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2007 Management Letter r ' CITY OF ALBERTVILLE Wright County, Minnesota ' Management Letter For the Year Ended December 31, 2007 L u n C 7 L u 0 CITY OF ALBERTVILLE ' Wright County, Minnesota TABLE OF CONTENTS ' REPORT ON MATTERS IDENTIFIED AS A RESULT OF THE AUDIT OF THE FINANCIAL STATEMENTS ................................................... 1 MATERIAL WEAKNESS .................................................................................................. 3 ' SIGNIFICANT DEFICIENCY ........................................................................................... LEGAL COMPLIANCE FINDINGS ................................................................................ 4 5 RECOMMENDATIONS FOR MANAGEMENT ............................................................ 6 ' REQUIRED COMMUNICATION .................................................................................... FINANCIAL ANALYSIS .................................................................................................... 9 12 u ~i r ~~ u u April 7, 2008 ' Honorable Mayor and Members of the City Council City of Albertville Albertville, Minnesota I~DV Expert advice. When you need it.s"' In planning and performing our audit of the financial statements of the City of Albertville, as of ' and for the year ended December 31, 2007, in accordance with U.S. generally accepted auditing standards and Government Auditing Standards, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the ' purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. ' Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be ' significant deficiencies or material weaknesses. The deficiencies in internal control we identified are stated within this letter. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, ' process or report financial data reliably in accordance with U.S. generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the ' City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that ' results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. u i~ I~DV The accompanying memorandum includes financial analysis and recommendations for improvement of accounting procedures and internal control measures that came to our attention as a result of our audit of the financial statements of the City for the year ended December 31, 2007. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditors' Report dated April 7, 2008 on such statements. This communication is intended solely for the information and use of management and the City Council and is not intended to be and should not be used by anyone other than these specified parties. KERN, DEWENTER, VIERS, LTD. Minneapolis, Minnesota n i~ CITY LLE OF ALBERTVI Wright County, Minnesota MATERIAL WEAKNESS December 31, 2007 PRIOR PERIOD ADJUSTMENTS Prior period adjustments were proposed to correct prior financial statements. In the Sewer Fund, the adjustments were for bond discounts not recorded in previous years that were identified during our audit. In the Water Fund, the adjustment was for a piece of equipment omitted from the listing in prior years. In the government-wide financial statements, the prior period adjustment was due to infrastructure not capitalized in the previous years. The financial statements are the responsibility of the City. Management controls should be reviewed and implemented to properly identify completed projects and the appropriate presentation of these items as it relates to the financial statements. n i !J fl J ~~ t i~ 0 [I [', ~J CITY OF ALBERTVILLE Wright County, Minnesota SIGNIFICANT DEFICIENCY December 31, 2007 LACK OF SEGREGATION OF ACCOUNTING DUTIES During the year ended December 31, 2007, the City had a lack of segregation of accounting duties due to a limited number of office employees. This lack of segregation of accounting duties can be demonstrated in the following areas, which is not intended to be an all inclusive list: During audit and review of the utility billing process, lack of segregation of accounting duties was noted as follows: • The Finance Director posts utility billing information into the general ledger, has the ability to make adjustments to bills and maintains customers and rates. • The Administrative Assistant I manually enters some meter readings, calculates the utility billings, maintains customer accounts, enters credit card payments from the counter, mails the utility bills, enters the billing payments and maintains the billing register. During audit and review of the payroll process, lack of segregation of accounting duties was noted as follows: • The Finance Director maintains control of checks, sets up/maintains employee payroll records, processes payroll, post payroll to the general ledger, prepares checks, issues checks or direct deposits, reconciles the bank account, prepares the payroll taxes, prepares all W 2's, as well as maintaining all data files and the payroll program. During audit and review of the governmental revenue, lack of segregation of accounting duties was noted as follows: • The Building Technician fills out permit fees schedules, has access to receive payments and scans all permits and/or inspections into a house file. • The Finance Director enters all accounts receivables