Department of Finance
For the Fiscal Year Ended December 31, 2019
CITY OF DULUTH, MINNESOTA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 31, 2019
i
TABLE OF CONTENTS
Page
INTRODUCTORY SECTION
Letter of Transmittal 1
Elected and Appointed Officials 6
Organizational Chart 7
Certificate of Achievement 8
FINANCIAL SECTION
Independent Auditor’s Report 9
Management’s Discussion and Analysis 12
Basic Financial Statements:
Government-wide Financial Statements:
Statement of Net Position 22
Statement of Activities 23
Fund Financial Statements:
Balance Sheet Governmental Funds 25
Reconciliation of Governmental Funds Balance Sheet to
the Statement of Net Position 26
Statement of Revenues, Expenditures, and Changes in
Fund Balances Governmental Funds 27
Reconciliation of the Statement of Revenues, Expenditures, and Changes
in Fund Balances of Governmental Funds to the Statement of Activities 28
Statement of Revenues, Expenditures, and Changes in Fund Balance
Budget and Actual (Non-GAAP Budgetary Basis) General Fund 29
Statement of Net Position Proprietary Funds 30
Statement of Revenues, Expenses, and Changes in Fund Net Position
Proprietary Funds 34
Statement of Cash Flows Proprietary Funds 36
Statement of Fiduciary Net Position 39
Statement of Changes in Fiduciary Net Position Other Postemployment
Benefits Trust Fund 40
Statement of Net Position Component Units 41
Statement of Activities Component Units 42
Notes to the Financial Statements 44
Required Supplementary Information:
Other Postemployment Benefits Plan:
Schedule of Changes in the City's Net OPEB Liability and Related Ratios 93
Schedule of Investment Returns 93
Schedule of City Contributions 94
Schedule of Proportionate Share of Net Pension Liability and Schedule of
Contributions PERA General Employees Plan 95
Schedule of Proportionate Share of Net Pension Liability and Schedule of
Contributions PERA Police and Fire Plan 96
Notes to the Required Supplementary Information 97
CITY OF DULUTH, MINNESOTA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 31, 2019
ii
TABLE OF CONTENTS
Page
FINANCIAL SECTION (continued)
Combining and Individual Fund Statements and Schedules:
Governmental Funds:
Combining Balance Sheet Nonmajor Governmental Funds 102
Combining Statement of Revenues, Expenditures, and
Changes in Fund Balances Nonmajor Governmental Funds 108
Schedule of Revenues Estimated and Actual General Fund 114
Schedule of Expenditures and Encumbrances
Budget and Actual (Non-GAAP Budgetary Basis) General Fund 117
Schedule of Expenditures/Transfers Out General Fund 122
Proprietary Funds:
Combining Statement of Net Position Nonmajor Enterprise Funds 125
Combining Statement of Revenues, Expenses, and Changes
in Fund Net Position Nonmajor Enterprise Funds 126
Combining Statement of Cash Flows Nonmajor Enterprise Funds 127
Combining Statement of Net Position Governmental Activities
Internal Service Funds 128
Combining Statement of Revenues, Expenses, and Changes
in Fund Net Position Governmental Activities
Internal Service Funds 129
Combining Statement of Cash Flows Governmental Activities
Internal Service Funds 130
Fiduciary Funds:
Statement of Changes in Assets and Liabilities Agency Funds 132
Supplementary Information
Capital Assets Used in the Operation of Governmental Funds:
Schedule by Source 133
Schedule by Function and Activity 134
Schedule of Changes by Function and Activity 135
Schedule of Changes in Long-Term Debt
Bonds and Certificates Payable 136
Notes Payable 140
Duluth Economic Development Authority
Balance Sheet 142
Statement of Revenues, Expenditures and Changes in Fund Balances 143
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances to the Statement of Activities 144
Duluth JPE Trust
Statement of Fiduciary Net Position 145
Statement of Changes in Fiduciary Net Position 146
Schedule of Intergovernmental Revenue 147
Federal Awards
Schedule of Expenditures of Federal Awards 150
Notes to the Schedule of Expenditures of Federal Awards 153
CITY OF DULUTH, MINNESOTA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 31, 2019
iii
TABLE OF CONTENTS
Page
STATISTICAL SECTION
Net Position by Component 156
Changes in Net Position 157
Fund Balances of Governmental Funds 161
Changes in Fund Balances of Governmental Funds 162
Assessed and Estimated Taxable Market Value of Property 164
Property Tax Rates Direct and Overlapping Governments 165
Principal Property Taxpayers 165
Property Tax Levies and Collections 166
Net Capacity of Real Property by Category 166
Ratios of Outstanding Debt by Type 167
Ratios of Net General Obligation Bonded Debt 168
Direct and Overlapping Governmental Activities Debt 168
Legal Debt Margin Information 169
Revenue Bond Coverage 170
Demographic and Economic Statistics 172
Principal Employers 172
Full-time Equivalent City Government Employees by Function 173
Operating Indicators by Function 174
Capital Asset Statistics by Function 176
Component Unit Statistical Data 178


Chief Financial Officer • Wayne Parson, CPA (inactive)
City Auditor • Joshua Bailey
411 West First Street • Room 120 • Duluth, Minnesota • 55802-1190
218-730-5450 • Fax: 218-730-5919
wparson@duluthmn.govjbailey@duluthmn.gov www.duluthmn.gov
An Equal Opportunity Employer
June 29, 2020
To the Honorable Mayor, City Council, Administration,
and Citizens of the City of Duluth, Minnesota
State law and the City Charter mandate the City of Duluth have an annual audit of its financial statements. State
law requires the audit to be conducted within 180 days after fiscal year end. This report was prepared to satisfy
these requirements for the fiscal year ended December 31, 2019.
The City’s management assumes full responsibility for the completeness and reliability of the information
contained in this report and has established a comprehensive framework of internal control for that purpose.
The objective of the City’s internal controls is to provide reasonable, rather than absolute, assurance that the
financial statements are free of any material misstatement. Absolute assurance is not achievable because the
costs of internal controls should not exceed anticipated benefits.
The Minnesota Office of the State Auditor has issued an unmodified opinion on the City of Duluth’s financial
statements for the year ended December 31, 2019. The independent auditor’s report is located at the front of
the financial section of this report.
Management’s Discussion and Analysis (MD&A) provides a narrative introduction, overview, and analysis of the
basic financial statements. This letter of transmittal is designed to complement the MD&A and should be read
in conjunction with it. The City’s MD&A can be found immediately following the report of the independent
auditors.
GOVERNMENT PROFILE
Duluth is the seat of St. Louis County, and is the largest city in the northern two-thirds of Minnesota. It is located
at the western tip of Lake Superior, and encompasses 67 square miles of land and nearly 50 square miles of
water. Situated on a hillside along Lake Superior’s north shore, Duluth is 23 miles long and eight miles wide at
its broadest point. Duluth’s population is approximately 86,000 and contributes to a market area of more than
500,000 from northern Minnesota, northwest Wisconsin, the Upper Peninsula of Michigan, and lower Ontario.
Duluth and its neighbor, Superior, Wisconsin, share the Great Lakes’ largest port and one of the largest inland
seaports in the world.
As one of only four first class cities in the state, Duluth operates under a Home Rule Charter granted by the
constitution and laws of the State of Minnesota. The city has operated under a mayor-council form of
government since 1956. The Mayor is the chief executive officer of the city, and is aided by a chief administrative
officer who is chosen by, and is responsible to the Mayor. All executive and administrative powers are vested
in the mayor, chief administrative officer, and other officers authorized by City Charter. The City Council is
comprised of nine councilors, four chosen at large and five from geographical districts. All legislative powers
are vested in the council. The mayor and councilors are subject to the control and direction of the people at all
times by the initiative, referendum and recall provisions in the City Charter.
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The City provides a full range of governmental services including police and fire protection, street construction
and maintenance, library and recreational facilities, and public utilities for water, gas, sewer, and storm water
services. Certain economic development activities are provided through a legally separate entity, Duluth
Economic Development Authority, a discretely presented component unit of the City. The City also is financially
accountable for several legally separate entities including an airport, convention center, transit services, and
recreation area, all of which are reported separately in the City’s financial statements. Additional information
regarding these legally separate entities is provided in Note 1 to the financial statements.
The City Council is required to adopt a final budget before year end. The budget ordinance approved by the
Council establishes appropriations for the General Fund. The total of all appropriations within a department are
defined as a budget item and form the legal level of budgetary control, as defined in the budget ordinance. The
Mayor, Chief Administrative Officer, or a designee may make transfers between appropriations; however, the
total of all transfers to or from any budget item in excess of ten percent of that budget item must be approved by
the City Council. The Council may revise the budget at any time by ordinance upon recommendation of the
Administration.
LOCAL ECONOMY
Once dependent on heavy industry for its economic health, Duluth has diversified and has become a strong
regional center for shipping, tourism, education, health care, retail sales, technology, architecture, engineering
and aviation. Duluth’s unemployment averaged 3.0% for 2019, which was slightly higher than the previous year’s
average unemployment rate of 2.9%. The total number of jobs reported to the state in 2019 peaked at 59,604.
According to the Minnesota Department of Economic Development and Employment (DEED), Duluth’s aviation
industry has grown 39% since 2007, with key anchors like Cirrus Aircraft and AAR continuing to soar, contributing
$646 million in the regional economy and directly supporting approximately 3,500 jobs in the Duluth metro area.
Cirrus Aircraft’s SF50 Vision Jet was awarded the prestigious 2017 Robert J. Collier Trophy for “the greatest
achievement in aeronautics or astronautics in America, with respect to improving the performance, efficiency,
and safety in air or space vehicles…” and is on display at the Smithsonian’s Air and Space Museum.
The Port of Duluth-Superior has been one of the backbones of the region’s economy, and has been long known
as the Great Lakes’ ”Bulk Cargo Capital.” It is the #1 tonnage port on the Great Lakes, and is the farthest-inland
freshwater seaport. The Duluth-Superior port moves an average of 35 million short tons of cargo annually,
ranking among the nation’s top 25 ports. It accommodates the maritime transportation needs of a wide range of
industries ranging from agriculture, forestry, mining and manufacturing to construction, power generation, and
passenger cruising. The Seaway Port Authority of Duluth reported that 754 ships visited the Port of Duluth-
Superior in 2019, and moved 33.5 million tons of cargo including iron ore, coal, grain, limestone, cement, salt,
wood pulp, steel, and wind turbine components, plus a variety of heavy-lift and project cargo. As the largest
tonnage port on the Great Lakes-St. Lawrence Seaway, cargo movements through the Port of Duluth-Superior
support approximately 7,881 jobs and $504.1 million in wages, and contributes over $1.4 billion to the
local/regional economy.
Duluth continues to excel in the key industry of tourism, bringing approximately 6.7 million visitors to Duluth
annually and injecting more than $957 million each year directly into the immediate area. Duluth has turned itself
into the top destination for Minnesotans as a primary getaway, according to Explore Minnesota Tourism. Duluth
offers a variety of attractions and outdoor activities, including: Canal Park, Duluth’s historic waterfront district,
which is home to the famous Aerial Lift Bridge-Minnesota’s most frequented tourist attraction, and a variety of
hotels, restaurants, and shops; the 7.5 mile Lakewalk on the shores of Lake Superior; Bayfront Festival Park-
named the “Best Outdoor Music Venue” in the 2014 Best of Minnesota” poll by the Minneapolis Star Tribune-
which is a 20 acre waterfront park with a seasonal amphitheater, hosting outdoor summertime concerts and
events, and during the holiday season, the Bentleyville Tour of Lights-America’s largest free walk through holiday
light display; The Great Lakes Aquarium-a $30 million freshwater aquarium featuring more than 20 exhibits;
Spirit Mountain Ski and Recreation Area-a year round recreation area with the Midwest’s longest downhill ski
run, Nordic skiing, a snow tubing park, an RV park, and an adventure park featuring mini golf, disk golf, mountain
biking, scenic lift ride, alpine coaster ride, and a zip line. The City has 129 municipal parks encompassing over
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3,264 acres, two public golf courses, zoo, and over 150 miles of trails for hikers, bicyclists, and cross country
skiers. Duluth’s 104 mile Traverse Mountain Biking Trail system is close to completion, and is rated as 1 of only
6 “Gold Level” Ride Centers in the world by the International Mountain Bicycling Association (IMBA). Duluth
hosts world-class special events such as Grandma’s Marathon, the 16
th
largest marathon in the United States;
and, the Bayfront Blues Fest, which attracts over 20,000 people. Duluth has been nationally recognized by
various publications and was rated by Money magazine as one of the top four Midwestern small cities, based
on livability. In 2015, Duluth was voted as America’s “Best Town” by an online poll conducted by Outside
Magazine. In 2017, Duluth was named as America’s fittest City by Fitbit; and, SmartAsset’s 2017 edition name
Duluth as the least stressed city in America. In 2018, Duluth was recognized by the New York Post as one of
the Best 10 Christmas Cities in America.” Indeed.com ranked Duluth #1 for “US Cities Where Salaries Go
Furthest: 2018” based upon high adjusted salaries, low unemployment, and good future prospects. Lake
Superior, the city’s unique history, premier trails, natural beauty, and quality of life continue to define Duluth as
a family friendly vacation destination and place to live.
The Duluth Entertainment Convention Center (DECC) remains a leader in convention center business and
environmental stewardship. In 2019 the DECC hosted 506 events, which were comprised of Broadway and
performing arts; rock, country, and miscellaneous concerts; meetings; and, various public, social, family, and
sporting events. There were also 47 conventions in the CitySide and the HarborSide Convention Centers with
over 32,200 attendees. AMSOIL Arena had its ninth successful year of operations, and is home to the
University of Minnesota-Duluth's (UMD) hockey teams. Fans supported the National Collegiate Hockey
Conference (NCHC) Champions, the men's Bulldog hockey team; and, also supported the women’s Western
Collegiate Hockey Conference (WCHA) team. On an average winter Saturday night, the DECC can be filled
with over 20,000 guests attending hockey in Amsoil Arena; a Duluth-Superior Symphony Orchestra (DSSO)
concert in Symphony Hall; a convention or banquet in Cityside or HarborSide Ballrooms; curling at the Duluth
Curling Club, proud home of the 2018 U.S. Olympic Gold Medal winning team; or, watching a movie at the
Duluth 10 Theater. Bayfront Park was under the management of the DECC for the eighth year with a full roster
of events, including Bentleyville, Duluth Fourth Fest, Blues Fest, Pride Festival, Tributefest, and All Pints North
Brewfest. The retired Great Lakes freighter, the SS William A. Irvin, a floating Maritime Museum and Haunted
Ship Halloween attraction, was successfully returned to the Minnesota Slip, after being moved the prior year to
make room for the Great Lakes Legacy Act sediment cleanup in the Slip. With their focus on sustainability, the
DECC strives to make a positive impact on our local community through environmental, economic and social
stewardship.
