,920,716$ 17,184,818$ 59,664,947$ 56,946,611$ Governmental Activities Business-Type Activities Totals Page 59 of 169 City of Mendota Heights Management’s Discussion and Analysis 10 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) Governmental Activities (Continued) Below are specific graphs which provide comparisons of the governmental activities revenues and expenditures: Charges for Services 12% Operating Grants and Contributions 8% Capital Grants and Contributions 5% Taxes 70%Unrestricted Investment Earnings 5% Governmental Activities - Revenues General Government 17% Public Safety 41% Public Works 38% Interest and Fees on Long-Term Debt 4% Governmental Activities - Expenses Page 60 of 169 City of Mendota Heights Management’s Discussion and Analysis 11 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) Business-Type Activities Business-type activities increased net position by $735,898. Below are graphs showing the business- type activities revenue and expense comparisons: Charges for Services 95% Operating Grants and Contributions 2% Unrestricted Investment Earnings 3% Business-Type Activities - Revenues Sewer 82% Storm Water 18% Business-Type Activities - Expenses Page 61 of 169 City of Mendota Heights Management’s Discussion and Analysis 12 FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. At the end of the current year, the City’s governmental funds reported combined ending fund balances of $21,971,135. Nonspendable fund balances are already allocated for prepaid items ($375,808) and inventory ($23,046). Approximately 28.21% ($6,198,946) constitutes restricted fund balance. Restricted fund balance would include Debt Service, Special Park, Street Capital Projects, Police Forfeiture, TIF Districts and Street Light District Funds, all of which have specific uses for the funds they receive. The City also has a committed fund balance of $1,418,478 (6.46%). This represents fund balance that is to be used for the water system, Par 3 Golf Course, and civil defense needs. The City has assigned fund balance of $2,247,569 (10.23%). This number represents the fund balances for the various reserve accounts. The remaining category of fund balance is the unassigned fund balance. The City has $11,707,288 of unassigned fund balance which is approximately 53.28% of the combined governmental fund balance at December 31, 2023. The General Fund increased by $997,057 in 2023. Revenues were greater than anticipated and expenditures were lower than budgeted amounts. The Special Assessments Debt Service Fund increased by $338,012 in 2023. This fund accounted for debt service payments for prior street improvement projects that were financed through the issuance of bonds. The Street Capital Project Fund increased by $895,765. This fund accounted for the costs and resources associated with the Victoria Curve street project. The nonmajor governmental funds decreased by $811,127. These funds received revenues from water surcharges, Par 3 Golf Course, and park dedication fees. Nonmajor funds account for the Special Park, Civil Defense, Par 3 Golf Course, American Rescue Plan, and Street Light District activity. In 2023, the City purchased a new fire truck out of these funds. The City also has nonmajor funds for future purchases of equipment, facility needs and minor infrastructure projects. Proprietary Funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The unrestricted net position in the respective Proprietary Funds are sewer $2,413,855 and storm water $828,129. The Sewer Utility Fund had an increase in net position in 2023 of $584,651 and the Storm Water Utility Fund had an increase in net position in 2023 of $151,247. Page 62 of 169 City of Mendota Heights Management’s Discussion and Analysis 13 BUDGETARY HIGHLIGHTS General Fund The General Fund budget was not amended during 2023. During the year, revenues exceeded budgeted estimates by $1,464,746, while expenditures were less than anticipated by $114,121. The General Fund experienced greater than budgeted revenues in some categories. The City received higher than budgeted amounts for licenses and permits. Intergovernmental revenue was also greater than anticipated due in most part to the Public Safety Aid received in 2023. Investment earnings exceeded budgeted amounts. The City takes a conservative approach when budgeting for revenues that are not consistent from year to year. The General Fund expenditures were lower than budgeted The Public Safety function expenditures were less than what was budgeted, primarily due to vacant employee positions. This function resulted in a majority of the under-budget spending. Overall, the General Fund balance increased by $997,057, an increase of approximately 8.68%. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business type activities as of December 31, 2023, amounts to $58,667,031 (net of accumulated depreciation/amortization). This investment in capital assets includes land, buildings, machinery and equipment, sewer main lines and storm sewers and infrastructure. Capital Assets (Net of Depreciation/Amortization) 2023 2022 2023 2022 2023 2022 Land 8,790,170$ 8,790,170$ -$ -$ 8,790,170$ 8,790,170$ Construction in progress 5,196,320 5,630,155 - - 5,196,320 5,630,155 Buildings and structures 8,099,834 8,349,112 - - 8,099,834 8,349,112 Machinery and equipment 3,478,091 2,542,495 241,186 264,010 3,719,277 2,806,505 Leased equipment 481,266 544,461 - - 481,266 544,461 Other improvements 1,046,036 1,141,137 - - 1,046,036 1,141,137 Storm sewers - - 14,437,546 14,573,502 14,437,546 14,573,502 Infrastructure 16,896,582 16,939,444 - - 16,896,582 16,939,444 Total capital assets 43,988,299$ 43,936,974$ 14,678,732$ 14,837,512$ 58,667,031$ 58,774,486$ Governmental Activities Business-Type Activities Totals Additional information on the City’s capital assets can be found in Note 6. Page 63 of 169 City of Mendota Heights Management’s Discussion and Analysis 14 CAPITAL ASSET AND DEBT ADMINISTRATION (CONTINUED) Long-Term Debt At the end of the current year, the City had total long-term debt outstanding of $20,565,000, a decrease of $1,080,000 from 2022. $20,565,000 for general obligation (G.O.) improvement debt which is supported in part by special assessments. Outstanding Debt G.O. Improvement Bonds, G.O. Bonds and Revenue Bonds: 2023 2022 G.O. Improvement Bonds 14,690,000$ 15,150,000$ G.O. Bonds 5,875,000 6,495,000 Total 20,565,000$ 21,645,000$ Governmental Activities The City maintains a AAA rating from Standard & Poor’s. Minnesota Statutes limit the amount of G.O. debt a Minnesota city may issue to 2% of total estimated market value. The current debt limitation for the City is $60,729,454. Of the City’s outstanding debt, $5,875,000 is counted within the statutory limitation. Additional information on the City’s long-term debt can be found in Note 7. Economic Factors and Next Year’s Budgets and Rates In 2023, the taxable market value for the City was $3,036,472,740. This represents an increase of 5.53% from 2022. The City is expecting an increase in taxable market value for 2024. These factors were considered in preparing the City’s budget for 2024. Requests for Information This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, 1101 Victoria Curve, Mendota Heights, Minnesota 55118. Page 64 of 169 15 BASIC FINANCIAL STATEMENTS Page 65 of 169 See notes to basic financial statements. 16 City of Mendota Heights Statement of Net Position December 31, 2023 Governmental Activities Business-Type Activities Total Assets Cash and investments (including cash equivalents)22,492,638$ 2,673,988$ 25,166,626$ Property tax receivable 72,627 - 72,627 Accounts receivable 51,079 744,527 795,606 Interest receivable 28,602 3,406 32,008 Due from other governments 1,270,454 4,458 1,274,912 Special assessments receivable Delinquent 5,307 6,818 12,125 Deferred 1,961,511 45,616 2,007,127 Lease receivable 2,289,184 - 2,289,184 Inventories 23,046 - 23,046 Prepaid items 385,424 124,378 509,802 Land held for resale 96,100 - 96,100 Capital assets not being depreciated Land and improvements 8,790,170 - 8,790,170 Construction in progress 5,196,320 - 5,196,320 Capital assets being depreciated, net of accumulated depreciation/amortization Infrastructure 16,896,582 14,437,546 31,334,128 Buildings and structures 8,099,834 - 8,099,834 Other improvements 1,046,036 - 1,046,036 Leased equipment 481,266 - 481,266 Machinery and equipment 3,478,091 241,186 3,719,277 Total assets 72,664,271 18,281,923 90,946,194 Deferred Outflows of Resources Deferred outflows of resources related to pensions 4,695,847 30,276 4,726,123 Deferred outflows of resources related to OPEB 655,938 690 656,628 Total deferred outflows of resources 5,351,785 30,966 5,382,751 Total assets and deferred outflows of resources 78,016,056$ 18,312,889$ 96,328,945$ Liabilities Accounts and contracts payable 495,375$ 48,887$ 544,262$ Deposits payable - 133,905 133,905 Due to other governments 90,344 4,342 94,686 Salaries and benefits payable 247,494 8,656 256,150 Interest payable 241,457 - 241,457 Developers' escrow deposits - - - Bond principal payable Payable within one year 2,030,000 - 2,030,000 Payable after one year 19,446,233 - 19,446,233 Lease payable Payable within one year 78,234 - 78,234 Payable after one year 410,087 - 410,087 Compensated absences payable Payable within one year 516,633 32,763 549,396 Payable after one year 232,125 7,619 239,744 Total other post employment benefits (OPEB) payable 1,023,734 7,539 1,031,273 Net pension liability 4,365,441 109,328 4,474,769 Total liabilities 29,177,157 353,039 29,530,196 Deferred Inflows of Resources Deferred inflows of resources related to pensions 4,741,099 37,245 4,778,344 Deferred inflows of resources related to lease receivable 2,289,184 - 2,289,184 Deferred inflows of resources related to OPEB 64,385 1,889 66,274 Total deferred inflows of resources 7,094,668 39,134 7,133,802 Net Position Net investment in capital assets 21,937,409 14,678,732 36,616,141 Restricted for Police forfeiture 29,034 - 29,034 Debt service 5,529,294 - 5,529,294 Capital projects 2,433,941 - 2,433,941 Street light maintenance 21,332 - 21,332 Park dedication 553,280 - 553,280 American Rescue Plan Act 862 - 862 Tax increment 49,781 - 49,781 Unrestricted 11,189,298 3,241,984 14,431,282 Total net position 41,744,231 17,920,716 59,664,947 Total liabilities, deferred inflows of resources, and net position 78,016,056$ 18,312,889$ 96,328,945$ Page 66 of 169 See notes to basic financial statements. 17 Program RevenuesExpensesCharges for ServicesOperating Grants and ContributionsCapital Grants and ContributionsGovernmental ActivitiesBusiness-Type ActivitiesTotalGovernmental activitiesGeneral government 2,391,098$ 187,128$ 111,308$ -$ (2,092,662)$ -$ (2,092,662)$ Public safety 6,422,123 674,679 1,125,570 - (4,621,874) - (4,621,874) Public works 5,855,615 1,139,430 174,407 920,277 (3,621,501) - (3,621,501) Economic development 266,151 - - - (266,151) - (266,151) Interest on long-term debt 561,133 - - - (561,133) - (561,133) Total governmental activities 15,496,120 2,001,237 1,411,285 920,277 (11,163,321) - (11,163,321) Business-type activitiesSewer 2,030,589 2,513,078 58,219 - - 540,708 540,708 Storm water 448,669 607,243 - - - 158,574 158,574 Total business-type activities 2,479,258 3,120,321 58,219 - - 699,282 699,282 Total governmental and business-type activities 17,975,378$ 5,121,558$ 1,469,504$ 920,277$ (11,163,321) 699,282 (10,464,039) General revenuesProperty taxes 11,916,771 - 11,916,771 Tax increments 287,493 - 287,493 Unrestricted investment earnings 876,019 102,092 978,111 Total general revenues 13,080,283 102,092 13,182,375 Transfers65,476 (65,476) - Change in net position 1,982,438 735,898 2,718,336 Net position - beginning 39,761,793 17,184,818 56,946,611 Net position - ending 41,744,231$ 17,920,716$ 59,664,947$ Functions/ProgramsNet (Expense) Revenues and Changes in Net PositionCity of Mendota HeightsStatement of Activities Year Ended December 31, 2023Page 67 of 169 See notes to basic financial statements. 18 December 31, 2023 Capital Projects General Fund Special Assessments Debt Service Street Capital Projects Assets Cash and investments (including cash equivalents) 12,087,483$ 3,038,576$ 1,729,317$ Taxes receivable - delinquent 58,558 9,426 - Special assessments receivable Delinquent 2,550 2,757 - Deferred 29,446 1,874,536 46,181 Accounts receivable 39,991 - - Interest receivable 14,727 4,603 2,756 Due from other funds - - - Due from other governments 481,486 41,200 729,892 Lease receivables 2,289,184 - - Inventories 23,046 - - Prepaid items 368,410 - - Land held for resale - - - Total assets 15,394,881$ 4,971,098$ 2,508,146$ Liabilities Accounts and contracts payable 200,731$ 3,002$ 74,205$ Due to other funds - - - Due to other governments 89,036 - - Salaries and benefits payable 243,014 - - Total liabilities 532,781 3,002 74,205 Deferred Inflows of Resources Unavailable revenue - property taxes 58,558 9,426 - Unavailable revenue - state shared tax - - 722,756 Deferred Inflows of Resources related to lease receivable 2,289,184 - - Unavailable revenue - special assessments 31,996 1,877,293 46,181 Total deferred inflows of resources 2,379,738 1,886,719 768,937 Fund Balances Nonspendable 391,456 - - Restricted - 3,081,377 1,665,004 Committed - - - Assigned - - - Unassigned 12,090,906 - - Total fund balances 12,482,362 3,081,377 1,665,004 Total liabilities, deferred inflows of resources, and fund balances 15,394,881$ 4,971,098$ 2,508,146$ City of Mendota Heights Balance Sheet - Governmental Funds Page 68 of 169 19 Other Governmental Funds Total Governmental Funds 4,815,279$ 21,670,655$ 4,643 72,627 - 5,307 11,348 1,961,511 11,088 51,079 6,292 28,378 368,609 368,609 17,876 1,270,454 - 2,289,184 - 23,046 7,398 375,808 96,100 96,100 5,338,633$ 28,212,758$ 209,749$ 487,687$ 368,609 368,609 1,193 90,229 699 243,713 580,250 1,190,238 4,643 72,627 - 722,756 - 2,289,184 11,348 1,966,818 15,991 5,051,385 7,398 398,854 1,452,565 6,198,946 1,418,478 1,418,478 2,247,569 2,247,569 (383,618) 11,707,288 4,742,392 21,971,135 5,338,633$ 28,212,758$ Page 69 of 169 20 (THIS PAGE LEFT BLANK Page 70 of 169 See notes to basic financial statements. 21 City of Mendota Heights Reconciliation of the Balance Sheet to the Statement of Net Position - Governmental Funds December 31, 2023 Total fund balances - governmental funds 21,971,135$ Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Cost of capital assets 78,892,160 Less accumulated depreciation/amortization (35,432,105) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: General obligation (G.O.) bond principal payable (20,565,000) Lease payable (488,321) Unamortized bond premium (911,233) OPEB payable (1,018,708) Net pension liability (4,314,330) Deferred outflows of resources and deferred inflows of resources are created as a result of various differences related to pensions and OPEB that are not recognized in the governmental funds. Deferred inflows of resources related to pensions (4,723,687) Deferred outflows of resources related to pensions 4,681,693 Deferred outflows of resources related to OPEB 655,478 Deferred inflows of resources related to OPEB (63,126) Delinquent receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. Property taxes 72,627 Special assessments 5,307 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Deferred special assessments 1,961,511 State shared tax 722,756 Governmental funds do not report a liability for accrued interest until due and payable.(241,457) Internal service funds are used by management to charge the cost of engineering, compensated absences and City Hall expenses to individual funds. The net position of the funds are considered governmental and included in the government-wide Statement of Net Position. 539,531 41,744,231$ Total net position - governmental activities Amounts reported for governmental activities in the Statement of Net Position are different because: Page 71 of 169 See notes to basic financial statements. 22 Capital Projects General Fund Special Assessments Debt Service Street Capital Projects Revenues Property taxes 9,601,169$ 1,582,498$ -$ Tax increments - - - Special assessments - 443,886 178,799 Licenses and permits 572,587 - - Intergovernmental 1,278,100 - 622,036 Charges for services 687,087 - - Fines and forfeitures 67,725 1,485 - Miscellaneous revenue Investment income 441,494 137,979 82,617 Other 185,382 - - Total revenues 12,833,544 2,165,848 883,452 Expenditures Current General government 1,890,903 - - Public safety 5,619,367 - - Public works 3,643,062 - - Economic development - - - Debt service Principal 95,847 1,475,000 - Interest and other charges - 450,052 - Capital outlay General government - - - Public safety 39,933 - - Public works 63,115 - 1,032,741 Total expenditures 11,352,227 1,925,052 1,032,741 Excess of revenues over (under) expenditures 1,481,317 240,796 (149,289) Other Financing Sources (Uses) Issuance of debt - 1,015,000 - Bond premium - 43,825 - Issuance of leases 39,933 - - Insurance recoveries 32,132 - - Transfers in 47,551 - 1,117,755 Transfers out (603,876) (961,609) (72,701) Total other financing sources (uses) (484,260) 97,216 1,045,054 Net change in fund balances 997,057 338,012 895,765 Fund Balances Beginning of year 11,485,305 2,743,365 769,239 End of year 12,482,362$ 3,081,377$ 1,665,004$ City of Mendota Heights Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended December 31, 2023 Page 72 of 169 23 Other Governmental Funds Total Governmental Funds 728,082$ 11,911,749$ 287,493 287,493 - 622,685 - 572,587 20,000 1,920,136 457,173 1,144,260 86 69,296 207,209 869,299 45,964 231,346 1,746,007 17,628,851 132,771 2,023,674 29,587 5,648,954 393,035 4,036,097 266,151 266,151 620,000 2,190,847 201,568 651,620 165,084 165,084 589,897 629,830 793,730 1,889,586 3,191,823 17,501,843 (1,445,816) 127,008 - 1,015,000 - 43,825 - 39,933 - 32,132 1,506,076 2,671,382 (871,387) (2,509,573) 634,689 1,292,699 (811,127) 1,419,707 5,553,519 20,551,428 4,742,392$ 21,971,135$ Page 73 of 169 See notes to basic financial statements. 24 1,419,707$ Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital outlays 2,733,399 Depreciation expense (2,549,421) Assets contributed to enterprise funds (96,333) Governmental funds recognized pension contributions as expenditures at the time of payment whereas the Statement of Activities factors in items related to pensions on a full accrual perspective. (514,065) OPEB are not reported as expenditures in the governmental funds because they do not require the use of current financial resources; instead, they are expensed in the Statement of Activities. 89,473 Principal payments on long-term debt are recognized as expenditures in the governmental funds but have no effect on net position in the Statement of Activities. 2,190,847 Premiums on the issuance of long-term debt provide current financial resources to governmental funds and have no effect on net position. These amounts are reported in the governmental funds as an other financing source and constitute long-term liabilities in the Statement of Net Position. (43,825) Premiums are recognized when debt is issued in the governmental funds but amortized over the life of the debt in the Statement of Activities. 