06/07/2007 - City Council Finance Committee
AGENDA
FINANCE COMMITTEE MEETING
THURSDAY
JUNE 7, 2007
7:00 A.M.
CONFERENCE ROOMS 2A & 2B
I.AGENDA ADOPTION
II.REVIEW PUBLIC WORKS CIP FOR ARTERIALS &
COLLECTORS
III.REVIEW MANAGEMENT LETTER 2006 DRAFT
COMPREHENSIVE ANNUAL FINANCIAL REPORT
IV.REVIEW PARKS AND RECREATION DEDICATION FEE
STRUCTURE / BOULDER LAKES PARK DEDICATION FEE
V.REVIEW CEDAR GROVE REDEVELOPMENT PROPOSALS
VI.OTHER BUSINESS
VII.ADJOURNMENT
Agenda Information Memo
June 7, 2007 Finance Committee Meeting
II. REVIEW PUBLIC WORKS CIP FOR ARTERIALS & COLLECTORS
ACTION TO BE DISCUSSED:
Review the proposed 5 yr CIP for Arterials and Collectors and
discuss various funding options.
FACTS:
?
At the May 15 Council Workshop, the Council reviewed and discussed the Public Works
Department 5 yr CIP (2008-2012) and endorsed all of it with the exception of the Arterial &
Collector street improvements. Due to the significant impact that this section had on the
financial projections for the Major Street Fund, the Council directed further review and
consideration of this CIP segment to the Finance Committee.
?
The Council had expressed some interest in considering various options to addressing the
long range funding shortfall of not only the immediate 5 yr CIP, but also the longer range
Transportation Infrastructure Needs Analysis (TINA). The Directors of Administrative
Services and Public Works have prepared a list of policy funding options to facilitate this
discussion and will be available to help formulate viable recommendations for the Committee
to submit to the full Council for formal consideration on June 17.
ATTACHMENTS:
?
Staff memo, pages _______ through _______.
Agenda Memo
Eagan City Council Finance Committee Meeting
June 7, 2007
V.REVIEW CEDAR GROVE REDEVELOPMENT PROPOSALS
DIRECTION TO BE CONSIDERED:
To review the interview format and provide
input on interview questions and issues to be addressed.
FACTS:
?
The City Council interviews for the developers who have submitted proposals for
the Cedar Grove redevelopment will be the last item on the Council workshop on
June 12. Again, they are Doran-Pratt, JBL Companies, Sherman and Associates
and Told Development.
?
Copies of the proposals, responses to preliminary questions and a comparison
matrix were distributed to all Council members in the June 1, 2007 Additional
Information memo. The matrix is enclosed here as well for reference purposes.
?
Interview times have been scheduled with the developers. Staff has set
expectations for the developers to keep the interviews compact and manageable,
but to provide sufficient time for the Council to learn about and interact with the
development teams that are proposing to be the City?s partners in one of our key
redevelopment areas.
?
Each interview will include a five minute introduction of the developer?s team
and an overview their approach. We have asked that they include a brief
description of team members' experience with mixed use redevelopment and a
very brief overview of their intended approach to the Cedar Grove project, using a
board of your concept drawing. This will be followed by ten minutes of questions
from the Council and five minutes for informal discussion and wrap up. This
results in 20 minutes per proposer and there will be a ten minute break between
the second and third interview.
?
In the Additional Information memo, staff asked all Council members to submit
questions. Any questions received from other Council members will be shared
with the Committee at Thursday?s meeting. It would be useful for the Committee
to provide input on the questions to be included in the final list and/or to identify
issues that should be addressed in questions to help differentiate between the
proposals.
ATTACHMENTS:
?
Proposal matrix on pages _____ through _____
?
Partial list of questions on page _________
Agenda Information Memo
June 7, 2007 Finance Committee Meeting
II. REVIEW PUBLIC WORKS CIP FOR ARTERIALS & COLLECTORS
ACTION TO BE DISCUSSED: Review the proposed 5 yr CIP for Arterials and Collectors and
discuss various funding options.
FACTS:
• At the May 15 Council Workshop, the Council reviewed and discussed the Public Works
Department 5 yr CIP (2008-2012) and endorsed all of it with the exception of the Arterial &
Collector street improvements. Due to the significant impact that this section had on the
financial projections for the Major Street Fund, the Council directed further review and
consideration of this CIP segment to the Finance Committee.
• The Council had expressed some interest in considering various options to addressing the
long range funding shortfall of not only the immediate 5 yr.CIP, but also the longer range
Transportation Infrastructure Needs Analysis (TINA). The Directors of Administrative
Services and Public Works have prepared a list of policy funding options to facilitate this
discussion and will be available to help formulate viable recommendations for the Committee
to submit to the full Council for formal consideration on June 17.
ATTACHMENTS:
Staff memo, pages o~ through ~.
City of 8a~an demo
TO: Finance Committee (Mayor Maguire and Councilmember Carlson)
City Administrator Hedges
FROM: Director of Administrative Services VanOverbeke
DATE: June 1, 2007
SUBJECT: Part III Public Works 2008 - 2012 CIP
Meeting Purpose:
• To have the Finance Committee review staffs' follow up information resulting
from the direction at the Special City Council meeting of May 8, 2007.
• To engage discussion on specific public policy questions resulting from the
follow up.
• To receive direction from the Finance Committee regarding next steps in
moving toward approval of the entire 2008 - 2012 Part III Public Works CIP.
Introduction
After review and discussion of the 2008 - 2012 Part III Public Works CIP at the May 8,
2007 meeting, the City Council concluded that the CIP did a very good job of laying
out the projected projects. The draft CIP demonstrates both the City's commitment to
properly maintaining and improving its infrastructure and th.e related funding challenge,
especially with projects relying on cost sharing with other partners. The Council gave
tentative approval to the CIP excluding the section related to Collectors & Arterials.
Staff was directed to prepare additional information regarding the financing of
Collectors & Arterials for consideration by the Finance Committee as follows:
• Explore the relationship between increasing project costs resulting from inflation
and saving tax levy dollars or other resources for future use. Determine the
feasibility of bonding today versus saving.
• Provide information comparing the tax levy for the Major Street Fund to the total
budget or tax levy.
• Compare future costs for major projects e.g. the overpasses to future Major
Street Fund levies in the context of total future levies.
• Develop scenarios to allow the designation of revenue sources, primarily
additional tax levies. The designations should provide justification to the
community that the additional resources are necessary and the only option
available and that they are earmarked and protected for the designated future
uses.
Inflation Impact -Saving for Projects
Bond and Build versus Saving then Build Example
The following table demonstrates the impact of beginning a new levy at $1,000,000,
increasing it by 5% per year, and investing it at 4% until used over a 20-year period.
The presentation assumes a 7% inflation increase applied to project costs. Given
these assumptions, after year seven the savings account would be $9,116,864 and an
original project cost of $6,000,000 would have risen to $9,004,382.
The table also shows that a $6,000,000 bond issued at 5% for aten-year term would
cost approximately $777,027 annually in debt service. Total debt service over the ten-
year period would equal $7,770,274.
Annual
Savings ThroughTax Levys Debt
Rate of Rate of Service
Increase: 5% With Inflation: on
Payable 4% 7% 10 -
Tax Interest Project ~ 6,000,000
Years Year Levy Cummulative Cost 5A0%~
1 2008 1,000,000 1,000,000 6,000,000 777,027
2 2009 1,050,000 2,090,000 6,420,000
3 2010 1,102,500 3,276,100 6,869,400
4 2011 1,157,625 4,564,769 7,350,258
5 2012 1,215, 506 5, 962, 866 7, 864, 776
6 2013 1,276,282 7,477,662 8,415,310
7 2014 1,340,096 9,116,864 9,004,382
8 2015 1,407,100 10,888,639 9,634,689
9 2016 1,477,455 12,801,640 10,309,117
10 - 2017 1,551,328 14,865,034 11,030,755 7,770,274
11 2018 1,628, 895 17,088, 530 11, 802, 908
12 2019 1,710,339 19,482,411 12,629,112
13 2020 1,795,856 22,057,564 13,513,150
14 2021 1,885,649 24,825,515 14,459,070
1b 2022 1,979,932 27,798,467 15,471,205 -
16 2023 2,078,928 30,989,334 16,554,189
17 2024 2,182,875 34,411,782 17,712,982
18 2025 2,292,018 38,080,272 18,952,891
19 2026 2,406,619 42,010,102 20,279,594
20 ' 2027 2,526,950 46,217,456 21,699,165 -
In general, the conclusions to this type of analysis will follow the interest rate and
inflation rate assumptions. For example, if the interest rate on the bonds is less than
the rate of inflation on the project costs, it will be cheaper to bond and build earlier to
fix the construction costs at today's prices. Likewise, if the interest rate for earnings on
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3
the money in the savings account is less than the inflation on costs you will fall farther
and farther behind by saving to construct.
In the scenario presented in the table, there is not much difference in who actually
pays the bill in a bond versus save analysis. Since the savings period is seven years
and the bond payment term is 10 years, the money will essentially be coming from the
same taxpayers. Although not in present value dollars, the total cost is lower with the
bonding option, $7.7 versus $9 million, because of fixing the construction cost at $6
million thereby eliminating the inflation on the project cost.
This table does not address the costs related to the south overpass component of the
ring road. Included in the future category (beyond 2012) of this CIP are project costs
(revised) of $11,700,000 (Federal Drive -Duckwood to Yankee Doodle Road
$700,000 and Duckwood Drive -Pilot Knob Road to Federal Drive $11,000,000).
Depending on the interest rate assumptions and the timing, use of the table would
allow one to draw conclusions for the south overpass similar to those reflected above
for costs related to the north overpass and other related project costs.
Bonding Considerations
There are essentially three different bonding scenarios available for use that could be
given consideration in developing an overall financing plan for street and highway
infrastructure. Each option has restrictions and all would obviously require some sort
of dedicated revenue source for repayment. The following bullet points illustrate the
more important features and requirements.
1. General Obligation Special Assessment Bonds
• Requires 20% of the project cost to be assessed; therefore, the use may
be conditional upon a determination to specially assess at least 20% of
any particular project.
• Repaid through a combination of assessments and other available
revenue sources.
2. Street Reconstruction Bonds
• Requires unanimous vote of the City Council.
• Requires a public hearing.
• Subject to reverse referendum through petition.
• Potential option available to the City for some maintenance projects.
• Debt service payments made through any available revenue sources.
3. Municipal State Aid (MSA) Bonds
• Available through dedication of future MSA allocations, which are used to
pay the debt service on the bond issue.
• Use of bond proceeds available only for MSA eligible projects.
Bonding in general will not increase the total amount of dollars available for funding
projects, but will only advance those dollars to an earlier time frame. Again,
depending on interest rates and inflation, bonding might be a lower total cost option,
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4
however. Making more dollars available for construction will result primarily from
additional new revenue sources or increases to those already in place.
Relationshia of Maior Street Tax Levv to Total Budget or Total Tax Lev
The following table demonstrates the relationship between the tax levy going into the
Major Street Fund and the total tax levy (excluding debt on the Community Center)
over the last five years. It also shows how a $1,000,000 increase in the Major Street
Fund levy would change the percentages for payable 2008.
Major Major
Payable Total Street Street Annual
Year Levy'` Levy % of Total Increases
2003 18,463,350 1,102,500 5.97% -
2004 19,337,168 1,150,708 5.95% 4.37%
2005 20,542,914 1,131,802 5.51% -1.64%
2006 21, 557, 307 1,188, 392 5.51 % 5.00%
2007 22,304,562 1,247,812 5.59% 5.00%
9.48% 5.00%
5`,70 2008 24,419 790'.: 2,310,203 ' 9.46% 85:14%
1, 000, 000
"Excluding Community Center
The Major Street Fund levy has historically been between 5.5% and 6.0% of the total
levy each year depending on circumstances. It has also been increasing at about 5%
per year, although payable 2005 was an aberration due to the State's failure to provide
MVHC. Per the table for payable 2008, if the total base levy went up 5% and another
$1,000,000 was added and dedicated to the Major Street Fund, 9.46% of the tax levy
would be dedicated to the Street Fund and the total levy increase would be 9.48%.
Options for Dedicated Funding Sources
The concept of dedicating new and/or a portion of existing revenues to specific project
types or projects on the surface seems to be relatively straightforward. However, the
fact that there are already restrictions on the use of MSA dollars and two broad
general expenditure areas, i.e. maintenance and -new construction, might cause actual
implementation to become problematic. It would likely be challenging to balance the
resource needs for the projects in each group, those with dedicated funding, and those
competing for the resources in the existing pool. Ultimately, it is likely that there will
still be too many projects competing for too few dollars, and there could be an unequal
distribution of results between the two project groups.
In other words, there is the potential in using two pots of money to get resources and
needs out of balance thereby resulting in spending on projects that don't rank as high
simply resulting from an incorrect allocation between the pots of money. There is also
the potential that requirements for the use of MSA dollars might drive new construction
ahead of maintenance, which is contrary to the overall City goal of first maintaining
existing infrastructure.