According to the Minnesota Department of Employment and Economic Development (DEED), the Duluth metro
has more than 20,000 college and university students. The American Institute of Economic Research named
the Duluth metropolitan area as one of America’s best small metropolitan areas for college students in their
“Small Metro category” in its 2012 College Destinations index. The University of Minnesota, Duluth (UMD) and
the College of St. Scholastica (CSS) are regularly ranked in the top tier of Midwestern universities by U.S. News
and World Report’s “America’s Best Colleges” issue. The University of Minnesota Duluth (UMD) is a
comprehensive regional university, and had fall enrollment of 10,858 students in 2019. Undergraduate students
can choose from 16 bachelor degrees in 87 majors and 73 minors as well as seven certificates. UMD also offers
graduate programs in 25 fields, 14 minors, and four certificates. The University of Minnesota Medical School
and the University of Minnesota College of Pharmacy, both have programs on the UMD campus. In addition to
offering the EdD, UMD participates in two all-university PhD programs (one of which is located primarily on the
UMD campus) and cooperates significantly in the delivery of a number of Twin Cities-based PhD programs. The
College of St. Scholastica has been called a hidden gem by the Washington Post in its “100 Schools to
Consider” and in 2014 was named by Money Magazine to the top third of all four-year colleges in the country,
based on graduation rates, educational quality, affordability and alumni earnings. Forbes Magazine named CSS
in its “Top Colleges” list for 2017 based on outcomes, measured by student satisfaction, post-graduate success
and academic success. CSS has 6 academic schools, and offers degrees in more than 75 undergraduate
majors, minors and pre-professionals; 15 masters, and 4 doctoral programs, with a total 2019 enrollment of
3,906 students. Lake Superior College (LSC) is a two-year community and technical college in Duluth, and is a
member of the Minnesota State College System, and has the third lowest college tuition in the State of
Minnesota. Lake Superior College was ranked 41
st
among the 50 Best Community Colleges in the Nation”
recently by College Consensus, an organization that combines all of the most reputable college ranking
publishers and real student reviews. The college offers pre-baccalaureate majors for students interested in
transferring to 4-year educational institutions, as well as more than 90 certificate, diploma and degree programs
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in career and technical fields. LSC's Continuing Education/Customized Training division collaborates with area
businesses and industry to design specialized opportunities for entry-level and advanced education. While
courses are typically offered in traditional classroom and lab settings, LSC also offers over 200 courses online.
LONG-TERM FINANCIAL PLANNING
Unassigned fund balance in the General Fund (15.8 percent of total General Fund expenditures and transfers)
exceeds the policy guidelines set by the Administration and Council for budgetary and planning purposes.
According to the policy, unassigned fund balance should fall within the following range of General Fund
expenditures and transfers: 5% as a minimum, 7% as a moderate scenario, with 10% regarded as optimum.
RELEVANT FINANCIAL POLICIES
The City established a Community Investment Fund in 1994. The Fund is financed by the City’s share of
revenues generated from the operation of the Fond-du-Luth Casino administered by the Fond du Lac Band of
Lake Superior Chippewa. Investment earnings from the Community Investment Fund are dedicated to the City’s
General Fund by charter provision. All other monies appropriated from the Fund must be approved by resolution
by at least seven members of the nine-member City Council. As of December 31, 2019, the Community
Investment Fund reported a fund balance of $26.9 million.
In 2007, the City established an irrevocable trust to pre-fund the City’s other postemployment benefit liability.
Contributions totaling $29.1 million have been made to the irrevocable trust. The irrevocable trust balance
including cumulative investment earnings was $71.5 million at December 31, 2019. In November 2014, the City
adopted a policy that established a funding framework for financing annual retiree healthcare costs through both
annual appropriation and utilizing the irrevocable trust. Annual appropriation costs are capped at $9 million.
Annual retiree healthcare premium costs in excess of $9 million will be paid from the irrevocable trust. For the
year ended December 31, 2019, retiree health care premium costs of $303,020 were funded by the irrevocable
trust. City pooled investment earnings were also dedicated as an additional funding source for future
contributions to the irrevocable trust.
MAJOR INITIATIVES
In November 2017, a transportation sales tax referendum was overwhelmingly approved by voters. The new
½% sales tax went into effect on October 1, 2019 and will garner an estimated $7 million annually to be
designated for the City’s Street Improvement Program.
State legislation created a Duluth Regional Exchange District that will support the two regional health care
systems headquartered in downtown Duluth. Essentia Health and St. Luke’s Hospital are constructing new
facilities that will result in a combined investment exceeding $1 billion in downtown Duluth. This investment will
be the largest private development in Duluth’s history and will act as a catalyst for additional development activity
in the downtown area. Included in the State legislation was $97.2 million earmarked for public improvements
including parking ramps and street and utility improvements in the District. Site work began in 2019 and work
on the project will continue for several years.
AWARDS AND ACKNOWLEDGMENTS
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in
Financial Reporting to the City of Duluth, for its comprehensive annual financial report (CAFR) for the fiscal year
ended December 31, 2018. This was the forty-third consecutive year that the City has received this prestigious
award. In order to be awarded a Certificate of Achievement, the City had to publish an easily readable and
efficiently organized CAFR, whose contents conform to both generally accepted accounting principles and
applicable legal requirements.
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A Certificate of Achievement is valid for a period of one year only. We believe our current CAFR continues to
conform to the Certificate of Achievement Program’s requirements, and we are submitting it to the GFOA to
determine eligibility for another certificate.
In addition, the City of Duluth also received the GFOA's Distinguished Budget Presentation Award for its annual
budget document for the year 2019. In order to qualify for the Distinguished Budget Presentation Award, a
governmental unit's budget must be judged proficient as a policy document, a financial plan, an operations guide,
and a communications device.
When looking at a report such as this CAFR, it is sometimes difficult to comprehend how much time and effort
is devoted by employees from the beginning of the audit to the final printing and distribution of the CAFR. As
the requirements and demands of financial reporting in government increase, so too must the knowledge, effort
and skills of a government's accounting staff; I wish to acknowledge the Financial Analysts in the Finance
Department who continue to meet this challenge.
Respectfully submitted, Respectfully submitted,
Wayne Parson, CPA (inactive) Joshua Bailey,
Chief Financial Officer City Auditor
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DISTRICT
Mayor 2020
Emily Larson
City Council
Zack Filipovich
At large
2022
Arik Forsman
At large
2020
Noah Hobbs
At large
2020
Barb Russ **
At large
2022
Gary Anderson
1
2020
Joel Sipress
2
2022
Em Westerlund
3
2020
Renee Van Nett
4
2022
Jay Fosle
5
2020
Gunnar Johnson ***
Joshua Bailey
Noah Schuchman
Wayne Parson
Michael Tusken
Chelsea Helmer
Christopher Fleege
Jim Filby Williams
Elena Foshay
James Benning
Shawn Krizaj
ELECTED POSITIONS TERM EXPIRES *
*All terms expire in January
**Barb Russ Resigned in April 2020
APPOINTED POSITIONS
Attorney
Auditor
Chief Administrative Officer
Chief Financial Officer
Chief of Police
Clerk
Director of Planning and Economic Development
Director of Public Administration
Director of Workforce Development
Director of Public Works and Utilities
Fire Chief
***Gunnar Johnson Resigned in April 2020
ELECTED AND APPOINTED OFFICIALS
CITY OF DULUTH, MINNESOTA
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CITY OF DULUTH ORGANIZATIONAL CHART
Fire Department
Information
Technology
Police Department
Public
Administration
Department
Public Works &
Utilities Department
Planning & Economic
Development
Department
City Council
Mayor
Chief
Administrative
Officer
City Attorney
Planning &
Development
Fire
Administration
Fire
Operations
Life Safety
Administration
& Investigations
Patrol
Parks &
Recreation
Human
Resources
Fleet Services
Facilities
Management
City Clerk
Library
Services
Street
Maintenance
Engineering
Utility
Operations
Director's
Office
Construction
Services &
Inspection
Business &
Economic
Development
Auditor
Budget
Purchasing
Treasurer
Finance
Department
Parking
Safety &
Training
Park
Maintenance
Energy
Management
Water
Gas
Sewer
Storm
Street
Lighting
Workforce
Development
Department
7
Government
Finance Officers Association
Certificate
of
Achievement
for Excellence
in Financial
Reporting
Presented
to
City of Duluth
Minnesota
For its Comprehensive Annual
Financial Report
for the Fiscal Year Ended
December 31, 2018
Executive Director/CEO
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

JULIE BLAHA
STATE AUDITOR
STATE OF MINNESOTA
OFFICE OF THE STATE AUDITOR
SUITE 500
525 PARK STREET
SAINT PAUL, MN 55103-2139
(651) 296-2551 (Voice)
(651) 296-4755 (Fax)
state.auditor@state.mn.us (E-mail)
1-800-627-3529 (Relay Service)
INDEPENDENT AUDITOR’S REPORT
The Honorable Emily Larson, Mayor,
and Members of the City Council
City of Duluth, Minnesota
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the
business-type activities, the aggregate discretely presented component units, each major fund, and
the aggregate remaining fund information of the City of Duluth, Minnesota, as of and for the year
ended December 31, 2019, and the related notes to the financial statements, which collectively
comprise the City’s basic financial statements, as listed in the table of contents. The financial
statements and related notes of the Spirit Mountain Recreation Area Authority component unit’s
activities are included as of and for the year ended April 30, 2019.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
9
relevant to the City’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the governmental activities, the business-type activities, the
aggregate discretely presented component units, each major fund, and the aggregate remaining
fund information of the City of Duluth as of December 31, 2019, including the Spirit Mountain
Recreation Area Authority component unit as of April 30, 2019, and the respective changes in
financial position and, where applicable, cash flows thereof and the budgetary comparison of the
General Fund for the year then ended in accordance with accounting principles generally accepted
in the United States of America.
Emphasis of Matter – Subsequent Event
As discussed in Note 20 to the financial statements, subsequent to year-end, the World Health
Organization declared the outbreak of a coronavirus (COVID-19) a pandemic, resulting in a
reduction of tax collections for 2020. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
Management’s Discussion and Analysis and Required Supplementary Information as listed in the
table of contents be presented to supplement the basic financial statements. Such information,
although not part of the basic financial statements, is required by the Governmental Accounting
Standards Board, who considers it to be an essential part of financial reporting for placing the basic
financial statements in an appropriate operational, economic, or historical context. We have
applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of inquiries
of management about the methods of preparing the information and comparing the information for
consistency with management’s responses to our inquiries, the basic financial statements, and
other knowledge we obtained during our audit of the basic financial statements. We do not express
an opinion or provide any assurance on the information because the limited procedures do not
provide us with sufficient evidence to express an opinion or provide any assurance.
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Supplementary and Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City of Duluth’s basic financial statements. The Introductory Section,
the Combining and Individual Fund Statements and Schedules, the Supplementary Information,
and the Statistical Section as listed in the table of contents are presented for purposes of additional
analysis and are not a required part of the basic financial statements.
The Combining and Individual Fund Statements and Schedules and the Supplementary
Information are the responsibility of management and were derived from and relate directly to the
underlying accounting and other records used to prepare the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the basic
financial statements or to the basic financial statements themselves, and other additional
procedures in accordance with auditing standards generally accepted in the United States of
America. In our opinion, the information is fairly stated, in all material respects, in relation to the
basic financial statements as a whole.
The Introductory and Statistical Sections have not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we do not express an opinion
or provide any assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated June 29,
2020, on our consideration of the City of Duluth’s and the Duluth Economic Development
Authority component unit’s internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other
matters. The purpose of that report is solely to describe the scope of our testing of internal control
over financial reporting and compliance and the results of that testing, and not to provide an
opinion on the effectiveness of the City of Duluth’s and the Duluth Economic Development
Authority component unit’s internal control over financial reporting or on compliance. The reports
are an integral part of an audit performed in accordance with Government Auditing Standards in
considering the City of Duluth’s and the Duluth Economic Development Authority component
unit’s internal control over financial reporting and compliance.
JULIE BLAHA GREG HIERLINGER, CPA
STATE AUDITOR DEPUTY STATE AUDITOR
June 29, 2020
11
M a n a g e m e n t s
D i s c u s s i o n a n d A n a l y s i s
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
The City of Duluth’s Finance Department has prepared this narrative overview and analysis of the financial activities
of the City for the fiscal year ended December 31, 2019, to assist users of this report to gain a better understanding
of the City’s financial health and history. The information presented in this section should be considered in conjunction
with that presented in the letter of transmittal and the notes to the financial statements.
FINANCIAL HIGHLIGHTS
The City’s assets and deferred outflows of resources exceeded its liabilities and deferred inflow of resources
at December 31, 2019, by $396.7 million; this amount is identified as net position.
As of December 31, 2019, the City’s governmental funds reported combined ending fund balances of $83.0
million.
Restricted fund balances were $39.4 million of fund balance or 47.5%. These fund balances are not available
for appropriation because of constraints placed on the use of these funds. The remaining fund balances of
$43.6 million, or 52.5%, are unrestricted and classified as committed, assigned, or unassigned.
In 2007, the City created an irrevocable trust to pre-fund a portion of the City’s other postemployment benefits.
As of December 31, 2019, the trust reported net position totaling $71.5 million.