97,596 Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. (7,109) Proceeds from long-term debt are recognized as an other financing source in the governmental funds but have no effect on net position in the Statement of Activities. Bonds payable (1,015,000) Lease payable (39,933) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. (262,363) Activities of the internal service funds are presented separately from the governmental funds. However, the functions, from a government-wide perspective, are governmental. (20,535) 1,982,438$ Change in net position - governmental activities Net change in fund balances - governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: City of Mendota Heights Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities - Governmental Funds Year Ended December 31, 2023 Page 74 of 169 See notes to basic financial statements. 25 City of Mendota Heights Budget and Actual - General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended December 31, 2023 Budgeted Amounts Variance with Original Actual and Final Amounts Revenues Property taxes 9,580,964$ 9,601,169$ 20,205$ Licenses and permits 361,450 572,587 211,137 Intergovernmental 540,000 1,278,100 738,100 Charges for services 681,884 687,087 5,203 Fines and forfeitures 91,500 67,725 (23,775) Miscellaneous revenues Investment income 20,000 441,494 421,494 Other 93,000 185,382 92,382 Total revenues 11,368,798 12,833,544 1,464,746 Expenditures Current General government 1,952,151 1,890,903 (61,248) Public safety 5,856,836 5,619,367 (237,469) Public works 3,657,361 3,643,062 (14,299) Debt service: Principal - 95,847 95,847 Capital outlay Public safety - 39,933 39,933 Public works - 63,115 63,115 Total expenditures 11,466,348 11,352,227 (114,121) Excess of revenues over (under) expenditures (97,550) 1,481,317 1,578,867 Other Financing Sources (Uses) Issuance of debt - 39,933 39,933 Insurance recoveries 15,000 32,132 17,132 Transfers in 47,550 47,551 1 Transfers out - (603,876) (603,876) Total other financing sources (uses) 62,550 (484,260) (546,810) Net change in fund balance (35,000)$ 997,057 1,032,057$ Fund Balance Beginning of year 11,485,305 End of year 12,482,362$ Final Budget - Over (Under) Page 75 of 169 See notes to basic financial statements. 26 City of Mendota Heights Statement of Net Position - Proprietary Funds December 31, 2023 Sewer Utility Storm Water Utility Total Internal Service Funds Assets Current assets Cash and investments 1,800,290$ 873,698$ 2,673,988$ 821,983$ Special assessment receivable Delinquent 6,818 - 6,818 - Deferred 45,616 - 45,616 - Accounts receivable 596,592 147,935 744,527 - Interest receivable 2,138 1,268 3,406 224 Due from other governments 4,458 - 4,458 - Prepaid expenses 124,378 - 124,378 9,616 Total current assets 2,580,290 1,022,901 3,603,191 831,823 Noncurrent assets Capital assets not being depreciated Land - - - 25,000 Capital assets being depreciated Buildings - - - 2,279,024 Sewer main lines and storm sewers 15,582,300 5,540,728 21,123,028 - Improvements other than buildings - - - 40,781 Machinery and equipment 476,246 - 476,246 66,969 Total capital assets 16,058,546 5,540,728 21,599,274 2,411,774 Less accumulated depreciation (6,160,038) (760,504) (6,920,542) (1,883,530) Net capital assets 9,898,508 4,780,224 14,678,732 528,244 Total assets 12,478,798 5,803,125 18,281,923 1,360,067 Deferred Outflows of Resources Deferred outflows of resources related to pensions 25,435 4,841 30,276 14,154 Deferred outflows of resources related to OPEB 593 97 690 460 Total deferred outflows of resources 26,028 4,938 30,966 14,614 Total assets and deferred outflows of resources 12,504,826$ 5,808,063$ 18,312,889$ 1,374,681$ Liabilities and Net Position Current liabilities Accounts payable 9,009$ 39,878$ 48,887$ 7,688$ Developers' escrow deposits - 133,905 133,905 - Salaries and benefits payable 7,490 1,166 8,656 3,781 Due to other governments 4,342 - 4,342 115 Noncurrent liabilities due within one year 32,763 - 32,763 516,633 Total current liabilities 53,604 174,949 228,553 528,217 Noncurrent liabilities Compensated absences 40,382 - 40,382 748,758 OPEB payable 6,479 1,060 7,539 5,026 Net pension liability 91,848 17,480 109,328 51,111 Less amount due within one year (32,763) - (32,763) (516,633) Total noncurrent liabilities 105,946 18,540 124,486 288,262 Total liabilities 159,550 193,489 353,039 816,479 Deferred Inflows of Resources Deferred inflows of resources related to OPEB 1,623 266 1,889 1,259 Deferred inflows of resources related to pensions 31,290 5,955 37,245 17,412 Total deferred inflows of resources 32,913 6,221 39,134 18,671 Net Position Investment in capital assets 9,898,508 4,780,224 14,678,732 528,244 Unrestricted 2,413,855 828,129 3,241,984 11,287 Total net position 12,312,363 5,608,353 17,920,716 539,531 Total liabilities, deferred inflows of resources, and net position 12,504,826$ 5,808,063$ 18,312,889$ 1,374,681$ Page 76 of 169 See notes to basic financial statements. 27 Sewer Utility Storm Water Utility Total Internal Service Funds Operating Revenues Charges for services 2,482,543$ 589,829$ 3,072,372$ 216,940$ Operating Expenses Wages and salaries 178,073 25,537 203,610 76,263 Employee benefits 77,572 9,449 87,021 44,352 Materials and supplies 50,944 143 51,087 - Repairs and maintenance 96,875 206,889 303,764 - Professional services 12,990 117,184 130,174 4,576 Insurance 8,478 - 8,478 5,935 Utilities 27,456 - 27,456 42,330 Depreciation 199,707 55,407 255,114 36,324 Travel 24 - 24 - Miscellaneous 31,127 34,060 65,187 34,415 Sewer charges - MCES 1,347,343 - 1,347,343 - Total operating expenses 2,030,589 448,669 2,479,258 244,195 Operating income (loss) 451,954 141,160 593,114 (27,255) Nonoperating Revenues (expenses) Investment income 64,093 37,999 102,092 6,720 Fines and forfeitures 777 - 777 - Special assessments 6,537 - 6,537 - Intergovernmental revenue 58,219 - 58,219 - Other income 23,221 17,414 40,635 - Total nonoperating revenues 152,847 55,413 208,260 6,720 Change in net position before capital contributions and transfers 604,801 196,573 801,374 (20,535) Capital contributions - 96,333 96,333 - Transfers in - 35,287 35,287 - Transfers out (20,150) (176,946) (197,096) - Change in net position 584,651 151,247 735,898 (20,535) Net Position Beginning of year 11,727,712 5,457,106 17,184,818 560,066 End of year 12,312,363$ 5,608,353$ 17,920,716$ 539,531$ Year Ended December 31, 2023 City of Mendota Heights Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds Page 77 of 169 See notes to basic financial statements. 28 Sewer Utility Storm Water Utility Total Internal Service Funds Cash Flows - Operating Activities Receipts from customers and users 2,466,197$ 593,500$ 3,059,697$ 217,100$ Payments to suppliers (1,568,869) (326,866) (1,895,735) (76,557) Payments to employees (243,997) (33,643) (277,640) (79,937) Miscellaneous revenue 13,090 17,414 30,504 - Net cash flows - operating activities 666,421 250,405 916,826 60,606 Cash Flows - Noncapital Financing Activities Transfer from other funds - 35,287 35,287 - Transfer to other funds (20,150) (176,946) (197,096) - Intergovernmental revenue 58,219 - 58,219 - Net cash flows - noncapital financing activities 38,069 (141,659) (103,590) - Cash Flows - Investing Activities Interest and dividends received 62,519 37,681 100,200 6,649 Net change in cash and cash equivalents 767,009 146,427 913,436 67,255 Cash and Cash Equivalents Beginning of year 1,033,281 727,271 1,760,552 754,728 End of year 1,800,290$ 873,698$ 2,673,988$ 821,983$ Reconciliation of Operating Income (Loss) to Net Cash Flows - Operating Activities Operating income (loss) 451,954$ 141,160$ 593,114$ (27,255)$ Adjustments to reconcile operating income (loss) to net cash flows - operating activities Operating activities Miscellaneous revenue 13,090 17,414 30,504 - Depreciation expense 199,707 55,407 255,114 36,324 Accounts receivable (12,776) (147) (12,923) - Due from other governments (3,570) 3,818 248 160 Prepaid items 640 - 640 (1,217) Developers' excrow deposits - (650) (650) - Accounts and contracts payable 5,275 32,060 37,335 11,898 Due to other governmental units 453 - 453 18 Salaries payable 1,365 107 1,472 619 OPEB payable 999 16 1,015 130 Pension related items 7,468 1,220 8,688 3,318 Compensated absences payable 1,816 - 1,816 36,611 Total adjustments 214,467 109,245 323,712 87,861 Net cash flows - operating activities 666,421$ 250,405$ 916,826$ 60,606$ City of Mendota Heights Statement of Cash Flows - Proprietary Funds Year Ended December 31, 2023 Page 78 of 169 29 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Mendota Heights is a statutory city governed by an elected mayor and four council members. The accompanying financial statements present the government entities for which the government is considered to be financially accountable. The financial statements present the City and its component units. The City includes all funds, organizations, institutions, agencies, departments, and offices that are not legally separate from such. Component units are legally separate organizations for which the elected officials of the City are financially accountable and are included within the basic financial statements of the City because of the significance of their operational or financial relationships with the City. The City is considered financially accountable for a component unit if it appoints a voting majority of the organization's governing body and it is able to impose its will on the organization by significantly influencing the programs, projects, activities, or level of services performed or provided by the organization, or there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on, the City. As a result of applying the component unit definition criteria above, the City has no component units. 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 activities of the City. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Interest on general long-term debt is considered an indirect expense and is reported separately in the Statement of Activities. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Internally dedicated revenues are reported as general revenues rather than program revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The Internal Service Funds are presented in the internal service fund financial statements. Because the principal user of internal services is the City's governmental activities, the financial statements of the Internal Service Fund is consolidated into the governmental column when presented in the government-wide financial statements. The cost of these services is reported in the appropriate functional activity. Page 79 of 169 30 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment matures. Property taxes, franchise taxes, licenses, and interest associated with the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current period. Only the portion of special assessments receivable due within the current period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Description of Funds: Major Governmental Funds: General Fund – This fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. Special Assessments Debt Service Fund – This fund receives all special assessment payments and is dedicated for the repayment of debt incurred on a specific project. Street Capital Projects Fund – This fund is used to account for the proceeds and disbursements of funds for street improvement expenditures. Proprietary Funds: Sewer Utility Fund – This fund is used to account for the City's sewer utility. Storm Water Utility Fund – This fund is used to account for the City's storm water utility. Additional Fund Types: Internal Service Funds – These funds account for the financing of goods or services provided by one department to other departments of the City on a cost-reimbursement basis. The City's Internal Service Funds account for compensated absences and City Hall expenses. Page 80 of 169 31 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Description of Funds: (Continued) As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City's utility functions and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Proprietary Funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's Enterprise Funds and Internal Service Funds are charges to customers for sales and services. Operating expenses for the Enterprise Funds and Internal Service Funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, the City uses restricted resources first, then unrestricted resources as they are needed. Further, the City applies unrestricted funds in this order if various levels of unrestricted fund balances exist: committed, assigned, and unassigned. D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments for the City are reported at fair value. Minnesota Statutes authorizes the City to invest in obligations of the U.S. Treasury, agencies, and instrumentalities, shares of investment companies whose only investments are in the aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' acceptances, future contracts, repurchase and reverse repurchase agreements, and commercial paper of the highest quality with a maturity of no longer than 270 days and in the Minnesota Municipal Investment Pool. Minnesota Statutes requires all deposits made by cities with financial institutions to be collateralized in an amount equal to 110% of deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance. Certain investments for the City are reported at fair value as disclosed in Note 3. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The Hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. Page 81 of 169 32 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity (Continued) 2. Receivables and Payables All trade and property tax receivables are shown at a gross amount since both are assessable to the property taxes and are collectible upon the sale of the property. The City levies its property tax for the subsequent year during the month of December. December 28 is the last day the City can certify a tax levy to the County Auditor for collection the following year. Such taxes become a lien on January 1 and are recorded as receivables by the City at that date. The property tax is recorded as revenue when it becomes measurable and available. Dakota County is the collecting agency for the levy and remits the collections to the City three times a year. The tax levy notice is mailed in March with the first half of the payment due on May 15 and the second half due on October 15. Taxes not collected as of December 31 each year are shown as delinquent taxes receivable. The County Auditor prepares the tax list for all taxable property in the City, applying the applicable tax rate to the tax capacity of individual properties, to arrive at the actual tax for each property. The County Auditor also collects all special assessments, except for certain prepayments paid directly to the City. The County Auditor submits the list of taxes and special assessments to be collected on each parcel of property to the County Treasurer in January of each year. 3. Inventories Inventories are valued at cost, which approximates market, using the first in, first out (FIFO) method. Inventory consists of expendable supplies held for consumption. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Inventory – land held for resale represents land owned by the City with the intent to sell to developers. This land is recorded at the expected net realizable value. 4. 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 recorded as an expenditure at the time of consumption. 5. Capital Assets Capital assets, which include property, plant, equipment, intangible, and infrastructure assets (e.g., roads, sidewalks, easements, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000, 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 costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Page 82 of 169 33 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity (Continued) 5. Capital Assets (Continued) Property, plant, and equipment of the City are depreciated using the straight-line method over the following estimated useful lives: Assets Buildings 15 - 100 Other improvements 10 - 40 Machinery and equipment 3 - 25 Infrastructure 30 - 100 Years 5. Lease Receivable The City is a lessor for numerous noncancellable leases. The City recognizes a lease receivable and a deferred inflow of resources in the government-wide and governmental fund financial statements. At the commencement of a lease, the City measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term in a systematic and rational manner. Key estimates and judgments include how the City determines (1) the discount rate, (2) lease term, (3) lease receipts, and (4) amortization. The City determines the discount rate for leases based on the applicable State and Local Government Securities (SLGS) rate. The lease term includes the noncancellable period of the lease. Lease receipts included in the measurement of the lease receivable is composed of fixed payments from the lessee. 6. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The City presents deferred outflows of resources on the Statements of Net Position for deferred outflows of resources related to pensions and OPEB for various estimate differences that will be amortized and recognized over future years. Page 83 of 169 34 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity (Continued) 6. Deferred Outflows/Inflows of Resources (Continued) In addition to liabilities, the statement of financial position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has four items that qualify for reporting in this category. The governmental funds report unavailable revenues from three sources: property taxes, special assessments, and state shared tax. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The City presents deferred inflows of resources on the Statements of Net Position for deferred inflows of resources related to pensions and OPEB for various estimate differences that will be amortized and recognized over future years. Deferred inflows of resources related to lease receivable is reported in both the government-wide Statement of Net Position and the Governmental Funds Balance Sheet. 7. Compensated Absences\Severance The City allows employees to accrue vacation based on years of service to carry over to the next year. Accrued vacation shall be used in the year following the year which said time is earned and any time accrued will be paid out at termination. At the end of the year the vacation balance cannot exceed 200 hours. All permanent full-time employees accrue personal leave at the rate of 4 hours per month, to a maximum of 320 hours. Any balances in excess of 320 hours will be converted to cash compensation or additional vacation time at a ratio of 50%. All compensated absences 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 as a result of employee termination or similar circumstances. These liabilities are paid by the governmental fund the employee provided most of its service to. The unused vacation and sick leave of the proprietary funds is included in accrued liabilities of the respective fund. 8. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Page 84 of 169 35 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity (Continued) 9. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and the relief association and additions to/deductions from PERA's and the relief association's fiduciary net position have been determined on the same basis as they are reported by PERA and the relief association except that PERA's fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 10. Fund Equity a. Classification In the fund financial statements, governmental funds report fund classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in those funds can be spent. Nonspendable Fund Balances – These are amounts that cannot be spent because they are not in spendable form, or they are legally or contractually required to be maintained intact. Restricted Fund Balances – These are amounts that are restricted to specific purposes either by a) constraints placed on the use of resources by creditors, grantors, contributors, or laws or regulations of other governments or b) imposed by law through constitutional provisions or enabling legislation. Committed Fund Balances – These are amounts that can only be used for specific purposes pursuant to constraints imposed by the City Council (highest level of decision making authority) through resolution. Assigned Fund Balances – These are amounts that are constrained by the City's intent to be used for specific purposes but are neither restricted nor committed. Assignments are made by the City's Administrator or Finance Director based on the City Council's direction. Unassigned Fund Balances – These are residual amounts in the General Fund not reported in any other classification. The General Fund is the only fund that can report a positive unassigned fund balance. Other funds would report a negative unassigned fund balance should the total of nonspendable, restricted and committed fund balances exceed the total net resources of that fund. b. Minimum Fund Balance The City will strive to maintain a General Fund unassigned fund balance of 75% of the following year's budgeted operating expenditures. Page 85 of 169 36 City of Mendota Heights Notes to Basic Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity (Continued) 11. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenditures/expense during the reporting period. Actual results could differ from those estimates. E. Budgetary Information The City Council adopts an annual budget for the General Fund and certain special revenue and capital project funds. The American Rescue Plan Act special revenue fund is not budgeted for. The amounts shown in the financial statements as "budget" represent the original budgeted amount and all revisions made during the year. The City follows these procedures in establishing the budgetary data reflected in the financial statements: 1. The City Administrator prepares and presents to the City Council a proposed operating budget for the year commencing the following January 1. The operating budget included proposed expenditures and means of financing them. 2. Public hearings are conducted to obtain taxpayer comments. 3. The City Council deliberates on and adopts the budget on a basis consistent with accounting principles generally accepted in the United States of America and legally enacts the budget by passage of a resolution. 4. Formal budgetary integration is employed as a management control device during the year. 5. The City Council must approve any budget appropriation transfers between departments and any increases in budget appropriations to the extent actual revenues exceed estimated revenues. 6. Reported budget amounts are as originally adopted or as amended by the City Council approved supplemental appropriations and budget transfers. Annual appropriations lapse at year-end. No revisions were made to the budgets during the year. NOTE 2 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Deficit Fund Balances The following funds had deficit fund balances at December 31, 2023: Other Nonmajor Capital Projects Fund Special Assessment Capital Project 383,618$ NOTE 3 – DEPOSITS AND INVESTMENTS Cash balances of the City's funds are combined (pooled) and invested to the extent available in various investments authorized by Minnesota Statutes. Each fund's portion of this pool (or pools) is displayed on the financial statements as "cash and cash equivalents" or "investments." For purposes of identifying risk of investing public funds, the balances and related restrictions are summarized on the following page. Page 86 of 169 37 City of Mendota Heights Notes to Basic Financial Statements NOTE 3 – DEPOSITS AND INVESTMENTS (CONTINUED) A. Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council. In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council. Custodial Credit Risks – Deposits: For deposits, this is the risk that in the event of bank failure, the City's deposits may not be returned to it. The City addresses custodial credit risk by having the authority from the City Council to maintain deposits with various financial institutions that are members of the Federal Reserve System. The City's policy states all deposits must be collateralized in compliance with Minnesota Statutes § 118A. As of December 31, 2023, the City's bank balance was not exposed to custodial credit risk because it was insured through the Federal Deposit Insurance Corporation (FDIC) and fully collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. As of December 31, 2023, the City had deposits as follows: Checking 673,979$ Certificates of deposit 14,540 Total deposits 688,519$ B. Investments As of December 31, 2023, the City had the following investments: Fair Credit Value Less Than 1 - 5 Investment Type Ratings 12/31/23 1 Year Years Negotiable CD's NR 3,693,825$ 1,314,872$ 2,378,953$ US Government Securities AAA 3,183,945 - 3,183,945 Money Market Funds NR 17,599,637 17,599,637 - Total 24,477,407$ 18,914,509$ 5,562,898$ Investment Maturities Credit Risk: This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments based on type. The City's investment policy addresses credit quality by allowing the City to invest only in instruments permitted by Minnesota Statutes § 118A.04- 05. Concentration of Credit Risk: This is the risk of loss attributed to the magnitude of an investment in a single issuer. The City's policy states the City will attempt to diversify its investments according to type and maturity. The policy states the portfolio will contain both short-term and long-term investments and will attempt to match its investments with anticipated cash flow requirements. Page 87 of 169 38 City of Mendota Heights Notes to Basic Financial Statements NOTE 3 – DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments (Continued) Custodial Credit Risk – Investments: This is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policy states that to ensure safety when considering an investment, it is verified to make certain funds in excess of insurance are not made at the same institution. The City's brokers carry SIPC and private insurance to cover the City's investment holdings; however, given the size of the City's portfolio in relation to the insurance, it is unlikely the City would receive the full value of their investments upon default of the counterparty. Interest Rate Risk: This is the risk that market values of securities in a portfolio would decrease due to changes in market interest rates. As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy states the City will hold investments with laddered maturities so that funds become available on a regular schedule. The City has the following recurring fair value measurements as of December 31, 2023: $756,580 investments are valued using calculated Net Asset Value (Level 1 inputs) $23,720,827 of investments are valued using a matrix pricing model (Level 2 inputs) C. Deposits and Investments The following is a summary of total deposits and investments: Deposits (Note 3. A.)688,519$ Investments (Note 3.B.) 24,477,407 Petty cash 700 Total cash and investments 25,166,626$ Deposits and investments are presented in the December 31, 2023, basic financial statements as follows: Statement of Net Position Cash and investments 25,166,626$ Page 88 of 169 39 City of Mendota Heights Notes to Basic Financial Statements NOTE 4 – INTERFUND ACTIVITIES A. Interfund Receivables and Payable The following is a summary of the City's due to/due from other funds at December 31, 2023: Fund Due to Due from Reason Water tower capital project 368,609$ -$ Cash deficit Special assessment capital project - 368,609 Cash deficit Total 368,609$ 368,609$ T he balances above will be repaid as financing becomes available. B. Interfund Transfers The composition of interfund transfers as of December 31, 2023, was as follows: Transfers In Street Other Capital Governmental Sewer General Projects Funds Utility Total Transfers out General -$ -$ 603,876$ -$ 603,876$ Special assessments debt service 22,250 939,359 - - 961,609 Street capital projects - - 37,414 35,287 72,701 Other governmental funds 4,501 2,100 864,786 - 871,387 Sewer utility 11,150 9,000 - - 20,150 Storm Water Utility 9,650 167,296 - - 176,946 Total 47,551$ 1,117,755$ 1,506,076$ 35,287$ 2,706,669$ The purpose of the above transfers is to distribute bond proceeds and to provide funding for capital improvement projects, capital outlay, and operating purposes. NOTE 5 – LEASE RECEIVABLE The City leases three cell towers. Revenue from these leases for the year ended December 31, 2023 was $141,463. Page 89 of 169 40 City of Mendota Heights Notes to Basic Financial Statements NOTE 6 – CAPITAL ASSETS Capital asset activity for the year ended December 31, 2023, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities Capital assets not being depreciated/amortized Land and improvements 8,790,170$ -$ -$ 8,790,170$ Construction in progress 5,630,155 2,134,747 2,568,582 5,196,320 Total capital assets not being depreciated /amortized 14,420,325 2,134,747 2,568,582 13,986,490 Capital assets being depreciated/amortized Buildings and structures 12,872,068 73,937 - 12,946,005 Machinery and equipment 6,862,157 1,340,502 36,014 8,166,645 Leased equipment 624,674 41,640 - 666,314 Other improvements 3,175,315 - - 3,175,315 Infrastructure 40,748,339 1,614,826 - 42,363,165 Total capital assets being depreciated /amortized 64,282,553 3,070,905 36,014 67,317,444 Buildings and structures 4,522,956 323,215 - 4,846,171 Machinery and equipment 4,319,662 404,906 36,014 4,688,554 Leased equipment 80,213 104,835 - 185,048 Other improvements 2,034,178 95,101 - 2,129,279 Infrastructure 23,808,895 1,657,688 - 25,466,583 Total accumulated depreciation/amortization 34,765,904 2,585,745 36,014 37,315,635 Total capital assets being depreciated/amortized, net 29,516,649 485,160 - 30,001,809 Governmental activities capital assets, net 43,936,974$ 2,619,907$ 2,568,582$ 43,988,299$ Less accumulated depreciation/ amortization for Page 90 of 169 41 City of Mendota Heights Notes to Basic Financial Statements NOTE 6 – CAPITAL ASSETS (CONTINUED) Beginning Ending Balance Increases Decreases Balance Business-type activities Capital assets being depreciated Machinery and equipment 476,246$ -$ -$ 476,246$ Sewer main lines and storm sewers 21,026,694 96,334 - 21,123,028 Total capital assets being depreciated 21,502,940 96,334 - 21,599,274 Less accumulated depreciation for Machinery and equipment 212,235 22,825 - 235,060 Sewer main lines and storm sewers 6,453,193 232,289 - 6,685,482 Total accumulated depreciation 6,665,428 255,114 - 6,920,542 Total capital assets being depreciated, net 14,837,512 (158,780) - 14,678,732 Business-type activities capital assets, net 14,837,512$ (158,780)$ -$ 14,678,732$ Depreciation/amortization expense was charged to functions/programs of the City as follows: Governmental activities General government 159,581$ Public safety 507,216 Public works 1,882,624 Internal service funds 36,324 Total depreciation/amortization expense - governmental activities 2,585,745$ Business-type activities Sewer utility 199,707$ Storm water utility 55,407 Total depreciation expense - business-type activities 255,114$ Page 91 of 169 42 City of Mendota Heights Notes to Basic Financial Statements NOTE 7 – LONG-TERM DEBT A. G.O. Bonds The City issues G.O. Bonds to provide for financing street improvements, major capital equipment purchases and utility improvements. Debt service is funded through property taxes, special assessments, and utility charges. G.O. Bonds are direct obligations and pledge the full faith and credit of the City. B. Components of Long-Term Liabilities Interest Original Final Principal Due Within Rates Issue Maturity Outstanding One Year Long-term liabilities Government activities G.O. Improvement Bonds, including Refunding Bonds G.O. Improvement Bonds, Series 2014A 0.85%-3.40% 1,030,000$ 02/01/35 480,000$ 85,000$ G.O. Refunding Bond, Series 2014B 1.50%-3.00% 885,000 02/01/27 285,000 70,000 G.O. Improvement Bonds 2015A .90%-3.00% 1,200,000 02/01/36 740,000 75,000 G.O. Refunding Bond, Series 2015C 2.00%-2.50% 1,995,000 02/01/28 835,000 165,000 G.O. Reconstruction Bonds, Series 2016A 1.00%-2.50% 1,020,000 02/01/37 630,000 80,000 G.O. Improvement Bonds of 2017A 2.00%-2.50% 1,340,000 02/01/30 915,000 130,000 G.O. Improvement Bonds of 2018A 3.00%-4.00% 1,080,000 02/01/30 775,000 105,000 G.O. Improvement Bonds of 2019A 2.00%-3.00% 3,035,000 02/01/31 2,035,000 290,000 G.O. Improvement Bonds of 2020A 1.20%-2.00% 3,295,000 02/01/32 2,795,000 315,000 G.O. Improvement Bonds of 2021A 2.00%-3.00% 2,420,000 02/01/34 2,305,000 310,000 G.O. Improvement Bonds of 2022A 5.00%-4.00% 1,880,000 02/01/33 1,880,000 - G.O. Improvement Bonds of 2023A 4.00%-5.00% 1,015,000 02/01/34 1,015,000 - Total improvement bonds 14,690,000 1,625,000 G.O. Bonds, including refunding bonds G.O. Capital Improvement Plan Bonds 3.00%-4.00% 7,000,000 02/01/35 5,875,000 405,000 Lease Liability 488,321 78,234 Net Premium on Bonds 911,233 - Compensated absences payable 748,758 516,633 Total governmental activities 22,713,312 2,624,867 Business-type activities Compensated absences payable 40,382 32,763 Total all long-term liabilities 22,753,694$ 2,657,630$ Long-term bonded indebtedness listed above were issued to finance acquisition and construction of capital facilities or to refinance (refund) previous bond issues. Debt Service Funds will be used to pay general government principal and interest liabilities. The General Fund and Sewer Utility Fund will pay for the corresponding compensated absence liability. The General Fund will pay the lease liability. Page 92 of 169 43 City of Mendota Heights Notes to Basic Financial Statements NOTE 7 – LONG-TERM DEBT (CONTINUED) C. Changes in Long-Term Liabilities Long-term liability activity for the year ended December 31, 2023, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Bonds payable G.O. Improvements Bonds 15,150,000$ 1,015,000$ 1,475,000$ 14,690,000$ 1,625,000$ G.O. Bonds 6,495,000 - 620,000 5,875,000 405,000 Leases Payable 544,235 39,933 95,847 488,321 78,234 Unamortized premium 965,004 43,825 97,596 911,233 - Compensated absences payable 712,147 524,263 487,652 748,758 516,633 Total governmental activities 23,866,386 1,623,021 2,776,095 22,713,312 2,624,867 Business-type activities Compensated absences payable 38,566 28,822 27,006 40,382 32,763 Total government 23,904,952$ 1,651,843$ 2,803,101$ 22,753,694$ 2,657,630$ D. Long-Term Debt The annual requirements to amortize all bonded debt outstanding follows: Year Ending December 31, Principal Interest Total Principal Interest Total 2024 1,625,000$ 388,725$ 2,013,725$ 405,000$ 180,750$ 585,750$ 2025 1,835,000 355,588 2,190,588 420,000 164,250 584,250 2026 1,780,000 303,268 2,083,268 435,000 147,150 582,150 2027 1,750,000 250,764 2,000,764 455,000 131,625 586,625 2028 1,690,000 199,208 1,889,208 470,000 117,750 587,750 2029-2033 5,535,000 405,593 5,940,593 2,555,000 366,675 2,921,675 2034-2037 475,000 17,399 492,399 1,135,000 34,275 1,169,275 Total 14,690,000$ 1,920,545$ 16,610,545$ 5,875,000$ 1,142,475$ 7,017,475$ Governmental Activities G.O. BondsImprovement Bonds The City leases 12 squad cars under a noncancelable lease. The City also has an agreement with Saint Paul Regional Water Services that the City pays half of the amount water tower rental revenue to the SPRWS. Page 93 of 169 44 City of Mendota Heights Notes to Basic Financial Statements NOTE 7 – LONG-TERM DEBT (CONTINUED) D. Long-Term Debt (Continued) The following is a schedule by years of future minimum payments required under the leases as of December 31, 2023: Year Ending December 31, Principal Interest Total 2024 78,234$ 22,997$ 101,231$ 2025 75,026 19,062 94,088 2026 66,782 15,266 82,048 2027 38,458 12,386 50,844 2028 17,042 11,104 28,146 2029-2033 123,901 39,401 163,302 2034-2037 88,878 5,773 94,651 Total 488,321$ 125,989$ 614,310$ Lease Payable NOTE 8 – CONDUIT DEBT From time-to-time, the City has issued Industrial Development and Housing Mortgage Revenue Bonds in accordance with the Minnesota Municipal Industrial Development Act. These obligations are issued to provide financial assistance to private-sector entities for the acquisition and construction of industrial and commercial facilities deemed to be in the public interest. The obligations are secured by the property financed and are payable solely from payments received on the underlying mortgage loans. Upon repayment of the obligations, ownership of the acquired facilities transfers to the private-sector entity served by the debt issuance. Neither the City, the State of Minnesota, nor any political subdivision thereof, is obligated in any manner for the repayment of the obligations. Accordingly, the Bonds are not reported as liabilities in the accompanying financial statements. The aggregate amount of all conduit debt obligations outstanding as of December 31, 2023, was $14,532,580. Page 94 of 169 45 City of Mendota Heights Notes to Basic Financial Statements NOTE 9 – FUND BALANCE DETAIL Fund equity balances are classified below to reflect the limitations and restrictions of the respective Funds. Special Street Other General Assessment Capital Governmental Fund Debt Service Projects Funds Total Nonspendable Inventories 23,046$ -$ -$ -$ 23,046$ Prepaid items 368,410 - - 7,398 375,808 Restricted Park dedication fees - - - 553,280 553,280 Capital projects - - 1,665,004 - 1,665,004 Street light maintenance - - - 21,259 21,259 Police - - - 29,034 29,034 Debt service - 3,081,377 - 798,349 3,879,726 Grant Funding - - - 862 862 Tax increment financing - - - 49,781 49,781 Committed Water system maintenance - - - 1,110,861 1,110,861 Par 3 golf course - - - 116,829 116,829 Emergency preparedness and civil defense - - - 190,788 190,788 Assigned Capital projects - - - 2,247,569 2,247,569 Unassigned 12,090,906 - - (383,618) 11,707,288 Total 12,482,362$ 3,081,377$ 1,665,004$ 4,742,392$ 21,971,135$ NOTE 10 – RISK MANAGEMENT The City purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT) with other cities in the state which is a public entity risk pool currently operating as a common risk management and insurance program. The City pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self-sustaining through commercial companies for excess claims. The City is covered through the pool for any claims incurred but unreported, however, retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance or settlements in excess of insurance coverage for any of the past three years. Workers compensation coverage is provided through a pooled self-insurance program through the LMCIT. The City pays an annual premium to LMCIT. For workers compensation, the City is not subject to a deductible. The City's workers compensation coverage is not retrospectively rated. However, the actual premium is adjusted based on audited payroll amounts. Page 95 of 169 46 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS The City participates in various pension plans. Total pension expense for the year ended December 31, 2023, was $1,110,425. The components of pension expense are noted in the following plan summaries. The General Fund and Sewer and Stormwater Funds typically liquidate the liability related to the pensions. Public Employees' Retirement Association A. Plan Description The City participates in the following cost-sharing multiple-employer defined benefit pension plans administered by PERA. PERA's defined benefit pension plans are established and administered in accordance with Minnesota Statutes Chapters 353 ad 356. PERA's defined benefit pension plans are tax qualified plans under Section 401(a) of the Internal Revenue Code. General Employees Retirement Plan All full-time and certain part-time employees of the City are covered by the General Employees Plan. General Employees Plan members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. Public Employees Police and Fire Plan The Police and Fire Plan, originally established for police officers and firefighters not covered by a local relief association, now covers all police officers and firefighters hired since 1980. Effective July 1, 1999, the Police and Fire Plan also covers police officers and firefighters belonging to local relief associations that elected to merge with and transfer assets and administration to PERA. B. Benefits Provided PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state Legislature. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. General Employees Plan Benefits General Employees Plan benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for a Coordinated members is 1.2% for each of the first 10 years of service and 1.7% for each additional year. Under Method 2, the accrual rate for Coordinated members is 1.7% for all years of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. Page 96 of 169 47 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) B. Benefits Provided (Continued) General Employees Plan Benefits (Continued) Benefit increases are provided to benefit recipients each January. The postretirement increase is equal to 50% of the cost-of-living adjustment (COLA) announced by the SSA, with a minimum increase of at least 1% and a maximum of 1.5%. Recipients that have been receiving the annuity or benefit for at least a full year as of the June 30 before the effective date of the increase will receive the full increase. Recipients receiving the annuity or benefit for at least one month but less than a full year as of the June 30 before the effective date of the increase will receive a reduced prorated increase. In 2023, legislation repealed the statute delaying increases for members retiring before full retirement age. Police and Fire Plan Benefits Benefits for the Police and Fire Plan members first hired after June 30, 2010, but before July 1, 2014, vest on a prorated basis from 50% after five years up to 100% after 10 years of credited service. Benefits for Police and Fire Plan members first hired after June 30, 2014, vest on a prorated basis from 50% after 10 years up to 100% after 20 years of credited service. The annuity accrual rate is 3% of average salary for each year of service. For Police and Fire Plan members who were first hired prior to July 1, 1989, a full annuity is available when age plus years of service equal at least 90. Benefit increases are provided to benefit recipients each January. The postretirement increase is fixed at 1%. Recipients that have been receiving the annuity or benefit for at least 36 months as of the June 30 before the effective date of the increase will receive the full increase. Recipients receiving the annuity or benefit for at least 25 months but less than 36 months as of the June 30 before the effective date of the increase will receive a reduced prorated increase. C. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state Legislature. General Employees Fund Contributions Coordinated Plan members were required to contribute 6.5% of their annual covered salary in fiscal year 2023 and the City was required to contribute 7.5% for Coordinated Plan members. The City's contributions to the General Employees Fund for the year ended December 31, 2023, were $193,712. The City's contributions were equal to the required contributions as set by state statute. Police and Fire Fund Contributions Police and Fire Plan members were required to contribute 11.8% of their annual covered salary in fiscal year 2023 and the City was required to contribute 17.7% for Police and Fire Plan members. The City's contributions to the Police and Fire Fund for the year ended December 31, 2023, were $382,877. The City's contributions were equal to the required contributions as set by state statute. Page 97 of 169 48 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs General Employees Fund Pension Costs At December 31, 2023, the City reported a liability of $1,767,037 for its proportionate share of the General Employees Fund's net pension liability. The City's net pension liability reflected a reduction due to the State of Minnesota's contribution of $16 million. The State of Minnesota is considered a non-employer contributing entity and the State's contribution meets the definition of a special funding situation. The State of Minnesota's proportionate share of the net pension liability associated with the City totaled $48,604. The net pension liability was measured as of June 30, 2023, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City's proportionate share of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2022, through June 30, 2023, relative to the total employer contributions received from all of PERA's participating employers. The City's proportionate share was 0.0316% at the end of the measurement period and 0.0324% for the beginning of the period. City's proportionate share of the net pension liability 1,767,037$ State of Minnesota's proportionate share of the net pension liability associated with the City 48,604 Total 1,815,641$ For the year ended December 31, 2023, the City recognized pension expense of $301,227 for its proportionate share of General Employees Plan's pension expense. Included in the amount, the City recognized $218 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota's contribution of $16 million to the General Employees Fund. Page 98 of 169 49 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) General Employees Fund Pension Costs (Continued) At December 31, 2023, the City reported its proportionate share of the General Employees Plan's deferred outflows of resources and deferred inflows of resources, related to pensions from the following sources: Differences between expected and actual economic experience 58,383$ 12,288$ Changes in actuarial assumptions 288,955 484,330 Net difference between projected and actual investment earnings - 57,840 Changes in proportion 45,150 47,520 Contributions paid to PERA subsequent to the measurement date 96,856 - Total 489,344$ 601,978$ Deferred Outflows of Resources Deferred Inflows of Resources The $96,856 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2024. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Amount 70,010$ (272,313) 31,146 (38,333) Total (209,490)$ 2026 2027 2025 Year Ending December 31, 2024 Page 99 of 169 50 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) Police and Fire Fund Pension Costs At December 31, 2023, the City reported a liability of $2,707,732 for its proportionate share of the Police and Fire Fund's net pension liability. The net pension liability was measured as of June 30, 2023, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City's proportionate share of the net pension liability was based on the City's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2022, through June 30, 2023, relative to the total employer contributions received from all of PERA's participating employers. The City's proportionate share was 0.1568% at the end of the measurement period and 0.1628% for the beginning of the period. The State of Minnesota contributed $18 million to the Police and Fire Fund in the plan fiscal year ended June 30, 2023. The contribution consisted of $9 million in direct state aid that meets the definition of a special funding situation and $9 million in supplemental state aid that does not meet the definition of a special funding situation. The $9 million direct state aid was paid on October 1, 2022. Thereafter, by October 1 of each year, the State will pay $9 million to the Police and Fire Fund until full funding is reached or July 1, 2048, whichever is earlier. The $9 million in supplemental state aid will continue until the fund is 90% funded, or until the State Patrol Plan (administered by the Minnesota State Retirement System) is 90% funded, whichever occurs later. The State of Minnesota's proportionate share of the net pension liability associated with the City totaled $109,059. City's proportionate share of the net pension liability 2,707,732$ State of Minnesota's proportionate share of the net pension liability associated with the City 109,059 Total 2,816,791$ The State of Minnesota is included as a non-employer contributing entity in the Police and Fire Retirement Plan Schedule of Employer Allocations and Schedule of Pension Amounts by Employer (pension allocation schedules) for the $9 million in direct state aid. Police and Fire Plan employers need to recognize their proportionate share of the State of Minnesota's pension expense (and grant revenue) under GASB 68 special funding situation accounting and financial reporting requirements. For the year ended December 31, 2023, the City recognized pension expense of $809,198 for its proportionate share of the Police and Fire Plan's pension expense. Included in this amount, the City recognized ($6,568) as pension expense (and grant revenue) for its proportionate share of the State of Minnesota's contribution of $9 million to the Police and Fire Fund. Page 100 of 169 51 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) Police and Fire Fund Pension Costs (Continued) The State of Minnesota is not included as a non-employer contributing entity in the Police and Fire Pension Plan pension allocation schedules for the $9 million in supplemental state aid. The City also recognized $14,112 for the year ended December 31, 2023, as revenue and an offsetting reduction of the net pension liability for its proportionate share of the State of Minnesota's on-behalf contributions to the Police and Fire Fund. At December 31, 2023, the City reported its proportionate share of the Police and Fire Plan's deferred outflows of resources and deferred inflows of resources related to pensions from the sources on the following page. Differences between expected and actual economic experience 755,944$ -$ Changes in actuarial assumptions 3,226,258 3,808,333 Net difference between projected and actual investment earnings - 77,298 Changes in proportion 63,139 290,735 Contributions paid to PERA subsequent to the measurement date 191,438 - Total 4,236,779$ 4,176,366$ Deferred Outflows of Resources Deferred Inflows of Resources Page 101 of 169 52 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) D. Pension Costs (Continued) Police and Fire Fund Pension Costs (Continued) The $191,438 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2024. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Year Ending Expense December 31,Amount 2024 129,069$ 2025 13,718 2026 637,379 2027 (195,867) 2028 (715,324) Total (131,025)$ E. Long-Term Expected Return on Investment The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Domestic equity 33.5 % 5.10 % International equity 16.5 5.30 Fixed income 25.0 0.75 Private markets 25.0 5.90 Total 100.0 % Target Allocation Expected Real Asset Class Page 102 of 169 53 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) F. Actuarial Assumptions The total pension liability in the June 30, 2023, actuarial valuation was determined using an individual entry-age normal actuarial cost method. The long-term rate of return on pension plan investments used in the determination of the total liability is 7.0%. This assumption is based on a review of inflation and investments return assumptions from a number of national investment consulting firms. The review provided a range of return investment return rates deemed to be reasonable by the actuary. An investment return of 7.0% was deemed to be within that range of reasonableness for financial reporting purposes. Inflation is assumed to be 2.25% for the General Employees Plan and the Police and Fire Plan. Benefit increases after retirement are assumed to be 1.25% for the General Employees and 1% for the Police and Fire Plan. Salary growth assumptions in the General Employees Plan range in annual increments from 10.25% after one year of service to 3.0% after 27 years of service. In the Police and Fire Plan, salary growth assumptions range from 11.75% after one year of service to 3.0% after 24 years of service. Mortality rates for the General Employees Plan are based on the Pub-2010 General Employee Mortality Table. Mortality rates for the Police and Fire Plan are based on the Pub-2010 Public Safety Employee Mortality tables. The tables are adjusted slightly to fit PERA's experience. Actuarial assumptions for the General Employees Plan are reviewed every four years. The most recent four-year experience study for the General Employees Plan was completed in 2022. The assumption changes were adopted by the Board and became effective with the July 1, 2023, actuarial valuation. The most recent four-year experience study for the Police and Fire Plan was completed in 2020 and was adopted by the Board and became effective with the July 1, 2021, actuarial valuation. The following changes in actuarial assumptions and plan provisions occurred in 2023: General Employees Fund Changes in Actuarial Assumptions The investment return assumption and single discount rate were changed from 6.5% to 7.0%. Changes in Plan Provisions Additional one-time direct state aid contribution of $170.1 million will be contributed to the Plan on October 1, 2023. The vesting period for those hired after June 30, 2010 was changed from five years of allowable service to three years of allowable service. The benefit increase delay for early retirements on or after January 1, 2024, was eliminated. A one-time non-compounding benefit increase equal to 2.5% minus the actual adjustment will be payable in a lump sum for calendar year 2024 by March 31, 2024. Page 103 of 169 54 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) F. Actuarial Assumptions (Continued) Police and Fire Fund Changes in Actuarial Assumptions The investment return assumption was changed from 6.5% to 7.0%. The single discount rate was changed from 5.4% to 7.0%. Changes in Plan Provisions Additional one-time direct state aid contribution of $19.4 million will be contributed to the Plan on October 1, 2023. Vesting requirement for new hires after June 30, 2014, was changed from a graded 20-year vesting schedule to a graded 10-year vesting schedule, with 50% vesting after five years, increasing incrementally to 100% after 10 years. A one-time non-compounding benefit increase of 3.0% will be payable in a lump sum for calendar year 2024 by March 31, 2024. Psychological treatment is required effective July 1, 2023, prior to approval for a duty disability benefit for a psychological condition relating to the member's occupation. A total and permanent duty disability benefit was added, effective July 1, 2023. G. Discount Rate The discount rate used to measure the total pension liability in 2023 was 7.0%. The projection of cash flows used to determine the discount rate assumed that contributions from Plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the General Employees and the Police and Fire plans were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Page 104 of 169 55 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Public Employees' Retirement Association (Continued) H. Pension Liability Sensitivity The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1% Decrease in Current 1% Increase in City's proportionate share of the General Employees Fund net pension liability 3,126,030$ 1,767,037$ 649,213$ 1% Decrease in Current 1% Increase in City's proportionate share of the Police and Fire Fund net pension liability 5,372,463$ 2,707,732$ 516,966$ Discount Rate (6.0%) Discount Rate (7.0%) Discount Rate (8.0%) Discount Rate (6.0%) Discount Rate (7.0%) Discount Rate (8.0%) I. Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in a separately- issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. Defined Contribution Pension Plan – Volunteer Firefighter's Relief Association The Mendota Heights Firefighter's Relief Association is the administrator of a single employer defined benefit pension plan established to provide benefits for members of the Mendota Heights Fire Department per Minnesota State Statutes. The Association issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Mendota Heights Firefighter's Association, 2121 Dodd Road Mendota Heights, Minnesota 55120 or by calling 651-249- 7640. The City contributes to the Mendota Heights Volunteer Fire Department Relief Association (the "Association") that provides pension benefits to its members under a single employer defined contribution plan. Since fire department members are volunteers, contributions to the Association are not based on payroll but rather on years of active service. All active firefighters may apply for membership in the Association and shall become a member immediately upon approval by the Board of Trustees. Page 105 of 169 56 City of Mendota Heights Notes to Basic Financial Statements NOTE 11 – PENSION PLANS (CONTINUED) Defined Contribution Pension Plan – Volunteer Firefighter's Relief Association (Continued) Under an Annual Contribution Agreement, the City's contribution to the Association is determined by multiplying $6,500 by the number of years of active service completed by members of the Association for the plan year, prorated by months for members who did not complete a full year of active service. The City also contributes a portion of the Association's administrative fees each year. For 2023, the total contribution was $209,105. Required and actual employer contributions to the plan during 2023 were $209,105. In addition, the City passes through state aid allocated to the plan in accordance with state statutes. For 2023, the state aid was $138,052. Members of the Association are not allowed to make voluntary contributions to the plan. Members are not vested in their accounts until they attain 10 years of active service, at which time they become 60% vested. Thereafter, the vested portion of their accounts increases by 4% annually until they achieve 100% vesting after having served for 20 years. Plan provisions were established and may only be amended by amendments to the Association bylaws which require a majority vote by the Board of Trustees. NOTE 12 – POST EMPLOYMENT HEALTH CARE PLAN A. Plan Description The City provides a single employer defined benefit healthcare plan to eligible retirees (as required by Minnesota Statue § 471.61) and police or firefighters disabled in the line of duty (as required by Minnesota Statute § 299A.465). The required contributions are based on projected pay-as-you-go financing requirements. As of January 1, 2022, there were 17 retirees participating in the City's healthcare plan. B. Benefits Provided Retirees and their spouses contribute to the healthcare plan at the same rate as City employees. This results in the retirees receiving an implicit rate subsidy. Contribution requirements are established by the City, based on the contract terms with Blue Cross Blue Shield and Delta Dental. C. Contributions The City makes direct subsidy payments towards retiree health insurance premiums. For the year 2023, the City contributed $174,385. D. Members As of January 1, 2022, the following were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 17 Active employees 40 Total 57 Page 106 of 169 57 City of Mendota Heights Notes to Basic Financial Statements NOTE 12 – POST EMPLOYMENT HEALTH CARE PLAN (CONTINUED) E. Actuarial Assumptions The total OPEB liability was determined by an actuarial valuation as of January 1, 2022, using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Inflation 2.50% Healthcare cost trend increases 6.25% initially, grading to 5% over five years and then to 4.00% over the next 48 years Mortality assumption Pub-2010 Public Retirement Plans Headcount-Weighted Mortality Tables (General, Safety) with MP-2021 Generational Improvement Scale Key Methods and Assumptions Used in Valuation of Total OPEB Liability The actuarial assumptions used in the January 1, 2022, valuation were based on the results of an actuarial experience study for the period January 1, 2021 through January 1, 2022. The discount rate used to measure the total OPEB liability was 4.00% based on 20-year municipal G.O. Bonds. Page 107 of 169 58 City of Mendota Heights Notes to Basic Financial Statements NOTE 12 – POST EMPLOYMENT HEALTH CARE PLAN (CONTINUED) F. Total OPEB Liability The City's total OPEB liability of $1,031,273 was measured as of January 1, 2023, and was determined by an actuarial valuation as of January 1, 2022. Total OPEB Liability Balance at January 1, 2022 1,239,631$ Changes for the year Service cost 18,147 Interest 23,338 Changes of assumptions (67,149) Benefit payments (182,694) Net changes (208,358) Balance at January 1, 2023 1,031,273$ Changes of assumptions and other inputs reflect the following changes: The discount rate was changed from 2.00% to 4.00%. The inflation rate was changed from 2.00% to 2.50%. G. OPEB Liability Sensitivity The following presents the City's total OPEB liability calculated using the discount rate of 4.00% as well as the liability measured using 1% lower and 1% higher than the current discount rate. 1% Decrease Current 1% Increase in Discount Rate in Discount Rate in Discount Rate (3.00%) (4.00%) (5.00%) 1,067,158$ 1,031,273$ 997,597$ Total OPEB Liability/(Asset) Page 108 of 169 59 City of Mendota Heights Notes to Basic Financial Statements NOTE 12 – POST EMPLOYMENT HEALTH CARE PLAN (CONTINUED) G. OPEB Liability Sensitivity (Continued) The following presents the total OPEB liability of the City, as well as what the City's total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1% lower and 1% higher than the current healthcare cost trend rates. 