Perhaps the new money could be split with a portion dedicated only to overpasses and
closely related projects and the balance directed to the current pool and available for
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_- __
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appropriation to projects in the same manner that current resources have been
allocated. In general, that would separate the overpasses and closely related projects
from the other Collector and Arterial projects which would stay in the present pool.
The effective use of a bonding option might require additional flexibility with any new
dollars.
It also appears to be relatively straightforward to divide projects into two groups; those
where the City has no cost sharing partners like the County and State and those
where there are partners who theoretically should be cost sharing on the projects.
Once the projects are in those two groups establishing priorities will be challenging
due to all of the interrelationships and potential for leveraging participation. It might be
shortsighted and counter productive for the City to steadfastly dedicate all of its
resources categorically to its own streets and needs; thereby, potentially forgoing
opportunities to match or to leverage the State andlor Federal governments
participation.
The attached Exhibit 1 demonstrates in general terms potential options available for
the designation of dollars from no designation to specific designations reflecting both
existing and new revenues and directed toward specific projects or toward a group of
projects.
The attached Exhibit 2 demonstrates a broad grouping of Arterial and Collector
projects that are proposed for construction in the current 5-year CIP (2008 - 2012) into
4 categories, primarily by location. Projects in two of the four groupings include
County participation. There does not appear to be an obvious method in which to
group and prioritize projects around County participation.
Public Policy Discussion Items
What is the appropriate balance between setting up dedicated revenue sources
tied to specific uses and maintaining future flexibility across the entire CIP?
Long-term flexibility is necessary to provide the ability to ensure that revenues
are available for both maintenance (highest City priority) and potential
improvements. However, maintaining maximum flexibility could make following
and accounting for dedicated revenues problematic.
2. Any consideration for a levy increase needs to be balanced against other City
initiatives and the needs of the City's operating budget. Should consideration
be given to a tax levy increase during the 2008 budget preparation?
3. How do we deal with TINA projects, which are not a significant component in
this CIP? Since so many of the TINA projects include State obligations, should
they be left out of today's funding scenarios and longer-term projections?
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5 _ _-
4. Financing the street and highways portion of the 2008 -- 20.12 Part III Public
Works C!P as presented requires all existing 5-year projected revenues
($20,811,240), all reserves ($11,009,000), and includes a deficit ($3,978,000).
Removing the north overpass and closely related projects results in a cost
reduction of $6,095,000 generating an ending reserve of $2,117,698. Should
some additional projects beyond the overpass simply not be included in the CIP
to maintain a higher reserve balance?
5. What factor, the CIP needs or the available revenues, ultimately drives the CIP
preparation? Preparing a CIP that doesn't include all projects may be
problematic as is preparing a CIP that cannot be financed.
6. What happens to proposed City revenue increases, if other revenue sources
e.g. MSA dollars are subsequently increased?
I believe this information will ~rovide the basis for discussion at the Finance
Committee meeting on the 7t . I will be available along with Director of Public Works
Colbert to answer any questions that might arise.
Director o ministrative Services VanOverbeke
cc: Director of Public Works Colbert
6 - __ _ _ -
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9
Finance Committee Meeting
Agenda memo
June 7, 2007
III. REVIEW MANAGEMENT LETTER 2006 DRAFT COMPREHENSIVE
ANNUAL FINANCIAL REPORT
Direction for consideration: Receive the management letter report by the independent
auditors, Kern DeWenter Viere (KDV), and direct staff to place acceptance of the
management letter and comprehensive annual financial report on the June 19 regular
City Council agenda.
FACTS:
• New auditing regulations require independent auditors to communicate certain audit
findings directly to the governing body, or an Audit or similar such committee
designated by the Council-in Eagan's case, the Finance Committee.
• This presentation will eliminate the need for a full audit/financial report presentation
during the June 19 regular Council meeting.
• The auditors have identified "Controls over year-end closing process" as a material
weakness in the City's internal control. This finding is due to audit adjusting entries
that were necessary for the government-wide financial statements. The auditors will
discuss this finding and their related recommendations in more detail.
• Other findings, including insufficient collateralization of deposits by Anchor Bank
and ECC fitness room control weaknesses, are identified in the management letter as
well.
• Audit Manager Janel Bitzan and Advanced Staff Accountant Emily Nahan from KDV
will make the presentation to the Finance Committee.
• Audit Partner Matt Mayer will briefly present the financial numbers at the June 19
regular Council meeting.
ATTACHMENTS:
• KDV's management letter is attached on pages ~ through O~~
In
CITY OF EAGAN
Dakota County, Minnesota
Management Letter
For the Fiscal Year Ended December 31, 2006
I~DV
KERN• DEWENTER•VIERE
June 5, 2007
Honorable Mayor and Members
of the City Council
City of Eagan
Eagan, Minnesota
In planning and performing our audit of the financial statements of the City of Eagan, Minnesota,
as of and for the year ended December 31, 2006, in accordance with U.S. generally accepted
auditing standards, we considered the City of Eagan, Minnesota's internal control over financial
reporting as a basis for designing our auditing procedures for the purpose of expressing an
opinion on the financial statements, but not for the purpose of expressing an opirvion on the
effectiveness of the City's internal control. Accordingly, we do not express an opinian 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. Also, projection of any evaluation of the
internal control to future periods is subject to the risk that procedures may become inadequate
because of changes in conditions or the degree of compliance may deteriorate.
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. We consider the following
deficiency to constitute a material weakness:
• Controls over year-end closing process
The details regarding this fording are provided later in this letter.
'~
I~DV
KERN•DeWr-N7L•R VTERE
The accompanying memorandum also includes financial trend information and suggestions for
improvement of accounting procedures and internal accounting control measures that came to
our attention as a result of our audit of the financial statements of the City of Eagan for the year
ended December 31, 2006. 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 June 5,
2007, on such statements.
This report is intended solely for the information and use of the City Council, management,
others within the City, and state oversight agencies, and is not intended to be and should not be
used by anyone other than these specified parties.
We would like to express our appreciation for the cooperation extended to us by the management
and employees of the City during our audit.
KERN, DEWENTER, VIERE, LTD.
Minneapolis, Minnesota
(3
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMUNICATION
December 31, 2006
We have audited the basic financial statements of the City of Eagan, Minnesota, for the year
ended December 31, 2006 and have issued our report dated June 5, 2007. Professional standards
require that we provide you with the following information related to our audit.
THE AUDITOR'S RESPONSIBLITY UNDER U.S. GENERALLY ACCEPTED
AUDITING STANDARDS AND GOVERNMENTAUDITINGSTANDARDS
As stated in our audit engagement letter, our responsibility, asdescribed by professional
standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that
the basic financial statements are free of material misstatement and are fairly presented in
accordance with U.S. generally accepted accounting principles. Because an audit is designed to
provide reasonable, but not absolute, assurance and because we did not perform a detailed
examination of all transactions, there is a risk that material misstatements may exist and not be
detected by us
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.
SIGNIFICANT ACCOUNTING POLICIES
Management has the responsibility for 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 of the financial statements.
We noted no significant unusual transactions and no significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES
Accounting estimates are an integral part of the basic 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 basic financial statements and because of the
possibility that future events affecting them may differ significantly from those expected.
The most sensitive estimate affecting the financial statements was:
• Depreciation -The City is currently depreciating its capital assets over their estimated
useful lives, as determined by management, using the straight-line method.
We evacuated the key factors and assumptions used to develop the above estimate in determining
that they are reasonable in relation to the financial statements taken as a whole.
/~-
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMITNICATION
December 31, 2046
SIGNIFICANT AUDIT ADJUSTMENTS
An audit adjustment, whether or not recorded by the City, is a proposed correction of the basic
financial statements that, in our judgment, may not have been detected except through our
auditing procedures performed. Audit adjustments, individually or in the aggregate, may have a
significant effect on the City's financial reporting process. Matters underlying adjustments
proposed by us but not recorded by the City could potentially cause future financial statements to
be materially misstated, even though we may have concluded that the adjustments are not
material to the current fnanciai statements.
In our judgment, two of the adjustments we proposed indicate matters that could have a
significant effect on the City's financial reporting process.
OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL
STATEMENTS
The Management's Discussion and Analysis and statistical section, located in the City's financial
statements, is not a required part of the basic fmancial statements but is supplemental
information required by U.S. generally accepted accounting principles. We have applied certain
limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplemental information. However,
we did not audit the information and express no opinion on it.
DISAGREEMENTS WITH MANAGEMENT
Disagreements with management, whether or not satisfactorily resolved, are defined as matters
that individually or in the aggregate could be significant to the City's financial statements or the
auditors' report. Disagreements may occasionally arise over the application of accounting
principles to the City's specific transactions and events and the basis for management's
judgments about accounting estimates. Disagreements may also arise regazding the scope of the
audit, disclosure to be included in the City's fmancial statements, and the wording of the
auditors' report.
No such disagreements with management occurred during the course of our audit.
CONSULTATIONS WITH OTHER ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. if a consultation involves application of an accounting principle to the
City's financial statements or a determination of the type of auditor's opinion that may be
expressed on those statements, our professional standazds require the consulting accountant to
confer with us to determine that the consultant has all the relevant facts.
We are aware of no consultations by the City's management with other accountants during the
course of our audit.
/S
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMUNICATION
December 31, 2006
MAJOR ISSUES DISCUSSED WITH MANAGMEMENT PRIOR TO RETENTION
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management prior to retention as the City's auditors.
These discussions occurred in the normal course of our professional relationship and our
responses were not a condition to our retention.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no difficulties in dealing with management related to the performance of our
audit.
i~
CITY OF EAGAN
Dakota County, Minnesota
MINNESOTA LEGAL COMPLIANCE FINDING
December 31, 2006
OBTAIN SUFFICIENT COLLATERAL FOR UNSECURED DEPOSITS
The depositories of public funds and public investment laws of Minnesota Statutes 118A.01 and
118A.08 require all deposits with financial institutions be collateralized in an amount equal to
110% of deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance.
During out audit, we noted the City's deposits at Anchor Bank were under collateralized as of
December 31, 2006 in the amount of $ 735,682. Additional collateral of $ 809,250 was needed
to secure these deposits.
We recommend the City monitor the cash balances at all depositories to ensure the collateral
pledged is sufficient.
~7
CITY OF EAGAN
Dakota County, Minnesota
MATERIAL WEAKNESS
December 31, 2006
CONTROLS OVER THE YEAR-END CLOSING PROCESS
During our audit, we proposed audit adjustments that we consider, both individually and in the
aggregate, to be quantitatively material to the financial statements. In addition, a prior period
adjustment was required to adjust capital asset balances reported in prior years.
Material adjustments in the current year were required to adjust contributed capital asset
balances, adjust construction in progress balances and recognize newly levied special
assessments. Of the four material adjustments, two were identified by City staff and two were
identified by the auditors.
The circumstances surrounding the adjustments indicate the underlying cause may be a need for
additional time prior to the audit to internally perform a detailed, as well as a high-level-
analytical, review of the final balances and transactions. We recommend that appropriate time
for this review be incorporated into future year-end closing timelines.
We also recommend a review of some of the other year-end procedures.
It was noted during testing that multiple employees are authorized to draft and also record
journal entries into the City's general ledger. However, the employee drafting the entry
generally also records the entry without the review or approval of another.
We recommend improving the journal entry process by segregating the drafting and the
recording process and adding a monitoring function, whereby another employee not directly
involved in the drafting or recording of the entry, provides an additional level of review.
The City should also be conscious of other situations in the year-end closing process where
segregation can be improved among the areas of authorization of transactions, custody of related
assets, recording and reconciliation of transactions.
While these final recommendations may not have directly impacted the need for audit
adjustments in the current year, they do provide an additional level of monitoring and oversight.
l~?
CITY OF EAGAN
Dakota County, Minnesota
CONTROL DEFICIENCY
December 31, 2006
REVIEW CONTROL ENVIRONMENT AT COMMUNITY CENTER
Through testing procedures performed at the community center's fitness room and inquiry of the
City department superintendent, it was revealed the controls established by the City were
ineffective. The control environment includes use of identification and guest badges for
members and guests, patron check-in at main lobby desk staffed by multiple employees, and an
employee to monitor the fitness room. All controls were bypassed when tested.
We recommend the City review its control measures to ensure their effectiveness over this
business function of the City.
/9
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
STATEMENTS OF AUDITING STANDARDS (STANDARDS) NOS. 104 -111
In March 2006, the Auditing Standazds Boazd (ASB) issued Statements of Auditing Standazds
(Standards) Nos. 104 -111 that provide extensive guidance concerning the auditor's assessment
of the risks of material misstatement in a financial statement audit and the design and
performance of audit procedures whose nature, timing and extent are in response to the identified
assessed risks. Additionally, the Standards establish standards and provide guidance on planning
and supervision, the nature of audit evidence and evaluating whether the audit evidence obtained
provides a reasonable basis for an opinion on the financial statements being audited. These
Standards will be effective for audits of financial statements for periods beginning on or after
December 15, 2006.
