COMPREHENSIVE ANNUAL
FINANCIAL REPORT
Department of Finance
For the Fiscal Year Ended December 31, 2018
CITY OF DULUTH, MINNESOTA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 31, 2018
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, 2018
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 121
Proprietary Funds:
Combining Statement of Net Position – Nonmajor Enterprise Funds 124
Combining Statement of Revenues, Expenses, and Changes
in Fund Net Position – Nonmajor Enterprise Funds 125
Combining Statement of Cash Flows – Nonmajor Enterprise Funds 126
Combining Statement of Net Position Governmental Activities –
Internal Service Funds 127
Combining Statement of Revenues, Expenses, and Changes
in Fund Net Position Governmental Activities –
Internal Service Funds 128
Combining Statement of Cash Flows Governmental Activities –
Internal Service Funds 129
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – Agency Funds 131
Supplementary Information
Capital Assets Used in the Operation of Governmental Funds:
Schedule by Source 132
Schedule by Function and Activity 133
Schedule of Changes by Function and Activity 134
Schedule of Changes in Long-Term Debt
Bonds and Certificates Payable 135
Notes Payable 139
Duluth Economic Development Authority
Balance Sheet 141
Statement of Revenues, Expenditures and Changes in Fund Balances 142
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances to the Statement of Activities 143
Duluth JPE Trust
Statement of Fiduciary Net Position 144
Statement of Changes in Fiduciary Net Position 145
Schedule of Intergovernmental Revenue 146
Federal Awards
Schedule of Expenditures of Federal Awards 149
Notes to the Schedule of Expenditures of Federal Awards 152
CITY OF DULUTH, MINNESOTA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 31, 2018
iii
TABLE OF CONTENTS
Page
STATISTICAL SECTION
Net Position by Component 155
Changes in Net Position 156
Fund Balances of Governmental Funds 160
Changes in Fund Balances of Governmental Funds 161
Assessed and Estimated Taxable Market Value of Property 163
Property Tax Rates – Direct and Overlapping Governments 164
Principal Property Taxpayers 164
Property Tax Levies and Collections 165
Net Capacity of Real Property by Category 165
Ratios of Outstanding Debt by Type 166
Ratios of Net General Obligation Bonded Debt 167
Direct and Overlapping Governmental Activities Debt 167
Legal Debt Margin Information 168
Revenue Bond Coverage 169
Demographic and Economic Statistics 171
Principal Employers 171
Full-time Equivalent City Government Employees by Function 172
Operating Indicators by Function 173
Capital Asset Statistics by Function 175
Component Unit Statistical Data 177
INTRODUCTORY
SECTION
Chief Financial Officer • Wayne Parson, CPA
(inactive)
City Auditor
• Joshua Bailey
411 West First Street • Room 107 • Duluth, Minnesota • 55802-1190
218-730-5450 • Fax: 218-730-5919
wparson@duluthmn.govjbailey@duluthmn.gov www.duluthmn.gov
An Equal Opportunity Employer
May 28, 2019
To the Honorable Mayor, City Council, Administration,
and Citizens of the City of Duluth, Minnesota
State law and the City Charter mand
ate 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, 2018.
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, 2018. 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 exceeds 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 2.9% for 2018, which was lower than the previous year’s average
unemployment rate of 3.8%. The total number of jobs reported to the state in 2018 peaked at 58,715.
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 821 ships visited the Port of Duluth-
Superior in 2018, and moved 35.9 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 contribute 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
3,264 acres, two public golf courses, zoo, and over 150 miles of trails for hikers, bicyclists, and cross country
2
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. The DECC’s Executive Director Chelly Townsend continues to lead and operate the
DECC at full strength. In 2018 the DECC hosted 494 events with 46 conventions in the CitySide and the
HarborSide Convention Centers. Pioneer Hall provided space for many tradeshows, expos, sporting events and
ice for the Curling Club and the USA’s Olympic Gold Medal Curling team. The DECC Arena held numerous
events including the FIRST Robotics Competition, ice for the Northland Figure Skaters, and many exhibits and
tradeshows. Symphony Hall serves as the home to the Duluth-Superior Symphony Orchestra (DSSO) and to
the Minnesota Ballet, and held varied events such as dance competitions and recitals, the Banff Mountain Film
Festival, Martin Luther King Day, Broadway Kinky Boots, A Charlie Brown Christmas, and many conventions
keynote speakers. Bayfront Park was under the management of the DECC for the seventh year with a full roster
of events, including Bentleyville, Duluth Fourth Fest, Blues Fest, Pride Festival, Tributefest, Trampled by Turtles,
All Pints North Brewfest, and Hot Air Balloon Festival. AMSOIL Arena had its eighth 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) Men's Bulldog Hockey to their 3
rd
NCAA Championship. The
Women’s hockey competed in the Western Collegiate Hockey Conference (WCHA). The silver LEED certified
Arena featured youth and high school hockey, University commencements, Temple Shrine Circus, Old
Dominion, and Little Big Town, to name a few. The Irvin Floating Maritime Museum and Haunted Ship was
successfully moved after being anchored since 1989. The retired freighter SS William A. Irvin was relocated
from the Minnesota Slip overnight on September 21
st
/22
nd
to make room for a Great Lakes Legacy Act sediment
cleanup in the Slip. The DECC continues to focus on sustainability efforts, ongoing innovative projects, and
energy efficiency upgrades. The DECC continues to divert at least 65% of their waste from the landfill through
recycling, composting, and creating environmentally low-impact events.
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 an enrollment of 11, 040 students in 2018. Undergraduate students
can choose from 15 bachelor degrees in 83 majors and 70 minors as well as five certificates. UMD also offers
graduate programs in 26 fields, 13 minors, and five 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; 12 masters, and 4 doctoral programs, with a total 2018 enrollment of
4,043 students. Lake Superior College (LSC) is a two-year community and technical college in Duluth, and is a
member of the Minnesota State Colleges and Universities System (MnSCU). LSC has a student population of
over 5,800. The college offers pre-baccalaureate majors for students interested in transferring to 4-year
3
educational institutions as well as more than 90 certificate, diploma and degree programs 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 150 courses via the internet, through its e-campus.
LONG-TERM FINANCIAL PLANNING
Unassigned fund balance in the General Fund (15.6 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, 2018, the Community
Investment Fund reported a fund balance of $21.9 million.
In 2007, the City established an irrevocable trust to pre-fund the City’s other postemployment benefit liability.
Contributions totaling $28.0 million have been made to the irrevocable trust. The irrevocable trust balance
including cumulative investment earnings was $56.4 million at December 31, 2018. 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, 2018, retiree health care premium costs of $244,470 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
The Duluth Economic Development Authority (DEDA) entered into an agreement with a developer to restore a
historic theatre complex in Duluth’s downtown waterfront district. The $30 million project is financed through a
combination of state and federal tax credits, low interest loans, and fundraising. In addition, skywalk connections
will be completed to the downtown skywalk system. Construction began in June 2016 with a grand reopening
held on February 1 2018.
In November 2017, a transportation sales tax referendum was overwhelmingly approved by voters. The new
½% sales tax, if approved by the legislature, will garner an estimated $7 million to be designated for the City’s
Street Improvement Program. Minnesota legislative approval is expected by May 2019.
Plans to create a Duluth Regional Exchange District are being finalized that will support the two regional health
care systems headquartered in downtown Duluth. Essentia Health and St. Luke’s Hospital have announced
plans for 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. Site work will begin in the Fall of 2019.
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
4
ended December 31, 2017. This was the forty-second 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.
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 2018. 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
5
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
*All terms expire in January
Attorney Gunnar Johnson
Auditor Joshua Bailey
Chief Administrative Officer Noah Schuchman
Chief Financial Officer Wayne Parson
Chief of Police Michael Tusken
Clerk Chelsea Helmer
Director of Planning and Economic Development Keith Hamre
Director of Public Administration Jim Filby Williams
Director of Workforce Development Elena Foshay
Director of Public Works and Utilities James Benning
Acting Fire Chief Shawn Krizaj
ELECTED POSITIONS TERM EXPIRES *
APPOINTED POSITIO
N
ELECTED AND APPOINTED OFFICIALS
CITY OF DULUTH, MINNESOTA
6
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
8
FINANCIAL
SECTION
An Equal Opportunity Employer
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, 2018, and the related notes to the financial statements, which collectively
comprise the Citys 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, 2018.
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
relevant to the City’s preparation and fair presentation of the financial statements in order to design
9
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, 2018, including the Spirit Mountain
Recreation Area Authority component unit as of April 30, 2018, 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 – Change in Accounting Principle
As discussed in Note 1 to the financial statements, in 2018, the City adopted new accounting
guidance by implementing the provisions of Governmental Accounting Standards Board (GASB)
Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than
Pensions, which represents a change in accounting principles. Our opinion is not modified with
respect to this matter.
Also, as discussed in Note 1 to the financial statements, in 2018, the Duluth Economic
Development Authority, a discretely presented component unit of the City of Duluth, changed the
method of accounting for long-term receivables. 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 GASB, 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.
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 reports dated
May 28, 2019, 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 their
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other
matters. The purpose of these reports 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 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
May 28, 2019
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, 2018
(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, 2018, 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 exceeded its liabilities at December 31, 2018, by $364.8 million; this amount is identified
as net position.
As of December 31, 2018, the City’s governmental funds reported combined ending fund balances of $80.6
million.
Restricted fund balances were $42.0 million of fund balance or 52.1%. These fund balances are not available
for appropriation because of constraints placed on the use of these funds. The remaining fund balances of
$38.6 million, or 47.9%, 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, 2018, the trust reported net position totaling $56.4 million.
As of December 31, 2018, the General Fund’s unrestricted, unassigned fund balance was $13.4 million, or
15.7% 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 consist 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.