As of December 31, 2019, the General Fund’s unrestricted, unassigned fund balance was $14.4 million, or
16.0% of total General Fund expenditures.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis serves as an introduction to the City’s basic financial statements, which consists of three
components: 1) government-wide financial statements; 2) fund financial statements; and 3) notes to the financial
statements. This report also contains other supplementary information in addition to the basic financial statements.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
The government-wide financial statements are designed to give users a broad overview of the City’s finances, in a
manner similar to that of a private-sector business. The Statement of Net Position presents information on all of the
City’s assets, deferred outflows of resources, deferred inflows of resources, and liabilities, with the net difference
between the four reported as net position. Increases or decreases in net position over time may serve as a useful
indicator of whether the City’s financial position is improving or deteriorating. The Statement of Activities shows how
the City’s net position changed during the fiscal year. All changes in net position are reported as soon as the
underlying event that caused the change occurs, regardless of the timing of the related cash flows. There are
revenues and expenses reported in this statement for some items that will only result in cash flows in future fiscal
years; examples include uncollected taxes and vacation days that are earned, but not used.
Both of the government-wide financial statements distinguish between functions that are mainly supported by taxes
and intergovernmental revenues, and other functions that are intended to recover all or a significant portion of their
costs through user fees and charges. The first functions are identified in the statements as governmental activities,
while the latter functions are reported as business-type activities.
12
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
The City’s governmental activities include general government, public safety, public works, culture and recreation,
and urban and economic development. The City’s business-type activities include water, gas, sewer, steam and
stormwater utilities, street lighting, parking, and municipal golf courses. The government-wide financial statements
include not only the City, referred to as the primary government, but also five legally separate component units, for
which the City is financially accountable. Financial information for these component units is reported separately from
the financial information of the City, as the primary government.
Financial statements for the Duluth Economic Development Authority are included in the Supplementary Information
section of this report. Complete financial statements for the Duluth Entertainment and Convention Center Authority,
the Duluth Airport Authority, the Duluth Transit Authority, and the Spirit Mountain Recreation Area Authority can be
obtained from their respective offices, the addresses of which are provided in Note 1 of the notes to the financial
statements.
The two government-wide financial statements follow immediately after this discussion and analysis.
FUND FINANCIAL STATEMENTS
A fund is a set of related accounts that is used to control resources that have been segregated to carry on specific
activities or to attain certain objectives in accordance with special regulations, restrictions, or limitations. The City,
like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-
related legal requirements. All City funds are divided into one of three categories: governmental funds, proprietary
funds or fiduciary funds.
Governmental Funds
Governmental funds are used to account for essentially the same functions reported as governmental activities in the
government-wide financial statements. A major difference between the government-wide financial statements and
the governmental fund financial statements is that the latter focuses on near-term inflows and outflows of spendable
resources, as well as on the balances of spendable resources available at the end of the fiscal year. This information
may be useful in evaluating the City’s near-term financing requirements.
Because the focus of governmental fund financial statements is narrower than the government-wide financial
statements, it is useful to compare information presented for governmental funds with similar information presented
for governmental activities in order to gain a better understanding of the long-term impact of the City’s near-term
financing decisions. The Governmental Fund Balance Sheet and the Governmental Fund Statement of Revenues,
Expenditures and Changes in Fund Balances provide reconciliation to aid in the comparison of governmental funds
with governmental activities.
The City maintains a number of individual governmental funds. Information is presented separately in the
governmental fund financial statements for the General Fund, Disaster Recovery Special Revenue Fund, Community
Investment Trust Special Revenue Fund, and General Obligation Debt Service Fund, all of which are considered to
be major funds. Data from the remaining governmental funds are combined into a single, aggregated presentation.
Individual fund data for each of these nonmajor governmental funds are included in the combining and individual fund
section of this report.
The City adopts an annual appropriated budget for its General Fund. The Statement of Revenues, Expenditures, and
Changes in Fund Balances - Budget and Actual - General Fund, included in the basic financial statement section of
this report, demonstrates compliance with this budget. There are also two more detailed General Fund budgetary
schedules included in the combining and individual fund section of this report.
13
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
Proprietary Funds
The City maintains two different types of proprietary funds. The first type is enterprise funds, which are used to report
the same functions presented as business-type activities in the government-wide financial statements. Proprietary
fund financial statements provide the same type of information as the government-wide financial statements, only in
more detail. Information is presented separately in the proprietary fund financial statements for the Priley Drive
Parking Facility, Water, Gas, Sewer, and Steam funds, all of which are considered to be major funds. Data from the
remaining enterprise funds are combined into a single, aggregated presentation. Individual fund data for each of
these nonmajor enterprise funds are included in the combining and individual fund section of this report.
Internal service funds are the other type of proprietary fund. Internal service funds are used to accumulate and
allocate costs internally among the City’s various functions for fleet services, self-insurance, employee medical
benefits, and compensated absences. Because these services predominantly benefit governmental functions rather
than business-type functions, they have been included with the governmental activities portion of the government-
wide financial statements. The internal service funds are combined into a single, aggregated presentation in the
proprietary fund financial statements. Individual fund data for the internal service funds are included in the combining
and individual fund section of this report.
Fiduciary Funds
Fiduciary funds are used to account for resources held for the benefit of parties outside of the City and are not
included in the government-wide financial statements because their resources are not available to support the City's
programs. The accounting used for fiduciary funds is similar to that used for proprietary funds. The Statement of
Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position are included in the basic financial
statement section of this report, while the Statement of Changes in Assets and Liabilities for agency funds is included
in the combining and individual fund section of this report.
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the
government-wide and fund financial statements.
Other Information
In addition to the basic financial statements and accompanying notes, this report also contains the combining and
individual fund statements referred to earlier in connection with nonmajor governmental, nonmajor proprietary,
internal service funds, fiduciary funds, and miscellaneous schedules. These schedules and statements follow the
notes to the financial statements.
GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted earlier, over time net position may serve as a useful indicator of the City’s financial position. The largest
portion of the City’s net position is invested in capital assets (land, buildings, equipment, and infrastructure) less any
related debt used to acquire those assets that is still outstanding. The City uses these assets to provide services to
its citizens; therefore, these assets are not available for future spending. Although the City’s investment in capital
assets is reported net of related debt, it is important to realize that the resources needed to repay the debt must be
provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
14
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
An additional portion of the City’s net position (11.3%) represents resources that are subject to external restrictions
on how they may be used, with the largest amount set aside for debt service. The following table presents a summary
of the City’s net position at December 31 for the past two fiscal years (dollars in thousands):
2019 2018 2019 2018 2019 2018
Current and other assets 136,082$ 131,904$ 48,127$ 43,315$ 184,209$ 175,219$
Capital assets 295,611 296,706 300,107 292,371 595,718 589,077
Total assets 431,693$ 428,610$ 348,234$ 335,686$ 779,927$ 764,296$
Deferred outflows of resources 30,546$ 42,160$ 1,434$ 5,006$ 31,980$ 47,166$
Long-term liabilities outstanding 263,368$ 291,519$ 59,908$ 72,624$ 323,276$ 364,143$
Other liabilities 16,430 13,634 9,690 10,809 26,120 24,443
Total liabilities 279,798$ 305,153$ 69,598$ 83,433$ 349,396$ 388,586$
Deferred inflows of resources 58,775$ 54,624$ 7,018$ 3,407$ 65,793$ 58,031$
Net position:
Net investment in capital assets 251,585$ 249,613$ 253,271$ 240,474$ 504,856$ 490,087$
Restricted 42,703 42,919 2,092 2,115 44,795 45,034
Unrestricted (170,622) (181,539) 17,689 11,263 (152,933) (170,276)
Total net position 123,666$ 110,993$ 273,052$ 253,852$ 396,718$ 364,845$
Business-type
Activities
Governmental
Activities Total
Overall, the City’s net position improved in 2019. The City’s total net position increased $31.9 million, an increase of
8.7%. Net position invested in capital assets continues to increase largely due to the City's utility infrastructure
replacement and the pay down of debt associated with those capital asset additions. In addition, strong investment
returns and changes in actuarial assumptions contributed to a significant reduction in the City’s OPEB liability
calculation.
In governmental activities, the decrease in total liabilities of $25.3 million was largely due to a net OPEB liability
decrease. This decrease, as mentioned above, is due to strong investment returns for the City’s OPEB trust and
changes in actuarial assumptions. Both the City’s OPEB liability and pension liability are based on actuarial
calculations. Changes in actuarial assumptions, differences between actual and projected investment earnings, and
other factors are reported as deferred outflows and deferred inflows, and are amortized and expensed over several
years in accordance with GASB accounting standards. Due to the large dollar amount that can be associated with
these actuarially determined calculations, it is expected that substantial changes can occur from year to year in
amounts reported as deferred inflows and outflows. See Notes 15 and 16 of the financial statement for more details
on the City’s pension and OPEB liabilities.
For business-type activities, the decrease in total liabilities of $13.8 million is largely due to the repayment of revenue
related bonds and notes. In addition, the business-type activities net OPEB liability decreased $6.1 million. Total
assets increased due to utility infrastructure projects.
15
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
To give users a better understanding of the sources and uses of the City’s net position, the following table presents
a summary of revenues, expenses, and changes in net position for the past two fiscal years ending December 31
(dollars in thousands):
2019 2018 2019 2018 2019 2018
Revenues:
Program revenues:
Charges for services 13,433$ 11,928$ 94,896$ 94,246$ 108,329$ 106,174$
Operating grants and contributions 12,290 12,019 61 - 12,351 12,019
Capital grants and contributions 12,733 12,913 6,134 5,603 18,867 18,516
General revenues:
Property taxes 32,996 30,266 1,301 751 34,297 31,017
Other taxes 32,728 30,518 - - 32,728 30,518
Grants and shared revenues not
restricted to specific programs 31,918 31,810 49 49 31,967 31,859
Other 8,281 1,248 307 186 8,588 1,434
Total revenues 144,379 130,702 102,748 100,835 247,127 231,537
Expenses:
General government 31,839 31,093 - - 31,839 31,093
Public safety 42,181 43,353 - - 42,181 43,353
Public works 27,785 24,997 - - 27,785 24,997
Culture and recreation 16,261 13,170 - - 16,261 13,170
Urban and economic development 14,244 13,664 - - 14,244 13,664
Interest 3,910 4,025 - - 3,910 4,025
Water - - 10,814 11,269 10,814 11,269
Gas - - 31,777 33,161 31,777 33,161
Sewer - - 16,260 16,835 16,260 16,835
Stormwater - - 3,572 3,430 3,572 3,430
Steam - - 8,350 8,185 8,350 8,185
Golf - - 1,771 1,853 1,771 1,853
Parking - - 3,405 2,980 3,405 2,980
Priley drive parking facility - - 1,249 1,254 1,249 1,254
Street lighting - - 1,836 1,910 1,836 1,910
Total expenses 136,220 130,302 79,034 80,877 215,254 211,179
Increase (decrease) in net position before
transfers 8,159 400 23,714 19,958 31,873 20,358
Transfers 4,514 4,355 (4,514) (4,355) - -
Increase in net position 12,673 4,755 19,200 15,603 31,873 20,358
Net position, January 1 110,993 106,238 253,852 238,249 364,845 344,487
Net position, December 31 123,666$ 110,993$ 273,052$ 253,852$ 396,718$ 364,845$
Business-type
Activities
Governmental
Activities Total
16
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
Governmental activities revenue increased by $13.7 million in 2019. This increase is primarily due to strong
investment returns in addition to increases in property tax revenue and general sales tax collections. Effective October
1, 2019, the City’s general sales tax increased from 1.0% to 1.5%. The 0.5% increase is dedicated to street
improvements and generated $2.0 million of revenue in 2019. The City’s property tax levy increased 11.25% from
2018 to 2019. This increase helped cover cost-of-living adjustments and a ten percent increase in health insurance
rates. The strong stock market performance in 2019 resulted in $5.6 million in investment revenue for the Community
Investment Trust fund. Business-type activities revenue remained relatively stable with a $1.9 million dollar increase.
Variable water rates increased while variable sewer rates decreased. There were no changes to natural gas rates.
There were no unusual swings in gas operations, which can often happen when there are extremely warm or cool
heating seasons. The Steam Fund received slightly over $5 million in State of Minnesota funding in 2019 associated
with the steam upgrades being performed in conjunction with the multi-year Superior Street reconstruction project.
Total expenses increased $5.9 million for governmental activities. Changes in expenditures are becoming more
difficult to easily analyze at the surface level due to the impact of GASB Statements number 68 (pension liability) and
75 (post-employment benefit liability). These liabilities, and associated deferred inflows and outflows, are actuarially
determined. Changes in actuarial assumptions, investment performance, and other factors are not expensed
immediately, but instead are reported as deferred inflows and outflows and expensed over future years. Further detail
on these two items can be found in Notes 15 and 16 of the financial statements. In 2019, the City experienced a 10%
increase in health insurance premiums. It is expected that health insurance costs will continue to increase based on
current trends. In addition, the City incurred repair expenses in 2019 related to the various windstorms that have
heavily impacted Duluth’s Canal Park area in the past few years.
Business-type activities expenses decreased $1.8 million. This decrease is largely due to the impact of the decrease
in the City’s net OPEB liability. In addition, the City’s utility funds experience the same increase in health insurance
costs that the City’s governmental funds do.
$0
$5
$10
$15
$20
$25
$30
$35
Millions
Revenue by Source - Governmental Activities
2019
2018
17
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
FUND FINANCIAL ANALYSIS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal
requirements.
GOVERNMENTAL FUNDS
The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of
spendable resources. This information is helpful in assessing the City’s financing requirements; fund balance may be
an especially useful measure of the net resources available for spending at the end of the fiscal year.
As of December 31, 2019, the City’s governmental funds reported combined ending fund balances of $83.0 million,
an increase of $2.4 million from 2018. Of the total fund balance amount, $43.6 million, or 52.5%, is reported as
unrestricted fund balance, either committed, assigned, or unassigned. The unrestricted fund balance includes $28.5
million in committed funds which are formally designated by City Council resolution for specific purposes. The
Community Investment Trust Special Revenue fund makes up 94.2% of the committed fund balance. Restricted fund
balance of $39.4 million is primarily composed of funds dedicated to debt service and capital projects.