Audit teams will be performing additional procedures to gain a more in-depth understanding of
the City's environment, including its internal control; including evaluating the design of the
controls and determining those controls have been implemented. The audit procedures
performed to obtain the necessary understanding are called "risk assessment procedures" and
require more than simple inquiries of management. The Standards specifically call for inquiries
of management and other personnel, analytical procedures and observation and inspection. The
procedures also involve discussions among the audit team to determine whether the potential
exists for misstatements. These Standards also expand the documentation requirements for
auditors.
CONSIDER THE IMPACT OF GASB STATEMENTS NOS. 43 AND 45
In summary, these Standards will result in a substantial change in audit practice. The Standards
will strengthen the auditor's understanding of the City and. its environment, including its internal
control, to identify the risks of material misstatement in the financial statements and determine
what the entity is doing to mitigate those risks. Auditors will identify assessed risks based on the
understanding obtained. There will be an improved correlation between those assessed risks and
the nature, timing and extent of audit procedures performed in response to those risks.
In April and July of 2004, the Governmental Accounting Standazds Board (GASB) issued Statements
Nos. 43 and 45, respectively, which provide guidance on financial reporting for Other Post
Employment Benefits (OPEB) plans. GASB Statement No. 43 provides guidance on accounting and
financial reporting for plan assets while GASB Statement No. 45 refers to accounting and fmancial
reporting for OPEB plans at the local government level, or employer accounting. The City should be
reviewing GASB Statement No. 45 for financial statement implications and then GASB Statement
No. 43 may or may not apply once the City implements GASB Statement No. 45. Implementation
dates range from 2007 to 2009, depending on date of GASB Statement No. 34 implementation. The
implementation date for GASB Statement No. 45 for the City of Eagan is the year ending
December 31, 2008.
The City of Eagan has already taken steps to prepare for these new standards by dedicating
$ 1,575,000 from the City's General Fund in 2005 for these future costs, as well as working with
collective bazgaining groups to Iimit the future liability.
~~
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
What is OPEB?
OPEB are forms of post employment benefits not currently provided through a pension plan. It is a
form of compensation given in exchange for employee services. It should be noted any type of post
employment benefits based upon compensated absences such as vacation or sick leave are not
considered OPEB and should already be accounted for under GASB Statement No. 16. The most
common types of OPEB are post employment health care benefits, which includes medical, dental,
vision, hearing and other health-related benefits such as Iife insurance, disability and long-term caze.
Other benefits, if provided, for compensation, such as lump sum payments based on years of service,
are also considered OPEB. Be awaze that even if the City only has retirees that pay 100% of health
insurance premiums, GASB Statement No. 45 applies, because of the implicit rate subsidy.
What is the Implicit Rate Subsidy?
The older an employee is, the higher the medical insurance premium. However, a retiree is
allowed to stay on the City's health insurance plan at the same cost as active employees because
of Minnesota Statutes Section 471.61, Subd. 2b. This Statute states local government employers
must allow employees retiring before age 65 to remain active in the local government's medical
plan until Medicare age, even at the employee's expense. The employee can stay in the plan at
what is called the blended premium rate. For example, the City's health insurance premium is
$ 300/month for all employees, active and retired.
The City has one retired employee that pays $ 300/month, the same amount as all active
employees because of Minnesota Statutes Section 471.61, Subd. 2b. This retiree is 60 years old
and the actual cost of a health insurance premium for a person that age is $ 700/month. The
difference of $ 400/month is considered an OPEB liability. Generally, as the retiree ages, the
OPEB liability increases.
What are the Financial Statement Implications?
GASB Statement No. 45 will require local governments to obtain actuarial valuations for OPEB
benefits. Currently, most governments, such as cities, account far OPEB benefits on a "Pay as
you Go" basis. However, this does not measure the cost of the benefit when the employee
renders service, but rather when the cost is paid. Through an actuarial valuation, a determination
of the City's ARC, or annual required contribution, will be made. The ARC will measure
normal cost, or cost of current service, and the amortization cost, or cost of past service. In other
words, the ARC is the contribution required to fund the plan on a current basis. GASB
Statement No. 45 does not require funding of the ARC. Any amount of the ARC that is not
funded will be recorded on the City's government-wide financial statements as a Net OPEB
Obligation. In year one of implementation, the Net OPEB Obligation can be set at zero; GASB
Statement No. 45 does not require retroactive measurement. It should also be noted that GASB
Statement No. 45 also does not require recording the actuarial accrued liability, which is the total
liability of all OPEB benefits as calculated by the actuary.
What if the City Funds the ARC?
If the Ciry desires to fully or partially fund the ARC, the contribution must be irrevocably
transferred to a trust or equivalent arrangement. The plan assets of the trust must be dedicated to
a~
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
providing benefits to retirees and beneficiaries according to the terms of the plan and the plans
assets must be legally protected from creditors of the employer or plan administrator. Once these
three criteria are met, the payment for the ARC will be considered funded, according to GASB
Statement No. 45. Setting aside assets in a fund balance reserve or designation does not apply.
Once the criteria for full or partial funding of the ARC are met, a pension trust fund will be set
up and account for the plan assets. GASB Statement No. 43 will apply for the accounting of the
plan assets.
When are Actuarial Valuations Required?
• At least biennially for OPEB plans with total membership of 200 or more.
• At least triennially for OPEB plans with total membership of fewer than 200.
• AIternative measurement method available with membership of less than 100 using same
broad measurement steps as an actuarial valuation. Does permit simplification of certain
assumptions to make method usable to non specialists.
Action Items to Implementation
1. Determine the City's OPEB liabilities
• Go through all employee contracts and personnel policies.
• Remember implicit rate subsidy.
2. Determine if, and when, to hire an actuary.
3. Have actuary explain results of study. Educate your employee groups. Consider changing
contract or personnel policy language.
4. Determine whether to fund the ARC, either in whole or in part. This should be addressed by
the City Council.
5. If intent is to partially or fully fund the ARC, investigate trust arrangements. Realize the
Office of the State Auditor has taken the position there is no statutory authority for a local
government to set up a trust for an OPEB plan. This issue will have to be addressed
legislatively.
6. Communicate your plans to us. As your auditors, we are available to guide you through the
implementation process.
Agenda Memo
June 7, 2007 Finance Committee Meeting
IV: REVIEW PARKS DEDICATION FEE STRUCTURE,BOULDER LAKES PARK
DEDICATION FEE
FACTS
• The City of Eagan was alerted to the need to comply with legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
• After much review from staff and advice from the City Attorney, the Advisory Parks Commission
proposed changes to the commercial/industrial parks dedication at their November 20, 2006 meeting
to come into compliance with the new legislation.
• The Boulder Ridge development is the first development to go through the review process using the
new formula for calculating dedication fees.
• The City Council asked the Finance Committee to further review this policy to determine how best to
move forward with the Boulder Ridge development, and subsequent developments, to meet the
legislative requirements for parks dedication.
• Several policy questions have been identified for the committee to consider.
ATTACHMENTS:
• Background memo on pages
a3
City of Ea~a~ Memo
To: Tom Hedges, City Administrator
From: Juli Seydell Johnson, Director of Parks and Recreation
Date: June 1, 2007
Subject: CommerciaUIndustrial Parks Dedication-Boulder Ridge Business Park
BACKGROUND:
• The City of Eagan was alerted to the need to comply with Legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
• After much review from staff, based upon input from the City Attorney, the Advisory Parks
Commission proposed changes to the commercial/industrial parks dedication at their November 20,
2006 meeting to come into compliance with the new legislation.
The commerciaUindustrial park dedication formula was approved by the Council at their November
21, 2006 meeting. The information included at that time was:
o Recent Legislation requires a consistent and just able approach to determining the amount
of park dedication, be it cash or land, required of a developer. Said approach should reflect
the potential impact the development would have on the park system. As a result the City
Attorney has advised that aspects of the current City dedication process be amended.
o Currently, city park dedication for residential developments is determined through a formula
that includes an "acres per person "constant while the commercial/industrial calculation is
based upon "net buildable acres ".
o The amended formula is modeled after examples, provided by the City Attorney, of the
method used in other neighboring municipalities, and is based upon the same "acres per
person "constant used in calculating dedication for residential developments in the city, with
credit given for the non-resident status of potential employees.
o In some instances, depending upon the development application, the amended method of
calculation will result in the amount of dedication being slightly more (large building on a
small site), but occasionally less(small building on a large site), than that resulting from the
current use of "net buildable acres ".
o The amended method of calculation can be used for determining a dedication of either cash
or land.
o The City Attorney and Advisory Parks Commission have reviewed the proposed amendment.
• The fees were ratified as part of the 2007 Fee Schedule in December 2006.
• The City Council took another look at the formula and approved changes to the language to simplify
the instruction at their March 6, 2007 meeting.
o The 2007 Parks and Trails dedication fees were approved as part of the overall fee structure
by the City Council in December 2006.
a~-
o The description of the new calculation for the industriaUcommercial portion of the parks
dedication had led to several questions and a level of confusion as to how the fees should be
calculated.
o To simplify the process the Park Dedication Policy document was simplified to better state
how these rates are to be calculated and to show the standard rate.
o This change did not alter any portion of the approved policy other than to clarify and simplify
for potential developers how this fee is calculated.
• A recent survey of other metro cities shows Eagan to be the second highest fee based upon a
comparison used for the Boulder Ridge development. (Using Eagan's prior formula, we would be one
of the lowest fees). It should also be noted that according to the Minnesota Recreation and Parks
Association, less than 25% of cities are currently meeting the legislative mandate. Eagan is
considered to be in compliance.
Assumptions: Total Acres = 11.95
Estimated Net Acres = 7.9
Assumed Avera e Market Land Value = $260,000 AV
Ci Calculation Estimated `
A le Valle 1 $1836/$624 er 1000 s uare feet of buildin floors ace $177,720
Brookl Park 6 S% of the market value of the total net acres 102,700
Burnsville 4 S% of the ross acres x avera eland value 155,350
:Eagan 2 $17371$473 -per .1000 square feet of building floor space
previous formula - 7.9 acres x$6080 = $48,032
165,790
Edina 3 8% of the market value of the net land 164,320
I.G.Hei hts 8 $7000 er acre x total oss acres 83,650
Lakeville 9 $7693 er acre x total buildable acres 60,775
Ma le Grave 7 $11,000 er acre x net acres 86,900
Pl mouth 10 $7500 er acre x net acres 59,250
Rosemount 5 10% of the gross acres x average land value ($90,000)
At 90,000
At 260,000
108,000
312,000
• To date no commercial/industrial development in Eagan has paid the revised fees based on the new
formula.
PARKS DEDICATION
• The current Park Dedication Policy states,
The preservation of land for park, playground and public open space purposes as it relates to the use and
development of land for residential, commercial/industrial purposes is essential to maintaining a healthful
and desirable environment for all citizens of the City. It is recognized by the City Council that the demand for
park, playground and public open space within a municipality is directly related to the density and intensity
of development permitted and allowed within any given area.
It is the policy of Eagan that the standards and guidelines for the dedication of land for park, playground and
public open space purposes (or cash contributions in lieu of such dedication) in the subdividing and
developing of land within the city shall be directly related to the density and intensity of each subdivision and
development.
• The calculated park dedication fee for the 110,000 square foot commerciaUindustrial Boulder Ridge
building was calculated to be $165,790. The 2006 calculation would have been $48,032.
• It was the opinion of the City Attorney, and recommended by the APrC, that the new formula
represents a clearer nexus between potential park users within acommercial/industrial development
and the potential impact on existing park facilities. When this proposal came before the Advisory
Parks Commission in April 2007 there were no park amenities proposed within the development.
O'4J~
• While it may be difficult to quantify casual use of park amenities near commerciaUindustrial
properties, it is clear that they are strong participants in programs and frequent users of parks and
pavilions.
POLICY DISCUSSION
• Is the 2007 Parks Dedication fee structure appropriate for commerciaUindustrial
development?
• If not, what parameters need to be defined to refine the fee structure while maintaining
compliance with the Legislative mandate?
TRAIL DEDICATION
• The Boulder Ridge development trail dedication is calculated to be $13,848.
• The development proposes internal trails that would cost approximately $130,000 -156,000 which
includes the completion of trails for this first phase building along with all subsequent future phases.
• The developer has asked that the City of Eagan build the trails and have offered to maintain them.
(The City Attorney has advised that whomever builds the trails should also maintain them)
POLICY DISCUSSION
• Do all the proposed trails for this development provide a public benefit?
o If no,
^ Which portions might be considered for transportation purposes and which might be
considered for internal use only?
^ How would the trail dedication credit be applied to the trail construction costs?
^ Who would construct and maintain each portion?
o If yes,
^ After the trail dedication credit is applied to the trail construction costs how is the
balance funded?
^ If installed by the Developer, should the cost of trails be a credit towards the park
dedication?