1% Decrease Current 1% Increase 986,505$ 1,031,273$ 1,081,069$ Total OPEB Liability/(Asset) Decreasing to 3.0%) Decreasing to 4.0%) Decreasing to 5.0%) H. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended December 31, 2023, the City recognized OPEB expense of $109,773. At December 31, 2023, the Distract reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Liability losses 417,138$ -$ Assumption changes 41,388 66,274 Subsequent contributions 198,102 - Total 656,628$ 66,274$ Page 109 of 169 60 City of Mendota Heights Notes to Basic Financial Statements NOTE 12 – POST EMPLOYMENT HEALTH CARE PLAN (CONTINUED) H. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB (Continued) The $198,102 reported as deferred outflows of resources related to post employment benefits resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2024. Other amounts reported as deferred outflows and inflows of resources related to post-employment benefits will be recognized in pension expense as follows: OPEB Expense Amount 68,288$ 68,288 68,291 70,788 64,150 52,447 392,252$ Thereafter Total Year Ending December 31, 2024 2025 2026 2027 2028 NOTE 13 – JOINT VENTURES A. Dakota Communications Center/Dakota 911 The City is a member of the Dakota Communication Center (DCC)(Dakota 911). The DCC was created by a joint powers agreement between Dakota County and several cities. Its purposes include the establishment, operation, and maintenance of joint law enforcement, fire, EMS, and other emergency communications systems. Members are obligated to pay their proportional share of operating and capital expenditures on an annual basis. The City paid $269,448 for 2023. Members do not maintain an equity interest other than if the DCC were to terminate. Withdrawing members forfeit any interest in the DCC. Information regarding the DCC can be obtained at the website www.mn-dcc.org. B. Local Government Information Systems Association (LOGIS) The consortium of approximately 30 government entities provides computerized data processing and support services to its members. LOGIS is a legally separate entity; the entities appoint a voting majority of its board, and the consortium is fiscally independent of the City. For 2023, the City paid $263,165 for computer application support and computer hardware for the City's network. Complete financial statements of the consortium may be obtained at the LOGIS offices located at 5750 Duluth Street, Golden Valley, Minnesota 55422. Page 110 of 169 61 City of Mendota Heights Notes to Basic Financial Statements NOTE 14 – CONTINGENCIES The City has various claims and litigation that arise in the normal course of business. The City has evaluated the impact of these items for the December 31, 2023, financial statements and determined they do not have a material effect on financial position or changes in financial position. NOTE 15 – COMMITED CONTRACTS At December 31, 2023, the City had commitments of $1,022,172 for uncompleted construction contracts. NOTE 16 – TAX INCREMENT FINANCING The City has entered into Tax Increment Financing agreements which meet the criteria for disclosure under Governmental Accounting Standards Board Statement No. 77 Tax Abatement Disclosures. The City's authority to enter into these agreements comes from Minnesota Statute § 469. The City entered into this agreement for the purpose of redevelopment. Under these agreements, the City and developer agree on an amount of development costs to be reimbursed to the developer by the City though tax revenues from the additional taxable value of the property generated by the development (tax increment). A "pay-as-you-go" note is established for this amount, on which the City makes payments for a fixed period of time with available tax increment revenue after deducting for certain administrative costs. During the year ended December 31, 2023, the City generated $287,493 in tax increment revenue and made $258,744 in payments to developers. Page 111 of 169 62 Page 112 of 169 63 REQUIRED SUPPLEMENTARY INFORMATION Page 113 of 169 See notes to required supplementary information. 64 December 31, December 31, December 31, December 31, 2023 2022 2021 2020 Total OPEB Liability Service cost 18,147$ 24,213$ 20,191$ 17,009$ Interest 23,338 14,864 23,267 31,249 Differences between expected and actual experience - 540,952 - 22,848 Changes of assumptions (67,149) 12,919 26,487 30,297 Benefit payments (182,694) (143,921) (122,081) (126,784) Net change in total OPEB liability (208,358) 449,027 (52,136) (25,381) Beginning of year 1,239,631 790,604 842,740 868,121 Total OPEB Liability 1,031,273$ 1,239,631$ 790,604$ 842,740$ 3,600,817$ 3,495,939$ 3,469,012$ 3,359,818$ 28.64% 35.46% 22.79% 25.08% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. Covered-employee payroll Total OPEB liability as a percentage of covered-employee payroll City of Mendota Heights Schedule of Changes in Total OPEB Liability and Related Ratios Page 114 of 169 65 December 31, December 31, 2019 2018 22,733$ 24,002$ 30,230 31,883 - - (20,053) - (115,317) (94,257) (82,407) (38,372) 950,528 988,900 868,121$ 950,528$ 3,460,084$ 3,359,305$ 25.09% 28.30% Page 115 of 169 See notes to required supplementary information. 66 City's Covered Payroll 2015 0.0322% 1,668,771$ -$ 1,668,771$ 1,859,307$ 89.75% 78.19% 2016 0.0315% 2,557,644 33,392 2,591,036 1,954,600 130.85% 68.91% 2017 0.0290% 1,851,341 23,303 1,874,644 1,870,160 98.99% 75.90% 2018 0.0281% 1,558,873 51,096 1,609,969 1,887,853 82.57% 79.53% 2019 0.0291% 1,608,874 49,998 1,658,872 2,058,880 78.14% 80.23% 2020 0.0296% 1,774,655 54,701 1,829,356 2,113,013 83.99% 79.06% 2021 0.0319% 1,362,273 41,634 1,403,907 2,294,880 59.36% 87.00% 2022 0.0324% 2,566,091 75,343 2,641,434 2,430,307 105.59% 76.67% 2023 0.0316% 1,767,037 48,604 1,815,641 2,509,800 70.41% 83.10% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. For Fiscal Year Ended June 30, City's Proportion of the Net Pension Liability (Asset) City's Proportionate Share of the Net Pension Liability (Asset) State's Proportionate Share (Amount) of the Net Pension Liability Associated with the City City's Proportionate Share of the Net Pension Liablility and the State's Proportionate Share of the Net Pension Liablility Associated with the City City's Covered Payroll City's Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered Payroll Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 2015 0.1530% 1,738,438$ N/A 1,738,438$ 1,359,920$ 127.8% 86.61% 2016 0.1550% 6,220,420 N/A 6,220,420 1,496,272 415.7% 63.88% 2017 0.1500% 2,011,679 N/A 2,011,679 1,543,389 130.3% 85.43% 2018 0.1527% 1,613,882 N/A 1,613,882 1,609,556 100.3% 88.84% 2019 0.1643% 1,726,959 N/A 1,726,959 1,733,152 99.6% 89.26% 2020 0.1686% 2,207,154 52,363$ 2,259,517 1,902,465 116.0% 87.19% 2021 0.1575% 1,201,558 54,662 1,256,220 1,902,228 63.2% 93.66% 2022 0.1628% 7,084,413 309,465 7,393,878 1,977,853 358.2% 70.53% 2023 0.1568% 2,707,732 109,059 2,816,791 2,059,107 131.5% 86.47% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. City of Mendota Heights Schedule of City's Proportionate Share of Net Pension Liability Last Ten Years Schedule of City's Proportionate Share General Employees Retirement Fund City's Proportionate Share (Percentage) of the Net Pension Liability (Asset) City's Proportionate Share (Amount) of the Net Pension Liability (Asset) City's Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered Payroll Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Last Ten Years For Fiscal Year Ended June 30, State's Proportionate Share (Amount) of the Net Pension Liability Associated with the City City's Proportionate Share of the Net Pension Liablility and the State's Proportionate Share of the Net Pension Liablility Associated with the City Public Employees Police and Fire Retirement Fund of Net Pension Liability Page 116 of 169 See notes to required supplementary information. 67 2015 149,420$ 149,420$ -$ 1,992,267$ 7.50% 2016 139,806 139,806 - 1,864,080 7.50% 2017 137,806 137,806 - 1,837,413 7.50% 2018 146,272 146,272 - 1,950,293 7.50% 2019 157,416 157,416 - 2,098,880 7.50% 2020 166,196 166,196 - 2,215,947 7.50% 2021 178,657 178,657 - 2,382,093 7.50% 2022 186,921 186,921 - 2,492,280 7.50% 2023 193,712 193,712 - 2,582,827 7.50% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. 2015 237,655$ 237,655$ -$ 1,467,006$ 16.20% 2016 245,917 245,917 - 1,518,006 16.20% 2017 251,584 251,584 - 1,552,988 16.20% 2018 266,168 266,168 - 1,643,012 16.20% 2019 311,718 311,718 - 1,839,044 16.95% 2020 344,654 344,654 - 1,947,198 17.70% 2021 349,826 349,826 - 1,976,418 17.70% 2022 350,782 350,782 - 1,981,819 17.70% 2023 382,877 382,877 - 2,163,147 17.70% Note: Schedule is intended to show ten year trend. Additional years will be reported as they become available. City of Mendota Heights Schedule of City Contributions - General Employees Retirement Fund Last Ten Years Contribution Deficiency (Excess) City's Covered Payroll Last Ten Years Contributions as a Percentage of Covered Payroll Statutorily Required Contribution Statutorily Required Contribution Contributions in Relation to the Statutorily Required Contributions Contribution Deficiency (Excess) Contributions in Relation to the Statutorily Required Contributions Fiscal Year Ending December 31, City's Covered Payroll Contributions as a Percentage of Covered Payroll Schedule of City Contributions - Public Employees Police and Fire Retirement Fund Fiscal Year Ending December 31, Page 117 of 169 City of Mendota Heights Notes to Required Supplementary Information 68 General Employees Fund 2023 Changes Changes in Actuarial Assumptions The investment return assumption and single discount rate were changed from 6.5% to 7.0%. Changes in Plan Provisions Additional one-time direct state aid contribution of $170.1 million will be contributed to the Plan on October 1, 2023. The vesting period for those hired after June 30, 2010 was changed from five years of allowable service to three years of allowable service. The benefit increase delay for early retirements on or after January 1, 2024, was eliminated. A one-time non-compounding benefit increase equal to 2.5% minus the actual adjustment will be payable in a lump sum for calendar year 2024 by March 31, 2024. 2022 Changes Changes in Actuarial Assumptions The mortality improvement scale was changed from scale MP-2020 to scale MP-2021. Changes in Plan Provisions There have been no changes since the prior valuation. 2021 Changes Changes in Actuarial Assumptions The investment return and single discount rates were changed from 7.5% to 6.5% for financial reporting purposes. The mortality improvement scale was changed from scale MP-2019 to scale MP-2020. Changes in Plan Provisions There have been no changes since the prior valuation. 2020 Changes Changes in Actuarial Assumptions The price inflation assumption was decreased from 2.5% to 2.25%. The payroll growth assumption was decreased from 3.25% to 3.0%. Assumed salary increase rates were changed as recommended in the June 30, 2019, experience study. The net effect is assumed rates that average 0.25% less than previous rates. Assumed rates of retirement were changed as recommended in the June 30, 2019, experience study. The changes result in more unreduced (normal) retirements and slightly fewer Rule of 90 and early retirements. Assumed rates of termination were changes as recommended in the June 30, 2019, experience study. The new rates are based on service and are generally lower than the previous rates for years 2-5 and slightly higher thereafter. Assumed rates of disability were changed as recommended in the June 30, 2019, experience study. The change results in fewer predicted disability retirements for males and females. The base mortality table for healthy annuitants and employees was changed from the RP-2014 table to the Pub-2010 General Mortality table, with adjustments. The base mortality table for disabled annuitants was changed from the RP-2014 disabled annuitant mortality table to the Pub-2010 General/Teacher disabled annuitant mortality table, with adjustments. The mortality improvement scale was changed from Scale MP-2018 to Scale MP-2019. The assumed spouse age difference was changed from two years older for females to one year older. Page 118 of 169 City of Mendota Heights Notes to Required Supplementary Information 69 General Employees Fund (Continued) 2020 Changes (Continued) Changes in Actuarial Assumptions (Continued) The assumed number of married male new retirees electing the 100% Joint and Survivor option changed from 35% to 45%. The assumed number of married female new retires electing the 100% Joint and Survivor option changed from 15% to 30%. The corresponding number of married new retirees electing the Life annuity option was adjusted accordingly. Changes in Plan Provisions Augmentation for current privatized members was reduced to 2.0% for the period July 1, 2020 through December 31, 2023, and 0.0% thereafter. Augmentation was eliminated for privatizations occurring after June 30, 2020. 2019 Changes Changes in Actuarial Assumptions The mortality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0 million per year. The State's special funding contribution was changed prospectively, requiring $16.0 million due per year through 2031. 2018 Changes 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% per year through 2044 and 2.5% per year thereafter to 1.25% per year. Changes in Plan Provisions The augmentation adjustment in early retirement factors is eliminated over a five-year period starting July 1, 2019, resulting in actuarial equivalence after June 30, 2024. Interest credited on member contributions decreased from 4.00% to 3.00%, beginning July 1, 2018. Deferred augmentation was changed to 0.00%, effective January 1, 2019. Augmentation that has already accrued for deferred members will still apply. Contribution stabilizer provisions were repealed. Annual increases were changed from 1.00% per year with a provision to increase to 2.50% upon attainment of 90.00% funding ratio to 50.00% of the Social Security Cost of Living Adjustment, not less than 1.00% and not more than 1.50%, beginning January 1, 2019. For retirements on or after January 1, 2024, the first benefit increase is delayed until the retiree reaches normal retirement age; does not apply to Rule of 90 retirees, disability benefit recipients, or survivors. Actuarial equivalent factors were updated to reflect revised mortality and interest assumptions. 2017 Changes Changes in Actuarial Assumptions The CSA loads were changed from 0.8% for active members and 60% for vested and non-vested deferred members. The revised CSA loads are now 0.0% for active member liability, 15% for vested deferred member liability and 3% for non-vested deferred member liability. Page 119 of 169 City of Mendota Heights Notes to Required Supplementary Information 70 General Employees Fund (Continued) 2017 Changes (Continued) Changes in Actuarial Assumptions (Continued) The assumed annual increase rate was changed from 1.0% per year for all years to 1.0% per year through 2044 and 2.5% per year thereafter. Changes in Plan Provisions The State's contribution for the Minneapolis Employees Retirement Fund equals $16,000,000 in 2017 and 2018, and $6,000,000 thereafter. The Employer Supplemental Contribution for the Minneapolis Employees Retirement Fund changed from $21,000,000 to $31,000,000 in calendar years 2019 to 2031. The State's contribution changed from $16,000,000 to $6,000,000 in calendar years 2019 to 2031. 2016 Changes Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2035 and 2.5% per year thereafter to 1.0% per year for all future years. The assumed investment return was changed from 7.9% to 7.5%. The single discount rate was changed from 7.9% to 7.5%. Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, the inflation was decreased by 0.25% to 3.25% for payroll growth and 2.50% for inflation. Changes in Plan Provisions There have been no changes since the prior valuation. 2015 Changes Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2030 and 2.5% per year thereafter to 1.0% per year through 2035 and 2.5% per year thereafter. Changes in Plan Provisions On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised; the State's contribution of $6.0 million, which meets the special funding situation definition, was due September 2015. Page 120 of 169 City of Mendota Heights Notes to Required Supplementary Information 71 Police and Fire Fund 2023 Changes Changes in Actuarial Assumptions The investment return assumption was changed from 6.5% to 7.0%. The single discount rate was changed from 5.4% to 7.0%. Changes in Plan Provisions Additional one-time direct state aid contribution of $19.4 million will be contributed to the Plan on October 1, 2023. Vesting requirement for new hires after June 30, 2014, was changed from a graded 20-year vesting schedule to a graded 10-year vesting schedule, with 50% vesting after five years, increasing incrementally to 100% after 10 years. A one-time non-compounding benefit increase of 3.0% will be payable in a lump sum for calendar year 2024 by March 31, 2024. Psychological treatment is required effective July 1, 2023, prior to approval for a duty disability benefit for a psychological condition relating to the member's occupation. A total and permanent duty disability benefit was added, effective July 1, 2023. 