invoices, maintains the accounts receivable billings, reports all outstanding bills to the City Council and posts all payments to the general ledger. • The Administrative Assistance I collects fines and fees, sends out all account receivable invoices, receives payments and enters them into the POS module. During audit and review of the cash receipting process, lack of segregation of accounting duties was noted as follows: • The Finance Director is able to receive cash receipts at the front window and has read/write access to the general ledger. During audit and review of the cash disbursement process, lack of segregation of accounting duties was noted as follows: • The Finance Director verifies purchase orders to invoices and can also enter disbursements into the Accounts Payable module. Additionally, the Finance Director processes accounts payable and prints the checks. 4 u CITY OF ALBERTVILLE Wright County, Minnesota LEGAL COMPLIANCE FINDINGS December 31, 2007 OUT OF STATE TRAVEL POLICY The City does not have a policy regarding travel outside of Minnesota. Minnesota Statutes 471.661 states all cities must have an approved policy that controls travel outside the state of Minnesota which specifies when out of state travel is appropriate, the expense limits of out of state travel and procedures for approval of the travel. We recommend the City comply with state statutes and develop a written policy for out of state travel, which is approved by the City Council. The policy should specify when out of state travel is appropriate, expense limits for out of state travel and procedures for approval of out of state travel. OBTAIN SUFFICIENT COLLATERAL ON DEPOSITS Minnesota Statutes 118A.03 provides all deposits with financial institutions must be collateralized in an amount equal to 110% of deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance. If irrevocable standby letters of credit from federal home loan banks are used, the collateral amount must be equal to the amount of the excess deposit plus interest at the close of the banking day. Deposits at Premier Bank were undercollateralized by $ 24,553 at December 31, 2007. Additional collateral of $ 27,008 was needed for these deposits to be fully collateralized. We recommend the City monitor the collateral held at all banks during the year to ensure the City's deposits are adequately secured and in compliance with statutes. C C r] L_; CITY OF ALBERTVILLE Wright County, Minnesota RECOMMENDATIONS FOR MANAGEMENT December 31, 2007 DEVELOP A PLAN FOR IMPROVED FINANCIAL PERFORMANCE AND ACCOUNTABILITY During the audit, we noted the General Fund cash and investments fell to a balance of $ 845,763, which is a 44.6% decrease from the prior year. The City budgeted fora $ 74,999 increase in the General Fund balance for the 2007 operating year but did not take into account net transfers out. For 2007, net transfers out were $ 864,267, causing the decrease in the General Fund balance of $ 756,547. VVe have identified two areas for improvement of financial condition of the City's General Fund. They are: plan for a balanced budget and develop a plan to eliminate negative cash balances/fund balances. A. Plan for a Balanced Budget 1. Background and City History A budget is a comprehensive financial plan that outlines City activities and service levels and contains estimates of probable costs and available revenues during the coming year. The budget should be referred to throughout the year with comparison of year to date activity to budgeted amounts. The League of Minnesota Cities has developed a comprehensive budgeting guide for Minnesota cities. A summary of procedures are listed below as a guideline for the City. 2. Budgeting Procedures The first step in the budgeting process is to estimate revenues sources. The City should look at the past performance of the revenue and the future potential. After estimating all other revenues and assessments, the City must determine the amount of money needed from property taxes to meet the required expenditures level. This amount should be an amount sufficient to balance the budget, including transfers out to other funds. Secondly, the City should look at its expenditures and transfers out and estimate a reasonable budget that does not exceed the amount of revenues budgeted. The City should implement controls related to the budget to ensure that it is working toward its goal of a balanced budget with an increase in the fund balance. Two controls recommended in the Handbook for Minnesota Cities by the League of Minnesota Cities are listed on the following page. ~: ~ ~. CITY OF ALBERTVILLE Wright County, Minnesota RECOMMENDATIONS FOR MANAGEMENT December 31, 2007 DEVELOP A PLAN FOR IMPROVED FINANCIAL PERFORMANCE AND ACCOUNTABILITY A. Plan for a Balanced Budget (Continued) 3. Budget Controls For the budget to be meaningful, the City Council and City employees need to follow it. There are two controls the City should exercise with respect to the budget: a. A requirement that no disbursement/transfer should occur until a designated person has checked to see whether or not adequate funds are available. If a disbursement/transfer is not budgeted for in the original budget, a subsequent budget resolution should be passed. Once a city adopts a budget, only