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IV-3CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 As management of the City of Elk River (the City), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2019. We encourage readers to consider the information presented here in conjunction with the additional information that we have furnished in our letter of transmittal, which can be found on pages 1-4 of this report. Financial Highlights The assets and deferred outflows of resources of the City of Elk River exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by $215,099,199 (net position). Of this amount, $47,686,085 (unrestricted net position) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net position increased by $5,410,886, including an increase of $2,840,254 in governmental activities, primarily attributable to general revenue grants and contributions and investment earnings, and an increase in business-type activities of $2,570,632, which is primarily attributable to revenues in excess of expenses of $2.6 million in the Electric fund due to a decrease in purchased power expenses. As of the close of the current fiscal year, the City of Elk River's governmental funds reported combined ending fund balances of $57,018,186. Special Capital General Revenue Debt Service Projects Total Nonspendable $ 187,305 $ 61,785 $ $ 232 T°249.322 Restricted 1,400,965 2,206,522 24,941.193 28,548,680 Committed 5,928,741 4,253,959 10,182,700 Assigned 1,570,549 11,607,028 13,177,577 Unassigned 7,684,153 !2,824,246) 4,859,907 Total Net Position $ _7,871,458 $ 8,982,040 $ 2,206,522 $ 37,978,166 $ 57,018,186 The City of Elk River's total long-term liabilities increased $32,700,436 during the current fiscal year, from $52,447,374 to $85,147,810. This was primarily due to the issuance of the 2019A G.0. Sales Tax Revenue Bonds in governmental activities in the amount of $32,715,000, issued to finance the acquisition and betterment of certain recreational facility improvements, park improvements, trail improvements, and the dredging of Lake Orono. Beginning Ending GOVERNMENTAL ACTIVITIES Balance Additions Reductions Balance Bonds Payable $ 17,632,016 $ 35,949,515 $ (1,390,418) $ 52,191,113 Compensated Absences 1,579,967 645,048 (617,411) 1,607,604 Total $ 191211,983 $ 36,594,563 $ (210071829) $ 53;798;717 Beginning Ending BUSINESS-TYPE ACTIVITIES Balance Additions Reductions Balance Bonds Payable $ 31,910,336 $ $ (1,672,300) $ 30,238,036 Notes Payable 820,608 (200,916) 619,692 Compensated Absences 504,447 234,099 (247,181) 491,365 Total $ _ 33,235,391 $ 234,099 $ (2,120,397) $ 31,349,093 CITY OF ELK RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2019 Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Elk River's basic financial statements. The City's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplemental information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Elk River's finances, in a manner similar to a private-sector business. The statement of position presents information on all of the City of Elk River's assets and deferred outflows of resources, and liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Elk River is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Elk River that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Elk River include general government, public safety, public works, culture and recreation, economic development and interest on long-term debt. The business-type activities of the City of Elk River include municipal liquor, garbage, sewer, storm water, water, and electric. The government-wide financial statements include not only the City of Elk River itself (known as the primary government), but also a legally separate Housing & Redevelopment Authority (HRA) for which the City of Elk River is financially accountable. Financial information for the HRA is reported separately from the financial information presented for the primary government itself. The Elk River Municipal Utilities, although also legally separate, functions for all practical purposes as a department of the City of Elk River and, therefore, has been included as an integral part of the primary government. The government-wide financial statements can be found starting on pages 22-23 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Elk River, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Elk River can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. 151
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