^ Who would construct and maintain the trails?
^ Construction and maintenance by City of Eagan would require easements and
construction before all phases are built which may preclude changes to the plan in the
future.
ATTACHIVIENTS:
• Boulder Ridge Business Park parks and trails dedication estimates on page
~~
BOULDER RIDGE BUSINESS PARK
PARKS AND TRAILS DEDICATION ESTIMATES
Phase I /Building #3
Building Size
Commercial/office = 90,000 square feet
Industrial/warehouse = 20,000 square feet
Total = 110, 000 square feet
Per Approved 2007 Rnte;
Parks Dedication;
Commercial = 90,000 sq ft C $1737 per 1000 = $156, 330
Industrial = 20,000 sq ft C~ $473 per 1000 = 9460
Est Total = $165, 790
(est dedication per 06 rotes = 11.07 net acres x $5790 =
$64095 )
Trails Dedication;
Comm/Ind =11.07 net acres C~ $1251 per acre= est $13, 848
(est dedication per 06 rates = 11.07 net acres C~ $1251 =
$13,848)
Est Total Due All Dedications Per 07 Rates = 179 638
Requested On-Site Trail Credit
(all on-site trails)
Est 13000 lineal ft C~ $10-$12 per ft = $130,000-$156,000
(8' bit trail)
~7
Agenda Memo
Eagan City Council Finance Committee Meeting
June 7, 2007
V. REVIEW CEDAR GROVE REDEVELOPMENT PROPOSALS
DIRECTION TO BE CONSIDERED: To review the interview format and provide
input on interview questions and issues to be addressed.
FACTS:
• The City Council interviews for the developers who have submitted proposals for
the Cedar Grove redevelopment will be the last item on the Council workshop on
June 12. Again, they are Doran-Pratt, JBL Companies, Sherman and Associates
and Told Development.
• Copies of the proposals, responses to preliminary questions and a comparison
matrix were distributed to all Council members in the June 1, 2007 Additional
Information memo. The matrix is enclosed here as well for reference purposes.
• Interview times have been scheduled with the developers. Staff has set
expectations for the developers to keep the interviews compact and manageable,
but to provide sufficient time for the Council to learn about and interact with the
development teams that are proposing to be the City's partners in one of our key
redevelopment areas..
• Each interview will include a five minute introduction of the developer's team
and an overview their approach. We have asked that they include a brief
description of team members' experience with mixed use redevelopment and a
very brief overview of their intended approach to the Cedar Grove project, using a
board of your concept drawing. This will be followed by ten minutes of questions
from the Council and five minutes for informal discussion and wrap up. This
results in 20 minutes per proposer and there will beaten minute break between
the second and third interview.
• In the Additional Information memo, staff asked all Council members to submit
questions. Any questions received from other Council members will be shared
with the Committee at Thursday's meeting. It would be useful for the Committee
to provide input on the questions to be included in the final list and/or to identify
issues that should be addressed in questions to help differentiate between the
proposals.
ATTAC1EIl~iENTS:
• Proposal matrix on page~_ through
• Partial list of questions on page ~_
~~
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Cedar Grove Redevelopment Proposals
June 12, 2006
Preliminary Interview Questions
• Describe the special strengths you see in the Cedar Grove Redevelopment area as
a development opportunity.
• What aspects of the City's vision for Cedar Grove have the best chances for
success?
• Describe the challenges you anticipate we will need to address as partners in this
development project.
• Do you see the proximity of the Mall of America as an asset or a challenge for
Cedar Grove? Why?
• When you have worked with a City in the past on a redevelopment, describe the
ways you have kept the Council, staff, residents and businesses informed about
the project.
• Discuss your experience with Pedestrian Oriented and Transit Oriented
developments. What makes them work and what makes them not work?
~~
AGENDA
FINANCE COMMITTEE MEETING
THURSDAY
JUNE 7, 2007
7:00 A.M.
CONFERENCE ROOMS 2A & 2B
1. AGENDA ADOPTION
} • II. REVIEW PUBLIC WORKS CIP FOR ARTERIALS &
COLLECTORS
lb III. REVIEW MANAGEMENT LETTER 2006 DRAFT
COMPREHENSIVE ANNUAL FINANCIAL REPORT
IV. REVIEW PARKS AND RECREATION DEDICATION FEE
STRUCTURE / BOULDER LAKES PARK DEDICATION FEE
V. REVIEW CEDAR GROVE REDEVELOPMENT PROPOSALS
VI. OTHER BUSINESS
VII. ADJOURNMENT
Agenda Information Memo
June 7, 2007 Finance Committee Meeting
II. REVIEW PUBLIC WORKS CIP FOR ARTERIALS & COLLECTORS
ACTION TO BE DISCUSSED: Review the proposed 5 yr CIP for Arterials and Collectors and
discuss various funding options.
FACTS:
• At the May 15 Council Workshop, the Council reviewed and discussed the Public Works
Department 5 yr CIP (2008-2012) and endorsed all of it with the exception of the Arterial &
Collector street improvements. Due to the significant impact that this section had on the
financial projections for the Major Street Fund, the Council directed further review and
consideration of this CIP segment to the Finance Committee.
• The Council had expressed some interest in considering various options to addressing the
long range funding shortfall of not only the immediate 5 yr CIP, but also the longer range
Transportation Infrastructure Needs Analysis (TINA). The Directors of Administrative
Services and Public Works have prepared a list of policy funding options to facilitate this
discussion and will be available to help formulate viable recommendations for the Committee
to submit to the full Council for formal consideration on June 17.
ATTACHMENTS:
• Staff memo, pages through
City of Evan Memo
TO: Finance Committee (Mayor Maguire and Councilmember Carlson)
City Administrator Hedges
FROM: Director of Administrative Services VanOverbeke
DATE: June 1, 2007
SUBJECT: Part III Public Works 2008 - 2012 CIP
Meeting Purpose:
• To have the Finance Committee review staffs' follow up information resulting
from the direction at the Special City Council meeting of May 8, 2007.
• To engage discussion on specific public policy questions resulting from the
follow up.
• To receive direction from the Finance Committee regarding next steps in
moving toward approval of the entire 2008 - 2012 Part III Public Works CIP.
Introduction
After review and discussion of the 2008 - 2012 Part III Public Works CIP at the May 8,
2007 meeting, the City Council concluded that the CIP did a very good job of laying
out the projected projects. The draft CIP demonstrates both the City's commitment to
properly maintaining and improving its infrastructure and the related funding challenge,
especially with projects relying on cost sharing with other partners. The Council gave
tentative approval to the CIP excluding the section related to Collectors & Arterials.
Staff was directed to prepare additional information regarding the financing of
Collectors & Arterials for consideration by the Finance Committee as follows:
• Explore the relationship between increasing project costs resulting from inflation
and saving tax levy dollars or other resources for future use. Determine the
feasibility of bonding today versus saving.
• Provide information comparing the tax levy for the Major Street Fund to the total
budget or tax levy.
• Compare future costs for major projects e.g. the overpasses to future Major
Street Fund levies in the context of total future levies.
• Develop scenarios to allow the designation of revenue sources, primarily
additional tax levies. The designations should provide justification to the
community that the additional resources are necessary and the only option
cz?
available and that they are earmarked and protected for the designated future
uses.
Inflation Impact - Saving for Projects
Bond and Build versus Saving then Build Example
The following table demonstrates the impact of beginning a new levy at $1,000,000,
increasing it by 5% per year, and investing it at 4% until used over a 20-year period.
The presentation assumes a 7% inflation increase applied to project costs. Given
these assumptions, after year seven the savings account would be $9,116,864 and an
original project cost of $6,000,000 would have risen to $9,004,382.
The table also shows that a $6,000,000 bond issued at 5% for a ten-year term would
cost approximately $777,027 annually in debt service. Total debt service over the ten-
year period would equal $7,770,274.
Annual
Savings Thro ughTax Levys Debt
Rate of Rate of Service
Increase: 5% With Inflation: on
Payable 4% 7% 10
Tax Interest Project $ 6,000,000
Years Year Levy Cummulative Cost 5.00%
1 2008 1,000,000 1,000,000 6,000,000 777,027
2 2009 1,050,000 2,090,000 6,420,000
3 2010 1,102,500 3,276,100 6,869,400
4 2011 1,157,625 4,564,769 7,350,258
5 2012 1,215,506 5,962,866 7,864,776
6 2013 1,276,282 7,477,662 8,415,310
7 2014 1,340,096 9,116,864 9,004,382
8 2015 1,407,100 10,888,639 9,634,689
9 2016 1,477,455 12,801,640 10,309,117
10 2017 1,551,328 14, 865, 034 11, 030, 755 7,770,274
11 2018 1,628, 895 17, 088, 530 11, 802, 908
12 2019 1,710,339 19,482,411 12,629,112
13 2020 1,795,856 22,057,564 13,513,150
14 2021 1,885,649 24,825,515 14,459,070
15 2022 1,979,932 27,798,467 15,471,205
16 2023 2,078,928 30,989,334 16,554,189
17 2024 2,182,875 34,411,782 17,712,982
18 2025 2,292,018 38,080,272 18,952,891
19 2026 2,406,619 42,010,102 20,279,594
20 2027 2,526,950 46,217,456 21,699,165
In general, the conclusions to this type of analysis will follow the interest rate and
inflation rate assumptions. For example, if the interest rate on the bonds is less than
the rate of inflation on the project costs, it will be cheaper to bond and build earlier to
fix the construction costs at today's prices. Likewise, if the interest rate for earnings on
3
the money in the savings account is less than the inflation on costs you will fall farther
and farther behind by saving to construct.
In the scenario presented in the table, there is not much difference in who actually
pays the bill in a bond versus save analysis. Since the savings period is seven years
and the bond payment term is 10 years, the money will essentially be coming from the
same taxpayers. Although not in present value dollars, the total cost is lower with the
bonding option, $7.7 versus $9 million, because of fixing the construction cost at $6
million thereby eliminating the inflation on the project cost.
This table does not address the costs related to the south overpass component of the
ring road. Included in the future category (beyond 2012) of this CIP are project costs
(revised) of $11,700,000 (Federal Drive - Duckwood to Yankee Doodle Road
$700,000 and Duckwood Drive - Pilot Knob Road to Federal Drive $11,000,000).
Depending on the interest rate assumptions and the timing, use of the table would
allow one to draw conclusions for the south overpass similar to those reflected above
for costs related to the north overpass and other related project costs.
Bonding Considerations
There are essentially three different bonding scenarios available for use that could be
given consideration in developing an overall financing plan for street and highway
infrastructure. Each option has restrictions and all would obviously require some sort
of dedicated revenue source for repayment. The following bullet points illustrate the
more important features and requirements.
1. General Obligation Special Assessment Bonds
• Requires 20% of the project cost to be assessed; therefore, the use may
be conditional upon a determination to specially assess at least 20% of
any particular project.
• Repaid through a combination of assessments and other available
revenue sources.
2. Street Reconstruction Bonds
• Requires unanimous vote of the City Council.
• Requires a public hearing.
• Subject to reverse referendum through petition.
• Potential option available to the City for some maintenance projects.
• Debt service payments made through any available revenue sources.
3. Municipal State Aid (MSA) Bonds
• Available through dedication of future MSA allocations, which are used to
pay the debt service on the bond issue.
Use of bond proceeds available only for MSA eligible projects.
Bonding in general will not increase the total amount of dollars available for funding
projects, but will only advance those dollars to an earlier time frame. Again,
depending on interest rates and inflation, bonding might be a lower total cost option,
3
however. Making more dollars available for construction will result primarily from
additional new revenue sources or increases to those already in place.
Relationship of Major Street Tax Levy to Total Budget or Total Tax Levy
The following table demonstrates the relationship between the tax levy going into the
Major Street Fund and the total tax levy (excluding debt on the Community Center)
over the last five years. It also shows how a $1,000,000 increase in the Major Street
Fund levy would change the percentages for payable 2008.
Major Major
Payable Total Street Street Annual
Year Levy* Levy % of Total Increases
2003 18,463,350 1,102,500 5.97% -
2004 19, 337,168 1,150, 708 5,95% 4.37%
2005 20,542,914 1,131,802 5.51% -1.64%
2006 21, 557, 307 1,188, 392 5,51% 5.00%
2007 22,304,562 1,247,812 5.59% 5.00%
9.48% 5.00%
5% 2008 24,419,790 2,310,203 9.46% 85.14%
1,000,000
* Excluding Community Center
The Major Street Fund levy has historically been between 5.5% and 6.0% of the total
levy each year depending on circumstances. It has also been increasing at about 5%
per year, although payable 2005 was an aberration due to the State's failure to provide
MVHC. Per the table for payable 2008, if the total base levy went up 5% and another
$1,000,000 was added and dedicated to the Major Street Fund, 9.46% of the tax levy
would be dedicated to the Street Fund and the total levy increase would be 9.48%.