the city council should authorize a deviation. b. A budget reporting system; the City Council should require a monthly or quarterly report that details for each budget item, the budgeted amount, the amount disbursed to date and the budgeted amount that remains unspent or uncommitted. Starting in 2004, the City began transferring money from the General Fund to cover costs in other funds. While these transfers were approved by the City Council, they were not taken into account in the preparation of the budget. See the table below for the net transfers out and the effect on fund balance for 2004 through 2007. t 2004 2005 2006 2007 ' Net Transfers Out $ 633,111 $ 473,000 $ 492,477 $ 864,267 As shown in the table below, in addition to not budgeting for transfers, the City's expenditures have exceeded budget in three out of the last five years. 2003 2004 2005 2006 2007 Expenditure Budget $ 1,967,170 Actual Expenditures 1,981,263 Variance with Budget 14,093 $ 2,269,991 2,005,118 (264,873) $ 2,367,791 $ 2,857,864 $ 3,192,548 2,421,755 3,301,238 3,188,617 53,964 443,374 (3,931) ~r~ ~J CITY OF ALBERTVILLE Wright County, Minnesota RECOMMENDATIONS FOR MANAGEMENT December 31, 2007 DEVELOP A PLAN FOR IMPROVED FINANCIAL PERFORMANCE AND ACCOUNTABILITY B. Develop a Plan to Reduce Deficit Cash Balances in all Funds At December 31, 2007, 11 of the City's funds had a deficit cash balance which required the use of interfund loans. In addition to the negative cash balances, all of these funds also have a deficit fund balance position. If these projects are substantially completed, the funds should be closed and the deficit eliminated as soon as all portions of the project have been paid for. For projects that are just beginning, we recommend the City Council develop a plan for funding that would include what the expected sources of revenue are and also where the fund should be closed if the project is determined to be unachievable or is complete. it n 1 ~ a CITY OF ALBERTVILLE Wright County, Minnesota REQUIRED COMMUNICATION December 31, 2007 We have audited the basic financial statements of the City for the year ended December 31, 2007 and have issued our report dated April 7, 2008. Professional standards require that we provide you with the following information related to our audit. OUR RESPONSIBILITY UNDER U.S. GENERALLY ACCEPTED AUDITING STANDARDS, GOVERNMENT AUDITING STANDARDS AND OMB CIRCULAR A-133 As stated in our engagement letter, our responsibility, as described by professional standards, is ' to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. As part of obtaining reasonable assurance about whether the City's financial statements are free 1 of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit. We also considered internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with U.S. Office of Management and Budget OMB Circular A- 133. Also, in accordance with OMB Circular A-133, we examined, on a test basis, evidence about the City's compliance with the types of compliance requirements described in the OMB Circular A- 133 Compliance Supplement applicable to its major federal program for the purpose of expressing an opinion on the City's compliance with those requirements. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City's compliance with those requirements. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously communicated to you. 0 n C r_ n CITY OF ALBERTVILLE Wright County, Minnesota REQUIRED COMMUNICATION December 31, 2007 QUALITATIVE ASPECTS OF ACCOUNTING PRACTICES Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2007. We noted no transactions entered into during the year for which there is a lack. of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Depreciation -The City is currently depreciating its capital assets over their estimated useful lives, as determined by management, using the straight-line method. s !] C r Expense Allocation -Certain expenses are allocated to functions based on an estimate of the benefit to that particular function. Examples are salaries, benefits and supplies. We evaluated the key factors and assumptions used to develop the above estimates in determining they are reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent and clear. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no difficulties in dealing with management in performing and completing our audit. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. There were uncorrected misstatements related to depreciation expense and litigation costs. Management has determined the effect is immaterial both individually and in the aggregate, to the financial statements taken as a whole. ' 10 0 u ii C 'J CITY OF ALBERTVILLE Wright County, Minnesota REQUIRED COMMUNICATION December 31, 2007 DISAGREEMENTS WITH MANAGEMENT For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. MANAGEMENT REPRESENTATIONS We requested certain representations from management which were provided to us in the management representation letter. MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditors' opinion that maybe expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. We are not aware of any consultations by the City's management with other accountants during the course of our audit. OTHER ISSUES We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS We have not reviewed, and it is our understanding, that no other published documents exist that contain audited financial statement information, for which we are currently auditing. As stated in our engagement letter, if you publish or reproduce the financial statements or make reference to our Firm name in relation to such documents, you agree to provide us with a copy of the final reproduced material for our approval before it is distributed. 