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CITY OF PEQUOT LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) City-Wide Statements (Continued) The two City-wide statements report the City's net position and how they have changed. Net position — the difference between the City's assets, deferred outflows, deferred inflows and liabilities — is one way to measure the City's financial health or position. ♦ Over time, increases or decreases in the City's net position are an indicator of whether its financial position is improving or deteriorating, respectively. ♦ To assess the overall health of the City, you need to consider additional non-financial factors such as changes in the City's property tax base and the condition of City buildings and other facilities. In the City-wide financial statements the City's activities are shown in two categories: ♦ Governmental activities — The City's basic services are included here. Property taxes, special assessments and state aids finance most of these activities. ♦ Business-type activities — The City's enterprise fund operations are included here. Charges for services finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the City's funds—focusing on its most significant or "major" funds — not the City as a whole. Funds are accounting devices the City uses to keep track of specific sources of funding and spending on particular programs: ♦ Some funds are required by state law and by bond covenants. ♦ The City establishes other funds to control and manage money for particular purposes (e.g., repaying its long-term debts) or to show that it is properly using certain revenues (e.g., federal grants). The City has two kinds of funds: ♦ Governmental funds — The City's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps to determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the City-wide statements, we provide additional information after the governmental funds statements that explain the relationship (or differences) between them. ♦ Proprietary funds — The City reports two proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer utilities. Proprietary fund financial statements provide the same type of information as the government- wide financial statements, only in more detail. (8)