This transcript has been formatted with speaker names based on the context provided. Please note that the speaker identified as **Jason Zimmerman** is referred to in the dialogue as "Dan." Given the roles described (Finance Director), I have labeled him accordingly. [00:00:00] **Mayor John Monge**: Welcome to the May 20th, 2025 workshop. Roll call, please. Council member Woods is absent. Council member Nordby is absent. Council member McKenzie here. Council member Schweer here. Mayor Monge here. Thank you very much. Can I please get a motion to adopt the agenda? [00:00:20] **Council Member Cassidy Schweer**: So moved. [00:00:22] **Council Member Dave Mckenzie**: Second. [00:00:24] **Mayor John Monge**: Schweer, McKenzie. All those in favor say I. (I, I). All right. Topics, please. [00:00:28] **City Manager Brian Frandle**: All right. We got one topic up for this evening and it is the review of the 2024 financial report with the city audit firm LB Carlson LLP. I'll kick it over to Jason to start us off. [00:00:40] **Finance Director Jason Zimmerman**: Well, mayor, council members, uh here we are again. We've got some uh results to share with you in the financial statements uh for another year um completed. Um you know, the financial statement doesn't happen overnight. Um there is a lot of work that goes into it. Um the audit itself, uh there's three visits that come. It starts in January, we get one in February, and we wrap up in March. Um, and then there's the compilation of putting everything together. Um, and then the review um, from uh, you know, the city of North St. Paul's finance department. It doesn't happen without all of the staff. Um, and it's not just our staff, but I kind of want to just first of all give a quick, you know, thank you to our staff members and Taylor and Melissa, Angie, Barb, and and Jackie uh for uh their tremendous amount of work that they put together uh during the audit and getting this uh to this completion. Um, and it doesn't just happen on our side. It happens with um the individuals in community development and it happens with this individual that's sitting right next to us um Jennie um to be able to give the information when the auditors are looking for there. Um I used to once upon a time I used to have a fear um of the auditors when they would come in. Um you know um I think a lot of people look at them from an adversarial role. Um, but I've over the years and definitely um with our current audit firm that we're using, LB Carlson, that um really have embraced that whatever they find just makes us better. Um and really look for them to do their job um give them all of the information and make sure that we're doing things the right way. Um if there's something that they find, I think that's fantastic. It means we need to make some corrections, so we do things better in the future. Uh, one of the things that I had when I first started, obviously credit cards was a big issue. We haven't had anything written up on that for a number of years now. So, we've made improvements. Um, always looking for improvement. Um, the person who's going to be presenting um tonight for LB Carlson um her name is Jackie Heagle. Um, she is a tremendous um asset for LB Carlson. Um LB Carlson um took over MMKR at the beginning of this year um and she's still around. She brought in a two-person audit team to audit us. Uh I'm telling you those two um young women um did an absolutely tremendous job. They were very well organized. Um they were honest for information from the get-go. They did one heck of a great job. Um it all happens um underneath um Jackie's um you know reign. Um and she does one heck of a great job. I personally have learned a lot from her um not just from the audit standpoint and accounting standpoint but also from the standpoint of watching her as she interacts with her staff. She has an innate ability to be able to teach and to mentor her staff um and I've taken some of those things that I've observed from her and utilized it even at my age with my staff um and she just does a tremendous job. So with that, I'm going to turn it over to her. She's going to walk us through, I think, primarily the management report. Um, whatever questions you have, uh, please ask, um, and, uh, get all the information that you need, this will be at the city council for in the consent item for your acceptance and approval, uh, which needs to be done. Um, and then I'll take it from there. I'll do the state reporting um, and submit the financial statement to the state. We've got to do it to our bonding agency and then for the GFOA um, award. So, I'll take it from there, but it has to be officially adopted um by city council, which will happen later tonight. So, make sure you ask any questions. After she is done, if we can take like a 5-minute recess um like to thank her and escort her out. Um, and then I'm going to come back and just kind of give a little bit of information um on some of the numbers that are in the financial statement for I think a little bit different perspective of looking at it because there's just so many numbers and so much information that's in a you know in the comprehensive annual financial report. Um, but after that long-winded introduction, I'd like to introduce Jackie Heagle from LB Carlson. And um, remember, don't be shy, ask questions. Welcome. [00:05:45] **Jackie Heagle**: Thank you. Welcome back. Thank you. Uh thanks for having me. Thank you for the introduction, Jason. Uh as mentioned, my name is Jackie Heagle. I am a partner with LB Carlson. Um you formerly knew me as a partner at MMKR. And as was mentioned, we did merge with LB Carlson effective January 1st. So nothing's really changed. Otherwise, we're operating under a new name, but our whole governmental division has just moved over and still operating. same process, procedures, uh just getting used to saying a new name. So, after 20 years, it's hard to not say MMKR. So, you have a new look to your covers as well. Jason and I were commenting if you're seeing your covers, uh they do look a little different than what you've seen in the past. Um but you do have in front of you a few documents tonight. Uh the first one is that annual comprehensive financial report. Uh then there is that special purpose audit report uh that summarizes the audit opinions of the city's audit. um in the current year you're seeing a third small document uh the report on compliance for the coronavirus state and local fiscal recovery funds. So I do just want to comment um with those CSLFRF dollars. Uh the city did spend those in 2024. Um that triggers what's called a single audit. If you meet if you spend federal dollars in excess of 750,000 there's normally a separate audit called a federal audit. Uh the federal government did come out with an exception that if these were basically the