Options for Dedicated Funding Sources
The concept of dedicating new and/or a portion of existing revenues to specific project
types or projects on the surface seems to be relatively straightforward. However, the
fact that there are already restrictions on the use of MSA dollars and two broad
general expenditure areas, i.e. maintenance and new construction, might cause actual
implementation to become problematic. It would likely be challenging to balance the
resource needs for the projects in each group, those with dedicated funding, and those
competing for the resources in the existing pool. Ultimately, it is likely that there will
still be too many projects competing for too few dollars, and there could be an unequal
distribution of results between the two project groups.
In other words, there is the potential in using two pots of money to get resources and
needs out of balance thereby resulting in spending on projects that don't rank as high
simply resulting from an incorrect allocation between the pots of money. There is also
the potential that requirements for the use of MSA dollars might drive new construction
ahead of maintenance, which is contrary to the overall City goal of first maintaining
existing infrastructure.
Perhaps the new money could be split with a portion dedicated only to overpasses and
closely related projects and the balance directed to the current pool and available for
4
5
appropriation to projects in the same manner that current resources have been
allocated. In general, that would separate the overpasses and closely related projects
from the other Collector and Arterial projects which would stay in the present pool.
The effective use of a bonding option might require additional flexibility with any new
dollars.
It also appears to be relatively straightforward to divide projects into two groups; those
where the City has no cost sharing partners like the County and State and those
where there are partners who theoretically should be cost sharing on the projects.
Once the projects are in those two groups establishing priorities will be challenging
due to all of the interrelationships and potential for leveraging participation. It might be
shortsighted and counter productive for the City to steadfastly dedicate all of its
resources categorically to its own streets and needs; thereby, potentially forgoing
opportunities to match or to leverage the State and/or Federal government's
participation.
The attached Exhibit 1 demonstrates in general terms potential options available for
the designation of dollars from no designation to specific designations reflecting both
existing and new revenues and directed toward specific projects or toward a group of
projects.
The attached Exhibit 2 demonstrates a broad grouping of Arterial and Collector
projects that are proposed for construction in the current 5-year CIP (2008 - 2012) into
4 categories, primarily by location. Projects in two of the four groupings include
County participation. There does not appear to be an obvious method in which to
group and prioritize projects around County participation.
Public Policy Discussion Items
What is the appropriate balance between setting up dedicated revenue sources
tied to specific uses and maintaining future flexibility across the entire CIP?
Long-term flexibility is necessary to provide the ability to ensure that revenues
are available for both maintenance (highest City priority) and potential
improvements. However, maintaining maximum flexibility could make following
and accounting for dedicated revenues problematic.
2. Any consideration for a levy increase needs to be balanced against other City
initiatives and the needs of the City's operating budget. Should consideration
be given to a tax levy increase during the 2008 budget preparation?
3. How do we deal with TINA projects, which are not a significant component in
this CIP? Since so many of the TINA projects include State obligations, should
they be left out of today's funding scenarios and longer-term projections?
5
4. Financing the street and highways portion of the 2008 -- 2012 Part III Public
Works CIP as presented requires all existing 5-year projected revenues
($20,811,240), all reserves ($11,009,000), and includes a deficit ($3,978,000).
Removing the north overpass and closely related projects results in a cost
reduction of $6,095,000 generating an ending reserve of $2,117,698. Should
some additional projects beyond the overpass simply not be included in the CIP
to maintain a higher reserve balance?
5. What factor, the CIP needs or the available revenues, ultimately drives the CIP
preparation? Preparing a CIP that doesn't include all projects may be
problematic as is preparing a CIP that cannot be financed.
6. What happens to proposed City revenue increases, if other revenue sources
e.g. MSA dollars are subsequently increased?
I believe this information will ?rovide the basis for discussion at the Finance
Committee meeting on the 7t . I will be available along with Director of Public Works
Colbert to answer any questions that might arise.
Direc+ominiisirative Services VanOverbeke
cc: Director of Public Works Colbert
6
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Finance Committee Meeting
Agenda memo
June 7, 2007
III. REVIEW MANAGEMENT LETTER 2006 DRAFT COMPREHENSIVE
ANNUAL FINANCIAL REPORT
Direction for consideration: Receive the management letter report by the independent
auditors, Kern DeWenter Viere (KDV), and direct staff to place acceptance of the
management letter and comprehensive annual financial report on the June 19 regular
City Council agenda.
FACTS:
• New auditing regulations require independent auditors to communicate certain audit
findings directly to the governing body, or an Audit or similar such committee
designated by the Council-in Eagan's case, the Finance Committee.
• This presentation will eliminate the need for a full audit/financial report presentation
during the June 19 regular Council meeting.
• The auditors have identified "Controls over year-end closing process" as a material
weakness in the City's internal control. This finding is due to audit adjusting entries
that were necessary for the government-wide financial statements. The auditors will
discuss this finding and their related recommendations in more detail.
• Other findings, including insufficient collateralization of deposits by Anchor Bank
and ECC fitness room control weaknesses, are identified in the management letter as
well.
• Audit Manager Janel Bitzan and Advanced Staff Accountant Emily Nahan from KDV
will make the presentation to the Finance Committee.
• Audit Partner Matt Mayer will briefly present the financial numbers at the June 19
regular Council meeting.
ATTACHMENTS:
• KDV's management letter is attached on pages through
10
CITY OF EAGAN
Dakota County, Minnesota
Management Letter
For the Fiscal Year Ended December 31, 2006
KIIYV
KERN. DEWENTER.VIERE
June 5, 2007
Honorable Mayor and Members
of the City Council
City of Eagan
Eagan, Minnesota
In planning and performing our audit of the financial statements of the City of Eagan, Minnesota,
as of and for the year ended December 31, 2006, in accordance with U.S. generally accepted
auditing standards, we considered the City of Eagan, Minnesota's internal control over financial
reporting as a basis for designing our auditing procedures for the purpose of expressing an
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. Also, projection of any evaluation of the
internal control to future periods is subject to the risk that procedures may become inadequate
because of changes in conditions or the degree of compliance may deteriorate.
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. We consider the following
deficiency to constitute a material weakness:
• Controls over year-end closing process
The details regarding this finding are provided later in this letter.
1 d\
KIJV
KERN•DEWLNTER VtERL
The accompanying memorandum also includes financial trend information and suggestions for
improvement of accounting procedures and internal accounting control measures that came to
our attention as a result of our audit of the financial statements of the City of Eagan for the year
ended December 31, 2006. 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 June 5,
2007, on such statements.
This report is intended solely for the information and use of the City Council, management,
others within the City, and state oversight agencies, and is not intended to be and should not be
used by anyone other than these specified parties.
We would like to express our appreciation for the cooperation extended to us by the management
and employees of the City during our audit.
KERN, DEWENTER, VIERE, LTD.
Minneapolis, Minnesota
13
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMUNICATION
December 31, 2006
We have audited the basic financial statements of the City of Eagan, Minnesota, for the year
ended December 31, 2006 and have issued our report dated June 5, 2007. Professional standards
require that we provide you with the following information related to our audit.
THE AUDITOR'S RESPONSIBLITY UNDER U.S. GENERALLY ACCEPTED
AUDITING STANDARDS AND GOVERNMENT A UDITING STANDARDS
As stated in our audit engagement letter, our responsibility, as described by professional
standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that
the basic financial statements are free of material misstatement and are fairly presented in
accordance with U.S. generally accepted accounting principles. Because an audit is designed to
provide reasonable, but not absolute, assurance and because we did not perform a detailed
examination of all transactions, there is a risk that material misstatements may exist and not be
detected by us
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.
SIGNIFICANT ACCOUNTING POLICIES
Management has the responsibility for 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 I of the financial statements.
We noted no significant unusual transactions and no significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES
Accounting estimates are an integral part of the basic 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 basic financial statements and because of the
possibility that future events affecting them may differ significantly from those expected.
The most sensitive estimate affecting the financial statements was:
• Depreciation - The City is currently depreciating its capital assets over their estimated
useful lives, as determined by management, using the straight-line method.
We evaluated the key factors and assumptions used to develop the above estimate in determining
that they are reasonable in relation to the financial statements taken as a whole.
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMUNICATION
December 31, 2006
SIGNIFICANT AUDIT ADJUSTMENTS
An audit adjustment, whether or not recorded by the City, is a proposed correction of the basic
financial statements that, in our judgment, may not have been detected except through our
auditing procedures performed. Audit adjustments, individually or in the aggregate, may have a
significant effect on the City's financial reporting process. Matters underlying adjustments
proposed by us but not recorded by the City could potentially cause future financial statements to
be materially misstated, even though we may have concluded that the adjustments are not
material to the current financial statements.
In our judgment, two of the adjustments we proposed indicate matters that could have a
significant effect on the City's financial reporting process.
OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL
STATEMENTS
The Management's Discussion and Analysis and statistical section, located in the City's financial
statements, is not a required part of the basic financial statements but is supplemental
information required by U.S. generally accepted accounting principles. We have applied certain
limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplemental information. However,
we did not audit the information and express no opinion on it.
DISAGREEMENTS WITH MANAGEMENT
Disagreements with management, whether or not satisfactorily resolved, are defined as matters
that individually or in the aggregate could be significant to the City's financial statements or the
auditors' report. Disagreements may occasionally arise over the application of accounting
principles to the City's specific transactions and events and the basis for management's
judgments about accounting estimates. Disagreements may also arise regarding the scope of the
audit, disclosure to be included in the City's financial statements, and the wording of the
auditors' report.
No such disagreements with management occurred during the course of our audit.
CONSULTATIONS WITH OTHER ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. If a consultation involves application of an accounting principle to the
City's financial statements or a determination of the type of auditor's opinion that may be
expressed on those statements, our professional standards require the consulting accountant to
confer with us to determine that the consultant has all the relevant facts.
We are aware of no consultations by the City's management with other accountants during the
course of our audit.
CITY OF EAGAN
Dakota County, Minnesota
MATTERS OF COMMUNICATION
December 31, 2006
MAJOR ISSUES DISCUSSED WITH MANAGMEMENT PRIOR TO RETENTION
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management prior to retention as the City's auditors.
These discussions occurred in the normal course of our professional relationship and our
responses were not a condition to our retention.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no difficulties in dealing with management related to the performance of our
audit.
`Lp
CITY OF EAGAN
Dakota County, Minnesota
MINNESOTA LEGAL COMPLIANCE FINDING
December 31, 2006
OBTAIN SUFFICIENT COLLATERAL FOR UNSECURED DEPOSITS
The depositories of public funds and public investment laws of Minnesota Statutes 118A.01 and
118A.08 require all deposits with financial institutions be collateralized in an amount equal to
110% of deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance.
During out audit, we noted the City's deposits at Anchor Bank were under collateralized as of
December 31, 2006 in the amount of $ 735,682. Additional collateral of $ 809,250 was needed
to secure these deposits.
We recommend the City monitor the cash balances at all depositories to ensure the collateral
pledged is sufficient.
!7
CITY OF EAGAN
Dakota County, Minnesota
MATERIAL WEAKNESS
December 31, 2006
CONTROLS OVER THE YEAR-END CLOSING PROCESS
During our audit, we proposed audit adjustments that we consider, both individually and in the
aggregate, to be quantitatively material to the financial statements. In addition, a prior period
adjustment was required to adjust capital asset balances reported in prior years.
Material adjustments in the current year were required to adjust contributed capital asset
balances, adjust construction in progress balances and recognize newly levied special
assessments. Of the four material adjustments, two were identified by City staff and two were
identified by the auditors.
The circumstances surrounding the adjustments indicate the underlying cause may be a need for
additional time prior to the audit to internally perform a detailed, as well as a high-level-
analytical, review of the final balances and transactions. We recommend that appropriate time
for this review be incorporated into future year-end closing timelines.
We also recommend a review of some of the other year-end procedures.
It was noted during testing that multiple employees are authorized to draft and also record
journal entries into the City's general ledger. However, the employee drafting the entry
generally also records the entry without the review or approval of another.
We recommend improving the journal entry process by segregating the drafting and the
recording process and adding a monitoring function, whereby another employee not directly
involved in the drafting or recording of the entry, provides an additional level of review.
The City should also be conscious of other situations in the year-end closing process where
segregation can be improved among the areas of authorization of transactions, custody of related
assets, recording and reconciliation of transactions.
While these final recommendations may not have directly impacted the need for audit
adjustments in the current year, they do provide an additional level of monitoring and oversight.
lF
CITY OF EAGAN
Dakota County, Minnesota
CONTROL DEFICIENCY
December 31, 2006
REVIEW CONTROL ENVIRONMENT AT COMMUNITY CENTER
Through testing procedures performed at the community center's fitness room and inquiry of the
City department superintendent, it was revealed the controls established by the City were
ineffective. The control environment includes use of identification and guest badges for
members and guests, patron check-in at main lobby desk staffed by multiple employees, and an
employee to monitor the fitness room. All controls were bypassed when tested.
We recommend the City review its control measures to ensure their effectiveness over this
business function of the City.