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(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, and
Community Investment Trust Special Revenue 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.
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(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.
An additional portion of the City’s net position (12.3%) 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):
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
2017 2017
2018 (Restated) 2018 (Restated) 2018 2017
Current and other assets 131,904$ 134,895$ 43,315$ 39,227$ 175,219$ 174,122$
Capital assets 296,706 289,994 292,371 284,633 589,077 574,627
Total assets 428,610$ 424,889$ 335,686$ 323,860$ 764,296$ 748,749$
Deferred outflows of resources 42,160$ 66,959$ 5,006$ 6,384$ 47,166$ 73,343$
Long-term liabilities outstanding 291,519$ 303,598$ 72,624$ 77,251$ 364,143$ 380,849$
Other liabilities 13,634 10,783 10,809 9,960 24,443 20,743
Total liabilities 305,153$ 314,381$ 83,433$ 87,211$ 388,586$ 401,592$
Deferred inflows of resources 54,624$ 71,229$ 3,407$ 4,784$ 58,031$ 76,013$
Net position:
Net investment in capital assets 249,613$ 245,733$ 240,474$ 227,779$ 490,087$ 473,512$
Restricted 42,919 46,203 2,115 2,120 45,034 48,323
Unrestricted (181,539) (185,698) 11,263 8,350 (170,276) (177,348)
Total net position 110,993$ 106,238$ 253,852$ 238,249$ 364,845$ 344,487$
Business-type
Activities
Governmental
Activities Total
Overall, the City’s net position improved in 2018. The City’s total net position increased $20.4 million, an increase of
5.9%. 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 governmental activities, the decrease in total liabilities of $9.2 million was largely due to a pension liability decrease.
This decrease is associated with the City’s calculated share of the Minnesota Public Employees Retirement
Association (PERA) unfunded liability. This liability calculation is also associated with the large variances in deferred
inflows and outflows between 2018 and 2017. 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 relation with accounting for this pension-related liability.
For business-type activities the decrease in total liabilities of $3.8 million is largely due to the spend down of revenue
related bonds and notes. Total assets increased due to utility infrastructure replacement projects.
To give users a better understanding of the sources and uses of the City’s net position, the following table presents
a summary of revenues, expenses, and changes in net position for the past two fiscal years ending December 31
(dollars in thousands):
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
2018 2017 2018 2017 2018 2017
Revenues:
Program revenues:
Charges for services 11,928$ 12,064$ 94,246$ 90,737$ 106,174$ 102,801$
Operating grants and contributions 12,019 11,759 - 104 12,019 11,863
Capital grants and contributions 12,913 11,096 5,603 2,832 18,516 13,928
General revenues:
Property taxes 30,266 27,597 751 756 31,017 28,353
Other taxes 30,518 29,276 - - 30,518 29,276
Grants and shared revenues not
restricted to specific programs 31,810 31,420 49 60 31,859 31,480
Other 1,248 4,569 186 237 1,434 4,806
Total revenues 130,702 127,781 100,835 94,726 231,537 222,507
Expenses:
General government 31,093 29,491 - - 31,093 29,491
Public safety 43,353 47,269 - - 43,353 47,269
Public works 24,997 23,999 - - 24,997 23,999
Culture and recreation 13,170 12,497 - - 13,170 12,497
Urban and economic development 13,664 15,406 - - 13,664 15,406
Interest 4,025 3,951 - - 4,025 3,951
Water - - 11,269
11,160 11,269 11,160
Gas - - 33,161 31,538 33,161 31,538
Sewer - - 16,835 16,019 16,835 16,019
Stormwater - - 3,430 3,564 3,430 3,564
Steam - - 8,185 8,299 8,185 8,299
Golf - - 1,853 1,940 1,853 1,940
Parking - - 2,980 2,749 2,980 2,749
Priley drive parking facility - - 1,254 1,267 1,254 1,267
Street lighting - - 1,910 2,123 1,910 2,123
Total expenses 130,302 132,613 80,877 78,659 211,179 211,272
Increase (decrease) in net position before
transfers 400 (4,832) 19,958 16,067 20,358 11,235
Transfers 4,355 4,145 (4,355) (4,145) - -
Increase in net position 4,755 (687) 15,603 11,922 20,358 11,235
Net position, January 1 174,562 175,249 243,665 231,743 418,227 406,992
Restatement - Note 1 (68,324) - (5,416) - (73,
740) -
Net position, January 1, restated 106,238 175,249 238,249 231,743 344,487 406,992
Net position, December 31 110,993$ 174,562$ 253,852$ 243,665$ 364,845$ 418,227$
Business-type
Activities
Governmental
Activities Total
Governmental activities revenue increased by $2.9 million in 2018. This increase is primarily due to increased
property tax revenue and increased tourism tax based sales tax collections. The 2018 property tax levy was increased
to provide additional funding for streets and fund a 10% increase in health insurance premiums. Tourism tax rates
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
were not increased, but instead the revenue increase was driven by the strong tourism industry present in the City of
Duluth. Revenues were negatively impacted by the stock market performance in 2018. The Community Investment
Trust Fund had $0.75 million in negative investment earnings as it is substantially invested in the equity market. The
business-type activities revenue increase of $6.1 million was heavily impacted by the increase in the sale of natural
gas associated with the 2018 heating season. The Steam Fund received slightly over $5 million in State of Minnesota
funding in 2018 associated with the steam upgrades being performed in conjunction with the multi-year Superior
Street reconstruction project.
Total expenses decreased $2.3 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. The future
amortization of these deferred inflows and outflows are in the millions of dollars. In 2017 the City’s GASB 68 related
expenditures resulted in $5.3 million in additional expenditures. In 2018 GASB 68 resulted in decreased expenditures
of $2.1 million. This is a swing of $7.4 million. With the implementation of GASB 75 it is expected that expenditures
will continue to vary significantly from year-to-year. In 2018, 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.
Business-type activities expenses increased $2.2 million. This increase is largely due to an increase in the volume of
natural gas that is resold to customers by the City’s Gas Utility. 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
2018
2017
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(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, 2018, the City’s governmental funds reported combined ending fund balances of $80.6 million,
an decrease of $1.5 million from 2017. Of the total fund balance amount, $38.6 million, or 47.9%, is reported as
unrestricted fund balance, either committed, assigned, or unassigned. The unrestricted fund balance includes $23.4
million in committed funds which are formally designated by City Council resolution for specific purposes. The
Community Investment Trust Special Revenue fund makes up 93.4% of the committed fund balance. Restricted fund
balance of $42.0 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, 2018, fund balance of the General Fund
was $16.9 million, with $13.4 million, or 79.5% 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 15.7% and total fund balance is 19.7% of total General Fund expenditures. The General
Fund’s fund balance increased $1.3 million in 2018. Positive sales tax revenue along with savings in personal costs
contributed to this outcome.
The Community Investment Trust Special Revenue fund balance decreased $1.2 million in 2018. This decrease was
due to the performance of the portfolio holdings in a down year for the stock market.
The Disaster Recovery Special Revenue fund balance decreased by $1.3 million in 2018. 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
$50
Millions
ExpensebyFunction GovernmentalActivities
2018
2017
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
PROPRIETARY FUNDS
The City’s proprietary funds provide the same type of information found in the government-wide financial statements,
only in more detail. The following table shows the unrestricted net position for each of the City’s major proprietary
funds, as well as the change in net position for each fund during the past two fiscal years (dollars in thousands):
2018 2017 2018 2017
Priley Drive
Parking Facility 330$ 140$ (256)$ (506)$
Water (333) (812) 3,625 3,231
Gas 102 4,865 3,597 2,893
Sewer 3,289 2,659 2,824 4,156
Steam (411) (623) 4,612 602
December 31 December 31
Increase (Decrease)
Net Position
Unrestricted
Net Position
Unrestricted Net Position for the Gas fu
nd was negatively impacted by the implementation of GASB Statement 75.
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 $3.0 million increase in appropriations between the original and final amended budget.
Following are the main components of the increase:
$1.6 million appropriation increase for prior year carryovers;
$0.9 million appropriation for grants, gifts and donations; and
$0.5 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 $1.4 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 $1.6 million due primarily to savings in personal costs and
other miscellaneous transfers.
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, 2018,
was $589.1 million, net of accumulated depreciation. This investment includes land and improvements, buildings,
equipment, roads and bridges, traffic signals, and utility-related infrastructure. In 2018, the City’s total investment in
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
capital assets, net of accumulated depreciation, increased by $14.5 million. Major capital assets additions in 2018
included: seawall repairs - $6.9 million; Superior Street reconstruction - $9.3 million; and utility related infrastructure
improvements of $13.2 million. Additional information related to the City’s capital assets can be found in Note 7 of
the notes to the financial statements. The following table shows the City’s investment in capital assets, net of
accumulated depreciation at December 31 for the past two fiscal years (dollars in thousands):
2018 2017 2018 2017
Capital Assets:
Land and improvements 22,859$ 22,468$ 4,649$ 4,649$
Buildings 40,826 42,359 49,546 51,305
Equipment 9,309 10,572 20,867 16,530
Infrastructure 195,957 200,572 202,392 198,119
Construction in progress 27,755 14,023 14,917 14,030
Total 296,706$ 289,994$ 292,371$ 284,633$
Governmental
Activities
Business-type
Activities
LONG-TERM DEBT
The City had $154.6 million of bonded debt outstanding as of December 31, 2018. Of this amount, $114.4 million is
debt backed by the full faith and credit of the City. $5.2 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 $35.1 million outstanding revenue and general obligation bonds if income
from various enterprise operations is insufficient to retire their respective bonds. Several types of revenue bonds
constitute the remainder of the City’s debt, and are secured solely by specific revenue sources. The following table
shows the City’s outstanding bonded debt for both governmental and business-type activities as of December 31 for
the past two fiscal years (dollars in thousands):
Balance Balance
12/31/18 12/31/17
Governmental Activities:
General Obligation Bonds 87,485$ 86,615$
General Obligation Tax Abatement Bonds 12,605 13,435
Special Asessment Debt with
Government Commitment 5,165 7,320
General Obligation Certificates 14,295 13,670
Total Governmental Activities Bonded Debt 119,550$ 121,040$
Business-type Activities:
Revenue and General Obligation Bonds 35,097$ 34,927$
During 2018, the City’s total bonded debt decreased by $1.3 million.