only federal dollars you're receiving, um they had what's called an ACE audit, an alternative compliance examination engagement. So as a city, you did qualify for that. Um so we didn't have to go through the full federal internal control evaluation of the federal portion. Um but as part of that, there is still testing. Um we did have to review transactions and then there's that compliance letter that you have in front of you related to that. um which was all clean. There was no issues or concerns with that. um but that is something there is a process that does have to get submitted to the federal government related with that. And then the last document is our management report which is our LB Carlson report. That is what I'm going to be speaking from tonight. So as you follow along um I'll be referencing pages throughout that management report. Starting with that document on page one, um I'll just give a little background about our responsibility under auditing standards. Uh no, it should have a gray cover should say management report. My top one got it. Yep. Okay. So, on page one, just giving you guys a little background about our responsibilities as auditors. So annually the city is required to issue a financial report audited in accordance with generally accepted auditing standards and with government auditing standards. Um as part of that process we issue an opinion on those financial statements noting that they are fairly stated. All the information in that annual comprehensive financial report does rest with the city. It is the city's responsibility all the information that is going in there and as an auditor we're issuing an opinion on that. the plan, scope, and timing of the audit. Um Jason did mention we come out a few different times throughout the year. We start our procedures right after year end. Um in January, we come on site and do what we call our preliminary fieldwork procedures. Um from there, we're back a couple more days in February where we do some interim work. Uh we start into the audit process, but then March, we do the rest of the final fieldwork. And from there, um there's a process that goes through with getting this whole ACFR prepared. you know, the binder is reviewed, uh, the city has to review it and sign off on their approval, and it even then goes through a quality control process at our office before it can be issued, uh, to be here tonight. um as we walk through the results though, you're going to see all very positive operating results, financial results, and compliance opinions. Starting at the bottom of page one there, I'll just summarize the audit opinions that are issued. So in that annual comprehensive financial report, we issued unmodified or clean opinions on the basic financial statements. That is the opinion you are looking for as part of this audit process. Um if you're looking in the opinion, you're going to note that uh there was some new governmental audit standards that were required to be implemented. Uh the one that did have an impact on your financial statements was an audit standard relating with group assets. So in previous years if you were purchasing groups of assets um and individually those were less than your capitalization policy you didn't have to include them in your capital asset records. Now as you move forward if you're purchasing groups of assets and in they are significant in the aggregate you need to include them in your financial report. Um so the city had to do a look back kind of looking back a couple years. Um some of the items were not material such as some computer technology equipments. Um the one item that did have to get picked up as part of this accounting change looking back was under the solid waste fund. Some of the recycling bins that you're purchasing um and just that has a lower materiality threshold. This is a smaller fund so the thresholds are smaller requiring it met the threshold to pick it up as part of the audit. But as you're moving forward you will include all those types of assets. you know, if you're buying computers in bulk or any other types of equipment in bulk as you move forward. As part of our review of the internal controls over the city's financial report, we had no deficiencies to report in that area, no instances of non-compliance with the government auditing standards. As part of our testing of that Minnesota legal compliance audit report, we did have the one comment to report there. Um, and it relates to just paying your bills within the 35-day payment period. Um, as part of our testing, we did have two of the 40 disbursements tested that were paid outside of that 35 days. Um, this hasn't been a consistent issue in the past. Um, but it is something we noted this year. You know, as part of the transactions we pulled, you know, there were a couple paid past that 35-day payment period, which is state statute. Moving on to the top of page two then. Um, as part of our audit process, we always follow up on any findings that were issued in the prior audit year if there were any. Um, and so looking back to 2023's audit, uh, there was one audit finding with Minnesota statutes and that related with group insurance. Anytime um a local government provides group insurance for 25 or more employees, you have to follow a request for proposal process. And in 23's audit, uh dental group insurance was not did not properly go through that request for proposal. Um but there was no issue in the current year. Um you're only required to do that every 5 years. So there wasn't really a lot of testing with that this year, but keep that in mind as you continue to move forward. Some other observations and recommendations I'd like to talk through. um these aren't considered findings. Uh just like I said some other recommendations and some of these comments uh you've seen in previous audits. I just like to comment on the individual fund deficit. So if you're looking through that annual comprehensive financial report uh you are seeing some funds that have a deficit fund balance or a deficit net position. Um and we just want to remind you to monitor those funds. I mean, there could be reasons why there's a current deficit, but trying to match the revenues and expenses as much as possible. Um, I think in some of yours, you know, some of your TIFF funds, uh, when they start generating that tax increment revenue, you're going to start getting that revenue in. So, they're currently in that deficit position. The second comment there relates with that fiber optic fund. Just every year like to remind everyone of the significant deficit that is sitting in that fund. Uh the unrestricted component at year end is about 1.9 million. Um continuing monitoring that fund or what is the plans of that fund as you continue to move forward. Deposit and escrow reconciliations. Um that is a comment