Iq
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
STATEMENTS OF AUDITING STANDARDS (STANDARDS) NOS. 104 -111
In March 2006, the Auditing Standards Board (ASB) issued Statements of Auditing Standards
(Standards) Nos. 104 -- 111 that provide extensive guidance concerning the auditor's assessment
of the risks of material misstatement in a financial statement audit and the design and
performance of audit procedures whose nature, timing and extent are in response to the identified
assessed risks. Additionally, the Standards establish standards and provide guidance on planning
and supervision, the nature of audit evidence and evaluating whether the audit evidence obtained
provides a reasonable basis for an opinion on the financial statements being audited. These
Standards will be effective for audits of financial statements for periods beginning on or after
December 15, 2006.
Audit teams will be performing additional procedures to gain a more in-depth understanding of
the City's environment, including its internal control; including evaluating the design of the
controls and determining those controls have been implemented. The audit procedures
performed to obtain the necessary understanding are called "risk assessment procedures" and
require more than simple inquiries of management. The Standards specifically call for inquiries
of management and other personnel, analytical procedures and observation and inspection. The
procedures also involve discussions among the audit team to determine whether the potential
exists for misstatements. These Standards also expand the documentation requirements for
auditors.
CONSIDER THE IMPACT OF GASB STATEMENTS NOS. 43 AND 45
In summary, these Standards will result in a substantial change in audit practice. The Standards
will strengthen the auditor's understanding of the City and its environment, including its internal
control, to identify the risks of material misstatement in the financial statements and determine
what the entity is doing to mitigate those risks. Auditors will identify assessed risks based on the
understanding obtained. There will be an improved correlation between those assessed risks and
the nature, timing and extent of audit procedures performed in response to those risks.
In April and July of 2004, the Governmental Accounting Standards Board (GASB) issued Statements
Nos. 43 and 45, respectively, which provide guidance on financial reporting for Other Post
Employment Benefits (OPEB) plans. GASB Statement No. 43 provides guidance on accounting and
financial reporting for plan assets while GASB Statement No. 45 refers to accounting and financial
reporting for OPEB plans at the local government level, or employer accounting. The City should be
reviewing GASB Statement No. 45 for financial statement implications and then GASB Statement
No. 43 may or may not apply once the City implements GASB Statement No. 45. Implementation
dates range from 2007 to 2009, depending on date of GASB Statement No. 34 implementation. The
implementation date for GASB Statement No. 45 for the City of Eagan is the year ending
December 31, 2008.
The City of Eagan has already taken steps to prepare for these new standards by dedicating
$ 1,575,000 from the City's General Fund in 2005 for these future costs, as well as working with
collective bargaining groups to limit the future liability.
aC)
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
What is OPEB?
OPEB are forms of post employment benefits not currently provided through a pension plan. It is a
form of compensation given in exchange for employee services. It should be noted any type of post
employment benefits based upon compensated absences such as vacation or sick leave are not
considered OPEB and should already be accounted for under GASB Statement No. 16. The most
common types of OPEB are post employment health care benefits, which includes medical, dental,
vision, hearing and other health-related benefits such as life insurance, disability and long-term care.
Other benefits, if provided, for compensation, such as lump sum payments based on years of service,
are also considered OPEB. Be aware that even if the City only has retirees that pay 100% of health
insurance premiums, GASB Statement No. 45 applies, because of the implicit rate subsidy.
What is the Implicit Rate Subsidy?
The older an employee is, the higher the medical insurance premium. However, a retiree is
allowed to stay on the City's health insurance plan at the same cost as active employees because
of Minnesota Statutes Section 471.61, Subd. 2b. This Statute states local government employers
must allow employees retiring before age 65 to remain active in the local government's medical
plan until Medicare age, even at the employee's expense. The employee can stay in the plan at
what is called the blended premium rate. For example, the City's health insurance premium is
$ 300/month for all employees, active and retired.
The City has one retired employee that pays $ 300/month, the same amount as all active
employees because of Minnesota Statutes Section 471.61, Subd. 2b. This retiree is 60 years old
and the actual cost of a health insurance premium for a person that age is $ 700/month. The
difference of $ 400/month is considered an OPEB liability. Generally, as the retiree ages, the
OPEB liability increases.
What are the Financial Statement Implications?
GASB Statement No. 45 will require local governments to obtain actuarial valuations for OPEB
benefits. Currently, most governments, such as cities, account for OPEB benefits on a "Pay as
you Go" basis. However, this does not measure the cost of the benefit when the employee
renders service, but rather when the cost is paid. Through an actuarial valuation, a determination
of the City's ARC, or annual required contribution, will be made. The ARC will measure
normal cost, or cost of current service, and the amortization cost, or cost of past service. In other
words, the ARC is the contribution required to fund the plan on a current basis. GASB
Statement No. 45 does not require funding of the ARC. Any amount of the ARC that is not
funded will be recorded on the City's government-wide financial statements as a Net OPEB
Obligation. In year one of implementation, the Net OPEB Obligation can be set at zero; GASB
Statement No. 45 does not require retroactive measurement. It should also be noted that GASB
Statement No. 45 also does not require recording the actuarial accrued liability, which is the total
liability of all OPEB benefits as calculated by the actuary.
What if the City Funds the ARC?
If the City desires to fully or partially fund the ARC, the contribution must be irrevocably
transferred to a trust or equivalent arrangement. The plan assets of the trust must be dedicated to
a1
CITY OF EAGAN
Dakota County, Minnesota
NEW STANDARDS
December 31, 2006
providing benefits to retirees and beneficiaries according to the terms of the plan and the plans
assets must be legally protected from creditors of the employer or plan administrator. Once these
three criteria are met, the payment for the ARC will be considered funded, according to GASB
Statement No. 45. Setting aside assets in a fund balance reserve or designation does not apply.
Once the criteria for full or partial funding of the ARC are met, a pension trust fund will be set
up and account for the plan assets. GASB Statement No. 43 will apply for the accounting of the
plan assets.
When are Actuarial Valuations Required?
• At least biennially for OPEB plans with total membership of 200 or more.
• At least triennially for OPEB plans with total membership of fewer than 200.
• Alternative measurement method available with membership of less than 100 using same
broad measurement steps as an actuarial valuation. Does permit simplification of certain
assumptions to make method usable to non specialists.
Action Items to Implementation
1. Determine the City's OPEB liabilities
• Go through all employee contracts and personnel policies.
• Remember implicit rate subsidy.
2. Determine if, and when, to hire an actuary.
3. Have actuary explain results of study. Educate your employee groups. Consider changing
contract or personnel policy language.
4. Determine whether to fund the ARC, either in whole or in part. This should be addressed by
the City Council.
5. If intent is to partially or fully fund the ARC, investigate trust arrangements. Realize the
Office of the State Auditor has taken the position there is no statutory authority for a local
government to set up a trust for an OPEB plan. This issue will have to be addressed
legislatively.
6. Communicate your plans to us. As your auditors, we are available to guide you through the
implementation process.
as
Agenda Memo
June 7, 2007 Finance Committee Meeting
IV: REVIEW PARKS DEDICATION FEE STRUCTURE/BOULDER LAKES PARK
DEDICATION FEE
FACTS
• The City of Eagan was alerted to the need to comply with legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
• After much review from staff and advice from the City Attorney, the Advisory Parks Commission
proposed changes to the commercial/industrial parks dedication at their November 20, 2006 meeting
to come into compliance with the new legislation.
• The Boulder Ridge development is the first development to go through the review process using the
new formula for calculating dedication fees.
• The City Council asked the Finance Committee to further review this policy to determine how best to
move forward with the Boulder Ridge development, and subsequent developments, to meet the
legislative requirements for parks dedication.
• Several policy questions have been identified for the committee to consider.
ATTACHMENTS:
• Background memo on pages
a3
City of Eap demo
To: Tom Hedges, City Administrator
From: Juli Seydell Johnson, Director of Parks and Recreation
Date: June 1, 2007
Subject: Commercial/Industrial Parks Dedication-Boulder Ridge Business Park
BACKGROUND:
• The City of Eagan was alerted to the need to comply with Legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
• After much review from staff, based upon input from the City Attorney, the Advisory Parks
Commission proposed changes to the commercial/industrial parks dedication at their November 20,
2006 meeting to come into compliance with the new legislation.
The commercial/industrial park dedication formula was approved by the Council at their November
21, 2006 meeting. The information included at that time was:
o Recent Legislation requires a consistent and justifiable approach to determining the amount
of park dedication, be it cash or land, required of a developer. Said approach should reflect
the potential impact the development would have on the park system. As a result the City
Attorney has advised that aspects of the current City dedication process be amended.
o Currently, city park dedication, for residential developments is determined through a formula
that includes an "acres per person " constant while the commercial/industrial calculation is
based upon "net buildable acres ".
o The amended formula is modeled after examples, provided by the City Attorney, of the
method used in other neighboring municipalities, and is based upon the same "acres per
person" constant used in calculating dedication for residential developments in the city, with
credit given for the non-resident status of potential employees.
o In some instances, depending upon the development application, the amended method of
calculation will result in the amount of dedication being slightly more (large building on a
small site), but occasionally less(small building on a large site), than that resulting from the
current use of "net buildable acres ".
o The amended method of calculation can be used for determining a dedication of either cash
or land.
o The City Attorney and Advisory Parks Commission have reviewed the proposed amendment.
• The fees were ratified as part of the 2007 Fee Schedule in December 2006.
• The City Council took another look at the formula and approved changes to the language to simplify
the instruction at their March 6, 2007 meeting.
o The 2007 Parks and Trails dedication fees were approved as part of the overall fee structure
by the City Council in December 2006.
o The description of the new calculation for the industrial/cormnercial portion of the parks
dedication had led to several questions and a level of confusion as to how the fees should be
calculated,
o To simplify the process the Park Dedication Policy document was simplified to better state
how these rates are to be calculated and to show the standard rate.
o This change did not alter any portion of the approved policy other than to clarify and simplify
for potential developers how this fee is calculated.
• A recent survey of other metro cities shows Eagan to be the second highest fee based upon a
comparison used for the Boulder Ridge development. (Using Eagan's prior formula, we would be one
of the lowest fees). It should also be noted that according to the Minnesota Recreation and Parks
Association, less than 25% of cities are currently meeting the legislative mandate. Eagan is
considered to be in compliance.
Assumptions: Total Acres = 11.95
Estimated Net Acres = 7.9
Assumed Average Market Land Value = $260,000 (AV)
City
A le Valley 1 Calculation
$1836/$624 per 1000 square feet of building floor space Estimated
$177,720
Brooklyn Park 6 5% of the market value of the total net acres 102,700
Burnsville 4 5% of the gross acres x average land value 155,350
Eagan 2 $1737/$473 per 1000 square feet of building floor space
(Previous formula = 7.9 acres x $6080 = $48,032) 165,790
Edina 3 8% of the market value of the net land 164,320
I.G.I-Iei hts 8 $7000 per acre x total gross acres 83,650
Lakeville 9 $7693 per acre x total buildable acres 60,775
Maple Grove 7 $11,000 per acre x net acres 86,900
Plymouth 10 $7500 per acre x net acres 59,250
Rosemount 5 10% of the gross acres x average land value ($90,000)
At 90,000
At 260,000
108,000
312,000
• To date no commercial/industrial development in Eagan has paid the revised fees based on the new
formula.
PARKS DEDICATION
• The current Park Dedication Policy states,
The preservation of land for park, playground and public open space purposes as it relates to the use and
development of land for residential, conunercial/industrial purposes is essential to maintaining a healthful
and desirable environment for all citizens of the City. It is recognized by the City Council that the demand for
park, playground and public open space within a municipality is directly related to the density and intensity
of development permitted and allowed within any given area,
It is the policy of Eagan that the standards and guidelines for the dedication of land for park, playground and
public open space purposes (or cash contributions in lieu of such dedication) in the subdividing and
developing of land within the city shall be directly related to the density and intensity of each subdivision and
development.
• The calculated park dedication fee for the 110,000 square foot commercial/industrial Boulder Ridge
building was calculated to be $165,790. The 2006 calculation would have been $48,032.
• It was the opinion of the City Attorney, and recommended by the APrC, that the new formula
represents a clearer nexus between potential park users within a commercial/industrial development
and the potential impact on existing park facilities. When this proposal came before the Advisory
Parks Commission in April 2007 there were no park amenities proposed within the development.
-11
PC)
• While it may be difficult to quantify casual use of park amenities near commercial/industrial
properties, it is clear that they are strong participants in programs and frequent users of parks and
pavilions.
POLICY DISCUSSION
• Is the 2007 Parks Dedication fee structure appropriate for commercial/industrial
development?
• If not, what parameters need to be defined to refine the fee structure while maintaining
compliance with the Legislative mandate?
TRAIL DEDICATION
• The Boulder Ridge development trail dedication is calculated to be $13,848.
• The development proposes internal trails that would cost approximately $130,000 - 156,000 which
includes the completion of trails for this first phase building along with all subsequent future phases.
• The developer has asked that the City of Eagan build the trails and have offered to maintain them.