The General Fund is the main operating fund of the City. At December 31, 2019, fund balance of the General Fund
was $17.7 million, with $14.4 million, or 81.4% reported as unassigned. As a measure of the General Fund’s liquidity,
it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures.
Unassigned fund balance is 16.0% and total fund balance is 19.6% of total General Fund expenditures. The General
Fund’s fund balance increased $0.8 million in 2019. Positive sales tax revenue along with savings in personal costs
contributed to this outcome.
The Community Investment Trust Special Revenue fund balance increased $5.0 million in 2019. This increase was
due to the performance of the portfolio holdings in a strong year for the stock market.
The Disaster Recovery Special Revenue fund balance decreased by $1.1 million in 2019. This is due to expenses
incurred, but not yet reimbursed by state and federal disaster funds. The City experienced significant storm surge
damage in both October of 2017 and October of 2018.
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Millions
Expense by Function - Governmental Activities
2019
2018
18
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
The General Obligation Debt Service fund balance increased by $0.3 million in 2019. The City’s percentage of levy
collections remains high and contributed to the small fund balance increase for this fund.
PROPRIETARY FUNDS
The City’s proprietary funds provide the same type of information found in the government-wide financial statements,
only in more detail. The following table shows the unrestricted net position for each of the City’s major proprietary
funds, as well as the change in net position for each fund during the past two fiscal years (dollars in thousands):
2019 2018 2019 2018
Priley Drive
Parking Facility 391$ 330$ (242)$ (256)$
Water 2,545 (333) 4,318 3,625
Gas 3,481 102 5,412 3,597
Sewer 4,749 3,289 3,630 2,824
Steam (401) (411) 4,907 4,612
December 31
December 31
Increase (Decrease)
Net Position
Unrestricted
Net Position
Unrestricted Net Position for the Water, Gas, and Sewer funds was positively impacted by the decrease in the City’s
net OPEB liability. The Steam Fund incurred significant capital outlay associated with the Superior Street
reconstruction process. These expenditures are funded by a State of Minnesota grant and contributed to the
substantial increase in the Steam Fund net position.
GENERAL FUND BUDGETARY HIGHLIGHTS
During the year there was a $3.8 million increase in appropriations between the original and final amended budget.
Following are the main components of the increase:
$2.3 million appropriation increase for prior year carryovers;
$0.4 million appropriation for grants, gifts and donations; and
$1.1 million appropriation for other budget allowable additions.
The carryover appropriation increase was possible due to prior year fund balance reserves. The other appropriation
increases were offset by associated revenues.
Comparison of actual results (budgetary basis) to the final modified budget disclosed the following significant
differences:
Revenues and other financing sources were over budget by $1.3 million. This favorable variance can be
attributed to higher than anticipated sales tax revenue, licensing and permit fees, and State of Minnesota
insurance premium aid.
Expenditures and transfers were under budget by $1.1 million due primarily to savings in personal costs and
other miscellaneous transfers.
19
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
CAPITAL ASSET AND DEBT ADMINISTRATION
CAPITAL ASSETS
The City’s investment in capital assets for its governmental and business-type activities as of December 31, 2019,
was $595.7 million, net of accumulated depreciation. This investment includes land and improvements, buildings,
equipment, roads and bridges, traffic signals, and utility-related infrastructure. In 2019, the City’s total investment in
capital assets, net of accumulated depreciation, increased by $6.6 million. Major capital assets additions in 2019
included: Superior Street reconstruction - $9.7 million; and utility related infrastructure improvements of $13.9 million.
Additional information related to the City’s capital assets can be found in Note 7 of the notes to the financial
statements. The following table shows the City’s investment in capital assets, net of accumulated depreciation at
December 31 for the past two fiscal years (dollars in thousands):
2019 2018 2019 2018
Capital Assets:
Land and improvements 22,859$ 22,859$ 4,649$ 4,649$
Buildings 39,250 40,826 47,885 49,546
Equipment 9,383 9,309 19,100 20,867
Infrastructure 200,641 195,957 207,312 202,392
Construction in progress 23,478 27,755 21,161 14,917
Total 295,611$ 296,706$ 300,107$ 292,371$
Governmental
Activities
Business-type
Activities
LONG-TERM DEBT
The City had $142.0 million of bonded debt outstanding as of December 31, 2019. Of this amount, $107.2 million is
debt backed by the full faith and credit of the City. $3.1 million is special assessment debt for which the City is
obligated only to the extent that collections from special assessments are insufficient to retire the outstanding bonds.
The City has a contingent liability for the $31.7 million outstanding revenue and general obligation bonds if income
from various enterprise operations is insufficient to retire their respective bonds. Several types of revenue bonds
constitute the remainder of the City’s debt, and are secured solely by specific revenue sources. The following table
shows the City’s outstanding bonded debt for both governmental and business-type activities as of December 31 for
the past two fiscal years (dollars in thousands):
Balance Balance
12/31/19 12/31/18
Governmental Activities:
General Obligation Bonds 81,370$ 87,485$
General Obligation Tax Abatement Bonds 11,770 12,605
Special Asessment Debt with
Government Commitment 3,125 5,165
General Obligation Certificates 14,050 14,295
Total Governmental Activities Bonded Debt 110,315$ 119,550$
Business-type Activities:
Revenue and General Obligation Bonds 31,680$ 35,097$
20
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019
(unaudited)
During 2019, the City’s total bonded debt decreased by $12.7 million.
In 2019, the City issued $1.2 million of general obligation bonds, $9.8 million of general obligation refunding bonds,
and $3.1 million of general obligation certificates. The City has an “Aa2" rating from Moody’s Investors Service and
an “AA” rating from Standard and Poor's.
State statutes limit the amount of general obligation debt the City can incur to no more than 2% of the market value
of taxable property in the City. The City’s current legal debt margin is $130.7 million, which is significantly higher than
the City’s net debt of $38.6 million. Additional information about the City’s long-term debt can be found in Note 12 of
the notes to the financial statements.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
The final approved 2020 General Fund budget is $92.9 million. State local government aid (LGA) payments are
anticipated to supply 32.6% of General Fund revenues. State aid payments are the single biggest financing source
for the General Fund.
After nearly a decade of uncertainty in the State of Minnesota’s Local Government Aid program, the 2013 State
Legislature adopted reforms which will benefit Duluth and other cities by increasing the funding for LGA by $80 million
and revising the formula used to determine who gets aid and how much. The need” factor will be three-tiered
depending on the population of the city with separate calculations for cities under 2,500 in population, cities between
2,500 and 10,000 in population, and cities over 10,000 in population because different factors explain variations in a
city’s revenue base for different size cities. All three formulas were derived using revenue base (levy plus aid) as a
proxy for city need. The new formula also stabilizes a city’s allocation by capping the maximum annual loss for any
city as well as distributing proportionally larger increases to cities whose current aid amount is furthest from their
unmet need. For Duluth, these changes increased LGA by $2.8 million in 2020 to $30.2 million compared to the $27.4
million received in 2011, 2012 and 2013. In 2014, 2015, 2016, 2017, 2018, and 2019 the LGA revenue was $29.0,
$29.2, $29.3, $29.3, $29.6, and $29.7 million respectively.
In 2019, the City contracted with an actuary to calculate its annual required contribution for other postemployment
benefits in accordance with Governmental Accounting Standards Board (GASB) Statement No. 75. For the year
ended December 31, 2019, the City made contributions of $1.2 million to an irrevocable trust and paid out $10.8
million in retiree claims. As of December 31, 2019, the City’s net other postemployment benefits liability is $84.5
million.
Adapting to significant changes in levels of state aids, combined with inflationary tendencies in employee salaries
and benefits, including funding other postemployment benefits, continues to be a major budget challenge for the City.
In addition, the City will be impacted by the COVID-19 pandemic. The total financial impact to the City is unknown at
this time. City Administration and City Finance staff are working, and will continue to work, on measures to minimize
the impact to the City as much as possible.
REQUESTS FOR INFORMATION
This financial report is meant to provide a general overview of the City’s finances for all those with an interest in the
City’s finances. Questions concerning information provided in the report or requests for additional financial information
should be addressed to the City Auditor’s Office, 411 West First Street, Room 120, Duluth, MN 55802, or contact the
City Auditor via email at jbailey@duluthmn.gov.
21
B a s i c F i n a n c i a l
S t a t e m e n t s
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
DECEMBER 31, 2019
Governmental
Business-type
Component
Activities
Activities
Total
Units
Assets
Cash and cash equivalents 60,374,435$ 17,144,126$ 77,518,561$ 18,848,312$
Investments, at fair value 26,871,570 - 26,871,570 -
Assets held by trustee 7,935,383 - 7,935,383 -
Receivables, net 31,145,422 10,939,467 42,084,889 10,091,023
Due from primary government - - - 814,914
Internal balances (781,857) 781,857 - -
Due from component units 1,465,871 23,701 1,489,572 -
Due from other governments 8,843,291 2,128,759 10,972,050 1,068,845
Inventories 178,064 3,253,470 3,431,534 589,457
Prepaids 50,000 7,062,533 7,112,533 222,773
Restricted assets:
Cash and cash equivalents - 4,837,832 4,837,832 1,260,724
Accounts receivable - - - 50,504
Loans receivable - 1,955,876 1,955,876 -
Grants receivable - - - 3,747,492
Planning and development costs - - - 923,015
Capital assets (Note 7):
Non-depreciable 46,336,893 25,810,816 72,147,709 12,721,284
Depreciable, net 249,273,774 274,296,032 523,569,806 266,275,562
Total Assets 431,692,846 348,234,469 779,927,315 316,613,905
Deferred Outflows of Resources
Deferred pension obligation outflows 26,647,832 1,056,694 27,704,526 785,200
Deferred OPEB outflows 1,489,259 - 1,489,259 28,487
Deferred loss from debt refunding 2,409,716 377,023 2,786,739 -
Total Deferred Outflows of Resources 30,546,807 1,433,717 31,980,524 813,687
Liabilities
Accounts payable and other short-term liabilities 11,110,686 7,243,381 18,354,067 5,606,596
Accrued interest payable 1,642,668 452,859 2,095,527 3,935
Due to component units 814,909 5 814,914 -
Due to primary government - - - 1,488,069
Due to other government 1,308,268 1,053,207 2,361,475 11,107
Unearned revenues 1,552,986 940,735 2,493,721 1,924,069
Noncurrent liabilities (Note 12):
Due within one year 16,863,628 6,919,938 23,783,566 2,145,413
Due in more than one year 246,504,720 52,987,730 299,492,450 18,740,711
Total Liabilities 279,797,865 69,597,855 349,395,720 29,919,900
Deferred Inflows of Resources
Deferred pension obligation inflows 41,692,385 2,433,762 44,126,147 1,513,337
Deferred OPEB inflows 17,083,048 4,584,594 21,667,642 301,450
Total Deferred Inflows of Resources 58,775,433 7,018,356 65,793,789 1,814,787
Net Position
Net investment in capital assets 251,585,123 253,270,775 504,855,898 268,972,194
Restricted for:
General government 5,238,569 - 5,238,569 -
Public safety 869,192 - 869,192 -
Public works - 1,375,042 1,375,042 -
Culture and recreation 3,040,367 - 3,040,367 -
Urban and economic development 6,535,625 - 6,535,625 -
Debt service 21,723,796 716,899 22,440,695 -
Capital outlay 5,295,840 - 5,295,840 13,161,768
Unrestricted (170,622,157) 17,689,259 (152,932,898) 3,558,943
Total Net Position
123,666,355
$
273,051,975
$
396,718,330
$
285,692,905
$
The notes to the financial statements are an integral part of this statement.
Primary Government
22
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2019
Operating
Capital
Charges for
Grants and
Grants and
Functions/Programs
Expenses
Services
Contributions
Contributions
Primary Government:
Governmental activities:
General government 31,839,444$ 5,978,363$ 86,872$ 12,920$
Public safety 42,180,828 2,115,004 3,277,128 482,973
Public works 27,785,208 138,436 1,745,215 7,479,676
Culture and recreation 16,261,444 1,328,289 873,235 4,224,885
Urban and economic development 14,244,055 3,872,703 6,307,286 532,671
Interest 3,909,623 - - -
Total Governmental Activities 136,220,602 13,432,795 12,289,736 12,733,125
Business-type activities:
Water 10,814,241 15,142,128 11,509 11,591
Gas 31,777,159 39,886,073 19,474 100,479
Sewer 16,259,666 19,615,365 - 328,688
Stormwater 3,571,577 5,295,794 29,645 -
Steam 8,350,276 8,091,177 - 5,269,398
Golf 1,771,189 1,482,349 - -
Parking 3,404,851 4,095,285 - 423,701
Priley Drive parking facility 1,249,348 452,308 - -
Street lighting 1,836,048 835,761 - -
Total Business-type Activities 79,034,355 94,896,240 60,628 6,133,857
Total Primary Government
215,254,957
$
108,329,035
$
12,350,364
$
18,866,982
$
Component units:
Duluth Economic Development Authority 5,620,614$ 1,016,309$ 5,648$ -$
Duluth Entertainment and Convention
Center Authority 15,450,014 9,552,003 - 552,800
Duluth Airport Authority 14,887,490 7,145,963 - 13,570,892
Duluth Transit Authority 24,213,284 3,026,839 16,855,133 1,923,503
Spirit Mountain Recreation Area Authority 6,494,143 5,434,040 - 462,342
Total Component Units
66,665,545
$
26,175,154
$
16,860,781
$
16,509,537
$
(continued)
The notes to the financial statements are an integral part of this statement.