11 CITY OF ALBERTVILLE ' Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 The following pages provide graphic representation of select data pertaining to the financial position and operations of the City for the past five years. Our analysis of each graph is presented to provide a basis for discussion of past performance and how implementing certain changes may enhance future performance. We suggest you view each graph and document if our ' analysis is consistent with yours. A subsequent discussion of this information should be useful for planning purposes. L_J ~~ C C'! L i r r 0 0 u GENERAL FUND General Fund revenues decreased from $ 3,232,138 in 2006 to $ 3,166,483 in 2007. Property tax revenues increased 14.8% from 2006 and totaled $ 1,861,916. This was primarily a result in increased levy. Licenses and permits decreased $ 203,845, or 41.8%, and totaled $ 283,287. The City experienced another decline in development activity this year, as in 2006. Charges for services revenues decreased 8.9%, to $ 587,864. This decrease reflects a decrease in plan check fees which is directly related to the slow down in development. Miscellaneous revenue decreased $ 119,532, or 32.9%. This decrease is due to a change in interest allocation procedures. The City created an Investment Fund from which interest was allocated. The graphs below and on the following page present the General Fund revenues by source in a graph and pie chart formats. General Fund Revenues $3,250,000 $3,000,000 $2,750,000 $2,500,000 $2,250,000 $2,000,000 $1,750,000 $1,500,000 $1,250,000 $1,000,000 $750,000 $500,000 $250,000 $- $363,279 ^ Taxes ^ Licenses and Permits ®Charges for Services ^ Intergovernmental ^ Miscellaneous ' 12 2003 2004 2005 2006 2007 GENERAL FUND Taxes 58% Taxes 50% CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 2007 General Fund Revenues Licenses and Permits 9% Miscellaneous 8% 2006 General Fund Revenues Licenses and Permits Miscellaneous 11% [ntergovemmental 6% es for Services 19% Intergovernmental 4% Charges for Services 20% 13 Ci 0 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 GENERAL FUND General Fund expenditures decreased from $ 3,301,238 in 2006 to $ 3,188,617 in 2007, which represents a change of 3.4%. For governmental fund types, capital outlay items are included in total expenditures. For 2006, capital outlay expenditures totaled $ 560,117 compared to $ 477,948 in 2007. Without taking into consideration capital outlay, total General Fund expenditures decreased 1.1 %. Both general government and park and recreation experienced increased activity. General government increased due to an unbudgeted land purchase of approximately $ 300,000. Public safety decreased due to a decline in capital outlay purchases in 2007, compared to 2006. In 2006, the City purchased a new fire truck. Public works also decreased due to purchases of equipment in 2006 that were not repeated in 2007. A graph depicting the expenditures for the General Fund for each of the past five years is illustrated below. General Fund Expenditures $i,6oo,000 $1,400,000 ! f 0 0 $1,200,000 $1,000,000 $800,000 $600,000 $400 000 , $200 000 ~ , $ - 20 03 2004 2005 20 06 20 07 ' ^GeneralGovemment $568,405 $682,274 $1,083,743 $935,828 $1,270,775 ®PublicSafety 564,671 676,787 787,894 1,582,59 1 1,157,956 ^Public Works 646,296 407,567 425,733 605,471 550,752 ^ParkandRecreation 165,619 ]58,140 121,166 173,026 184,585 ^EconomicDevelopment 8,655 52,783 3,2]9 4,322 24,549 ^ Miscellaneous 27,617 27,567 - - - The following page presents the expenditures for 2007 and 2006 using a pie chart design. 14 GENERAL FUND 2007 General Fund Expenditures Park and Recreatlon A.cnnnmic nevalnnmPnt CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 Public Works 17% Public 36% 2006 General Fund Expenditures Public W 18% Publi 49% General Government 40% overnment % IS Park and Recreation Economic Development 1 u n [~ CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 GENERAL FUND The graph below shows the overall trend of the General Fund balance and the cash and investment balance for the last five years. The Capital Outlay Reserve fund balance is also included for comparison purposes since the City began recording more capital outlay related purchases there in recent years. The cash and investment balance at December 31, 2007 was $ 845,763. This is a decrease of $ 680,388 from last year and a decrease of $ 1,744,063 since 2003. The fund balance has also shown this decreasing trend, ending 2007 at $ 792,457. The decrease from 2006 to 2007 was $ 756,547, or 48.8%. Since 2003, fund balance has decreased $ 1,748,038. In December of 2004, the Office of the State Auditor issued a Statement of Position recommending cities maintain an unreserved fund balance of approximately 35%-50% of fund operating revenues or no less than five months of operating expenditures. The City's ending fund balance should be reviewed in conjunction with this Statement of Position and internal City fund balance policies to determine if it is sufficient to meet the City's specific operations and cash flow needs. 