In 2018, the City issued $5.8 million of general obligation bonds, $3.8 million of general obligation certificates, and
$4.1 million in utility general obligation bonds. 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 $124.5 million, which is significantly higher than
CITY OF DULUTH, MINNESOTA
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2018
(unaudited)
the City’s net debt of $42.3 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 2019 General Fund budget is $89.1 million. State local government aid (LGA) payments are
anticipated to supply 33.3% 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 $2.3 million in 2019 to $29.7 million compared to the $27.4
million received in 2011, 2012 and 2013. In 2014, 2015, 2016, 2017, and 2018 the LGA revenue was $29.0, $29.2,
$29.3, $29.3 and $29.6 million respectively.
In 2017, 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, 2018, the City made contributions of $0.8 million to an irrevocable trust and paid out $11.1
million in retiree claims. As of December 31, 2018, the City’s net other postemployment benefits liability is $117.6
million.
Adapting to significant changes in levels of state aids, combined with inflationary tendencies in employee salaries
and benefits, including funding other postemployment benefits, continues to be a major budget challenge for the City.
REQUESTS FOR INFORMATION
This financial report is meant to provide a general overview of the City’s finances for all those with an interest in the
City’s finances. Questions concerning information provided in the report or requests for additional financial information
should be addressed to the City Auditor’s Office, 411 West First Street, Room 120, Duluth, MN 55802, or contact the
City Auditor via email at jbailey@duluthmn.gov.
B a s i c F i n a n c i a l
S t a t e m e n t s
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
DECEMBER 31, 2018
Governmental Business-type Component
Activities Activities Total Units
Assets
Cash and cash equivalents 63,008,645$ 14,012,497$ 77,021,142$ 13,664,097$
Investments, at fair value 21,868,426 - 21,868,426 -
Assets held by trustee 6,747,253 - 6,747,253 -
Receivables, net 30,872,103 11,534,425 42,406,528 10,292,596
Due from primary government - - - 781,191
Internal balances (1,175,771) 1,175,771 - -
Due from component units 1,853,344 - 1,853,344 -
Due from other governments 8,504,536 1,981,439 10,485,975 8,480,697
Inventories 175,283 3,406,228 3,581,511 532,659
Prepaids 50,000 3,045,525 3,095,525 255,361
Restricted assets:
Cash and cash equivalents - 6,358,919 6,358,919 1,794,629
Accounts receivable - - - 83,013
Loans receivable - 1,800,352 1,800,352 -
Grants receivable - - - 3,794,691
Planning and development costs - - - 1,149,681
Capital assets (Note 7):
Non-depreciable 50,614,771 19,566,447 70,181,218 11,797,544
Depreciable, net 246,091,061 272,804,511 518,895,572 271,073,012
Total Assets 428,609,651 335,686,114 764,295,765 323,699,171
Deferred Outflows of Resources
Deferred pension obligation outflows 37,718,289 2,255,507 39,973,796 1,444,653
Deferred OPEB outflows 1,860,935 2,245,672 4,106,607 -
Deferred loss from debt refunding 2,580,820 505,172 3,085,992 -
Total Deferred Outflows of Resources 42,160,044 5,006,351 47,166,395 1,444,653
Liabilities
Accounts payable and other short-term liabilities 8,976,132 8,405,882 17,382,014 11,992,574
Accrued interest payable 1,900,278 482,064 2,382,342 1,939
Due to component units 781,191 - 781,191 -
Due to primary government - - - 1,853,828
Due to other government 342,887 1,030,284 1,373,171 55,008
Unearned revenues 1,633,320 891,222 2,524,542 1,837,200
Noncurrent liabilities (Note 12):
Due within one year 16,365,588 7,349,551 23,715,139 2,133,068
Due in more than one year 275,153,304 65,274,540 340,427,844 20,529,693
Total Liabilities 305,152,700 83,433,543 388,586,243 38,403,310
Deferred Inflows of Resources
Deferred pension obligation inflows 54,623,702 3,407,375 58,031,077 1,913,088
Net Position
Net investment in capital assets 249,612,707 240,473,773 490,086,480 272,024,540
Restricted for:
General government 5,125,705 - 5,125,705 -
Public safety 878,923 - 878,923 -
Public works - 1,506,313 1,506,313 -
Culture and recreation 2,842,338 - 2,842,338 -
Urban and economic development 6,108,252 - 6,108,252 -
Debt service 22,539,676 608,514 23,148,190 -
Capital outlay 5,425,084 - 5,425,084 9,741,090
Unrestricted (181,539,392) 11,262,947 (170,276,445) 3,061,796
Total Net Position 110,993,293$ 253,851,547$ 364,844,840$ 284,827,426$
The notes to the financial statements are an integral part of this statement.
Primary Government
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2018
Operating Capital
Charges for Grants and Grants and
Functions/Programs
Expenses Services Contributions Contributions
Primary Government:
Governmental activities:
General government 31,093,037$ 5,869,145$ 305,505$ 2,638$
Public safety 43,352,480 2,023,574 3,098,360 362,699
Public works 24,997,278 82,235 1,911,135 8,840,493
Culture and recreation 13,169,901 1,270,730 1,008,362 3,039,675
Urban and economic development 13,664,386 2,682,020 5,695,731 667,482
Interest 4,025,051 - - -
Total Governmental Activities 130,302,133 11,927,704 12,019,093 12,912,987
Business-type activities:
Water 11,268,976 14,910,171 - 13,266
Gas 33,160,799 39,182,666 - 87,700
Sewer 16,835,052 19,709,102 - -
Stormwater 3,430,458 5,283,440 - -
Steam 8,185,310 7,880,094 - 5,095,641
Golf 1,853,157 1,692,369 - -
Parking 2,980,182 3,740,640 - 406,214
Priley Drive parking facility 1,254,483 457,088 - -
Street lighting 1,909,552 1,390,572 - -
Total Business-type Activities 80,877,969 94,246,142 - 5,602,821
Total Primary Government 211,180,102$ 106,173,846$ 12,019,093$ 18,515,808$
Component units:
Duluth Economic Development Authority 6,477,722$ 2,731,315$ 1,743,764$ -$
Duluth Entertainment and Convention
Center Authority 14,777,685
8,834,319 - 200,000
Duluth Airport Authority 14,825,063 6,342,691 - 9,533,827
Duluth Transit Authority 23,540,824 2,992,124 14,087,635 11,715,937
Spirit Mountain Recreation Area Authority 6,470,494 5,188,782 - 493,970
Total Component Units 66,091,788$ 26,089,231$ 15,831,399$ 21,943,734$
(continued)
The notes to the financial statements are an integral part of this statement.
Program Revenues
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2018
Governmental Business-type Component
Functions/Programs
Activities Activities Total Units
Primary Government:
Governmental activities:
General government (24,915,749)$ -$ (24,915,749)$ -$
Public safety (37,867,847) - (37,867,847) -
Public works (14,163,415) - (14,163,415) -
Culture and recreation (7,851,134) - (7,851,134) -
Urban and economic development (4,619,153) - (4,619,153) -
Interest (4,025,051) - (4,025,051) -
Total Governmental Activities (93,442,349) - (93,442,349) -
Business-type activities:
Water - 3,654,461 3,654,461 -
Gas - 6,109,567 6,109,567 -
Sewer - 2,874,050 2,874,050 -
Stormwater - 1,852,982 1,852,982 -
Steam - 4,790,425 4,790,425 -
Golf - (160,788) (160,788) -
Parking - 1,166,672 1,166,672 -
Priley Drive parking facility - (797,395) (797,395) -
Street lighting - (518,980) (518,980) -
Total Business-type Activities - 18,970,994 18,970,994 -
Total Primary Government (93,442,349) 18,970,994 (74,471,355) -
Component units:
Duluth Economic Development Authority - - - (2,002,643)
Duluth Entertainment and Convention
Center Authority -
- - (5,743,366)
Duluth Airport Authority - - - 1,051,455
Duluth Transit Authority - - - 5,254,872
Spirit Mountain Recreation Area Authority - - - (787,742)
Total Component Units - - - (2,227,424)
General Revenues:
Property taxes 30,265,657 751,231 31,016,888 4,242,881
Sales taxes 26,267,168 - 26,267,168 1,818,754
Franchise taxes 3,997,060 - 3,997,060 -
Other taxes 254,096 - 254,096 -
Grants and shared revenues not restricted
to specific programs 31,810,084 48,567 31,858,651 -
Investment income (440,856) 43,383 (397,473) 215,812
Gain on sale or disposition of capital assets - 81,868 81,868 -
Miscellaneous
1,689,582 61,272 1,750,854 1,059,464
Transfers 4,354,903 (4,354,903) - -
Total General Revenues and Transfers 98,197,694 (3,368,582) 94,829,112 7,336,911
Change in Net Position 4,755,345 15,602,412 20,357,757 5,109,487
Net Position - Beginning, as restated (Note 1) 106,237,948 238,249,135 344,487,083 279,717,939
Net Position - Ending 110,993,293$ 253,851,547$ 364,844,840$ 284,827,426$
The notes to the financial statements are an integral part of this statement.
