1

Quarterly Financial ReportAS OF DEC. 31, 2018

CITY OF EDINA

INSIDE THIS ISSUE: General Fund Expenditures by Department ............................................ 2

Utility Fund Revenues and Expenses .... 3

Liquor Fund Revenues and Expenses ... 4

Parks & Recreation Enterprise Funds .. 5

Cost Recovery ............................................. 8

Investments ................................................... 9

Debt ................................................................ 10

General Fund Revenue and Expenditures• TAXES – Property taxes are the primary revenue source and are received in June and

December.

• LICENSES & PERMITS – Increase versus prior year due to construction deposits tracked in this account throughout the year and reclassed for year end financials (approximately $1M). Additional $500k in permits (building, plumbing and mechanical) versus prior year.

• CHARGES FOR SERVICES – Decrease versus prior year is due to ambulance fees and engineering fees. Transition to new ambulance billing service has temporarily delayed collections. Engineering fees due to year-end reclass of staff time toward projects.

• INVESTMENT INCOME – Investment income is recorded in this account throughout the year and allocated out for final financials. At this time last year, investment income was $700k.

• SALES & RENTAL OF PROPERTY – Increase compared to prior year due to sale of Xerxes Avenue property and Hennepin County payment for two years of tower rental.

• OTHER REVENUE – Increase is due to Edina Baseball Association (new lights) and Hennepin County donations (park maintenance).

• This view illustrates the net Central Services. Throughout the year, departments are charged a budgeted rate for Central Services with a true-up to actual expenses at year end.

2018 results are preliminary. Year-end accruals and final adjustments are performed in conjunction with the annual audit.

2

CITY OF EDINAGeneral Fund Expenditures by Department

• HUMAN RESOURCES – Impacted by the amount of severance in any given year. 2018 has $446k of severance due to long-term employee retirements versus a budget of $200k and prior year of $227k.

• PUBLIC WORKS – Increase over prior year is in Personal Services (snow and ice removal) and Commodities (blacktop and salt).

• ENGINEERING – Less than budget due to Personal Services and Contractual Services, but consistent with prior year.

• POLICE – Increase is due to additional staff in response to growing workloads and requests for services, staff movement (e.g., retirements, replacements) as well as annual salary and benefit increases.

3

CITY OF EDINAUtility Fund Revenues and Expenses• Water, Sewer and Storm Sewer fees increased 5%, 4% and 7%, respectively in 2018 over 2017.

• Water Rec Fee and Sewer Rec Fee are dependent upon the number of new connections. The number of SAC/WAC units decreased from 591 in 2017 to 438 in 2018.

• Contractual Services will have additional year-end expense adjustments for Construction in Progress. Prior year was $215k.

• Disposal Charges is Metro sewer service. Year-end adjustments will move approximately $450k to prepaids.

• Depreciation due to addition of completed projects.

• Total Contribution and transfers represent State Aid Construction of $904k in 2017 for Valley View Road and Tracy Avenue. No state aid is expected for the Utility Fund in 2018.

4

CITY OF EDINALiquor Fund Revenues and Expenses

• Inventory has increased from $1.2M in 2017 to $1.8M in 2018 to take advantage of select vendor year-end pricing deals.

• Change in accounting for 2018 to record cost of goods sold at actual average cost per item sold. In prior years, CGS represented inventory purchases throughout the year with a true-up at year end. Thus, quarterly CGS and margins were based only upon purchases, not reflecting an accurate cost of goods sold or margins. For 2017 versus 2018, only full year cost of goods sold and margins are comparable.

• Revenues are up $410k or 3%.

• Total gross margin is 30% compared to industry average of 25% (2017) and 27.3% for metro area liquor store operations (2017).

• 2018 shrink is 2.1% compared to an industry average of 2.7% for all retail.

Braemar Arena and Field• Utilization represents hours scheduled out of total hours available. Prime versus nonprime

is dependent upon the time of day and time of year.

• Ice rental is showing as preliminarily unfavorable because receivables have not yet been recorded for year end. Anticipate flat revenue to 2017.

• Building Rental favorable due to Ice Arena $97k and Sports Dome $15k. Increase at Ice Arena due to collection of back rent; increase at Dome due to inclement weather in Spring 2018.

• Contractual expenses are higher versus prior year due to additional south arena ice repairs this year.

Braemar Golf Course and Dome• The regulation golf course was closed in 2017 and 2018. Increase in revenue year over

year is mainly due to the golf dome benefiting from a late spring arrival. The new Pro Shop opened in May 2018.

• Cost of goods sold includes, not only Pro Shop, but also wine/beer, soda and snacks while the restaurant was closed.

• 2017 Personal Services was reduced by $200k for grow-in.

5

CITY OF EDINAParks and Recreation Enterprise Funds

6

CITY OF EDINA

Edinborough Park• Slight decreases year over year in General Admissions, Birthday Rental, Concessions and

Season Tickets is contributed to increased competition in the metro area (i.e., new facilities in Golden Valley, Shakopee and New Brighton).

• In 2017, the City collected $100k in back association fees.

• For increased visibility, pool revenue was moved to Other Rental in 2018 from “Other < $25k” in prior year.

Aquatic Center• While the number of season passes declined from 2017 to 2018, revenue increased slightly

due to the increase in prices (for example, an individual resident season ticket increased from $57.35 to $66.00). Beginning of the 2018 season was not condusive to pool weather, which may have impacted the switch from season passes to daily admissions.

• General Admission revenue is up due mostly to an increase in the number of daily admissions, and partially due to a slight price increase ($10.50 to $10.75).

Centennial Lakes• In 2018, the City collected $80k in unpaid association fees.