0 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- General Fund 16 2003 2004 2005 2006 2007 O General Fund Balance ~ Capital Outlay Reserve Fund -~-General Fund Cash and Investments Ij ~_J ~, jl u n '~ -, 'J u CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 GENERAL FUND The graph below shows the budget to actual results for the General Fund revenue by source. In total, actual revenues were less than budget by $ 101,064. When preparing the budget, the City budgets for property taxes at the amount the levy is set for; however, the state pays a portion of the levy to the City in the form of Market Value Credit aid, thereby reducing the amount actually levied against the property owners. For 2007, the amount of the Market Value Credit was $ 94,814. Taking this into account explains the variance in the intergovernmental category and a portion of the variance in the property taxes category. The remaining difference in property tax revenue is the result of a significant increase in delinquent property taxes for 2007. As mentioned previously, licenses and permits were under budget due to a decrease in development and building activity within the City. 2007 Revenues Budget and Actual ~2,soo,ooo $2,000,000 ~l,soo,ooo $l,ooo,ooo ssoo,ooo ~- 17 Taxes Licenses and Permits Intergovernmental Charges for Services Miscellaneous ^ Budget ®Actual t CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 GENERAL FUND The graph below shows the budget to actual results for the General Fund expenditures by department. Overall, the City was under budget by $ 3,931. The largest variation was in the general government department, with a variance of $ 229,800. This variance was caused mainly by the purchase of land that was not budgeted in 2007, therefore, causing the general government department to be over budget. The variance of $ 188,327 in public safety was due to the department spending less on capital outlay in order to carry over for future purchases. 2007 Expenditures Budget and Actual $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $40Q,000 $200,000 $- 10 General Government Public Safety Public Works Park and Recreation Economic Development ©Budget ®Actual e i CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 SEWER FUND The following graph provides a history of operating income for the past five years for the Sewer Fund. The yellow bar represents a true measurement of operations to be used as a factor in determining whether sewer rates are sufficient to cover operating costs. As the graph indicates, rates for the past five years were sufficient to cover operating costs, which includes depreciation of fixed assets. Revenues that are sufficient to cover operating costs, including depreciation, allow for an accumulation of cash to help fund replacement of depreciable assets. Sewer Fund $soo,ooo $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $- 2003 2004 2005 2006 2007 ^ Operating Revenues ®Operating Expenses ^ Operating Income ^ Operating Income Without Depreciation 19 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 WATER FUND Operating revenues, excluding Water Access Charges (WAC) fees, for the Water Fund experienced a 5.8% increase from $ 273,548 in 2006 to $ 289,525 in 2007. Operating expenses increased 28.5% from $ 150,249 in 2006 to $ 193,064 in 2007. The Water Fund has shown operating income in all of the years presented. This is a positive sign that the rates being charged in this Fund are able to cover all operating expenses including depreciation. Water Fund $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- 2003 2004 2005 2006 2007 ^ Operating Revenues, Net of Joint Powers Portion ®Operating Expenses, Net of Joint Powers Reimbursement ^ Operating Income ^ Operating Income Without Depreciation 20 r i i CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES The graph below and on the following page provide significant information about the growth experienced by the City to help you continue to analyze your tax rate position. The graph below depicts market value of all taxable property within the City limits, along with tax capacity generated by such growth. As is evident from the graph, property market value has increased from $ 293,418,600 in 2003 to $ 631,997,100 in 2007. During the same time, tax capacity has increased from $ 3,398,721 in 2003 to $ 7,588,007 in 2007. Tax Capacity and Market Value $665,000,000 $630,000,000 $595,000,000 $560,000,000 $525,000,000 $490,000,000 $455,000,000 $420,000,000 ~ $385,000,000 $350,000,000 $315,000,000 ~ $280,000,000 $245,000,000 $210,000,000 $175,000,000 $140,000,000 $105,000,000 $70,000,000 $35,000,000 $- $8,000,000 $7,000,000 $6,000,000 $5,000,000 U $4,000,000 U H $3,000,000 $2,000,000 $1,000,000 $- 21 2003 2004 2005 2006 2007 ^ Market Value ®Tax Capacity CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2007 MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES Tax Capacity Rate so.ooo 40.000 30.000 20.000 10.000 0.000 22 2003 2004 2005 2006 2007