2022 Changes Changes in Actuarial Assumptions The mortality improvement scale was changed from scale MP-2020 to scale MP-2021. The single discount rate was changed from 6.5% to 5.4%. Changes in Plan Provisions There have been no changes since the prior valuation. 2021 Changes Changes in Actuarial Assumptions The investment return and single discount rates were changed from 7.5% to 6.5% for financial reporting purposes. The inflation assumption was changed from 2.5% to 2.25%. The payroll growth assumption was changed from 3.25% to 3.0%. The base mortality table for healthy annuitants and employees was changed from the RP-2014 table to the Pub-2010 Public Safety mortality table. The mortality improvement scale was changed from MP-2019 to MP-2020. The base mortality table for disabled annuitants was changed from the RP-2014 healthy annuitant mortality table (with future mortality improvement according to scale MP-2019) to the Pub-2010 Public Safety disabled annuitant mortality table (with future mortality improvement according to scale MP-2020). Assumed rates of salary increase were modified as recommended in the July 14, 2020, experience study. The overall impact is a decrease in gross salary increase rates. Assumed rates of retirement were changed as recommended in the July 14, 2020, experience study. The changes resulted in slightly more unreduced retirements and fewer assumed early retirements. Assumed rates of withdrawal were changed from select and ultimate rates to service-based rates. The changes resulted in more assumed terminations. Assumed rates of disability were increased for ages 25-44 and decreased for ages over 49. Overall, proposed rates resulted in more projected disabilities. Assumed percent married for active female members was changed from 60% to 70%. Minor changes to form of payment assumptions were applied. Page 121 of 169 City of Mendota Heights Notes to Required Supplementary Information 72 Police and Fire Fund (Continued) 2021 Changes (Continued) Changes in Plan Provisions There have been no changes since the prior valuation. 2020 Changes Changes in Actuarial Assumptions The mortality projection scale was changed from MP-2018 to MP-2019. Changes in Plan Provisions There have been no changes since the prior valuation. 2019 Changes Changes in Actuarial Assumptions The mortality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions There have been no changes since the prior valuation. 2018 Changes Changes in Actuarial Assumptions The mortality projection scale was changed from MP-2016 to MP-2017. Changes in Plan Provisions Annual increases were changed to 1.00% for all years, with no trigger. An end date of July 1, 2048, was added to the existing $9.0 million state contribution. New annual state aid will equal $4.5 million in fiscal years 2019 and 2020, and $9.0 million thereafter until the plan reaches 100% funding, or July 1, 2048, if earlier. Member contributions were changed from 10.80% to 11.30% of pay, effective January 1, 2019, and 11.80% of pay, effective January 1, 2020. Employer contributions were changed from 16.20% to 16.95% of pay, effective January 1, 2019, and 17.70% of pay, effective January 1, 2020. Interest credited on member contributions decreased from 4.00% to 3.00%, beginning July 1, 2018. Deferred augmentation was changed to 0.00%, effective January 1, 2019. Augmentation that has already accrued for deferred members will still apply. Actuarial equivalent factors were updated to reflect revised mortality and interest assumptions. 2017 Changes Changes in Actuarial Assumptions Assumed salary increases were changed as recommended in the June 30, 2016, experience study. The net effect is proposed rates that average 0.34% lower than the previous rates. Assumed rates of retirement were changed, resulting in fewer retirements. The CSA load was 30% for vested and non-vested deferred members. The CSA has been changed to 33% for vested members and 2% for non-vested members. The base mortality table for healthy annuitants was changed from the RP-2000 fully generational table to the RP-2014 fully generational table (with a base year of 2006), with male rates adjusted by a factor of 0.96. The mortality improvement scale was changed from Scale AA to Scale MP-2016. The base mortality table for disabled annuitants was changed from the RP-2000 disabled mortality table to the mortality tables assumed for healthy retirees. Page 122 of 169 City of Mendota Heights Notes to Required Supplementary Information 73 Police and Fire Fund (Continued) 2017 Changes (Continued) Changes in Actuarial Assumptions (Continued) Assumed termination rates were decreased to 3% for the first three years of service. Rates beyond the select period of three years were adjusted, resulting in more expected terminations overall. Assumed percentage of married female members was decreased from 65% to 60%. Assumed age difference was changed from separate assumptions for male members (wives assumed to be 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 annual increase rate was changed from 1% for all years to 1% per year through 2064 and 2.5% thereafter. The single discount rate was changed from 5.6% per annum to 7.5% per annum. Changes in Plan Provisions There have been no changes since the prior valuation. 2016 Changes Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2037 and 2.5% thereafter to 1.0% per year for all future years. The assumed investment return was changed from 7.9% to 7.5%. The single discount rate changed from 7.9% to 5.6%. The single discount rate changed from 7.90% to 5.60%. The assumed future salary increases, payroll growth, and inflation was decreased by 0.25% to 3.25% for payroll growth and 2.50% for inflation. Changes in Plan Provisions There have been no changes since the prior valuation. 2015 Changes Changes in Actuarial Assumptions The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2030 and 2.5% per year thereafter to 1.0% per year through 2037 and 2.5% per year thereafter. Changes in Plan Provisions The post-retirement benefit increase to be paid after attainment of the 90% funding threshold was changed, from inflation up to 2.5%, to a fixed rate of 2.5%. Page 123 of 169 City of Mendota Heights Notes to Required Supplementary Information 74 OPEB 2023 Changes Changes in Actuarial Assumptions The discount rate was changed from 2.00% to 4.00%. The inflation rate was changed from 2.00% to 2.50%. 2022 Changes Changes in Actuarial Assumptions The health care trend rates were changed to better anticipate short term and long term medical increases. The mortality tables were updated from the Pub-2010 Public Retirement Plans Headcount- Weighted Mortality Tables (General, Safety) with MP-2019 Generational Improvement Scale to the Pub-2010 Public Retirement Plans Headcount-Weighted Mortality Tables (General, Safety) with MP-2021 Generational Improvement Scale. The salary increase rates were updated to reflect the latest experience study. The retirement and withdrawal rates were updated to reflect the latest experience study. The inflation rate was changed from 2.50% to 2.00%. 2021 Changes Changes in Actuarial Assumptions The discount rate decreased from 2.90% in 2020 to 2.00% in 2021. 2020 Changes Changes in Actuarial Assumptions The discount rate decreased from 3.80% in 2019 to 2.90% in 2020. The healthcare trend rates, mortality tables, and salary increase rates were updated. 2019 Changes Changes in Actuarial Assumptions The discount rate increased from 3.30% in 2018 to 3.80% in 2019. The healthcare trend rates, mortality tables, and salary increase rates were updated. 2018 Changes Changes in Actuarial Assumptions The discount rate decreased from 4.00% in 2017 to 3.30% in 2018. There are no assets accumulated in a trust. Page 124 of 169 75 SUPPLEMENTARY INFORMATION Page 125 of 169 76 Water Revenue Special Park Civil Defense Street Lighting Assets Cash and investments 1,106,369$ 562,849$ 190,019$ 28,533$ Taxes receivable - delinquent - - 161 73 Special assessments receivable Deferred - - - - Accounts receivable - - - - Interest receivable 1,492 864 266 32 Due from other funds - - - - Due from other governments 3,000 - 503 - Prepaid items - - - - Land held for resale - - - - Total assets 1,110,861$ 563,713$ 190,949$ 28,638$ Liabilities Accounts and contracts payable -$ 10,433$ -$ 6,941$ Due to other funds - - - - Due to other governments - - - 365 Salaries and benefits payable - - - - Total liabilities - 10,433 - 7,306 Deferred Inflows of Resources Unavailable revenue - property taxes - - 161 73 Unavailable revenue - special assessments - - - - Total deferred inflows of resources - - 161 73 Fund Balances Nonspendable - - - - Restricted - 553,280 - 21,259 Committed 1,110,861 - 190,788 - Assigned - - - - Unassigned - - - - Total fund balances 1,110,861 553,280 190,788 21,259 Total liabilities, deferred inflows of resources, and fund balances 1,110,861$ 563,713$ 190,949$ 28,638$ City of Mendota Heights Combining Balance Sheet - Nonmajor Governmental Funds December 31, 2023 Special Revenue Page 126 of 169 77 Par 3 Golf Course Police Forfeiture Fund American Rescue Plan Act Par 3 G.O. Bonds Equipment Certficates Fire Station Bonds 120,232$ 28,996$ 862$ 121,859$ 44,992$ 617,918$ - - - 571 18 3,717 - - - - - - 56 - - - - - 176 38 - 176 64 419 - - - - - - - - - 326 - 12,595 7,398 - - - - - - - - - - - 127,862$ 29,034$ 862$ 122,932$ 45,074$ 634,649$ 2,108$ -$ -$ -$ -$ -$ - - - - - - 828 - - - - - 699 - - - - - 3,635 - - - - - - - - 571 18 3,717 - - - - - - - - - 571 18 3,717 7,398 - - - - - - 29,034 862 122,361 45,056 630,932 116,829 - - - - - - - - - - - - - - - - - 124,227 29,034 862 122,361 45,056 630,932 127,862$ 29,034$ 862$ 122,932$ 45,074$ 634,649$ Special Revenue Debt Service Page 127 of 169 78 Equipment Replacement Reserve Infrastructure Reserve Facility Reserve Water Tower Capital Project Assets Cash and investments 689,702$ 16,540$ 403,303$ 325,263$ Taxes receivable - delinquent 27 11 - - Special assessments receivable Deferred - - - - Accounts receivable - - - - Interest receivable 77 42 538 1,056 Due from other funds - - - 368,609 Due from other governments 6 4 - - Prepaid items - - - - Land held for resale - - - - Total assets 689,812$ 16,597$ 403,841$ 694,928$ Liabilities Accounts and contracts payable -$ 4,744$ 28,430$ -$ Due to other funds - - - - Due to other governments - - - - Salaries and benefits payable - - - - Total liabilities - 4,744 28,430 - Deferred Inflows of Resources Unavailable revenue - property taxes 27 11 - - Unavailable revenue - special assessments - - - - Total deferred inflows of resources 27 11 - - Fund Balances Nonspendable - - - - Restricted - - - - Committed - - - - Assigned 689,785 11,842 375,411 694,928 Unassigned - - - - Total fund balances 689,785 11,842 375,411 694,928 Total liabilities, deferred inflows of resources, and fund balances 689,812$ 16,597$ 403,841$ 694,928$ Capital Projects City of Mendota Heights Combining Balance Sheet - Nonmajor Governmental Funds December 31, 2023 Page 128 of 169 79 Pilot Knob Improvement Pre-1998 Non- Increment Special Assessment Capital Project TIF District No. 2 Fire Hall Remodel 15,300$ 363,151$ -$ 161,020$ 197$ - - - - 65 - - 11,348 - - - - 11,032 - - - 787 166 93 - - - - - - - - 1,374 - 68 - - - - - - 96,100 - - - 15,300$ 460,038$ 23,920$ 161,113$ 330$ -$ -$ 27,581$ 111,608$ -$ - - 368,609 - - - - - - - - - - - - - - 396,190 111,608 - - - - - 65 - - 11,348 - - - - 11,348 - 65 - - - - - - - - 49,505 - - - - - - 15,300 460,038 - - 265 - - (383,618) - - 15,300 460,038 (383,618) 49,505 265 15,300$ 460,038$ 23,920$ 161,113$ 330$ Capital Projects Page 129 of 169 80 (THIS PAGE LEFT BLANK Page 130 of 169 81 Capital Projects TIF District No. 3 Total Nonmajor Governmental Funds Assets Cash and investments 18,174$ 4,815,279$ Taxes receivable - delinquent - 4,643 Special assessments receivable Deferred - 11,348 Accounts receivable - 11,088 Interest receivable 6 6,292 Due from other funds - 368,609 Due from other governments - 17,876 Prepaid items - 7,398 Land held for resale - 96,100 Total assets 18,180$ 5,338,633$ Liabilities Accounts and contracts payable 17,904$ 209,749$ Due to other funds - 368,609 Due to other governments - 1,193 Salaries and benefits payable - 699 Total liabilities 17,904 580,250 Deferred Inflows of Resources Unavailable revenue - property taxes - 4,643 Unavailable revenue - special assessments 11,348 Total deferred inflows of resources 15,991 Fund Balances Nonspendable - 7,398 Restricted 276 1,452,565 Committed - 1,418,478 Assigned - 2,247,569 Unassigned - (383,618) Total fund balances 276 4,742,392 Total liabilities, deferred inflows of resources, and fund balances 18,180$ 5,338,633$ 45291 City of Mendota Heights Combining Balance Sheet - Nonmajor Governmental Funds Page 131 of 169 82 Water Revenue Special Park Civil Defense Street Lighting Revenues Property taxes -$ -$ 24,974$ 79,706$ Tax increments - - - - Intergovernmental - - - - Charges for services 160,492 - - - Fines and forfeitures - - 3 - Miscellaneous Investment income 44,715 25,905 7,966 962 Other - - - - Total revenues 205,207 25,905 32,943 80,668 Expenditures Current General government - - 15,298 93,359 Public safety - - - - Public works - 56,370 - - Economic development - - - - Debt service Principal - - - - Interest and other charges - - - - Capital outlay General government - 165,084 - - Public safety - - - - Public works - 355,704 - - Total expenditures - 577,158 15,298 93,359 Excess of revenues over (under) expenditures 205,207 (551,253) 17,645 (12,691) Other Financing Sources (Uses) Transfers in - 307,773 - - Transfers out (5,100) (1,500) - - Total other financing sources (uses) (5,100) 306,273 - - Net change in fund balances 200,107 (244,980) 17,645 (12,691) Fund Balances Beginning of year 910,754 798,260 173,143 33,950 End of year 1,110,861$ 553,280$ 190,788$ 21,259$ Special Revenue City of Mendota Heights Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2023 Page 132 of 169 83 Par 3 Golf Course Police Forfeiture Fund American Rescue Plan Act Par 3 G.O. Bonds Equipment Certficates -$ -$ -$ 632$ -$ - - - - - - - - - - 296,681 - - - - - - - - - 5,278 1,151 - 5,277 1,920 146 4,747 - - - 302,105 5,898 - 5,909 1,920 - - - - - - - - - - 280,602 - - - - - - - - - - - - 230,000 - - - - 3,450 - - - - - - - - - - - 37,288 - - - - 317,890 - - 233,450 - (15,785) 5,898 - (227,541) 1,920 - - - - - - - - - - - - - - - (15,785) 5,898 - (227,541) 1,920 140,012 23,136 862 349,902 43,136 124,227$ 29,034$ 862$ 122,361$ 45,056$ Special Revenue Debt Service Page 133 of 169 84 Fire Station Bonds Fire Truck Equipment Certificate Equipment Replacement Reserve Infrastructure Reserve Revenues Property taxes 622,679$ -$ 7$ 5$ Tax increments - - - - Intergovernmental - - - - Charges for services - - - - Fines and forfeitures 83 - - - Miscellaneous Investment income 12,570 18,557 2,305 1,249 Other - - - - Total revenues 635,332 18,557 2,312 1,254 Expenditures Current General government - - 16,746 - Public safety - - 29,587 - Public works - - 27,717 20,846 Economic development - - - - Debt service Principal 390,000 - - - Interest and other charges 197,125 993 - - Capital outlay General government - - - - Public safety - - 589,897 - Public works - - 260,000 - Total expenditures 587,125 993 923,947 20,846 Excess of revenues over (under) expenditures 48,207 17,564 (921,635) (19,592) Other Financing Sources (Uses) Transfers in - - 1,114,959 - Transfers out - (668,787) - - Total other financing sources (uses) - (668,787) 1,114,959 - Net change in fund balances 48,207 (651,223) 193,324 (19,592) Fund Balances Beginning of year 582,725 651,223 496,461 31,434 End of year 630,932$ -$ 689,785$ 11,842$ Capital Projects City of Mendota Heights Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2023 Debt Service Page 134 of 169 85 Facility Reserve Water Tower Capital Project Pilot Knob Improvement Pre-1998 Non-Increment Special Assessment Capital Project -$ -$ -$ -$ -$ - - - - - - - 20,000 - - - - - - - - - - - - 16,121 31,666 - 23,604 4,989 - - - 41,071 - 16,121 31,666 20,000 64,675 4,989 - - 7,368 - - - - - - - 7,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 28,430 48,592 - - 63,716 35,930 48,592 7,368 - 63,716 (19,809) (16,926) 12,632 64,675 (58,727) 35,930 - 10,000 - 37,414 - - - (196,000) - 35,930 - 10,000 (196,000) 37,414 16,121 (16,926) 22,632 (131,325) (21,313) 359,290 711,854 (7,332) 591,363 (362,305) 375,411$ 694,928$ 15,300$ 460,038$ (383,618)$ Capital Projects Page 135 of 169 86 (THIS PAGE LEFT BLANK Page 136 of 169 87 TIF District No. 2 Fire Hall Remodel TIF District No. 3 Total Other Governmental Funds Revenues Property taxes -$ 79$ -$ 728,082$ Tax increments 248,017 - 39,476 287,493 Intergovernmental - - - 20,000 Charges for services - - - 457,173 Fines and forfeitures - - - 86 Miscellaneous Investment income 2,782 - 192 207,209 Other - - - 45,964 Total revenues 250,799 79 39,668 1,746,007 Expenditures Current General government - - - 132,771 Public safety - - - 29,587 Public works - - - 393,035 Economic development 226,759 - 39,392 266,151 Debt service Principal - - - 620,000 Interest and other charges - - - 201,568 Capital outlay General government - - - 165,084 Public safety - - - 589,897 Public works - - - 793,730 Total expenditures 226,759 - 39,392 3,191,823 Excess of revenues over (under) expenditures 24,040 79 276 (1,445,816) Other Financing Sources (Uses) Transfers in - - - 1,506,076 Transfers out - - - (871,387) Total other financing sources (uses) - - - 634,689 Net change in fund balances 24,040 79 276 (811,127) Fund Balances Beginning of year 25,465 186 - 5,553,519 End of year 49,505$ 265$ 276$ 4,742,392$ Capital Projects City of Mendota Heights Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Year Ended December 31, 2023 Page 137 of 169 88 Compensated Absences City Hall Sinking Fund Total Assets Current assets Cash and investments (including cash equivalents) 731,347$ 90,636$ 821,983$ Interest receivable - 224 224 Prepaid expenses - 9,616 9,616 Total current assets 731,347 100,476 831,823 Noncurrent assets Capital assets Land - 25,000 25,000 Buildings - 2,279,024 2,279,024 Improvements other than buildings - 40,781 40,781 Machinery and equipment - 66,969 66,969 Total capital assets - 2,411,774 2,411,774 Less accumulated depreciation - (1,883,530) (1,883,530) Net capital assets - 528,244 528,244 Total assets 731,347 628,720 1,360,067 Deferred Outflows of Resources Deferred outflows of resources related to OPEB - 460 460 Deferred outflows of resources related to pensions - 14,154 14,154 Total deferred outflows of resources - 14,614 14,614 Total assets and deferred outflows of resources 731,347$ 643,334$ 1,374,681$ Liabilities Current liabilities Accounts and contracts payable -$ 7,688$ 7,688$ Salaries and benefits payable - 3,781 3,781 Due to other governments - 115 115 Noncurrent liabilities due within one year 507,988 8,645 516,633 Total current liabilities 507,988 20,229 528,217 Noncurrent liabilities Compensated absences 731,347 17,411 748,758 OPEB payable - 5,026 5,026 Net pension liability - 51,111 51,111 Less amount due within one year (507,988) (8,645) (516,633) Total noncurrent liabilities 223,359 64,903 288,262 Total liabilities 731,347 85,132 816,479 Deferred Inflows of Resources Deferred inflows of resources related to OPEB - 1,259 1,259 Deferred inflows of resources related to pensions - 17,412 17,412 Total deferred inflows of resources - 18,671 18,671 Net Position Investment in capital assets - 528,244 528,244 