Net (Expense) Revenue and
Changes in Net Position
Primary Government
CITY OF DULUTH, MINNESOTA
BALANCE SHEET
GOVERNMENTAL FUNDS
DECEMBER 31, 2018
General
Disaster
Recovery
Community
Investment
Trust
Other
Governmental
Funds
Total
Governmental
Funds
Asset
s
Cash and cash equivalent
s
11,312,600$ -$ -$ 46,586,291$ 57,898,891$
Investments, at fair value
- - 21,868,42
6
- 21,868,42
6
Receivables, ne
t
Taxes
3,619,113 - - 1,358,539 4,977,652
Accounts
551,219 - - 250,121 801,340
Assessments
984,811 - - 2,910,811 3,895,622
Loans
1,802,242 - - 4,070,294 5,872,536
Due from other funds
271,018 - - 941,824 1,212,842
Due from component units
1,210,113 - - 636,231 1,846,344
Interfund loan receivables
4,273,107 - - - 4,273,107
Due from other government
s
642,808 3,805,158 - 4,056,570 8,504,536
Total Assets
24,667,031$ 3,805,158$ 21,868,42
6
$ 60,810,681$ 111,151,29
6
$
Liabilities
Accounts payable
2,040,592 1,354 - 579,574 2,621,520
Contracts payable
69,799 985,696 - 3,286,078 4,341,573
Due to other funds
354,005 - - 867,365 1,221,370
Due to component units
- - - 781,191 781,191
Interfund loan payabl
e
- 465,075 - 950,231 1,415,306
Due to other government
s
35,898 - - 283,915 319,813
Accrued salaries payable
1,801,531 - - 33,239 1,834,770
Unearned revenu
e
112,420 1,073,980 - 446,920 1,633,320
Total Liabilities
4,414,24
5
2,526,10
5
- 7,228,513 14,168,86
3
Deferred Inflows of Resource
s
Unavailable revenu
e
3,367,021 3,751,030 - 9,258,562 16,376,61
3
Fund Balance
s
Restricted
184,891 - - 41,801,54
3
41,986,434
Committed
41,996 - 21,868,42
6
1,488,628 23,399,050
Assigned
3,236,770 - - 1,691,541 4,928,311
Unassigned
13,422,10
8
(2,471,977) - (658,106) 10,292,02
5
Total Fund Balance
s
16,885,76
5
(2,471,977) 21,868,42
6
44,323,60
6
80,605,820
Total Liabilities, Deferred Inflows of
Resources, and Fund Balances
24,667,031$ 3,805,158$ 21,868,426$ 60,810,681$ 111,151,296$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET POSITION
DECEMBER 31, 2018
Fund Balance--total governmental funds 80,605,820$
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
$531,170,724, and the accumulated depreciation is $234,727,468. 296,443,256
Other long-term assets are not available to pay for current-period expenditures,
and therefore are deferred in the funds. 31,617,435
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 37,527,468
Deferred OPEB outflows 1,860,935
Deferred loss from debt refunding 2,580,820
Deferred pension obligation inflows (54,335,430)
(12,366,207)
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 $5,101,505 less $3,859,439 attributed to business-type activities. 1,242,066
Long-term liabilities, including bonds payable, are not due and payable in the
current period, and therefore are not reported in the funds. Long-term
liabilities at year-end consist of:
Bonds and notes payable 129,834,234
Other post employment benefits 114,007,746
Pension liability 40,806,819
Interest accrued on long-term debt 1,900,278
(286,549,077)
Net position of governmental activities 110,993,293$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE
GOVERNMENTAL FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
General
Disaster
Recovery
C
ommun
i
ty
Investment
Trust
O
t
h
er
Governmental
Funds
T
ota
l
Governmental
Funds
Revenues
Taxes
Property taxes
16,315,960$ -$ -$ 14,002,905$ 30,318,865$
Sales taxes
14,094,409 - - 12,172,758 26,267,167
Other taxes
4,239,671 - - 11,486 4,251,157
Licenses and permits
1,930,727 - - 122,648 2,053,375
Intergovernmental revenues
34,453,489 499,257 - 21,924,341 56,877,087
Charges for services
5,583,614 - - 993,055 6,576,669
Fines and forfeits
524,415 - - 79,942 604,357
Special assessments
474,241 - - 1,131,096 1,605,337
Investment income
(35,189) 5,582 (757,719) 228,178 (559,148)
Miscellaneous revenues
1,461,901 - - 4,676,424 6,138,325
Total Revenues
79,043,238 504,839 (757,719) 55,342,833 134,133,191
Expenditures
Current
General government
26,044,353 - - 2,286,530 28,330,883
Public safety
39,675,021 - - 1,877,310 41,552,331
Public works
12,283,655 - -
2,942,744 15,226,399
Culture and recreation
4,525,475 1,756,249 - 4,248,310 10,530,034
Urban and economic development
3,145,266 - - 10,492,027 13,637,293
Debt service
Principal retirement
- - - 11,172,000 11,172,000
Interest and fiscal fees
- - -
4,487,446 4,487,446
Bond issuance costs
- - - 163,704 163,704
Capital outlay
Capital outlay
9,999 - - 25,096,739 25,106,738
Total Expenditures
85,683,769 1,756,249 - 62,766,810 150,206,828
Excess (Deficiency) of Revenues Over
(Under) Expenditures
(6,640,531) (1,251,410) (757,719) (7,423,977) (16,073,637)
Other Financing Sources (Uses)
Issuance of bonds
- - - 9,645,000 9,645,000
Premium on issuance of bonds
- - - 553,787 553,787
Transfers in
8,113,221 - - 13,639,074 21,752,295
Transfers out
(193,728) - (529,225) (16,674,439) (17,397,392)
Total Other Financing Sources (Uses)
7,919,493 - (529,225) 7,163,422 14,553,690
Net Change in Fund Balances
1,278,962 (1,251,410)
(1,286,944) (260,555) (1,519,947)
Fund Balances - January 1, 2018
15,606,803 (1,220,567) 23,155,370 44,584,161 82,125,767
Fund Balances - December 31, 201
8
16,885,765$ (2,471,977)$ 21,868,426$ 44,323,606$ 80,605,820$
The notes to the financial statements are an integral part of this statement.
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, 2018
Net change in fund balances - total governmental funds (1,519,947)$
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 23,517,946
Depreciation expense (16,757,903)
Excess of capital outlay over depreciation expense 6,760,043
Internal service funds are used by management to charge the costs of certain
activities to individual funds. The net revenue of $(676,684) from internal
funds less ($30,906) attributed to business-type activities is reported with
governmental activities. (645,778)
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 $553,787 (10,198,787)
Repayment of long-term debt is reported as an expenditure in governmental
funds, but the repayment reduces long-term liabilities in the statement of
net position. In the current year, these amounts consist of:
Bond principal retirement 11,210,328
Because some revenues will not be collected for several months after the
City's fiscal year ends, they are not considered "available" revenues and are
deferred in the governmental funds. Unavailable revenues decreased by this
amount this year. (2,644,128)
Some items reported in the statement of activities do not require the use of
current financial resources and therefore are not reported as expenditures
in governmental funds. These activities consist of:
Net increase in accrued interest (25,618)
Decrease in net other post employment benefits payable 464,789
Decrease in pension obligation 2,077,425
Decrease in loans receivable (1,374,699)
Amortization of deferred loss on debt refunding (171,104)
Amortization of bond premiums 822,821
Total additional expenditures 1,793,614
Change in net position of governmental activities
The notes to the financial statements are an integral part of this statement.