• Other revenue at Centennial Lakes is dependent upon the weather.

Art Center• Historically tracked only the number of class registrations, but classes differ in length and

price due to the number of instructional hours and price per hour. Going forward, the number of instructional hours will be tracked to better match revenues.

• Personal Services are lower in 2018 due to staff turnover and periods of open positions.

CITY OF EDINA

7

CITY OF EDINA

8

Cost RecoveryCost recovery percentages indicate a facility’s ability to cover operating expenses. In 2018, the City established two cost recovery calculations. The first calculation, Total cost recovery (Total CR) represents all operating revenue/operating expenses. The second calculation, Management cost recovery (Mgmt CR) adjusts the total operating expenses to exclude depreciation, central services, water/storm/sewer. Initial 2018/2019 targets have been established based upon three years of historical data. Targets will be set with each budgeting cycle as an approximate expectation of annual results.

9

CITY OF EDINA

– 4M: MN Municipal Money Market Fund sponsored by the League of MN Cities. The City uses this fund to manage bond proceeds to ensure compliance with IRS regulations. Funds from the 2017A, 2017B, and 2018A are included in this account at year end. These bonds were issued to fund road reconstruction projects and the new golf course. As construction continues, the balance in this account will decrease.

– HRA Series 2009A Bonds: The City owns the 2019 through 2028 maturities of the $1.52M Public Project Revenue Bonds, Series 2009A.

– Tradition Capital Bank: A 1-year $245,000 FDIC insured Certificate of Deposit.

– US Bank (Sweep): City’s main checking account at US Bank. Funds not required to clear checks is automatically “swept” into a money market account. The balance in this account changes daily based on the amount of checks outstanding. Biweekly payroll is also taken out of this account.

– US Bank 2023 (Securian): Securian is the City’s outside investment manager replacing Nuveen in January 2018. They oversee a $20 million portfolio. These securities are held in a custodian account at US Bank. Funds in this account are not needed for cash flow and can be invested in longer maturities. The benchmark for this portfolio is a combination of the Bloomberg Barclays U.S. Intermediate Government Bond Index and the Bloomberg Barclays U.S. Mortgage Backed Securities Index. Allowable investments include U.S. Treasuries and Agencies up to (but not including) 10 years and agency mortgage backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

– US Bank 2023A: This account is managed internally. The City uses a network of four institutional brokers who recommend securities in compliance with our Investment Policy. Funds in this account are managed primarily for cash flow purposes.

InvestmentsAt the end of the 4th quarter, the City’s investment portfolio totaled $95 million. The portfolio has benefitted from the increase in short-term interest rates. One example of this is the earnings rate on the City’s money market which has increased from 0.66% in 2017 to the current rate of 2.27%. This has helped the internally managed portfolio generate total income of $919k, which is an increase of $374k over last year at this time. Since most of the internally held securities have maturities less than 3 years, the portfolio is positioned to take advantage of any future rate hikes.

The following is a breakdown of total investments by custodian:

The following represents the total investment pool by sector:

Following represents the same data but only for the internally managed piece under custodianship of US Bank:

10

CITY OF EDINAThe following are quarterly investment results against a comparable benchmark. The internal and external portfolios have different investment strategies. The internal portfolio is intended to remain sufficiently liquid to enable the City to manage daily City cash flow as well as debt payments. At the end of 2018, the average days to maturity for the internal portfolio is 496 days (or 16.5 months), excluding the money market account. Maturities range from one day (money market) to five years. The one year US Treasury bill reflects the future return of the investment compared to the actual return reported for the internal portfolio. While the amounts should trend in the same direction, the internal portfolio is expected to lag behind the benchmark rates.

The external portfolio has longer term investment options to optimize return within our investment policy. This portfolio’s benchmark is the Bloomberg Barclays Intermediate US Government/Mortgage Index, which represents an investment pool including U.S. Treasuries and Agencies up to (but not including) 10 years and agency mortgage backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). At the end of 2018, the average age to maturity for the external portfolio is 11 years with maturities ranging from March 2019 to August 2048. The later maturities represent mortgage backed securities. Early results have been impacted by the transition from one investment manager to another and from rising interest rates. As shown in Q4, returns have improved.

Detail reports by investment are available upon request.

DebtBelow represents the City’s annual debt service requirements to maturity for existing bonds. The 2019 – 2023 Capital Improvement Plan calls for total capital spending of about $143 million, of which debt will account for roughly $70 million. Of that total, $47 million is for utility infrastructure including a new water treatment plant payable from utility revenues and $23 million for street reconstruction projects payable from special assessments assessed to benefitting properties. The term of the bonds range from 10 to 15 years depending on the project.

Q1 Q2 Q3 Q4

Externally Managed (0.14) 0.16 (0.08) 2.07

BBARC Int Gov/Mtg (0.55) 0.15 (0.11) 2.16

NOTES – Go Bonds: obligations which

pledge the full faith and credit of the municipality to their payment. This currently represents refunding bond issues.

– Public Project Revenue: represent the 2009A (Public Works facility), 2014A and 2015A HRA bonds

– EEEP SA Revenue: 2012 Edina Emerald Energy Program

– GO PIR Bonds: used to finance any public improvement that may be specially assessed under Chapter 429; the most common include roads, water improvements and sewer improvements

– Revenue Bonds: obligations for which the City promises to pay principal and interest only from a specific revenue source such as utilities and other enterprises (Braemar Golf Course, Aquatic Center, etc.)

Q1 Q2 Q3 Q4

Internally Managed 2.08 1.46 2.32 1.71

1 yr US T-bill 1.83 2.08 2.34 2.60