that has been in the report for several years. Um it's not like a huge audit concern, but it is an area that could eventually raise to more of an internal control finding. And what that relates to is just the various customer deposit and escrow accounts um that the city receives of funds and there needs to be a reconciliation process of that as you're receiving those escrow balances or paying them out. You know, who's tracking them and what is the city's policy over those and making sure they're fully being reconciled from year to year. And then the other recommendation on the top of page three that I wanted to comment on uh just relates with some payroll withholdings and documentation. Um so as part of our audit testing in the current year um we did have a situation just where a W4 that an employee had submitted didn't get properly entered into the payroll system and also some of the payroll deductions. It didn't we they weren't able to provide the documentation to support all of those. Um, we didn't find this pervasive throughout our audit. It was an isolated instance. Um, but I did want to just put a recommendation making sure as a city, you know, maybe reviewing your policies and procedures as far as when payroll withholdings and deductions are, what is that process for making sure you have all that documentation on file to support the information. With that then I'm going to move over a couple of pages to page six and start talking through some of the financial results. These first few graphs that I'm just going to briefly talk through I just like to comment on just shows the taxable market value of the city for the past 10 years. For the 2024 you're seeing an increase in your market value about 7.8%. Um, I always say I feel like this graph we can go and put in about every city's and they're all they all look very similar. Flipping over to the top of page seven, you're seeing the same thing with your market value going up, your tax capacity. Also increased for the 2024 year about 7.8%. And then the bottom of page seven uh we just show the table of what is for a resident of the city of North St. Paul how what is your average tax rate um for all the different jurisdictions? And so overall that tax rate's going down. The city is staying pretty stable if you kind of look at over the three-year information there. Talking more specific, the financial results of the city on page eight, I show a table there that shows all your governmental funds of the city um kind of rolled up together. The top portion of that table shows it by what we consider classification of fund balance. Um that's that order of spending. If you have non-spendable fund balance, the dollars that are restricted, committed, assigned, and unassigned. And then that bottom portion shows all the governmental funds, but it shows the what we call major funds with all the non-major funds combined together. Overall, when you're looking at your governmental funds, you saw an increase in that fund balance of about 2.7 million. Um, a lot of that if you look at the top of the portion, you're seeing that unassigned fund balance go up about just under 1.9 million. Some of that is due to the improved financial position in the general fund, as well as the improved financial position in that non-major MSA capital project fund. Then you're also seeing the committed fund balance increase in the current year. Most of that's in the street maintenance capital project fund and that's due to some transfers that were made in the current year to that fund which are committed for future street projects. Page nine and 10 then uh this is some information on governmental fund revenue per capita and expenditures per capita on page 10. This is about the only area where we do have some statewide information to compare yourself to. Just keep in mind the statewide information is a couple years old. That's the most recent data that the office of the state auditor does have available. Uh but for this 2024 year, you're seeing your revenues per capita at about that $1,330. It's an increase of about $239 from the prior year. When you're looking at this, remember it's all your governmental funds. Most of that increase you're seeing in that intergovernmental revenue area. And that's due to in the current year you spent your FRF dollars, your coronavirus state and local fiscal recovery funds. So you have a one-year increase of those federal funds and probably will go back down in 2025. You also saw your property taxes going up. That's just as approved with the levy process. When you look at your expenditures, you're seeing pretty consistent from 2023 to 2024. Overall expenditures per capita increased about $40. Most of that is in that top portion where it's the current expenditures. You're seeing that total current expenditures are going up about $135 per capita. Most of that's in that "all other" bucket which would be your economic development area. So there was some increased economic development payments in 24 comparing to 23. That's offset then by the capital outlay in construction. You saw a decrease in spending in your governmental funds on street projects in the current year compared to prior year. Moving on to page 11 then the next few pages I'll comment on are specific now drilling into the general fund of the city. Starting on page 11, that graph there shows the general fund financial position. It shows the fund balance, the cash balance, as well as the expenditures of that fund. Overall, you saw your cash and investment balance increase about $725,000. You also saw your fund balance in the general fund increase about a million. Um, and that was compared to a balanced budget that was approved by the city council. Overall though, the city ended the year with an unassigned fund balance in the general fund of about 57% of the subsequent year's budgeted expenditures. So, you are in line with that fund balance policy that the city does have in place. Page 12 then shows a couple graphs showing the general fund revenues. The top one showing comparing it to budget. Uh the bottom graph then shows it uh just the various revenue sources or the categories of revenue. Overall, the general fund revenues ended the year about 155,000 over budget. Most of that was just in the other revenues like investment earnings and intergovernmental. That's just due to conservative budgeting, not exactly knowing, you know, what interest rates are and how the year is going to end. When you're looking current year to prior year, the general fund revenues increased about 660,000. you saw some changes, some increasing in the intergovernmental revenue area, the grant area, as well as property taxes went up and then that was offset. You did see your license and permit revenues going down. I think a couple years ago there was some hailstorms. So, you