4,755,345$
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, 2018
Actual t
o
Actual Amount
s
Modified Budget
Budgeted Amounts (Budgetary Basis) Favorable
Original Final (Note 2) (Unfavorable)
Revenues
Taxes 34,186,500$ 34,186,500$ 34,650,040$ 463,540$
Licenses and permits 1,638,100 1,638,100 1,930,727 292,627
Intergovernmental revenues 33,653,000 34,173,992 34,453,489 279,497
Charges for services 5,598,600 5,598,600 5,583,614 (14,986)
Fines and forfeits 522,800 522,800 524,415 1,615
Special assessments 438,900 517,400 474,241 (43,159)
Investment income - - (35,189) (35,189)
Miscellaneous revenues 937,200 1,457,589 1,461,901 4,312
Total revenues 76,975,100 78,094,981 79,043,238 948,257
Expenditures
Current
General government 26,612,300 28,441,859 27,476,433 965,426
Public safety 39,079,600 39,924,445 39,685,230 239,215
Public works 12,522,300 12,603,294 12,292,140 311,154
Culture and recreation 4,599,600 4,602,672 4,525,475 77,197
Urban and economic development 3,135,600 3,251,893 3,191,261 60,632
Total expenditures 85,949,400 88,824,163 87,170,539 1,653,624
Excess (deficiency) of revenues over
expenditures (8,974,300) (10,729,182) (8,127,301) 2,601,881
Other Financing Sources (Uses)
Transfers in 7,348,300 7,660,361 8,113,221 452,860
Transfers out - (185,000) (193,728) (8,728)
Fund balance reserves 1,626,000 1,626,000 -
(1,626,000)
Total other financing sources (uses) 8,974,300 9,101,361 7,919,493 (1,181,868)
Net change in fund balance -
budgetary basis - (1,627,821) (207,808) 1,420,013
Net adjustments to reflect operations in
accordance with generally accepted
accounting principles - - 1,486,770 1,486,770
Net change in fund balance -
GAAP basis - (1,627,821) 1,278,962 2,906,783$
Fund Balance - January 1, 2018 15,606,803 15,606,803 15,606,803
Fund Balance - December 31, 2018 15,606,803$ 13,978,982$ 16,885,765$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER 31, 2018
Priley Drive
Parking
Facility Water Gas Sewer
Assets
Current assets
Cash and cash equivalents 430,094$ 1,988,044$ 1,883,624$ 2,642,256$
Restricted cash and cash equivalents
Customer deposits - 90,136 2,754,100 -
Construction - 2,548,378 - 608,514
Loans - - 357,791 -
Restricted assets held by trustee - - - -
Receivables, net
Accounts 27,382 1,379,935 5,610,111 2,014,765
Restricted loans - - 387,573 -
Assessments - 26,790 1,454 24,460
Due from other funds - 10,794 8,942 5,302
Due from component units - - - -
Interfund loan receivable - - 2,597,498 -
Due from other governments - 324 108 731
Inventories - 1,438,636 1,287,082 105,992
Prepaids - - 489,328 1,279,453
Total current assets 457,476 7,483,037 15,377,611 6,681,473
Noncurrent assets
Assessments receivable - 92,236 5,604 100,277
Restricted loans receivable - - 1,384,378 -
Capital assets, net 19,434,657 63,306,320 56,690,345 96,527,374
Total noncurrent assets 19,434,657 63,398,556 58,080,327 96,627,651
Total Assets 19,892,133 70,881,593
73,457,938
103,309,124
Deferred Outflows of Resources
Deferred loss from debt refunding - - 1,375 52,092
Deferred pension obligation outflows - 635,588 874,541 378,718
Deferred OPEB outflows - 671,232 860,316 457,219
Total Deferred Outflows of Resources - 1,306,820 1,736,232 888,029
Liabilities
Current liabilities
Accounts payable 4,373 369,354 2,588,736 36,550
Contracts payable - 12,121 313,423 126,918
Claims payable - - - -
Notes payable - 866,000 - 1,404,000
Leases payable - 245,846 225,358 211,700
Due to other funds - 20,047 21,328 22,875
Interfund loan payable - - - -
Due to other governments - 90,716 106,424 808,420
Accrued interest payable 123,092 79,395 29,493 109,392
Accrued salaries payable - 96,316 136,054 56,898
Compensated absences - 236,462 356,372 145,446
Unearned revenue - 45,411 712,590 53,066
Deposits - 10,000 2,799,125 -
Revenue bonds payable 300,541 99,000 505,000 1,001,000
Total current liabilities 428,006 2,170,668 7,793,903 3,976,265
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER 31, 2018
Priley Drive
Parking
Facility Water Gas Sewer
Business-type Activities - Enterprise Funds
Noncurrent liabilities
Notes payable - 5,696,000 - 7,508,000
Loans payable - - - -
Claims payable - - - -
Interfund loan payable - - - -
Leases payable - 1,228,023 1,125,688 1,057,465
Pension liability - 3,002,049 4,130,684 1,788,787
Net other postemployment benefits payable - 1,744,674 4,379,221 -
Revenue bonds payable 12,146,934 4,443,018 2,919 2,863,886
Total noncurrent liabilities 12,146,934 16,113,764 9,638,512 13,218,138
Total Liabilities 12,574,940 18,284,432 17,432,415 17,194,403
Deferred Inflows of Resources
Deferred pension obligation inflows - 960,177 1,321,160 572,127
Net Position
Net investment in capital assets 6,987,182 53,276,811 54,832,755 82,533,415
Restricted for health insurance trust - - - -
Restricted for special accounts - - - 608,514
Restricted for loans - - 1,506,313 -
Unrestricted 330,011 (333,007) 101,527 3,288,694
Total Net Position 7,317,193$ 52,943,804$ 56,440,595$ 86,430,623$
(continued)
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER 31, 2018
Steam
Other
Enterprise
Funds
Total
Enterprise
Funds
G
overnmen
t
a
l
Activities -
Internal Service
Funds
Assets
Current assets
Cash and cash equivalents -$ 7,068,479$ 14,012,497$ 5,109,754$
Restricted cash and cash equivalents
Customer deposits - - 2,844,236 -
Construction - - 3,156,892 -
Loans - - 357,791 -
Restricted assets held by trustee - - - 6,747,253
Receivables, net
Accounts 1,428,935 797,107 11,258,235 84,131
Restricted loans - - 387,573 -
Assessments - 25,369 78,073 -
Due from other funds 22,140 5,456 52,634 372,775
Due from component units - - - 7,000
Interfund loan receivable - - 2,597,498 -
Due from other governments 1,953,732 26,544 1,981,439 -
Inventories 437,856 136,662 3,406,228 175,283
Prepaids 32,325 1,244,419 3,045,525 50,000
Total current assets 3,874,988 9,304,036 43,178,621 12,546,196
Noncurrent assets
Assessments receivable - - 198,117 -
Restricted loans receivable 28,401 - 1,412,779 -
Capital assets, net 15,234,217 41,178,045 292,370,958 262,576
Total noncurrent assets 15,262,618 41,178,045 293,981,854 262,576
Total Assets 19,137,606
50,482,081
337,160,475 12,808,772
Deferred Outflows of Resources
Deferred loss from debt refunding 85,000 366,705 505,172 -
Deferred pension obligation outflows - 366,660 2,255,507 190,821
Deferred OPEB outflows - 256,905 2,245,672
-
Total Deferred Outflows of Resources 85,000 990,270 5,006,351 190,821
Liabilities
Current liabilities
Accounts payable 305,020 200,871 3,504,904 134,810
Contracts payable 1,024,005 234,367 1,710,834 12,074
Claims payable - - - 1,895,459
Notes payable - - 2,270,000 -
Leases payable - - 682,904 -
Due to other funds 296,019 12,920 373,189 43,692
Interfund loan payable 2,597,498 813,113 3,410,611 494,688
Due to other governments 23,578 1,146 1,030,284 23,074
Accrued interest payable 68,670 72,022 482,064 -
Accrued salaries payable - 60,298 349,566 31,385
Compensated absences - 157,826 896,106 3,110,129
Unearned revenue - 80,155 891,222 -
Deposits - 31,453 2,840,578 -
Revenue bonds payable 655,000 940,000 3,500,541 -
Total current liabilities 4,969,790 2,604,171 21,942,803 5,745,311
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER 31, 2018
Steam
Other
Enterprise
Funds
Total
Enterprise
Funds
G
overnmen
t
a
l
Activities -
Internal Service
Funds
Business-type Activities - Enterprise Funds
Noncurrent liabilities
Notes payable - - 13,204,000 -
Loans payable - 62,485 62,485 -
Claims payable - - - 963,207
Interfund loan payable - 1,550,000 1,550,000 -
Leases payable - - 3,411,176 -
Pension liability - 1,731,835 10,653,355 901,298
Net other postemployment benefits payable - - 6,123,895 -
Revenue bonds payable 5,738,470 6,624,402 31,819,629 -
Total noncurrent liabilities 5,738,470 9,968,722 66,824,540 1,864,505
Total Liabilities 10,708,260 12,572,893 88,767,343 7,609,816
Deferred Inflows of Resources
Deferred pension obligation inflows - 553,911 3,407,375 288,272
Net Position
Net investment in capital assets 8,925,747 33,917,863 240,473,773 262,576
Restricted for health insurance trust - - - 5,125,705
Restricted for special accounts - - 608,514 -
Restricted for loans - - 1,506,313 -
Unrestricted (411,401) 4,427,684 7,403,508 (286,776)
Total Net Position 8,514,346$ 38,345,547$ 249,992,108$ 5,101,505$
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. 3,859,439
Net position of business-type activities 253,851,547$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
Priley Drive
Parking Facility Water Gas Sewer
Operating Revenues
Sales
-$ -$ 37,427,929$ -$
Charges for services
457,088 14,743,178 956,165 19,456,525
Fines and forfeits
- - - -
Miscellaneous revenues
- 181,977 893,479 262,142
Total Operating Revenues
457,088 14,925,155 39,277,573 19,718,667
Operating Expenses
Cost of sales and services
- - 20,731,398 -
Personal services
- 5,474,970 7,663,533 3,449,054
Supplies
- 949,507 998,774 254,180
Utilities
27,594 1,321,655 41,158 140,612
Other services and charges
206,254 1,509,245 2,109,311 10,667,786
Depreciation
520,571 1,818,410 1,491,899 1,994,665
Medical and insurance
- - - -
Total Operating Expenses
754,419 11,073,787 33,036,073 16,506,297
Operating Income (Loss)
(297,331) 3,851,368 6,241,500 3,212,370
Nonoperating Revenues (Expenses)
Property taxes
- - - -
Investment income
(1,597) (34,007) (20,943) (3,277)
Intergovernmental revenue
-
16,919 23,365 8,283
Gain (loss) on sale or disposition of capital assets
- 36,379 27,917 17,572
Interest and fiscal fees
(500,064) (252,071) (58,802) (303,362)
Total Nonoperating Revenues (Expenses)
(501,661) (232,780) (28,463) (280,784)
Income (Loss) Before Contributions and Transfers
(798,992) 3,618,588 6,213,037 2,931,586
Capital contributions
- 13,266 87,700 (704)
Transfers in
543,427
144,300 14,900 7,450
Transfers out
- (151,482) (2,718,189) (114,776)
Change in Net Position
(255,565) 3,624,672 3,597,448 2,823,556
Total Net Position - January 1, 2018, as restated
(Note 1)
7,572,758 49,319,132 52,843,147 83,607,067