Program Revenues
23
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2019
Governmental
Business-type
Component
Functions/Programs
Activities
Activities
Total
Units
Primary Government:
Governmental activities:
General government (25,761,289)$ -$ (25,761,289)$ -$
Public safety (36,305,723) - (36,305,723) -
Public works (18,421,881) - (18,421,881) -
Culture and recreation (9,835,035) - (9,835,035) -
Urban and economic development (3,531,395) - (3,531,395) -
Interest (3,909,623) - (3,909,623) -
Total Governmental Activities (97,764,946) - (97,764,946) -
Business-type activities:
Water - 4,350,987 4,350,987 -
Gas - 8,228,867 8,228,867 -
Sewer - 3,684,387 3,684,387 -
Stormwater - 1,753,862 1,753,862 -
Steam - 5,010,299 5,010,299 -
Golf - (288,840) (288,840) -
Parking - 1,114,135 1,114,135 -
Priley Drive parking facility - (797,040) (797,040) -
Street lighting - (1,000,287) (1,000,287) -
Total Business-type Activities - 22,056,370 22,056,370 -
Total Primary Government
(97,764,946)
22,056,370
(75,708,576)
-
Component units:
Duluth Economic Development Authority - - - (4,598,657)
Duluth Entertainment and Convention
Center Authority - - - (5,345,211)
Duluth Airport Authority - - - 5,829,365
Duluth Transit Authority - - - (2,407,809)
Spirit Mountain Recreation Area Authority - - - (597,761)
Total Component Units
-
-
-
(7,120,073)
General Revenues:
Property taxes 32,995,611 1,301,757 34,297,368 4,400,383
Sales taxes 28,867,348 - 28,867,348 1,869,144
Franchise taxes 3,534,435 - 3,534,435 -
Other taxes 326,091 - 326,091 -
Grants and shared revenues not restricted
to specific programs 31,917,733 48,566 31,966,299 -
Investment income 6,611,326 235,864 6,847,190 361,270
Gain on sale or disposition of capital assets - 26,962 26,962 -
Miscellaneous
1,670,993 45,380 1,716,373 1,354,755
Transfers 4,514,471 (4,514,471) - -
Total General Revenues and Transfers 110,438,008 (2,855,942) 107,582,066 7,985,552
Change in Net Position 12,673,062 19,200,428 31,873,490 865,479
Net Position - Beginning 110,993,293 253,851,547 364,844,840 284,827,426
Net Position - Ending
123,666,355
$
273,051,975
$
396,718,330
$
285,692,905
$
The notes to the financial statements are an integral part of this statement.
Net (Expense) Revenue and
Changes in Net Position
Primary Government
24
CITY OF DULUTH, MINNESOTA
BALANCE SHEET
GOVERNMENTAL FUNDS
DECEMBER 31, 2019
General
Disaster
Recovery
Community
Investment
Trust
General
Obligation
Other
Governmental
Funds
Total
Governmental
Funds
Assets
Cash and cash equivalents
10,848,170$ -$ -$ 14,125,699$ 31,196,263$ 56,170,132$
Investments, at fair value
- - 26,871,570 - - 26,871,570
Receivables, net
Taxes
3,506,074 - - 250,144 3,044,019 6,800,237
Accounts
469,144 - - - 685,357 1,154,501
Assessments
912,811 - - - 2,626,398 3,539,209
Loans
1,822,063 - - 14,385,000 3,986,650 20,193,713
Due from other funds
145,314 - - - 1,856,184 2,001,498
Due from component units
1,200,275 - - - 265,596 1,465,871
Interfund loan receivables
6,389,368 - - - - 6,389,368
Due from other governments
644,457 4,491,453 - - 3,707,381 8,843,291
Total Assets
25,937,676$ 4,491,453$ 26,871,570$ 28,760,843$ 47,367,848$ 133,429,390$
Liabilities
Accounts payable
2,050,413 140,236 - - 857,497 3,048,146
Contracts payable
59,117 331,783 - - 5,983,606 6,374,506
Due to other funds
1,058,583 - - - 1,052,519 2,111,102
Due to component units
627 - - - 814,282 814,909
Interfund loan payable
- 2,651,192 - - 665,074 3,316,266
Due to other governments
224,063 - - - 1,068,644 1,292,707
Accrued salaries payable
1,403,603 - - - 40,761 1,444,364
Unearned revenue
106,393 904,303 - - 433,785 1,444,481
Total Liabilities
4,902,799 4,027,514 - - 10,916,168 19,846,481
Deferred Inflows of Resources
Unavailable revenue
3,345,718 4,072,453 - 14,564,140 8,600,248 30,582,559
Fund Balances
Restricted
216,132 - - 14,196,703 24,945,613 39,358,448
Committed
35,958 - 26,871,570 - 1,621,490 28,529,018
Assigned
2,999,900 - - - 1,942,077 4,941,977
Unassigned
14,437,169 (3,608,514) - - (657,748) 10,170,907
Total Fund Balances
17,689,159 (3,608,514) 26,871,570 14,196,703 27,851,432 83,000,350
Total Liabilities, Deferred Inflows of
Resources, and Fund Balances
25,937,676$ 4,491,453$ 26,871,570$ 28,760,843$ 47,367,848$ 133,429,390$
The notes to the financial statements are an integral part of this statement.
25
CITY OF DULUTH, MINNESOTA
RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET POSITION
DECEMBER 31, 2019
Fund Balance--total governmental funds 83,000,350$
Amounts reported for governmental activities in the statement of net position
are different because:
Capital assets used in governmental activities are not financial resources,
and therefore are not reported in the funds. The cost of the assets is
$547,064,607, and the accumulated depreciation is $251,652,478. 295,412,129
Other long-term assets are not available to pay for current-period expenditures,
and therefore are deferred in the funds. 29,970,143
Deferred outlows of resources and deferred inflows of resources are created as a
result of various differences related to pensions and debt refunding that are not
recognized in the governmental funds.
Deferred pension obligation outflows 26,554,872
Deferred OPEB outflows 1,489,259
Deferred loss from debt refunding 2,409,716
Deferred pension obligation inflows (41,478,281)
Deferred OPEB inflows (17,083,048)
(28,107,482)
Internal service funds are used by management to charge the costs of fleet
services, group health insurance, loss control activities, and vacation benefits
payable to individual funds. The assets and liabilities of the internal service
funds are included in governmental activities in the statement of net position
for $4,589,452 less $4,001,238 attributed to business-type activities. 588,214
Long-term liabilities, including bonds payable, are not due and payable in the
current period, and therefore are not reported in the funds. Long-term
liabilities at year-end consist of:
Bonds and notes payable 122,540,602
Other post employment benefits 91,243,466
Pension liability 41,770,263
Interest accrued on long-term debt 1,642,668
(257,196,999)
Net position of governmental activities
123,666,355
$
The notes to the financial statements are an integral part of this statement.
26
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE
GOVERNMENTAL FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
General
Disaster
Recovery
Community
Investment
Trust
General
Obligation
Other
Governmental
Funds
Total
Governmental
Funds
Revenues
Taxes
Property taxes
19,295,839$ -$ -$ 6,933,636$ 6,736,718$ 32,966,193$
Sales taxes
14,453,054 - - - 14,414,294 28,867,348
Other taxes
3,849,548 - - - 10,977 3,860,525
Licenses and permits
1,987,547 - - - 114,210 2,101,757
Intergovernmental revenues
34,511,555 2,456,446 - 223,993 17,868,046 55,060,040
Charges for services
7,008,232 - - - 1,144,830 8,153,062
Fines and forfeits
544,596 - - - 154,333 698,929
Special assessments
498,962 - - - 1,115,366 1,614,328
Investment income
83,511 - 5,573,211 139,772 569,523 6,366,017
Miscellaneous revenues
1,157,078 - - 1,890,387 2,389,265 5,436,730
Total Revenues
83,389,922 2,456,446 5,573,211 9,187,788 44,517,562 145,124,929
Expenditures
Current
General government
26,719,409 - - 58,878 1,826,825 28,605,112
Public safety
41,660,867 - - - 1,833,808 43,494,675
Public works
13,159,703 - - - 4,949,854 18,109,557
Culture and recreation
4,625,454 3,592,983 - - 5,597,262 13,815,699
Urban and economic development
3,341,361 - - - 11,210,875 14,552,236
Debt service
Principal retirement
- - - 9,305,000 2,055,000 11,360,000
Interest and fiscal fees
- - - 4,506,369 244,938 4,751,307
Bond issuance costs
- - - 93,913 82,459 176,372
Capital outlay
Capital outlay
801,441 - - - 16,576,389 17,377,830
Total Expenditures
90,308,235 3,592,983 - 13,964,160 44,377,410 152,242,788
Excess (Deficiency) of Revenues Over
(Under) Expenditures
(6,918,313) (1,136,537) 5,573,211 (4,776,372) 140,152 (7,117,859)
Other Financing Sources (Uses)
Issuance of bonds
- - - - 4,260,000 4,260,000
Issuance of refunding bonds
- - - 9,755,000 - 9,755,000
Premium on issuance of bonds
- - - 2,214,482 617,982 2,832,464
Payment to refunded bond escrow agent - - - (11,849,546) - (11,849,546)
Transfers in
8,510,707 - - 5,001,164 8,959,524 22,471,395
Transfers out
(789,000) - (570,067) - (16,597,857) (17,956,924)
Total Other Financing Sources (Uses)
7,721,707 - (570,067) 5,121,100 (2,760,351) 9,512,389
Net Change in Fund Balances
803,394 (1,136,537) 5,003,144 344,728 (2,620,199) 2,394,530
Fund Balances - January 1, 2019
16,885,765 (2,471,977) 21,868,426 13,851,975 30,471,631 80,605,820
Fund Balances - December 31, 2019
17,689,159$ (3,608,514)$ 26,871,570$ 14,196,703$ 27,851,432$ 83,000,350$
The notes to the financial statements are an integral part of this statement.
27
CITY OF DULUTH, MINNESOTA
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,
AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS
TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2019
Net change in fund balances - total governmental funds 2,394,530$
Amounts reported for governmental activities in the statement of
activities are different because:
Government funds report capital outlays as expenditures. However, in
the statement of activities, the cost of those assets is allocated over
their estimated useful lives as depreciation expense. In the current
period, these amounts are:
Capital outlay 16,103,111
Depreciation expense (17,134,238)
Excess of depreciation expense over capital outlay (1,031,127)
Internal service funds are used by management to charge the costs of certain
activities to individual funds. The net revenue of $(512,053) from internal
funds less $141,799 attributed to business-type activities is reported with
governmental activities. (653,852)
Bond proceeds provide current financial resources to governmental funds;
however, issuing debt increases long-term liabilities in the statement of
net position. In the current period, proceeds were received from:
Bonds issued, including a bond premium of $2,832,464 (16,847,464)
Repayment of long-term debt is reported as an expenditure in governmental
funds, but the repayment reduces long-term liabilities in the statement of
net position. In the current year, these amounts consist of:
Bond principal retirement 23,265,000
Because some revenues will not be collected for several months after the
City's fiscal year ends, they are not considered "available" revenues and are
deferred in the governmental funds. Unavailable revenues decreased by this
amount this year. (179,054)
Some items reported in the statement of activities do not require the use of
current financial resources and therefore are not reported as expenditures
in governmental funds. These activities consist of:
Net decrease in accrued interest 257,610
Net decrease in interest receivable (57,055)
Decrease in net other post employment benefits payable and related 5,309,556
deferred inflows and deferred inflows
Decrease in pension obligation and related deferred inflows and 921,109
deferred outflows
Decrease in loans receivable (1,411,183)
Amortization of deferred loss on debt refunding (171,104)
Amortization of bond premiums 876,096
Total additional expenditures 5,725,029
Change in net position of governmental activities
The notes to the financial statements are an integral part of this statement.
12,673,062$
28
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN
FUND BALANCE - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS)
GENERAL FUND
FOR THE YEAR ENDED DECEMBER 31, 2019
Actual to
Actual Amounts Modified Budget
Budgeted Amounts (Budgetary Basis) Favorable
Original Final (Note 2) (Unfavorable)
Revenues
Taxes 37,161,800$ 37,161,800$ 37,598,441$ 436,641$
Licenses and permits 1,798,400 1,798,400 1,987,547 189,147
Intergovernmental revenues 33,767,500 34,167,913 34,511,555 343,642
Charges for services 6,959,100 6,959,100 7,008,232 49,132
Fines and forfeits 518,800 518,800 544,596 25,796
Special assessments 433,900 529,146 498,962 (30,184)
Investment income - - 83,511 83,511
Miscellaneous revenues 474,000 985,276 1,157,078 171,802
Total revenues 81,113,500 82,120,435 83,389,922 1,269,487
Expenditures
Current:
General government 27,068,700 28,988,423 28,126,748 861,675
Public safety 40,742,100 41,661,226 41,701,197 (39,971)
Public works 12,893,300 13,212,309 13,169,227 43,082
Culture and recreation 4,723,800 4,648,742 4,625,454 23,288
Urban and economic development 3,660,700 3,668,125 3,435,509 232,616
Total expenditures 89,088,600 92,178,825 91,058,135 1,120,690
Excess (deficiency) of revenues over
expenditures (7,975,100) (10,058,390) (7,668,213) 2,390,177
Other Financing Sources (Uses)
Transfers in 8,032,100 8,499,488 8,510,707 11,219
Transfers out (57,000) (765,000) (789,000) (24,000)
Total other financing sources (uses) 7,975,100 7,734,488 7,721,707 (12,781)
Net change in fund balance -
budgetary basis - (2,323,902) 53,494 2,377,396
Net adjustments to reflect operations in
accordance with generally accepted
accounting principles - - 749,900 749,900
Net change in fund balance -
GAAP basis - (2,323,902) 803,394 3,127,296$
Fund Balance - January 1, 2019 16,885,765 16,885,765 16,885,765
Fund Balance - December 31, 2019 16,885,765$ 14,561,863$ 17,689,159$
The notes to the financial statements are an integral part of this statement.