saw some significant license and permits and you're looking at that graph, you're probably getting maybe more back to the normal level for the city. Page 13 then shows the similar graphs budget to actual just of the general fund expenditures. Um overall the expenditures in the general fund ended the year under budget about 2.2 million most of that or pretty much all of it is in public safety. So with that, you have to remember with the spending of the coronavirus state and local fiscal recovery funds, those salaries were taken out of the general fund and put into the pandemic response special revenue fund, which is where the FRF federal dollars were recorded. Um, so that's a one-time kind of shift of where those expenditures are being funded by and then would shift back for 2025. Um, but that was the variance for why you're seeing under budget. And when you're looking current year to prior year, I mean, overall a decrease of about 900,000. Most of that, once again, is that public safety and the one-time shift of the salaries over to that pandemic response fund where the federal funding is. Moving on to page 14, then uh the next several pages move from now the governmental funds. We're going to switch over to talking about the enterprise funds of the city. Um this shows a snapshot for those enterprise funds of what the net position is and then the bottom portion shows it by each of the funds. So overall the total net position in the enterprise funds increased about 2 million. If you're looking at the top portion of that table, most of it's in that net investment in capital asset. Um so just the continued investment in the utility infrastructure throughout the city. If you're looking in the bottom portion, you're going to see the majority of the funds did see an increase in net position. Solid Waste had a slight decrease in the current year. We'll kind of walk through each of the funds. We have a page summarizing some graphs on each enterprise fund. Starting with page 15, the electric fund there. Just summarizes kind of the financial results for the past five years. Um for the 2024 you're seeing an overall gross profit very consistent with the prior year just down slightly. If you're kind of looking at your operating revenues you saw a decrease just decreased consumption in 2024 compared to 23. Obviously as your operating revenues are going down your purchase utilities of that electric is also going to decrease. But overall for the year ended the year at about operating income before any transfers out of about 1.9 million. And then the city does transfer did transfer out about 1.4 million to other funds which left the year with an increase in net position of about 580,000. Skip then over to 17 talking about the remaining of the enterprise funds. Page 17 shows the financial results of that water fund for the past five years. You're going to see very positive results here as well. You saw your operating revenue did decrease in the current year due to some decreased consumption. Um operating expenses were increasing mainly in materials and supplies and some professional services. Um but overall did end the year with operating income of about 611,000. Then at year end did transfer out about 205,000. Surface Water Fund also ended the year with positive operating income of about 288,000. Um overall the revenues you're seeing an increase in some of the operating revenues there. Most of that is due to the increased number of customers and the approved rate increase. Operating expenses also increased about 20,000. That non-operating area line you can see that kind of shifting up and down just depending on the activity going on. Most of that decrease in the current year was just due to the grants. Uh sometimes you're receiving some grants in that surface water area. So you did have a grant last year, not in 24. So that's that non-operating change. Next fund is the wastewater fund. Saw positive operating income in this fund of about 658,000. You saw your operating revenues increasing mostly due to the rate increase that was approved by the city council. And then your operating expenses also increase mainly in that materials and supplies. Ended the year though, like I said, with operating income before any transfers out of about 775,000 and then transferred out about 145,000. The fiber optic fund at year end 24 did end the year has that deficit net position. Um, but it did see an improvement of about 62,000 from the prior year. Um, as we have previously discussed, just a reminder to continue to review the operation and what is the plan as you continue to move forward with this fund. Then the last enterprise fund is that solid waste fund. Uh, this fund ended the year with an operating loss of about a 100,000. If you're looking at your operating revenues, you saw a small increase about 12,000 from the prior year. You also saw your expenses go up about 85,000 primarily in some professional service costs. So ending the year with an operating loss of about a 100,000. And then the last page I'll comment on page 22. This is what we call a summary of the government-wide financial statements. So throughout the audit or the management report so far, we're talking about all the different funds of the city. Um when you're looking at your annual comprehensive financial report, there's all the different funds of the city and then they're rolled up into what we call the government-wide financial statement. So at the front of that ACFR, there's two statements, statement of net position and statement of activities. That is a full accrual accounting presentation where it takes all those funds of the city. It rolls up any capital asset activity, any long-term liabilities which would be any bonds or any pension liabilities that you have with PERA; and it gives like that snapshot on that full accrual basis. So at year end 2024 um you're seeing an increase in that net position in total for the city of about 6.3 million. If you look towards the top portion of that table uh your governmental activities net position you're seeing go up about 4.2 million. Um most of that in that unrestricted area is just due to the positive operating results and the improved financial position in those governmental funds. The business-type activities you're seeing go up about 2 million. That's directly related, you know, to the business-type activities. Each of those enterprise funds that we just discussed in those operating results. Um, and then you saw your economic development authority saw a small increase of about 80,000 in the current year. So with that, I can open it up if there are any questions or want to discuss anything further. [00:25:35] **Council Member Dave Mckenzie**: Oh I uh go back to my favorite one. The fiber. Let me get back to there. So, um 1.9 is what we have left to pay that