Total Net Position - December 31, 2018
7,317,193$ 52,943,804$ 56,440,595$ 86,430,623$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
Steam
Other
Enterprise
Funds
Total
Enterprise
Funds
Governmental
Activities - Internal
Service Funds
Operating Revenues
Sales
-$ 512,783$ 37,940,712$ 2,085,914$
Charges for services
7,447,633 10,641,142 53,701,731 22,457,439
Fines and forfeits
- 744,676 744,676 -
Miscellaneous revenues
432,461 250,779 2,020,838 1,055,585
Total Operating Revenues
7,880,094 12,149,380 94,407,957 25,598,938
Operating Expenses
Cost of sales and services
- 238,408 20,969,806 1,965,134
Personal services
- 3,099,221 19,686,778 5,379,133
Supplies
2,917,194 413,916 5,533,571 42,540
Utilities
409,569 849,608 2,790,196 34,437
Other services and charges
3,434,712 4,035,120 21,962,428 2,931,260
Depreciation
1,235,611 1,298,860 8,360,016 64,934
Medical and insurance
- - - 15,982,311
Total Operating Expenses
7,997,086 9,935,133 79,302,795 26,399,749
Operating Income (Loss)
(116,992) 2,214,247 15,105,162 (800,811)
Nonoperating Revenues (Expenses)
Property taxes
- 751,231 751,231 -
Investment income
2,986 (323) (57,161) 118,292
Intergovernmental revenue
- - 48,567 5,835
Gain (loss) on sale or disposition of capital assets
(7,102) - 74,766 -
Interest and fiscal fees
(201,463) (220,699) (1,536,461) -
Total Nonoperating Revenues (Expenses)
(205,579) 530,209 (719,058) 124,127
Income (Loss) Before Contributions and Transfers
(322,571) 2,744,456 14,386,104 (676,684)
Capital contributions
5,095,641 406,214 5,602,117 -
Transfers in
- 32,188 742,265 -
Transfers out
(161,101) (1,951,620) (5,097,168) -
Change in Net Position
4,611,969 1,231,238 15,633,318 (676,684)
Total Net Position - January 1, 2018, as restated
(Note 1)
3,902,377 37,114,309 234,358,790 5,778,189
Total Net Position - December 31, 2018
8,514,346$ 38,345,547$ 249,992,108$ 5,101,505$
Amounts reported in business-type activities in the statement
of activities are different because:
Change in net position 15,633,318$
Adjustment to reflect the consolidation of internal service
fund activities related to enterprise funds (30,906)
Change in net position of business-type activities 15,602,412$
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
Priley Drive
Parking
Facility Water Gas Sewer
Cash Flows from Operating Activities
Cash received from customers 481,445$ 14,907,386$ 40,792,855$ 19,545,259$
Cash paid to suppliers (236,157) (3,876,339) (23,580,618) (11,013,765)
Cash paid to employees - (5,833,971) (8,021,100) (3,455,357)
Other operating revenues - 55,944 377,813 231,177
Net cash provided (used) by operating activities 245,288 5,253,020 9,568,950 5,307,314
Cash Flows from Noncapital Financing Activities
Transfers from other funds 543,427 144,300 14,900 7,450
Transfers to other funds - (151,482) (2,718,189) (114,776)
Property taxes - - - -
Operating grants - 16,919 28,949 8,283
Interfund financing - (376,543) (1,101,715) 1,495,782
Net cash provided (used) by noncapital financing activities 543,427 (366,806) (3,776,055) 1,396,739
Cash Flows from Capital and Related
Financing Activities
Capital grants and contributions - 28,893 88,283 541,684
Issuance of revenue bonds and notes - 4,010,287 - 122,314
Principal paid on bonds, notes and capitalized leases - (1,671,493) (697,055) (2,982,024)
Interest paid on bonds, notes and capitalized leases (575,335) (166,698) (87,749) (322,495)
Sale of capital assets - 31,960 25,316 21,322
Acquisition or construction of capital assets - (2,548,416) (3,596,112) (2,358,553)
Net cash provided (used) by capital
and related financing activities (575,335) (315,467) (4,267,317) (4,977,752)
Cash Flows from Investing Activities
Investment earnings (1,596) (34,007)
(20,943) (3,277)
Net increase (decrease) in cash and cash equivalents 211,784 4,536,740 1,504,635 1,723,024
Cash and cash equivalents - January 1, 2018 218,310 89,818 3,490,880 1,527,746
Cash and cash equivalents - December 31, 2018 430,094$ 4,626,558$ 4,995,515$ 3,250,770$
Reconciliation of operating income to net cash
provided (used) by operating activities:
Net operating income (loss) (297,331)$ 3,851,368$ 6,241,500$ 3,212,370$
Adjustments to reconcile net operating income(loss) to net
cash provided (used) by operating activities:
Depreciation 520,571 1,818,410 1,491,899 1,994,665
Change in assets and liabilities:
Decrease (increase) in receivables 24,357 66,413
1,346,930 86,779
Decrease (increase) in inventories - (249,953) (110,821) (25,325)
Decrease (increase) in prepaids (2,309) - (149,278) 339,232
Decrease
(
increase
)
in deferred pension obli
g
ation outflows - 1,000,706 1,278,406 532,694
Decrease (increase) in OPEB outflows - (671,232) - (457,219)
Increase (decrease) in payables - 511,373 613,583 67,337
Increase (decrease) in unearned revenues - 2,517 34,682 2,471
Increase
(
decrease
)
in deferred pension obli
g
ation inflows - (404,836) (474,850) (188,182)
Increase (decrease) in pension liability - (671,746) (703,101) (257,508)
Total adjustments 542,619 1,401,652 3,327,450 2,094,944
Net cash provided (used) by operating activities 245,288$ 5,253,020$ 9,568,950$ 5,307,314$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
Governmental
Activities -
Other Total Internal
Enterprise Enterprise Service
Steam Funds Funds Funds
Cash Flows from Operating Activities
Cash received from customers 7,602,338$ 12,020,667$ 95,349,950$ 25,495,846$
Cash paid to suppliers (6,952,154) (5,606,944) (51,265,977) (20,584,744)
Cash paid to employees - (3,298,883) (20,609,311) (5,379,329)
Other operating revenues 69,725 223,310 957,969 1,675
Net cash provided (used) by operating activities 719,909 3,338,150 24,432,631 (466,552)
Cash Flows from Noncapital Financing Activities
Transfers from other funds - 32,188 742,265 -
Transfers to other funds (161,101) (1,951,620) (5,097,168) -
Property taxes - 749,710 749,710 -
Operating grants - - 54,151 5,835
Interfund financing (17,524) 110,862 110,862 (87,989)
Net cash provided (used) by noncapital financing activities (178,625) (1,058,860) (3,440,180) (82,154)
Cash Flows from Capital and Related
Financing Activities
Capital grants and contributions 4,438,700 406,214 5,503,774 -
Issuance of revenue bonds and notes - - 4,132,601 -
Principal paid on bonds, notes and capitalized leases (650,000) (1,036,548) (7,037,120) -
Interest paid on bonds, notes and capitalized leases (171,265) (235,900) (1,559,442) -
Sale of capital assets - - 78,598 -
Acquisition or construction of capital assets (4,767,595) (1,978,961) (15,249,637) (16,850)
Net cash provided (used) by capital
and related financing activities (1,150,160) (2,845,195) (14,131,226) (16,850)
Cash Flows from Investing Activities
Investment earnings
2,986 (323) (57,160) 118,292
Net increase (decrease) in cash and cash equivalents (605,890) (566,228) 6,804,065 (447,264)
Cash and cash equivalents - January 1, 2018 605,890 7,634,707 13,567,351 12,304,271
Cash and cash equivalents - December 31, 2018 -$ 7,068,479$ 20,371,416$ 11,857,007$
Reconciliation of operating income to net cash
provided (used) by operating activities:
Net operating income (loss) (116,992)$ 2,214,247$ 15,105,162$ (800,811)$
Adjustments to reconcile net operating income(loss) to net
cash provided (used) by operating activities:
Depreciation 1,235,611 1,298,860 8,360,016
64,934
Change in assets and liabilities:
Decrease (increase) in receivables (195,866) 91,907 1,420,520 (108,349)
Decrease (increase) in inventories (26,426) (16,340) (428,865) 95,314
Decrease (increase) in prepaids (32,325) 247,420 402,740 -
Decrease
(
increase
)
in deferred pension obli
g
ation outflows - 667,375 3,479,181 311,270
Decrease (increase) in OPEB outflows - (256,905) (1,385,356) -
Increase (decrease) in payables (144,093) (31,059) 1,017,141 327,663
Increase (decrease) in unearned revenues - 21,103 60,773 -
Increase
(
decrease
)
in deferred pension obli
g
ation inflows - (308,690) (1,376,558) (130,578)
Increase (decrease) in pension liability - (589,768) (2,222,123) (225,995)
Total adjustments 836,901 1,123,903 9,327,469 334,259
Net cash provided (used) by operating activities 719,909$ 3,338,150$ 24,432,631$ (466,552)$
(continued)
The notes to the financial statements are an integral part of this statement.
Business-type Activities - Enterprise Funds
CITY OF DULUTH, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2018
Noncash Investing, Capital and Financing Activities
Water
Capital contributions are reported net of timing differences totaling $15,627 due to receivables.
Gas
Capital contributions are reported net of timing differences totaling $583 due to receivables.
Sewer
Capital contributions are reported net of timing differences totaling $540,980 due to receivables.
Steam
Capital contributions are reported net of timing differences totaling ($656,941) due to receivables.
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF FIDUCIARY NET POSITION
DECEMBER 31, 2018
Other
Postemployment
Benefits Agency
Trust Fund Fund
Assets
Cash and cash equivalents 40,429$ 2,698,525$
Receivables:
Loans - 330,489
Accounts receivable 297,136 -
Investments, at fair value:
Fixed income pool 15,718,629 -
Equity pool 40,348,499 -
Total Assets 56,404,693 3,029,014$
Liabilities
Accounts payable -$ 920$
Due to agency - 3,028,094
Total Liabilities - 3,029,014$
Net Position Restricted for postemployment benefits
other than pensions 56,404,693$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
OTHER POSTEMPLOYMENT BENEFITS TRUST FUND
FOR THE YEAR ENDED DECEMBER 31, 2018
Additions
Employer Contributions 11,678,484$
Investment earnings:
Interest and dividends 1,329,415
Net decrease in fair value of investments (3,170,583)
Less investment expenses (3,853)
Net investment earnings (1,845,021)
Total Additions 9,833,463
Deductions
Benefits 11,145,909
Net increase in net position (1,312,446)
Net Position - January 1, 2018 57,717,139
Net Position - December 31, 2018 56,404,693$
The notes to the financial statements are an integral part of this statement.
