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<br />Parkers Prairie Office: <br />13979 County Highway 42 <br />Parkers Prairie, MN 56361 <br /> (612)920-3320 ext. 110 | fax (612) 605-2375 <br />www.daviddrown.com <br />DDA <br />David Drown Associates, Inc. <br />Public Finance Advisors <br /> <br /> <br /> <br />August 11, 2017 <br /> <br /> <br />Ms. Nancy Adams, Mayor <br />Ms. Nancy Malecha, City Administrator/Clerk <br />4638 County Road 11 <br />Pequot Lakes, MN 56472 <br /> <br /> <br />RE: Summary of 2017 Capital Improvements / Water & Sewer Rate Analysis <br /> <br />Honorable Mayor Adams, Members of the City Council, and Ms. Malecha: <br /> <br />On Tuesday, July 11, 2017 our firm conducted a capital financial planning and water/sewer rate workshop <br />with the City Council. The purpose of that workshop was to assist the City with developing an understanding <br />of the City’s financial condition and to provide a tool to evaluate the feasibility of future capital improvement <br />projects and the impact of those on utility rates. This letter summarizes the major findings and conclusions <br />we reached at that presentation. <br /> <br />Current Financial Condition – A Comparative Analysis (See Tab 1 for associated exhibits) <br />One good way to develop an understanding, or “feeling”, for the financial condition of a City is to select <br />several financial measures and compare them with those of similar cities. For Pequot Lakes, we looked at <br />several surrounding cities, along with a few similar-sized, lake communities in the central region of <br />Minnesota. Our findings were as follows: <br /> <br /> Pequot Lakes has consistently maintained strong General Fund reserves: Over the past three <br />years the City has maintained well over the 6 months’ worth of reserves in its General Fund. This is <br />a strong credit factor for the City and could help protect it from fluctuations in the economy and local <br />government aid. During the last three years, the City has consistently enjoyed a General Fund <br />balance that represented over 69% of General Fund expenditures. Many cities struggle to maintain <br />a 50% level. <br /> <br /> Lower LGA funding: Due to the economic strength of Crow Wing County and the Brainerd/Baxter <br />area, Pequot Lakes collects a significantly lower amount of Local Government Aid than the average <br />of the comparison group. As a result, the City understandably has a slightly higher net levy versus <br />the comparable cities. <br /> <br /> Smaller tax base: The City is faced with the challenge of having a smaller tax base than the <br />comparable average. <br /> <br /> Pequot Lakes has a lower tax rate: Despite the higher net levy, the City enjoys a lower tax rate <br />than the comparable cities! When we consider the fact that Pequot Lakes receives a below average <br />amount of LGA and has a smaller tax base, this is very impressive. <br /> <br /> Low Median Household Income: Compared to the average, the City has a lower median <br />household income. Due to the lower wealth level of the community, having a lower tax rate is of <br />great benefit to the existing taxpayers. <br /> <br /> Very Low Debt per Capita: The City enjoys a debt per capita ratio under $1,000. Many credit <br />rating agencies would categorize City’s debt level as “very low”, which is likely one of the reasons