was borrowed. Correct. [00:25:50] **Jackie Heagle**: That's correct. [00:25:52] **Council Member Dave Mckenzie**: So, was that the total amount that was borrowed for it? Has there been anything paid back ever or is it just it's paid? [00:26:00] **Finance Director Jason Zimmerman**: There's some paid back every single year. If you look at um the fiber optic found on page 20... It'll show you that the unrestricted fund balance was 2.4 then 2.3 then 2.2 then about 2.1 and now it's just under two. So it is being reduced year after year. It's just going to take you... [00:26:22] **Council Member Dave Mckenzie**: What was the original amount? Do we know that they took out of the fund? [00:26:28] **Finance Director Jason Zimmerman**: That I don't know. I definitely can get that information for you. [00:26:34] **Council Member Dave Mckenzie**: I'm just curious because when we look at the fiber, there really isn't a plan. We can't fix it. It was just a bad decision. So, we can't fix this. So, when you say, you know, look at what you can do. There's nothing we can do. We got holes in the ground where they dug to put the fiber in, but they never did. We got an outdated center that the fiber goes into with switches that, you know, are—everything's outdated. So, really, we don't have a way to fix this. So, how do we get out from under it? So, we don't look at—I mean, I know businesses you can write off bad debt. Well, bad investments, which is exactly what this was. [00:27:15] **Finance Director Jason Zimmerman**: So, you have some long-term agreements with a couple of cities. Um, I don't know the exact number of years remaining on those. It was a 20 years. Um, so I think you probably got at least nine years left. Um, so you want to be able to hold it through at least that point in time. Um, at that point in time whenever there, you know, whatever the deficit is, your options are you're going to end up—and if you wanted to close it, close the fund, you would end up having to transfer for something from somewhere else. Right now, the only viable option of really transferring funds to make this one whole and to be done with it, cash and everything, would be the electric fund. [00:28:00] **Council Member Dave Mckenzie**: Can we just keep it? I mean, I don't—I don't see it getting better. Do you? [00:28:05] **Finance Director Jason Zimmerman**: Well, it is getting better. But yeah, but you're looking at another 20 years before it's... [00:28:10] **Council Member Dave Mckenzie**: How much cost does it take to, you know, to keep it maintained and stuff like that? I was for that, too. [00:28:15] **Jackie Heagle**: Yeah. So you had in 2024 you had operating expenses of about $108,000. You had revenue of $214. Then you have depreciation of 44. Um so you made you net change in position was 62,000 on that page. Yep. I see that up there. Yep. [00:28:40] **Council Member Dave Mckenzie**: Yeah. I know we had somebody that's going to be jumping off of ours. I think that's what I heard maybe. Libraries kind of libraries. I mean, right now you can get a, you know, 100meg fiber for 500 bucks a month. Yeah. So, I mean, we're there's really no way to to turn this ship around. [00:29:05] **Finance Director Jason Zimmerman**: No. No. So, you're going to be facing it at the end of those agreements, you're going to be facing a decision on what you want to do with it. At that point in time, you'll probably be down hopefully somewhere in the vicinity of $1.5 million of a deficit and you're going to have to make a decision on what you want to do with that because yeah, you're correct. The revenue streams aren't going to be there. um especially after those agreements are done. [00:29:35] **Council Member Dave Mckenzie**: I just didn't want the auditor to get hopes that we're going to be able to fix this because we can't. It's an unfixable situation unfortunately. Okay. Thank you for that information. [00:29:45] **Council Member Cassidy Schweer**: One question I did have back on, let me find page here... page 13, you talked about the public safety and how we, um, were one, I don't remember the number, $1.2 $2 million under budget or whatever there. Is that right? [00:30:05] **Jackie Heagle**: 2.2 million. [00:30:07] **Council Member Cassidy Schweer**: 2.2 million. Okay. Um in total general fund. But that was because of some additional funds that we got from the other thing that you brought up, right? [00:30:15] **Jackie Heagle**: Yep. A shift in 2025. So in the last few years, I can't remember what year you got the coronavirus state and local fiscal recovery funds and you've been holding those funds and now you've spent them in 2024. Okay. And so the salaries that were in the general fund got shifted over to the fund where those federal dollars are. Oh, but in 2025, your salaries would go back to being in the general fund. It's a one-time spending of those fiscal recovery funds. [00:30:45] **Council Member Cassidy Schweer**: Okay. So the money that we had in that budget just didn't have to be paid to those salaries because they were allocated from someone else. Is that—that's basically that's the gist of it. [00:31:00] **Jackie Heagle**: Yeah. Yeah. [00:31:02] **Finance Director Jason Zimmerman**: So to kind of give a little bit more information on to that. So when we um were fortunate to receive some of the coronavirus money which we got about 1.366 actually um from coronavirus. The original intention on to that that was passed by city council that we were going to utilize it for um the 2022 street projects um which included 7th Street um that was out there um through bidding and other things after we bonded and the bidding environment and everything that came in um we ended up not needing those funds. So, last year at the beginning of the year, um came back to city council, um and had city council pass resolution to allow, um the funds to be utilized to pay for, um public safety, which is a qualifying activity for the use of the—I call them ARPA funds. Um, and, um, that's what we did. So that's why you'll see the police is really coming from the police underneath the public safety was reduced by that 1.3 million and it was moved over to we had a fund called a pandemic fund um that those expenditures were and that's what was audited. Um the requirements for those funds they needed to be spent and/or encumbered by the end of 2024 or you would lose them. So that's why at the beginning of last year we made that switch. Now the intention right now is where we've parked the money based upon the resolution that was passed last early part of last year was that we would put it into the street maintenance fund. However, we are going to change that because of subsequent to that we had our facility assessment done and the plans that were presented through the CIP showed that that is going to be moved