Net Position restricted for postemployment benefits other
than pensions
CITY OF DULUTH, MINNESOTA
STATEMENT OF NET POSITION
COMPONENT UNITS
DECEMBER 31, 2018
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 6,256,068$ 1,243,814$ 939,507$ 4,905,618$ 319,090$ 13,664,097$
Receivables, net:
Taxes 9,278 - - 10,268 - 19,546
Accounts 30,164 1,176,645 548,462 134,049 481,540 2,370,860
Loans 7,685,470 - - - - 7,685,470
Grants - - 216,720 - - 216,720
Due from primary government - 781,191 - - - 781,191
Due from other governments - - - 8,480,697 - 8,480,697
Inventories - 187,468 16,774 221,873 106,544 532,659
Prepaids - 54,286 48,957 151,989 129 255,361
Restricted assets:
Cash and cash equivalents - 1,650,629 144,000 - - 1,794,629
Accounts receivable - 9,895 73,118 - - 83,013
Grants receivable - - 3,794,691 - - 3,794,691
Planning and development costs - - 1,127,305 - 22,376 1,149,681
Capital assets, net:
Non-depreciable 4,047,931
905,601
4,065,601 222,367 2,556,044 11,797,544
Depreciable 9,743,608 82,357,562 116,090,092 47,284,420 15,597,330 271,073,012
Total Assets 27,772,519 88,367,091 127,065,227 61,411,281 19,083,053 323,699,171
Deferred Outflows of Resources
Deferred pension obligation outflows - 682,469 220,954 - 541,230 1,444,653
Liabilities
Accounts payable and other
short-term liabilities 215,578 529,639 155,233 8,566,897 320,754 9,788,101
Contracts payable -
- 558,886 - - 558,886
Accrued interest payable - - - - 1,939 1,939
Due to primary government 637,417 7,396 82 1,325 1,207,608 1,853,828
Due to other government 32,237 - - - 22,771 55,008
Unearned revenue - 871,667 62,745 106,177 796,611 1,837,200
Deposits - 1,645,587 - - - 1,645,587
Non-current liabilities:
Due within one year - 124,563 1,093,483 603,777 311,245 2,133,068
Due in more than one year - 4,995,027 12,725,500 - 2,809,166 20,529,693
Total Liabilities 885,232 8,173,879 14,595,929 9,278,176 5,470,094 38,403,310
Deferred Inflows of Resources
Deferred pension obligation inflows
- 1,055,179 344,808 - 513,101 1,913,088
Net Position
Net investment in capital assets 13,599,039 83,263,163 110,795,137 47,506,787 16,860,414 272,024,540
Restricted for:
Capital projects 5,868,946 - - 3,872,144 - 9,741,090
Unrestricted 7,419,302 (3,442,661) 1,550,307 754,174 (3,219,326)
3,061,796
Total Net Position 26,887,287$ 79,820,502$ 112,345,444$ 52,133,105$ 13,641,088$ 284,827,426$
The notes to the financial statements are an integral part of this statement.
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
COMPONENT UNITS
FOR THE YEAR ENDED DECEMBER 31, 2018
Operating Capital
Charges for Grants and Grants and
Functions/Programs
Expenses Services Contributions Contributions
Duluth Economic Development Authority
Governmental activities:
Economic development 6,477,722$ 2,731,315$ 1,743,764$ -$
Duluth Entertainment and Convention
Center Authority
Business-type activities:
Entertainment and convention facility 14,777,685 8,834,319 - 200,000
Duluth Airport Authority
Business-type activities:
Airport facility 14,825,063 6,342,691 - 9,533,827
Duluth Transit Authority
Business-type activities:
Public transportation 23,540,824 2,992,124 14,087,635 11,715,937
Spirit Mountain Recreation Area Authority
Business-type activities:
Ski hill operations 6,470,494 5,188,782 - 493,970
Total Component Units 66,091,788$ 26,089,231$ 15,831,399$ 21,943,734$
(continued)
The notes to the financial statements are an integral part of this statement.
Program Revenues
CITY OF DULUTH, MINNESOTA
STATEMENT OF ACTIVITIES
COMPONENT UNITS
FOR THE YEAR ENDED DECEMBER 31, 2018
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 (2,002,643)$ -$ -$ -$ -$ (2,002,643)$
Duluth Entertainment and Convention
Center Authority
Business-type activities:
Entertainment and convention facility - (5,743,366) - - - (5,743,366)
Duluth Airport Authority
Business-type activities:
Airport facility - - 1,051,455 - - 1,051,455
Duluth Transit Authority
Business-type activities:
Public transportation - - - 5,254,872 - 5,254,872
Spirit Mountain Recreation Area Authority
Business-type activities:
Ski hill operations - - - - (787,742) (787,742)
Total Component Units (2,227,424)
General Revenues:
Property taxes 2,750,981 - - 1,491,900 - 4,242,881
Sales taxes - 1,818,754 - - - 1,818,754
Investment income 56,022 28,262 41,796 89,732 - 215,812
Miscellaneous 374,715 513,510 - - 171,239 1,059,464
Total General Revenues and Transfers 3,181,718 2,360,526 41,796 1,581,632 171,239 7,336,911
Change in Net Position 1,179,075 (3,382,840) 1,093,251 6,836,504 (616,503) 5,109,487
Net Position - Beginning,
as restated (Note 1) 25,708,212 83,203,342 111,252,193 45,296,601 14,257,591 279,717,939
Net Position - Ending 26,887,287$
79,820,502$ 112,345,444$ 52,133,105$ 13,641,088$ 284,827,426$
The notes to the financial statements are an integral part of this statement.
Net (Expense) Revenue and Changes in Net Position
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, 2018
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
Change in Accounting Principles
53
2 Stewardship, Compliance, and Accountability
54
Budgetary Information
54
Federal Audit Requirements
54
Deficit Fund Equity
54
3 Deposits and Investments
55
Deposits
55
Investments
55
4 Property Taxes
59
5 Receivables
59
6 Deferred Inflows of Resources
59
7 Capital Assets
60
Primary Government
60
Component Units
61
8 Purchase and Construction Commitments
62
Disaster Damage Repair Commitments
62
9 Risk Management
62
10 Lease Obligations
63
Operating Leases
63
Noncancelable Operating Leases
63
Capital Leases
64
11 Short-Term Debt
64
12 Long-Term Debt
65
Changes in Long-Term Liabilities
65
Debt Requirements and Sources of Repayments
66
Debt Limit
69
Refunding Bond Issues
70
Bonds/Certificates and Notes Payable – By Issue
72
GUIDE TO NOTES
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
Note
Page
13 Fund Equity
75
14 Interfund Assets/Liabilities/Transfers
76
Due To/From Other Funds
76
Due To/From Primary Government/Component Units
76
Interfund Loan Receivables/Payables
77
Interfund Transfers
78
15 Pension Plans
79
Plan Description
79
Benefits Provided
79
Contributions
80
Pension Costs
80
Actuarial Assumptions
82
Discount Rate
83
Changes in Actuarial Assumptions
83
Pension Liability Sensitivity
83
Pension Plan Fiduciary Net Position
84
Defined Contribution Plan
84
Component Units' Pension Information
84
16 Other Postemployment Benefits
85
Plan Description
85
Funding Policy
85
Investments
85
Net OPEB Liability of the City
86
Changes in the Net OPEB Liability
86
Actuarial Methods and Assumptions
86
OPEB Expense and Deferred Outflows and Deferred Inflows
of Resources Related to OPEB
88
Trust Fund
88
Defined Contribution OPEB Plan
88
17 Segment Information
89
Condensed Statement of Net Position
89
Condensed Statement of Revenues, Expenses, and
Changes in Net Position
89
Condensed Statement of Cash Flows
90
18 Summary Disclosure of Significant Contingencies
90
Lake Superior Center
90
Tax Increment Districts
90
Federally Assisted Programs – Compliance Audits
90
Related Organization
90
Minneapolis-Duluth/Superior Passenger Rail Alliance
91
Tax Increment Assistance
91
Conduit Debt Obligations
92
19 Tax Abatement
92
GUIDE TO NOTES (continued)
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTIT
Y
DISCRETELY PRESENTED COMPONENT UNIT
S
Duluth Economic Develo
p
ment Authorit
y
Duluth Transit Authorit
y
411 West First Street Room 402 2402 West Michi
g
an Street
Duluth, MN 55802 Duluth, MN 55806
Duluth Entertainment and Convention Center Authorit
y
S
p
irit Mountain Recreation Area Authorit
y
350 South Fifth Avenue West 9500 S
p
irit Mountain Place
Duluth, MN 55802 Duluth, MN 55810
Duluth Air
p
ort Authorit
y
Duluth International Air
p
ort
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-lar
g
e. The term of office of the Ma
y
or and Council members is four
y
ears.
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
p
olicies are identified b
y
each com
p
onent 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
s
p
ecific financial benefits to
,
or im
p
ose s
p
ecific financial burdens on the Cit
y
.
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 A
p
ril 30
y
ear-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 Cit
y
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:
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
The Cit
y
re
p
orts the followin
g
ma
j
or
g
overnmental funds:
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
p
ro
p
erl
y
included amon
g
p
ro
g
ram revenues are re
p
orted as
g
eneral 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.
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 em
p
hasize that the
y
are le
g
all
y
se
p
arate from the Cit
y
.