29
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER, 31, 2019
Priley Drive
Parking Facility Water Gas Sewer
Assets
Current assets
Cash and cash equivalents
481,638$ 3,645,869$ 4,015,211$ 3,313,602$
Restricted cash and cash equivalents
Customer deposits
- 90,380 2,767,131 -
Construction
- 1,261,807 - 716,899
Loans
- - 1,615 -
Restricted assets held by trustee
- - - -
Receivables, net
Accounts
31,084 1,473,554 5,403,978 1,940,630
Restricted loans
- - 401,780 -
Assessments
- 21,757 556 17,733
Due from other funds
- 8,690 13,975 167
Due from component units
- - - -
Interfund loan receivable
- - 2,510,937 -
Due from other governments
- 11,643 19,519 342,551
Inventories
- 1,269,610 1,231,122 89,017
Prepaids
- 1,541,549 563,768 2,927,649
Total current assets
512,722 9,324,859 16,929,592 9,348,248
Noncurrent assets
Assessments receivable
- 84,829 6,272 94,760
Restricted loans receivable
- - 1,527,193 -
Capital assets, net
18,914,086 64,815,185 58,122,115 95,976,347
Total noncurrent assets
18,914,086 64,900,014 59,655,580 96,071,107
Total Assets
19,426,808 74,224,873 76,585,172 105,419,355
Deferred Outflows of Resources
Deferred loss from debt refunding
- - - 17,673
Deferred pension obligation outflows
- 295,630 406,969 174,478
Total Deferred Outflows of Resources
- 295,630 406,969 192,151
Liabilities
Current liabilities
Accounts payable
646 71,148 2,555,788 37,667
Contracts payable
- 42,262 160,435 78,663
Claims payable
- - - -
Notes payable
- 700,000 - 1,423,000
Leases payable
- 255,251 233,980 219,800
Due to other funds
- 43,253 55,024 33,003
Interfund loan payable
- - - -
Due to other governments
- 143,902 90,967 791,488
Due to component units
- 5 - -
Accrued interest payable
120,940 97,154 17,622 88,546
Accrued salaries payable
- 115,518 166,442 68,388
Compensated absences
- 237,620 365,245 156,744
Unearned revenue
- 60,557 752,208 55,142
Deposits
- 10,000 2,788,006 -
Revenue bonds payable
219,731 284,000 - 1,035,999
Total current liabilities
341,317 2,060,670 7,185,717 3,988,440
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
30
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER, 31, 2019
Priley Drive
Parking Facility Water Gas Sewer
Business-type Activities - Enterprise Funds
Noncurrent liabilities
Notes payable
- 4,996,000 - 6,085,000
Loans payable
- - - -
Claims payable
- - - -
Interfund loan payable
- - - -
Leases payable
- 972,773 891,708 837,665
Pension liability
- 2,941,654 4,049,519 1,736,140
Revenue bonds payable
12,010,138 4,152,067 - 1,797,348
Total noncurrent liabilities
12,010,138 13,062,494 4,941,227 10,456,153
Total Liabilities
12,351,455 15,123,164 12,126,944 14,444,593
Deferred Inflows of Resources
Deferred pension obligation inflows
- 680,891 937,323 401,856
Deferred OPEB inflows
- 1,454,957 2,075,682 704,030
Total Deferred Inflows of Resources
- 2,135,848 3,013,005 1,105,886
Net Position
Net investment in capital assets
6,684,217 54,716,901 56,996,427 84,595,208
Restricted for health insurance trust
- - - -
Restricted for special accounts
- - - 716,899
Restricted for loans
- - 1,375,042 -
Unrestricted
391,136 2,544,590 3,480,723 4,748,920
Total Net Position
7,075,353$ 57,261,491$ 61,852,192$ 90,061,027$
(continued)
The notes to the financial statements are an integral part of this statement.
31
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER, 31, 2019
Steam
Other
Enterprise
Funds
Total Enterprise
Funds
Governmental
Activities -
Internal Service
Funds
Assets
Current assets
Cash and cash equivalents
-$ 5,687,806$ 17,144,126$ 4,204,303$
Restricted cash and cash equivalents
Customer deposits
- - 2,857,511 -
Construction
- - 1,978,706 -
Loans
- - 1,615 -
Restricted assets held by trustee
- - - 7,935,383
Receivables, net
Accounts
1,157,938 678,867 10,686,051 70,178
Restricted loans
- - 401,780 -
Assessments
- 26,931 66,977 -
Due from other funds
22,109 28,978 73,919 731,767
Due from component units
- 23,701 23,701 -
Interfund loan receivable
- - 2,510,937 -
Due from other governments
1,727,176 27,870 2,128,759 -
Inventories
529,804 133,917 3,253,470 178,064
Prepaids
20,571 2,008,996 7,062,533 50,000
Total current assets
3,457,598 8,617,066 48,190,085 13,169,695
Noncurrent assets
Assessments receivable
- 578 186,439 -
Restricted loans receivable
26,903 - 1,554,096 -
Capital assets, net
19,509,322 42,769,793 300,106,848 198,538
Total noncurrent assets
19,536,225 42,770,371 301,847,383 198,538
Total Assets
22,993,823 51,387,437 350,037,468 13,368,233
Deferred Outflows of Resources
Deferred loss from debt refunding
44,330 315,020 377,023 -
Deferred pension obligation outflows
- 179,617 1,056,694 92,960
Total Deferred Outflows of Resources
44,330 494,637 1,433,717 92,960
Liabilities
Current liabilities
Accounts payable
464,892 82,460 3,212,601 207,528
Contracts payable
311,875 153,892 747,127 215
Claims payable
- - - 2,895,257
Notes payable
- - 2,123,000 -
Leases payable
- - 709,031 -
Due to other funds
508,590 43,950 683,820 12,262
Interfund loan payable
2,510,937 1,059,480 3,570,417 463,622
Due to other governments
24,460 2,390 1,053,207 15,561
Due to component units
- - 5 -
Accrued interest payable
64,341 64,256 452,859 -
Accrued salaries payable
- 78,495 428,843 35,927
Compensated absences
- 158,568 918,177 3,163,371
Unearned revenue
- 72,828 940,735 108,505
Deposits
- 56,804 2,854,810 -
Revenue bonds payable
665,000 965,000 3,169,730 -
Total current liabilities
4,550,095 2,738,123 20,864,362 6,902,248
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
32
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER, 31, 2019
Steam
Other
Enterprise
Funds
Total Enterprise
Funds
Governmental
Activities -
Internal Service
Funds
Business-type Activities - Enterprise Funds
Noncurrent liabilities
Notes payable
- - 11,081,000 -
Loans payable
- 12,481 12,481 -
Claims payable
- - - 830,395
Interfund loan payable
- 1,550,000 1,550,000 -
Leases payable
- - 2,702,146 -
Pension liability
- 1,787,275 10,514,588 924,994
Revenue bonds payable
5,066,386 5,651,576 28,677,515 -
Total noncurrent liabilities
5,066,386 9,001,332 54,537,730 1,755,389
Total Liabilities
9,616,481 11,739,455 75,402,092 8,657,637
Deferred Inflows of Resources
Deferred pension obligation inflows
- 413,692 2,433,762 214,104
Deferred OPEB inflows
- 349,925 4,584,594 -
Total Deferred Inflows of Resources
- 763,617 7,018,356 214,104
Net Position
Net investment in capital assets
13,822,266 36,455,756 253,270,775 198,538
Restricted for health insurance trust
- - - 5,238,569
Restricted for special accounts
- - 716,899 -
Restricted for loans
- - 1,375,042 -
Unrestricted
(400,594) 2,923,246 13,688,021 (847,655)
Total Net Position
13,421,672$ 39,379,002$ 269,050,737$ 4,589,452$
Amounts reported for business-type activities in the statement of net position
are different because of the consolidation of internal service fund activities
related to enterprise funds. 4,001,238
Net position of business-type activities 273,051,975$
The notes to the financial statements are an integral part of this statement.
33
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
Priley Drive
Parking Facility Water Gas Sewer
Operating Revenues
Sales
-$ -$ 38,133,852$ -$
Charges for services
452,308 14,971,423 1,017,883 19,368,220
Fines and forfeits
- - - -
Miscellaneous revenues
- 171,297 734,382 247,189
Total Operating Revenues
452,308 15,142,720 39,886,117 19,615,409
Operating Expenses
Cost of sales and services
- - 20,067,111 -
Personal services
- 5,126,665 6,816,177 2,944,597
Supplies
- 1,431,841 1,206,487 296,247
Utilities
23,042 1,041,191 33,503 129,911
Other services and charges
212,288 1,329,277 2,132,155 10,600,536
Depreciation
520,571 1,752,474 1,515,603 2,036,253
Medical and insurance
- - - -
Total Operating Expenses
755,901 10,681,448 31,771,036 16,007,544
Operating Income (Loss)
(303,593) 4,461,272 8,115,081 3,607,865
Nonoperating Revenues (Expenses)
Property taxes
- - - -
Investment income
4,489 47,466 81,859 35,176
Intergovernmental revenue
- 28,427 42,839 8,283
Gain (loss) on sale or disposition of capital assets - 8,531 13,808 -
Interest and fiscal fees
(493,447) (245,638) (46,251) (249,757)
Total Nonoperating Revenues (Expenses)
(488,958) (161,214) 92,255 (206,298)
Income (Loss) Before Contributions and Transfers
(792,551) 4,300,058 8,207,336 3,401,567
Capital contributions
- 11,591 100,479 328,688
Transfers in
550,711 144,300 14,900 7,450
Transfers out
- (138,262) (2,911,118) (107,301)
Change in Net Position
(241,840) 4,317,687 5,411,597 3,630,404
Total Net Position - January 1, 2019
7,317,193 52,943,804 56,440,595 86,430,623
Total Net Position - December 31, 2019
7,075,353$ 57,261,491$ 61,852,192$ 90,061,027$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
34
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
Steam
Other
Enterprise
Funds
Total Enterprise
Funds
Governmental
Activities -
Internal Service
Funds
Operating Revenues
Sales
-$ 446,891$ 38,580,743$ 2,465,355$
Charges for services
7,619,217 10,047,377 53,476,428 25,348,004
Fines and forfeits
- 947,382 947,382 -
Miscellaneous revenues
471,960 312,239 1,937,067 1,119,229
Total Operating Revenues
8,091,177 11,753,889 94,941,620 28,932,588
Operating Expenses
Cost of sales and services
- 196,811 20,263,922 2,148,694
Personal services
- 3,566,286 18,453,725 5,874,849
Supplies
3,174,722 515,305 6,624,602 44,552
Utilities
363,418 695,778 2,286,843 33,803
Other services and charges
3,184,483 4,059,484 21,518,223 3,442,184
Depreciation
1,318,551 1,389,581 8,533,033 64,038
Medical and insurance
- - - 18,087,665
Total Operating Expenses
8,041,174 10,423,245 77,680,348 29,695,785
Operating Income (Loss)
50,003 1,330,644 17,261,272 (763,197)
Nonoperating Revenues (Expenses)
Property taxes
- 1,301,757 1,301,757 -
Investment income
- 66,874 235,864 245,309
Intergovernmental revenue
- 29,645 109,194 5,835
Gain (loss) on sale or disposition of capital assets (67,895) 4,623 (40,933) -
Interest and fiscal fees
(191,220) (201,598) (1,427,911) -
Total Nonoperating Revenues (Expenses)
(259,115) 1,201,301 177,971 251,144
Income (Loss) Before Contributions and Transfers
(209,112) 2,531,945 17,439,243 (512,053)
Capital contributions
5,269,398 423,701 6,133,857 -
Transfers in
- 29,600 746,961 -
Transfers out
(152,960) (1,951,791) (5,261,432) -
Change in Net Position
4,907,326 1,033,455 19,058,629 (512,053)
Total Net Position - January 1, 2019
8,514,346 38,345,547 249,992,108 5,101,505
Total Net Position - December 31, 2019
13,421,672$ 39,379,002$ 269,050,737$ 4,589,452$
Amounts reported in business-type activities in the statement
of activities are different because:
Change in net position 19,058,629$
Adjustment to reflect the consolidation of internal service
fund activities related to enterprise funds 141,799
Change in net position of business-type activities 19,200,428$
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
35
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
Priley Drive
Parking
Facility Water Gas Sewer
Cash Flows from Operating Activities
Cash received from customers 448,606$ 14,986,471$ 40,186,963$ 19,465,359$
Cash paid to suppliers (239,057) (3,833,212) (23,557,371) (10,983,355)
Cash paid to employees - (6,258,278) (8,486,304) (3,420,949)
Other operating revenues - 57,558 156,606 168,696
Net cash provided (used) by operating activities 209,549 4,952,539 8,299,894 5,229,751
Cash Flows from Noncapital Financing Activities
Transfers from other funds
550,711
144,300
14,900
7,450
Transfers to other funds - (138,262) (2,911,118) (107,301)
Property taxes - - - -
Operating grants - 16,918 23,363 (306,545)
Interfund financing - - 86,561 -
Net cash provided (used) by noncapital financing activities 550,711 22,956 (2,786,294) (406,396)
Cash Flows from Capital and Related
Financing Activities
Capital grants and contributions - 24,031 100,709 340,933
Principal paid on bonds, notes and capitalized leases (217,606) (1,210,846) (730,358) (2,616,701)
Interest paid on bonds, notes and capitalized leases (495,599) (234,830) (59,665) (266,722)
Sale of capital assets - 4,419 7,707 -
Acquisition or construction of capital assets - (3,234,237) (3,125,410) (1,536,310)
Net cash provided (used) by capital
and related financing activities (713,205) (4,651,463) (3,807,017) (4,078,800)
Cash Flows from Investing Activities
Investment earnings 4,489 47,466 81,859 35,176
Net increase (decrease) in cash and cash equivalents 51,544 371,498 1,788,442 779,731
Cash and cash equivalents - January 1, 2019 430,094 4,626,558 4,995,515 3,250,770
Cash and cash equivalents - December 31, 2019 481,638$ 4,998,056$ 6,783,957$ 4,030,501$
Reconciliation of operating income to net cash
provided (used) by operating activities:
Net operating income (loss) (303,593)$ 4,461,272$ 8,115,081$ 3,607,865$
Adjustments to reconcile net operating income(loss) to net
cash provided (used) by operating activities:
Depreciation 520,571 1,752,474 1,515,603 2,036,253
Change in assets and liabilities:
Decrease (increase) in receivables (3,702) (87,213) 50,243 52,278
Decrease (increase) in inventories - 169,026 55,960 16,975
Decrease (increase) in prepaids - (1,541,549) (74,440) (1,648,197)
Decrease (increase) in deferred pension obligation outflows
- 339,958 467,572 204,240
Decrease (increase) in OPEB outflows - 671,232 860,316 457,219
Increase (decrease) in payables (3,727) (198,409) 38,482 19,930
Increase (decrease) in OPEB liability - (1,744,674) (4,379,221) -
Increase (decrease) in unearned revenues - 15,146 39,618 2,076
Increase (decrease) in deferred pension obligation inflows
- (279,286) (383,837) (170,271)
Increase (decrease) in pension liability - (60,395) (81,165) (52,647)
Increase (decrease) in OPEB inflows - 1,454,957 2,075,682 704,030
Total adjustments 513,142 491,267 184,813 1,621,886
Net cash provided (used) by operating activities 209,549$ 4,952,539$ 8,299,894$ 5,229,751$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
36
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
Governmental
Activities -
Other Total Internal
Enterprise Enterprise Service
Steam Funds Funds Funds
Cash Flows from Operating Activities
Cash received from customers 8,355,430$ 11,605,095$ 95,047,924$ 28,669,869$
Cash paid to suppliers (7,287,489) (5,444,452) (51,344,936) (22,839,572)
Cash paid to employees - (3,600,853) (21,766,384) (5,769,451)
Other operating revenues 4,155 283,184 670,199 1,755
Net cash provided (used) by operating activities 1,072,096 2,842,974 22,606,803 62,601
Cash Flows from Noncapital Financing Activities
Transfers from other funds
-
5,600
722,961
-
Transfers to other funds (152,960) (1,951,791) (5,261,432) -
Property taxes - 1,288,928 1,288,928 -
Operating grants - 29,645 (236,619) 5,835
Interfund financing (86,561) 246,367 246,367 (31,066)
Net cash provided (used) by noncapital financing activities (239,521) (381,251) (3,239,795) (25,231)
Cash Flows from Capital and Related
Financing Activities
Capital grants and contributions 5,495,954 400,000 6,361,627 -
Principal paid on bonds, notes and capitalized leases (655,000) (990,004) (6,420,515) -
Interest paid on bonds, notes and capitalized leases (161,963) (165,505) (1,384,284) -
Sale of capital assets - - 12,126 -
Acquisition or construction of capital assets (5,511,566) (3,153,761) (16,561,284) -
Net cash provided (used) by capital
and related financing activities (832,575) (3,909,270) (17,992,330) -
Cash Flows from Investing Activities
Investment earnings - 66,874 235,864 245,309
Net increase (decrease) in cash and cash equivalents - (1,380,673) 1,610,542 282,679
Cash and cash equivalents - January 1, 2019 - 7,068,479 20,371,416 11,857,007
Cash and cash equivalents - December 31, 2019 -$ 5,687,806$ 21,981,958$ 12,139,686$
Reconciliation of operating income to net cash
provided (used) by operating activities:
Net operating income (loss) 50,003$ 1,330,644$ 17,261,272$ (763,197)$
Adjustments to reconcile net operating income(loss) to net
cash provided (used) by operating activities:
Depreciation 1,318,551 1,389,581 8,533,033 64,038
Change in assets and liabilities:
Decrease (increase) in receivables 272,526 132,704 416,836 (338,039)
Decrease (increase) in inventories (91,948) 2,745 152,758 (2,781)
Decrease (increase) in prepaids 11,754 (764,577) (4,017,009) -
Decrease (increase) in deferred pension obligation outflows
- 187,043 1,198,813 206,366
Decrease (increase) in OPEB outflows - 256,905 2,245,672 -
Increase (decrease) in payables (488,790) 24,759 (607,755) 946,686
Increase (decrease) in OPEB liability - - (6,123,895) -
Increase (decrease) in unearned revenues - 18,024 74,864 -
Increase (decrease) in deferred pension obligation inflows
- (140,219) (973,613) (74,168)
Increase (decrease) in pension liability - 55,440 (138,767) 23,696
Increase (decrease) in OPEB inflows - 349,925 4,584,594 -
Total adjustments 1,022,093 1,512,330 5,345,531 825,798
Net cash provided (used) by operating activities 1,072,096$ 2,842,974$ 22,606,803$ 62,601$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
37
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2019
Noncash Investing, Capital and Financing Activities
Water
Capital contributions are reported net of timing differences totaling $12,440 due to receivables.