but it'll end up having to be moved by a resolution in the near future. [00:32:55] **Council Member Dave Mckenzie**: That makes sense. I know there's a lot to digest other questions almost seems like if you're not an accounting major it sure it's hard it's hard to interpret part of this too I would like to have seen I'm trying to find the chart of from 15. From 2015 to 24, we almost doubled. So that's nine years. Be nice to if we could have gone back just kind of see what it's been from, you know, 15 back to, you know, is there a certain amount of time that, you know, it goes up? Are we in a more of a, you know, the swing kind of is more of a history? When you look at the stock market, you go back one, five, 10 years to kind of look at the loop. So this, you know, be interesting to see, you know, how far back cuz right now we were at just about, you know, 700,000. Now we're at 1.5 million. So, and what what what page six page six taxable market value? Yeah, sorry. Oh, you'd like to go back further than the... I'm just curious to see, you know, how that swing goes, you know, if it's been, you know, when you look at the longer history of it because right now it's pretty much doubled, which is... [00:34:00] **Finance Director Jason Zimmerman**: Yeah, I think we still I think we still have some data that goes back further on. You have to remember that I think it was 2008 that uh you had the housing market crash. Well, I guess I'm sure it's going just like that. But yeah, it's definitely on on swing for the property tax, right? But I think you'll find historically that it's increased great. Yes. Quite a bit. And you said uh this is pretty much on par with what you... [00:34:30] **Jackie Heagle**: Yeah. I feel like this graph you could almost put in management report and you're seeing the increase. Okay. [00:34:40] **Mayor John Monge**: Oh, well I appreciate your overall summary. I think what we need to work on as a city is the deposit and the escrow reconciliation. And that's what we need to focus on given the fact that this is a continuous audit trigger as it's come from year to year. So I'd like to see us work on that. As for the payroll and withholdings documentation, I think Jennie has a great plan moving forward and the city does. So I don't think there should be any issues with that this upcoming year. So I think we addressed the fiber one. There really is nothing we can do about that. I think you got that taken care of. I think we're going down the list of what you pointed out. So, so if that's something that we can work on as a city with the deposit and escrow reconciliation, have that clean for next year. [00:35:25] **Finance Director Jason Zimmerman**: So, technically that's a combination between community development and the finance department. We've had numerous turnover in in the community development. We where we've started with them because they are the ones who do the escrow records and hold on to those balances piece to it. And so yes, it's been on the radar. We've made some improvement to it this past year. But yes, there's still a lot of work that needs to be done, but really it's staff consistency that, you know, we need to to and hopefully we're there with that to to make that real big effort to get it there, right? [00:36:00] **Mayor John Monge**: And at the end of the day, it comes down to accountability and what we're doing right and wrong. I mean, if community development is doing something that's incorrect and it brings it over to the finance side, then we should probably correct it better, right? [00:36:15] **Finance Director Jason Zimmerman**: But they what I'm saying is that the records for the escrow are kept on the community development side to it, you know. So when somebody makes an escrow deposit, it's recorded correctly. It goes into the GL correctly. There's expenditures that are that come out of that component to it. So I'll give an example. There can be an escrow that's utilized on a permitting project and there's going to be engineering services WSB. There could be attorney services. Those need to be coded by community development to come out of that escrow account and then there needs to be a tracking of that individual escrow account. So, John Doe made the escrow there need—or made that deposit and put in $10,000. It's all accounted for correctly. The expenditures need to be coming out of out of that and tracked separately onto that. The financial system does not have the capability of setting up all of those individual escrow accounts. That has to be done pretty much on the on the community development side to it. So, there's a couple of different components to it. If bills aren't coded correctly and they're not routed to the person who's checking on the community development side, they're not being deducted out of that record. The error, the component that is of of more concern, at least from a finance perspective, is that we may owe individuals a refund from their escrow account that we can't accurately give to them because we don't know what those true balances for an individual are. So, that's the reconciliation component that needs to be done with that part to it with the records that community development has. And we've had a number of people in community development start that process and we get some headway and then we've had departures and so then we kind of back up a step or two but we've made some progress this past year and then we've lost we had some turnover again. [00:37:55] **Mayor John Monge**: Do we have an SLP on it? I'm sorry. An SLP, a standard operating procedure? [00:38:00] **Finance Director Jason Zimmerman**: Um that I don't know. [00:38:02] **Mayor John Monge**: Okay. Good point. I don't know. That's something I'll check into. Well, appreciate the great hard work on your team, Jason, and the rest of the staff to try to, you know, keep this and thank you for uh for your hard work, too, on the audit side of it. So, I know we sat down together and had a conversation or talked on the phone, I should say, and had a conversation. So, I appreciate the hard work from both sides. Thank you very much. [00:38:25] **Jackie Heagle**: Thank you very much. [00:38:30] **Mayor John Monge**: Thank you very much, Jackie. I will ask if we can take a 5-minute break. I'll I'll ask for that. Jackie out. Um I think police officers are downstairs. All right, there you go. All right, we'll take a five-minute break. (Recess) [00:43:30] **Mayor John Monge**: Welcome back from your commercial break. All right, Jason. [00:43:35] **Finance Director Jason Zimmerman**: Mayor, council members, thank you for uh the break. I gave you a handout. I was going to try to pull that up on the screen, too. Um there's three little spreadsheets that are there and they they'll uh they cover the general fund, our enterprise funds, some