6.6. SR 06-04-2018 - Laserfiche WebLink

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CITY OF ELK RIVER, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 47 NOTE 3: DEPOSITS AND INVESTMENTS – CONTINUED C.Investments (Continued) Interest rate risk – This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City’s investment policy uses diversification of maturity dates as a means of managing exposure to fair value by stating that no more the 30% of the City’s investments may extend beyond a five-year maturity. Fair Value Measurements – The City uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The City follows an accounting standard which defines fair value, establishes framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, the City has categorized its investments, based on the priority of inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quotes and prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the combined statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 – Financial assets and liabilities are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets and liabilities. Level 2 – Financial assets and liabilities are valued based on quoted prices for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 3 – Financial assets and liabilities are valued using pricing inputs which are unobservable for the asset, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset. NOTE 4: NOTES RECEIVABLE The City has made several business subsidy loans to local businesses, some of which were funded with grant proceeds received from the state and federal governments. The terms of repayment vary with each loan and will be repaid over a period of ten years. Under the terms of the grant agreement, the City retains the grant repayments. Notes receivable of $284,782 in the State Deed fund and $512,259 in the Revolving Loan fund are outstanding at December 31, 2017. In 2015, the City issued a $1,288,589 long-term note receivable related to the sale of property to a developer under an abatement agreement. The note shall be payable in semiannual installments as tax abatement revenues are received, commencing on August 1, 2017, and maturing February 1, 2037. A note receivable of $1,209,384 in the Development fund is outstanding at December 31, 2017. In 2006, the HRA issued a loan to a developer to assist in the financing of a housing development for the benefit of low and moderate income residents which was funded with state grant proceeds. Repayment of the loan is deferred for 30 years, payable in one lump sum at an interest rate of one percent. Notes receivable of $400,000 in the HRA is outstanding at December 31, 2017. Since 2015, the HRA has issued loans to applicants under the rehabilitation loan program. The terms of each loan vary and are payable over 5-15 years with rates from 1.25% -3.25%. Note receivables of $229,765 in the HRA are outstanding at December 31, 2017.