Gas
Capital contributions are reported net of timing differences totaling $230 due to receivables.
Sewer
Capital contributions are reported net of timing differences totaling $12,245 due to receivables.
Steam
Capital contributions are reported net of timing differences totaling $226,556 due to receivables.
The notes to the financial statements are an integral part of this statement.
38
CITY OF DULUTH, MINNESOTA
STATEMENT OF FIDUCIARY NET POSITION
DECEMBER 31, 2019
Other
Postemployment
Benefits Agency
Trust Fund Fund
Assets
Cash and cash equivalents 49,068$ 2,679,869$
Receivables:
Loans - 398,904
Accounts receivable 353,046 -
Investments, at fair value:
Fixed income pool 18,372,059 -
Equity pool 52,736,493 -
Total Assets 71,510,666 3,078,773$
Liabilities
Accounts payable -$ 6,939$
Due to agency - 3,071,834
Total Liabilities - 3,078,773$
Net Position Restricted for postemployment benefits
other than pensions
71,510,666$
The notes to the financial statements are an integral part of this statement.
39
CITY OF DULUTH, MINNESOTA
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
OTHER POSTEMPLOYMENT BENEFITS TRUST FUND
FOR THE YEAR ENDED DECEMBER 31, 2019
Additions
Employer Contributions 11,642,994$
Investment earnings:
Interest and dividends 1,500,343
Net increase in fair value of investments 12,736,135
Less investment expenses (4,173)
Net investment earnings 14,232,305
Total Additions 25,875,299
Deductions
Benefits 10,769,326
Net increase in net position 15,105,973
Net Position - January 1, 2019 56,404,693
Net Position - December 31, 2019 71,510,666$
The notes to the financial statements are an integral part of this statement.
Net Position restricted for postemployment benefits other
than pensions
40
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
COMPONENT UNITS
DECEMBER 31, 2019
Duluth Spirit
Duluth
Entertainment
Mountain
Economic
and Convention
Duluth Duluth Recreation
Development Center Airport Transit Area
Authority Authority Authority Authority Authority Totals
Assets
Cash and cash equivalents 7,045,174$ 779,530$ 2,591,259$ 7,971,523$ 460,826$ 18,848,312$
Receivables, net:
Taxes 120,187 - - - - 120,187
Accounts 33,012 1,195,195 578,174 137,945 173,272 2,117,598
Loans 7,630,697 - - - - 7,630,697
Grants - - 222,541 - - 222,541
Due from primary government - 814,879 - 35 - 814,914
Due from other governments - - - 1,068,845 - 1,068,845
Inventories - 202,405 26,820 269,040 91,192 589,457
Prepaids - 45,698 62,848 69,992 44,235 222,773
Restricted assets:
Cash and cash equivalents - 1,116,724 144,000 - - 1,260,724
Accounts receivable - 1,195 49,309 - - 50,504
Grants receivable - - 3,747,492 - - 3,747,492
Planning and development costs - - 913,574 - 9,441 923,015
Capital assets, net:
Non-depreciable 4,060,403 1,622,243 4,212,955 222,367 2,603,316 12,721,284
Depreciable 7,696,592 79,183,397 120,179,894 43,760,667 15,455,012 266,275,562
Total Assets 26,586,065 84,961,266 132,728,866 53,500,414 18,837,294 316,613,905
Deferred Outflows of Resources
Deferred pension obligation outflows - 312,013 106,609 - 366,578 785,200
Deferred OPEB outflows - - 28,487 - - 28,487
Total Deferred Outflow of Resources - 312,013 135,096 - 366,578 813,687
Liabilities
Accounts payable and other
short-term liabilities 245,765 536,988 240,135 1,489,668 684,387 3,196,943
Contracts payable 170,664 - 1,129,631 - - 1,300,295
Accrued interest payable - - - - 3,935 3,935
Due to primary government 281,462 4,077 92 - 1,202,438 1,488,069
Due to other government - - - - 11,107 11,107
Unearned revenue - 850,377 104,650 118,635 850,407 1,924,069
Deposits - 1,109,358 - - - 1,109,358
Non-current liabilities:
Due within one year - 163,062 1,080,706 569,138 332,507 2,145,413
Due in more than one year - 4,845,658 11,660,105 - 2,234,948 18,740,711
Total Liabilities 697,891 7,509,520 14,215,319 2,177,441 5,319,729 29,919,900
Deferred Inflows of Resources
Deferred pension obligation inflows - 747,425 247,511 - 518,401 1,513,337
Deferred OPEB inflows - 107,048 194,402 - - 301,450
Total Deferred Inflow of Resources - 854,473 441,913 - 518,401 1,814,787
Net Position
Net investment in capital assets 11,564,495 80,805,640 115,968,959 43,983,034 16,650,066 268,972,194
Restricted for:
Capital projects 6,576,003 - - 6,585,765 - 13,161,768
Unrestricted 7,747,676 (3,896,354) 2,237,771 754,174 (3,284,324) 3,558,943
Total Net Position 25,888,174$ 76,909,286$ 118,206,730$ 51,322,973$ 13,365,742$ 285,692,905$
The notes to the financial statements are an integral part of this statement.
41
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
COMPONENT UNITS
FOR THE YEAR ENDED DECEMBER 31, 2019
Operating Capital
Charges for Grants and Grants and
Functions/Programs Expenses Services Contributions Contributions
Duluth Economic Development Authority
Governmental activities:
Economic development 5,620,614$ 1,016,309$ 5,648$ -$
Duluth Entertainment and Convention
Center Authority
Business-type activities:
Entertainment and convention facility 15,450,014 9,552,003 - 552,800
Duluth Airport Authority
Business-type activities:
Airport facility 14,887,490 7,145,963 - 13,570,892
Duluth Transit Authority
Business-type activities:
Public transportation 24,213,284 3,026,839 16,855,133 1,923,503
Spirit Mountain Recreation Area Authority
Business-type activities:
Ski hill operations 6,494,143 5,434,040 - 462,342
Total Component Units 66,665,545$ 26,175,154$ 16,860,781$ 16,509,537$
(continued)
The notes to the financial statements are an integral part of this statement.
Program Revenues
42
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
COMPONENT UNITS
FOR THE YEAR ENDED DECEMBER 31, 2019
Duluth Spirit
Duluth Entertainment Mountain
Economic and Convention Duluth Duluth Recreation
Development Center Airport Transit Area
Functions/Programs Authority Authority Authority Authority Authority Totals
Duluth Economic Development Authority
Governmental activities:
Economic development (4,598,657)$ -$ -$ -$ -$ (4,598,657)$
Duluth Entertainment and Convention
Center Authority
Business-type activities:
Entertainment and convention facility - (5,345,211) - - - (5,345,211)
Duluth Airport Authority
Business-type activities:
Airport facility - - 5,829,365 - - 5,829,365
Duluth Transit Authority
Business-type activities:
Public transportation - - - (2,407,809) - (2,407,809)
Spirit Mountain Recreation Area Authority
Business-type activities:
Ski hill operations - - - - (597,761) (597,761)
Total Component Units (7,120,073)
General Revenues:
Property taxes 2,903,174 - - 1,497,209 - 4,400,383
Sales taxes - 1,869,144 - - - 1,869,144
Investment income 200,019 28,862 31,921 100,468 - 361,270
Miscellaneous 496,351 535,989 - - 322,415 1,354,755
Total General Revenues and Transfers 3,599,544 2,433,995 31,921 1,597,677 322,415 7,985,552
Change in Net Position (999,113) (2,911,216) 5,861,286 (810,132) (275,346) 865,479
Net Position - Beginning, 26,887,287 79,820,502 112,345,444 52,133,105 13,641,088 284,827,426
Net Position - Ending 25,888,174$ 76,909,286$ 118,206,730$ 51,322,973$ 13,365,742$ 285,692,905$
The notes to the financial statements are an integral part of this statement.
Net (Expense) Revenue and Changes in Net Position
43
N o t e s t o t h e
F i n a n c i a l S t a t e m e n t s
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
Note Page
1 Summary of Significant Accounting Policies
46
Reporting Entity
46
Discretely Presented Component Units
46
Government-Wide and Fund Financial Statements
47
Measurement Focus, Basis of Accounting, and
Financial Statement Presentation
47
Cash and Cash Equivalents
49
Assets Held by Trustee
49
Receivables and Payables
49
Deferred Outflows/Inflows of Resources
50
Inventories and Prepaid Items
50
Restricted Assets
50
Capital Assets
51
Compensated Absences
51
Long-Term Obligations
51
Fund Equity
52
Reclassifications
52
Use of Estimates
52
Pensions
52
2 Stewardship, Compliance, and Accountability
53
Budgetary Information
53
Federal Audit Requirements
53
Deficit Fund Equity
53
3 Deposits and Investments
54
Deposits
54
Investments
54
4 Property Taxes
58
5 Receivables
58
6 Deferred Inflows of Resources
58
7 Capital Assets
59
Primary Government
59
Component Units
60
8 Purchase and Construction Commitments
61
Disaster Damage Repair Commitments
61
9 Risk Management
61
10 Lease Obligations
62
Operating Leases
62
Noncancelable Operating Leases
62
Capital Leases
63
11 Short-Term Debt
63
12 Long-Term Debt
64
Changes in Long-Term Liabilities
64
Debt Requirements and Sources of Repayments
65
Debt Limit
67
Refunding Bond Issues
69
Bonds/Certificates and Notes Payable – By Issue
71
GUIDE TO NOTES
44
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
Note Page
13 Fund Equity
74
14 Interfund Assets/Liabilities/Transfers
75
Due To/From Other Funds
75
Due To/From Primary Government/Component Units
76
Interfund Loan Receivables/Payables
76
Interfund Transfers
77
15 Pension Plans
78
Plan Description
78
Benefits Provided
78
Contributions
79
Pension Costs
79
Actuarial Assumptions
81
Discount Rate
82
Changes in Actuarial Assumptions
82
Pension Liability Sensitivity
82
Pension Plan Fiduciary Net Position
83
Defined Contribution Plan
83
Component Units' Pension Information
83
16 Other Postemployment Benefits
84
Plan Description
84
Funding Policy
84
Investments
84
Net OPEB Liability of the City
85
Changes in the Net OPEB Liability
85
Actuarial Methods and Assumptions
85
OPEB Expense and Deferred Outflows and Deferred Inflows
of Resources Related to OPEB
87
Trust Fund
87
Defined Contribution OPEB Plan
87
17 Segment Information
88
Condensed Statement of Net Position
88
Condensed Statement of Revenues, Expenses, and
Changes in Net Position
88
Condensed Statement of Cash Flows
89
18 Summary Disclosure of Significant Contingencies
89
Lake Superior Center
89
Tax Increment Districts
89
Federally Assisted Programs – Compliance Audits
89
Related Organization
89
Minneapolis-Duluth/Superior Passenger Rail Alliance
90
Tax Increment Assistance
90
Conduit Debt Obligations
91
19 Tax Abatement
91
20 Subsequent Events
92
GUIDE TO NOTES (continued)
45
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
DISCRETELY PRESENTED COMPONENT UNITS
Duluth Economic Development Authority
Duluth Transit Authority
411 West First Street Room 402
2402 West Michigan Street
Duluth, MN 55802
Duluth, MN 55806
Duluth Entertainment and Convention Center Authority
Spirit Mountain Recreation Area Authority
350 South Fifth Avenue West
9500 Spirit Mountain Place
Duluth, MN 55802
Duluth, MN 55810
Duluth Airport Authority
Duluth International Airport
4701 Grinden Drive
Duluth, MN 55811
The City of Duluth was first incorporated in 1870. The City has operated under the Mayor-Council form of
government since 1956, with five council members elected from geographical districts and four members
elected at-large. The term of office of the Mayor and Council members is four years.