of our special funds, our internal service funds. And really what it's trying to depict to you is that when when you heard about the management report, we really focus on the change in that position. Um that's good um to look at the change in the net position. Um but there's so many moving parts to a financial statement. And so what you'll see and then I'll walk you through there there's a change in that position. Um and then and what that one's doing is it's taking from what we budgeted and what you approve from the budget of the 2024 to what end up being actual and then showing you the variance and I'll talk more about that in a second. And then the second spreadsheet is the unassigned unrestricted fund balance. And then some funds um they're not unassigned and unrestricted. They're assigned and restricted because they're for specific purposes. Um example HRA funds, they can only be used for housing and redevelopment authority type of activities. Same thing with the EDA, economic development authority functions. So that's why they're shown as assigned or restricted. Um and then the third spreadsheet um that's attached there will show the change in cash and investments. And so when we prepare the financial plan 10-year financial plans really end up using the cash the change in cash and investments. It's what you know basically the liquid assets that we have on hand to actually do something because there's so many liabilities and other assets that are showing in the net position. So I give I'll give kind of a really good example when you look at the change in net position because it's it's so dramatic. Um, if you look at the change in net position, you look at the electric fund from what we had budgeted, we were budgeting, if you remember, we transferred $1.1 million from that fund to the street maintenance fund. From a budgetary standpoint, we were looking at that we were going to have a net change a change in net position of a negative 1.1 million. The end results was $581,000 to the positive, including that transfer. So, that's a swing of almost $1.7 million. Yet, if I look at the actual unrestricted fund balance, the change from one year to the next year or from the beginning of the year to the end of the year was a negative $221,000. So while net position looks like we went up a total of 1.7, the unassigned fund balance went down 221,000. Part of that reason is there's $700,000 that we spent on capital items that will show as restricted for capital investments. reason for that in the fund balance category. The reason for that is because over time they'll be depreciated and they'll show up as a depreciation expense on the income statement and then they reduce that amount that's invested in capital placements. They show as an expenditure from a budgetary standpoint but they don't show as a budgetary expense when it comes to the financial statement. And then if we look at the the change in cash for that electric fund, it shows a minus $58,000. So looking just at something with a change in net position isn't necessarily reliable. Um and that's where the more accurate way of looking at something is looking at either your unrestricted fund balance or the cash. Um, and that's where when we do our financial planning, we look at what cash is available for each one of the funds. The exception to that one is is the general fund because the general fund doesn't have as as your enterprise funds have a you know have a pretty full full accrual method that's applied to them where your general fund account does not. Um if you remember what Jackie had said when we pull it into the first reports you see governmental funds then we do a full accrual everything but if if you're looking at just the general fund it it doesn't. Now how did our general fund perform this past year? It performed very well. I mean we were positive over a million dollars. And fantastic. Now does that mean we have a million dollars just to move anywhere we want? Going to caution you and hold up a little bit. And here's the reason. We have a fund balance policy that we are trying to maintain 50% in our fund balance. We're currently at 57% of our subsequent budget. So, if we take our current year budget, what we've been talking about, and we'll be getting into the budget coming up u in July, presenting to city council, we're looking at trying to target somewhere about a 6% levy increase. So, if we were to increase our budget 6% for the subsequent year and we take our current fund balance of where we're at, that million dollars quickly goes down to get to a 50% that we would have about $380,000 that is over where we would need to be to maintain that 50%. So a million dollars went quickly down to $380,000 just because of how the fund balance policy is based upon subsequent years. Um because that's to have 50% of what your expenditures are going to be and it's really comes down to a cash flow issue. Um if you can remember property taxes we don't receive our first half until June. Um so we're almost you know half a year into the year. Um so that's kind of what these three are trying to depict for you. Overall, if you look at, you know, on our, and then it'll go right back to the cash and investments. You know, our general fund cash-wise increased 3/4 of a million. Electric fund didn't go down nearly as much as we thought. Um, so I mean that only went down about 58,000. Water fund was positive 208. Surface water was 145. Wastewater was down 211. A large part of of that component to it. Fiber optic you know cash there is no cash so it hasn't changed at all. And then solid waste reduced. If you remember two years ago um when we moved into this current existing contract with our current trash hauler, we decided not to change any rates because we had like about $600 some thousand in fund balance. We decided to wait till the term of this contract's done when we go out for a complete RFP. At that point in time, we would look at if there's any rate changes that would be necessary based upon the results that came back in. So we we are dropping our fund balance down without changing our rates for that for last year and for this year. And I think it expires—contract I think expires next June middle of next year. So then there's still a process that a full RFP has to go out and then there'll be a selection of a vendor and at that point in time we'll look at what we're going to do with the the rate components to it. Again um just based upon how our cash in and our unrestricted fund balances turned out in our enterprise funds um you can see except for with the electric fund on unrestricted but then again you have to remember it went down $221,000 but we transferred 1.1 out another true operation you can remember some of the things we actually did very well no rate increases is necessary if you look at the