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CITY OF PEQUOT LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014 This section of the City of Pequot Lakes' (City) annual financial report presents our discussion and analysis of the City's financial performance during the fiscal year that ended on December 31, 2014. The Management's Discussion and Analysis (MD&A) is an element of Required Supplementary Information specified in the Governmental Accounting Standard Board's (GASB) Statement No. 34 Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments. Certain comparative information between the current year, 2014 and the prior year, 2013 is required to be presented in the MD&A. FINANCIAL HIGHLIGHTS Key financial highlights for 2014 include the following: ♦ City-wide net position increased 2 percent over the prior year. The primary reason for the increase is due to additional operating grants, investment earnings and miscellaneous revenues received. ♦ Overall, governmental fund-level revenues totaled $2,282,084 and were $610,655 less than expenditures before other financing sources. This excess of expenditures over revenues is due to increases in capital outlay. - ♦ The General Fund's fund balance decreased $33,793 (2 percent) from the prior year due mainly to an increase in capital outlay expenditures relating to culture and recreation. • The Fire Department Fund's fund balance decreased $46,007 (27 percent) from the prior year due mainly to an increase in capital outlay expenditures. ♦ The Water Enterprise Fund's net position increased $29,004 (3.8 percent) from the prior year due to charges for services in excess of operating costs. The Sewer Enterprise Fund's net position increased $115,702 (8 percent) from the prior year due to charges for services in excess of operating costs. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual report consists of four parts— Independent.Auditors' Report, required supplementary information which includes the management's discussion and analysis (this section), the basic financial statements, and supplementary information. The basic financial statements include two kinds of statements that present different views of the City: ♦ The first two statements are City-wide financial statements which provide both short-term and long-term information about the City's overall financial status. ♦ The remaining statements are fund financial statements which focus on individual parts of the City, reporting the City's operations in more detail than the City-wide statements. o The governmental funds statements tell how basic services such as general government, public safety, and highways and streets were financed in the short term, as well as what remains for future spending. (5)