(The City Attorney has advised that whomever builds the trails should also maintain them)
POLICY DISCUSSION
• Do all the proposed trails for this development provide a public benefit?
o If no,
¦ Which portions might be considered for transportation purposes and which might be
considered for internal use only?
¦ How would the trail dedication credit be applied to the trail construction costs?
¦ Who would construct and maintain each portion?
o If yes,
¦ After the trail dedication credit is applied to the trail construction costs how is the
balance funded?
¦ If installed by the Developer, should the cost of trails be a credit towards the park
dedication?
¦ Who would construct and maintain the trails?
¦ Construction and maintenance by City of Eagan would require easements and
construction before all phases are built which may preclude changes to the plan in the
future.
ATTACHMENTS:
• Boulder Ridge Business Park parks and trails dedication estimates on page
BOULDER RIDGE BUSINESS PARK
PARKS AND TRAILS DEDICATION ESTIMATES
Phase I / Building #3
Building Size
Commercial/office = 90,000 square feet
Industrial/warehouse = 20,000 square feet
Total = 110,000 square feet
Per Approved 2007 Rate;
Parks Dedication;
Commercial = 90,000 sq ft @ $1737 per 1000 = $156,330
Industrial = 20,000 sq ft @ $473 per 1000 = $9460
Est Total = $165,790
(est dedication per 06 rates = 11.07 net acres x $5790 =
$64095 )
Trails Dedication;
Comm/Ind =11.07 net acres @ $1251 per acre= est $13,848
(est dedication per 06 rates = 11.07 net acres @ $1251 =
$13,848)
Est Total Due All Dedications Per 07 Rates = $179,638
Requested On-Site Trail Credit
(all on-site trails)
Est 13000 lineal ft @ $10-$12 per ft = $130,000-$156,000
(8' bit.trail)
c7
Agenda Memo
Eagan City Council Finance Committee Meeting
June 7, 2007
V. REVIEW CEDAR GROVE REDEVELOPMENT PROPOSALS
DIRECTION TO BE CONSIDERED: To review the interview format and provide
input on interview questions and issues to be addressed.
FACTS:
• The City Council interviews for the developers who have submitted proposals for
the Cedar Grove redevelopment will be the last item on the Council workshop on
June 12. Again, they are Doran-Pratt, JBL Companies, Sherman and Associates
and Told Development.
• Copies of the proposals, responses to preliminary questions and a comparison
matrix were distributed to all Council members in the June 1, 2007 Additional
Information memo. The matrix is enclosed here as well for reference purposes.
• Interview times have been scheduled with the developers. Staff has set
expectations for the developers to keep the interviews compact and manageable,
but to provide sufficient time for the Council to learn about and interact with the
development teams that are proposing to be the City's partners in one of our key
redevelopment areas.
• Each interview will include a five minute introduction of the developer's team
and an overview their approach. We have asked that they include a brief
description of team members' experience with mixed use redevelopment and a
very brief overview of their intended approach to the Cedar Grove project, using a
board of your concept drawing. This will be followed by ten minutes of questions
from the Council and five minutes for informal discussion and wrap up. This
results in 20 minutes per proposer and there will be a ten minute break between
the second and third interview.
• In the Additional Information memo, staff asked all Council members to submit
questions. Any questions received from other Council members will be shared
with the Committee at Thursday's meeting. It would be useful for the Committee
to provide input on the questions to be included in the final list and/or to identify
issues that should be addressed in questions to help differentiate between the
proposals.
ATTACHMENTS:
-NO
Proposal matrix on page!07 __ through
• Partial list of questions on page _.`_--
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43
Cedar Grove Redevelopment Proposals
June 12, 2006
Preliminary Interview Questions
® Describe the special strengths you see in the Cedar Grove Redevelopment area as
a development opportunity.
• What aspects of the City's vision for Cedar Grove have the best chances for
success?
o Describe the challenges you anticipate we will need to address as partners in this
development project.
• Do you see the proximity of the Mall of America as an asset or a challenge for
Cedar Grove? Why?
® When you have worked with a City in the past on a redevelopment, describe the
ways you have kept the Council, staff, residents and businesses informed about
the project.
® Discuss your experience with Pedestrian Oriented and Transit Oriented
developments. What makes them work and what makes them not work?
Meeting Notes
Finance Committee Meeting
June 6, 2007
Attendance:
Mayor Maguire, Councilmember Carlson, City Administrator Hedges,
Director of Public Works Colbert, Director of Parks and Recreation Seydell Johnson,
Advisory Parks Commission Chair Peterson, Director of Community Development
Hohenstein, Chief Financial Officer Pepper, and Director of Administrative Services
VanOverbeke.
Agenda Adoption
The agenda was approved as presented.
Review Public Works CIP for Arterials & Collectors
Director of Administrative Services VanOverbeke presented background information
included in his packet memo outlining various funding options for the 2008 -2012 Part III
Public Works CIP. The information included the inflation impact on saving for projects,
the relationship of Major Street Fund tax levies to total budgets and total tax levies, and
options for dedicating funding sources for arterials & collectors. The Committee also
reviewed the long-range funding shortfall of the 5-year CIP and the longer range
projected Transportation Infrastructure Needs Analysis.
Upon review of the information, the Finance Committee recommended the following for
consideration by the full City Council:
1. A new distinct category be created in the Streets/Highways section of the 5-year
CIP for ?Overpasses and Interchanges? and that the Ring Road components
(Northwood Parkway & Duckwood Drive) be transferred from the ?Arterials &
Collectors? to this new dedicated category.
2. The entire 5-year CIP be ?Adopted? as a guideline (as revised with this new
category), and the 2008 construction program only be ?Approved/Authorized? for
implementation of the public improvement process.
3. The full Council give further consideration through discussion for possible
additional dedicated sources of funding for the new ?Overpasses & Interchanges?
category before next year?s CIP is reviewed.
Review Management Letter 2006 Draft Comprehensive Annual Financial Report
As required by the new auditing standards, representatives of the City?s independent
auditing firm, Kern, DeWenter, Viere (Janel Bitzan and Emily Nathan) presented an
overview of the management letter resulting from the audit of the December 31, 2006
financial records. The Finance Committee received the management letter report and
directed staff to place acceptance of the management letter and comprehensive annual
financial report on the June 19 regular City Council agenda.
Review Parks and Recreation Dedication Fee Structure / Boulder lakes park
Dedication Fee
At the May 15, 2007 City Council meeting, the Council directed the APrC to review the
current formula used for the commercial/industrial park dedication fees. The Council
also asked the Finance Committee to review the recommendation of the APrC and its
impact on the Boulder Ridge Business Park. Director of Parks and Recreation Seydell
Johnson explained the background on why the commercial/industrial park dedication
fees were changed and the work the APrC had undertaken to implement a fee system
based upon meeting State Statutes per the City Attorney. She further explained that the
dramatic fee increase also resulted from the base of relatively low fees as calculated
under the old method.
While understanding the necessity of complying with the State Statutes and the reasons
behind the changes, the Finance Committee was concerned that the new formula was
not meeting the objectives for development the City Council was seeking and directed
the APrC to review the formula through consideration of modifications to the formula.
The Finance Committee also asked that the APrC further review the Boulder Ridge site
development and the resulting relationship of proposed internal trails with City Trails to
address the developer?s request for certain accommodations to the City trail dedication
fee for that particular development.
Review Cedar Grove Redevelopment Proposals
Director of Community Development Hohenstein reviewed the packet information and
provided a summary of the matrix of information on the potential developers for the
Cedar Grove redevelopment. The summary material in the matrix was prepared by
Ehlers from the responses submitted by the developers.
The Finance Committee provided input on the interview format and questions in
preparation for the Special Meeting on June 12, 2007.
Other Business/Adjournment
There was no other business to come before the committee and the meeting was
adjourned.
TO: Finance Committee (Mayor Maguire and Councilmember Carlson)
City Administrator Hedges
FROM: Director of Administrative Services VanOverbeke
DATE: June 1, 2007
SUBJECT: Part III Public Works 2008 ? 2012 CIP
Meeting Purpose:
?
To have the Finance Committee review staffs? follow up information resulting
from the direction at the Special City Council meeting of May 8, 2007.
?
To engage discussion on specific public policy questions resulting from the
follow up.
?
To receive direction from the Finance Committee regarding next steps in
moving toward approval of the entire 2008 ? 2012 Part III Public Works CIP.
Introduction
After review and discussion of the 2008 ? 2012 Part III Public Works CIP at the May 8,
2007 meeting, the City Council concluded that the CIP did a very good job of laying
out the projected projects. The draft CIP demonstrates both the City?s commitment to
properly maintaining and improving its infrastructure and the related funding challenge,
especially with projects relying on cost sharing with other partners. The Council gave
tentative approval to the CIP excluding the section related to Collectors & Arterials.
Staff was directed to prepare additional information regarding the financing of
Collectors & Arterials for consideration by the Finance Committee as follows:
?
Explore the relationship between increasing project costs resulting from inflation
and saving tax levy dollars or other resources for future use. Determine the
feasibility of bonding today versus saving.
?
Provide information comparing the tax levy for the Major Street Fund to the total
budget or tax levy.
?
Compare future costs for major projects e.g. the overpasses to future Major
Street Fund levies in the context of total future levies.
?
Develop scenarios to allow the designation of revenue sources, primarily
additional tax levies. The designations should provide justification to the
community that the additional resources are necessary and the only option
1
available and that they are earmarked and protected for the designated future
uses.
Inflation Impact ? Saving for Projects
Bond and Build versus Saving then Build Example
The following table demonstrates the impact of beginning a new levy at $1,000,000,
increasing it by 5% per year, and investing it at 4% until used over a 20-year period.
The presentation assumes a 7% inflation increase applied to project costs. Given
these assumptions, after year seven the savings account would be $9,116,864 and an
original project cost of $6,000,000 would have risen to $9,004,382.
The table also shows that a $6,000,000 bond issued at 5% for a ten-year term would
cost approximately $777,027 annually in debt service. Total debt service over the ten-
year period would equal $7,770,274.
Annual
Savings ThroughTax Levys Debt
Rate of Rate of Service
Increase:5%WithInflation:on
Payable4%7%10
TaxInterestProject $ 6,000,000
YearsYearLevyCummulativeCost5.00%
12008 1,000,000 1,000,000 6,000,000 777,027
22009 1,050,000 2,090,000 6,420,000
32010 1,102,500 3,276,100 6,869,400
42011 1,157,625 4,564,769 7,350,258
52012 1,215,506 5,962,866 7,864,776
62013 1,276,282 7,477,662 8,415,310
72014 1,340,096 9,116,864 9,004,382
82015 1,407,100 10,888,639 9,634,689
92016 1,477,455 12,801,640 10,309,117
102017 1,551,328 14,865,034 11,030,755 7,770,274
112018 1,628,895 17,088,530 11,802,908
122019 1,710,339 19,482,411 12,629,112
132020 1,795,856 22,057,564 13,513,150
142021 1,885,649 24,825,515 14,459,070
152022 1,979,932 27,798,467 15,471,205 -
162023 2,078,928 30,989,334 16,554,189
172024 2,182,875 34,411,782 17,712,982
182025 2,292,018 38,080,272 18,952,891
192026 2,406,619 42,010,102 20,279,594
202027 2,526,950 46,217,456 21,699,165 -
In general, the conclusions to this type of analysis will follow the interest rate and
inflation rate assumptions. For example, if the interest rate on the bonds is less than
the rate of inflation on the project costs, it will be cheaper to bond and build earlier to
fix the construction costs at today?s prices. Likewise, if the interest rate for earnings on
2
the money in the savings account is less than the inflation on costs you will fall farther
and farther behind by saving to construct.
In the scenario presented in the table, there is not much difference in who actually
pays the bill in a bond versus save analysis. Since the savings period is seven years
and the bond payment term is 10 years, the money will essentially be coming from the
same taxpayers. Although not in present value dollars, the total cost is lower with the
bonding option, $7.7 versus $9 million, because of fixing the construction cost at $6
million thereby eliminating the inflation on the project cost.
This table does not address the costs related to the south overpass component of the
ring road. Included in the future category (beyond 2012) of this CIP are project costs
(revised) of $11,700,000 (Federal Drive ? Duckwood to Yankee Doodle Road
$700,000 and Duckwood Drive ? Pilot Knob Road to Federal Drive $11,000,000).
Depending on the interest rate assumptions and the timing, use of the table would
allow one to draw conclusions for the south overpass similar to those reflected above
for costs related to the north overpass and other related project costs.
Bonding Considerations
There are essentially three different bonding scenarios available for use that could be
given consideration in developing an overall financing plan for street and highway
infrastructure. Each option has restrictions and all would obviously require some sort
of dedicated revenue source for repayment. The following bullet points illustrate the
more important features and requirements.
1. General Obligation Special Assessment Bonds
?
Requires 20% of the project cost to be assessed; therefore, the use may
be conditional upon a determination to specially assess at least 20% of
any particular project.