water, surface water, wastewater. We're sitting in a positive way and that's where we were kind of looking at going into this 2026 budget of not changing any of our rates. We're sitting pretty close to, you know, we performed a little bit better than our projections. So on our financial 10-year plans, we're going to hold right now with our current rates. And we'll look at those into the future if we're going to change any of those, but not for the 2026. So, with the results of what we've seen tonight, um we're pretty much on that pace. um department heads are—we're on that target of trying to go for no rate increases in our utility rates and a 6% increase in our levy. Predominantly that 6% is street maintenance parks facilities levies on on those. So that's what we're working on. um department heads have to the end of this month, the 30th, to submit their CIPs and their budgets. Then, I'll put everything together set up meetings with each one of the department head and the city manager. We'll go through their budgets and then I think it's in the first in the schedule the first meeting in July we'll be presenting the city manager's proposed budget for discussion with city council and then we have a series of meetings that are set from thereafter. Um so, that's kind of the game plan. I think you see how we finished in 2024. um yes, I agree with you. There's work in certain areas to do. Um, escrow fund, and other components to it. Um, but I think from a performance standpoint, I think we did very well. Um, and, hopefully that will continue into the future. It's always unpredictable. We never know where we're going to go. But that's part of why we try to to give and again the next update will be in July where we'll give a quarterly update on how we're doing this year in our general fund our enterprise funds to keep you in tune to what we see as our performance is is going and happening. Um so, but at any point in time if you have any questions you certainly can ask me send me an email I can prepare any documentation and come and speak. But next time that I think that you'll see me up here will be in July and we'll be in full force ready to go with the budget. So hope it'll be warmer by then. [00:53:15] **Mayor John Monge**: I sure hope so. [00:53:17] **Finance Director Jason Zimmerman**: um, so it really other questions that you that you have. um appreciate the the work. Like I said, plus we got our bond rating that went too. So that shows that we're doing the right things as well. So yeah, I I think I think all in all it's been very positive. I think we've come up with some very good plans. um and we're moving forward with everything. The bond closed last week where we were all documentation was done. We received the $6.5 million. Uh and I'm still here. We receive—that's my—that's my weird sense of humor. But wait until we see the audit. Yeah. Then then you know. But so we're all set ready to go with with that project. Um and uh yeah, so I think we're pretty much on game plan. um and I I think do you have middle of June an update on the community center piece to it coming back? [00:54:15] **City Manager Brian Frandle**: Yeah. to give and then seek some direction from city council on what the consultants done to date. So things are moving. Jason's—Brian's cracked the whip on us and and making us work hard. [00:54:28] **City Manager Brian Frandle**: And I don't know. I'd like to add um you know tremendous amount of work's put into this and you know a lot of attention is brought to the auditor clearly because they're here and they're doing all that work but there's a tremendous amount of work that is done by finance and their staff to gather all this information and pull this all together. So, just want to recognize that for all your work. [00:54:48] **Finance Director Jason Zimmerman**: Works is only as good as the information you get, right? You know, what what truly is and thank you very much, Brian. You know, it's truly is—it's not just finance that gets, you know, gets involved in this audit. It's, you know, it's the whole downstairs that's that's included. But what what pleases me the most is that our our auditor and auditors that have come, you know, on and and you have to realize that they turn turnover so much because, you know, they're mostly they're getting younger and younger, but they're coming out of college. um they get there a couple of years, they take sit for the CPA, and then they usually end up moving to somewhere else. And so we do see a lot of new faces every year. um and again they're getting younger and younger or I'm getting older and older. I haven't figured that part of it out yet. But they do—they have a lot of questions. But you know what's kind of interesting? The ones who are there for for more than one year, they actually want to come back to the city of North St. Paul. And that isn't me, that's the whole staff because everybody is so welcoming and so helpful and get the information like that for them and boom boom boom boom everything goes really smoothly. um so to me it it's a credit to this organization and I'm going to give the credit to who's responsible for the day-to-day part of it and that's Brian. um because he's given a very good philosophy and a very good culture that has developed here and everybody there's not a hesitation. You know, I usually will tell them ahead of time, you know, when they're going to be there or when they're going to be on site and everybody is willing to whatever they need, whatever they need. So, it's just a great organization and I give a lot of credit to Brian on that because it's changed the culture here. Um, and there's no pushback or or anything when an auditor is coming here and we're pretty much an open book. um so that's a good thing and and even when there's something that they find something on it, that's good because that means it's something we need to correct and get working on. So I mean those are positive components for it. So, and then I I don't I I truly do have a philosophy that I want to see what they have to say so we can make the the changes to it. And what's nice for me as the finance director is that I don't have a fear of coming here to the ultimate city's decision-making process because you are fair and and will ask those tough questions um and be understanding and and allowing us the time to make the correct changes. So, I thank you, too. [00:57:10] **Mayor John Monge**: Thank you. Sounds good. Thank you. Any other biz? Or should we close her down? [00:57:15] **Council Member Dave Mckenzie**: Close her up. Uh, we'll ask for adjournment at 6:21. [00:57:18] **Mayor John Monge**: I'll first it. Council member McKenzie. [00:57:20] **Council Member Cassidy Schweer**: Second. [00:57:22] **Mayor John Monge**: Second. All those in favor say I. (I). We'll see you at 6:30.