The accounting policies of the City and its component units conform to generally accepted accounting principles.
Accounting policies of the component units are disclosed with those of the City. Any differences or additional
policies are identified by each component unit.
For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions,
and authorities, and has considered all potential component units for which the City is financially accountable,
and other organizations for which the nature and significance of their relationship with the City are such that
exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental
Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial
accountability. These criteria include appointing a voting majority of an organization's governing body and (1) the
ability of the City to impose its will on that organization, or (2) the potential for the organization to provide specific
financial benefits to, or impose specific financial burdens on the City.
As required by generally accepted accounting principles, the financial statements in this report present the City,
the primary government, and its five component units: the Duluth Economic Development Authority (DEDA), the
Duluth Entertainment and Convention Center Authority (DECC), the Duluth Airport Authority, the Duluth Transit
Authority, and the Spirit Mountain Recreation Area Authority. The component units are included as part of the
City's reporting entity because of the significance of their operational or financial relationships with the City. Each
component unit has a December 31 year-end, except for the Spirit Mountain Recreation Area Authority, which
has an April 30 year-end.
The governing board of each component unit is appointed by the Mayor and approved by the City Council,
except for the DECC, which has seven City appointees and four directors appointed by the Governor of
Minnesota. Three of the seven board members of DEDA must be City Councilors.
The Council approves the budget of each component unit. The Council also approves the issuance and funding
of debt for each component unit. The Council currently provides an annual subsidy to the DECC and the Spirit
Mountain Recreation Area Authority. For the Duluth Transit Authority, the Council approves rate changes and
approves an annual tax levy to finance operating and capital needs. The Council must approve any expenditure
greater than $100,000 for DEDA.
Combining statements for the City's component units are presented in the basic financial statements section of
this report. Financial statements for DEDA are included as schedules in the supplementary information section
of this report. Complete financial statements for each of the other component units can be obtained from their
respective offices at the following addresses:
46
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
The City reports the following major governmental funds:
General Fund
The City's primary operating fund. It accounts for all financial transactions not
accounted for in another fund.
The government-wide financial statements (i.e., the statement of net position and the statement of activities)
report information on all of the nonfiduciary activities of the primary government and its component units. For the
most part, the effect of interfund activity has been removed from these statements. Exceptions include
payments-
in-lieu of taxes and payments for utilities between the General Fund and various enterprise funds. Governmental
activities, which are supported mostly by taxes and intergovernmental revenues, are reported separately from
business-type activities, which rely to a significant extent on user fees and charges. The financial data of the
City's component units is discretely presented in a separate column in the combined financial statements to
emphasize that they are legally separate from the City.
The government-wide financial statements are reported using the economic resources measurement focus and
the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. The agency
fund type has no measurement focus. Revenues are recorded when earned, and expenses are recorded when a
liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in
the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility
requirements imposed by the provider have been met.
Property taxes, sales and excise taxes, franchise taxes, special assessments, licenses, charges for services,
and interest associated with the current fiscal period are all considered to be susceptible to accrual and have
been recognized as revenues of the current fiscal period. All other revenue items are considered to be
measurable and available only when cash is received by the government.
MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION
Governmental fund financial statements are reported using the current financial resources measurement focus
and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable
and available. Revenues are considered to be available when they are collectible within the current period or
soon enough thereafter to pay liabilities of the current period. The City considers revenues to be available if they
are collected within 45 days of the end of the current fiscal year. Expenditures generally are recorded when a
liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when
payment is due.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment
are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or
segment. Program revenues include 1) charges to those who purchase, use, or directly benefit from goods,
services, or privileges provided by a given function or segment, and 2) grants and contributions that are
restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other
items not properly included among program revenues are reported as general revenues.
Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even
though the latter are excluded from the government-wide financial statements. Major individual governmental
funds and major individual enterprise funds are reported as separate columns in the fund financial statements.
47
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The City reports the following major proprietary funds:
Additionally, the City reports the following fund types:
Agency Fund
Sewer Enterprise Fund
This fund accounts for the operation and maintenance of the sanitary sewer
system.
Disaster Recovery
Special Revenue Fund
This fund was established to account for grants and aids associated with the 500-
year flood event in June 2012, and continues to be used for subsequent
disasters.
Community Investment
Trust Fund
This fund accounts for the City’s share of revenues that were received from the
operation of the Fond du Luth Casino, in accordance with an agreement with the
Fond du Lac Band of Lake Superior Chippewa. Monies are to be used to finance
future capital improvements of the City, with investment earnings of the fund to be
transferred annually to the General Fund.
Gas Enterprise Fund
This fund accounts for the distribution of natural gas, as well as inspection,
maintenance and servicing of customer gas utilization equipment.
This fund accounts for the collection, treatment, and distribution of water.
Water Enterprise Fund
Priley Drive Parking Facility
Enterprise Fund
This fund accounts for the construction, operation, and maintenance of the
parking ramp located at 410 West First Street.
General Obligation Debt
Service Fund
This fund accounts for accumulation of resources for, and payment of, general
obligation bonds, notes and certificates.
Steam Enterprise Fund
This fund accounts for assets held by the City as an agent for the Duluth 1200
Loan Fund.
This fund accounts for the generation and distribution of steam in the downtown
area.
The City's financial statements are prepared in accordance with generally accepted accounting principles
(GAAP) as of and for the year ended December 31, 2019. GASB is responsible for establishing GAAP for state
and local governments through its pronouncements (statements and interpretations). The more significant
accounting policies established in GAAP and used by the City are discussed below.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues
and expenses generally result from providing services and producing and delivering goods in connection with a
proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise funds and
internal service funds are charges to customers and participants for sales and services. Operating expenses for
enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition are reported as
nonoperating revenues and expenses.
These funds account for fleet services, insurance coverage for property, casualty,
liability, workers' compensation, medical and dental claims, and compensated
absences, provided to other departments, employees, authorities of the City, or to
other governmental units, on a cost reimbursement basis.
Internal Service Funds
Trust Fund
This fund accounts for an irrevocable trust established for funding other
postemployment benefits for eligible retired employees under a single-employer
defined benefit plan.
48
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
CASH AND CASH EQUIVALENTS
ASSETS HELD BY TRUSTEE
RECEIVABLES AND PAYABLES
When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted
resources first, then unrestricted resources as they are needed.
Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the
fiscal year is reported as interfund loans receivable/payable. All other outstanding balances between funds are
reported as "due to/from other funds." Any residual balances outstanding between the governmental activities
and business-type activities are reported in the government-wide financial statements as internal balances.
Assessments receivable include current, delinquent, and deferred assessments for garbage service, razings,
administration fines, as well as for street and utility improvements. Because the City requires all property owners
to contract for garbage collection, the City assesses property owners for unpaid garbage bills, as a service to the
licensed garbage haulers. These assessments are reported in the General Fund. The amount reported by the
garbage haulers as unpaid is set up as a receivable and the revenue is deferred. As payments are received, a
payable to the contractor is set up. Any unpaid assessments at year-end are certified to St. Louis County for
payment with the following year's property taxes. Revenue is recognized for any penalties and interest the
County collects on the City's behalf.
Loans receivable include both the current and long-term portions of loans issued by the City. Business
development loans are reported in both special revenue and agency funds. Most of these loans receivable are
reported as an asset in the amount of loan proceeds disbursed. However, some loans, depending on their
original funding source, report unavailable revenue equal to the loan amount, and recognize revenue when
principal payments are received. Loans made at terms where the stated interest rate is significantly less than
prevailing market interest rates are reported as an asset at the present value of the loan. Low interest home
energy loans accounted for in the Gas Enterprise Fund, report a loan receivable and a contract payable in the
amount of the loan agreement.
Amounts due from individuals, organizations, or other governmental units are recorded as receivables at year-
end. These amounts include charges for services rendered, or for goods and material provided by the City,
including amounts for unbilled services. Receivables are shown net of an allowance for uncollectible accounts
where applicable. Receivables are also recognized for property taxes, sales and excise taxes, loans,
assessments, accrued interest, and intergovernmental grants.
Taxes and tax increments receivable consist of uncollected taxes levied and payable in prior years, net of
allowance for uncollectible taxes. These receivables are deferred to indicate they are not available to finance
expenditures of the current fiscal period.
These assets are funds held pursuant to a self-insurance trust agreement.
Available cash balances from all funds are pooled and invested in accordance with Minnesota statutes. Each
fund's share of the pool is shown on the financial statements as "Cash and Cash Equivalents." For reporting
purposes, petty cash and change funds are also considered cash and cash equivalents. For proprietary fund-
type statement of cash flows, all highly liquid investments (including restricted assets) with a maturity of three
months or less when purchased, are considered to be cash equivalents. Investments are stated at fair value.
49
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
INVENTORIES AND PREPAID ITEMS
RESTRICTED ASSETS
Assessments for street improvements are reported in a governmental fund, and revenues are deferred until the
collections are received. Assessments for utility improvements are reported in proprietary funds.
The City Council has authorized the Department of Public Works and Utilities to enter into cooperative
agreements for the purpose of purchasing and storing natural gas for future use.
In addition to assets, the statement of financial position reports a separate section for deferred outflows of
resources. This separate financial statement element, deferred outflows of resources, represents a consumption
of net position that applies to a future period(s) and so will not be recognized as an outflow of resources
(expense/expenditure) until then. Currently, the City has three items that qualify for reporting in this category:
deferred amounts from debt refunding, deferred pension obligations, and OPEB obligations.
In addition to liabilities, the statement of financial position reports a separate section for deferred inflows of
resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of
net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue)
until that time. The City has three types of items that qualify for reporting in this category: unavailable revenue,
deferred pension obligations, and OPEB inflows. These amounts are recognized as an inflow of resources in the
period that the amounts become available.
The inventories of the enterprise funds consist of expendable supplies held for consumption. Fuel, chemicals,
and service department inventories are priced at cost using the first-in, first-out method and are based on an
annual physical inventory. Other materials and supplies are on a perpetual inventory system and are priced
using the moving average method. The inventory of the internal service funds consists of materials and supplies
which are on a perpetual inventory system and are priced using the moving average method.
The inventories of the Duluth Entertainment and Convention Center Authority and the Spirit Mountain Recreation
Area Authority component units consist of merchandise held for resale and are based on a physical inventory
and priced at the lower of cost or market using the first-in, first-out method.
The inventory of the Duluth Airport Authority component unit consists of materials and supplies held for
consumption. They are priced at the lower of cost or market on a first-in, first-out method.
The inventory of the Duluth Transit Authority component unit consists of materials, supplies, and fuel. The diesel
fuel and gasoline inventories are based on perpetual records and priced using the moving average method. The
materials and supplies inventory is also based on perpetual records but priced at cost using the first-in, first-out
method.
Restricted assets consist of customer deposits, employee flexible benefits plan, sewer surcharges, bond monies
specified for construction, and monies restricted for the payment of bond principal and interest.
Several enterprise funds have prepaid assets related to positive net OPEB calculations. In these cases, assets
available for OPEB exceed the OPEB liability.
50
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2019
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
CAPITAL ASSETS
Assets
Years
Buildings
10-75
Equipment
5-40
Infrastructure
10-75
COMPENSATED ABSENCES
LONG-TERM OBLIGATIONS
In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-
term debt and other long-term obligations are reported as liabilities in the applicable governmental activities,
business-type activities, and proprietary fund type statements of net position. Bond premiums and discounts are
amortized over the life of the bonds.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as
bond issuance costs, during the current period. The face amount of debt issued is reported as other financing
sources. Premiums received on debt issuances are reported as other financing sources, while discounts on debt
issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt
proceeds received, are reported as debt service expenditures.
A liability for unused vacation is reported in an internal service fund and the governmental activities column of
the government-wide statement of net position for employees paid from governmental funds. All other liabilities
for employees' unused vacation is recognized in the fund from which they are paid.
Sick leave is recorded as an expenditure or expense when paid. Employees are granted from 18 to 120 days of
sick leave each year, depending on their union bargaining unit. Employees are not compensated for unused sick
leave. Any contingent liability for unused sick leave has not been determined and is not recognized in the
financial statements.
Property, plant, and equipment is depreciated using the straight-line method over the following estimated useful
lives:
Employees are granted from 5 to 35 vacation days per year depending on their years of service and union
bargaining unit. Depending on bargaining unit, varying amounts of vacation may be accumulated and carried
over to the succeeding year.
The cost of normal maintenance and repairs that does not add to the value of the asset or materially extend an
asset's life is not capitalized.
Major outlays for capital assets and improvements are capitalized as