?
Repaid through a combination of assessments and other available
revenue sources.
2. Street Reconstruction Bonds
?
Requires unanimous vote of the City Council.
?
Requires a public hearing.
?
Subject to reverse referendum through petition.
?
Potential option available to the City for some maintenance projects.
?
Debt service payments made through any available revenue sources.
3. Municipal State Aid (MSA) Bonds
?
Available through dedication of future MSA allocations, which are used to
pay the debt service on the bond issue.
?
Use of bond proceeds available only for MSA eligible projects.
Bonding in general will not increase the total amount of dollars available for funding
projects, but will only advance those dollars to an earlier time frame. Again,
depending on interest rates and inflation, bonding might be a lower total cost option,
3
however. Making more dollars available for construction will result primarily from
additional new revenue sources or increases to those already in place.
Relationship of Major Street Tax Levy to Total Budget or Total Tax Levy
The following table demonstrates the relationship between the tax levy going into the
Major Street Fund and the total tax levy (excluding debt on the Community Center)
over the last five years. It also shows how a $1,000,000 increase in the Major Street
Fund levy would change the percentages for payable 2008.
MajorMajor
Payable TotalStreetStreetAnnual
YearLevy*Levy% of TotalIncreases
2003 18,463,350 1,102,500 5.97% -
2004 19,337,168 1,150,708 5.95%4.37%
2005 20,542,914 1,131,802 5.51%-1.64%
2006 21,557,307 1,188,392 5.51%5.00%
2007 22,304,562 1,247,812 5.59%5.00%
9.48%5.00%
5%2008 24,419,790 2,310,203 9.46%85.14%
1,000,000
* Excluding Community Center
The Major Street Fund levy has historically been between 5.5% and 6.0% of the total
levy each year depending on circumstances. It has also been increasing at about 5%
per year, although payable 2005 was an aberration due to the State?s failure to provide
MVHC. Per the table for payable 2008, if the total base levy went up 5% and another
$1,000,000 was added and dedicated to the Major Street Fund, 9.46% of the tax levy
would be dedicated to the Street Fund and the total levy increase would be 9.48%.
Options for Dedicated Funding Sources
The concept of dedicating new and/or a portion of existing revenues to specific project
types or projects on the surface seems to be relatively straightforward. However, the
fact that there are already restrictions on the use of MSA dollars and two broad
general expenditure areas, i.e. maintenance and new construction, might cause actual
implementation to become problematic. It would likely be challenging to balance the
resource needs for the projects in each group, those with dedicated funding, and those
competing for the resources in the existing pool. Ultimately, it is likely that there will
still be too many projects competing for too few dollars, and there could be an unequal
distribution of results between the two project groups.
In other words, there is the potential in using two pots of money to get resources and
needs out of balance thereby resulting in spending on projects that don?t rank as high
simply resulting from an incorrect allocation between the pots of money. There is also
the potential that requirements for the use of MSA dollars might drive new construction
ahead of maintenance, which is contrary to the overall City goal of first maintaining
existing infrastructure.
Perhaps the new money could be split with a portion dedicated only to overpasses and
closely related projects and the balance directed to the current pool and available for
4
appropriation to projects in the same manner that current resources have been
allocated. In general, that would separate the overpasses and closely related projects
from the other Collector and Arterial projects which would stay in the present pool.
The effective use of a bonding option might require additional flexibility with any new
dollars.
It also appears to be relatively straightforward to divide projects into two groups; those
where the City has no cost sharing partners like the County and State and those
where there are partners who theoretically should be cost sharing on the projects.
Once the projects are in those two groups establishing priorities will be challenging
due to all of the interrelationships and potential for leveraging participation. It might be
shortsighted and counter productive for the City to steadfastly dedicate all of its
resources categorically to its own streets and needs; thereby, potentially forgoing
opportunities to match or to leverage the State and/or Federal government?s
participation.
The attached Exhibit 1 demonstrates in general terms potential options available for
the designation of dollars from no designation to specific designations reflecting both
existing and new revenues and directed toward specific projects or toward a group of
projects.
The attached Exhibit 2 demonstrates a broad grouping of Arterial and Collector
projects that are proposed for construction in the current 5-year CIP (2008 ? 2012) into
4 categories, primarily by location. Projects in two of the four groupings include
County participation. There does not appear to be an obvious method in which to
group and prioritize projects around County participation.
Public Policy Discussion Items
1. What is the appropriate balance between setting up dedicated revenue sources
tied to specific uses and maintaining future flexibility across the entire CIP?
Long-term flexibility is necessary to provide the ability to ensure that revenues
are available for both maintenance (highest City priority) and potential
improvements. However, maintaining maximum flexibility could make following
and accounting for dedicated revenues problematic.
2. Any consideration for a levy increase needs to be balanced against other City
initiatives and the needs of the City?s operating budget. Should consideration
be given to a tax levy increase during the 2008 budget preparation?
3. How do we deal with TINA projects, which are not a significant component in
this CIP? Since so many of the TINA projects include State obligations, should
they be left out of today?s funding scenarios and longer-term projections?
5
4. Financing the street and highways portion of the 2008 -- 2012 Part III Public
Works CIP as presented requires all existing 5-year projected revenues
($20,811,240), all reserves ($11,009,000), and includes a deficit ($3,978,000).
Removing the north overpass and closely related projects results in a cost
reduction of $6,095,000 generating an ending reserve of $2,117,698. Should
some additional projects beyond the overpass simply not be included in the CIP
to maintain a higher reserve balance?
5. What factor, the CIP needs or the available revenues, ultimately drives the CIP
preparation? Preparing a CIP that doesn?t include all projects may be
problematic as is preparing a CIP that cannot be financed.
6. What happens to proposed City revenue increases, if other revenue sources
e.g. MSA dollars are subsequently increased?
I believe this information will provide the basis for discussion at the Finance
th
Committee meeting on the 7. I will be available along with Director of Public Works
Colbert to answer any questions that might arise.
________________________________________
Director of Administrative Services VanOverbeke
cc: Director of Public Works Colbert
6
To: Tom Hedges, City Administrator
From: Juli Seydell Johnson, Director of Parks and Recreation
Date: June 1, 2007
Subject: Commercial/Industrial Parks Dedication?Boulder Ridge Business Park
BACKGROUND:
?
The City of Eagan was alerted to the need to comply with Legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
?
After much review from staff, based upon input from the City Attorney, the Advisory Parks
Commission proposed changes to the commercial/industrial parks dedication at their November 20,
2006 meeting to come into compliance with the new legislation.
?
The commercial/industrial park dedication formula was approved by the Council at their November
21, 2006 meeting. The information included at that time was:
Recent Legislation requires a consistent and justifiable approach to determining the amount
o
of park dedication, be it cash or land, required of a developer. Said approach should reflect
the potential impact the development would have on the park system. As a result the City
Attorney has advised that aspects of the current City dedication process be amended.
Currently, city park dedication for residential developments is determined through a formula
o
that includes an ?acres per person? constant while the commercial/industrial calculation is
based upon ?net buildable acres?.
The amended formula is modeled after examples, provided by the City Attorney, of the
o
method used in other neighboring municipalities, and is based upon the same ?acres per
person? constant used in calculating dedication for residential developments in the city, with
credit given for the non-resident status of potential employees.
In some instances, depending upon the development application, the amended method of
o
calculation will result in the amount of dedication being slightly more (large building on a
small site), but occasionally less(small building on a large site), than that resulting from the
current use of ?net buildable acres?.
The amended method of calculation can be used for determining a dedication of either cash
o
or land.
The City Attorney and Advisory Parks Commission have reviewed the proposed amendment.
o
?
The fees were ratified as part of the 2007 Fee Schedule in December 2006.
?
The City Council took another look at the formula and approved changes to the language to simplify
the instruction at their March 6, 2007 meeting.
The 2007 Parks and Trails dedication fees were approved as part of the overall fee structure
o
by the City Council in December 2006.
The description of the new calculation for the industrial/commercial portion of the parks
o
dedication had led to several questions and a level of confusion as to how the fees should be
calculated.
To simplify the process the Park Dedication Policy document was simplified to better state
o
how these rates are to be calculated and to show the standard rate.
This change did not alter any portion of the approved policy other than to clarify and simplify
o
for potential developers how this fee is calculated.
?
A recent survey of other metro cities shows Eagan to be the second highest fee based upon a
comparison used for the Boulder Ridge development. (Using Eagan?s prior formula, we would be one
of the lowest fees). It should also be noted that according to the Minnesota Recreation and Parks
Association, less than 25% of cities are currently meeting the legislative mandate. Eagan is
considered to be in compliance.
Assumptions: Total Acres = 11.95
Estimated Net Acres = 7.9
Assumed Average Market Land Value = $260,000 (AV)
City Calculation Estimated
Apple Valley $1836/$624 per 1000 square feet of building floor space $177,720
1
Brooklyn Park 5% of the market value of the total net acres 102,700
6
Burnsville 5% of the gross acres x average land value 155,350
4
$1737/$473 per 1000 square feet of building floor space
Eagan 165,790
2
(Previous formula = 7.9 acres x $6080 = $48,032)
Edina 8% of the market value of the net land 164,320
3
I.G.Heights $7000 per acre x total gross acres 83,650
8
Lakeville $7693 per acre x total buildable acres 60,775
9
Maple Grove $11,000 per acre x net acres 86,900
7
Plymouth $7500 per acre x net acres 59,250
10
10% of the gross acres x average land value ($90,000)
Rosemount At 90,000 108,000
5
At 260,000 312,000
?
To date no commercial/industrial development in Eagan has paid the revised fees based on the new
formula.
PARKS DEDICATION
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The current Park Dedication Policy states,
The preservation of land for park, playground and public open space purposes as it relates to the use and
development of land for residential, commercial/industrial purposes is essential to maintaining a healthful
and desirable environment for all citizens of the City. It is recognized by the City Council that the demand for
park, playground and public open space within a municipality is directly related to the density and intensity
of development permitted and allowed within any given area.
It is the policy of Eagan that the standards and guidelines for the dedication of land for park, playground and
public open space purposes (or cash contributions in lieu of such dedication) in the subdividing and
developing of land within the city shall be directly related to the density and intensity of each subdivision and
development.
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The calculated park dedication fee for the 110,000 square foot commercial/industrial Boulder Ridge
building was calculated to be $165,790. The 2006 calculation would have been $48,032.
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It was the opinion of the City Attorney, and recommended by the APrC, that the new formula
represents a clearer nexus between potential park users within a commercial/industrial development
and the potential impact on existing park facilities. When this proposal came before the Advisory
Parks Commission in April 2007 there were no park amenities proposed within the development.
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While it may be difficult to quantify casual use of park amenities near commercial/industrial
properties, it is clear that they are strong participants in programs and frequent users of parks and
pavilions.
POLICY DISCUSSION
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Is the 2007 Parks Dedication fee structure appropriate for commercial/industrial
development?
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If not, what parameters need to be defined to refine the fee structure while maintaining
compliance with the Legislative mandate?
TRAIL DEDICATION
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The Boulder Ridge development trail dedication is calculated to be $13,848.
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The development proposes internal trails that would cost approximately $130,000 ? 156,000 which
includes the completion of trails for this first phase building along with all subsequent future phases.
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The developer has asked that the City of Eagan build the trails and have offered to maintain them.
(The City Attorney has advised that whomever builds the trails should also maintain them)
POLICY DISCUSSION
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Do all the proposed trails for this development provide a public benefit?
If no,
o
Which portions might be considered for transportation purposes and which might be
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considered for internal use only?
How would the trail dedication credit be applied to the trail construction costs?
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Who would construct and maintain each portion?
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If yes,
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After the trail dedication credit is applied to the trail construction costs how is the
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balance funded?
If installed by the Developer, should the cost of trails be a credit towards the park
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dedication?
Who would construct and maintain the trails?
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Construction and maintenance by City of Eagan would require easements and
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construction before all phases are built which may preclude changes to the plan in the
future.
ATTACHMENTS:
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Boulder Ridge Business Park parks and trails dedication estimates on page ________.
Agenda Memo
June 7, 2007 Finance Committee Meeting
IV: REVIEW PARKS DEDICATION FEE STRUCTURE/BOULDER LAKES PARK
DEDICATION FEE
FACTS
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The City of Eagan was alerted to the need to comply with legislative requirements pertaining to
commercial/industrial parks dedication by the City Attorney in the latter part of 2006.
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After much review from staff and advice from the City Attorney, the Advisory Parks Commission
proposed changes to the commercial/industrial parks dedication at their November 20, 2006 meeting to
come into compliance with the new legislation.
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The Boulder Ridge development is the first development to go through the review process using the
new formula for calculating dedication fees.
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The City Council asked the Finance Committee to further review this policy to determine how best to
move forward with the Boulder Ridge development, and subsequent developments, to meet the
legislative requirements for parks dedication.
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Several policy questions have been identified for the committee to consider.
ATTACHMENTS:
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Background memo on pages ____________.