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Summary: Elk River, Minnesota; General Obligation
<br />Median household effective buying income is, in our view, a strong 130% of the nation's level. Taxable market
<br />value increased by an average of 8.1 % annually between fiscal years 2007 and 2009; from fiscal years 2010-2011,
<br />however, taxable market values declined by an average of 4.5% to $2.1 billion. Indicated market value, a better
<br />representation of area market prices, was $2.4 billion, or, in our opinion, a very strong $98,802 per capita.
<br />Residential properties account for 54% of the property tax base while commercial and industrial properties account
<br />for 31%. The tax base is diverse with the 10 leading taxpayers accounting for 15% of net tax capacity.
<br />Management states that the city is 30% developed and that given the city's access to Interstate 94, which provides
<br />quick access to the St. Cloud and Twin Cities metropolitan areas, it believes Elk River is well positioned to draw
<br />industrial and commercial businesses into the city.
<br />What we consider the city's good financial management practices have contributed to, in our view, strong finances,
<br />including, what we view as, consistently high reserves. Over the past three years, general fund reserves have ranged
<br />between 45% and 53% of expenditures, which adheres to the city's policy of maintaining an unreserved general
<br />fund balance of at least 40% of expenditures. For fiscal 2012, the city's budget calls for a use of $350,000 in
<br />reserves for capital and general operating purposes. Management states it expects the use of reserves to bring
<br />reserves to about 49% of expenditures.
<br />For fiscal 2011, management states it expects to report a surplus of $246,000 after transfers of $300,000 into the
<br />general fund from the electric fund and $270,000 into the general fund from the liquor fund. Management states the
<br />city has not received local government aid since 2009, and it did budget to receive the market value homestead
<br />credit in fiscal 2011.
<br />As of fiscal year-end Dec. 31, 2010, the city had a $5.9 million unreserved fund balance, or, in our opinion, a very
<br />strong 52.8% of expenditures. During fiscal 2010, the city reported a surplus of $166, 000. Despite the reduction of
<br />$221,000 in market value homestead credit, management was able to report positive results due mainly to favorable
<br />revenue trends. The city has additional reserves in the liquor fund, providing about $4.1 million of cash assets,
<br />available for the general fund. Officials annually transfer about $270,000 into the general fund from the liquor
<br />fund; they plan to make that transfer in fiscal 2012. The city also annually transfers between $300,000 and
<br />$500,000 from the electric fund; it plans to make that transfer in fiscal 2012. Property taxes (84%) are the leading
<br />revenue stream while charges and services (4.8%) account for most of the remainder.
<br />Standard & Poor's revised its Financial Management Assessment (FMA) on Elk River's financial management
<br />practices to "strong" from "good" under its FMA methodology based on management's recent implementation of a
<br />more-comprehensive debt management policy and frequent reporting of investment holdings to the city council. An
<br />FMA of "strong" indicates practices are strong, well embedded, and likely sustainable. Highlights of these policies
<br />include management's monthly reports to the city council on budgeted numbers compared to actual performance;
<br />the council can amend the budget, as necessary. Management maintains long-term financial and capital plans. The
<br />city-adopted reserve policy requires it to maintain a general fund unreserved balance of at least 40% of expenditures
<br />for cash flow purposes.
<br />In our opinion, the city's overall debt, excluding self-supporting utility debt, is a moderate $4,459 per capita, or
<br />4.5% of market value. Carrying charges were, what we view as, an elevated 20.1% of governmental expenditures
<br />less capital outlay in 2010. We consider debt amortization above average with officials planning to retire 63% of
<br />principal over 10 years. According to management, it does not currently have any additional debt plans.
<br />www.standardandpoors.com/ratingsdirect
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