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
eli
g
ibilit
y
re
q
uirements im
p
osed b
y
the
p
rovider 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 PRESENTATIO
N
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
p
a
y
ment is due.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
The Cit
y
re
p
orts the followin
g
ma
j
or
p
ro
p
rietar
y
funds:
A
dditionall
y
, the Cit
y
re
p
orts the followin
g
fund t
yp
es:
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 Cit
y
, or to other
g
overnmental units, on a cost reimbursement basis.
Internal Service Funds
Sewer Enterprise Fund
This fund accounts for the operation and maintenance of the sanitary sewer
s
y
stem.
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 annuall
y
to the General Fund.
Gas Enterprise Fund
This fund accounts for the distribution of natural gas, as well as inspection,
maintenance and servicin
g
of customer
g
as utilization e
q
ui
p
ment.
This fund accounts for the collection, treatment, and distribution of water.
Water Enter
p
rise Fund
Priley Drive Parking
Facilit
y
Enter
p
rise Fund
This fund accounts for the construction, operation, and maintenance of the
p
arkin
g
ram
p
located at 410 West First Street.
Agency Fund
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
p
lan.
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, 2018. 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
nono
p
eratin
g
revenues and ex
p
enses.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
CASH AND CASH EQUIVALENTS
A
SSETS HELD BY TRUSTE
E
RECEIVABLES AND PAYABLE
S
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 a
g
reement.
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 inter
g
overnmental
g
rants.
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
ex
p
enditures of the current fiscal
p
eriod.
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
Count
y
collects on the Cit
y
's behalf.
These assets are funds held pursuant to a self-insurance trust a
g
reement.
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
p
urchased
,
are considered to be cash e
q
uivalents. Investments are stated at fair value.
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 the
y
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.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
INVENTORIES AND PREPAID ITEM
S
RESTRICTED ASSETS
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
cate
g
or
y
: deferred amounts from debt refundin
g
, deferred
p
ension obli
g
ations, and OPEB obli
g
ations.
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 two types of items that qualify for reporting in this category: unavailable
revenue and deferred pension obligations. 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 the lower of cost or market 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 su
pp
lies which are on a
p
er
p
etual inventor
y
s
y
stem and are
p
riced usin
g
the movin
g
avera
g
e
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
inventor
y
and
p
riced at the lower of cost or market usin
g
the first-in
,
first-out method.
The inventory of the Duluth Airport Authority component unit consists of materials and supplies held for
consum
p
tion. The
y
are
p
riced at the lower of cost or market on a first-in, first-out method.
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.
Restricted assets consist of customer deposits, employee flexible benefits plan, sewer surcharges, bond
monies s
p
ecified for construction, and monies restricted for the
p
a
y
ment of bond
p
rinci
p
al and interest.
The City Council has authorized the Department of Public Works and Utilities to enter into cooperative
a
g
reements for the
p
ur
p
ose of
p
urchasin
g
and storin
g
natural
g
as for future use.
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.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
CAPITAL ASSETS
A
ssets Years
Buildin
g
s 10-75
E
q
ui
p
ment 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
p
roceeds received
,
are re
p
orted as debt service ex
p
enditures.
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 succeedin
g
y
ear.
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 ca
p
italized.
Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred
during the construction phase of capital assets of business-type activities is included as part of the capitalized
value of the assets constructed.
Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, trails,
and similar items) are reported in the applicable governmental or business-type activities columns in the
government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of
more than $5,000 for equipment, $50,000 for buildings and infrastructure, and all property which has an
estimated useful life in excess of five years. Such assets are recorded at historical cost or estimated historical
cost if
p
urchased or constructed. Donated ca
p
ital assets are recorded at ac
q
uisition value.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
FUND EQUIT
Y
RECLASSIFICATIONS
USE OF ESTIMATE
S
PENSIONS
For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension
expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA)
and additions to/deductions from PERA’s fiduciary net position have been determined on the same basis as
they are reported by PERA except that PERA’s fiscal year end is June 30. For this purpose, plan contributions
are recognized as of employer payroll paid dates, and benefit payments and refunds are recognized when due
and
p
a
y
able in accordance with the benefit terms. Plan investments are re
p
orted at fair value.
Restricted - amounts to be used for specific purposes as determined by enabling legislation or imposed by
g
rantors or debt covenants.
In the fund financial statements,
g
overnmental funds report the followin
g
fund balance classifications:
Committed - amounts to be used for specific purposes as determined by Council resolution. The City's formal
actions, or board resolutions, are the highest decision making level and remain binding unless removed in the
same manner.
Assigned - amounts intended to be used for certain purposes as determined by Council resolution or by joint
action by the Chief Administrative Officer and Chief Financial Officer pursuant to the City’s Fund Balance
Re
p
ortin
g
and Governmental Fund T
yp
e Definitions Polic
y
.
Unassigned - residual balances in the General Fund that have not been restricted, committed or assigned.
Other governmental funds may report a negative unassigned fund balance should the total of nonspendable,
restricted
,
and committed fund balances exceed the total net resources of the fund.
It is the City's policy to use restricted resources first and then unrestricted resources as needed. When
unrestricted resources are available for use, it is the City's policy to use resources in the following order; first
committed, then assigned, and finally unassigned. Fund balance commitments may be established, modified, or
rescinded b
y
Council resolution.
Several account balances were reclassified for the year ended December 31, 2018, as previously reported.
These reclassifications were required for the comparability to the current year's financial statements and must
be considered when com
p
arin
g
the financial statements of this re
p
ort with those of
p
rior re
p
orts.
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Nonspendable - amounts that cannot be spent because they are not in spendable form or that are legally or
contractuall
y
re
q
uired to be maintained intact.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(
continued
)
Governmental Business-t
yp
e Com
p
onent
Statement of Activities
A
ctivities
A
ctivities Units
Net Position, January 1, 2018, as previously reported 174,562,057$ 243,664,588$ 281,961,082$
Change in accounting principles (68,324,109) (5,415,453) (2,243,143)
Net Position, January 1, 2018, as restated 106,237,948$ 238,249,135$ 279,717,939$
Amount
Net Position, January 1, 2018, as previously reported 239,774,243$
Change in accounting principles (5,415,453)
Net Position, January 1, 2018, as restated 234,358,790$
Amount
Fund Balance, January 1, 2018, as previously reported 6,732,027$
Change in accounting principles (3,651,758)
Fund Balance, January 1, 2018, as restated 3,080,269$
CHANGE IN ACCOUNTING PRINCIPLES
The above restatement had the followin
g
impact on previousl
y
reported balances.
Statement of Revenues, Expenses, and Changes in Fund
Balances - Duluth Economic Development Authority
Statement of Revenues, Expenses, and Changes in Fund
Net Position - Proprietary Funds
During the year ended December 31, 2018 the City changed its accounting for long-term loans receivable in the
DEDA Loan Programs fund. This change is due to clarifying guidance from GASB regarding long-term
receivables and is based on guidance found in GASB Statement 65, Items Previously Reported as Assets and
Liabilities. The long-term portion of loans receivable was removed from fund balance and is now reported as a
deferred inflow of resources.
During the year ended December 31, 2018, the City adopted new accounting guidance by implementing the
provisions of GASB Statement 75. GASB Statement No. 75, Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions, replaces the requirements of Statements No. 45, Accounting
and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions , as amended, and
No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans . GASB Statement No.
75 changes the amount employers reports as OPEB expense and defers some allocations of expenses to future
years as deferred outflows or inflows of resources. This statement also requires additional note disclosures and
schedules in the required supplementary information.
The above restatement had the followin
g
impact on previousl
y
reported balances.
Notes
CITY OF DULUTH, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2018
2.
BUDGETARY INFORMATION
FEDERAL AUDIT REQUIREMENTS
DEFICIT FUND EQUIT
Y
The Single Audit Act requires the City to have a single, independent audit of its financial operations, including
compliance with certain provisions of federal law and regulations. This audit requirement was complied with for
fiscal year ended December 31, 2018. An auditor's report on compliance and internal accounting control will be
issued at a later date.
The following special revenue funds had deficit fund balances due to grants earned but not received within 45
days of the end of the current fiscal year: Disaster Recovery - $2,471,977, Home Investment Partnerships
Program - $27,559, and Senior Employment - $7. These deficits will be eliminated upon receipt of the grant funds.
The Lake Superior Zoo deficit fund balance of $410,992 will be eliminated through operational changes and
efficiencies.
The Special Assessment capital project fund had a deficit fund balance of $219,548 at the end of the current
fiscal
y
ear which will be eliminated throu
g
h future financin
g
and
g
rant receipts
.
The following internal service funds had deficit net positions at the end of the current fiscal year which will be
eliminated throu
g
h future char
g
es: Emplo
y
ee Vacation Compensation - $20,626 and Fleet Services - $911,805
The Golf enterprise fund had a deficit net position of $1,050,903 at the end of the current fiscal year which will be
eliminated through operational changes and efficiencies.
STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY
The budget is adopted on a basis consistent with generally accepted accounting principles, except that
encumbrances are treated as budgeted expenditures in the year in which the commitment to purchase is made,
and new ca
p
ital leases are not bud
g
eted.
By mid-September, the Mayor must submit a proposed budget to the City Council for its consideration and
approval. The Council meets with the various operating departments and component units to review their budget
requests. In December, a public hearing is held to discuss the proposed tax levy and budget. The Council must
then ado
p
t a final bud
g
et before
y
ear-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 10% of that
budget item must be approved by the City Council. The budget ordinance allows the budget to be increased for
reimbursements received for damages or repairs to city property or work done for others and not anticipated in
the original budget. It also allows for grants accepted by city council resolution to be added to the budget. Finally,
the budget ordinance requires that use of the General Fund's fund balance that has been assigned in a