Unrestricted - 11,287 11,287 Total net position - 539,531 539,531 Total liabilities, deferred inflows of resources, and net position 731,347$ 643,334$ 1,374,681$ December 31, 2023 Combining Statement of Net Position - Internal Service Funds City of Mendota Heights Page 138 of 169 89 City of Mendota Heights Combining Statement of Revenues, Expenses, and Changes in Net Position - Internal Service Funds Year Ended December 31, 2023 City Hall Sinking Fund Total Operating Revenues Charges for services 216,940$ 216,940$ Operating Expenses Wages and salaries 76,263 76,263 Employee benefits 44,352 44,352 Professional services 4,576 4,576 Insurance 5,935 5,935 Utilities 42,330 42,330 Depreciation 36,324 36,324 Miscellaneous 34,415 34,415 Total operating expenses 244,195 244,195 Operating loss (27,255) (27,255) Nonoperating Revenues Investment income 6,720 6,720 Change in net position (20,535) (20,535) Net Position Beginning of year 560,066 560,066 End of year 539,531$ 539,531$ Page 139 of 169 90 Compensated Absences City Hall Sinking Fund Total Cash Flows - Operating Activities Receipts from customers and users -$ 217,100$ 217,100$ Payments to suppliers - (76,557) (76,557) Payments to employees 35,585 (115,522) (79,937) Net cash flows - operating activities 35,585 25,021 60,606 Cash Flows - Investing Activities Interest and dividends received - 6,649 6,649 Net change in cash and cash equivalents 35,585 31,670 67,255 Cash and Cash Equivalents Beginning of year 695,762 58,966 754,728 End of year 731,347$ 90,636$ 821,983$ Reconciliation of Operating Loss to Net Cash Flows - Operating Activities Operating loss -$ (27,255)$ (27,255)$ Operating activities Depreciation expense - 36,324 36,324 Due from other governments - 160 160 Prepaid items - (1,217) (1,217) Accounts payable - 11,898 11,898 Due to other governmental units - 18 18 Salaries payable - 619 619 OPEB payable - 130 130 Pension related items - 3,318 3,318 Compensated absences payable 35,585 1,026 36,611 Total adjustments 35,585 52,276 87,861 Net cash flows - operating activities 35,585$ 25,021$ 60,606$ City of Mendota Heights Combining Statement of Cash Flows - Internal Service Funds Year Ended December 31, 2023 Page 140 of 169 91 Budgeted Amounts Variance with Original Actual and Final Amounts Revenues Property taxes 9,580,964$ 9,601,169$ 20,205$ Licenses and permits 361,450 572,587 211,137 Intergovernmental revenue State grants and aids Fire aid 115,000 138,052 23,052 Police aid 175,000 197,825 22,825 Other grants and aids 250,000 942,223 692,223 Total intergovernmental revenue 540,000 1,278,100 738,100 Charges for services 681,884 687,087 5,203 Fines and forfeitures 91,500 67,725 (23,775) Miscellaneous revenues Investment income 20,000 441,494 421,494 Other 93,000 185,382 92,382 Total miscellaneous revenues 113,000 626,876 513,876 Total revenues 11,368,798 12,833,544 1,464,746 Expenditures General government Mayor and council Salaries and benefits 24,406 24,229 (177) Contracted services 25,500 18,591 (6,909) Administration and finance Salaries and benefits 936,775 932,429 (4,346) Materials and supplies 17,000 12,813 (4,187) Contracted services 412,050 442,612 30,562 City of Mendota Heights Detailed Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Final budget - over (under) General Fund Year Ended December 31, 2023 Page 141 of 169 92 Budgeted Amounts Variance with Original Actual Final budget - And final Amounts Over (under) Expenditures (Continued) General government (continued) Elections Salaries and benefits 40,997$ 55,307$ 14,310$ Materials and supplies 1,500 7,979 6,479 Contracted services - 18,238 18,238 Information technology Materials and supplies 94,169 17,943 (76,226) Contracted services 132,306 161,536 29,230 Planning and zoning Salaries and benefits 168,618 43,775 (124,843) Materials and supplies 4,000 971 (3,029) Contracted services 52,850 151,227 98,377 Recycling Materials and supplies 1,000 133 (867) Contracted services 40,980 7,997 (32,983) Miscellaneous Contracted services - 90,970 90,970 Total general government 1,952,151 1,986,750 34,599 Public safety Police protection Salaries and benefits 3,684,000 3,557,844 (126,156) Materials and supplies 263,000 229,187 (33,813) Contracted services 905,973 818,399 (87,574) Capital outlay - 39,933 39,933 Fire protection Salaries and benefits 358,813 367,204 8,391 Materials and supplies 147,200 163,957 16,757 Contracted services 497,850 482,776 (15,074) Total public safety 5,856,836 5,659,300 (197,536) Detailed Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - City of Mendota Heights General Fund Year Ended December 31, 2023 (Continued) Page 142 of 169 93 Budgeted Amounts Variance with Original Actual Final budget - And final Amounts Over (under) Expenditures (Continued) Public works Code enforcement Materials and supplies 3,250$ 4,228$ 978$ Contracted services 132,139 399,362 267,223 Street maintenance Salaries and benefits 1,380,173 1,225,682 (154,491) Materials and supplies 181,950 184,206 2,256 Contracted services 545,999 517,775 (28,224) Parks Salaries and benefits 794,480 819,938 25,458 Materials and supplies 357,000 267,789 (89,211) Contracted services 262,370 224,082 (38,288) Capital outlay - 63,115 63,115 Total public works 3,657,361 3,706,177 48,816 Total expenditures 11,466,348 11,352,227 (114,121) Excess of revenues over (under) expenditures (97,550) 1,481,317 1,578,867 Other Financing Sources (Uses) Issuance of leases - 39,933 39,933 Insurance recoveries 15,000 32,132 17,132 Transfer in 47,550 47,551 1 Transfer out - (603,876) (603,876) Total other financing sources (uses) 62,550 (484,260) (546,810) Net change in fund balance (35,000)$ 997,057 1,032,057$ Fund Balance Beginning of year 11,485,305 End of year 12,482,362$ Detailed Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund City of Mendota Heights Year Ended December 31, 2023 (Continued) Page 143 of 169 94 Page 144 of 169 95 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report Honorable Mayor and Members of the City Council City of Mendota Heights Mendota Heights, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Mendota Heights, Minnesota as of and for the year ended December 31, 2023, and the related notes to the basic financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated July 8, 2024. Report on Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify a certain deficiency in internal control, described in the accompanying Schedule of Finding and Response on Internal Control that we consider to be a material weakness as audit finding 2023-001. Page 145 of 169 96 Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City's Response to the Finding Government Auditing Standards requires the auditor to perform limited procedures on the City's response to the findings identified in our audit are described in the accompanying Schedule of Findings and Responses on Internal Control. The City's response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. St. Cloud, Minnesota July 8, 2024 Page 146 of 169 97 Minnesota Legal Compliance Independent Auditor's Report Honorable Mayor and Members of the City Council City of Mendota Heights Mendota Heights, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Mendota Heights, Minnesota as of and for the year ended December 31, 2023, and the related notes to financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated July 8, 2024. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the contracting – bid laws, depositories of public funds and public investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing sections of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statutes § 6.65, insofar as they relate to accounting matters. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City's noncompliance with the above referenced provisions, insofar as they relate to accounting matters. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. St. Cloud, Minnesota July 8, 2024 Page 147 of 169 98 City of Mendota Heights Schedule of Findings and Response on Legal Compliance and Internal Control CURRENT AND PRIOR YEAR INTERNAL CONTROL FINDING: Material Weakness: Audit Finding 2023-001 – Lack of Segregation of Accounting Duties The City had a lack of segregation of accounting duties due to a limited number of office employees. The lack of adequate segregation of accounting duties could adversely affect the City's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. This lack of segregation of accounting duties can be demonstrated in the following areas, which is not intended to be an all-inclusive list: The Finance Director has the ability to receipt City service revenue, prepares the deposit receipts, is responsible for coding, and prepares the Treasurer's report for the City Council. The Utility Billing Clerk enters consumption into the utility billing system, prepares and reviews utility bills, applies payments to customer accounts, and has the ability to make adjustments to customer accounts. The Finance Director performs year-end reconciliations and closing entries without review. In addition to having responsibilities in the cycles listed above, the City's Finance Director has full general ledger access and the ability to write and post In addition to having responsibilities in the cycles listed above, the City's Finance Director has full general ledger access and the ability to write and post journal entries. While we believe this access is necessary to efficiently perform the financial duties required, this access allows the ability to override many of the controls and segregation the City has in place. The City has implemented certain controls to mitigate the risk due to the lack of segregation of accounting duties, including but not limited to reviewing adjustments to customer accounts before they are posted, having a non-finance employee prepare bank reconciliations and review of all journal entries. However, due to the number of staff needed to properly segregate all of the accounting duties, the cost of obtaining desirable segregation of accounting duties can often exceed benefits which could be derived. However, management and the City Council must remain aware of this situation and should continually monitor the accounting system, including changes that occur. We recommend that the City review the internal control process over the year-end closing process to ensure segregation or independent review be implemented whenever practical and cost effective. City's Response: The City is aware of the lack of segregation of duties. There are processes in place to have multiple staff perform duties as to ensure one person is not responsible for all parts of any process. The addition of staff to further segregate duties is not cost effective. Page 148 of 169 City of Mendota Heights Dakota County, Minnesota Communications Letter December 31, 2023 Page 149 of 169 City of Mendota Heights Table of Contents Report on Matters Identified as a Result of the Audit of the Basic Financial Statements 1 Material Weakness 3 Required Communication 4 Financial Analysis 8 Emerging Issues 17 Page 150 of 169 1 Report on Matters Identified as a Result of the Audit of the Basic Financial Statements Honorable Mayor, Members of the City Council and Management City of Mendota Heights Mendota Heights, Minnesota In planning and performing our audit of the basic financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the City of Mendota Heights, Minnesota, as of and for the year ended December 31, 2023, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that have not been identified. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error, or fraud may occur and not be detected by such controls. However, as discussed below, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the City's basic financial statements will not be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the likelihood of an event occurring is either reasonably possible or probable as defined as follows: Reasonably possible. The chance of the future event or events occurring is more than remote but less than likely. Probable. The future event or events are likely to occur. The material weakness identified is stated within this letter. The accompanying memorandum also includes financial analysis provided as a basis for discussion. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditor's Report dated July 8, 2024, on such statements. Page 151 of 169 2 This communication is intended solely for the information and use of management, the City Council, others within the City and state oversight agencies and is not intended to be, and should not be, used by anyone other than these specified parties. St. Cloud, Minnesota July 8, 2024 Page 152 of 169 3 City of Mendota Heights Material Weakness Lack of Segregation of Accounting Duties The City had a lack of segregation of accounting duties due to a limited number of office employees. The lack of adequate segregation of accounting duties could adversely affect the City's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. This lack of segregation of accounting duties can be demonstrated in the following areas, which is not intended to be an all-inclusive list: The Finance Director has the ability to receipt City service revenue, prepares the deposit receipts, is responsible for coding, and prepares the Treasurer's report for the City Council. The Utility Billing Clerk enters consumption into the utility billing system, prepares and reviews utility bills, applies payments to customer accounts, and has the ability to make adjustments to customer accounts. In addition to having responsibilities in the cycles listed above, the City's Finance Director has full general ledger access and the ability to write and post journal entries. While we believe this access is necessary to efficiently perform the financial duties required, this access allows the ability to override many of the controls and segregation the City has in place. The City has implemented certain controls to mitigate the risk due to the lack of segregation of accounting duties, including but not limited to reviewing adjustments to customer accounts before they are posted, having a non-finance employee prepare bank reconciliations and review of all journal entries. However, due to the number of staff needed to properly segregate all of the accounting duties, the cost of obtaining desirable segregation of accounting duties can often exceed benefits which could be derived. However, management and the City Council must remain aware of this situation and should continually monitor the accounting system, including changes that occur. We recommend that the City review the internal control process to ensure segregation or independent review be implemented whenever practical and cost effective. Page 153 of 169 4 City of Mendota Heights Required Communication We have audited the basic financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended December 31, 2023. Professional standards require that we advise you of the following matters related to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter, our responsibility, as described by professional standards, is to form and express opinions about whether the basic financial statements prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the basic financial statements does not relieve you or management of its respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the basic financial statements are free of material misstatement. An audit of the basic financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City 's internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgement, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Generally accepted accounting principles provide for certain Required Supplementary Information (RSI) to supplement the basic financial statements. Our responsibility with respect to the RSI, which supplements the basic financial statements, is to apply certain limited procedures in accordance with generally accepted auditing standards. However, the RSI was not audited and, because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance, we do not express an opinion or provide any assurance on the RSI. Our responsibility for the supplementary information accompanying the basic financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the basic financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Our Responsibility in Relation to Government Auditing Standards As communicated in our engagement letter, part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of basic financial statement amounts. However, the objective of our tests was not to provide an opinion on compliance with such provisions. Planned Scope and Timing of the Audit We conducted our audit consistent with the planned scope and timing we previously communicated to you. Page 154 of 169 5 City of Mendota Heights Required Communication Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, our firm, and our network firms have complied with all relevant ethical requirements regarding independence. Significant Risks Identified We have identified the following significant risks of material misstatement: Risk of Improper Revenue Recognition – Revenue recognition is considered a fraud risk on substantially all engagements as it is generally the largest line item impacting a City's change in fund balance or net position. Risk of Misappropriation of Assets – Misappropriation of Assets is considered a risk in substantially all engagements as assets may be misappropriated due to fraud or error. Risk of Management Override of Controls – Management override of internal control is considered a risk in substantially all engagements as management may be incentivized to produce better results. Lease Valuation - Lease Receivable and Related Deferred Inflows of Resources - These are material to the financial statements and involve significant estimates. Pension Valuation - Net Pension Liability, Deferred Outflows of Resources Related to Pensions, and Deferred Inflows of Resources Related to Pensions - These are generally material to the financial statements and involve significant estimates. Other Post-Employment Benefits Valuation - Total OPEB Liability, Deferred Outflows of Resources Related to OPEB, and Deferred Inflows of Resources Related to OPEB - These are generally material to the financial statements and involve significant estimates. Qualitative Aspects of the City's Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in the notes to the basic financial statements. There have been no initial selection of accounting policies and no changes to significant accounting policies or their application during 2023. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the basic financial statements prepared by management and are based on management's current judgements. Those judgements are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the basic financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgements. The most sensitive estimates affecting the basic financial statements related to: Lease Receivable and Related Deferred Inflows of Resources - These balances are based on estimates and judgments determined by the City related to the discount rate, lease term, and lease payments. Page 155 of 169 6 City of Mendota Heights Required Communication Qualitative Aspects of the City's Significant Accounting Practices (Continued) Significant Accounting Estimates (Continued) Total Other Post Employment Benefits (OPEB) Liability, Deferred Outflows of Resources Related to OPEB, and Deferred Inflows of Resources Related to OPEB – These balances are based on an actuarial study using the estimates of future obligations of the City for post employment benefits. Net Pension Liability, Deferred Outflows of Resources Related to Pensions and Deferred Inflows of Resources Related to Pensions – These balances are based on an allocation by the pension plans using estimates based on contributions. We evaluated the key factors and assumptions used to develop the accounting estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. Financial Statement Disclosures Certain basic financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The basic financial statement disclosures are neutral, consistent, and clear. Significant Difficulties Encountered during the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For the purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effects of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the basic financial statements taken as a whole and each applicable opinion unit. Management did not identify, and we did not notify them of any uncorrected financial statement misstatements In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the basic financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City's basic financial statements or the auditor's report. No such disagreements arose during the course of our audit. Representations Requested from Management We have requested certain written representations from management, which are included in the management representation letter. Page 156 of 169 7 City of Mendota Heights Required Communication Management's Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management has informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating and regulatory conditions affecting the City, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City's auditor. Other Information Included in Annual Reports Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City's annual reports, does not extend beyond the information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. We applied certain limited procedures to the RSI that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the basic financial statements or to the basic financial statements themselves. Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the basic financial statements. Page 157 of 169 City of Mendota Heights Financial Analysis 8 The following pages provide graphic representation of select data pertaining to the financial position and operations of the City for the past four years. Our analysis of each graph is presented to provide a basis for discussion of past performance and how implementing certain changes may enhance future performance. We suggest you view each graph and document if our analysis is consistent with yours. A subsequent discussion of this information should be useful for planning purposes. General Fund Revenues The General Fund revenues for the past five years are depicted in the following graph. 2019 2020 2021 2022 2023 Other $509,614 $412,446 $328,838 $129,072 $694,601 Charges for Services 716,877 677,925 736,356 641,490 687,087 Intergovernmental 529,235 1,435,730 521,938 735,603 1,278,100 Licenses and Permits 480,249 405,376 619,710 731,480 572,587 Taxes and Assessments 7,509,301 7,959,743 8,243,823 8,935,145 9,601,169 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 General Fund Revenues General Fund revenue increased $1,660,754, or 14.9%, during the year, from $11,172,790 in 2022 to $12,833,544 in 2023. The largest fluctuation occurred in taxes and assessments, which increased $666,024 due to an increase in the amount of taxes levied in 2023. Intergovernmental revenue increased $542,497 due to an increase in the number of grants received. Charges for services increased $45,597. This increase is smaller than the past years due to the police department having one less contract for police services. Other revenue increased $565,529 due to a positive market value adjustment related to better market conditions. License and permit revenue decreased $158,893 due to a decrease in the number of building permits. Page 158 of 169 City of Mendota Heights Financial Analysis 9 General Fund Revenues (Continued) Taxes and Assessments 75% Licenses and Permits 5%Intergovernmental 10% Charges for Services 5% Other 5% 2023 General Fund Revenues Taxes and Assessments 80% Licenses and Permits 6% Intergovernmental 7% Charges for Services 6% Other 1% 2022 General Fund Revenues Page 159 of 169 City of Mendota Heights Financial Analysis 10 General Fund Expenditures The General Fund expenditures for the past five years are depicted in the following graph. 2019 2020 2021 2022 2023 Debt Service $-$-$-$45,017 $95,847 Capital Outlay -2,478 54,611 251,876 103,048 General Government 1,676,334 1,890,278 1,757,792 2,066,147 1,890,903 Public Works 2,645,909 2,632,290 2,795,095 3,172,510 3,643,062 Public Safety 4,607,105 4,885,438 5,034,195 5,106,234 5,619,367 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 General Fund Expenditures General Fund expenditures increased $710,443, or 6.7%, from $10,641,784 in 2022 to $11,352,227 in 2023. Public safety increased the most from 2022, by $513,133, or 10.1%. This increase is due to the purchase of a new fire truck. Public works increased $470,552, or,14.8% due in part to changing to contracted building inspection services. General government expenditures decreased $175,244 or 8.5% due to a prior year lawsuit settlement payment. Capital outlay decreased $148,828 due to the implementation of GASB 87 in prior year. Page 160 of 169 City of Mendota Heights Financial Analysis 11 General Fund Expenditures (Continued) General Government 17% Public Safety 49% Public Works 32%Capital Outlay 1% Debt Service 1% 2023 General Fund Expenditures General Government 19% Public Safety 48% Public Works 30%Capital Outlay 2% Debt Service 1% 2022 General Fund Expenditures Page 161 of 169 City of Mendota Heights Financial Analysis 12 General Fund Expenditures (Continued) The table below presents a comparison of budget and actual General Fund revenues and expenditures by function. In total, the fund's expenditures were $114,121, or 1.0%, under budgeted expenditures of $11,466,348. The fund's revenue was $1,464,746, or 12.9%, over budgeted revenues of $11,368,798. Licenses and permits revenue was $211,137 over budget due to budgeting conservatively. Intergovernmental revenue was $738,100 over budget due to budgeting conservatively and receiving one-time public safety aid from the State of Minnesota. Other revenue was $490,101 over budget due to better market conditions at year end. All other functions were consistent with the budgeted amounts. Public Safety expenditures were under budget by $237,469. This was due to the police staffing turnover causing vacancies and variations in personnel levels. Capital outlay expenditures were $103,048 over budget due in part, to the issuance of leases. All other functions were relatively consistent with the budgeted amounts. Variance Original and Final Budget - Final Budget Amounts Over (Under) Revenues Taxes and assessments 9,580,964$ 9,601,169$ 20,205$ Licenses and permits 361,450 572,587 211,137 Intergovernmental 540,000 1,278,100 738,100 Charges for services 681,884 687,087 5,203 Other 204,500 694,601 490,101 Total revenues 11,368,798 12,833,544 1,464,746 Expenditures General government 1,952,151 1,890,903 (61,248) Public safety 5,856,836 5,619,367 (237,469) Public works 3,657,361 3,643,062 (14,299) Capital outlay - 103,048 103,048 Debt service: Principal - 95,847 95,847 Total expenditures 11,466,348 11,352,227 (114,121) Other financing sources (uses) Insurance Proceeds 15,000 32,132 17,132 Bond premium - - - Proceeds from leases - 39,933 39,933 Transfers in 47,550 47,551 1 Transfers out - (603,876) (603,876) Total other financing sources (uses)62,550 (484,260) (546,810) Net change in fund balances (35,000)$ 997,057$ 1,032,057$ Page 162 of 169 City of Mendota Heights Financial Analysis 13 General Fund Operations The bar chart below highlights General Fund results for the last five years. 80% 100% 120% $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 2019 2020 2021 2022 2023 Revenues $9,745,276 $10,891,220 $10,450,665 $11,172,790 $12,833,544 Expenditures 8,929,348 9,410,484 9,641,693 10,641,784 11,352,227 Fund Balance 9,352,885 10,684,511 11,349,217 11,485,305 12,482,362 Fund Balance as a Percent of the Year's Expenditures 105%114%118%108%110% General Fund Operations As shown in the chart, the City's fund balance increased to its highest point in the five years presented. The amount of fund balance as a percentage of the current year's expenditures had increased steadily since 2018, with a slight decrease in 2022 due to increased 2022 expenditures levels with an increase again in 2023. The City implemented a policy in accordance with GASB 54 whereby the General Fund's unassigned fund balance is at least 75% of the subsequent year's budgeted expenditures. As of December 31, 2023, the City's unassigned General Fund balance of $12,090,906 was 98% of 2024 budgeted expenditures. Page 163 of 169 City of Mendota Heights Financial Analysis 14 Tax Capacity, Levy, and Rates The chart below graphs the tax capacity, certified tax levy, and City tax rate for 2019 through 2023. The tax capacity is based on total tax capacity, prior to adjustments for captured Tax Increment Financing (TIF) and fiscal disparities. The certified tax levy amount is also prior to fiscal disparity adjustments. With improving market values, the City's tax capacity increased from 2019 to 2023 by $9,396,016 or 37.6%. In 2023, the City's tax capacity increased $4,553,098. $25,020,902 $27,187,958 $28,860,073 $29,863,820 $34,416,918 $9,435,150 $10,048,724 $10,482,617 $11,194,705 $11,947,424 39.29%38.32%37.85%39.74% 36.89% 0.00% 4.00% 8.00% 12.00% 16.00% 20.00% 24.00% 28.00% 32.00% 36.00% 40.00% 44.00% 48.00% 52.00% 56.00% 60.00% 64.00% 68.00% $- $2,500,000 $5,000,000 $7,500,000 $10,000,000 $12,500,000 $15,000,000 $17,500,000 $20,000,000 $22,500,000 $25,000,000 $27,500,000 $30,000,000 $32,500,000 $35,000,000 $37,500,000 2019 2020 2021 2022 2023 Tax Capacity, Levy, and Rates* Total Tax Capacity Certified Tax Levy Tax Capacity Rate * Property tax data was obtained from Dakota County. Page 164 of 169 City of Mendota Heights Financial Analysis 15 Enterprise Funds Sewer Utility Fund The following graph presents a five-year history of the Sewer Utility Fund. Due to the nature and cost of Sewer Utility Fund assets, it is often difficult to establish sewer rates that are sufficient to cover the current year's use of the assets represented by depreciation expense. Ideally, Sewer Utility Fund revenues should cover all operating expenses, including depreciation. The Sewer Utility Fund had an operating income of $451,954, which included recognition of $199,707 of depreciation expense. Revenues exceeded expenses in all five years presented. Net position of the fund increased $584,651 after factoring in nonoperating revenues, and net transfers. 2019 2020 2021 2022 2023 Charges for Services $2,045,839 $2,317,640 $2,386,252 $2,411,225 $2,482,543 Operating Expenses 2,001,963 2,024,291 2,273,926 2,169,268 2,030,589 Operating Income (Loss)43,876 293,349 112,326 241,957 451,954 Operating Income (Loss) Excluding Depreciation 230,990 494,261 314,413 447,592 651,661 $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 Sewer Fund Page 165 of 169 City of Mendota Heights Financial Analysis 16 Enterprise Funds (Continued) Storm Water Fund The Storm Water Fund had operating income of $141,160, which included recognition of depreciation expense of $55,407. Net position increased $151,247 in 2023 after factoring in nonoperating revenues and transfers out. The fund has shown operating income for all years presented. $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 2019 2020 2021 2022 2023 Charges for Services $507,769 $578,799 $582,537 $586,430 $589,829 Operating Expenses 275,606 225,841 404,573 190,036 448,669 Operating Income (Loss)232,163 352,958 177,964 396,394 141,160 Operating Income (Loss) Excluding Depreciation 279,127 404,241 232,408 450,838 196,567 Storm Water Fund Page 166 of 169 City of Mendota Heights Emerging Issues 17 Executive Summary The following is an executive summary of financial related updates to assist you in staying current on emerging issues in accounting and finance. This summary will give you a preview of the new standards that have been recently issued and what is on the horizon for the near future. The most recent and significant updates include: Implementation Guide No. 2021-1 – Amending Capitalization Requirements GASB has issued Implementation Guide No. 2021-1, amending previously issued guidance regarding capitalization requirements for capital assets that are significant in the aggregate but below the government’s capitalization threshold individually. Accounting Standard Update – GASB Statement No. 100 – Accounting Changes and Error Corrections GASB has issued GASB Statement No. 100 relating to accounting and financial reporting for accounting changes and error corrections. The requirements of this Statement will improve the clarity of the accounting and financial reporting requirements for accounting changes and error corrections, which will result in greater consistency in application in practice. In turn, more understandable, reliable, relevant, consistent, and comparable information will be provided to financial statement users for making decisions or assessing accountability. Accounting Standard Update – GASB Statement No. 101 – Compensated Absences GASB has issued GASB Statement No. 101 relating to accounting and financial reporting for compensated absences. The unified recognition and measurement model in this Statement will result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. In addition, the model can be applied consistently to any type of compensated absence and will eliminate potential comparability issues between governments that offer different types of leave. The following is an extensive summary of the current updates. As your continued business partner, we are committed to keeping you informed of new and emerging issues. We are happy to discuss these issues with you further and their applicability to your City. Implementation Guide No. 2021-1 – Amending Capitalization Requirements Implementation Guide No. 2021-1, amended previously issued guidance contained in Implementation Guide No. 2015-1 regarding capitalization requirements for capital assets that are significant in the aggregate. Original guidance stated that it may be appropriate for a government to establish a capitalization policy that would require capitalization for certain types of assts with individual acquisition costs that are less than the threshold for an individual asset. Amended guidance states that a government should capitalize assets whose individual acquisition costs are less than the threshold for an individual asset if those assets in the aggregate are significant. Computers and classroom furniture are common examples of asset types that could be significant collectively. The amended guidance clarifies that if 100 computers costing $1,500 each totaling a $150,000 aggregate amount is significant, the government should capitalize the computers. Information provided above was obtained from www.gasb.org. Page 167 of 169 City of Mendota Heights Emerging Issues 18 Accounting Standard Update – GASB Statement No. 100 – Accounting Changes and Error Corrections – an Amendment of GASB Statement No. 62 The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. This Statement defines accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and describes the transactions or other events that constitute those changes. As part of those descriptions, for (1) certain changes in accounting principles and (2) certain changes in accounting estimates that result from a change in measurement methodology, a new principle or methodology should be justified on the basis that it is preferable to the principle or methodology used before the change. That preferability should be based on the qualitative characteristics of financial reporting – understandability, reliability, relevance, timeliness, consistency, and comparability. This Statement also addresses corrections of errors in previously issued financial statements. This Statement prescribes the accounting and financial reporting for (1) each type of accounting change and (2) error corrections. This Statement requires that (a) changes in accounting principles and error corrections be reported retroactively by restating prior periods, (b) changes to or within the financial reporting entity be reported by adjusting beginning balances of the current period, and (c) changes in accounting estimates be reported prospectively by recognizing the change in the current period. The requirements of this Statement for changes in accounting principles apply to the implementation of a new pronouncement in absence of specific transition provisions in the new pronouncement. This Statement also requires that the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, be displayed by reporting unit in the financial statements. This Statement requires disclosure in notes to financial statements of descriptive information about accounting changes and error corrections, such as their nature. In addition, information about the quantitative effects on beginning balances of each accounting change and error correction should be disclosed by reporting unit in a tabular format to reconcile beginning balances as previously reported to beginning balances as restated. Furthermore, this Statement addresses how information that is affected by a change in accounting principle or error correction should be presented in Required Supplementary Information (RSI) and Supplementary Information (SI). For periods that are earlier than those included in the basic financial statements, information presented in RSI or SI should be restated for error corrections, if practicable, but not for changes in accounting principles. GASB Statement No. 100 is effective for reporting periods beginning after June 15, 2023. Earlier application is encouraged. Information provided above was obtained from www.gasb.org. Page 168 of 169 City of Mendota Heights Emerging Issues 19 Accounting Standard Update – GASB Statement No. 101 – Compensated Absences The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences. This Statement requires that a liability for certain types of compensated absences – including parental leave, military leave, and jury duty leave – not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee's pay rate as of the date of the financial statements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. With respect to financial statements prepared using the current financial resources measurement focus, this Statement requires that expenditures be recognized for the amount that normally would be liquidated with expendable available financial resources. This Statement amends the existing requirement to disclose the gross increases and decreases in a liability for compensated absences to allow governments to disclose only the net change in the liability (as long as they identify it as a net change). In addition, governments are no longer required to disclose which governmental funds typically have been used to liquidate the liability for compensated absences. GASB Statement No. 101 is effective for reporting periods beginning after December 15, 2023. Earlier application is encouraged. Information provided above was obtained from www.gasb.org. Page 169 of 169